U.S. v. Brodie

• Decision Date: 12 April 2005
• Docket Number: No. 02-2662.,02-2662.
• Citation: 403 F.3d 123
• Parties: UNITED STATES OF AMERICA, Appellant v. Stefan E. BRODIE.
• Court: U.S. Court of Appeals — Third Circuit

Page 123

403 F.3d 123

UNITED STATES OF AMERICA, Appellant v. Stefan E. BRODIE.

No. 02-2662.

United States Court of Appeals, Third Circuit.

Argued October 26, 2004.

April 12, 2005.

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Joseph G. Poluka (Argued), Office of United States Attorney, Philadelphia, PA, for Appellant.

Gregory B. Craig (Argued), William T. Burke, Williams & Connolly, Washington, DC, for Appellee.

Before MCKEE, FISHER, and BECKER, Circuit Judges.

OPINION OF THE COURT

FISHER, Circuit Judge.

Defendant Stefan E. Brodie was found guilty by a jury of conspiring to trade with Cuba in violation of the American Cuban embargo currently in place under the provisions of the Trading with the Enemy Act of 1917 ("TWEA") and the Cuban Assets Control Regulations ("CACRs"). The United States District Court for the Eastern District of Pennsylvania, ruling on a previously reserved motion for judgment of acquittal, thereafter acquitted the Defendant on the ground that there was insufficient evidence of his knowing and willful participation in the charged conspiracy to support conviction. United States v. Brodie, 268 F.Supp.2d 408 (E.D.Pa.2002). After reviewing the government's evidence against the Defendant, we conclude that the District Court erred in entering the judgment of acquittal, and accordingly, we vacate the judgment, reinstate the jury verdict, and remand for further proceedings which may, on the present record, include a new trial.

I. BACKGROUND

A. The American Cuban Embargo

The backdrop for this appeal is the American Cuban embargo against trading with Cuba which derives in the first instance from the TWEA, 50 U.S.C.App. § 1 et. seq. The TWEA as originally enacted dealt only with the President's use of economic powers in times of war, but was expanded in 1933 to deal with national emergencies that arose during peacetime. See Regan v. Wald, 468 U.S. 222, 226 n. 2, 104 S.Ct. 3026, 82 L.Ed.2d 171 (1984). Section 5(b) of the TWEA, in pertinent part, authorizes the President, through a designated agency, to "investigate, regulate, ... or prohibit ... transactions involving, any property in which any foreign country or a national thereof has any interest, by any person, or with respect to any property, subject to the jurisdiction of the United States." 50 U.S.C.App. § 5(b)(1)(B).¹ Section 16, in turn, criminalizes willful violation of any "order of the President issued in compliance with the provisions of th[e TWEA]." 50 U.S.C.App. § 16. Presidential authority under the TWEA has been delegated to the Secretary of the Treasury, who has in turn delegated that authority to the Office of Foreign Assets Control ("OFAC"). See Regan, 468 U.S. at 226 n. 2, 104 S.Ct. 3026 (citing Exec. Order No. 9193, 3 C.F.R. 1174, 1175 (1942) and Treasury Department Order No. 128 (Rev.1, Oct. 15, 1962)). In 1963, the CACRs were promulgated pursuant to TWEA Section 5(b) to impose an embargo against Cuba in an effort "to deal with the peacetime emergency created by Cuban attempts to destabilize governments throughout Latin America." Regan, 468 U.S. at 226, 104 S.Ct. 3026. The CACRs incorporated and expanded upon prior economic sanctions already imposed against Cuba. See id. at 226 & n. 4, 104 S.Ct. 3026.

Of particular importance to this appeal is CACR § 515.201(b) which provides:

(b) All of the following transactions are prohibited except as specifically authorized by the Secretary of the Treasury (or any person, agency, or instrumentality designated by him) by means of regulations, rulings, instructions, licenses, or otherwise, if such transactions involve property in which any foreign country designated under this part,[²] or any national thereof, has at any time on or since the effective date of this section had any interest of any nature whatsoever, direct or indirect:

(1) All dealings in, including, without limitation, transfers, withdrawals, or exportations of, any property or evidences of indebtedness or evidences of ownership of property by any person subject to the jurisdiction of the United States; and

(2) All transfers outside the United States with regard to any property or property interest subject to the jurisdiction of the United States.

See 31 C.F.R. § 515.201(b) (2005); see also 31 C.F.R. § 515.201(b) (1992); 31 C.F.R. § 515.201(b) (1993); 31 C.F.R. § 515.201(b) (2000). As CACR § 515.201(b) suggests, business transactions involving Cuba may be specifically authorized by OFAC; here, however, it is uncontested that no such authorization was ever obtained for the business transactions that gave rise to the underlying prosecution.

The phrase "person subject to the jurisdiction of the United States" as used in CACR § 515.201(b) is defined in CACR § 515.329, 31 C.F.R. § 515.329, which provided, at the time the conspiracy charged in this case was allegedly in effect:

The term `person subject to the jurisdiction of the United States' includes:

(a) Any individual, wherever located, who is a citizen or resident of the United States;

(b) Any person within the United States as defined in § 515.330;

(c) Any corporation organized under the laws of the United States or of any State, territory, possession, or district of the United States; and

(d) Any corporation, partnership, or association, wherever organized or doing business, that is owned or controlled by persons specified in paragraphs (a) or (c) of this section.

31 C.F.R. § 515.329 (1993) (emphasis added); see also 31 C.F.R. § 515.329 (2000); 50 Fed.Reg. 27435 (July 3, 1985).³ The critical phrase "owned or controlled" in CACR § 515.329(d) is not defined in the CACRs, but notably, the CACRs have included a broad "person subject to the jurisdiction of the United States" feature from their inception. See 28 Fed.Reg. 6974, 6978 (July 9, 1963) (CACR § 515.329).

The effect of the prohibition against entities "owned or controlled by persons specified in [31 C.F.R. § 515.329(a) or (c)]" from undertaking any of the transactions prohibited by CACR § 515.201(b), was substantially muted in prior years by a regulatory exemption permitting foreign subsidiaries of companies owned or controlled by American citizens to trade with Cuba under certain conditions, as well as liberal application of the licensing provision by OFAC. See 31 C.F.R. § 515.559 (1975); 40 Fed.Reg. 47108 (Oct. 8, 1975).⁴ See also Ralph H. Folsom, 1 INT'L BUS. TRANS. § 18.4 (2d ed.2004); Harry L. Clark, "Dealing with U.S. Extraterritorial Sanctions and Foreign Countermeasures," 20 U. PA. J. INT'L ECON. L. 61, 66 & n. 14 (Spring 1999); John Ellicott, "Between a Rock and a Hard Place: How Multinational Companies Address Conflicts Between U.S. Sanctions and Foreign Blocking Measures," 27 STETSON L.REV. 1365, 1368 (Spring 1998). Thus, in the latter part of the 1970's and throughout the 1980's, "U.S. subsidiaries abroad developed significant trade with Cuba." 1 INT'L BUS. TRANS. § 18.4.

In 1992, Congress enacted the Cuban Democracy Act, Act of Oct. 23, 1992, 106 Stat. 2575, codified at 22 U.S.C. §§ 6001-6010, which, inter alia, rescinded OFAC's authority to issue licences for the export of goods to Cuba by "persons subject to the jurisdiction of the United States." See 22 U.S.C. § 6005(a) (popularly known as the "Mack Amendment"). See also Clara David, "Trading With Cuba: The Cuban Democracy Act and Export Rules," 8 FLA. J. INT'L Law 385 (Fall 1993) (author, then a licensing officer for OFAC, stating that the Cuban Democracy Act eliminated the prior exemption to the Cuban embargo for trade by foreign subsidiaries of American firms). The Cuban Democracy Act took effect on October 23, 1992, and the CACRs were subsequently amended to reflect the Act's strict provisions. See 31 C.F.R. § 515.559 (1993).⁵ In March 1996, Congress further strengthened the American Cuban embargo by enacting the LIBERTAD. Pub.L. No. 104-114, 110 Stat. 785 (1996), codified at 22 U.S.C. §§ 6021-6091 (also known as the "Helms-Burton Act"). The LIBERTAD mandates that the American Cuban embargo, including all restrictions imposed by the CACRs, "remain in effect" unless and until the embargo is suspended or terminated in accordance with statutory procedures. 22 U.S.C. § 6032(h) (cross-referencing 22 U.S.C. § 6064 ("Termination of the economic embargo of Cuba")). Such procedures, in turn, make suspension or termination of the embargo contingent upon a change of political power in Cuba. See 22 U.S.C. § 6064; see also 22 U.S.C. § 6065. Numerous countries, including the European Union, Canada and Mexico, reacted to the strengthening of the American Cuban embargo, and its purported application to American subsidiaries abroad, by enacting countermeasures (often called "blocking statutes" or "blocking orders"). See, e.g., Clark, "Dealing with U.S. Extraterritorial Sanctions," 20 U. PA. J. INT'L ECON. L. at 81-87.⁶ With this background, we turn now to the present appeal.

B. The Indictment

The Defendant Stefan E. Brodie and his brother Donald B. Brodie ("Don Brodie") were co-owners of The Bro-Tech Corporation, an entity incorporated in Delaware, which manufactured and sold ion exchange resins for industrial use in water purification under the trade name "The Purolite Company." The Bro-Tech Corporation was headquartered in Bala Cynwyd, Pennsylvania, and had a manufacturing plant and warehouse facility located in Philadelphia, Pennsylvania. The Defendant was the president of The Bro-Tech Corporation; his brother Don Brodie was the vice-president. Purolite product was sold by salesmen operating from sales offices located throughout North America, including one in Ontario, Canada ("Purolite Canada") from which James E. Sabzali ("Mr.Sabzali"), a Canadian citizen, worked from approximately 1990 to 1995 until promoted to a marketing position based in the Bala Cynwyd office.

The Defendant, Don Brodie and The Bro-Tech Corporation owned, in approximately 1/3 shares, another corporation known as Bro-Tech Limited, which was incorporated in...