U.S. v. Demauro

• Decision Date: 20 July 1978
• Docket Number: D,No. 644,644
• Citation: 581 F.2d 50
• Parties: UNITED STATES of America, Appellee, v. Paschal DEMAURO, Defendant-Appellant. ocket 77-1463.
• Court: U.S. Court of Appeals — Second Circuit

Page 50

581 F.2d 50

UNITED STATES of America, Appellee, v. Paschal DEMAURO, Defendant-Appellant.

No. 644, Docket 77-1463.

United States Court of Appeals Second Circuit.

Argued Feb. 8, 1978.

Decided July 20, 1978.

Milton S. Gould, New York City (Shea Gould Climenko & Casey, Michael Lesch, Richard F. Czaja, New York City, of counsel), for defendant-appellant.

Lawrence B. Pedowitz, Asst. U. S. Atty., New York City (Robert B. Fiske, Jr., U. S. Atty. for the Southern District of New York, Robert J. Jossen, Asst. U. S. Atty., New York City, of counsel), for appellee.

Before FEINBERG, MANSFIELD, and Van GRAAFEILAND, Circuit Judges.

MANSFIELD, Circuit Judge:

After a nonjury trial in the Southern District of New York before Judge Charles H. Tenney, Paschal Demauro, a former In November, 1976, Demauro was called to testify before a grand jury sitting in the Southern District of New York. The grand jury was investigating possible criminal violations, by Chemical and its employees, of the Bank Secrecy Act, 31 U.S.C. §§ 1051-55, 1058-59, 1081-82, and the regulations promulgated thereunder, 31 C.F.R. §§ 103.11, 103.21-.22, 103.25-.26, 103.49, and of the conspiracy statute, 18 U.S.C. § 371. The grand jury's investigation centered on allegations that certain narcotics dealers had bribed Chemical employees to furnish them with large denomination bills in exchange for large quantities of small denomination bills. Large denominations bills facilitate trade in the narcotics business.

Chemical Bank ("Chemical") vice president in charge of 23 of its branches located in northern Manhattan and the Bronx, was found guilty of making false material declarations before a federal grand jury with respect to his knowledge regarding the activities of certain Chemical employees in "washing" currency (exchanging large denomination bills for small ones), 18 U.S.C. § 1623. Judge Tenney set forth his findings of fact and conclusions of law in a thorough 25-page opinion that has not been reported. We affirm.

The grand jury indicted Demauro for perjury on February 24, 1977. It also returned an indictment charging Chemical with a felony violation of the Bank Secrecy Act, which beginning on June 15, 1974, required banks to file reports with the Federal Reserve concerning cash transactions in excess of $10,000. The indictment against Chemical was based in part on evidence that the bank had failed to report hundreds of cash transactions in excess of $10,000, including numerous unreported transactions in which employees, in return for cash payments in the nature of bribes, had exchanged $10,000 to $250,000 in large bills for small. Chemical later pleaded guilty to a superseding information charging it with 445 misdemeanor violations of the Bank Secrecy Act, and was fined $222,500.

The grand jury also returned indictments charging tax violations against Thomas Spinelli and Michael Strolla, two Chemical branch managers who had failed to report on their income tax returns the cash bribes they received in return for money-washing, and against Anthony D'Ambrosio, a narcotics dealer who had exchanged money at Spinelli's branch. Spinelli and Strolla pleaded guilty to the offenses alleged in these indictments.

Demauro testified before the grand jury that he had first learned in September, 1975, that money-exchanging had occurred at Chemical Bank branches and he specifically denied being advised prior to that time by several bank employees that money was being exchanged at Chemical branches. At trial the Government sought to prove that this testimony was knowingly false by introducing the testimony of numerous witnesses (including five former Chemical bank employees) directly contradicting Demauro's grand jury testimony. These former employees, as well as other Government witnesses, described incidents occurring between 1968 and 1974 in which they had had discussions with Demauro concerning money-exchanging at Chemical branches.

After hearing from these witnesses and from Demauro, who testified at trial and claimed that the Government witnesses were lying, Judge Tenney found that "the entire fabric of defendant's testimony at trial revealed a concerted and continuous effort to give false testimony in the face of contradictory testimony from a long string of witnesses". He further found that "the evidence of these witnesses leads to the inescapable conclusion that Demauro was informed of money washing (at Chemical) as early as 1968 and thereafter on a number of occasions." Of the twenty responses alleged in the indictment to have been perjurious, Judge Tenney found thirteen of them to have been knowingly false and material beyond a reasonable doubt and the remaining seven to be literally true, although some were "evasive."

DISCUSSION

Demauro's principal contention is that his testimony, even if false, was not material to the grand jury's investigation and therefore did not violate the perjury statute, 18 U.S.C. § 1623, which is limited to prohibition of "false material declarations."

The test of materiality under § 1623 is whether the testimony alleged to be perjurious has "a natural effect or tendency to influence, impede, or dissuade the grand jury from pursuing its investigation." Carroll v. United States, 16 F.2d 951, 953 (2d Cir.), Cert. denied, 273 U.S. 763, 47 S.Ct. 477, 71 L.Ed. 880 (1927). Judge Tenney properly recognized that application of this test required an examination of "both the nature of the inquiry at which the testimony was given and the evidence introduced at trial to prove its falsity, in order to determine whether a truthful answer could conceivably have aided the grand jury investigation." ¹ United States v. Mancuso, 485 F.2d 275 (2d Cir. 1973) (footnote omitted).

Demauro argues that under the doctrine of Respondeat superior the acts of the Chemical employees who engaged in money washing would be automatically attributable to it and that therefore his personal knowledge of money washing and possibility of non-compliance with the Bank Secrecy Act was irrelevant to the issue of the bank's criminal liability and not material to the grand jury's investigation.

It is true that as a general rule a corporation is liable for the criminal acts of its employees if done on its behalf and within the scope of the employees' authority. See, e. g., J.C.B. Super Markets, Inc. v. United States, 530 F.2d 1119 (2d Cir. 1976); United States v. American Radiator & Standard Sanitary Corp., 433 F.2d 174, 204-05 (3d Cir. 1970); United States v. Ridglea State Bank, 357 F.2d 495, 498-500 (5th Cir. 1966); United States v. Carter, 311 F.2d 934, 942 (6th Cir.), Cert. denied, 373 U.S. 915, 83 S.Ct. 1301, 10 L.Ed.2d 415 (1963); Standard Oil Co. v. United States, 307 F.2d 120, 128-29 (5th Cir. 1962). However, since the Chemical employees involved here had been bribed to wash the currency without reporting the transactions as required by the Bank Secrecy Act, the bank could well have argued that it was not liable for their violations of the Act since the employees had acted in their own and not the bank's interests. See United States v. Ridglea State Bank, supra; Standard Oil Co. v. United States, supra. Indeed, Chemical's counsel made this argument when the bank entered a guilty plea to a superseding indictment. ²

Under these circumstances, it was appropriate for the grand jury first to determine the extent to which the bank's responsible supervisory personnel, such as Demauro, were aware of the money-exchanging going on at Chemical branches rather than to assume that corporate criminal liability could be predicated solely on the acts of the bribed employees. The grand jury's investigation would permit the Government to show that, assuming the inapplicability of the doctrine of Respondeat superior to conduct of bribed corporate employees claimed by Chemical to have been acting on their own, ³ the bank might nevertheless be criminally liable for the conduct of its supervisory employees who had either intentionally disregarded the law or had acted with plain indifference to its requirements. Steere Tank Lines, Inc. v. United States, 330 F.2d 719, 722-23 (5th Cir. 1963); Riss & Co. v. United States, 262 F.2d 245, 249-51 (8th Cir. 1958). The grand jury's inquiry into Demauro's awareness, as a member of Chemical's supervisory personnel, of money-changing on the part of its employees was, therefore, clearly material to its investigation.

Aside from the materiality of Demauro's testimony to the issue of corporate liability, the grand jury was engaged in a complex investigation involving numerous potential targets, several different statutory offenses, and the prospect of individual as well as corporate liability. Under the Bank Secrecy Act an individual as well as a corporation may be held criminally liable for violation of its provisions. See 31 U.S.C. §§ 1058-59, § 1082. Demauro's testimony with respect to some of the individual employees involved in currency-washing transactions was therefore also material to the grand jury's investigation of them, as is evidenced by the resulting indictments of Spinelli and Strolla. Thus it is clear that truthful testimony by Demauro could have aided the grand jury, United States v. Mancuso, supra, 485 F.2d 275 and false testimony could impede its investigation. Carroll v. United States, supra, 16 F.2d 951.

Demauro also challenges Judge Tenney's admission of the testimony of one witness, John S. Martin, Jr., Esq., over the defense objection that it disclosed privileged attorney-client communications between Demauro and Martin. Martin, a lawyer practicing in New York City, was retained by Chemical in 1975 to represent it when the bank was notified by the Southern District United States Attorney's Office that it was the subject of a criminal investigation. Chemical also asked Martin to conduct an internal investigation to determine whether, and to what extent, bank employees had been involved in money washing. In...