U.S. v. Eisenstein, 83-5136

• Decision Date: 14 May 1984
• Docket Number: No. 83-5136,83-5136
• Citation: 731 F.2d 1540
• Parties: 15 Fed. R. Evid. Serv. 888 UNITED STATES of America, Plaintiff-Appellee, v. Victor EISENSTEIN, Beno Ghitis, Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1540

731 F.2d 1540

15 Fed. R. Evid. Serv. 888

UNITED STATES of America, Plaintiff-Appellee, v. Victor EISENSTEIN, Beno Ghitis, Defendants-Appellants.

No. 83-5136.

United States Court of Appeals, Eleventh Circuit.

May 14, 1984.

L. Mark Dachs, Miami, Fla., for Eisenstein.

Raymond J. Takiff, Coconut Grove, Fla., Marc Cooper, Miami, Fla., for Ghitis.

Stanley Marcus, U.S. Atty., Charles Saphos, Linda Collins-Hertz, Asst. U.S. Attys., Miami, Fla., for U.S.

Appeals from the United States District Court for the Southern District of Florida.

Before GODBOLD, Chief Judge, and HILL, Circuit Judge, and THORNBERRY*, Senior Circuit Judge.

JAMES C. HILL, Circuit Judge:

A jury convicted appellants of conspiracy to defraud the United States, in violation of 18 U.S.C. Sec. 371 (1976), and felonious failure to file currency transaction reports (CTRs) with the Internal Revenue Service, as required by 31 U.S.C. Secs. 1059, 1081, 1082 (1976), ¹ and regulations promulgated under those provisions. Ample evidence supported the convictions. Neither appellant asserted that the CTRs were actually filed. Nevertheless, we must reverse the convictions because appellants were prohibited from establishing their one plausible line of defense, good faith reliance on advice of counsel.

I. BACKGROUND

Appellant Ghitis owned and operated a currency exchange business in Cali, Colombia. Ghitis testified that the major thrust of his business concerned buying American dollars and exchanging them for Colombian pesos or for checks or money orders. According to Ghitis, a typical exchange transaction involved four steps: (1) Ghitis agreed to buy American dollars from a seller in Colombia; (2) the seller directed his agent in the United States to deposit the dollars in Ghitis' U.S. bank account; (3) Ghitis verified the deposit; and (4) Ghitis gave the seller pesos or checks to cover the amount deposited. Later, Ghitis hired Appellant Eisenstein to run a branch office for the currency exchange in Miami, enabling Eisenstein, rather than the seller's agent, to make the deposits and report the transactions to Ghitis.

The Government introduced Ghitis' business records for the first eight months of 1981 to show that the exchange business took in more than $240 million during that period. Bank officials in Miami, no doubt alerted by the staggering amounts of money flowing into Ghitis' account, told Eisenstein in January of 1981 that he was required to file CTRs for the currency exchange for any transaction that exceeds $10,000. Eisenstein promised to ask Ghitis about the CTRs. Eisenstein later assured bank officials that he had mentioned the CTRs to Ghitis.

However, no CTRs were filed by Ghitis or Eisenstein. They were thus indicted for failing to report a $1 million transaction that occurred in late February of 1981 and a $1.5 million transaction that occurred in March of 1981. In addition, the indictment alleged a conspiracy to violate the reporting laws and a pattern of illegal activity involving currency transactions in excess of $100,000 in a twelve-month period. Both appellants were convicted on all counts.

II. DISCUSSION

Ghitis and Eisenstein appeal their convictions on several grounds. In light of our decision to reverse, we reach only two of the issues raised by appellants' arguments: (1) whether appellants' currency exchange business was a "domestic financial institution" covered by 31 U.S.C. Sec. 1081; and (2) whether the district court erroneously excluded evidence that appellants relied in good faith on the advice of counsel in refusing

to file the CTRs. We conclude that the statute covers Ghitis' business but that the erroneous exclusion of highly relevant evidence requires reversal.

A. Domestic Financial Institutions.

By enacting the Currency and Foreign Transactions Reporting Act, Congress authorized the Secretary of the Treasury to require certain types of financial institutions to report currency transactions. See 31 U.S.C. Sec. 1051 (1976) (revised version at 31 U.S.C. Sec. 5311 (1982)). Under the Act, "domestic financial institutions" must report any exchange of United States currency exceeding the amount prescribed by the Treasury Secretary. See 31 U.S.C. Sec. 1081 (1976) (revised version at 31 U.S.C. Sec. 5313 (1982)). The Secretary has promulgated regulations that require such institutions to report exchanges involving more than $10,000. See 31 C.F.R. Sec. 103.22(a).

Appellants concede that on at least two occasions they completed currency exchange transactions involving more than $10,000. They argue, however, that they were not required to file reports on the transactions because their currency exchange business is not a domestic financial institution within the meaning of the Act. Appellants base their argument on the testimony of Ghitis that all transactions were negotiated and completed in Colombia, leaving nothing for Eisenstein to do in Miami except deposit the money and report to Ghitis in Colombia.

We find appellants' reasoning unpersuasive. The statutory definition of "domestic" is clear:

The term "domestic" used in reference to institutions or agencies, limits the applicability of the provision wherein it appears to the performance by such institutions or agencies of functions within the United States.

31 U.S.C. Sec. 1052(f) (1976) (revised version at 31 U.S.C. Sec. 5312(b) (1982)). ²

Appellants' currency exchange business performs "functions within the United States" by receiving dollars in the United States, by depositing the money in a U.S. bank, and by relaying information about each transaction from Miami to headquarters in Colombia. Therefore, the business was a "domestic financial institution" under the Act.

B. Reliance on Advice of Counsel.

Only willful failures to file CTRs are subject to criminal penalties under the Act. See 31 U.S.C. Sec. 1058 (1976) (revised version at 31 U.S.C. Sec. 5322 (1982)). The law of this circuit is well established that, as it is used in the currency reporting statute, the term "willful require[s] proof of the defendant's knowledge of the reporting requirement and his specific intent to commit the crime." United States v. Granda, 565 F.2d 922, 926 (5th Cir.1978). Congress no doubt made the failure to file CTRs a specific intent crime because, without knowledge of the reporting requirement, a would-be violator cannot be expected to recognize the illegality of his otherwise innocent act. See id. at 925-26; United States v. Warren, 612 F.2d 887, 890 (5th Cir.) (en banc), cert. denied, 446 U.S. 956, 100 S.Ct. 2928, 64 L.Ed.2d 815 (1980).

A defendant charged with violating the reporting statute can attempt to negate proof of specific intent by establishing the defense of good faith reliance on advice of counsel. United States v. Bush, 599 F.2d 72, 76-78 (5th Cir.1979). In order to take advantage of this defense, the defendant must show that he relied in good faith after first making a full disclosure of all facts that are relevant to the advice for which he consulted the attorney. See United States v. Taglione, 546 F.2d 194, 200-01 (5th Cir.1977); Bursten v. United States, 395 F.2d 976, 981-82 (5th Cir.1968). When the defendant presents evidence that he disclosed Here, the trial court gave appellants' requested instruction on the advice of counsel defense. The jury was told:

                all relevant facts to his attorney and relied on the attorney's advice based on the disclosure, the trial court must instruct the jury on the defense of good faith reliance on counsel.    Bursten v. United States, 395 F.2d at 982
                

Among their defenses, the defendants claim that they are not guilty of willful wrongdoing because they acted on the basis of advice from an attorney.

If a defendant, before taking any action, sought the advice of an attorney whom he considered competent, in good faith and for the purpose of securing advice on the lawfulness of his possible future conduct, and made a full and accurate report to his attorney of all material facts of which he has the means of knowledge concerning, in this case, the necessity of filing a currency transaction report, that is, IRS Form 4789, and acted strictly in accordance with the advice of his attorney, given following his full report, then the defendant would not be willfully doing wrong in omitting something the law requires, as that term is used in these instructions.

Whether a defendant acted in good faith for the purpose of seeking guidance as to the questions about which he is in doubt, and whether he made a full and complete report to his attorney concerning the necessity of filing a currency transaction report[,] IRS Form 4789, and whether he acted strictly in accordance with the advice received are questions for you to determine.

Record on Appeal at 770-71.

Clearly, the instructions emphasized the importance of the "full disclosure" requirement. The jury, however, was deprived of evidence that was relevant, indeed crucial, to its determination of whether Ghitis and Eisenstein made a "full and complete report" to their attorney. After defense counsel established that Ghitis and Eisenstein met with their attorney on at least one occasion prior to the acts charged in the indictment, the following colloquy occurred between defense counsel and the attorney on whose advice appellants allegedly relied:

BY MR. TAKIFF (Attorney for Ghitis):

Q. When Mr. Ghitis met with you, did he then indicate to you the type of business he was involved in?

A. Yes, he did.

Q. Mr. Fernandez, on behalf of Mr. Ghitis, as his counsel now, he waives all privilege that might exist with respect to attorney-client.

Did Mr. Ghitis discuss with you in any depth the kind of work that he was doing in particular?

MR. SHAPOS (the Prosecuting Attorney):

Objection, your Honor. That would be hearsay.

THE COURT:

The objection is sustained.

BY MR. TAKIFF:

Q. Did you speak with Mr. Ghitis about the kind of work he did?

A. Yes, I did.

Q. Did Mr. Ghitis indicate to...