U.S. v. Murphy, 86-3031

• Decision Date: 10 February 1987
• Docket Number: No. 86-3031,86-3031
• Citation: 809 F.2d 1427
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. Christopher P. MURPHY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1427

809 F.2d 1427

55 USLW 2510

UNITED STATES of America, Plaintiff-Appellant, v. Christopher P. MURPHY, Defendant-Appellee.

No. 86-3031.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Sept. 3, 1986.

Decided Feb. 10, 1987.

Charles L. Stuckey, Asst. U.S. Atty., Portland, Or., for plaintiff-appellant.

Jeffrey R. Chanin, San Francisco, Cal., and Ron Hoevet, Portland, Or., for defendant-appellee.

Appeal from the United States District Court for the District of Oregon.

Before WRIGHT, GOODWIN and NELSON, Circuit Judges.

GOODWIN, Circuit Judge:

The United States of America appeals from an order of the district court dismissing an indictment charging defendant Murphy with (1) conspiring to defraud the Internal Revenue Service ("IRS"), and (2) conspiring to conceal and falsify material facts within the jurisdiction of the IRS. We affirm.

The indictment alleges that in 1985, Whitehead and James, two undercover IRS agents, approached Murphy, Ronald Olson and Robert Gottier, and asked them to launder $4 million in United States currency. Murphy and his confederates agreed to deposit the money in a United States bank in such a manner as to conceal the true source and ownership of the money from the United States Department of the Treasury.

To further their plan, Gottier set up the Anteliz Trust Corporation ("ATC") in the Northern Mariana Islands. ATC did little or no business and had few or no assets. It did, however, issue a $4 million stock offering, which Murphy and Olson bought with money provided by agents Whitehead and James. The indictment alleges that defendants completed the stock transaction for the sole purpose of creating the false appearance that the $4 million had come from investors.

Later, Olson opened a bank account in ATC's name in Las Vegas, Nevada. He deposited $200,000 into the account. He completed a currency transaction report ("CTR") describing the deposit as required by 31 U.S.C. Sec. 5313(a). ¹ The report stated that the deposit had been made for ATC's account. Olson next directed the transfer of the deposited funds to a bank account in Manila, Republic of Philippines. Before any further transactions were completed, IRS agents arrested Olson, Murphy and Gottier.

The indictment charged the three with (1) conspiring to conceal and falsify material facts within the jurisdiction of the Internal Revenue Service in violation of 18 U.S.C. Secs. 1001 and 2, and (2) conspiring to defraud the IRS in its collection of data in violation of 18 U.S.C. Sec. 371. Murphy, an alleged co-conspirator of Olson and Gottier, immediately moved for dismissal, arguing that the facts alleged did not charge an offense. The district court initially denied the motion. It ruled that an agreement to conceal from the Treasury Department the true source and ownership of currency could constitute a conspiracy to defraud the United States.

However, following this court's decision in United States v. Varbel, 780 F.2d 758 (9th Cir.1986), the district court reconsidered the question and concluded that the indictment dismissed in Varbel was indistinguishable in material facts from the pending indictment. The court dismissed the indictment against Murphy, and the government appealed under 18 U.S.C. Sec. 3731.

The indictment alleges that Murphy conspired with Olson and Gottier to provide false information on a CTR filed with the Secretary of the Treasury, in violation of 18 U.S.C. Secs. 1001 ² and 2(b) ³. The indictment specifically states that Murphy's alleged co-conspirator, Olson, falsely identified the source of the deposited funds as ATC, although he knew the money came from the undercover IRS agents.

Murphy argues that Olson truthfully completed the CTR form, and had no duty to report the source of the funds under the Currency Reporting Act (the Act). We agree with Murphy.

Title 31 U.S.C. Sec. 5313(a) authorizes the Secretary of the Treasury to issue regulations requiring domestic financial institutions, and other participants in specified currency transactions, to file CTRs describing the transaction. The regulations implementing section 5313 require financial institutions to file CTRs when they participate in transactions involving currency in excess of $10,000. 31 C.F.R. Sec. 103.22(a) (1984). Reports are filed on Form 4789, which is provided by the Secretary.

The reporting act is not self-executing; it can impose no reporting duties until implementing regulations have been promulgated. California Bankers Ass'n v. Schultz, 416 U.S. 21, 26, 94 S.Ct. 1494, 1500, 39 L.Ed.2d 812 (1974). An individual cannot be prosecuted for violating the Act unless he violates an implementing regulation. Id.; United States v. Reinis, 794 F.2d 506, 508 (9th Cir.1986).

Thus, Form 4789 rather than section 5313 imposes affirmative duties of disclosure with regard to currency transactions. ⁴ We must decide whether Form 4789 required Olson to disclose that he obtained the $200,000 from IRS agents Whitehead and James. If so, then the indictment properly charged Murphy with conspiracy to falsify or conceal information within the jurisdiction of the IRS, and with conspiring to cause the bank to violate section 5313.

After carefully reviewing Form 4789, we hold that it does not clearly impose a duty to disclose the persons who delivered to him the deposited currency (the IRS agents). The crucial section of Form 4789, Part II, calls for the identity of the "[i]ndividual or organization for whom this transaction was completed." The government contends that this language required Olson to name the source of the funds.

Taken alone, Part II may ask for the source of funds. However, the head of the form carries explanatory instructions which create an ambiguity with regard to Part II. They refer to "the identity ... of the individual or organization for whose account the transaction is being made" (emphasis added). ⁵ Conversationally, "for whose account" has a double meaning. First, as the government proposes, it could mean "on whose behalf." If so, then Olson was required to name the IRS agents who gave him the money, as he was depositing it as a service to them. However, the phrase used in a bank transaction could also mean "for whose bank account," thus asking for the identity of the account holder. Under the second possible interpretation, Olson truthfully responded "ATC," because ATC was the nominal account holder.

The government contends that the Act itself plainly requires a depositor to identify the source of funds. Section 5313(a) provides:

A participant acting for another person shall make the report as the agent or bailee of the person and identify the person for whom the transaction is being made.

This contention ignores the principles of California Bankers and Reinis. These cases hold that the Act does not by itself impose affirmative duties on depositors, and that an individual may be prosecuted only for violations of the Act's implementing regulations. Expecting Olson to refer to the statutory language to "clarify" his duties as to Form 4789 is tantamount to holding him (and his co-conspirator Murphy) criminally liable under the Act for failure to disclose something which no regulation requires be disclosed.

Although the Secretary could have incorporated the language of the Act into Form 4789, and thereby directly asked for the identity of the person on whose behalf the transaction was being made, he chose not to do so. Instead, the form creates confusion by providing conflicting directions. These directions could easily lead noncriminal participants in CTR transactions to believe that they were required only to name the holder of the account.

Due process requires that penal statutes define criminal offenses with sufficient clarity that an ordinary person can understand what conduct is prohibited. Kolender v. Lawson, 461 U.S. 352, 357, 103 S.Ct. 1855, 1858, 75 L.Ed.2d 903 (1983). Section 5313 and its regulations do not clearly require depositors to identify the source of their funds. Therefore, the imposition of criminal sanctions on these facts would violate due process. Cf. Varbel, 780 F.2d at 762.

Because Murphy's co-conspirator had no duty to report the source of the money, it follows that there can be no concealment or conspiracy to conceal in violation of 18 U.S.C. Sec. 1001. See United States v. Dela Espriella, 781 F.2d 1432, 1435 (9th Cir.1986).

Conspiracy to Defraud the United States

The indictment also charges Murphy with activities violating the second clause of 18 U.S.C. Sec. 371. ⁶ This clause makes it a crime to defraud the United States. The indictment alleges that Murphy and his confederates conspired "to defraud the United States by impeding, impairing, obstructing, and defeating the lawful governmental functions of the United States Treasury Department and its agencies, including the Internal Revenue Service, in the collection of data and reports of currency transactions in excess of $10,000 as required by [31 U.S.C. Sec. 5313 and 31 C.F.R. Sec. 103.11 et seq.]." The district court held that Varbel required dismissal of the charge.

In Varbel, defendants were charged with laundering money derived from drug trafficking. The operation allegedly involved deposits of large amounts of currency in United States banks. In order to prevent the banks from filing CTRs for the deposits, defendants engaged in multiple currency transactions of less than $10,000 each. The government charged them with various crimes, including conspiracy to defraud the United States by concealing from the IRS the structured nature of their transactions. On appeal, this court dismissed the indictments. We held that the regulations implementing the Act do not require individuals to inform either their banks or the IRS that they are engaging in multiple but related transactions in order...