U.S. v. Schmidt

• Decision Date: 15 October 1991
• Docket Number: No. 90-10473,90-10473
• Citation: 947 F.2d 362
• Parties: -5866, 92-1 USTC P 50,111 UNITED STATES of America, Plaintiff-Appellee, v. Lonnie SCHMIDT, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 362

947 F.2d 362

68 A.F.T.R.2d 91-5866, 92-1 USTC P 50,111

UNITED STATES of America, Plaintiff-Appellee, v. Lonnie SCHMIDT, Defendant-Appellant.

No. 90-10473.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 15, 1991.

Decided Oct. 15, 1991.

William A. Cohan and Jennifer A. Greene, Cohan & Greene, Encinitas, Cal., for defendant-appellant.

Daniel S. Linhardt, Asst. U.S. Atty., Sacramento, Cal., for plaintiff-appellee.

Appeal from the United States District Court for the Eastern District of California.

Before CHAMBERS, Senior Circuit Judge, SNEED, Circuit Judge, and KELLEHER, District Judge. ^*

KELLEHER, District Judge:

I. Factual and Procedural Background

Internal Revenue Special Agent Richard Carl was contacted in August 1985 by Internal Revenue Agent Mulholland to investigate appellant Lonnie Schmidt. Carl posed as a Northern California representative in charge of collections for an organized crime gambling interest from Las Vegas. Carl and the Internal Revenue Service had learned that the appellant, along with Herbert Bates, had failed to file Currency Transaction Reports (CTRs).

Agents Carl and Mulholland, in their undercover roles, became acquainted with Dean Salisbury and Joe Gorman. These individuals introduced the agents to the appellant and Bates.

On August 10, 1985, agents Carl and Mulholland, along with Salisbury and Gorman, had an introductory meeting with the appellant and Bates to learn about their operation. The appellant claimed that he was the representative of First Surety Bank, Ltd. (FSBL), a bank duly licensed by the government of the Marshall Islands. The appellant also stated that, as a foreign bank, any transaction that he handled for Carl and Mulholland would not be within the reporting requirements.

The appellant and Bates explained to the agents that they were outside the reporting requirements because they handled FSBL through their management company, International Commercial Business Management (ICBM). Bates claimed that, even though the Bank's funds were within the United States, legally the Bank was outside the country. The appellant explained that he and Bates did not have to conform to the reporting requirements for their transfers of cash through domestic banks because these transactions were "bank-to-bank" transactions outside the purview of the reporting requirements. ¹

One of the agents asked the appellant if it mattered from where the funds came. The appellant answered that it did not. Salisbury then assured the appellant and Bates that the funds came from a legal source. The appellant then suggested different ways in which CTRs could be avoided, one of which was to keep all the transactions under $10,000 by going to different banks in Sacramento and, if necessary, in the Reno/South Lake Tahoe area.

The appellant informed the agents that his commission would be due at the time the transactions were completed. He then informed the agents that only he and Bates were involved in the transaction. Before the meeting ended, the appellant asked how he could get in touch with Carl since he did not have, and might not ever get, Carl's last name. ²

Carl next met with the appellant on August 13, 1985. Carl was now dealing with only the appellant because Carl had asked that Bates not be present at any further meetings. At this meeting, Carl told the appellant that he had $25,000 which he wished to exchange for a cashier's check. The appellant asked if it was possible for Carl to break the check down into more than one check because he wanted to get around filing a CTR.

The appellant explained how he would convert the cash into cashier's checks. He said that he had opened a new account with a bank and used several banks for converting cash into cashier's checks. Carl then gave the appellant $25,000 in United States currency which the appellant converted into two cashier's checks, one for $9,000 and one for $16,000.

On August 15, 1985, Carl again met with the appellant and converted $27,000 into wire transfers. The appellant guaranteed Carl that no CTRs would be generated as a result of these transfers because these were "bank-to-bank" transfers.

On August 22, 1985, Carl and the appellant met and decided to dismiss Salisbury and Gorman from any further transactions.

On September 3, 1985, Carl gave the appellant $100,000 in currency in exchange for cashier's checks. Carl stated that this money was associated with crime figures. Carl raised the prospect of handling tainted money from other individuals. The appellant was amenable to the arrangement as long as a proper commission could be worked out.

On September 25, 1985, Carl met with the appellant to convert an additional $25,000 into cashier's checks and to discuss further money laundering for an individual whom he had identified in an earlier conversation as a "dope dealer." The appellant then discussed some of the services he could provide for the dealer. During the course of the meeting, Carl stated that he could be arrested for the operations in which he was involved. The appellant stated that he understood this. Later in the conversation, the appellant stated that he could act as a courier between the Cayman Islands and the United States for Carl's associates.

The last conversation between Carl and the appellant occurred on October 15, 1985. The two discussed the services the appellant would be willing to provide for Carl's supposed drug dealing friends. They discussed how the appellant would launder the money and how much commission he would take. Carl then gave the appellant $23,000 which the appellant converted into cashier's checks.

On October 16, 1985, Carl returned to the appellant's office with a search warrant. The appellant was told that he was required to file CTRs on all transactions in excess of $10,000. ³ During this search, the IRS seized documents concerning a transaction between the appellant and Robert O'Lear. This transaction is the basis of the second count against the appellant.

O'Lear knew that the appellant was an officer of ICBM, and he went to the appellant to cash a check for $16,662.19 made out to Katherina Wolf. O'Lear used the check to purchase a certificate of deposit (CD) from the appellant for $500.00. The appellant then gave O'Lear the balance of the check in cash. O'Lear received a receipt, typewritten on FSBL letterhead and dated May 24, 1985, showing that he received $16,162.19 in cash.

O'Lear testified that the cash was United States currency. O'Lear further testified that, despite the fact that the receipt had FSBL letterhead on it, the only institution with which he identified the appellant was ICBM. No CTR was ever filed on this transaction.

Count seven regards different transactions. During 1987, undercover Internal Revenue Service agent Dallas McKnight, Jr. learned that a number of individuals were using the appellant to conduct currency transactions for which no CTRs were generated.

On October 28, 1987, McKnight met with the appellant in Sacramento and converted $15,000 in United States currency. The appellant told the agent that he was the representative of an overseas bank and was excluded from the currency transaction reporting requirements.

McKnight had an unincorporated business organization, which was merely a paper corporation, named South Wind Limited. The appellant explained to McKnight that McKnight could avoid taxation by creating a trust naming FSBL as its beneficiary. FSBL would then give McKnight back all his money.

The appellant also told agent McKnight that the money, though always kept in the United States, was legally overseas. The agent explained that he did not want to open any account with the appellant; rather, he merely wanted to obtain cashier's checks for currency.

The appellant further explained to agent McKnight what his commission would be and stated that this amount would keep McKnight's name off any CTRs. McKnight gave the appellant $15,000 and the appellant gave him three cashier's checks in return.

McKnight also gave the appellant $25,000 on October 29 and November 2, 1987 with which the appellant purchased cashier's checks from First Interstate Bank and from the Bank of Alex Brown. The CTR filed by the Bank of Alex Brown reveals that the appellant gave the $25,000 in a lump sum to the teller and made no effort to conceal his identity.

The district court also had before it testimony from Drew Roddy who had previously been convicted in the Western District of Washington for laundering more than $155,000 through the appellant. Roddy was contacted by one of his clients who wanted a cashier's check for $155,420.77. Roddy contacted the appellant on September 30, 1987 and asked the appellant to obtain a cashier's check for that amount of money. Roddy then flew to Sacramento to consummate the transaction.

Mary Shoup, Contact Representative for the Internal Revenue Service's Detroit Computing Center, testified that no CTR was filed for the Drew Roddy transaction or for the $15,000 transaction with McKnight which was consummated on October 28, 1987.

At the district court level, the appellant waived his rights to a jury trial, to confront witnesses, and to subpoena witnesses. He consented to a trial on the written record, and the parties submitted their arguments and evidence through briefs and exhibits.

The court returned guilty verdicts on counts one through seven and not guilty verdicts on counts eight and nine. The appellant was sentenced to four years for each count to run concurrently with each other and with the sentence imposed by the United States District Court for the Western District of North Carolina ⁴ and a fine of $20,000 on counts one through six.

The appellant appealed to this court claiming that the government failed to prove a conspiracy, the indictment failed to allege a crime with sufficient specificity and the trial court erred in denying the suppression of evidence on count...