U.S. v. Varbel, s. 84-1231

• Decision Date: 10 January 1986
• Docket Number: Nos. 84-1231,84-1250 and 84-1251,84-1248,s. 84-1231
• Citation: 780 F.2d 758
• Parties: , 57 A.F.T.R.2d 86-829, 54 USLW 2396, 86-1 USTC P 9203 UNITED STATES of America, Plaintiff-Appellee, v. Duane N. VARBEL, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Roy OSBORN, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Larren SCHMIDT, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Robert John BRYAN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 758

780 F.2d 758

89 A.L.R.Fed. 759, 57 A.F.T.R.2d 86-829,

54 USLW 2396,

86-1 USTC P 9203

UNITED STATES of America, Plaintiff-Appellee, v. Duane N. VARBEL, Defendant-Appellant.

UNITED STATES of America, Plaintiff-Appellee, v. Roy OSBORN, Defendant-Appellant.

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

UNITED STATES of America, Plaintiff-Appellee, v. Robert John BRYAN, Defendant-Appellant.

Nos. 84-1231, 84-1248, 84-1250 and 84-1251.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Aug. 6, 1985.

Decided Jan. 10, 1986.

Susan A. Ehrlich, Asst. U.S. Atty., Phoenix, Ariz., for the U.S.

Gary L. Thomas, Phoenix, Ariz., for Varbel.

James Hamilton Kemper, Emmet Ronan, Phoenix, Ariz., for Osborn.

William A. Cohan, Denver, Colo., for Schmidt.

Donald W. MacPherson, MacPherson, McCarville, P.A., Joseph Rocco, Phoenix, Ariz., for Bryan.

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

Before ANDERSON, BEEZER, and BRUNETTI, Circuit Judges.

BEEZER, Circuit Judge:

The conversion of cash into funds that may be exchanged easily without a trace of their origin is a recognized problem for law enforcement officials. Money laundering is common among narcotics traffickers, tax evaders and organized crime figures. The substantive crimes alleged in the indictment at issue involve the concept of "money laundering."

Appellants were convicted of wire fraud, conspiracy to conceal and concealing material facts within the jurisdiction of the Internal Revenue Service. They contend that the indictment failed to allege a crime under 31 U.S.C. Secs. 5313 and 5322. We agree and reverse their convictions.

I Facts

In 1982, the FBI received information that Duane Varbel, a Phoenix attorney, was allegedly engaged in "money laundering." As part of its investigation, the FBI implemented a "sting" operation. Rex Reynolds, a government informant, and Julian Miller, an undercover FBI agent, posed as cocaine dealers interested in laundering narcotics proceeds. Reynolds contacted Varbel and sought his advice.

Reynolds and Varbel met on August 12, 1982. ¹ Varbel discussed off-shore banks, Cayman Islands secrecy laws and United States currency laws. He advised Reynolds not to take more than $5,000 in currency out of the United States because Reynolds would have to report it. Varbel suggested that Reynolds form a Caymanian corporation.

On September 4, Reynolds and Miller went to Varbel's office with a bag of cash. Varbel agreed to go with Reynolds to the Cayman Islands to set up a corporation. Varbel later informed Reynolds that he was unable to go and recommended that Roy Osborn take his place. Osborn was an attorney with whom Varbel shared an office.

On September 23, Osborn flew to Grand Cayman to incorporate Reynolds's company. He was referred to Mitchell Exctain of U.S. Tax Planning Services Ltd. (USTP). Exctain recommended that Osborn contact Jack Bryan at the USTP office in Irvine, California. Upon his return, Osborn wrote to Exctain and confirmed that Reynolds wanted to form Anderex, an offshore investment company. An incorporation fee of $4,000 was paid and $800 was deposited in the Anderex account, which had been established at the Intercontinental Bank in the Cayman Islands. In October, another $4,700 was transferred through USTP to the Anderex account. Osborn gave Miller the account number and Bryan's address and telephone number in Irvine.

On November 1, Miller met with Bryan and Larry Schmidt of USTP. Miller gave them $50,000 cash to deposit in the Anderex account. Bryan stated that he would go to different banks around Irvine the next day and obtain cashier's checks in amounts less than $10,000 but totalling $50,000. The checks would be transferred to the Anderex account. Bryan explained that the banks would not file a report for amounts less than $10,000. Once the $50,000 was deposited in the Anderex account, it would be returned to Reynolds as a bank loan.

Between November 2 and 4, six cashier's checks were purchased and made payable to Anderex. On November 2, three cashier's checks were purchased: one for $9,620 at the Orange City Bank by Myron Larson, another for $9,000 at the Home Bank by Jim Swanson, and the third for $9,350 at California First Bank by Dennis Whire. On November 3, a cashier's check for $9,100 was purchased at San Diego Trust and Savings Bank by Mark Johnson. Two more cashier's checks were obtained the following day; one for $6,750 at Union Federal Savings by Steven Andersen, the other for $6,180 at Union Bank by Bob Miller. The names given by the purchasers were false. Bryan bought five of the checks and Schmidt purchased one. None of the banks filed reports concerning any of the transactions.

In November, Bryan told Reynolds that he could "funnel a lot of money" out of the country. He explained that the First International Bank and Trust located in the USTP Caymanian office made "loans" to its clients. The loan papers and promissory note were being drafted and the money would be wired to Reynolds's Phoenix bank account.

On November 16, Miller called Bryan and gave him the Phoenix account number. Miller stated that Reynolds wanted $54,000 deposited to the account. Bryan responded that the money would be there in 24-72 hours, and that the loan papers from Anderex were on the way. The money was wired to the Phoenix account by order of Bank Intercontinental on November 23.

On December 15, Schmidt purchased a $2,500 cashier's check in a false name made payable to Anderex. $2,500 was soon wired from Bank Intercontinental to the Phoenix account.

Appellants were indicted on July 28, 1983. They were tried for conspiracy to conceal and for concealing material facts in a matter within the jurisdiction of the Internal Revenue Service (IRS) in violation of 18 U.S.C. Sec. 371 (Count I) and 18 U.S.C. Secs. 1001 ² and 2 ³ (Count II), and for two counts of wire fraud in violation of 18 U.S.C. Secs. 1343 ⁴ and 2 (Counts III and IV). The material facts allegedly concealed were the existence, source, and transfer of cash from the United States to the Cayman Islands without currency transaction reports being filed by the banks as required by 31 U.S.C. Sec. 5313 and the return of the money to the United States as non-traceable loans.

The jury found Varbel, Osborn and Bryan guilty on each count. Schmidt was found not guilty on Count III and guilty on the remaining counts. The appellants timely appeal.

This case presents an issue of first impression in this circuit. We are required to determine whether the Currency Transaction Reporting Act and regulations promulgated pursuant to the Act imposed a duty on appellants to inform the banks of the nature of their currency transactions. We hold they do not.

II Analysis

It is well settled that criminal laws are to be strictly construed. United States v. Enmons, 410 U.S. 396, 411, 93 S.Ct. 1007, 1015, 35 L.Ed.2d 379 (1973) (Hobbs Act); United States v. Campos-Serrano, 404 U.S. 293, 297, 92 S.Ct. 471, 474, 30 L.Ed.2d 457 (1971), cert. denied, 404 U.S. 1023, 92 S.Ct. 686, 30 L.Ed.2d 673 (1972) (Immigration and Naturalization Act); United States v. Bass, 404 U.S. 336, 347, 92 S.Ct. 515, 522, 30 L.Ed.2d 488 (1971) (Omnibus Crime Control and Safe Streets Act); United States v. Dangdee, 616 F.2d 1118, 1119 (9th Cir.1980). "[A] penal statute [must] define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory enforcement." Kolender v. Lawson, 461 U.S. 352, 357, 103 S.Ct. 1855, 1858, 75 L.Ed.2d 903 (1983).

It is also well settled that conduct made punishable by the government must be the subject of a valid criminal statute which existed at the time of the alleged offense. Bouie v. City of Columbia, 378 U.S. 347, 353-54, 84 S.Ct. 1697, 1702, 12 L.Ed.2d 894 (1964). We have held that a defendant could not be convicted of transporting forged securities when the transported instruments were not classified as securities in the criminal statute under which the indictment issued. United States v. Desmond, 419 F.2d 1286, 1287 (9th Cir.1969). See also, United States v. Gavrilovic, 551 F.2d 1099 (8th Cir.1977) (no one can be punished except according to law; mecolqualone not classified as a controlled substance at the time of the alleged offense).

The Currency Transaction Reporting Act ("Reporting Act"), 31 U.S.C. Sec. 5313, ⁵ authorizes the Secretary of the Treasury to require domestic financial institutions, and any other participants in specified currency transactions, to report those transactions to the Secretary. The Secretary's implementing regulations ⁶ require only financial institutions ⁷ to file currency transaction reports and then, only when they participate in currency transactions involving more than $10,000. The interpretation of these statutes and regulations raises a question of law which we review de novo. See United States v. Launder, 743 F.2d 686, 688-89 (9th Cir.1984). We also review the sufficiency of an indictment de novo. United States v. Buckley, 689 F.2d 893, 897 (9th Cir.1982), cert. denied, 460 U.S. 1086, 103 S.Ct. 1778, 76 L.Ed.2d 349 (1983).

We begin our interpretation by reading the statutes and regulations for their plain meaning. The plain meaning rule has its origin in United States v. Missouri Pac. R.R., 278 U.S. 269, 49 S.Ct. 133, 73 L.Ed. 322 (1929). There the Supreme Court stated that "where the language of an enactment is clear and construction according to its terms does not lead to absurd or impracticable consequences, the words employed are to be taken as the final expression of the meaning intended." Id. at 278, 49 S.Ct. at 136. The principle was more recently affirmed in Dickerson v. New Banner Institute, Inc., 460 U.S. 103, 103 S.Ct. 986, 74 L.Ed.2d 845 (1983), reh'g denied, 461 U.S. 911, 103 S.Ct. 1887, 76 L.Ed.2d 815 (1983),...