United States v. Barreda

• Decision Date: 09 April 1985
• Docket Number: Crim. No. HCR 85-1.
• Parties: UNITED STATES of America v. Antonio BARREDA and Maria Barreda.
• Court: U.S. District Court — Northern District of Indiana

607 F. Supp. 419

UNITED STATES of America v. Antonio BARREDA and Maria Barreda.

Crim. No. HCR 85-1.

United States District Court, N.D. Indiana, Hammond Division.

April 9, 1985.

Gregory A. Vega, Asst. U.S. Atty., R. Lawrence Steele Jr., U.S. Atty., Hammond, Ind., for plaintiff.

Nick J. Thiros, Cohen & Thiros, Merrillville, Ind., for defendants.

ORDER

MOODY, District Judge.

This matter is before the Court on the Defendants', Antonio Barreda and Maria Barreda, Motion to Dismiss Indictment filed on March 1, 1985. The Government filed a response on March 15, 1985. On March 28, 1985 a hearing was held in which the parties had the opportunity to expound on their respective positions.

The indictment charges the Defendants with a violation of 18 U.S.C. § 371 and multiple violations of 18 U.S.C. § 641. Briefly, the indictment alleges that the Defendants embezzled, stole and converted, to their own use, property of the United States, namely federal revenue sharing funds. The Defendants contend that the indictment must be dismissed because federal revenue sharing funds within the control of a state or local government unit are not the property of the United States Government but are the property of the state or local government unit. Therefore, they contend the indictment fails to allege an offense against the United States and consequently this Court lacks jurisdiction to hear this cause.

18 U.S.C. § 641 provides in relevant part:

* * * * * *

Whoever receives, conceals, or retains any record, voucher, money, or thing of value of the United States with intent to convert it to his own use or gain, knowing it to have been embezzled, stolen, purloined or converted ...

18 U.S.C. § 641. Thus, an essential element of any prosecution under Section 641 is that the particular defendant embezzled ... federal "things of value." The Seventh Circuit has consistently held that the proper test for determining whether funds have retained a sufficient federal character to sustain jurisdiction under Title 18 is to look at the supervision and control over the federal funds contemplated and manifested by the federal government. See United States v. Mitchell, 625 F.2d 158 (7th Cir. 1980) cert. denied 449 U.S. 984, 101 S.Ct. 402, 66 L.Ed.2d 247 (1980) (18 U.S.C. § 641); United States v. Hamilton, 726 F.2d 317 (7th Cir.1984) (18 U.S.C. § 665(a)); United States v. Harris, 729 F.2d 441 (7th Cir.1984) (18 U.S.C. § 657); United States v. Bailey, 734 F.2d 296 (7th Cir.1984) (18 U.S.C. § 641); United States v. Maxwell, 588 F.2d 568 (7th Cir.1978) cert. denied 444 U.S. 877, 100 S.Ct. 163, 62 L.Ed.2d 106 (1979) (18 U.S.C. § 641). In order to determine whether this test has been met the courts have applied a number of factors including: (1) specific reversionary interest in the federal government, (2) the statutory requirement that funds be used for the purpose intended, and (3) whether the recipient is required by federal law to maintain financial records, file reports, adopt government methods of management, or submit to federal oversight. See generally United States v. Gavin, 535 F.Supp. 1345 (W.D.Mich.1982).

In United States v. Mitchell, 625 F.2d 158 (7th Cir.1980) cert. denied 449 U.S. 984, 101 S.Ct. 402, 66 L.Ed.2d 247 (1980), the Defendant was convicted of violating 18 U.S.C. § 641 by unlawfully attempting to convert a stolen Illinois Public Aid Warrant. A percentage of money in the state's public aid account was granted to the state by the federal government under 42 U.S.C. § 603. On appeal to the Seventh Circuit, the defendant argued that the warrant was not "money, or a thing of value of the United States" within the meaning of Section 641. Disagreeing, the Seventh Circuit in Mitchell affirmed the defendant's conviction by finding that the warrant in question was a "thing of value of the United States." The court reviewed the pertinent statute, 42 U.S.C. § 603 and its implementing regulations at 45 C.F.R. § 200 et seq., and found substantial and sufficient federal supervision and control over the funds granted by the federal government to the state program. More specifically, the court stated:

As previously stated, this supervision includes quarterly federal reviews and annual audits and state reports with the ultimate sanction for discrepancies in the reports or misuse of the funds being reclamation of the money by the federal government. The fact that this reclamation is normally or even always enforced on an installment basis by reductions in future allotments does not, we believe, remove the funds allotted from the protection provided by § 641. The installment method seems simply the most convenient means to accomplish the reclamation and we find, similarly to the Court's statement in United States ex rel. Marcus v. Hess, 317 U.S. 537, 544, 63 S.Ct. 379, 384, 87 L.Ed. 443 (1943), that the statute "does not make the extent of the fund's safeguard depend upon the bookkeeping devices used for its distribution."

Id. at 161.

31 U.S.C. § 6701 et seq. is the implementing statute for the federal revenue sharing scheme. The intent of this statute is to return to the states and local communities revenues collected by the federal government so that the state and local governments can spend these funds according to their own perceived demands and objectives and not those of the federal government. Carolina Action v. Simon, 389 F.Supp. 1244 (M.D.N.C.1975). As the Defendants state, this scheme has been referred to as a "no federal strings" approach to federal monetary assistance. See Carolina Action, 389 F.Supp. at 1248, see generally Goolsby v. Blumenthal, 590 F.2d 1369 (5th Cir.1979). The Defendants' argument is basically that once federal revenue sharing funds are disbursed they become the property of the recipient state or local government and are no longer property of the federal government. As mentioned previously, this is not the proper test. While some courts focus on the federal government's property interest in embezzled funds, see United States v. Collins, 464 F.2d 1163, 1165 (9th Cir.1972), the courts in this circuit look to the degree of supervision and control contemplated and manifested by the federal government.

In the case sub judice the Court finds that the funds in question, federal revenue sharing funds, are a "thing of value of the United States" within the meaning of 18 U.S.C. § 641. That is, the federal government retains sufficient supervision and control over federal revenue sharing funds after they are distributed to the state or local government thus constituting the basis for criminal prosecutions under Title 18 of the United States Code. More specifically, a state or local government which receives federal revenue sharing funds is required by the federal government to establish a trust fund in which the entity must deposit all revenue sharing funds received. 31 U.S.C. § 6704(a)(1). The federal statute requires the state or municipality to comply with auditing, accounting and fiscal control procedures conforming to guidelines prescribed by the Secretary of the Treasury ("Secretary"). 31 U.S.C. § 6704(a)(6); 31 C.F.R. § 51.101-109. 31 U.S.C. § 6724(b)(1) requires the recipient entity to submit a year-end report to the Secretary. These reports must contain (1) the amount and purposes for which funds have been expended, and (2) the difference between the actual and proposed use of the payment. See also 31 C.F.R. § 51.12. The federal statute also places certain prohibitions and restrictions on the use of federal revenue sharing funds. Those prohibitions forbid (1) the using of federal revenue sharing funds for payments to influence legislation, and (2) the using of federal revenue sharing funds for discriminatory purposes in violation of the Age Discrimination Act of 1975, the Rehabilitation Act of 1973, and the Civil Rights Act of 1964. 31 U.S.C. §§ 6715 and 6716; 31 C.F.R. §§ 51.52 to 51.58. Finally, the federal government retains the power to reduce, withhold, or suspend revenue sharing funds from a state or municipality if said entity violates any of the prohibitions imposed by the federal government. 31 U.S.C. § 6718; 31 C.F.R. § 51.218(3)(b)(c)(d). When all the above-mentioned restrictions and requirements are examined together, the conclusion is inescapable that the level of supervision and control the federal government has over federal revenue sharing funds is sufficient for these funds to retain their federal character. Consequently, this Court has subject matter jurisdiction over this cause.

There are no reported cases which discuss whether or not federal revenue sharing funds can form the basis for a federal criminal indictment. The Seventh Circuit has found the requirements of the supervision and control test satisfied for federal...