United States v. Cogswell, CR-85-646 WHO.

Decision Date19 November 1985
Docket NumberNo. CR-85-646 WHO.,CR-85-646 WHO.
Citation637 F. Supp. 295
CourtU.S. District Court — Northern District of California
PartiesUNITED STATES of America, Plaintiff, v. Robert C. COGSWELL and David P. Schwindt, Defendants.

Joseph Russoniello, U.S. Atty., N.D. California, Martin F. Healey, Asst. U.S. Atty., San Francisco, Cal., for plaintiff.

Richard B. Mazer, David P. Bancroft, Frank Z. Leidman, Sideman & Bancroft, San Francisco, Cal., for defendants.

OPINION AND ORDER

ORRICK, District Judge.

The Currency and Foreign Transaction Reporting Act requires a domestic financial institution to report to the Secretary of the Treasury any deposit or exchange of currency or other payment or transfer by or to such financial institution that involves a transaction of more than $10,000.

The government charges defendants, Robert C. Cogswell and David P. Schwindt, with arranging for another person, Donna Rainwater, to buy three cashier's checks, each in the amount of $9,000, at three different banks in Marin County. The government then charges defendants with conspiracy to avoid having the banks make Currency Transaction Reports ("CTRs"), thereby concealing the accurate source, origin, transfer, and existence of the currency.1

Defendants have moved to dismiss the indictment under Federal Rule of Criminal Procedure 12(b)(2)2 on the grounds that there is no duty imposed upon any bank to report transactions under $10,000, and on the further grounds that the defendants are under no duty to disclose to the banks or anyone else the accurate source, origin, transfer, and existence of the currency. For the reasons hereinafter set forth, the Court dismisses the indictment.

I

As noted above, the government charges that on or about June 23, 1982, defendant Schwindt provided Donna Rainwater with approximately $75,335 in United States currency, and that within the next two days she purchased, on behalf of the defendants, three cashier's checks for $9,000 each, at three different banks in Marin County, California. Count One of the indictment alleges that these transactions were part of a trick or scheme whose object was to transfer the $75,335 without the filing of any CTRs. It is further alleged that defendant Cogswell used the checks to purchase a motor home under a false name.

The theory of Count One is that the defendants concealed and caused to be concealed material facts required to be reported pursuant to 31 U.S.C. § 5313 (formerly 31 U.S.C. § 1081) and 31 C.F.R. § 103, the Currency Transaction Reporting Act ("Reporting Act") by causing various individuals to exchange currency in amounts less than $10,000 without filing any CTRs, thereby concealing the accurate source, origin, transfer, and existence of the currency.

Title 31 U.S.C. § 5313(a) provides, in pertinent part, that:

When a domestic financial institution is involved in a transaction for the payment, receipt or transfer of United States * * * currency * * * in an amount, denomination or amount and denomination, or under circumstances the Secretary prescribes by regulation, the institution and any other participant in the transaction the Secretary may prescribe shall file a report on the transaction at the time and in the way the Secretary prescribes. A participant acting for another person shall make the report as the agent or bailee * * *.

The regulations promulgated by the Secretary provide that:

Each financial institution shall file a report of each deposit of each * * * exchange of currency or other payment or transfer, by, through or to such financial institution, which involves a transaction in currency of more than $10,000. Such reports shall be made on forms prescribed by the Secretary and all information called for in the forms shall be furnished.

31 C.F.R. § 103.22(a). Thus, even though the statute empowers the Secretary to impose a reporting duty on bank customers, no such regulations have ever been promulgated, and although banks must file reports, they are only required to report transactions over $10,000.

The government agrees that the bank customer has no reporting duty under the statute and regulations. Nevertheless, it contends that the defendants concealed material facts relating to the banks' reporting duty, by failing to inform the banks of the "structured" nature of their transactions, thereby causing the banks to fail to file the required reports, in violation of 18 U.S.C. §§ 2 and 1001.

The government's position rests on the presumption that "structured transactions" (i.e., a series of transactions, each in an amount under $10,000, but totaling more than $10,000) must be reported under the Reporting Act. Then, given this legal duty to report structured transactions, the defendants can be indicted under 18 U.S.C. § 2 for causing the banks to violate that duty by concealing material facts in violation of 18 U.S.C. § 1001.

Because this Court finds that the Reporting Act does not impose a duty to report transactions in amounts under $10,000, it also finds that the defendants cannot be prosecuted for concealing material facts, because the defendants had no legal duty to disclose any facts.

II

The Circuits are in disagreement on the issue as to whether structured transactions must be reported under the Bank Secrecy Act. It is a matter of first impression in the Ninth Circuit.

The most recent and comprehensive analysis of the currency transactions regulations at issue in this case is United States v. Anzalone, 766 F.2d 676 (1st Cir. 1985), reh'g en banc denied 1985. In Anzalone the facts are strikingly similar to those in this case. There the defendant was charged with violating 18 U.S.C. §§ 2 and 1001 for his failure to inform the bank of the "structured nature" of his transfers of approximately $100,000 over a twelve-month period, no one transaction exceeding $10,000.3 Judge Torruella, writing for the court, limited the question on appeal as to whether the defendant had fair warning that his actions and nondisclosure subjected him to criminal sanctions. The court unanimously held he did not.

The Anzalone court began its analysis with the dovetailing propositions that have long been part of our legal tradition. First, criminal laws are to be strictly construed, United States v. Enmons, 410 U.S. 396, 93 S.Ct. 1007, 35 L.Ed.2d 379 (1973), and, second, the Constitution mandates fair notice. U.S. Const. amend. V; Kolender v. Lawson, 461 U.S. 352, 357, 103 S.Ct. 1855, 1858, 75 L.Ed.2d 903 (1983) ("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.") Simply stated, fair warning must be given of what the law intends to do if a certain line is passed; to make the warning fair, the line should be clear. And because of the seriousness of criminal penalties, and the concomitant moral opprobrium, where there is ambiguity, criminal statutes are to be resolved in favor of the defendant. United States v. Bass, 404 U.S. 336, 348, 92 S.Ct. 515, 522, 30 L.Ed.2d 488 (1971).

With these two propositions in mind, it is clear to this Court, as it was in Anzalone, that the Reporting Act does not impose a duty to report structured transactions.

There is nothing on the face of either the Reporting Act or its regulations, or in their legislative history, to support the proposition that a structured transaction by a customer constitutes an illegal evasion of any reporting duty of that customer. Anzalone, 766 F.2d at 681. A report to Congress by the Comptroller General of the United States, dated 1981, noted that the regulations "were silent on the propriety of a customer's conducting multiple transactions to avoid reporting." Id. The regulation requiring reporting for each single transaction above $10,000 does not specifically prohibit dividing a large transaction into several small ones. And although the Treasury Department implemented revised regulations in 1980 to cure some deficiencies in the regulations, the propriety of multiple transactions was not addressed. Id. at 681-82. See "Bank Secrecy Reporting Requirements Have Not Yet Met Expectations, Suggesting Need for Amendment," Report to the Congress of the United States by the Comptroller General, Doc. 6GED-81-80 (July 23, 1981).

Congress recently enacted 26 U.S.C. § 6050I, effective January 1, 1985, providing for a reporting requirement for cash transactions that aggregate more than $10,000 in two or more related transactions. These provisions specifically exempt banks, and are made applicable only to a trade or business. It is thus clear that Congress has demonstrated it knows how to effect an aggregation requirement. Because there is no such regulation relating to banks, it would appear that Congress has evinced an intent not to require aggregation of structured transactions for banks or bank customers.

Furthermore, IRS Form 4789, which states on its reverse side that multiple transactions by or for any one person that total more than $10,000 in any one day should be treated as a single transaction, does not provide constitutionally sufficient notice. First, the form is not part of the regulations and, therefore, has no binding effect. Anzalone, 766 F.2d at 679 n. 6. The Administrative Procedure Act requires that before any form has the effect of law, it must be published to afford opportunity for comment. United States v. $200,000, 590 F.Supp. 866 (S.D.Fla.1984).

This Court is, therefore, required to conclude, as did the First Circuit, that the Reporting Act and its regulations, as they read in 1981 and as they presently read, impose no duty on defendants to inform the banks of the structured nature of the transactions in question. To impose criminal sanctions on the defendants under such circumstances would violate the fair warning requirements of the due process clause of the Fifth Amendment. Anzalone, 766 F.2d at 682.

Because there is no legal...

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