United States v. Richter, 84 CR 235.

Decision Date05 April 1985
Docket NumberNo. 84 CR 235.,84 CR 235.
Citation610 F. Supp. 480
PartiesUNITED STATES of America, Plaintiff, v. Jack RICHTER, Slobodan Pavlovic, Hristo Mangovski and Nikola Konstantinov, Defendant.
CourtU.S. District Court — Northern District of Illinois

COPYRIGHT MATERIAL OMITTED

Roger Markley, Asst. U.S. Atty., Chicago, Ill., for plaintiff.

Nan Nolan, Patrick A. Tuite, Ltd., Michael Monico, Michael Goode, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

ASPEN, District Judge:

In a sixteen count indictment1 the government charges the four defendants with conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, and with violating reporting provisions of the so-called "Bank Secrecy Act," codified at 31 U.S.C. §§ 5311 et seq. and implemented by 31 C.F.R. § 103.11 et seq. (1984). The gist of the indictment is that the defendants "laundered" money by using a scheme to send large sums to Switzerland without alerting the watchful eye of the Internal Revenue Service ("IRS"). The defendants have filed a flurry of pretrial motions, the most significant being motions to dismiss the indictment under several theories. For the reason stated below, those motions are granted in part and denied in part: only Counts XI through XVI of the indictment are dismissed.

Facts

We have gleaned the following facts from the indictment, which we assume to be true for the purposes of the motions before us. In late 1982, defendant Nikola Konstantinov ("Konstantinov") met several times with federal agents, whom he believed to be drug dealers. They allegedly discussed laundering of drug money. On March 10, 1983, Konstantinov introduced Agents Perez and Perry to defendant Slobodan Pavlovic ("Pavlovic"), and the four talked about money-laundering. Pavlovic and Perry met several more times that spring. On June 6, 1983, Pavlovic introduced Perry and Agent Ahern to defendant Jack Richter ("Richter"), a lawyer in private practice. Pavlovic had been in the real estate business and, according to the defendants, was one of Richter's clients. On June 10, 1983, the agents gave Richter and Pavlovic $25,000 in cash to launder. That day the two defendants deposited amounts of about $9,600, $7,500 and $7,800 to Richter's client escrow account, keeping the rest as a fee. Three days later, they wired $23,000 to a Swiss bank account.

Similar transactions occurred throughout that summer. For example, on June 21, 1983, Richter and Pavlovic opened accounts at several Chicago banks, and they deposited another $85,000 of the agents' money in those accounts, with $9,900 going to eight of the accounts and $5,800 going to a ninth. On August 24, 1983, they received $115,000 and deposited the money in twelve accounts in $9,500 increments. All of this money was eventually wired to Switzerland, with Pavlovic and Richter deducting about 6% for fees.

Richter and Pavlovic broke up the large sums into units of less than $10,000 in order to prevent the federal government from learning about them. Under the Bank Secrecy Act and its implementing regulations, a "financial institution" must file a report with the IRS when it engages in a "transaction in currency" of more than $10,000. See 31 U.S.C. § 5313; 31 C.F.R. §§ 103.11, 103.22 (1984).2 Richter and Pavlovic allegedly knew that single deposits of more than $10,000 would have required the bank to file a "Currency Transaction Report" ("CTR") on "Form 4789" with the IRS. Through the above scheme they intended to and managed to deposit and transfer some $225,000 to Switzerland without alerting the government.

On October 4, 1983, Richter and Pavlovic met with Agent Reger to discuss a new laundering scheme, which would involve the use of a diplomat from Yugoslavia to "match" deposits in U.S. banks with deposits in Yugoslavia. On November 28, 1983, Agent Ahern gave them $15,000 to launder, and they showed him a copy of a plane ticket in defendant Hristo Mangovski's ("Mangovski") name to indicate that he was in Yugoslavia working out the mechanics of the new scheme. On January 24, 1984, the three defendants caused $12,750 to be wired from the "Stopanska Banka Skopje" in Yugoslavia to Switzerland.

The three defendants again changed their operation. On February 2, 1984, the agents gave $35,000 to Richter and Pavlovic, who in turn gave it to Mangovski. He deposited the money in several increments of less than $10,000 in the account of "Stopanska Banka-Skopje" at the Gainer National Bank in Merrillville, Indiana. On February 21, 1984, a matching amount, less a fee, was wired from the Yugoslavia Banka to Switzerland. On March 1, 1984, a similar scheme was carried out with another $75,000, and on March 20, 1984, the agents gave another $1,000,000 to Richter and Pavlovic. They in turn gave the money to Mangovski, deducted another fee and were apparently arrested sometime before consummating this last act of alleged misconduct.

Count One of the indictment charges that all four defendants conspired to defraud the United States in violation of 18 U.S.C. § 371. Konstantinov is not named as a defendant or mentioned in the remaining fifteen counts. Counts Two, Four and Six rest on the theory that Richter and Pavlovic were de facto financial institutions and charge them with three acts of failing to file CTRs, in violation of 31 U.S.C. §§ 5313 and 5322(b). Counts Three, Five and Seven charge those two with causing banks to fail to file CTRs, in violation of 31 U.S.C. §§ 5313, 5322(b) combined with 18 U.S.C. § 2(b). Counts Eight, Nine and Ten charge Richter, Pavlovic and Mangovski with failing to file CTRs concerning the "Yugoslavian" transaction, in violation of 31 U.S.C. §§ 5313, 5322(b) and 18 U.S.C. § 2. The remaining counts charge Richter and Pavlovic with various acts of wire fraud in violation of 18 U.S.C. § 1343.

The defendants have made various statutory and constitutional challenges to the indictment. They argue principally that:

(1) The indictment does not allege cognizable conspiracy offenses or violations of the Bank Secrecy Act.
(2) The alleged violations of the Act are legally impossible because all of the money belonged to the government.
(3) The indictment does not state cognizable wire fraud offenses.
(4) The indictment is impermissibly vague.
(5) The Act as applied violates the Search and Seizure Clause of the Fourth Amendment and the Self-Incrimination Clause of the Fifth Amendment.
(6) The government's undercover operation was outrageous in violation of the Due Process Clause, warranting dismissal of the indictment.

We now turn to these, and a few ancillary, challenges.

The Motion to Dismiss the Conspiracy Count

Count One of the indictment alleges that all four defendants conspired to defraud the United States, in violation of 18 U.S.C. § 371. That section states in relevant part:

If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined not more than $10,000 or imprisoned not more than five years, or both.

This section has two prongs. It reaches both conspiracies to commit substantive federal offenses and those to commit frauds against the United States which are not made criminal by other legislation. Paragraph 2 of Count One tracks both prongs. First, it charges the defendants with conspiring to defraud the United States by structuring their currency transactions to impair the lawful functions of the Department of the Treasury in collecting data about transactions greater than $10,000. See 31 U.S.C. §§ 5311 et seq.; 31 C.F.R. § 103.11 et seq. Second, it accuses the defendants of conspiring to conceal and cover-up, by scheme and device, material facts in a matter within the jurisdiction of the Treasury Department, in violation of 18 U.S.C. § 1001.3 In sum, Count One does not allege any violations of other substantive criminal offenses. It simply charges a conspiracy to defraud the United States and to violate 18 U.S.C. § 1001. We will first consider the alleged conspiracy to defraud.

"Fraud" as meant in § 371 is broader than its common law namesake. Dennis v. United States, 384 U.S. 855, 861, 86 S.Ct. 1840, 1844, 16 L.Ed.2d 973 (1966); United States v. Turkish, 623 F.2d 769, 771 (2d Cir.1980), cert. denied, 449 U.S. 1077, 101 S.Ct. 856, 66 L.Ed.2d 800 (1981). It embraces "any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any department of government." Dennis, 384 U.S. at 861, 86 S.Ct. at 1844 (quotations and citations omitted). It is well established that the term "defraud" as used in § 371 not only reaches schemes which deprive the government of money or property, but also is designed to protect the integrity of the United States and its agencies, programs and policies. United States v. Johnson, 383 U.S. 169, 172, 86 S.Ct. 749, 751, 15 L.Ed.2d 681 (1966); United States v. Burgin, 621 F.2d 1352, 1356 (5th Cir.1980), cert. denied, 449 U.S. 1015, 101 S.Ct. 574, 66 L.Ed.2d 474 (1980). The government charges that the defendants conspired to trick the banks into not filing CTRs with the IRS by breaking up their huge deposits into chunks of less than $10,000.

The defendants emphasize that the Bank Secrecy Act and its regulations imposed no duty on them to file CTRs as individuals.4 Nor does any law specifically forbid them from making deposits in sums less than $10,000. Nor did they employ deceitful means, in the sense of using fictitious names or forging signatures. Rather, everything they did was in the "open." They agreed to make, and then made, deposits in their own names, with the hitch that they either made those deposits at several different banks or in increments at one bank. While, as we discuss later, the arguments are arguably relevant to whether the underlying substantive offenses were committed, they do not bear on whether an unlawful...

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