United States v. Rosenstein

• Decision Date: 26 January 1973
• Docket Number: 72-1190.,Dockets 72-1092,No. 111,112,111
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Sidney ROSENSTEIN et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

474 F.2d 705 (1973)

UNITED STATES of America, Plaintiff-Appellee, v. Sidney ROSENSTEIN et al., Defendants-Appellants.

Nos. 111, 112, Dockets 72-1092, 72-1190.

United States Court of Appeals, Second Circuit.

Argued November 14, 1972.

Decided January 26, 1973.

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James M. LaRossa, New York City (Gerald L. Shargel and Ronald P. Fischetti, New York City, on the brief), for defendants-appellants, Sidney Rosenstein and McInerney Sales, Inc.

Norman S. Ostrow, New York City (Royall, Koegel & Wells, James B. Weidner and James M. Ringer, New York City, of counsel), for defendants-appellants, Irving Braverman and Foremost Brands, Inc.

Gary P. Naftalis, Asst. U.S. Atty., New York City (Whitney North Seymour, Jr., U.S. Atty., S.D.N.Y. and Gerald A. Feffer and John W. Nields, Jr., Asst. U.S. Attys., New York City, of counsel), for plaintiff-appellee.

Before SMITH, KAUFMAN and MULLIGAN, Circuit Judges.

MULLIGAN, Circuit Judge:

These are appeals by Sidney Rosenstein, Irving Braverman, Foremost Brands, Inc. and McInerney Sales, Inc. from judgments of conviction entered in the United States District Court for the Southern District of New York on January 11, 1972 after trial before Hon. Thomas F. Croake, United States District Judge, and a jury. Judgments affirmed.

The Indictment filed on December 4, 1968 contained 13 counts. Count 1 charged all defendants with conspiracy to defraud the United States of federal income taxes and to commit offenses against the United States in willfully evading income taxes in violation of Title 26, United States Code, Section 7201 and in violation of Title 18, United States Code, Section 2, by aiding and abetting such violations. The balance of the counts were for substantive violations of these sections by the individual and corporate defendants. All were found guilty of the conspiracy counts and the applicable substantive counts. On January 11, 1972, Judge Croake imposed the following sentences:

Sidney Rosenstein, 18 months in prison on concurrently on each count, a total fine of $100,000 plus one-half the cost of prosecution;

Irving Braverman, 18 months in prison concurrently on each count, a total fine of $100,000 plus one-half the cost of prosecution;

McInerney Sales, Inc. and Foremost Brands, Inc. were each fined a total of $40,000;

Rosenstein and Braverman are presently enlarged on bail and payment of fines and costs has been stayed pending appeal.

I. THE FACTS

The investigation of this complicated case was commenced by Internal Revenue Service in 1964 and did not terminate until late in 1967. It involved interviewing a great number of witnesses in the United States as well as foreign nationals in Switzerland and Liechtenstein. In a trial which lasted six weeks, the Government presented some 75 witnesses and over 1000 documents as exhibits. The defendants did not testify.

The Government's proof established without any doubt that from May, 1960 until 1967 Braverman and Rosenstein and their wholly owned corporations, Foremost and McInerney, brazenly and fraudulently evaded United States income taxes by creating a dummy Liechtenstein corporation, called Continental Trade Establishment (CTE), to which they diverted payments of $1.6 million in commissions from October 1, 1961 to January 31, 1965 and which, in turn, were deposited in a secret account at the Bank Leu, Zurich, Switzerland.

Braverman and Rosenstein and their corporate alter egos, Foremost and McInerney, acted as sales representatives for American manufacturers in the sale of their products to United States Military Post Exchanges throughout the world. In return for their services, they received commissions of about 6% on gross sales. In May, 1960, Braverman and Rosenstein created CTE in Liechtenstein and opened an account at the Bank Leu in Zurich. Their American clients were then asked to make all commission checks on sales to overseas PX's payable to CTE and to forward them to Dr. Herbert Batliner, Haupstrasse 22, Vaduz, Liechtenstein, instead of to Foremost or McInerney, the previous payees. Sometime in 1966 the instructions were changed and the checks were forwarded to Dr. Alfred Buehler at the same Liechtenstein address. Batliner and Buehler were both Liechtenstein attorneys and Haupstrasse 22 was a two-story building which housed Batliner's law office and a shoe store. Representatives of 42 American manufacturers testified at trial as to the payment arrangements and the Government produced checks, payable to CTE and deposited in the Swiss Bank, totalling $1,604,409.59 for foreign PX commissions from October 1, 1961 through January 31, 1965. It is not disputed that no United States income taxes have ever been paid by the appellants on these commissions.

The evidence of the Government that CTE was utilized as a shell and a device for the appellants and was not in fact a viable operating entity, was overwhelming. A dozen American manufacturers were advised by Rosenstein, Braverman or their employees that CTE was actually their company. All the activities performed by Rosenstein and Braverman prior to May, 1960, continued. The same cast of characters continued to travel to European PX's, displaying samples and catalogues and arranging appointments between buyers and sellers. PX representatives testified at trial and produced log books from Wiesbaden and Nuremberg, Germany, the buying centers for the military establishment where sales representatives were required to check in. This testimony and these documents establish that while Rosenstein and Braverman continued to appear for their American clients, no one ever heard of or met either Batliner or Buehler who apparently never appeared to represent their company. Only one of the 15 PX buyers who testified had even heard of CTE. Even more telling is the testimony of Peter Roussos and Robert Naar, exclusive resident representatives for Foremost in parts of Europe from 1960 to 1964. They testified that only Braverman and Rosenstein or themselves represented the 42 American manufacturers whose commission checks to CTE constitute the basis for this indictment. Neither was ever employed by CTE and in fact neither had ever heard of CTE. There is no indication that CTE ever performed any services. In fact there is evidence to establish that Braverman and Rosenstein had CTE stationery and cards printed. The correspondence and contracts, prepared on these letterheads, were signed by their employees, falsely identifying the employees as CTE officers. Rosenstein also directed that Batliner's signature be forged on these letters. When he learned of this, Batliner resigned as a CTE director to be replaced by Buehler. The evidence of the PX representatives, the American manufacturers and the employees of Foremost and McInerney, plus the obvious efforts of Rosenstein and Braverman to create an appearance of activity amply demonstrate the charade. The reading of a voluminous record compels the conclusion that CTE had only one function: it was the receptacle of the income earned by the appellants from their representation of American producers of goods sold to foreign post exchanges. It was created by the defendants in an elaborate but futile effort to avoid American income taxes.

The principal argument raised on appeal is that the admission into evidence of the records of CTE, Government Exhibits 1020-23 and 1025-29, constituted reversible error.

II. THE LIECHTENSTEIN DOCUMENTS

a) The Business Records Exception

The exhibits in question were produced toward the close of its case, by a Government witness, Dr. Peter Monauni, one of three Liechtenstein attorneys resident at Haupstrasse 22, Vaduz, Liechtenstein. Dr. Batliner had refused to come to the United States at the time of the trial to testify. Instead he sent Dr. Monauni who had been associated with him for ten years. Dr. Monauni's direct testimony bolstered the other evidence in the case as to CTE's true character. He knew it simply as a client of his firm; to his knowledge it conducted no business of any description at the law office headquarters except for the forwarding of mail and checks.

Monauni produced a CTE file containing Exhibits 1020-23 and 1025-29. The Government offered the documents under the business records exception to the hearsay rule, 28 U.S.C. § 1732.¹ Essentially the statute provides that any writing or record, made as a memorandum of any act, transaction, occurrence or event, if made in the ordinary course of one's business and if it was the regular course of such business to make such record at the time or reasonably thereafter, is admissible as evidence of the act, transaction, occurrence or event. We agree with the appellants that the documents were not properly admissible under the statutory business record exception. The fact that Dr. Monauni did not personally keep the books and records would not render them inadmissible (United States v. New York Foreign Trade Zone Operators, Inc., 304 F.2d 792, 796 (2d Cir.1962)), but someone who is sufficiently familiar with the business practice must testify that these records were made as part of that practice. United States v. Delgado, 459 F.2d 471, 472 n. 5 (2d Cir.1972); Cullen v. United States, 408 F.2d 1178 (8th Cir.1969); United States v. Dawson, 400 F.2d 194, 198-199 (2d Cir.1968), cert. denied, 393 U.S. 1023, 89 S. Ct. 632, 21 L.Ed. 567 (1969). Dr. Monauni's testimony did not rise to this level of requisite knowledge. He not only did not keep the records, he did not even know from his own personal knowledge that they were kept in Batliner's office. He did not testify to the business practice of CTE or that it was the practice to keep the documents which were introduced.

Some of the Liechtenstein documents were letters from third parties who clearly were not working for CTE. They "were not made in the regular course of the business of the company in whose files they were found ...." Phillips v. United States, 356...