US v. Riky, 86 CR 643-2.
| Decision Date | 07 August 1987 |
| Docket Number | No. 86 CR 643-2.,86 CR 643-2. |
| Citation | 669 F. Supp. 196 |
| Parties | UNITED STATES of America, Plaintiff, v. Shahid RIKY, et al., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Roger Markley, William Spence, Asst. U.S. Attys., Chicago, Ill., for plaintiff.
Patrick S. Coffey, U.S. Federal Defender Program, Thomas D. Decker, Richard H. McLeese, Thomas D. Decker & Associates, Chicago, Ill., for defendants.
This prosecution arises out of an alleged money laundering scheme run by defendants Ghulam Mustafa, Shahid Riky, Ghulam Polani, and Aijaz Zaidi, also known as Syed Zaidi. The government brought a 23-count indictment alleging violations of the wire fraud statute, 18 U.S.C. § 1343, the Bank Secrecy Act, 31 U.S.C. §§ 5313 and 5322(b), and 18 U.S.C. § 2.
Before the court are defendant Riky's motions to dismiss Counts two, five and six, and twenty through twenty-three of the indictment. Those motions are granted.
The following facts are alleged in the indictment and, for the purposes of this motion, are presumed to be true.
In early April, 1985, IRS Special Agent Ronald Reger, using the assumed name Ronald Rossi, met with Ghulam Mustafa. Mustafa was led to believe that Rossi distributed narcotics and other drugs and wanted to conceal the money he had earned. Mustafa explained that he could help Rossi launder the cash by purchasing cashier's checks in amounts less than $10,000 and sending the checks overseas. Mustafa was given $27,000, a commission, and the costs of the cashier's checks and the wire transfers. He entered the First National Bank of Chicago with the $27,000, and one day later he reported that three transactions had been completed and the money sent abroad.
On at least a dozen other occasions over the next eight months, Mustafa performed similar services for Rossi. Mustafa introduced Rossi to Shahid Riky, Ghulam Polani, and Aijaz Zaidi, and they began to participate in the money laundering scheme as well. Together the four of them laundered approximately $1,573,000.
Count 2
Count 2 of the indictment charges Mustafa and Riky with wire fraud, the elements of which are (1) a scheme to defraud; and (2) the use of the wires in furtherance of that scheme. 18 U.S.C. § 1343; United States v. Lovett, 811 F.2d 979, 985 (7th Cir.1987); United States v. Bonansinga, 773 F.2d 166, 168 (7th Cir.1985).1 Since Riky does not contend that the indictment fails to allege the use of the wires, the only question is whether the government has charged the defendants with engaging in a fraudulent scheme.
According to the indictment, the scheme to defraud had two purposes:
In the recent case of McNally v. United States, ___ U.S. ___, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), the Supreme Court limited the scope of the mail fraud statute to schemes designed to deprive the victim of his or her property rights, and rejected the notion that the requisite scheme could be one that deprived people of merely "intangible rights" such as the right to good government. See e.g., United States v. Holzer, 816 F.2d 304 (7th Cir. 1987). As a result, the first branch of the scheme alleged here is cognizable under the wire fraud statute only if the obstruction of information relating to currency transactions and income infringes on a tangible right. Three courts have addressed this issue.
In United States v. Richter, 610 F.Supp. 480 (N.D.Ill.1985), Judge Aspen opined that CTRs are essentially information as opposed to money or property, and thus could not be considered a tangible economic right. Id. at 494 n. 22. Several months later, another court in this circuit reasoned that while it was true that the government technically was deprived of raw information only, that information was directly relevant to an important economic right—the collection of income taxes—and upheld the indictment. See United States v. Gimbel, 632 F.Supp. 748, 758-59 (E.D.Wisc.1985) (Curran, J.). Gimbel was followed by the Fifth Circuit in United States v. Herron, 816 F.2d 1036, 1040-41 (5th Cir.1987).
Each of these cases, however, was decided prior to the Court's ruling in McNally. McNally dealt with a kickback scheme in which a government official, acting on behalf of the state, selected an insurance agency which agreed to share commissions above a certain dollar amount with companies owned by the official and his friends. The defendants were convicted, and appealed on the ground that the charged scheme was not cognizable under the wire fraud act. The Supreme Court agreed, and reversed their convictions. It noted that the jury was not required to find that the state was deprived of any money, or even of any control over that money. The only fraudulent act alleged, it found, was a failure to disclose information. ___ U.S. at ___ and n. 9, 107 S.Ct. at 2882 and n. 9.
In this case, the alleged deprivation also is informational. It cannot seriously be contended that the CTRs or income information are property belonging to the government; instead they are important only insofar as they alert the government to items in which they may have a property interest. While the indictment suggests that defendants' schemes may have deprived the government of tax revenues, it does not allege any facts from which this court could conclude that that was in fact the case. The chain of causation is too attenuated to permit a reasonable inference that the government was deprived of a tangible interest.
United States v. Herron, supra, the leading case to the contrary, cannot be followed because it conflicts with McNally. Herron adopts the reasoning of the Gimbel court that the information must have had economic value or else the government would not be trying to get it. See United States v. Gimbel, supra at 758-59; United States v. Herron, supra at 1040. Under this reasoning, almost any scheme to defraud could be said to have deprived someone of a property interest. Since McNally mandates that the mail and wire fraud statutes be construed narrowly, this court must take a different path.
It also may be argued that "the ultimate aim of a money laundering scheme ... is to deprive the government of taxes." Gimbel, supra at 759. Yet the legislative history of the Bank Secrecy Act reveals that the purpose of requiring CTRs was to establish "paper trails" by which the government could trace white collar criminals. Identifying income tax evaders was only a secondary purpose. See H.R.Rep. No. 91-975, 91st Cong. 2d Sess. (1970), reprinted in 1970 U.S.Code Cong. and Admin.News. 4394-4408. Thus it cannot be presumed that the defendants would not have devised the alleged scheme but for a desire to evade income taxes.2 Furthermore, it is worth noting that the defendants were not charged with aiding and abetting income tax evasion. See 18 U.S.C. § 2; 26 U.S.C. § 7201.
The second branch of Count 2, which charges defendants with obtaining fees for money laundering, fares no better. Riky very persuasively argues that, according to the indictment, Rossi was not defrauded: he paid for money laundering services, and he received them. He thus was not deprived of anything of value by means of false statements. The only other possible victim is the United States government, but as was discussed earlier, the United States was not deprived of any tangible good. Accordingly, Count 2 is dismissed.
Count 5, directed against Mustafa and Riky, and Count 6, directed against Riky alone, charge that defendants were acting as financial institutions and failed to file CTRs in violation of 31 U.S.C. §§ 5313 and 5322(b). According to 31 C.F.R. § 103.11(e), a financial institution is defined as follows:
Riky argues that he cannot be a financial institution because he is not an "agency, branch, or office within the United States." While there are numerous cases that hold that a person can be a financial institution, none of them addressed this precise argument. Instead they looked to 31 C.F.R. § 103.11(e)(3) above, and omitted any reference to the first ten words of the regulation. See e.g., United States v. Hernando Ospina, 798 F.2d 1570, 1578-79 (11th Cir. 1986); United States v. Mouzin, 785 F.2d 682, 689 (9th...
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