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UNITED STATES v. KONEFAL

June 22, 1983

UNITED STATES OF AMERICA
v.
ERIC T. KONEFAL, LEROY HODGE and HAROLD J. SHARE, Defendants



The opinion of the court was delivered by: MUNSON

MEMORANDUM-DECISION AND ORDER

 HOWARD G. MUNSON, C.J.

 On February 24, 1983, the grand jury returned a three count indictment against defendants Konefal, Hodge and Share. Count I charges all three defendants with conspiracy to defraud the United States by obstructing and hindering the Treasury Department in administering the Currency and Foreign Transactions Reporting Act. Such conspiracy is alleged to have taken place between July 1, 1982 and January 25, 1983. Count II charges all three defendants with causing several banks to fail to file currency transaction reports with the Internal Revenue Service. Such activity is alleged to have taken place between December 1, 1982 and January 25, 1983 and is further alleged to have involved transactions exceeding $100,000.00 in a 12-month period. Count III charges all three defendants with making false statements to and/or misleading agents of the Internal Revenue Service with regard to the allegations in counts I and II.

 Presently before the Court are omnibus motions for relief by each defendant. Specifically, the defendants ask for a dismissal of the indictment, a bill of particulars, severance, suppression, a change of venue, and discovery. The Court will address these motions seriatim.

 I

 DISMISSAL OF THE INDICTMENT

 In 1970, Congress passed the Currency and Foreign Transactions Reporting Act. The express purpose of the Act was "to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings." 31 U.S.C. § 5311 [Pub. L. 97-258, 96 Stat. 995, Sept. 13, 1982]; United States v. Thompson, 603 F.2d 1200, 1202 (5th Cir. 1979). As noted in the House Report:

 
Criminals deal in money -- cash or its equivalent. The deposit and withdrawal of large amounts of currency or its equivalent (monetary instruments) under unusual circumstances may betray a criminal activity. The money in many of these transactions may represent anything from the proceeds of a lottery racket to money for the bribery of public officials.

 H.R. Rep. No. 91-875, 91st Cong., 2d Sess. reprinted in 1970 U.S. Code Cong. & Ad. News 4394, 4396. Thus, there was a real need for the Government to be apprised of large cash transactions in its domestic financial institutions.

 Section 221 of the Act, 31 U.S.C. § 5313(a), provides that when domestic financial institutions are involved in cash transactions in an "amount, denomination, or amount and denomination, or under circumstances the Secretary prescribes by regulation," the institution shall file a currency transaction report with the Secretary of the Treasury. Pursuant to this mandate, the Secretary promulgated the following reporting requirement:

 
Each financial institution shall file a report of each deposit, withdrawal, exchange of currency or other payment or transfer, by, through, or to such financial institution which involves a transaction in currency of more than $10,000.00. 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) (1982).

 The gravamen of the present indictment is that all three defendants engaged in a scheme to circumvent the above reporting requirements. The indictment charges that defendants purchased cashiers checks at various local banks in amounts less than the $10,000.00 threshold. The checks were often purchased with fictitious remitters' names and were then used to purchase bearer bonds. By structuring their transactions in this manner, defendants allegedly prevented the banks from filing currency transaction reports pursuant to 31 C.F.R. § 103.22(a).

 Defendants initially attack the indictment on the ground that they as individuals were under no duty to file currency transaction reports. Such an argument loses its persuasiveness in light of United States v. Thompson, 603 F.2d 1200. In Thompson, the Fifth Circuit upheld the conviction of an individual for "unlawfully causing the Ridglea Bank of Fort Worth, Texas to fail to file a currency transaction report (CTR) . . . ." Id. at 1201. While Thompson was an officer of the bank in question, he clearly was not a person who was under an obligation to file a CTR. Nevertheless, the court found that his activities were such as to support a violation of the Act.

 As to the argument that there was no violation of the Act because only transactions under $10,000.00 were made, the court in Thompson held that a person could not purposefully structure his transactions so as to get around the CTR filing requirement.

 
Appellant cannot flout the requirements of § [5313] with impunity. The decision to structure a $45,000.00 transaction in currency as five $9,000.00 loans with the intent to annul the reporting requirements does not equate to a decision to structure a financial transaction in a lawful manner so as to minimize or avoid the applicability of a tax covering only specific activity.

 Id. at 1203-04. Thus the Court finds that the indictment properly charges a crime under the Currency and Foreign Transactions Reporting Act.

 Violations of the Act are misdemeanors punishable by a fine of not more than $1,000.00 and/or up to one year in jail. 31 U.S.C. § 5322(a). However, when the violation is "part of a pattern of illegal activity involving transactions of more than $100,000 in a 12-month period," the crime becomes a felony and is punishable by a fine of not more than $500,000.00 and/or up to five years in jail. 31 U.S.C. § 5322(b). In the instant case, defendants argue that the escalation of the charge into a felony pursuant to section 5322(b) is improper.

 The Second Circuit recently considered the felony enhancement provision of the Act in United States v. Dickinson, 706 F.2d 88 (2d Cir. 1983). In Dickinson, the court held that in order to sustain the application of the enhancement section, the pattern of illegal activity must involve repeated violations of the Act itself, related to each other, and together involving more than $100,000.00 in a 12-month period. Id. at 90. See also United States v. Kattan-Kassin, 696 F.2d 893 (11th Cir. 1983); United States v. Thompson; United States v. Beusch, 596 F.2d 871 (9th Cir. 1979). The Second Circuit in Dickinson reversed a felony conviction because it found that the felony enhancement provision has been improperly applied to a single transaction involving more than $100,000.00. In the present case, however, the indictment charges numerous transactions involving more than $100,000.00. Thus, the ruling in Dickinson does not affect the validity of the instant indictment.

 The last question to be addressed with regard to the indictment is that of multiplicity. Defendants argue that count II refers to many different transactions and that each transaction constitutes a separate offense. Thus, the indictment was allegedly drawn in violation of Fed. R. Crim. P. 7(c) and 8(a). Under section 5322(b), the Government must prove a pattern of illegal activity over a 12-month period involving over $100,000.00. In addition, the predicate violation of the Act is found through the making of different transactions under the $10,000.00. Thus, by definition, a felony indictment under the Act must allege many different transactions to constitute a single crime. See United States v. Kearney, 451 F. Supp. 33, 36 (S.D.N.Y. 1978) (citing United States v. Daley, 454 F.2d 505, 509 (1st Cir. 1972)).

 Defendants will be protected from jury confusion or multiplicity problems by the use of appropriate jury instructions. Should the jury find that the activity was not part of a pattern of illegal activity involving over $100,000.00 during a 12-month period, then defendants will only be convicted of a single misdemeanor rather than one misdemeanor for each transaction charged in count II. Accordingly, defendants' motion to dismiss the indictment is hereby denied.

 II

 BILL OF ...


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