Appeals from judgments of conviction entered in the United States District Court for the Southern District of New York, Leonard B. Sand, Judge, after a jury verdict finding defendants guilty of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371 (1982), by selling phony religious ministries as part of a scheme to evade taxes. Affirmed.
Before: VAN GRAAFEILAND, CARDAMONE, and WINTER, Circuit Judges.
Jerome E. Heinemann and George Allen Delanoy, III appeal from their convictions by a jury before Judge Sand. Both appellants were convicted on one count of conspiracy to defraud the United States in violation of 18 U.S.C. § 371 (1982), and sentenced to three years imprisonment. The conspiracy involved the sale of "ministries" in purported tax-exempt "churches." On appeal, appellants raise several issues. First, both argue that there was insufficient evidence to support the single conspiracy alleged in the indictment rather than multiple conspiracies involving the sale of ministries in four different churches. Second, both claim that prejudicial evidence of their association with the "notorious fugitive" Robert Vesco was erroneously admitted. Heinemann makes two additional claims. He argues that Judge Sand's charge relating to "conscious avoidance" was erroneous, and that testimony concerning his conduct before a New Jersey grand jury was improperly admitted. Delanoy also raises two additional issues. He claims that Judge Sand erroneously admitted a taped conversation between a government informant and a co-defendant and certain other evidence prejudicial to Delanoy. We reject their contentions and affirm.
Between 1977 and 1981, Frank Conti operated a series of businesses that sold "ministries" in various churches to be used by the buyer as a means of reducing his federal tax liability. Such ministries were used to reduce taxes by two predominant methods: one was ironically dubbed the "vow of poverty" method, while the other was called the "50% system." Under the vow of poverty, by far the most lucrative technique, the "minister" would renounce interest in all income in favor of the church. Paychecks would then be deposited in the church account, which in turn was used to pay the minister's personal and family living expenses. In the first year of a ministry, the minister would file an income tax return claiming to have earned no income and requesting a refund of all income tax previously withheld during that year. In subsequent periods, a minister would claim sufficient exemptions on W-4 Forms so that no portion of wages would be withheld, and would pay no federal income tax. Under the 50% plan, the minister would deposit up to 50% of income in a church account and claim this amount as a charitable contribution deduction from adjusted gross income. Of course, the minister retained control over these "charitable contributions," characterizing disbursements of the funds as expenses of maintaining the parsonage.
The ministry business began in the late 1977, when Conti expanded a business known as Money Card, which sold memberships in a discount buying club, to include the sale of ministries in the Universal Life Church ("ULC"). He operated the business with a pyramidal sales network, through which salespeople earned commissions both on their own sales of ministries and on the sales of additional salespeople whom they had recruited.
In early 1978, after meeting with William Drexler, the "Archbishop" of the Life Science Church ("LSC"), Conti began selling ministries in the LSC. By the end of 1978, Conti had renamed his business "Freedom of Choice" and was concentrating exclusively on selling LSC ministries, again employing the pyramidal structure used to sell ULC ministries. Conti had paid Drexler $25,000 for the privilege of being named the LSC "Bishop" for New Jersey, entitling him to the exclusive representative in that state for the sale of LSC ministries. In January 1979, however, after a dispute with Drexler over the size of Conti's exclusive sales territory, Freedom of Choice left the LSC.
Conti then decided that his organization would promote Basic Bible Church of America ("BBCA") ministries instead. He held a meeting at which he urged the membership of Freedom of Choice to switch affiliation. Jerome Daly, the "Archbishop" of BBCA, spoke at the meeting, taking credit for Drexler's success with the LSC, criticizing defects in the plan promoted by Drexler, and outlining his own BBCA plan. After a dispute with Daly, however, Conti caused Freedom of Choice to revert to ULC ministries.
During this period, Conti applied to the Internal Revenue Service ("IRS") for a tax-exempt determination letter for his own church, the Freedom Church of Revelation ("FCR"). He also renamed his sales organization the Freedom Institute of America. The IRS issued FCR an individual tax-exempt determination letter on June 8, 1979. In October 1979, Conti gathered the members of his organization for a meeting at which he announced his new church, and encouraged all existing members of Freedom of Choice to join at a starting fee of $3,000. Those who had previously enrolled in ULC through Conti's organization were allowed to deduct their earlier payments from this membership fee. Freedom of Choice's pyramidal sales structure was also adopted by FCR and formalized into a "missionary program." Church members acted as "missionaries" who recruited new church ministers and thereby earned commissions, in the form of "donations" to their FCR "congregations," consisting of a percentage of the membership fees paid by the new ministers whom they had recruited. The size of that commission depended on the member's level in the pyramid.
Heinemann, a truck driver with St. Johnsbury Trucking, purchased an LSC ministry through Freedom of Choice in late 1978. Heinemann purported to take a vow of poverty, and opened a bank account in the name of LSC over which he and his wife were trustees. Heinemann requested a refund of all income tax withheld for 1978 and filed no tax returns for 1979-1983. After joining LSC, Heinemann consistently attended Conti's various church meetings and switched affiliation along with the Freedom of Choice organization to BBCA and then to ULC. Heinemann opened a ULC bank account in April 1979. During this period, Heinemann quickly rose in the ranks of Conti's organization. When FCR was formed, Heinemann became president of the Freedom Institute. He was also named a "Bishop" in FCR's governing "Bishops Council," and later became Dean of Freedom College, the "educational" arm of FCR that sought to teach outsiders the benefits of an FCR ministry. At weekly Bishops Council meetings, Heinemann met with Conti, co-defendant Delanoy, and Joseph Coniglione, a government witness at trial.
Delanoy joined the FCR in December 1979 by purchasing a position on the Bishops Council, which entitled him to the maximum portion of recruitees' membership fees. Like Heinemann, he took a vow of poverty, opened a church bank account, and filed no tax returns. Delanoy eventually rose to the position of Assistant to the Archbishop, and ran the FCR national office when Conti moved to Florida.
Each of the churches sold by Conti's organization was promoted to the general public as a means of avoiding taxes. Although FCR policy required new ministers to sign pledges that they joined for "religious, charitable and educational purposes," not for "personal financial gain," "ministers" were instructed in techniques to avoid taxation, most notably disguising the fact that they were personally benefiting from their charitable contributions or were earning income under their vows of poverty. For example, the ministers were instructed to sign church checks with "illustrator pens," which supposedly resisted microfilming, and to produce church records to no one except their "successor trustees." Moreover, the evidence clearly indicated that both Heinemann and Delanoy had lifestyles during their tenure with FCR inconsistent with genuine vows of poverty.
In 1980, the IRS not surprisingly began to audit various FCR ministers. The FCR hierarchy, including Heinemann and Delanoy, instructed these ministers to produce no information and to send all correspondence to them for review by FCR's legal staff. Early in 1980, Heinemann received subpoenas for financial records of the Freedom Institute, ULC, and two other organizations in connection with an investigation by the State of New Jersey. The IRS also began proceedings to revoke FCR's tax exemption determination letter. The Bishops Council met several times to discuss these developments. At one meeting, FCR's lawyer, William DeMarco, advised Heinemann and Delanoy that more be done to give FCR a religious appearance. A number of steps were taken, including plans to market a new church, the Church of God's Elect ("CGE").
On October 14, 1981, the IRS notified FCR that it proposed to revoke FCR's tax-exempt status. An appeal by FCR was denied on September 30, 1982, and FCR was notified that the IRS considered it to be operated for the benefit of private individuals, not for any exempt purpose. In response, FCR filed a declaratory judgment action seeking to overturn the IRS's administrative determination. During this period, numerous FCR ministers were audited and went to the Tax Court, where their deductions were consistently disallowed on the basis of self-enurement.
The Bishops Council developed a new system of churches in an attempt to overcome these difficulties. Conti acquired the Community Church of Truth ("CCT"), a church with group tax-exempt status, and appointed his wife as its head. CCT formed the American Association of Churches ("AAC") under its power to charter additional exempt organizations, and FCR became a member of AAC. Delanoy then instructed FCR ministers to sent their "contributions" directly to AAC instead of to the ministers' own FCR accounts. AAC distributed these funds to its member churches, including FCR, after retaining 5% purportedly for world hunger relief. FCR ministers were told to "estimate high" in their budgets so as to receive their full share from AAC. While appearing to be separate religious entities, CCT, AAC, and FCR were run out of FCR's Florida office, and merely consisted of different bank accounts controlled by Conti.
Conti and Delanoy also began to promote CCT, selling individual churches to high-income individuals. In addition, Delanoy sold ministries in the Family Church of God ("FCG"), a less expensive church affiliated with CCT. Heinemann, however, was opposed to AAC, and sought a CCT-affiliated church from Conti. He eventually formed Pinelands Community Church with several FCR ministers.
FCR undertook a number of investment programs. These included a plan to sell interest in gold and silver mines in Mexico; a plan to sell tax-free "congregational bonds" to FCR ministers to raise funds for investing in English gold and silver futures; a plan to import shrimp and lobster from a company called Pescado Oceano and to fish Nicaraguan waters with Pescado Oceano; and a plan to sell shoes, hats, and belts as exclusive agent of Arnold Rodriguez B. and Associates. Delanoy and Coniglione also ...