UNITED STATES v. ANZALONE

TORRUELLA, Circuit Judge.

In contrast to what is permitted under other legal systems,1 the Constitution of the United States mandates that, before any person is held responsible for violation of the criminal laws of this country, the conduct for which he is held accountable be prohibited with sufficient specificity to forewarn of the proscription of said conduct. U.S. Const. amend. V ("No person shall ... be deprived of life, liberty, or property, without due process of law"); Kolender v. Lawson, 461 U.S. 352, 357, 103 S.Ct. 1855, 1858, 75 L.Ed.2d 903 (1983) ("[A] penal statute [must] define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory enforcement."); Grayned v. City of Rockford, 408 U.S. 104, 108, 92 S.Ct. 2294, 2298, 33 L.Ed.2d 222 (1972) ("[L]aws [must] give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly."); Lanzetta v. New Jersey, 306 U.S. 451, 453, 59 S.Ct. 618, 619, 83 L.Ed. 888 (1939) ("No one may be required at peril of life, liberty or property to speculate as to the meaning of penal statutes."); Balthazar v. Superior Court of Mass., 573 F.2d 698 (1st Cir.1978). It is this principle that is at stake in the issues presented by this appeal.

The Currency Transaction Reporting Act ("Reporting Act"), 31 U.S.C. § 5311 et seq., authorizes the Secretary of the Treasury to require domestic financial institutions, and any other participants in transactions for the payment, receipt or transfer of United States currency, to report said transactions to the Secretary.2 The Secretary has issued regulations requiring only financial institutions to file these reports.3 Pursuant to these regulations, as well as § 5322(b) of the Reporting Act,4 financial institutions5 must report transactions in excess of $10,000,6 and transactions totalling more than $100,000 in a 12-month period.

On November 13, 1980 appellant purchased three checks from the Haymarket Cooperative Bank ("Bank"), all of which totaled more than $25,000 but none of which exceeded $10,000 individually. Thereafter, on separate dates commencing November 18, 1980 and ending December 1, 1980, appellant purchased nine additional checks totalling $75,000, again none of which individually exceeded $10,000. All the checks were payable to the same stock brokerage firm to pay for bonds purchased to the account of the wife and mother of a public official. The Bank did not file any reports concerning any of those transactions.

The government, labelling these dealings a "structured" transaction, concluded they were part of the same event and thus came within the purview of the Reporting Act as involving transfers of currency in excess of $10,000 and $100,000, respectively. No charges were brought against the financial institution, however.

Instead, the government decided to test the limits of statutory interpretation by charging appellant with a panoply of criminal violations. The government brought a five-count indictment, only two of which counts survived the two juries that heard the evidence.7 This appeal is thus concerned only with matters related to Counts III and V.

In Count III appellant was charged with violation of 18 U.S.C. § 1001 (which proscribes schemes to conceal, or to cause to be concealed, from the federal government a material fact),8 and 18 U.S.C. § 2 (which proscribes aiding, abetting or causing a crime by another).9 The essence of this charge is that appellant's failure to inform the Bank of the "structured" nature of his transfers constituted an illegal scheme to avoid detection of these payments by causing the Bank to fail in its duty to report them.

Count V is based on the same underlying facts as Count III, but in addition to charging appellant with violation of 18 U.S.C. § 2 for having caused the Bank to fail to file the reports, it is also alleged that appellant violated the Reporting Act, 31 U.S.C. §§ 5313, 5322 (imposing penalties for failure to file reports under the Reporting Act) and its regulations, 31 C.F.R. 22.

Appellant challenged the application of these statutes and regulations through appropriate motions before the district court. He claimed unconstitutional vagueness and lack of due notice to him that his actions were proscribed by these provisions. The court, citing United States v. Tobon-Builes, 706 F.2d 1092 (11th Cir.1983), United States v. Thompson, 603 F.2d 1200 (5th Cir.1979), and United States v. Konefal, 566 F.Supp. 698 (N.D.N.Y.1983), ruled in effect that "structured" transactions were considered a single transaction within the requirements of the Reporting Act and regulations. It concluded that the application of criminal sanctions to appellant for engaging in the conduct described in the indictment did not run contrary to the fair warning elements of the due process clause. These matters are now raised on appeal.

We are required to determine whether the Reporting Act and its regulations gave appellant sufficient advance warning that, if he engaged in "structured" transactions exceeding the established amounts, he was obligated to disclose this to the Bank so that it would report the transaction to the Secretary of the Treasury. Otherwise stated, we must determine whether appellant had fair warning that his actions and non-disclosure subjected him to criminal sanctions under 18 U.S.C. §§ 2, 1001 and 31 U.S.C. §§ 5312, 5322.

Irrespective of how we phrase this issue, the answer is in the negative.

We start with the proposition, correlative to the one with which we commenced this opinion, that criminal laws are to be strictly construed. United States v. Enmons, 410 U.S. 396, 411, 93 S.Ct. 1007, 1015, 35 L.Ed.2d 379 (1973) (Hobbs Act); United States v. Campos-Serrano, 404 U.S. 293, 297, 92 S.Ct. 471, 474, 30 L.Ed.2d 457 (1971) (Immigration and Naturalization Act); United States v. Bass, 404 U.S. 336, 347, 92 S.Ct. 515, 522, 30 L.Ed.2d 488 (1971) (Omnibus Crime Control and Safe Streets Act); United States v. Boston & Me. R.R., 380 U.S. 157, 160, 85 S.Ct. 868, 870, 13 L.Ed.2d 728 (1965) (Clayton Act). In the later case, which arose from this circuit, the Court cited Chief Justice Marshall who said:

More on point, the Court in Boston & Me. R.R. went on to say that "[t]he fact that a particular activity may be within the same general classification and policy of those covered does not necessarily bring it within the ambit of the criminal prohibition." United States v. Boston & Me. R.R., 380 U.S. 157, 160, 85 S.Ct. 868, 870, 13 L.Ed.2d 728 (1965). See also supra note 1 (discussing "crimes by analogy").

The Court in United States v. Bass, supra, indicated the rationale of this rule, which, as stated, dovetails with the prior notice requirements of the fifth amendment:

United States v. Bass, 404 U.S. 336, 348, 92 S.Ct. 515, 522, 30 L.Ed.2d 488 (1971) (citations and footnotes omitted).

The present ambiguity regarding coverage of the Reporting Act and its regulations has been created by the government itself. To begin with, the statute, 31 U.S.C. § 5313(a), extended its coverage to the financial institution and any other participant in the transaction. This means that the Secretary could have required not only the Bank to file a report, but also appellant, the stock brokerage firm, and even the beneficiaries of the transaction. But for reasons known only to the Treasury Department, the regulation enacted by the Secretary, 31 C.F.R. 103.22, limited the reporting requirement to the financial institution only. See California Bankers Ass'n v. Shultz, 416 U.S. 21, 58, 69-70 & n. 29, 94 S.Ct. 1494, 1516, 1521 & n. 29, 39 L.Ed.2d 812 (1974). This would indicate to any objective viewer that the Secretary was looking to the Bank, not to the "other participants in the transaction," as the source of the information required by the Reporting Act. Should such a regulation have alerted or put on notice "other participants in the transaction" that something was required of them vis-a-vis the filing of the report? We think not. Such a regulation, in the face of the self-imposed limitation made upon the original power granted to the Secretary by § 5313(a), would at the least cause confusion in the minds of "other participants in the transaction," and even more likely lead them to conclude that they had been excluded from its affirmative duties.

We next come to the "structured" transaction issue. We can find nothing on the face of either the Reporting Act, or its regulations, or in their legislative history, to support the proposition that a "structured" transaction by a customer constitutes an illegal evasion of any reporting duty of that customer.11

We need not go far to sustain this contention. The government itself has admitted to so much, though concededly through a branch other than the Justice Department. We refer to a report to Congress by the Comptroller General of the United States entitled, "Bank Secrecy Act Reporting Requirements Have Not Yet Met Expectations, Suggesting Need for Amendment," GED-81-80, dated July 23, 1981.12 The report discussed the deficiencies in the regulation on this issue, noting that "The regulations were silent on the propriety of a customer's conducting multiple transactions to avoid reporting." Id. at 23. Under the heading "Failure to prohibit splitting transactions allowed to circumvent reporting requirement," id. at 24, the report indicates:

Under the title "Revision of regulations was not given a high priority," id. at 25, the report went on to say:

According to the report, although the July 1980 revisions to the regulations resolved some of the deficiencies, "the propriety of multiple transactions still has not been addressed in the regulations." Id. at 26.

Although this court, like all other institutions of the United States, is supportive of the law enforcement goals of the government and society, we cannot engage in unprincipled interpretation of the law, lest we foment lawlessness instead of compliance. Kolender v. Lawson, 461 U.S. 352, 361, 103 S.Ct. 1855, 1860, 75 L.Ed.2d 903 (1983). This is particularly so when the confusion and uncertainty in this law has been caused by the government itself, and when the solution to that situation, namely eliminating any perceived loop holes, lies completely within the government's control. If the government wishes to impose a duty on customers, or "other participants in the transaction," to report "structured" transactions, let it require so in plain language. It should not attempt to impose such a duty by implication, expecting that the courts will stretch statutory construction past the breaking point to accommodate the government's interpretation.13

We are required to conclude that the Reporting Act and its regulations, as they presently read, imposed no duty on appellant to inform the Bank of the "structured" nature of the transactions here in question. The application of criminal sanctions to appellant for engaging in the activities heretofore described violates the fair warning requirements of the due process clause of the fifth amendment. The charges under Count V should have been dismissed.

The charges under Count III, alleging violations of 18 U.S.C. § 2 and § 1001 must also fail because they depend upon the applicability of the Reporting Act, § 5313, to appellant. An examination of § 1001 reveals that it encompasses two distinct offenses: concealment of a material fact, and false representation of a material fact. United States v. Diogo, 320 F.2d 898, 902 (2d Cir.1963). Count III alleges the first offense, concealment of a material fact. But in prosecuting a § 1001 concealment violation, it is incumbent upon the government to prove that the defendant had a legal duty to disclose the material facts at the time he was alleged to have concealed them. United States v. Irwin, 654 F.2d 671, 678-679 (10th Cir.1981), cert. denied, 455 U.S. 1016, 102 S.Ct. 1709, 72 L.Ed.2d 133 (1982). As no such duty existed on behalf of appellant to report to the Secretary either directly or through the financial institution, there can be no concealment in violation of 18 U.S.C. § 1001. United States v. Muntain, 610 F.2d 964, 971-972 (D.C.Cir.1979); United States v. Ivey, 322 F.2d 523, 524-526 (4th Cir.), cert. denied, 375 U.S. 953, 84 S.Ct. 444, 11 L.Ed.2d 313 (1963); United States v. Phillips, 600 F.2d 535, 536-537 (5th Cir.1979). The 18 U.S.C. § 2 allegations must also, therefore, fail since appellant did not aid, abet or cause anyone to commit an offense against the United States. The Bank, under the circumstances of this case, did not commit any crime by failing to report transactions as it lacked knowledge of their "structured" nature.

We are not unaware of a line of cases deciding otherwise and relied upon by the district court and the government on appeal. In United States v. Thompson, 603 F.2d 1200 (5th Cir.1979), the chairman of the board of a bank, in order to finance a drug operation, divided a $45,000 cash transaction to his accomplice into five separate $9,000 bundles to avoid filing a report under the Reporting Act. The Court of Appeals sustained his conviction under said statute in the face of a vagueness challenge. It would appear that Thompson's position with the bank, and the teller's reliance on his authority in not filing the report, partially explain the case's outcome. Certainly Thompson owed the bank a fiduciary and legal duty to disclose the nature of this transaction, a situation which is not duplicated in the present case.

Nonetheless, we still find troubling the court's ruling that a "structured" transaction is illegal evasion of the Reporting Act, and not avoidance. This view, which has elsewhere been labeled the "sensible, substance-over-form approach,"14 has been followed by several other courts. See United States v. Cook, supra; United States v. Tobon-Builes, supra; United States v. Puerto, 730 F.2d 627 (11th Cir.), cert. denied, 469 U.S. 847, 105 S.Ct. 162, 83 L.Ed.2d 98 (1984); United States v. Sanchez-Vazquez, 585 F.Supp. 990 (N.D.Ga.1984); United States v. Konefal, 566 F.Supp. 698 (N.D.N.Y.1983). We can only say that, as applied to the present situation, we disagree for the reasons stated herein.15 Between a "sensible" and a constitutional approach there should be no doubt as to which avenue we must choose. See Tennessee Valley Authority v. Hill, supra, 437 U.S. at 195, 98 S.Ct. at 2302.

The appellant's conviction is reversed and the indictment dismissed.

BAILEY ALDRICH, Senior Circuit Judge, concurring.

It is difficult to disagree with the court's strong opinion, and I have only one reservation. It is certainly true that defendant, as to whom no reporting rule or regulation whatever is directed, faces jail while the bank, which, in my opinion, post, was in clear violation, faces nothing, and true that the government has gone to the "limits of statutory interpretation" at defendant's expense. I must also agree that this differentiation in prosecution is not our affair. However, I wish to comment further upon the factual, as well as the statutory, limits to which the government would have the court go.

If, for the moment, we forget November 13 — the government, until recently, forgot the significance of it altogether — on various days in November, 1980, defendant purchased a single cashier's check for less than $10,000, from the Haymarket Cooperative Bank, all for one client, for whom he was purchasing securities from a New York broker. The check transactions, being for less than $10,000, were not individually reportable. The government, on these facts, would have it that defendant must go to jail because he did not bring all the money in at once and acquire a single check. It paints with a broad brush. In its summation it told the jury,

Apparently government counsel's so stating the law to the jury was with the court's approval; it did not correct or change it.

There is nothing in the statute or regulations specifically requiring a customer to make reports, or to handle his money in any particular fashion; the only reporting duty is on the bank. I find it singular to think that the government should be able to impose duties by indirection, or to say that the customer must conduct himself so as to create such a duty, unless, possibly, in very special circumstances. C.f. United States v. Thompson, 603 F.2d 1200 (5th Cir.1979). "If you purchase a $8,500 check on Monday and another on Tuesday, it is jail for you for not buying them both on Monday if your intent was that the bank should not have to report." That may be an "obvious web" to the government. It is anything but to me.

November 13, however, was different. On that one day defendant acquired three $8,500 checks from the Haymarket Bank; one from its East Boston branch and two from different tellers in its Hanover Street branch. Even without knowing of the reporting form requirement (I do not agree with the court that the Secretary was unauthorized to issue instructions on the form, though I do agree that defendant was not on notice thereof) a customer knowing, as defendant did, that the bank had a $10,000 reporting obligation, might reasonably think that splitting $17,000 between two tellers, if not $25,000 between two branches, was finagling, with the improper hope that the bank would fail to notice its duty. It is a different matter to attempt to conceal (18 U.S.C. § 1001, opinion, ante, n. 8) when the bank had a duty, as distinguished from avoiding creating one. To say simply, as the court does, that defendant had no duty not to conceal, seems perhaps too easy an answer. The court's statement that the bank "did not commit any crime by failing to report transactions as it lacked knowledge of their `structured nature,'" applies rightly to the alleged $100,000 "scheme," but I believe it assumes the point here, rather than answers it. Here, strictly, the bank did have "knowledge," and a duty. Defendant could be found to have acted in an artificial manner in order that, through hoped-for inadvertence, the bank would fail to perform it.

The government, however, having improperly obtained a conviction on a more appealing (had it been correct) $100,000, "twelve phony checks" basis, one trial seems enough, and, as a minority judge, I am content not to pursue whether defendant's single November 13th conduct was punishable.