USA v. Ness, No. 05-4401 (2d Cir. 2009)

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05-4401-cr USA v. Ness 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2005 (Argued: April 11, 2006 Decided: May 8, 2009) Docket No. 05-4401-cr - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - UNITED STATES OF AMERICA, Appellee, v. SAMUEL NESS, Defendant-Appellant. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - B e f o r e: WINTER, CALABRESI, and POOLER, Circuit Judges. On remand from the United States Supreme Court after it 28 vacated our prior ruling in light of Regalado Cuellar v. United 29 States, 128 S. Ct. 1994 (2008). 30 could not find beyond a reasonable doubt that the purpose of 31 defendant s transportation of narcotics proceeds was to conceal 32 their nature, location, source, ownership, or control for 33 purposes of satisfying 18 U.S.C. § 1956(a)(1)(B)(i) and 18 U.S.C. 34 § 1956(a)(2)(B)(i). 35 failed to prove that a financial institution was involved in 36 order to satisfy 18 U.S.C. § 1957(a). We hold that a reasonable jury We further hold that the government has 1 We therefore reverse. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 VIVIAN SHEVITZ (Jane Simkin Smith, of counsel), South Salem, New York, for Appellant. JOCELYN E. STRAUBER, Assistant United States Attorney (Michael J. Garcia, United States Attorney, on the brief, Karl Metzner, Assistant United States Attorney, of counsel), United States Attorney s Office for the Southern District of New York, New York, New York, for Appellee. WINTER, Circuit Judge: Samuel Ness was convicted, after a jury trial, of one count 18 of conspiring to commit three money laundering offenses and one 19 substantive count of violating 18 U.S.C. § 1956(a)(1)(B)(i). 20 appeal, Ness argued that the evidence against him was legally 21 insufficient because the applicable statutes concealment element 22 had not been met. 23 Cir. 2006). 24 reasonable jury could find that Ness s actions were designed, at 25 least in part, to conceal the identity of the proceeds. 26 81, 82. 27 our decision and remanded for further consideration in light of 28 Regalado Cuellar v. United States, 128 S. Ct. 1994 (2008). 29 Ness v. United States, 128 S. Ct. 2900 (2008) (mem.). 30 held that the concealment element of the charged crimes requires 31 a showing that the purpose of the transportation was to conceal 32 or disguise a listed attribute of the proceeds. On See United States v. Ness, 466 F.3d 79, 80 (2d We affirmed the convictions, concluding that a Id. at On June 9, 2008, the United States Supreme Court vacated 2 See Cuellar Cuellar, 128 S. 1 Ct. at 2005. In light of Cuellar, we now reverse. BACKGROUND 2 3 A jury convicted Ness of one count of conspiring to commit 4 three money laundering offenses and one substantive count of 5 violating 18 U.S.C. § 1956(a)(1)(B)(i) ( transaction money 6 laundering ). 7 violations of: 8 unlawful funds ); (2) 18 U.S.C. § 1956(a)(1)(B)(i); and (3) 18 9 U.S.C. § 1956(a)(2)(B)(i) ( transportation money laundering ). 10 Following denial of his post-verdict motion for a judgment of 11 acquittal, see United States v. Ness, No. 01-cr-699, 2003 WL 12 21804973 (S.D.N.Y. Aug. 6, 2003), Ness was sentenced to fifteen 13 years imprisonment, with three years supervised release. 14 On appeal, Ness argued, inter alia, that the evidence The three objects of the charged conspiracy were (1) 18 U.S.C. § 1957(a) ( monetary transaction in 15 presented at trial was insufficient to sustain his conviction 16 with respect to the element of concealment, which included both a 17 transaction money laundering statute and transportation money 18 laundering statute. 19 certain financial transaction[s] (in the case of 18 U.S.C. § 20 1956(a)(1)(B)(i)) and the transportation, transmission, or 21 transfer of certain funds (in the case of 18 U.S.C. § 22 1956(a)(2)(B)(i)) that are designed in whole or in part . . . to 23 conceal or disguise the nature, the location, the source, the 24 ownership, or the control of the proceeds of specified unlawful Specifically, these statutes proscribe 3 1 activity. The evidence showed that Ness, who ran an armored car 2 carrier business, received millions of dollars in narcotics 3 proceeds from drug traffickers, which the government argued Ness 4 and his associates transported to destinations abroad at the 5 traffickers behest. 6 of the transaction and transportation money laundering statutes 7 could be satisfied only when the transaction or transportation at 8 issue was designed to cloak the unlawful proceeds with the 9 appearance of legitimate wealth. Ness contended that the concealment element He maintained that the 10 government showed only that he received cash from drug 11 transactions for shipment from one place to another and failed to 12 show that such actions were designed to give the appearance of 13 legitimate wealth. 14 We rejected Ness s arguments in light of our decision in 15 United States v. Gotti, 459 F.3d 296 (2d Cir. 2006). See United 16 States v. Ness, 466 F.3d 79, 81 (2d Cir. 2006) ( Ness I ). 17 Gotti, we had upheld convictions under 18 U.S.C. § 18 1956(a)(1)(B)(i) against a sufficiency challenge with respect to 19 concealment where the evidence showed that defendants 20 participated in a system of tribute payments from lower to 21 higher figures in an organized crime hierarchy, with the proceeds 22 deriving from unlawful activity. 23 noted that the highly complex and surreptitious process through 24 which the funds were transferred involving coded language, the Id. at 308-11, 337-38. 4 In We 1 use of intermediaries, secretive handoffs, and cash transactions 2 sufficed to permit the inference that the deliveries had been 3 designed in a way that would conceal the source of the moneys. 4 Id. at 337 (footnote reference omitted). In Ness I, we held that the level of secrecy that attended 5 6 Ness s dealings with the traffickers was comparable to that noted 7 in Gotti, involving, for example, clandestine meetings to 8 transfer large sums of concealed cash, the use of coded language, 9 and the scrupulous avoidance of a paper trail. See 466 F.3d at 10 81. 11 to address Ness s sufficiency challenge because his conviction 12 and sentence would still stand on the basis of the transaction 13 and transportation money laundering convictions. 14 With respect to the 18 U.S.C. § 1957(a) offense, we declined See id. at 82. On June 9, 2008, the United States Supreme Court vacated 15 Ness I and remanded for further consideration in light of 16 Regalado Cuellar v. United States, 128 S. Ct. 1994 (2008). 17 Ness v. United States, 128 S. Ct. 2900 (2008) (mem.). DISCUSSION 18 19 20 See a) Money Laundering In Cuellar, the defendant had been convicted of 21 international money laundering under 18 U.S.C. § 1956(a)(2)(B)(i) 22 after police officers found $81,000 in narcotics proceeds during 23 a search of his car. 24 reversed the conviction after concluding that the evidence failed See id. at 1998. 5 The Fifth Circuit 1 to show that the purpose of the transportation was to conceal or 2 disguise unlawful proceeds and create the appearance of 3 legitimate wealth. 4 granted rehearing en banc and affirmed the conviction. 5 at 1999. 6 government must prove that he attempted to create the appearance 7 of legitimate wealth. 8 efforts to prevent detection of the funds during transportation 9 showed that he sought to conceal or disguise the nature, 10 location, and source, ownership, or control of the funds. 11 id. 12 of the statute that would require the government to prove that 13 the defendant attempted to create the appearance of legitimate 14 wealth. 15 statute required evidence that the defendant s purpose (in whole 16 or in part) in transporting the funds was to conceal the nature, 17 location, source, ownership, or control of the funds. 18 2005. 19 See id. at 1998-99. The Fifth Circuit See id. The court rejected Cuellar s argument that the It held rather that Cuellar s extensive See On certiorari, the Supreme Court rejected an interpretation See id. at 2000. However, the Court concluded that the Id. at Therefore, a conviction under Section 1956(a)(2)(B)(i) must 20 be based on evidence that the defendant: 21 transport the funds across the United States border; (ii) knew 22 that those funds represent[ed] the proceeds of some form of 23 unlawful activity; and (iii) knew that such transportation was 24 designed to conceal or disguise the nature, the location, the 6 (i) attempted to 1 source, the ownership, or the control of the funds. See id. at 2 2002. 3 showing that the defendant hid funds during transportation is not 4 sufficient to support a conviction under the statute, even if 5 substantial efforts have been expended to conceal the money. 6 id. at 2003. 7 design in the phrase knowing that such transportation is 8 designed . . . to conceal or disguise, concluded that because 9 design means purpose or plan in this context, a conviction With respect to this third prong, the Court held that a See Rather, the Court, looking to the meaning of 10 requires proof that the purpose -- not merely effect -- of the 11 transportation was to conceal or disguise a listed attribute of 12 the transported funds. 13 explained, [t]here is a difference between concealing something 14 to transport it, and transporting something to conceal it; that 15 is, how one moves the money is distinct from why one moves the 16 money, and [e]vidence of the former, standing alone, is not 17 sufficient to prove the latter. 18 marks and citation omitted). 19 Id. at 2003, 2005. As the Court Id. at 2005 (internal quotation We turn now to the application of Cuellar to the present 20 matter. Ordinarily, we might remand this issue to the district 21 court to benefit from its views. 22 because, subsequent to the Cuellar decision, the district court 23 stated its views in considering Ness s renewed motion for bail. 24 See United States v. Ness, No. 01-cr-699, 2008 WL 3842961 That is unnecessary, however, 7 1 (S.D.N.Y. Aug. 15, 2008). 2 government had provided sufficient evidence to sustain a 3 conviction. 4 the proceeds of the drug sales were being transported to people 5 in Europe and commingled with jewelry and other valuables that 6 Ness declared to be part of his business of transporting such 7 valuables internationally. 8 [t]he transportation was designed to conceal or disguise the 9 nature of that which was being transported, or its location 10 among the valuables that Ness was allowed to transport and move 11 from one airplane to another at JFK airport, or that the source 12 of the items being transported was ecstasy distributions. 13 The district court concluded that the See id. at *5. The court relied upon evidence that See id. The court concluded that The government echoes this reasoning on the remand. Id. It 14 contends that the evidence adduced at trial established two 15 purposes behind Ness s transportation of the narcotics proceeds: 16 (1) to ensure the concealment of the funds (including 17 concealment of their nature, location, source, ownership and 18 control); and (2) to allow the transportation of the funds to 19 other narcotics traffickers. 20 actions show that the drug proceeds were delivered to his company 21 at least in part for purposes of concealment, pointing to [his] 22 scrupulous avoidance of any paper trail, his surreptitious 23 shipment of the money by hiding it in packages of jewelry for 24 shipment, and his use of code words for delivery of the funds. The government argues that Ness s 8 1 The government also notes certain testimony it construes as 2 pertinent: 3 David that Ness stated that he sells confidentiality ; and (ii) 4 ecstasy trafficker Guy Madmon s testimony that he didn t want a 5 paper trail saying anything about any money that [he] dropped 6 off, which the government contends supports the jury s 7 conclusion that one reason drug money was delivered to Ness s 8 company was because Ness would conceal its nature, location, 9 source, ownership, and control by failing to document its receipt 10 11 (i) the testimony of Ness s business partner Robert or existence. We disagree. While such evidence may indicate that Ness was 12 concealing the nature, location, or source of the narcotics 13 proceeds, it does not prove that his purpose in transporting the 14 proceeds was to conceal these attributes. 15 he moved the money, but only how he moved it. 16 of a paper trail, hiding of the proceeds in packages of jewelry, 17 and use of code words show only that he concealed the proceeds in 18 order to transport them. 19 sufficient to prove transaction or transportation money 20 laundering offenses. 21 slightly more suggestive that the purpose of Ness s business was 22 to conceal illegal proceeds, is not sufficient to support a 23 finding beyond a reasonable doubt that Ness s purpose in 24 transporting the narcotics proceeds was to conceal one or more of It evidences not why Ness s avoidance Under Cuellar, such evidence is not The testimony of David and Madmon, while 9 1 their attributes. 2 We have reviewed the remaining evidence and conclude that it 3 shows only an intent to conceal the transportation, not an intent 4 to transport in order to conceal. 5 transportation money laundering convictions must be overturned. 6 b) 7 Therefore, the transaction and Monetary Transaction in Unlawful Funds Because we upheld the transaction and transportation money 8 laundering convictions in Ness I, we did not address Ness s 9 sufficiency challenge to his 18 U.S.C. § 1957(a) conviction. 10 Because these other convictions are now overturned, however, we 11 consider this issue. 12 overturned as well. 13 We conclude that this conviction must be To prove a violation of § 1957(a), the government must 14 present evidence that the defendant knowingly engaged or 15 attempted to engage in a monetary transaction in unlawful funds. 16 The statute defines monetary transaction as the deposit, 17 withdrawal, transfer, or exchange, in or affecting interstate or 18 foreign commerce, of funds or a monetary instrument . . . by, 19 through, or to a financial institution (as defined in section 20 1956 of this title) . . . . 1 21 added). 22 financial institution must have been involved. 18 U.S.C. § 1957(f) (emphasis Thus, in order to sustain a § 1957(a) conviction, a 1 In Ness I, we The government does not claim that Ness was transferring funds to a financial institution. Therefore, we only need address whether Ness or his armored car company were financial institutions. 10 1 concluded that the district court s instruction to the jury with 2 respect to the financial institution element was inaccurate, but 3 held that Ness failed to demonstrate prejudice given that his 4 conspiracy conviction would nonetheless stand under the 5 transaction money laundering offense that did not include 6 financial institution as an element. 7 now conclude that the evidence concerning the involvement of a 8 financial institution was legally insufficient even if the 9 instruction was correct. 10 See 466 F.3d at 82. We Section 1956 defines financial institution as including 11 (1) any financial institution, as defined under 31 U.S.C. § 12 5312(a)(2), or the regulations promulgated thereunder; and (2) 13 any foreign bank, as defined under 12 U.S.C. § 3101. 14 U.S.C. § 1956(c)(6). 15 States Code defines financial institution by enumerating 16 twenty-six types of institutions, including, inter alia, a 17 commercial bank, a private banker, and a currency exchange.2 See 18 Section 5312 of Title 31 of the United 2 See At the time of Ness s arrest in July 2001, the twenty-six types of financial institutions listed in 31 U.S.C. § 5312(a)(2) were as follows: (A) an insured bank; (B) a commercial bank or trust company; (C) a private banker; (D) an agency or branch of a foreign bank in the United States; (E) an insured institution; (F) a thrift institution; (G) a broker or dealer registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934; (H) a broker or dealer in securities or commodities; (I) an investment banker or investment company; (J) a currency exchange; (K) an issuer, redeemer, or cashier of travelers checks, checks, money orders, or similar instruments; (L) an operator of a credit card system; (M) an insurance company; (N) a dealer in precious metals, stones, or jewels; (O) a pawnbroker; (P) a loan or finance company; (Q) a travel agency; (R) a licensed sender of money; (S) a telegraph company; (T) a business engaged in vehicle sales; (U) persons involved in real estate closings and settlements; (V) the United States Postal Service; (W) an agency of the United States Government or of a State or local government carrying out a duty or power of a business enumerated here; (X) certain casinos, gambling casinos, or gaming establishments with an annual gaming revenue of more than $1,000,000; (Y) any business or agency which engages in any activity which 11 1 31 U.S.C. § 5312(a)(2). 2 either Ness or his armored car company constitutes one or more of 3 the enumerated types of institutions in Section 5312(a)(2). 4 Therefore, we need not address whether Ness or his company 5 qualify as a financial institution under this statute. 6 The government has not argued that The government rather rests its theory of liability on a 7 definition of financial institution contained in a regulation 8 promulgated under Section 5312. 9 definition of financial institution, which in turn looks to the Turning to Section 1956(c)(6) s 10 meaning of financial institution under Section 5312(a)(2) and 11 the regulations promulgated thereunder, the government relies 12 upon Section 103.11 of Title 31 of the Code of Federal 13 Regulations, which was promulgated under Section 5312. 14 103.11 defines financial institution as, inter alia, a money 15 services business. 16 defines money services business to include a person doing 17 business as a money transmitter, which in turn is defined, 18 inter alia, as any person engaged as a business in the transfer 19 of funds. 20 involvement in transporting the narcotics proceeds, the 21 government contends that there was overwhelming evidence that 22 Ness was a person engaged as a business in the transfer of 31 C.F.R. § 103.11(n)(3). 31 C.F.R. § 103.11(uu)(5)(i)(B). Section The regulation Pointing to Ness s the Secretary of the Treasury determines, by regulation, to be an activity similar to, related to, or a substitute for any activity in which any business enumerated here is authorized to engage; or (Z) any other business designated by the Secretary whose cash transactions have a high degree of usefulness in criminal, tax, or regulatory matters. 12 1 2 funds, and was, therefore, a financial institution. This theory was not presented to the jury and therefore 3 cannot support an affirmance. See Chiarella v. United States, 4 445 U.S. 222, 236 (1980); United States v. Plaza Health Labs., 5 Inc., 3 F.3d 643, 646 (2d Cir. 1993). 6 presented, Ness is, as matter of law, not a person engaged as a 7 business in the transfer of funds. 8 funds transfer as a series of transactions, beginning with the 9 originator s payment order, made for the purpose of making Even if it had been Section 103.11 defines 10 payment to the beneficiary of the order. 11 31 C.F.R. § 103.11(q). Payment order, in turn, is defined as [a]n instruction of a sender to a receiving bank, transmitted orally, electronically, or in writing, to pay, or to cause another bank or foreign bank to pay, a fixed or determinable amount of money to a beneficiary if: (1) The instruction does not state a condition to payment to the beneficiary other than time of payment; (2) The receiving bank is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender; and (3) The instruction is transmitted by the sender directly to the receiving bank or to an agent, funds transfer system, or communication system for transmittal to the receiving bank. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31 C.F.R. § 103.11(y). 29 transactions involved any payment orders. 30 The government does not claim that Ness s Moreover, money transmitter is, by definition, limited to 31 certain facts and circumstances. 32 103.11(uu)(5)(ii). 31 C.F.R. § The Financial Crimes Enforcement Network 13 1 ( FinCEN ) explained in its Federal Register notice that many 2 commenters sought clarification of the definition of money 3 transmitter and objected to any interpretation that would cause 4 businesses that simply transmit funds as part of their other 5 business activities to be categorized as money transmitters. 6 Amendment to the Bank Secrecy Act Regulations Definitions 7 Relating to, and Registration of, Money Services Businesses, 64 8 Fed. Reg. 45,438, 45,442 (Aug. 20, 1999) (to be codified at 31 9 C.F.R. pt. 103). See FinCEN agreed that the breadth of the 10 definition of money transmitter proposed in the Notice requires 11 limitation to avoid both unnecessary burden and the extension of 12 the Bank Secrecy Act to businesses whose money transmission 13 activities either do not involve significant intermediation or 14 are ancillary to the completion of other transactions. 15 45,442-43. 16 significant intermediation here. 17 U.S.C. § 1957(a) conviction as well. The government has not presented any evidence of 20 Thus, we must overturn the 18 CONCLUSION 18 19 Id. at For the reasons discussed above, we reverse Ness s convictions. 21 22 23 24 14

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