U.S. v. Levy

Citation: Not availableDocket: 20-50264

Court: Court of Appeals for the Fifth Circuit; August 3, 1992; Federal Appellate Court

Original Court Document: View Document

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Defendants David L. Levy and Howard McNaughton were convicted of participating in a money laundering scheme and conspiring to evade currency reporting requirements. They argued that they were exempt from filing currency transaction reports due to an alleged legal loophole, which the court rejected as non-existent. Additionally, the court declined to interpret the aiding and abetting statute, 18 U.S.C. § 2, in a manner that would exempt defendants from liability for violations committed by undercover operatives. One defendant also contested the application of the Federal Sentencing Guidelines regarding his sentence, which the court upheld.

The legal background involves a joint investigation by the IRS and FBI into money laundering activities in New Orleans, which began in 1987. The investigation utilized an undercover operative, Amado Hernandez, posing as a money manager for drug dealers. Hernandez coordinated with Charles LeChasney and attorney David Levy to launder drug money. They discussed methods for exchanging cash without triggering bank reporting requirements and agreed on a fee structure for their services. The initial transaction involved Hernandez providing $200,000 in cash to Levy, who issued checks from his trust accounts. This method continued with additional transactions, amounting to $550,000 laundered and $33,000 in fees earned over several months.

In late 1987, further discussions took place among Hernandez, LeChasney, Levy, and Howard McNaughton about laundering drug money through various means, including personal checks and grocery accounts, culminating in an agreement to exchange $200,000 in Boston.

On December 18, Mr. Hernandez met with Mr. McNaughton and Mr. DiFlumera in Boston, exchanging $200,000 in cash for sixteen checks totaling $200,000. Mr. McNaughton informed Mr. Hernandez that grocery stores were exempt from cash reporting requirements, minimizing potential reporting issues. In January 1988, Hernandez repeated this transaction, again exchanging $200,000 in cash for checks. A subsequent meeting for another exchange was planned but did not occur due to Hernandez's undercover role concluding on January 27, 1988, coinciding with several arrests.

In October 1989, a federal grand jury indicted fourteen defendants, including Mr. David Levy and Mr. Howard McNaughton, on forty counts. Levy faced thirty-two specific charges, including conspiracy to evade federal monetary reporting requirements under 18 U.S.C. 371, participation in a racketeering enterprise under 18 U.S.C. 1962(c), and multiple counts under the Travel Act and currency transaction violations. McNaughton was charged similarly in the conspiracy and RICO counts, as well as two Travel Act counts. Six defendants entered plea agreements, and one had charges dismissed pre-trial. After a two-month trial, the jury convicted three of the remaining defendants, including Levy and McNaughton, on all counts. Levy received a 70-month prison sentence with three years of supervised release, while McNaughton was sentenced to 24 months and three years of supervised release.

The appeal raised issues regarding the definition of 'financial institution' as it pertains to the Currency Transaction Reporting Act. The Act mandates that financial institutions report certain currency transactions exceeding $10,000. Levy and McNaughton argued that their actions did not classify them as 'financial institutions' and contended that even if they did, the Secretary of the Treasury had improperly expanded the definition beyond statutory limits. The majority of counts against them stemmed from their failure to file the required currency transaction reports for cash-for-checks exchanges.

The definition of 'financial institution' in the regulations encompasses any agent, agency, branch, or office within the U.S. engaged in specified activities, including currency dealers or exchangers, which involves dealing in or exchanging currency without requiring foreign currency transactions. The defendants argue they do not fit this definition, claiming that a currency dealer must exchange foreign currency. However, the definition includes any dealings with currency, which encompasses their activities of converting cash into checks for a fee. The court finds their business aligns with the regulatory definition of a financial institution, rejecting the defendants' argument as an incorrect distinction between cashing checks and issuing checks for cash.

The court further examines whether the Secretary of the Treasury exceeded authority in defining 'financial institution.' The court concludes that the Secretary is authorized to expand this definition as the statutory framework permits the inclusion of related businesses. Therefore, the regulations leading to the defendants' convictions are deemed valid.

Regarding Mr. McNaughton's Travel Act convictions, he was found guilty of causing a government agent, Mr. Hernandez, to travel with the intent to promote unlawful activities. McNaughton raises two points: first, that he cannot be liable for causing Hernandez to travel since Hernandez was a paid government agent; second, that the evidence presented was insufficient to prove he caused the travel. These arguments are interrelated and will be discussed together in determining the validity of the convictions.

18 U.S.C. § 1952 criminalizes interstate travel to facilitate illegal activities. Mr. McNaughton's liability stems from 18 U.S.C. § 2, which punishes anyone who willfully causes an act that would be an offense if performed directly. Mr. McNaughton claims there was no evidence suggesting he had the power to cause Amado Hernandez's interstate travel. However, trial evidence indicated that Hernandez traveled to Boston at McNaughton’s request for cash exchanges. McNaughton argues that the government's instructions were the actual cause of Hernandez's travel, attempting to liken his situation to cases where defendants cannot be convicted for conspiring with government agents. This analogy fails as conspiracy requires shared criminal intent, whereas under 18 U.S.C. § 2(b), only the accused needs to have criminal intent. The government did not manufacture the crime; defendants understood that interstate travel was necessary for the money laundering scheme. Evidence showed McNaughton’s requests directly resulted in Hernandez's interstate travel for illegal purposes, and the government’s permission for Hernandez to act did not absolve McNaughton of responsibility. 

Regarding sentencing, Mr. Levy contends the district court incorrectly added five levels to his offense level based on a belief that the laundered funds were criminally derived. Under the United States Sentencing Commission Guidelines § 2S1.3(b)(1), this increase applies if the defendant "knew or believed" the funds were criminally derived. Levy argues that the increase should apply only if he had knowledge, claiming it was impossible since the funds were provided by the government. He cites the Application Note, asserting it restricts the guideline's application to cases of knowledge. However, the interpretation of the Guidelines is a legal question subject to de novo review. The Eleventh Circuit has ruled that clear statutory language governs its application, supporting the district court's decision.

The guideline explicitly states 'knew or believed,' eliminating ambiguity and negating the need to reference the Application Note for clarification. An amendment to the Application Note confirms that a belief regarding the criminal origin of funds is adequate to justify a five-level increase in sentencing. This amendment is significant because it was made without altering the actual guideline, suggesting that the original intent was for a defendant's belief alone to trigger subsection (b)(1). Consequently, the district court's application of the five-level increase to Mr. Levy was deemed correct, and the Court affirmed the district court's judgment. Additionally, Section 1B1.7 of the Guidelines indicates that commentary serves as a policy statement or legislative history. The amendment aims to clarify the guideline, enhance statutory references, and align the guideline's format with others.