Appendix — Ashton v. United States
Supreme Court brief1993
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IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1993
MICHELLE ASHTON
Petitioner
V.
UNITED STATES OF AMERICA
Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The District Of Columbia
APPENDIX
STANLEY J. REED
(Counsel of Record)
THOMAS A. LERNER
LERCH, EARLY, &
BREWER, CHARTERED
3 Bethesda Metro Center
Suite 380
Bethesda, Maryland
20814-5367
(301)986-1300
APPENDIX
TABLE OF CONTENTS
Page
UNITED STATES COURT OF APPEALS
GPAs 6 0008600000040 80 05059408 O44 C la
CONSTITUTION OF THE UNITED STATES:
AMENDMENT V -
GRAND JURY INDICTMENT FOR CAPITAL
CRIMES; DOUBLE JEOPARDY; SELF-
INCRIMINATION; DUE PROCESS OF LAW;
JUST COMPENSATION FOR
PROPERTY... cccccccccececs a 7la
AMENDMENT VI -
JURY TRIAL FOR CRIMES, AND
PROCEDURAL RIGHTS... eee eeeccces 72a
UNITED STATES CODES:
18 U.S.C. § 2,
PRINCIPALS .cccccccccccsccccccccce 73a
18 U.S.C. § 371,
CONSPIRACY TO COMMIT OFFENSE OR
TO DEFRAUD UNITED STATES......... 74a
18 U.S.C. § 1001
STATEMENTS OR ENTRIES
GRA lsk coc cccce eee sc cece ceeseeses 75a
18 U.S.C. § 1343
RAUD WIR RADIO, OR
TE LEVISLONc cccccccescccccccceeees 76a
ii
APPENDIZ
TABLE OF CONTENTS
Page
26 U.S.C. § 7201
ATTEMPT TO EVADE OR DEFEAT
TAXcccccccccccvcccccececccceeecee 78a
26 U.S.C. § 7206
FRAUD AND FALSE STATEMENTS.-.++++- 79a
FEDERAL SENTENCING GUIDELINES:
§ 1B1.2. Applicable Guidelines....... 83a
Commentary To § 1Bl.2............ 85a
§ 2F1.1. Frond apd Decaik. .«scccesss - 95a
2T1.1. Tax EBVOSION. «cs cvcecsescsenes 98a
2T4.1. Tax Table......... oecccacccecs 100a
3D1.2. Groups of Closely-Related
COUN Be ccc ccccccccsecececeoes 102a
own mM
Commentary 8 To § 3D1.2.......... 106a
De Ree 6 6 666060048 00060 606 eee eee 108a
ORDER DENYING MOTION FOR REHEARING,
United States of America v.
David M. Dale, and consolidated
cases (filed June 16, 1993)...... 170a
iii
APPENDIZ
TABLE OF CONTENTS
Page
ORDER DENYING MOTION FOR REHEARING
EN BANC,
United States of America V-
j . Dale, and consolidated
Vv
cases (filed June 16, 1993)--+++> 172a
ORDER GRANTING MOTION FOR STAY
OF MANDATE,
j tates oO erica V
avid M Dale, and consolidated
cases (filed July 14, 1993) --++2> 174a
la
Gnited States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 18, 1992 Decided April 6, 1993
No. 91-3228
Unitep States oF AMERICA,
APPELLEE
Vv.
Davip M. DALe,
APPELLANT
No. 91-3229
UniTep States oF AMERICA
APPELLEE
V.
MICHELLE ASHTON,
APPELLANT
2a
No. 91-3230
Unirep STATES OF AMERICA,
MarTIN SEGAL,
No. 91-3231
Unitep States oF AMERICA,
AUTOMATED DaTa MANAGEMENT, INC.
No. 91-3232
Unitep STATES OF AMERICA,
TERENCE SWEENEY
APPELLEE
APPELLANT
APPELLEE
APPELLANT
APPELLEE
APPELLANT
3a
Appeals from the United States District Court
for the District of Columbia
(Criminal No. 90-00027)
Samuel J. Buffone for appellant David M. Dale in No. 91-
3228.
Paul Mogin, with whom Brendan V. Sullivan, Jr. was on
the brief, for appellant Michelle L. Ashton in No. 91-3229.
Alan M. Dershowitz, with whom R. Stan Mortenson and
Scott L. Nelson were on the brief, for appellant Martin Segal
in No. 91-3230.
W. Neil Eggleston, with whom Laura S. Shores was on the
brief, for appellant Terence A. Sweeney in No. 91-3232.
Kenneth Michael Robinson was on the brief for appellant
Automated Data Management, Inc. in No. 91-3231. Robert
F. Muse also entered an appearance for appellant Automated
Data Management, Inc.
Stephen P. Anthony, Assistant United States Attorney,
with whom Jay B. Stephens, United States Attorney, and
John R. Fisher, Robert J. Meyer and Helene Kazanjian,
Assistant United States Attorneys, were on the brief, for
appellee.
Before WaLp, Rutx B. Ginspurc and HENDERSON, Circuit
Judges.
Opinion Per Curia.
Per Curiam: The defendants, a corporation and its officers,
challenge their convictions and sentences on various counts of
fraud against the United States and its agencies. For the
reasons set out below, we affirm their convictions in toto but
remand for resentencing pursuant to Part X(F) of this opin-
ion.
I. Facts
On appeal from a criminal conviction, this court must view
the evidence in the light most favorable to the government,
allowing it the benefit of all reasonable inferences that may
4a
be drawn from the evidence and permitting the jury to
determine the weight and credibility of the evidence. United
States v. Smith, 964 F.2d 1221, 1223 (D.C. Cir. 1992); United
States v. Butler, 924 F.2d 1124, 1126 (D.C. Cir.), cert. denied,
112 S. Ct. 205 (1991). So viewed, the evidence reveals the
following material facts.
Defendant Automated Data Management, Inc. (ADM) is a
Washington, D.C. firm founded in the early 1980s by defen-
dant Michelle Ashton, its president. In late 1984, Ashton
hired defendant David Dale as “Executive Vice-President”
and at about the same time issued to him 18% of ADM’s
stock, retaining the other 82% for herself. In early 1985,
ADM obtained a contract to sell computers to the United
States Army under the “minority set-aside” program of the
Smal] Business Administration (SBA).
In late 1985, ADM established offices abroad in Germany
and Korea and hired a new vice-president to manage each:
defendant Terence Sweeney in Germany and defendant David
Bowers in Korea. In addition, defendant Martin Segal was
hired as ADM’s in-house accountant in September 1986 and
later received the title “Chief Financial Officer.”
In August 1987 Bowers left ADM after a falling-out with
Dale and Ashton—and after secretly taping telephone conver-
sations he had with each of them. Bowers subsequently
assisted a government investigation of ADM’s operations that
led to the defendants’ indictments and convictions. Those
convictions were based on the defendants’ allegedly fraudu-
lent tax treatment of various financial transactions involving
ADM’s Asian and European operations and on certain alleged
misrepresentations or nondisclosures on government forms
completed by defendants Ashton and Dale. We now summa-
rize the facts underlying the convictions.
A. Tax Fraud
All five defendants were convicted both of tax fraud and of
conspiracy to commit tax fraud. While the substantive tax
fraud counts involved only ADM’s 1986 corporate return, the
conspiracy count involved other aspects of ADM’s operations
5a
in both Asia and Europe. We describe separately the fraudu-
lent activity relating to each location.
1. Asia
After taking charge of ADM’s Korean operations, defen-
dant Bowers determined ADM should take advantage of
Asian business opportunities unrelated to its Army contracts.
In order to circumvent legal restrictions on such activity,’
Bowers, after consulting with Dale, arranged for Nancy Ed-
wards, a legal adviser to ADM’s Korean office, to set up a
Guam corporation which would not be subject to the restric-
tions. Edwards and her husband incorporated Asia Manage-
ment Systems, Inc. in late summer 1986. Soon thereafter the
corporate name was changed to ADM Asia and ownership
transferred to Ashton, Dale and Bowers. Ashton and Dale
each acquired a 37.5% interest in the company, while Bowers
received the remaining 25%. Upon Dale’s instruction to
acquire additional companies, Bowers arranged for Edwards
to purchase four Hong Kong corporations, Capulus, Fossano,
Swaffham and Gemona, which were apparently shells with no
assets other than documents of incorporation. During late
October and early November 1986 ownership of Swaffham
and Gemona was transferred to Ashton, Dale and Bowers in
the same percentages as ADM Asia.” There followed a
number of financial transactions involving the related corpo-
rations on which the government based some of its tax fraud
charges.
First, during 1986 Bowers arranged for Dale and Ashton to
obtain payments totalling $50,000 from ADM funds chan-
nelled through the Korean office. Dale received $20,000 in
February 1986? and Ashton received $20,000 in
1 Provisions in a “Status of Forces Agreement” prohibited ADM
from doing business in Korea with any party other than the United
States government.
2 Ownership of the other two corporations was transferred to
Bowers and his wife for their own development.
3On a visit to Korea, Dale gave Bowers a check from ADM for
$50,000, purportedly to cover operating expenses. A deposit slip
OE
6a
May‘ and $10,000 in September.® Neither Dale nor Ashton
reported these amounts as personal income on their 1986
federal income tax returns.
Second, between August 1986 and March 1987 ADM made
three payments to related companies that it treated, falsely,
as legitimate business deductions.
In August 1986, ADM paid $200,000 to Arlington Associates
(Arlington), a company owned in equal shares by Dale and
Ashton.’ This payment was recorded in Arlington’s books as
a bank loan from Guam National Bank. Sometime in late
summer or early fall 1986, Dale instructed Bowers to draft
documents representing that the $200,000 payment was a loan
to Arlington from Asia Management Systems, Inc., the Guam
corporation that Ashton, Dale and Bowers had acquired on
August 29, 1986, and subsequently renamed ADM Asia, Inc.
During December 1986 ADM paid a total of $417,532 to
Swaffham and Gemona, the two Hong Kong companies ac-
quired by Ashton, Dale and Bowers, for studies and services
dated February 29, 1986, reflects a deposit to ADM’s Korean
checking account of a $50,000 check, less $20,000 received in cash.
ADM’s check register characterizes the transaction as simply a
$30,000 deposit.
‘During a visit to Korea by both Dale and Ashton, Dale gave
Bowers two checks, each in the amount of $50,000, for “Korea
Operating Expenses” and instructed Bowers to give him two signed
checks for $10,000 each, with the payee left blank. These checks
were later dated June 3, 1986, and made out to the order of “D.C.
National Bank”—the funds were apparently used by Ashton to
purchase a condominium.
5 Bowers cashed a $10,000 check drawn on ADM’s Korean check-
ing account and sent the proceeds to Ashton who was in Hong
Kong.
6 At Dale’s request, Bowers wrote a $205,000 check on ADM’s
Korean account, payable to his wife; the check was deposited into
the Bowerses’ joint checking account and Bowers then wrote a
personal check to Arlington for $200,000.
7a
never actually performed.’ ADM recorded these payments
as deductible business expenses.
Finally, in March 1987 Bowers and Dale created a phony
debt of $500,000 to Swaffham and documentation to support
it. The debt was for software development purportedly
performed by Swaffham but actually performed by employees
of ADM in Korea at a cost of only about $30,000. The debt
was treated as an accrual and deducted as a business expense
on ADM’s 1986 tax return.
2. Europe
In Germany, defendant Sweeney hired Larry Knight in
February 1986 as a consultant to assist with the European
operations. Later that same year, Sweeney and Knight
formed an interim German partnership to enable ADM to
take advantage of non-Army business opportunities in Germa-
ny until a German corporation could be established. On
November 18, 1986, a German corporation, ADM Hard- und
7 At Dale’s direction, Bowers created three bogus invoices: two
from Gemona, dated November 11 and December 15, 1986, seeking
payment of, respectively, $89,000 and $185,422 for marketing and
product studies, and one from Swaffham, dated December 15, 1986,
seeking payment of $143,110 for consulting services. While visiting
Washington, D.C. in December 1986, Bowers received from Segal
three checks for the invoiced amounts, one signed by Ashton, the
other two by Dale. Bowers deposited the checks into Gemona’s and
Swaffham’s Hong Kong bank accounts.
8In February 1987 Dale told Bowers to create invoices for the
work from either Swaffham or Gemona. They decided on the
$500,000 amount only after some discussion and apparently based
on how much they thought they “c[ould) get away with.” See infra
note 36. Incident to the arrangement, Bowers created a phony
“Software Development Contract,” backdated letters between Bow-
ers and Swaffham and an invoice which he sent by facsimile to Dale.
® Apparently, German law prohibited ADM itself from entering
into or performing any contracts other than the Army contract that
brought it to Germany.
aE
8a
Software Handelgesellschaft GmbH in Deutschland (ADM
H&S), was incorporated to assume the partnership’s busi-
ness.” Ownership of ADM H&S was divided among Ashton
(37.5%), Dale (37.5%) and Sweeney (25%) and Knight was
appointed general manager.”
Over the next two years, ADM made substantial payments
to Bourbonia Invest AG, a Swiss investment firm operated by
Gerd Wormer, an investment counselor and old friend of
Knight. At trial, the government asserted and furnished
evidence to show that these payments in fact accrued to the
benefit of Ashton, Dale, ADM and ADM H&S and were
fraudulently treated by ADM as business deductions.
The first Bourbonia payment, for $316,000, was made in
December 1986, pursuant to two invoices signed by Wormer
and dated December 11, 1986, a time when Sweeney and
Knight were in the midst of a two-day meeting with Wormer
at Wormer’s home. One of the invoices sought payment for
“Product Development Consulting for the period March 86, to
December 86,” Joint Appendix (JA) 1984, and the other “for
Services rendered in accordance with letter contract as of
March 11, 1986 for Machine Language Translation Research
and Development Project,” JA 1985. Request forms to ADM
10 As of that date the earlier partnership was dissolved and al! of
its business activities transferred to ADM H&S.
11 The new corporation was capitalized with $88,000 paid by
ADM, allegedly in return for research performed by Knight. To
support the payment, Sweeney prepared and signed what can only
be a back-dated letter which “authorized Mr. Larry Knight acting
in behalf of ‘Hard- und Software Handelgeselleschaft mbH fuer
Deutschland’ [sic] (H&S), a company which is the process [sic] of
being licensed to operate in West Germany, to begin a market
project to provide the basic guidance required to form a business
plan and direct the efforts of ADM into these new markets.” Joint
Appendix 2032. The letter further stated: “Based on my negotia-
tions, I estimate the cost of this project to be approximately
$90,000. The project will be completed by the end of this year. I
will develop a contract in the near future for your review and
approval.” Jd. The letter was dated January 12, 1986, some seven
or eight months before ADM H&S's corporate name was selected.
9a
for checks to pay the Bourbonia invoices were marked “OK
MS from D. Dale 12/22/86” and “Sent Via Bank Wire
12/22/86” and one of them was signed by Segal. ADM
deducted the $316,000 payment as a business expense on its
1986 tax return. In late 1986, Bourbonia made a payment to
ADM H&S of about $125,000 to purchase five vehicles, one
for Knight’s use and the other four to be leased to ADM., Inc.
Sweeney and Knight characterized the payment as a loan, but
the government maintains the funds came from the $316,000
Bourbonia payment and were never intended to be repaid,
which in fact they were not.
The second Bourbonia payment was made in January 1988
pursuant to an invoice dated December 26, 1987, requesting
payment of $102,655 for “consulting services for 1987 as per
sep. agreement.” Ashton signed a check request form dated
January 5, 1988, indicating payment had been requested by
Segal and authorizing payment of the requested amount.
Dale signed a check to Bourbonia for $102,655 dated January
26, 1988.
Ashton and Dale both maintained investment accounts with
Bourbonia at least as early as 1987. Forms filed with the
IRS indicated that in 1987 each had $10,000-$50,000 in an
account with Wormer, while in 1988 the balance in each
account had grown to more than $100,000.
B. Other Fraudulent Activity
Apart from tax fraud, the jury also convicted Dale, Ashton
and ADM of fraud in connection with four forms Dale and
Ashton submitted to government agencies.
The first three frauds involved forms Dale and Ashton filed
with the Department of Defense (DOD) in early 1987 to
obtain a security clearance for ADM. In late January and
early February 1987, Dale and Ashton each completed a DOD
“Personnel Security Questionnaire,” on which each responded
“yes” to the question “Do you have any foreign property or
business connections or have you ever been employed by or
acted as a consultant or representative for a foreign govern-
ment” and each identified the 37.5 % interest held in ADM
H&S and ADM Asia. Neither mentioned any connection with
10a
Gemona or Swaffham, although each had acquired a 37.5%
interest in the two companies by November 1986. In early
February 1987 each also completed a DOD “Statement of
Full Disclosure of All Foreign Connections,” purporting to
“hereby explain and fully disclose my foreign connections”
but listing only their interests in ADM H&S. Finally, about
the same time, Ashton signed a DOD “Certificate Pertaining
to Foreign Interests” in which she responded “no” to the
question “Does your organization have interlocking directors
with foreign interests.” Dale also signed the document to
certify that Ashton had authority to act on ADM’s behalf.
The fourth fraud related to an “Application for Small
Business Determination” Ashton filed with the Small Busi-
ness Administration (SBA) on April 10, 1987. On the form
she identified herself and Dale as officers of ADM and
answered “yes” to the question “Are any of the persons listed
[above as owners, partners, officers, directors, & principal
stockholders] owners, partners, directors, officers, employees
or principal stockholders in any other company?” In re-
sponse to a direction to identify the other companies and
offices held, however, she failed to mention her or Dale’s
interests in or positions with Arlington, Swaffham, Gemona,
ADM, ADM H&S or ADM Asia.”
C. Bowers’ Disaffection and Its Aftermath
According to Bowers, in early 1987 he became concerned
about his future with ADM and about potential criminal
liability. As a result, he took a number of measures in
contemplation of departing ADM. First, in March 1987, he
began to tape record telephone conversations he had with
both Ashton and Dale, in an apparent effort to protect
himself.’ Next, in April 1987 Bowers withdrew about $100,-
000 from Gemona’s and Swaffham’s bank accounts, reasoning
12 Ashton identified no other companies or offices for herself and
for Dale identified only a nonprofit organization of which he was an
officer.
13 At trial, Bowers explained:
lla
that the funds represented his 25% interest in the two
corporations. Later, sometime after mid-July, he withdrew
the remaining money from the corporations’ accounts, again,
according to his testimony, to protect himself.* Finally, on
August 14, 1987, Bowers faxed a resignation letter to Ashton
in the United States.
In response to Bowers’ resignation, Ashton and Segal flew
to Korea and negotiations ensued during which Ashton,
through Segal, attempted to persuade Bowers to turn over all
business records, including all tape recordings of telephone
conversations, to surrender his interests in ADM Asia,
Gemona and Swaffham and to agree to several measures
designed to protect the interests of ADM, Dale and Ashton."
Ultimately, Bowers returned to the United States, without
succumbing to Ashton’s demands, and sought legal counsel.
After Bowers’ resignation ADM and its principals took
steps to alter the tax treatment of many of the transactions
described above.
First, sometime in August or September 1987, Segal in-
formed ADM’s outside accountant, Grant Thornton, that
I believed that one of the problems, if I was to extricate myself
from a situation that I had put myself in, was that I wanted it
clear that it wasn’t just me that was giving directions and
replying to requests, and I just wanted the record clear in that
respect, I wanted to make sure that I was protected.
JA 1097.
‘4 Bowers testified at trial: “I didn’t want the money to be moved
and then me made out to be—you know, everything tried to be
erased like it never happened, and I be put in a position where I
could be accused of things.” JA 1109.
15 At one point, Bowers was presented with a proposed settlement
agreement under which he was to indemnify ADM, Ashton and Dale
for any liability arising from the Korean activities, to refrain from
testifying against them in a pending lawsuit by another ADM vice
president, Chuck Roth, to acknowledge certain facts regarding
Roth’s terms of employment, to give up all interest in ADM Asia,
Gemona and Swaffham and to “turnover [sic] to M. Ashton all
documents, tapes, statements and evidence of any kind which he or
Roth may ever have intended to use against [ADM, Ashton and
Dale].” JA 2715.
12a
ADM’s records had to be changed because of recently discov-
ered information, namely that the $417,532 paid to Gemona
and Swaffham in December 1986, allegedly for marketing
studies, was not deductible and that there were additional
Korean revenue of $348,337 that had not previously been
“booked.” The accountants accordingly prepared ADM’s
1986 tax return, which, pursuant to an extension, was not
filed until September 15, 1987, to reflect this information. An
amended return, filed in 1988, reduced the amount of the
additional revenue to $311,643.
Second, on November 30, 1987, Dale and Ashton met with
their personal accountant and told him they had received
expense advances in 1986 that had not been included on their
1986 individual returns. After this meeting, Ashton filed an
amended 1986 tax return dated December 2, 1987, adding to
her taxable income $40,000 that she characterized as “travel
advances not included in her 1986 W-2 wages.” JA 2217-18.
Dale decided against filing an amended return because he
wanted to determine whether his extra $10,000 might be
offset by amounts ADM owed him. He subsequently added
the $10,000 to the taxable income reported in his 1987 tax
return.!®
Third, at some point, probably after August 21, 1987, Dale
and Ashton signed a promissory note to repay ADM the
$200,000 it had furnished to Arlington in August 1986. The
payment to Arlington had initially been recorded as a loan
from Guam National Bank and was later characterized by
Dale as a loan from Asia Management Systems, Inc.’” This
note is now marked “paid 12/31/87.”"* JA 1979.
16 There is no apparent explanation in the record for the discrep-
ancy between the amounts Ashton and Dale reported to the IRS,
$40,000 and $10,000 respectively, and the amounts each received
according to Bowers’ testimony, $30,000 and $20,000 respectively.
See supra pp. 5-6.
17 August 21, 1987 is the date that appears on the note’s face but
it is unlikely that both Dale and Ashton signed it on that day since
it appears Ashton was then in Korea and Dale was in Washington.
18 A document from Dale’s and Ashton’s personal accountant’s file
indicates that as of February 29, 1988, the “Guam National Bank
loan” was still outstanding and no payments had been made,
although the next entry states: “Paid w/ $206,250 capital contribu-
tion from David M. Dale, $200,000 loan, $6250 interest.” Trial
rr
13a
Fourth, at some point, apparently during summer 1988
after federal agents searched ADM’s headquarters on June
16, 1988, Segal informed one of ADM’s accountants that in
December 1986 ADM had mistakenly paid $316,000 in con-
sulting fees on behalf of ADM H&S and asked what should be
done. The accountant then prepared an amended 1986 re-
turn, dated August 25, 1988, and signed by Ashton, eliminat-
ing the deduction previously taken for the December 1986
Bourbonia payment. In a memorandum to the accountant
dated August 8, 1988, Segal explained that both that payment
and the $102,655 payment in the following year “were paid in
error by ADM, Inc.” JA 2349. The memo further stated
that “a loan will be set up in Michelle’s and David’s name to
ADM, Inc. for the amounts sent to Bourbonia” and that
“{iJnterest on the notes will accrue from the day the funds
were disbursed from ADM, Inc.” Jd. Subsequently, four
promissory notes were prepared, dated August 10, 1988,
dividing the indebtedness between Dale and Ashton according
to their respective ownership interests in ADM. Ashton and
Dale each signed two of the notes and Segal witnessed all
four. Each note is now marked “Paid 8/12/88.” See JA 2034,
2035.
Finally, in March 1989, after additional government investi-
gation and subpoenaing of documents, Segal told one of
ADM’s accountants that he had discovered a $500,000 accrual
taken as a deduction in 1986 that had not been reversed when
it later went unpaid. Accordingly, the accountant prepared
an amended return, dated March 30, 1989, deleting the $500,-
000 deduction, and Segal signed it. The amended return
explained its purpose as “[t]o adjust consulting expense for
amounts accrued in 1986 but never paid subsequent Decem-
ber 31, 1986 [sic] and erroneously not reversed by Accounting
Department.” JA 2253.
Transcript 3073-75. The accountant testified that he had no per-
sonal knowledge of the repayment but had merely been informed of
it by Dale.
l4a
D. Indictment and Trial
On January 11, 1990, an indictment was returned against
ADM, Dale, Ashton, Sweeney and Segal, charging the follow-
ing counts:
(1) Against all five defendants: conspiracy (in violation
of 18 U.S.C. § 371) (a) to defraud the United States by
impeding the IRS’ assessment and collection of taxes and
(b) to commit the following offenses against the United
States: (i) tax evasion (26 U.S.C. § 7201), (ii) subscribing
to a false return and aiding and abetting the preparation
of a false return (26 U.S.C. §§ 7206(1) and 7206(2)) and
(iii) false statements and concealing facts by trick,
scheme and device from the IRS, the SBA and the DOD
(18 U.S.C. § 1001);
(2) Against Dale and ADM: subscribing to a false tax
return (in violation of 26 U.S.C. § 7206(1)) (for signing
the 1986 ADM tax return falsely deducting the $500,0000
debt to Swaffham and the $316,000 payment to Bourbo-
nia);
(3) Against Ashton, Sweeney and Segal: aiding and
assisting in the preparation and presentation of a false
and fraudulent return (in violation of 26 U.S.C.
§ 7206(2)) (for actions related to ADM’s 1986 return and
its two fraudulent deductions);
(4) Against all five defendants: attempted tax evasion
(in violation of 26 U.S.C. § 7201) and aiding and abetting
(in violation of 18 U.S.C. § 2) (for actions related to the
underreporting of taxable income on ADM’s 1986 re-
turn);
19 Count 1 specifically identified as acts of the tax evasion conspir-
acy the following transactions: the deduction of the $417,532 Gemo-
na payment, the $500,000 Swaffham accrual and the $316,000 and
$102,655 Bourbonia payments, the failure to treat as income the
$200,000 Arlington disbursement and the $50,000 payments to Dale
and Ashton and the creation of phony explanations in amended
returns for the initial treatment of the $500,000 accrual, the $316,-
000 payment and the $50,000 payments.
15a
(5) Against Dale, Ashton, Sweeney and ADM: wire
fraud (in violation of 18 U.S.C. § 1343) and aiding and
abetting (in violation of 18 U.S.C. § 2) (for causing the
wire transfer of the $316,000 Bourbonia payment with
intent to commit tax fraud);
(6) Against Ashton and ADM: concealing facts by
trick, scheme and artifice (in violation of 18 U.S.C.
§ 1001) and aiding and abetting (in violation of 18 U.S.C.
§ 2) (for Ashton’s nondisclosure of her relationship with
Gemona or Swaffham in the DOD “Personnel Security
Questionnaire”);
(7) Against Dale and ADM: concealing facts by trick,
scheme and artifice (in violation of 18 U.S.C. § 1001) and
aiding and abetting (in violation of 18 U.S.C. § 2) (for the
same nondisclosure in Dale’s “Personnel Security Ques-
tionnaire”);
(8) Against Ashton and ADM: concealing facts by
trick, scheme and artifice (in violation of 18 U.S.C.
§ 1001) and aiding and abetting (in violation of 18 U.S.C.
§ 2) (for Ashton’s nondisclosure of her Swaffham and
Gemona interests in her February 1987 “Statement of
Full Disclosure of All Foreign Connections”);
(9) Against Dale and ADM: concealing facts by trick,
scheme and artifice (in violation of 18 U.S.C. § 1001) and
aiding and abetting (in violation of 18 U.S.C. § 2) (for
Dale’s identical nondisclosure); and
(10) Against Dale, Ashton and ADM: making false
statements (in violation of 18 U.S.C. § 1001) and aiding
and abetting (in violation of 18 U.S.C. § 2) (for denying
the existence of interlocking directorships with foreign
interests in the “Certificate Pertaining to Foreign Inter-
ests”).
JA 141-74.
On July 23, 1990, after a lengthy trial, a jury returned a
guilty verdict on each count against each defendant named
therein. On July 15, 1991, the trial court sentenced Dale,
Ashton, Segal and ADM. Dale was sentenced to 41 months’
imprisonment on count 1, with concurrent 30 month sentences
16a
on each of the other counts against him, 2 years’ supervised
release, a special assessment of $350 and a $675,000 fine and
was assessed $58,037.96 for incarceration costs. Ashton was
sentenced to 37 months’ imprisonment on count 1, with
concurrent 30 month sentences on each of the other counts
against her, 2 years’ supervised release and a $225,000 fine
and was assessed $52,375.72 for incarceration costs. Segal
was sentenced to 24 months’ imprisonment on count 1, with
concurrent sentences of 12 months on each of the other
counts against him. ADM was assessed a $360,000 fine and a
$450 special assessment. Sweeney’s sentencing was delayed
until August 13, 1991, when he was sentenced to concurrent
prison terms of 18 months on counts 1, 3, 4 and 5, 2 years of
supervised release and a $15,000 fine. The defendants chal-
lenge both their convictions and sentences and we address
their various arguments below.
II]. SuFFIcieENCy OF THE EVIDENCE
Each defendant challenges the sufficiency of the evidence
to support the convictions. The court’s review here is a
narrow one. First, as noted above, we must view the evi-
dence in the light most favorable to the government, defer-
ring to the jury’s weight and credibility determinations.
United States v. Smith, 964 F.2d 1221, 1223 (D.C. Cir. 1992);
United States v. Butler, 924 F.2d 1124, 1126 (D.C. Cir.), cert.
denied, 112 S. Ct. 205 (1991). In addition, the court must
affirm each conviction if any rational trier of fact could have
found the essential elements of the offense charged beyond a
reasonable doubt. United States v. Long, 905 F.2d 1572, 1576
(D.C. Cir.), cert. denied, 111 S. Ct. 365 (1990). Applying
these principles, we reject seriatim each defendant’s sufficien-
cy challenge.
A. Ashton
Defendant Ashton contends there was insufficient evidence
to support her conviction on any of the counts on which she
was convicted, namely counts 1, 3, 4, 5, 6, 8 and 10. For the
17a
following reasons, we find the evidence sufficient to support
her convictions on all seven counts.”
First, Ashton argues we must reverse her convictions on
counts 6, 8 and 10, charging her with concealing facts from
and making false statements to the federal government in
violation of 18 U.S.C. § 1001” and those portions of count 1
alleging conspiracy to violate that section because the evi-
dence was insufficient to establish either that her misstate-
ments or nondisclosures on the DOD and SBA forms were
made “knowingly and willfully,” as required under the stat-
ute, or that they were material. We find neither contention
persuasive.
Ashton’s first challenge to her convictions on counts 6, 8
and 10 is that under a reasonable interpretation of the forms
cited in those counts, her statements on them were literally
true and complete. While Ashton’s interpretation of the law
regarding section 1001 appears consistent with the holdings
in other circuits,” we nevertheless conclude her convictions
20 For the same reasons, we also reject ADM’s sufficiency chal-
lenge which adopts Ashton’s arguments by reference. See ADM
Brief at 8.
21 This section provides:
Whoever, in any matter within the jurisdiction of any depart-
ment or agency of the United States knowingly and willfully
falsifies, conceals or covers up by any trick, scheme, or device a
material fact, or makes any false, fictitious or fraudulent state-
ments or representations, or makes or uses any false writing or
document knowing the same to contain any false, fictitious or
fraudulent statement or entry, shall be fined not more than
$10,000 or imprisoned not more than five years, or both.
18 U.S.C. § 1001.
2 See, e.g., United States v. Gahagan, 881 F.2d 1380 (6th Cir.
1989); United States v. Race, 632 F.2d 1114, 1120 (4th Cir. 1980);
United States v. Vesaas, 586 F.2d 101, 104 (8th Cir. 1978); United
States v. Anderson, 579 F.2d 455, 459-60 (8th Cir.), cert. denied, 439
U.S. 980 (1978); United States v. Diogo, 320 F.2d 898, 906-07 (2d
Cir. 1963).
18a
must be affirmed because her statements on those forms
were not literally true under a reasonable interpretation of
the forms.
Ashton first claims she could not be convicted under counts
6 and 8 because the expressions “foreign ... business connec-
tions” in the “Personnel Security Questionnaire” (count 6) and
“foreign connections” in the “Statement of Full Disclosure of
All Foreign Connections” (count 8) can reasonably be inter-
preted to refer only to “actual status as an owner or director
of a foreign company,” and that she did not enjoy that status
when she completed those forms because certain formalities
required under Hong Kong law had not yet been satisfied.
We reject this claim summarily, finding Ashton’s interpreta-
tion of “connections” far too restrictive. In its common
usage, the word “connection” has a broad meaning™ that
certainly embraces Ashton’s relationship to the two Hong
Kong corporations of which she was by January 1987 indis-
putably both an owner and director, if not de jure at least de
23 Ashton asserts the record does not establish she was a legal
owner or director of the two Hong Kong corporations before she
signed the cited DOD forms because (1) corporate minutes indicate
the transfer of ownership in the company was approved only
“subject to stamping,” meaning subject to stamping by the Stamp
Duty Office in Hong Kong, and there is no evidence stamping
occurred before the forms were completed in late January and early
February 1987; (2) notices of change of directors for the two Hong
Kong corporations were not filed with the Hong Kong Registrar of
Companies until February 27, 1987; and (3) a letter dated March
12, 1987, from Edwards to a Hong Kong law firm noted that the
firm “had never received new bank signature cards nor any docu-
ments effecting change of directors and transfer of shares” and
stated: “If you could effect such changes and provide the bank with
the appropriate signature cards I would be most appreciative.” JA
2744.
* See Webster's Third New International Dictionary 481 (1981)
(defining “connection” as “the state of being connected or linked”
and as “a social, professional, or commercial relationship in a
practical or active way”).
19a
facto. Because Ashton’s proffered construction of the
forms’ language was unreasonable, we reject her challenge to
her convictions on counts 6 and 8.”
We similarly reject Ashton’s challenge to count 10. Ashton
contends her denial on the 1987 “Certificate Pertaining to
Foreign Interests” that ADM had “interlocking directors with
foreign interests” was literally true because foreign interests
can reasonably be construed to exclude foreign corporations
owned by American citizens. We disagree. A “foreign cor-
poration” is clearly a “foreign interest” regardless of owner-
ship, as Ashton herself acknowledged when, on the “State-
ment of Full Disclosure of all Foreign Connections,” she
identified herself as a “Representative of a Foreign Interest”
based on her interest in ADM H&S.
Ashton also asserts the count 10 conviction must be re-
versed because the misrepresentation alleged in that count,
the denial of any “foreign interests” in the January 1987
“Certificate Pertaining to Foreign Interests,” was not materi-
al. Ashton reasons that, because the interlocking director-
ships between ADM and ADM H&S were discoverable from
the February 1987 “Statement of Full Disclosure of All
Foreign Connections,” in which she identified ADM H&S as a
foreign interest in which she, Dale and Sweeney were di-
rectors, it could not have influenced or been material to the
DOD. We find this argument also unavailing. Admittedly, in
order to give rise to criminal liability under section 1001, a
% The Gemona and Swaffham corporate minutes of meetings
conducted October 21, 1986 note that Dale, Ashton and Bowers
were “appointed as Directors ... with immediate effect.” JA 2106,
2127. In addition, Ashton signed a notice that she “consented to act
as Director” of each corporation “as from October 21, 1986,” JA
2109, 2129, and in fact attended a shareholder’s meeting for each on
November 2, 1986, the minutes of which reflect that a “shareholder
vote” “did unanimously resolve” to increase the outstanding shares
in each corporation to 100: 37.5 for Dale, 37.5 for Ashton and 25 for
Bowers. JA 2131, 2110.
26 Our disposition here applies equally to Dale’s adoption by
reference of the same argument to challenge his conviction on count
9. See Dale Brief at 1.
20a
concealment or affirmative misrepresentation must be materi-
al. United States v. Hansen, 772 F.2d 940, 949 (D.C. Cir.
1985), cert. denied, 475 U.S. 1045 (1986). Nevertheless, even
assuming that the earlier disclosure of ADM’s relationship
with ADM H&S rendered nondisclosure of that relationship
here immaterial, it does not affect Ashton’s liability for failing
to disclose the interlocking directorships with Swaffham and
Gemona which had not been otherwise disclosed to the DOD
and therefore were material.”’
Ashton’s final sufficiency challenge is that the trial evi-
dence failed to establish that she “willfully” participat-
ed in the fraudulent tax deductions alleged in counts 3
and 4, as required under 26 U.S.C. §§ 7206(2)% and
27In light of this disposition, we need not decide whether, as
other circuits have held, it is a misrepresentation’s potential to
influence, irrespective of the recipient’s knowledge vel non of its
falsity, that determines materiality under section 1001. See United
States v. Whitaker, 848 F.2d 914, 916 (8th Cir. 1988); United States
v. Goldfine, 538 F.2d 815, 8820-21 (9th Cir. 1976). We note in this
regard, however, that this Circuit has consistently held:
The test of materiality is whether the statement “has a natural
tendency to influence, or was capable of influencing, the deci-
sion of the tribunal in making a [particular] determination.”
Proof of actual reliance on the statement is not required; the
Government need only make a reasonable showing of its poten-
tial effects.
Hansen, 772 F.2d at 949 (quoting United States v. Diggs, 613 F.2d
988, 999 (D.C. Cir. 1979), cert. denied, 446 U.S. 982 (1980)), cert.
denied, 475 U.S. 1045 (1986); see also Weinstock v. United States,
~ 231 F.2d 699, 701-02 (D.C. Cir. 1956).
28 This subsection provides in part:
Any person who—
Willfully aids or assists in, or procures, counsels, or advises the
preparation or presentation under, or in connection with any
matter arising under, the internal revenue laws, of a return,
affidavit, claim, or other document, which is fraudulent or is
2la
7201,” or that she had a “conscious knowing intent to de-
fraud” in connection with the wire transfer of funds to
Bourbonia alleged in count 5, as required under 18 U.S.C.
§ 1343, the wire fraud statute. All three of the challenged
counts alleged fraud in connection with ADM’s claimed
1986 deductions of the $500,000 Swaffham accrual and the
$316,000 Bourbonia payment. Ashton argues there was no
evidence that she was aware the Bourbonia payment was not
false as to any material matter, whether or not such falsity or
fraud is with the knowledge or consent of the person autho-
rized or required to present such return, affidavit, claim, or
document;
shall be guilty of a felony and, upon conviction thereof, shall be
fined not more than $100,000 ($500,000 in the case of a corpora-
tion), or imprisoned not more than 3 years, or both, together
with the costs of prosecution.
26 U.S.C. § 7206(2).
22This section provides:
Any person who willfully attempts in any manner to evade or
defeat any tax imposed by this title or the payment thereof
shall, in addition to other penalties provided by law, be guilty of
a felony and, upon conviction thereof, shall be fined not more
than $100,000 ($500,000 in the case of a corporation), or impris-
oned not more than 5 years, or both, together with the costs of
prosecution.
26 U.S.C. § 7201.
% This statute provides:
Whoever, having devised or intending to devise any scheme or
artifice to defraud, or for obtaining money or property by
means of false or fraudulent pretenses, representations, or
promises, transmits or causes to be transmitted by means of
wire, radio, or television communication in interstate or foreign
commerce, any writings, signs, signals, pictures, or sounds for
the purpose of executing such scheme or artifice, shall be fined
not more than $1,000 or imprisoned not more than five years,
or both.
18 U.S.C. § 1343.
22a
deductible or that the Swaffham payment was ever made,
much less that it was not deductible. We disagree, finding
ample evidence to support a finding of the requisite intent.
The evidence against Ashton here is similar in nature and
weight to the evidence in United States v. Treadwell, 760
F.2d 327 (D.C. Cir. 1985), cert. denied, 474 U.S. 1064 (1986),
in which this court affirmed the conviction of Treadwell, a
real estate firm’s chief executive officer, for conspiring with
subordinates to violate federal law even though Treadwell
exercised little control over day-to-day operations and
claimed to have reimbursed the project and fired one of her
subordinates after she learned of the misconduct. The
Treadwell court upheld the conviction based on the following
circumstantial evidence: *' (1) Treadwell’s close personal and
business relationships with the malfeasant subordinates, (2)
her regular meetings with them, (3) her extensive experience
“as a government-grant entrepreneur” and (4) her attempt to
conceal the misconduct by altering and destroying documents.
Id. at 333-35. The court concluded: “Combining these fac-
tors with the sheer magnitude of the [illegal acts], many
involving other businesses that she controlled, would fully
support a reasonable inference that Treadwell knew of and
condoned her subordinates’ malfeasance.” Jd. at 335. Simi-
lar evidence here, when viewed most favorably to the govern-
ment, supports Ashton’s conviction.
The record yields the following facts to support the finding
that Ashton willingly participated in the frauds alleged: (1)
she was the majority shareholder in all of the corporations;
(2) she took an active role in the corporations, signing autho-
rizations and travelling to the foreign offices; (8) the frauds
conferred a financial benefit on ADM, Swaffham and ADM
H&S, in which she owned controlling interests, as well as on
her personal Bourbonia investment account; (4) these trans-
actions were part of a much larger scheme to defraud the
31 The court noted that “{iJn determining whether the government
has met its burden of proof, ... no legal distinction may be drawn
between direct and circumstantial evidence:” 760 F.2d at 333
(citing United States v. Davis, 562 F.2d 681, 684 (D.C. Cir. 1977)).
23a
government, which included Ashton’s personal withdrawals of
ADM funds which she failed to report as income and misrep-
resentations to government agencies; (5) one of her other
misrepresentations was the concealment of the existence of
Swaffham, one of the corporations benefited by the frauds;
and (6) she personally assisted in covering up many of the
frauds, including the $316,000 Bourbonia deduction.” As in
Treadwell, the combination of these facts suffices to support
the jury’s finding that Ashton willfully and intentionally par-
ticipated in the frauds alleged.
B. Sweeney
Sweeney challenges the sufficiency of the evidence to sup-
port his conviction on counts 1, 3, 4 and 5, advancing two
arguments: (1) the evidence did not establish that the pay-
ments to Bourbonia, or their tax treatment, were fraudulent
and (2) assuming there was fraud, the evidence did not
support a finding of specific intent on his part to evade taxes.
We find neither argument persuasive and conclude the evi-
dence is sufficient to support Sweeney’s conviction on all four
counts.
Sweeney first asserts there was insufficient evidence to
establish that the invoices to Bourbonia were in fact fraudu-
lent. We find, however, that the record contains substantial
evidence that the invoices were issued for the express pu:
pose of diverting tax-free funds for the benefit of Ashton,
Dale and ADM H&S, while conferring a tax benefit on ADM,
and that the services identified in them were never intended
to be performed.®
First, although the December 1986 invoices purported to
charge for “Product Development Consulting for the period
March 86, to December 86” and “for Services rendered in
82 She signed the August 25, 1988, amended 1986 return which
gave a phony explanation of why the $316,000 payment had been
deducted.
3 This conclusion also disposes of Dale’s adoption by reference of
the same challenge to his convictions. See Dale Brief at 1.
24a
accordance with the letter contract as of March 11, 1986 for
Machine Language Translation Research and Development
Project,” JA 1984-85, Knight, who had been a consultant to
ADM since February 1986, who had frequently spoken by
phone with Wormer during that time, who was the only
employee of ADM H&S as of December 1986, and who was
meeting with Sweeney and Wormer the entire day of Decem-
ber 11, 1986, the date on the invoices, nevertheless “had no
knowledge” that as of December 1986 Wormer had performed
$316,000 worth of work for ADM H&S or that ADM had
entered any contract with Bourbonia. In addition, despite
government subpoenas, no contract with Bourbonia has ever
been produced and Crystal Day, ADM’s “Director of Con-
tracts,” testified that despite a thorough search she was
unable to find such a contract and was in fact informed by
Sweeney that none existed. Nor was Day able to discover
any actual reports from either year, although the 1987 invoic-
es expressly stated that “specific reports were produced or
are now underway.” Trial Transcript (Tr.) 2573. In fact,
Day herself testified she never heard of Bourbonia before
December 1988, although she attended weekly meetings with
Ashton, Dale and “mid-level management.” Further, despite
Sweeney’s assertion in a February 19, 1988, memorandum
that Bourbonia “provides invaluable services to me on virtual-
ly a day-to-day basis,” JA 1994, three witnesses who worked
in ADM’s German office between 1986 and 1987, namely
Lyddi Hudson, Yvonne Burr and Sally Frank, testified they
were unaware of any consultation arrangement with Bourbo-
nia, or any Swiss firm, even though Burr had been with the
German office since its establishment and the other two
women had attended weekly meetings with Sweeney and the
other “key players.” Finally, after the federal investigation
began, ADM took steps to reverse the initial tax treatment of
the $316,000 and $102,655 Bourbonia payments as deductible
expenses and Dale and Ashton assumed personal responsibili-
ty for repaying both amounts to ADM, signing promissory
25a
notes and, according to notations on those notes, paying them
off.
Sweeney next asserts that even if the invoices were fraudu-
lent, there is no evidence that he personally knew the fraud
was committed for the purpose of tax evasion. In support of
his argument, Sweeney relies heavily on the Ninth Circuit’s
opinion in United States v. Salerno, 902 F.2d 1429 (9th Cir.
1990). We find the reasoning in Salerno inapplicable here.
In Salerno the Ninth Circuit reversed the tax evasion
conviction of a former casino manager and his assistant who
had embezzled money from the casino through a scheme that
made it appear that the missing money had been won by
customers, thereby entitling the casino to deduct the stolen
amounts on its tax returns. The Salerno court properly
found the evidence insufficient because it failed to show the
two defendants embezzled the money “not merely for their
own benefit but with a specific intent to cause the casino to
file false tax returns.” Jd. at 1432. In so finding, the court
explained:
The government at trial identified no persons other than
[the defendants], the cashier and the runner as being
involved in the scheme. None of the four individuals was
an officer, shareholder, or director of the taxpayer corpo-
ration. There was no evidence that any of those individ-
uals had anything to do with the preparation of [the
corporation’s] tax returns. There was no evidence link-
ing the embezzlement scheme to any officer, director or
shareholder of the taxpayer corporation. There was no
evidence that the defendants had any motive for conduct-
ing a scheme to defraud the government, or that they
4 The government also urges strongly that the alleged consulta-
tion work performed in 1986 is inconsistent with Knight's testimony
that to the best of his knowledge Sweeney first met Wormer on
December 10, 1986, when Sweeney and Knight drove together to
Wormer’s home. What Knight actually said, however, is that as far
as he knew that was the first occasion Sweeney and Wormer
“physically met,” Suggesting they had had previous contact by
telephone or otherwise. See JA 1130.
26a
ever mentioned their own taxes, much less the tax re-
turns of the casino.
Id. at 1432. In fact, the court concluded: “In this case the
filing of the corporate return appears irrelevant to the defen-
dant’s conduct.” Jd. at 1433. Not so here. Sweeney was a
corporate vice-president who, according to the evidence, may
have been promised an equity position. Further, the fraud,
as alleged, involved a conspiracy among Sweeney and both
principals of the corporation and its only apparent purpose
was to obtain unwarranted favorable tax treatment through
untaxed disbursements to Ashton, Dale and ADM H&S and
unjustified deductions for ADM. Sweeney was certainly in a
position to be aware of such a motive and the jury could
reasonably have so inferred. Accordingly, we find the evi-
dence, taken as a whole, sufficient to support a finding of
specific intent by Sweeney to evade tax liability on ADM’s
behalf.
C. Segal
Finally, Segal challenges the sufficiency of the evidence to
support his conviction on counts 1, 3 and 4 and, in addition,
challenges the trial court’s denial of his motion for a new trial.
We reject both challenges, addressing each separately.
First, Segal contends his convictions should be reversed
because the evidence was insufficient to establish beyond a
reasonable doubt that he knowingly participated in any of the
fraudulent activity, asserting he was merely an innocent
employee performing the accounting responsibilities his job
required. We conclude, however, that the evidence, viewed
most favorably to the government, reveals the following facts
sufficient to support a finding of knowing participation in the
tax frauds: (1) Segal was ADM’s Chief Financial Officer and
as such reported directly to Ashton and Dale and attended
high-level company meetings with them around the world; (2)
Segal failed to disclose to Grant Thornton, ADM’s outside
accounting firm, that the suspect transactions with ADM
Asia, Gemona, Swaffham and ADM H&S were related-party
transactions—in fact, he signed a letter to Grant Thornton,
dated May 27, 1987, stating, inter alia, that “[rJelated party
transactions and related amounts receivable or payable, in-
ee |
27a
cluding sales, purchases, loans, transfers, leasing arrange-
ments and guarantees” had been “properly recorded or dis-
closed in the financial statements,” JA 2298, while as of that
date the $200,000 Arlington payment, the $417,532 payments
to Swaffham and Gemona and the $500,000 Swaffham accrual
had already occurred but not been identified as related-party
transactions; * (3) Segal knew or should have known that the
amount of the $500,000 Swaffham invoice was artificial and
that the invoice itself was not bona fide; % (4) it was Segal
whom Ashton selected to accompany her to Korea in August
1987 and to negotiate with Bowers, even though it was likely,
if not inevitable, that the negotiations would involve discus-
sion of some of the fraudulent activities, as in fact they did; *”
35 According to a Grant Thornton accountant, when asked why
the related party transactions had not been disclosed, Segal re-
sponded “No one asked me.” JA 1542.
86 Segal wrote Bowers a letter dated March 5, 1987, stating that
“a bill is needed for the consulting work that David Dale requested.
My understanding is that the work was performed last year for a
total cost of approximately $150,000. The consultant’s report is also
needed as backup to the bill.” JA 2055. When Bowers subsequent-
ly received an invoice for $149,000 in mid-March, he made a call to
Dale which he recorded. During that conversation Bowers remind-
ed Dale of a previous agreement regarding the invoice amount:
“We agreed for 750, and then we were to back ... back it down to
500. Remember, I was to prepare some paper work, two or three
exchanges, and, uh, it was to be backed down to 500.” JA 2387.
Later in the conversation, Dale remarked “I don’t know whether
Marty can handle seven hundred and fifty thousand,” JA 2389, and
that they would “have to find out what Marty thinks we can get
away with,” JA 2391. The actual $500,000 invoice arrived at ADM a
week later, back-dated to December 30, 1986. Segal informed
Grant Thornton of the amount sometime before: March 15, 1987.
*" During the negotiations, Ashton and Bowers attempted to
persuade Bowers to sign a document agreeing to hand over the
incriminating recordings and acknowledging that the $200,000 pay-
ment to Arlington had been “formally loaned” by ADM Asia. See
JA 2714-15. In addition, handwritten notes made by Segal while in
Korea reveal his knowledge of the tapes and Ashton’s desire to
28a .
(5) after the Korean sojourn, Segal continued to conceal from
Grant Thornton some of the fraudulent tax transactions of
which he must have known by then; * and (6) in 1988 Segal
furnished ADM’s accountants a false explanation of why the
1986 tax return had to be amended to eliminate the deduction
of the $316,000 Bourbonia payment.*® Accordingly, we reject
Segal’s first sufficiency challenge.
Next, Segal asserts that even if the evidence was sufficient
to support his conviction, the district court nevertheless erred
in denying his motion for a new trial on the grounds that the
verdict was against the weight of the evidence and that newly
discovered evidence, namely testimony given by Sweeney
after trial but before sentencing, established Segal’s inno-
cence.*® A motion for new trial on either of the grounds
asserted is committed to the trial court’s sound discretion and
may be reversed only for abuse of that discretion. See
United States v. Rogers, 918 F.2d 207, 213 (D.C. Cir. 1990);
United States v. Sensi, 879 F.2d 888, 901 (D.C. Cir. 1989).
We conclude there was no abuse of discretion here.
First, we find no error in the district court’s denial of the
motion insofar as it was based on the weight of the evidence.
In considering a new trial motion based on the weight of the
evidence the district judge “weighs the evidence and evalu-
ates the witnesses’ credibility and decides whether ‘a serious
obtain them and expressly indicate that “money was laundered”
through the Korean office. JA 2058.
38 He said nothing at that time about the $200,000 Arlington
payment or the $500,000 Swaffham accrual.
39 The accountant testified that “the substance” of Segal’s expla-
nation was that “some bills had been paid by ADM U.S.... and
that the expenses were really incurred by a related corporation,
ADM GmbH,” referring to ADM H&S. Tr. 3176. In fact, the
invoices were unrelated to ADM H&S.
40 At a hearing conducted February 22, 1991, Sweeney, pursuant
to an agreement with the government, provided extensive sentenc-
ing testimony regarding ADM’s business activities, some of which
suggested Segal may not have been directly involved in ADM’s
fraudulent conduct.
a
29a
miscarriage of justice may have occurred.’” Rogers, 918
F.2d at 213 (quoting Tibbs v. Florida, 457 U.S. 31, 38 n.11
(1982)). Our review of the district court’s decision is particu-
larly narrow when the court denies the new trial motion
because the court’s decision accords with the jury’s. Hutch-
inson v. Stuckey, 952 F.2d 1418, 1420 (D.C. Cir. 1992) (citing
McNeal v. Hi-Lo Powered Scaffolding, Inc., 836 F.2d 637,
646 (D.C. Cir. 1988)). Given this limited scope of review and
the evidence set out above supporting Segal’s knowing partic-
ipation in the tax evasion scheme, the trial court’s rejection of
Segal’s weight of the evidence argument cannot be character-
ized as an abuse of discretion and must therefore be upheld.
See United States v. Kelly, 748 F.2d 691, 701 (D.C. Cir. 1984)
(holding that, as long as the weight of the evidence clearly
weighs in favor of conviction, not against it, there is no abuse
of discretion in denying a new trial motion)."!
Nor do we find error in the judge’s refusal to grant a new
trial based on Sweeney’s post-trial testimony. To obtain a
‘1 Segal maintains that comments made by the trial judge at
sentencing indicate he applied the wrong standard, deferring entire-
ly to the jury’s judgment and abdicating his responsibility to review
the evidence himself. The challenged language states:
(IJn looking at the verdict of the jury, the court cannot sit back
and say to the jury, “I disagree.” Whether I disagreed with
their verdict in your case, and I’m not going to tell you whether
I did or did not, but whether I disagreed with the jury verdict
in your case is of no moment. That isn’t a basis for setting
aside the verdict or giving you a new trial. There are stan-
dards that the court must follow, and with respect to the
evidence, as long as the evidence has been presented to the
jury in a fair manner and under fair and correct instructions,
and as long as the court has decided and concluded that the
jury has considered those matters, it’s a verdict for the jury to
decide, it’s not for the court.
JA 1825-26 (emphasis added). The highlighted language satisfies
us that the judge properly assessed the jury’s verdict in light of the
credible evidence and the weight one could reasonably ascribe to it.
ee
30a
new trial based on newly discovered evidence, a convicted
defendant must offer evidence that “‘ha[s] been discovered
since the trial.’” Sensi, 879 F.2d at 901 (quoting United
States v. Mangieri, 694 F.2d 1270, 1284 (D.C. Cir. 1982)).
The unanimous view of circuits that have considered the
question is that this requirement is not met simply by offer-
ing the post-trial testimony of a co-conspirator who refused to
testify at trial. See United States v. Reyes-Alvarado, 963
F.2d 1184, 1188 (9th Cir. 1992) (“‘{W]Jhen a defendant who
has chosen not to testify comes forward to offer testimony
exculpating a codefendant, the evidence is not “newly discov-
ered.”’”) (quoting United States v. Diggs, 649 F.2d 731, 740
(9th Cir.), cert. denied, 454 U.S. 970 (1981)); United States v.
Gustafson, 728 F.2d 1078, 1084 (8th Cir.) (finding no abuse of
discretion in denying new trial motion based on probability
that post-trial testimony of convicted co-defendants, who had
agreed to provide government with information in return for
lenient sentence, would deviate from their trial testimony and
no longer implicate defendant-appellant), cert. denied, 469
U.S. 1189 (1984); United States v. Metz, 652 F.2d 478, 480
(Sth Cir. Unit A Aug. 3, 1981) (rejecting contention that
“ ‘newly available’ evidence is synonymous with ‘newly discov-
ered’ evidence” and finding no abuse of discretion in denial of
new trial motion based on co-defendant’s post-conviction ex-
culpating affidavits); United States v. Jacobs, 475 F.2d 270,
286 n.33 (2d Cir.) (“{W]e fully agree with the judge’s alterna-
tive ground [for denying a new trial motion], that a court
must exercise great caution in considering evidence to be
‘newly discovered’ when it existed all along and was unavail-
able only because a co-defendant, since convicted, had availed
himself of his privilege not to testify.”), cert. denied, 414 U.S.
821 (1973). We recently acknowledged this principle in the
administrative context to hold that the National Transporta-
tion Safety Board had reasonably concluded the proffered
testimony of an FAA inspector who had invoked his fifth
amendment privilege at a pilot certification hearing but had
since pleaded guilty to charges related to the hearing’s sub-
ject-matter did not constitute “newly discovered” evidence
under an NTSB rule so as to warrant reconsideration of the
ee ee j
3la
certification denial. See Chirino v. NTSB, 849 F.2d 1525
(D.C. Cir. 1988). In light of our holding in Chirino and the
holdings of the other circuits in the cited Cases, we conclude it
was not an abuse of discretion to deny a new trial based on
Sweeney’s post-trial testimony.
III. Apmission or Tapes
A. Title III
Title III of the Omnibus Crime Control and Safe Streets
Act of 1968, 18 U.S.C. § 2510 et seq., provides, in relevant
part, that a person may intercept wire, oral or electronic
communications to which the person is a party “unless such
communication is intercepted for the purpose of committing
any criminal or tortious act in violation of the Constitution or
laws of the United States or of any State.” 18 U.S.C.
§ 2511(2)(d). In their motion to Suppress the tape recordings
made by Bowers and Roth, the defendants argued that the
taping violated Title III because the purpose for taping was
to blackmail Dale and Ashton for stock and money. The
government responded with three independent arguments:
(1) Title III does not apply extraterritorially and therefore is
inapplicable to Bowers’ taping in Korea of phone calls to and
from the United States; (2) even if Title III applies extrater-
42In Chirino, this court stated:
To assess the reasonableness of (the NTSB’s) interpretation,
we pause to observe that, in an admittedly different but
analogous context, cases construing Rule 33 of the Federal
Rules of Criminal Procedure governing new trials are instruc-
tive on the question of what constitutes “newly discovered”
evidence. In the Rule 33 setting, several courts have conclud-
ed that post-trial testimony of a co-defendant who initially
asserted his or her Fifth Amendment privilege does not consti-
tute “newly discovered” evidence within the meaning of the
Rule....
These decisions from the criminal law setting provide a direct
analogy to the situation before the Board in this case.
849 F.2d at 1532 (citations to Metz, Diggs and Jacobs omitted).
32a
ritorially and Bowers and Roth made the tapes for an illegal
purpose, Title III does not mandate suppression where the
government is the innocent recipient of tapes made by unin-
dicted co-conspirators in the course of criminal activity; and
(3) the defendants failed to meet their burden of proving that
Bowers’ or Roth’s primary purpose in taping was either
criminal or tortious. The district court did not state explicitly
why it denied the motion to suppress, explaining only that it
had conducted a three-day evidentiary hearing and that “[a)f-
ter careful consideration of the motion, the opposition thereto
and the entire record in this case,” the motion should be
denied. JA 917. The defendants did not object to the
district court’s failure to state its essential findings of fact on
the record. See Fed. R. Crim. P. 12(e).
On appeal, the defendants and the government repeated
the same arguments regarding suppression of the tapes that
they made to the district court. Normally, where the district |
court denies a motion to suppress but fails to make findings
of fact on the record, we may sustain the district court’s
decision “if there is any reasonable view of the evidence that
will support it.” Scarbeck v. United States, 317 F.2d 546, 562
(D.C. Cir. 1962), cert. denied, 374 U.S. 856 (1963); see also
United States v. Mitchell, 951 F.2d 1291, 1299 (D.C. Cir.
1991), cert. denied, 112 S. Ct. 1976 (1992); United States v.
Caballero, 936 F.2d 1292, 1296 (D.C. Cir. 1991), cert. denied,
112 S. Ct. 943 (1992); United States v. Allen, 629 F.2d 51, 57
(D.C. Cir. 1980). However, we declined to exercise this
option here because we did not know which of three separate
legal theories advanced by the government the district court
had adopted and what facts, if any, it relied on to support its
chosen theory.
By order dated January 8, 1993, we remanded the record to
the district court for a clarification of its reasons for admit-
ting the tapes and any relevant factual findings made in
support of its admissibility ruling. See United States v.
Williams, 951 F.2d 1287, 1290-91 (D.C. Cir. 1991) (remand to
the district court is appropriate where neither the legal
reasoning nor factual findings supporting the denial of a
motion to suppress are apparent because it is not clear “[o]}ne,
33a
that the district court asked the right legal questions in
making its ruling; two, that it actually weighed the evidence
bearing on the facts needed to answer them”). On January
21, 1993, the district court responded with an order explaining
that a memorandum had been prepared subsequent to the
court’s denial of the defendants’ motion to suppress the tapes,
but while “[i]t was the Court’s understanding that the Memo-
randum had been filed; it now appears that the Memorandum
was not filed. The Memorandum sets forth the reasons the
Court ... denied the motion to suppress tapes.... [A] copy
of the Memorandum has been signed and is attached as Court
Exhibit A.” United States v. Dale, Crim. No. 90-0027,
Memorandum Order at 1-2 (D.D.C. Jan. 21, 1993).
In the memorandum, which was filed and made a part of
the record, the district court expressly eschewed the first two
legal theories pressed by the government, that Title III does
not apply extraterritorially or that it does not apply to the
government's innocent receipt of recordings made by a co-
conspirator, stating that “[flor the purpose of this motion, the
Court will assume without deciding that Title III applies to all
of the tape recordings at issue.” United States v. Dale, Crim.
No. 90-0027, Memorandum at 2 n.1 (D.D.C. Jan. 21, 1993)
(“Tapes Memorandum”). Instead, the court found that the
evidence supported the government’s third theory and con-
cluded that the “defendants have failed to establish that the
motivation for the taping by either Bowers or Roth was
criminal or tortious.” Jd. at 3. The district court explained
that although Bowers |
was a willing participant in the illegality in the beginning,
there came a time when he became an unwilling partici-
pant because he felt that there was a possibility that all
of the responsibility for these activities could be placed
on him. Bowers stated that he began taping conversa-
tions with the defendants at about this time in order to
make sure his interests were protected. Specifically,
Bowers asserted that with the taping he wanted to make
a record which detailed the participation of defendants
Ashton and Dale in the criminal activities taking place in
|
34a
Asia and show[ed] that he was receiving directions [from
them] as to those activities. It was important to him
that it was clear on the recordings that he was not acting
alone since he feared that defendants would seek to
portray him in that light
Id. at 56. The district court credited this testimony and
found that the defendants had not rebutted Bowers’ explana-
tion for the taping. Jd. Similarly, the district court found
Roth’s explanation that he made the tapes to keep a record of
his employment dispute with ADM and not for purposes of
extortion to be “entirely credible.” Jd at 4. We permitted
the parties to file supplemental briefs addressing these find-
ings, and after reviewing those briefs and the district court’s
memorandum, we conclude that the district court’s factual
findings were not clearly erroneous.
The burden was on the defendants to prove that Bowers
and Roth made the tapes for criminal or tortious purposes,
see Traficant v. Commissioner, 884 F.2d 258, 266 (6th Cir.
1989); United States v. Phillips, 540 F.2d 319, 326 (8th Cir.),
cert. denied, 429 U.S. 1000 (1976), and the evidence supports
the district court’s conclusion that the defendants failed to
meet their burden. In their supplemental brief, the defen-
dants contend that because the district court failed to mention
every bit of evidence allegedly probative of Bowers’ and
Roth’s intent, the court necessarily overlooked or ignored this
evidence. However, the district court was obligated to state
only its essential findings on the record, see Fed. R. Crim. P.
12(e), and we do not find that the district court neglected to
consider any dispositive evidence in the record. Indeed, the
district court noted that “the evidence presented by defen-
dants to support their claim that Roth conspired with Bowers
in a blackmail and extortion plan is scant and unpersuasive,”
and further that it “was not persuaded by defenuunts’ efforts
to rebut Bowers’ testimony.” Tapes Memorandum at 4, 6.
In any event, simply because the factual record could reason-
ably lead a factfinder to conclude that Bowers and Roth did
have an illegal or tortious purpose in taping does not mean
that the district court’s contrary, and at least equally permis-
35a
sible, view of the facts is clearly erroneous. See Anderson v.
Bessemer City, 470 U.S. 564, 574 (19835).
Neither do we find that the district court erred in its legal
analysis. Taping phone calls to make an accurate record of a
conversation “in order to prevent future distortions by a
participant” is not illegal, see United States v. Underhill, 813
F.2d 105, 110 (6th Cir.), cert. denied, 482 U.S. 906 (1987), even
when the recording is made in the hopes of producing evi-
dence of an illegal conspiracy, see By-Prod. Corp. v. Armen-
Berry Co., 668 F.2d 956, 959-60 (7th Cir. 1982). A person
may even tape confederates in the hope of obtaining evidence
to reduce his own sentence. See United States v. Ruppel, 666
F.2d 261, 271 (5th Cir. Unit A), cert. denied, 458 U.S. 1107
(1982). Given the district court’s determination that Bowers’
purpose for taping was to protect himself and Roth’s purpose
was to establish a record of his employment dispute, it would
appear that the district court correctly concluded that the
tape recordings were not made in violation of Title III. The
defendants argue, however, that the district court “may well
have applied an erroneous legal standard” by concluding that
Title III is not violated where the primary purpose for taping
is legal, even though a second, unlawful factor also motivated
the taper. Appellants’ Joint Supplemental Brief at 6-7.
The defendants are correct that a violation of Title III is
established when “it is shown either (1) that the primary
motivation, or (2) that a determinative factor in the actor’s
motivation for intercepting the conversation was to commit a
criminal, tortious, or other injurious act.” See United States
v. Vest, 639 F. Supp. 899, 904 (D. Mass. 1986), affd, 813 F.2d
477 (1st Cir. 1987), cert. denied, 488 U.S. 965 (1988). Al-
“In Vest, the court rejected the defendant’s position that sup-
pression is appropriate under Title III if any part of the motivation
is criminal or tortious, explaining:
It is characteristic of human experience that individuals usual-
ly—perhaps even always—act with mixed motives. To adopt
the interpretation of the statute advanced by the defendant
would impose on the government the nearly insurmountable
36a
though the district court at one point in the memorandum
referred to Roth’s “primary” purpose for taping, Tapes Mem-
orandum at 3, it is clear to us that the district court, which
cited Vest, recognized that the defendants were obligated to
demonstrate only that some determinative factor in the tap-
ing was impermissible. Unfortunately for the defendants,
there is no indication that the district court found any of the
purposes motivating Bowers and Roth to be illegal. Instead,
the court quite clearly stated that “defendants have failed to
sustain their burden of proving that Roth acted with an
impermissible purpose,” and that “defendants’ argument that
Bowers’ motivation behind his taping was illegal or tortious is
unconvincing.” Jd. at 5-6. In sum, the district court correct-
ly applied the appropriate legal standard in refusing to sup-
press the tapes.
B. Authentication
The defendants next argue that the district court erred by
failing to make an explicit threshold determination that the
tapes were trustworthy, especially in light of a defense ex-
pert’s report concluding there was a possibility that some
tapes had been altered or recorded over. The admission of
recordings into evidence is committed to the sound discretion
of the trial court, so long as the tapes are authentic, accurate
and trustworthy. See United States v. Sandoval, 709 F.2d
1553, 1554 (D.C. Cir. 1983); United States v. Slade, 627 F.2d
293, 301 (D.C. Cir.), cert. denied, 449 U.S. 1034 (1980);
United States v. Haldeman, 559 F.2d 31, 107 (D.C. Cir. 1976),
cert. denied, 431 U.S. 933 (1977). It was not an abuse of
discretion for the district court to admit the tapes into
evidence without expressly stating that the tapes were reli-
able because the record indicates that the court accepted the
government’s proffer of trustworthiness and rejected the
defendants’ concerns. We believe that in admitting the tapes
into evidence, the district court implicitly found that “ ‘the
burden of eliminating the possibility that an improper motive
played any part in the decision to intercept the communication.
639 F. Supp. at 904.
37a
possibilities of misidentification and adulteration [were] elimi-
nated, not absolutely, but as a matter of reasonable probabili-
ty.” Haldeman, 559 F.2d at 107 (quoting Gass v. United
States, 416 F.2d 767, 770 (D.C. Cir. 1969)).
To meet its burden of demonstrating the autherticity and
accuracy of the tapes, see United States v. King, 587 F.2d
956, 961 (9th Cir. 1978), the government first produced IRS
Special Agent Kenneth Buck who testified and was cross-
examined at length regarding the tapes and in particular,
about how the government had inadvertently damaged one
part of one tape. Next, Bowers described the mechanism by
which he taped telephone conversations, explained the cir-
cumstances under which he handed tapes over to government
agents and testified that the tapes were fair and accurate
recordings of conversations to which he was a party. In
addition, the court engaged in a lengthy colloquy with counsel
on the accuracy and reliability of the tapes, and the findings
of the defense expert regarding potential tampering with the
tapes. Finally, the district court gave the defendants the
option of having the FBI technician who produced noise-
reduced versions of the tapes testify regarding whether the
tapes might have been tampered with prior to receipt by the
FBI, which offer the defendants declined. Only after all of
the foregoing did the district court admit the tapes into
evidence and allow them to be played to the jury.
There is no single rigid standard for determining whether a
tape recording may be admitted into evidence. See United
States v. Lance, 853 F.2d 1177, 1181 (5th Cir. 1988) (federal
courts do not require “conclusive proof of authenticity” before
admitting tapes); Haldeman, 559 F.2d at 107 (evidence of
admissibility of tapes “need not conform to any particular
model”). Tapes may be authenticated by testimony describ-
ing the process or system that created the tape, see United
States v. Sivils, 960 F.2d 587, 597 (6th Cir.), cert. denied, 113
S. Ct. 130 (1992); Haldeman, 559 F.2d at 107-09, or by
testimony from parties to the conversation affirming that the
tape contained an accurate record of what was said. See
Lance, 853 F.2d at 1181-82; Sandoval, 709 F.2d at 1555.
The district court’s decision to admit the tapes was obviously
38a
based on its conclusion that the testimony of both the origina-
tor of the tapes and of the IRS agent established the authen-
ticity, accuracy and trustworthiness of the tapes notwith-
standing the misgivings of the defendants’ expert. Given the
extended discussion of the objections and the government’s
evidence in court, we are satisfied that the district court
committed no reversible error in failing to make the basis of
its ruling explicit.
IV. ADMISSION OF EVIDENCE FROM SEARCH
On May 18, 1990, the district court denied, without elabora-
tion, the defendants’ motion to suppress evidence seized in a
search of ADM’s offices and warehouse. In responding to
our January 8, 1993 request to set forth its reasons for
denying the defendants’ motion to suppress the tapes made
by Bowers and Roth, the district court has provided this
court with a second memorandum, also mistakenly believed
by the district court to have been filed in 1990, explaining in
detail why the court refused to suppress evidence seized in
the search of ADM’s offices. United States v. Dale, Crim.
No. 90-0027, Memorandum Order (D.D.C. Jan. 21, 1993)
(“Warehouse Memorandum”). In their supplemental briefs,
the parties have addressed the search and suppression issues
in light of the district court’s memorandum.
A. Franks Hearing
The defendants argue that the trial court erred in refusing
to hold an evidentiary hearing under Franks v. Delaware, 438
U.S. 154 (1978), to investigate alleged defects in the affidavit
of Defense Criminal Investigation Service Special Agent
Heidi Shintani supporting the warrant to search ADM’s
offices and warehouse in Washington, D.C. Although a
search warrant is presumptively valid, if the defendant is able
to make
a substantial preliminary showing that a false statement
knowingly and intentionally, or with reckless disregard
for the truth, was included by the affiant in the warrant
affidavit, and if the allegedly false statement is necessary
39a
to the finding of probable cause, the Fourth Amendment
requires that a hearing be held at the defendant’s re-
quest.
Id. at 155-56; see United States v. Sobamowo, 892 F.2d 90, 94
(D.C. Cir. 1989), cert. denied, 111 S. Ct. 78 (1990). The
defendants contend that they made such a showing before the
district court by proffering evidence that: allegations in the
warrant that ADM illegally substituted products in executing
contracts with the Army were false and the affiant Shintani
acted with reckless disregard for the truth by failing to
investigate the validity of the allegations; the affiant misrep-
resented the credibility of David Bowers by failing to disclose
that Bowers was himself under investigation; and the affiant
lied about information provided by former ADM employees.
We conclude that the district court properly rejected each of
these claims.“
First, the defendants produced affidavits from Army offi-
cials to establish that ADM had approval from the Army to
** The circuits are split on the question whether a district court’s
decision not to hold a Franks hearing is reviewed under the clearly
erroneous or de novo standard of review. Four circuits adhere to
the clearly erroneous standard. See United States v. Buchanan,
1993 WL 34834 at *6 (8th Cir. Feb. 16, 1993); United States v.
Skinner, 972 F.2d 171, 177 (7th Cir. 1992); United States v.
Hadfield, 918 F.2d 987, 992 (1st Cir. 1990), cert. denied, 111 S. Ct.
2062 (1991); United States v. One Parcel of Property, 897 F.2d 97,
100 (2d Cir. 1990). Two review such decisions de novo. See United
States v. Homick, 964 F.2d 899, 904 (9th Cir. 1992); United States
v. Mueller, 902 F.2d 336, 341 (5th Cir. 1990). We have not
definitively resolved the issue in this circuit. In United States v.
Richardson, 861 F.2d 291, 293 (D.C. Cir. 1988), cert. denied, 489
U.S. 1058 (1989), we invoked the clearly erroneous standard to
review a district court’s finding on the good faith belief of the police
officer in executing the disputed affidavit but we did not explicitly
discuss which standard would apply to the ultimate decision not to
hold a Franks hearing. For purposes of this case, we need not
resolve the precise scope of Richardson or take sides in the circuit
conflict because we find that the district court’s decision not to hold
a hearing passes muster under either standard of review.
40a
substitute Magna hard drives for the Wang or Yipcon hard
drives originally contracted for. According to the defendants,
Agent Shintani’s sole reliance on affidavits from former ADM
employees and her failure to contact any Army officials
amounted to reckless disregard for the truth. But in general,
the failure to investigate fully is not evidence of an affiant’s
reckless disregard for the truth. See United States v. Miller,
753 F.2d 1475, 1478 (9th Cir. 1985); United States v. Mastroi-
anni, 749 F.2d 900, 909-10 (1st Cir. 1984); United States v.
Young Buffalo, 591 F.2d 506, 510 (9th Cir.), cert. denied, 441
U.S. 950 (1979). As the district court explained, probable
cause “does not require an officer to exhaust every possible
lead, interview all potential witnesses, and accumulate over-
whelming corroborative evidence.” Warehouse Memorandum
at 18. In fact, Agent Shintani’s failure to contact Army
officials may have been entirely prudent given the possibility
of a leak back to ADM. According to the affidavit, one
informant “indicated that Dale and ADM President Ashton
would certainly destroy any incriminating records if they
were subpoenaed. She stated Dale would do anything to
avoid detection.” JA 258. Rather than evincing a reckless
disregard for the truth, the agent’s actions amounted to at
most negligence which is insufficient to warrant a Franks
hearing. See Franks, 438 U.S. at 171.
The defendants next argue that the affiant misrepresented
Bowers’ credibility in the affidavit by describing him as a
“Confidential Informant” when Bowers was himself under
investigation. However, an affiant’s failure to disclose the
backgrounds and alleged biases of informants does not estab-
lish the affiant’s reckless disregard for the truth. See United
45 The government asserts that arguments relating to the affiant’s
alleged misrepresentation of Bowers’ credibility have been waived
because they were not raised below. See Government Brief at 44
n.18. However, in their Memorandum in Support of Motion to
Suppress Tangible Evidence and Its Fruits Seized in Search of
ADM Offices, the defense counsel complained of the “bias of
Bowers” who “himself was under investigation.” JA 240-41. Fur-
ther, at the argument on the suppression motion, defense counsel
reiterated this concern.
4la
States v. Wold, 979 F.2d 632, 634 (8th Cir. 1992) (failure to
_ disclose that informant had been drug dealer, was cooperat-
ing with police in order to receive leniency and was being paid
by police did not amount to misrepresentation); United
States v. Levasseur, 816 F.2d 37, 43-44 (2d Cir. 1987). More-
over, including in the affidavit the fact that Bowers was
himself under investigation would not have defeated probable
cause because Bowers’ information was corroborated by other
informants. According to the district court, “Bowers’ credi-
bility would have been of no moment” to the magistrate since
three other informants had corroborated Bowers’ testimony
with “independent, consistent, interlocking information.”
Warehouse Memorandum at 13; see United States v. Hum-
phreys, 982 F.2d 254, 258-59 (8th Cir. 1992) (defendant “fails
to understand that, while he may believe that the informants
lacked credibility, where the informants’ information is at
least partially corroborated, attacks upon credibility and relia-
bility are not crucial to the finding of probable cause”);
United States v. Coronel, 750 F.2d 1482 (1)th Cir. 1985)
(description of informant as “legitimate businessman,” even if
recklessly false, did not defeat probable cause which existed
apart from informant’s status); United States v. Haimowitz,
706 F.2d 1549, 1556 (11th Cir. 1983) (failure to disclose
informant’s criminal record did not undermine probable cause
where informant’s first-hand information was corroborated by
other sources); United States v. Dennis, 625 F.2d 782, 791
(8th Cir. 1980).‘
‘6 The defendants also argue that the affiant’s failure to disclose
that Bowers had previously given several contradictory statements
to two different government agents also warranted a Franks hear-
ing. However, the district court carefully considered the alleged
discrepancies and found that, by and large, each could be “effort-
lessly harmonized.” Warehouse Memorandum at 10-12. Further,
as indicated above, the district court reasoned that “(elven if [the
magistrate] had rejected Bowers’ statements as coming from a
source unworthy of belief, she would still be left with the sufficient
content in the warrant affidavit to support a finding of probable
cause ‘because the tainted information ... was merely cumulative of
criminal activity.’” Jd. at 13 (quoting United States v. Grunsfeld,
42a
Finally, the defendants charge that the Shintani affidavit
falsely stated that former employee Margo George had
served as an informant because the affidavit of a defense
investigator, William Corboy, reported George as saying that
she had never provided information about ADM to any law
enforcement agency. The district court correctly rejected
this contention as well. A Franks hearing should be justified
by “[{a]ffidavits or sworn or otherwise reliable statements of
witnesses ... or their absence satisfactorily explained.”
Franks, 4388 U.S. at 171. It is problematical whether a
defense investigator’s summary of unsworn statements of an
informant generally fits the description of “otherwise reli-
able.” Here the district court reasonably concluded that
where the “defendants have not made any attempt to explain
the absence of an affidavit from George herself,” an affidavit
from an investigator purporting to describe George’s state-
ments to him was insufficient to warrant a Franks hearing.
Warehouse Memorandum at 20-21. In addition, given the
defendants’ assertion in their motion to suppress that George
was “terminated for incompetence” and that she “bore ill will
toward” ADM, JA 240, it is not surprising that George might
deny to an investigator employed by ADM that she had given
information about ADM to a law enforcement agency. Fur-
ther, the information allegedly provided by George in the
affidavit was so precise, including exact locations of particular
documents at ADM, that in order for the district court to
credit the Corboy declaration, it would have been necessary
for the court to conclude that Agent Shintani had herself
fabricated much of that specific information.”
558 F.2d 1231, 1240 (6th Cir.), cert. denied, 434 U.S. 872 (1977)).
We have no cause to disturb these conclusions.
47 The defendants also \allege that the agent misrepresented in
her affidavit that informant Charles Roth had knowledge of ADM’s
tax evasion because Corboy reported that Roth told him that he had
no independent knowledge of ADM’s tax evasion. However, Agent
Shintani’s affidavit did not purport to reflect Roth’s independent
knowledge but stated only that Roth knew of the establishment of
dummy corporations for the purpose of evading taxes.
43a
The Supreme Court has admonished lower courts that
affidavits for search warrants
must be tested and interpreted by magistrates and
courts in a commonsense and realistic fashion. They are
normally drafted by nonlawyers in the midst and haste of
a criminal investigation. Technical requirements of elab-
orate specificity once exacted under common law plead-
ings have no proper place in this area. A grudging or
negative attitude by reviewing courts toward warrants
will tend to discourage police officers from submitting
their evidence to a judicial officer before acting.
United States v. Ventresca, 380 U.S. 102, 108 (1965). Against
this backdrop, it is apparent that the district court-correctly
refused to hold a Franks hearing because the defendants
failed to make a substantial preliminary showing that the
government had knowingly, intentionally or recklessly disre-
garded the truth.
B. Warrant
The Fourth Amendment prohibition against general war-
rants requires the government to provide a particular de-
scription of the items to be seized. See United States v:
Maxwell, 920 F.2d 1028, 1031 (D.C. Cir. 1990). In assessing
particularity, courts “ ‘are concerned with realities of adminis-
tration of criminal justice. It is sufficient if the warrant
‘“8In their supplemental brief, the defendants assert that the
district court may have erroneously subjected them to the higher
burden of actually establishing the affiant’s reckless disregard for
the truth because at one point the court stated that the defendants
had not “shown that the affiant in fact entertained serious doubts as
to the truth of [her affidavit].” Warehouse Memorandum at 17
(internal quotation omitted) (emphasis added). However, it is abun-
dantly clear to us that the district court, which repeatedly correctly
noted that the defendants were required to make only a substantial
preliminary showing of the affiant’s reckless disregard for the truth,
see Warehouse Memorandum at 5, 7, 8, 21, recognized and applied
the correct legal standard and in the single passage cited by the
defendants was merely substituting the abbreviated “shown” for the
more cumbersome “made a substantial preliminary showing.”
44a
signed by the judicial officer is particular enough if read with
reasonable effort by the officer executing the warrant.’”
United States v. Vaughn, 830 F.2d 1185, 1186 (D.C. Cir. 1987)
(quoting Moore v. United States, 461 F.2d 1236, 1238 (D.C.
Cir. 1972)). In this case, the defendants urge that the
warrant was not particular enough and therefore that the
district court erred in refusing to suppress the evidence
seized from ADM’s offices.
The search warrant sought “records and documents as
further described in Attachment B.” JA 249. Attachment B
in turn stated that the property to be seized consisted of
documents which “are believed to contain specific information
regarding the false statements and claims made by ADM.”
JA 262. More specifically, Attachment B permitted seizure
of “business records including, but not limited to,” various
categories of documents, such as invoices, receipts and corre-
spondence. Each category was divided in the sentence by
semi-colons and at the end of the list, followed by a comma,
was the phrase “and other records which relate to the crimi-
nal scheme outlined in the above affidavit” of Agent Shintani.
Finally, the records to be seized were limited to those that
“relate to the period June 1, 1984 through the present.” The
defendants complain that the warrant was unduly general
becduse some of the items identified (e.g., “internal docu-
ments, including agenda and minutes of board of directors
meetings”) were too broad, and because the permission to
seize records “including, but not limited to” those listed
exposed any and all documents to seizure.
The district court found that the warrant was not overly
broad because first, the warrant identified specific and limited
categories of records to be seized, and second, the warrant
limited the search to documents associated with the allega-
tions made in the Shintani affidavit. Warehouse Memoran-
dum at 24-25. We cannot agree with the district court’s first
ground for upholding the search. The warrant’s explicit
authorization to the agents to seize “business records includ-
ing, but not limited to” those specifically identified subjected
essentially all of ADM’s records dated after June 1, 1984 to
seizure and therefore the warrant, by itself, was not suffi-.
45a
ciently particular. See Center Art Galleries-Hawaii, Inc. v.
United States, 875 F.2d 747, 749-50 (9th Cir. 1989); Rickert
v. Sweeney, 813 F.2d 907, 908-09 (8th Cir. 1987). However,
we concur in the district court’s view that incorporation of
Agent Shintani’s affidavit into the warrant provided a suffi-
cient limitation on the government’s search. As we have
explained:
[I]n some circumstances a search warrant may be con-
strued with reference to the affidavit supporting it for
purposes of satisfying the particularity requirement.
The affidavit may serve this function, however, only if (1)
the affidavit accompanies the warrant, and in addition (2)
the warrant uses suitable words of reference which incor-
porate the affidavit by reference.
Maxwell, 920 F.2d at 1031 (internal quotation omitted).
Taking the second requirement first, the district court
expressly found that the search warrant “incorporated by
reference the affidavit underlying the search warrant.”
Warehouse Memorandum at 3-4. More specifically, the court
maintained that the “records sought relate to the criminal
scheme outlined in the affidavit underlying the search war-
rant,” and that it was “clear that ... allegations [in the
affidavit], for which the Magistrate found probable cause,
were used to refine the scope of the warrant.” Warehouse
Memorandum at 25-26. Conversely, the defendants contend
that the phrase in the warrant which makes reference to the
affidavit does not limit all the items to be seized but only
identifies an additional omnibus category of documents reiat-
ed to the Shintani affidavit which may be seized. We do not
accept this interpretation as a fair reading of the warrant as a
whole. See Andresen v. Maryland, 427 U.S. 468, 479-82
(1976); United States v. Johnson, 690 F.2d 60, 64 (3d Cir.
1982), cert. denied, 459 U.S. 1214 (1983). The phrase “and
other records which relate to the criminal scheme outlined in
the above affidavit,” is set apart by a comma from the specific
categories of documents and therefore appears to modify the
entire sentence. Perhaps more importantly, the first two
sentences of Attachment B state:
46a
Based on the information provided by the Confidential
Informants and the experience of the affiant, it is be-
lieved that the below listed documents are still in ADM’s
possession. These documents are believed to contain
specific information regarding the false statements and
claims made by ADM.
JA 262. Thus, the common-sense reading of the warrant is
that the government could seize a variety of specifically
identified documents and any other records that related to
the product substitution and tax evasion allegations made in
Agent Shintani’s affidavit. We therefore affirm the district
court’s decision that the warrant contained “ ‘suitable words
of reference’ evidencing the magistrate’s explicit intention to
incorporate the affidavit.” Mazwell, 920 F.2d at 1032; * see
49 In Maxwell, a statement in the warrant that the magistrate had
found the supporting affidavit to establish probable cause did not
constitute a sufficient incorporation. 920 F.2d at 1032; see also
United States v. George, 975 F.2d 72, 76 (2d Cir. 1992) (warrant
which stated that “it is ‘issued upon the basis of an application and
affidavit{ ] of Patrolman Brickell does not direct the executing
officers to refer to the affidavit for guidance concerning the scope of
the search and hence does not amount to incorporation by refer-
ence”). However, the Maxwell court continued:
Although we hold that the warrant in this case did not incorpo-
rate the affidavit by reference, we recognize that the “realities
of administration of criminal justice,” Moore v. United States,
461 F.2d at 1238, counsel against an overly exacting standard
for determining when a warrant successfully incorporates a
supporting affidavit. In this case, we believe it would have
been sufficient if the warrant, in addition to referencing “At-
tachment #2” [a list of items to be seized] in the space
provided for describing the items to be seized, had also made
some reference in that space to the affidavit or to “Attachment
# 3,” which is how the affidavit was captioned in the warrant
application presented to the magistrate.
920 F.2d at 1033 n.4. In the present case, the references in the
warrant to the affidavit were not made with regard to probable
cause nor were they simply descriptive of the background of the
warrant. Instead, the warrant expressly incorporated the Shintani
47a
also In re Search Warrant, 572 F.2d 321 (D.C. Cir. 1977)
(warrant which commands executing officers to seize evidence
“which facts recited in the accompanying affidavit make out”
incorporates the affidavit), cert. denied, 435 U.S. 925 (1978).
While the warrant undoubtedly incorporated the limitations
of the affidavit, the record is not clear whether the other
requirement, that “the affidavit accompan[y] the warrant,”
was literally satisfied. Mazwell, 920 F.2d at 1031; see also
United States v. Tagbering, 1993 WL 19017 at *3 (8th Cir.
Feb. 1, 1993); Vaughn, 830 F.2d at 1186; of. Rickert, 813
F.2d at 909 (“An affidavit may provide the necessary particu-
larity for a warrant if it is either incorporated into or at-
tached to the warrant ... [or] is merely present at the
search.”). In its memorandum in opposition to the defen-
dants’ motion to suppress, the government stated that “[i]n
executing the warrant, the lead agent, Agent Heidi Shintani,
had the warrant and affidavit in her possession. As the
agents located documents, to the extent they had questions,
they consulted her to make sure the documents seized were
described in the affidavit.” JA 333. The defendants, on the
other hand, argued that the affidavit must not have been
“readily available” because ADM representatives did not
themselves see the affidavit at the search. JA 244-45 & n.7.
The district court did not resolve this factual dispute in
denying the defendants’ motion to suppress. At trial, testi-
mony regarding the use of the affidavit by the executing
agents was prohibited by the district court as potentially
confusing to the jury since the affidavit involved primarily
product substitution charges no longer made against the
defendants. However, Agent Shintani explained:
Prior to the search, I had written up a search plan and
instructed all the agents to follow specific procedures,
and those were to, as they searched a specific location,
which we designated beforehand, that they were to col-
lect everything that they were authorized to seize, and
identify it as having taken it.
affidavit and thereby limited the permissible scope of the govern-
ment’s search.
48a
I was the supervisor, I was there to answer questions
that any agents had throughout the day.
When we'd find a box with army invoices, which was
what we were looking for at the time, we’d look in and
see if they had the particular item we were looking for,
and if we didn’t find them, we’d put them back, so we
just took the ones that had what we were specifically
looking for.
Tr. 2694, 2699, 2786. This evidence indicates, at the very
least, that Agent Shintani, who prepared the affidavit and
obtained the warrant, was present at the search, oversaw the
warrant’s execution and guided the participating agents in
seizing documents to conform the search to her understand-
ing of the warrant’s requirements. While it is not altogether
clear that the affidavit accompanied the warrant at the
search, we are satisfied that the precautions taken by the
government sufficiently limited the discretion of the executing
agents.
In sum, the warrant was not so broad as to rise to the level
of a general warrant. Courts may take into consideration the
circumstances of the crime in assessing the degree of particu-
larity that should be required of descriptions of items to be
seized in the warrant. The Tenth Circuit has written that
“(t]he type of criminal activity under investigation in the
present case—a drug dealing business—makes it difficult to
list with any greater particularity the books and records
desired to be seized which evidences such activity.” United
States v. Harris, 903 F.2d 770, 775 (10th Cir. 1990); see also
United States v. Cardwell, 680 F.2d 75, 78 (9th Cir. 1982). In
the case of product substitution and tax evasion allegations,
specificity is even more difficult because evidence of the
crimes can be found in almost every type of business docu-
ment conceivable. Here, we conclude that the warrant was
not constitutionally infirm because it identified several specif-
ic categories of documents to be seized, incorporated an
affidavit to limit the search and was executed by the affiant
pursuant to a specific plan.
49a
The defendants argue that even if the warrant was not
impermissibly general, the district court erred in refusing to
conduct a hearing to determine whether the executing agents
in fact complied with the warrant’s limitations. In order to
be entitled to such a hearing, the defendants were required to
make “factual allegations which, if established, would warrant
relief.” United States v. Thornton, 454 F.2d 957, 967 n.65
(D.C. Cir. 1971). The defendants complained to the district
court that the length of the search and the volume of the
documents seized were excessive, but, as the district court
correctly concluded, such assertions were insufficient to es-
tablish a constitutional violation. Warehouse Memorandum
at 26 (citing United States v. Sawyer, 799 F.2d 1494, 1509
(11th Cir. 1986), cert. denied, 479 U.S. 1069 (1987)). The
defendants failed to allege that the executing agents ignored
the warrant’s limitations or to identify to the district court the
documents they claimed to have been improperly seized.
Warehouse Memorandum at 27-28; see Humphreys, 982 F.2d
at 259. Without such allegations, the district court was under
no obligation to hold an evidentiary hearing on how the
search was executed.
V. Wire Fravup
Count 5 charged the defendants with committing “wire
fraud,” in violation of 18 U.S.C. § 1343, by wiring $316,000
from a Washington, D.C. bank to Bourbonia’s Swiss account
in furtherance of the alleged scheme to defraud the United
States of taxes. All defendants argue that their convictions
on count 5 must be reversed because the Internal Revenue
Code supplies the exclusive basis for tax fraud prosecutions.
The sole decision cited by the parties or found by the court
in full support of the defendants’ argument is United States v.
Henderson, 386 F. Supp. 1048 (S.D.N.Y. 1974) (mail fraud
counts dismissed on ground that Congress did not intend
application of mail fraud statute to schemes to defraud gov-
ernment of tax revenue) (Weinfeld, J.). While Henderson
gives us some pause, we judge it the sounder course to adopt
the position and reasoning of all other courts that have
50a
published decisions squarely on point. See, e.g., United
States v. Conao, 741 F.2d 238, 239 (9th Cir. 1984) (per curiam)
(mail fraud and § 7206(2) offense), cert. denied, 469 U.S. 1164
(1985); United States v. Computer Sciences Corp., 689 F.2d
1181, 1186-88 (4th Cir. 1982) (mail fraud plus making false
claims to United States Government), cert. denied, 459 U.S.
1105 (1983), overruled in nonrelevant part by Busby v. Crown
Supply, Inc., 896 F.2d 833, 841 (4th Cir. 1990); United States
v. Shermetaro, 625 F.2d 104, 109-11 (6th Cir. 1980) (conspira-
cy to defraud United States and tax evasion). Accordingly,
we hold that the tax code is not the exclusive regime under
which tax fraud schemes may be prosecuted and we uphold
the wire fraud convictions.
VI. ConstructTivE AMENDMENT OF INDICTMENT
All defendants contend that count 1 was constructively
amended, impermissibly, to include a separate conspiracy, one
to perform acts of concealment after abandonment of the
central objectives of the charged conspiracy.” “A construc-
tive amendment occurs when the evidence presented at trial
and the instructions given to the jury so modify the elements
of the offense charged that the defendant may have been
convicted on a ground not alleged by the grand jury’s indict-
ment.” United States v. Sayan, 968 F.2d 55, 59-60 (D.C. Cir.
1992) (emphasis in original, internal quotations and citations
omitted). It suffices to point out that, in this case, the trial
judge’s charge closely tracked the language of the indictment.
On that ground, and without reaching other infirmities in the
defendants’ argument, we judge the defendants’ constructive
amendment objection insubstantial.
VII. Sweeney’s Motion ror AcQUITTAL
Sweeney contends that his opportunity to defend was prej-
udicially affected by the failure of the trial judge to rule
50 “Separate conspiracy” is the defendants’ characterization. The
scope of the conspiracy here, however, was a question of fact within
5la
immediately on the motion to acquit Sweeney made at the
close of the government’s case. Because Sweeney invited any
oversight that may have occurred, we reject his current plea.
On July 10, 1990, Sweeney filed at the clerk’s office a
written Motion for Judgment of Acquittal premised on the
government’s alleged failure to prove a prima facie case.
Sweeney’s counsel did not state or refer to that motion in
court the next day, July 11, when the government rested. On
that day, the trial judge inquired of defense counsel:
All right, let me ask counsel, the government has rested,
and with respect to a defense case at this point, where do
we stand? I mean, am I—I’m not sure the defendants
are going to make motions, I’m not sure whether the
defendants are ready to go forward this afternoon before
the jury, or what?
Tr. 3497. After a short recess, in the presence of Sweeney’s
counsel, counsel for ADM advised the court:
I believe I speak on behalf of all the defendants, your
honor, it’s the intention of the defendants to rest at this
point.
Tr. 3497-98. Sweeney’s counsel said nothing of his filed
motion for acquittal. Nor did Sweeney’s counsel request a
ruling on the motion during the next several days, i.e., the
time running from the July 11 close of evidence to the July 19
charge to the jury.
Absent defendant’s consent, it is error for the trial judge to
defer ruling on a motion to acquit made at the close of the
government’s case. See, e.g., United States v. Neary, 733
F.2d 210, 218-19 (2d Cir. 1984); United States v. Rhodes, 631
F.2d 48, 4445 (5th Cir. 1980) (“application of any other rule
would penalize a defendant for a trial court’s refusal to issue
a ruling at the time clearly required by our previous cases”)
(emphasis added); see also Fed. R. Crim. P. 29(a) (governing
such motions). A defendant, however, may agree to deferral
the jury’s ken; a single conspiracy indeed may include both tax
evasion and its concealment. See, e.g., United States v. Cunning-
ham, 723 F.2d 217, 228-29 (2d Cir. 1983), cert. denied, 466 U.S. 951
(1984).
ee a ooo
a
52a
of a ruling on the motion either expressly or by failing to
object. See, e.g., United States v. Dreitzler, 577 F.2d 539, 552
(9th Cir. 1978), cert. denied, 440 U.S. 921 (1979); United
States v. Brown, 456 F.2d 293, 294 (2d Cir.) (“Absent ... a
demand [for an immediate ruling] the situation is treated as if
the court had denied the motion.”), cert. denied, 407 U.S. 910
(1972). In this case, “[g]iven [defendant’s] inexplicable failure
to correct the [trial] court’s apparent misapprehension” that
no motion awaited immediate attention, “[defendant] cannot
now complain of a ruling based on that misapprehension.”
See United States v. Wider, 951 F.2d 1283, 1287 (D.C. Cir.
1991) (affirming trial court’s denial of defense motion for
Jencks Act material).
VIII. Conruict or INTEREST
Sweeney argues that his pretrial counsel’s conflict of inter-
est severely constrained Sweeney’s ability to protect himself
against prosecution. The district judge properly refused to
address this matter because it was raised far too late.
During the grand jury investigation Sweeney was repre-
sented by John Kotelly who was simultaneously representing
ADM and Segal. That multiple representation, Sweeney
asserts, precluded Kotelly from advising Sweeney to seek
immunity from the government in exchange for testimony
against his co-defendants. Once indicted, Sweeney promptly
engaged new counsel. Not until after the jury returned
guilty verdicts did Sweeney complain about Kotelly’s conflict
of interests.
Nonjurisdictional objections to the institution of a prosecu-
tion, including the conduct of grand jury proceedings, ordi-
narily are waived unless raised pretrial, although the district
court may grant relief from the waiver for good cause shown.
See Fed. R. Crim. P. 12(b)(1) & (2), (f); United States v.
Madeoy, 912 F.2d 1486, 1490-91 (D.C. Cir. 1990), cert. denied,
111 S. Ct. 1008 (1991). Sweeney knew of Kotelly’s multiple
representation from the start and tendered no cause at all for
his long-delayed objection.
IX. Jury Cuarce Issues
The defendants raise several challenges to the jury charge;
none of them warrants upsetting the verdicts.
53a
A. Plain Error
We take up first two instructions the defendants earlier
approved: the definition of conspiracy to defraud the United
States that the defendants themselves proposed, and an
explanation of “deduction” the defendants ultimately accept-
ed, although they preferred a different instruction. When no
objection is made before the jury retires, an instruction is
reviewed only for “plain error affecting a substantial right so
that a miscarriage of justice would otherwise result.” United
States v. Lancaster, 968 F.2d 1250, 1254 (D.C. Cir. 1992); see
also Fed. R. Crim. P. 30, 52(b). In our review we consider
“the evidence adduced at trial, the arguments of counsel, ...
the content of the entire jury instruction,” and whether, as in
this case, the jury had a copy of the indictment during its
deliberations. Sayan, 968 F.2d at 60 (quoting United States
v. Chan Chun-Yin, 958 F.2d 440, 444 (D.C. Cir.), cert. denied,
112 S. Ct. 3010 (1992)). This court is “especially reluctant to
reverse for plain error when it is ‘invited.’” United States v.
Mangiert, 694 F.2d 1270, 1280 (D.C. Cir. 1982).
B. Conspiracy to Defraud the United States
The district court described the alleged conspiracy to de-
fraud as an agreement “to defraud the United States by
impeding, impairing, obstructing and defeating the lawful
functions of the Internal Revenue Service in the ascertain-
ment, computation, assessment and collection of income tax-
es.” Tr. 4517; see also id. at 4516 (court read to jury portion
of indictment containing same definition). The defendants
argue that this instruction contains terms in need of more
precise definition, all the more so because the government’s
admission that the defendants had actually paid all the taxes
due “narrowed the conspiracy,” leaving its purpose obscure.
Dale Brief at 31.
The defendants isolate an instruction that is properly read
in context. The district judge read portions of the indictment
to the jury as part of its instructions and gave an adequately
detailed explanation of the law of conspiracy taken from the
standard District of Columbia jury instructions. The charge
54a
was at least as informing as the one we upheld in United
States v. Treadwell, 760 F.2d 327, 337 & n.16 (D.C. Cir. 1985),
cert. denied, 474 U.S. 1064 (1986).
The defendants nevertheless urge that the imprecision of
the conspiracy to defraud definition left the jury free to
convict on the misguided notion that lawful conduct, in partic-
ular, the filing of an amended return, could demonstrate the
requisite disturbance of a governmental process. This im-
plausible argument again omits consideration of the charge as
a whole. The trial court’s instructions made it clear that a
conspiracy to defraud the United States required willful
action with specific intent to deceive or cheat. On the point
of special concern to the defendants, the district judge in-
structed later in his charge that “(t]he government encour-
ages [the] use [of amended returns] as a means of correcting
mistakes. Therefore, the filing of an amended return is not
necessarily evidence of intentional misconduct in the filing of
the original return.” Tr. 4548. We note, in addition, that the
government’s closing argument focused on the knowledge and
specific intent of each defendant. See Chan Chun-Yin, 958
F.2d at 444 (considering government’s closing statement in
plain error measurement of jury charge). In sum, no plain
error infected the district court’s explanation of the offense of
conspiracy to defraud the United States.
C. Deductible Expenses
On deductible expenses, the defense originally requested
this instruction:
The issue for you to decide is whether the Government
has proven beyond a reasonable doubt that the $500,000
accrual for software development costs and the $316,000
paid to Bourbonia did not represent ordinary and neces-
sary expenses of ADM’s business.
An ordinary and necessary expense is one that is appro-
priate and helpful to the conduct of the taxpayer’s busi-
ness. For example, the costs of software development
and marketing studies would normally be deductible
55a
expenses for a company like ADM that is in the business
of selling software and related products.
ADM Brief at 32. Instead, on agreement of all counsel, the
trial judge gave a much shorter instruction defining “deduc-
tion”:
The term “deduction” means any item allowed by the
internal revenue laws to be subtracted from gross income
in computing the amount of taxable income for income
tax purposes.
Tr. 4547.
The defendants argue that the abbreviated instruction, and
the failure to give the originally requested instruction, left it
open to the jury to convict simply upon finding that docu-
ments supporting claimed deductions were false.*! This mat-
ter, however, was addressed earlier in the instructions. The
district judge charged
{aJs to both counts 2 and 3, you are further instructed
that if a person in good faith believes that an income tax
return truthfully reports the taxable income and allow-
able deductions of the taxpayer ... he or she cannot be
guilty.
Tr. 4534. Similarly, the judge charged on count 4 that “if a
person in good faith believes that he has paid all the taxes
that he owes, he cannot be guilty.” Tr. 4537. The absence
from the charge of a deductible expense definition of the kind
proposed by the defendants, in this light, was not error, and
surely not plain error.
D. Truth as Defense
Ashton, ADM, and Dale assert error in the trial court’s
refusal to give an instruction on truth as a defense to the
5! Defendants emphasize the instruction that the jury could con-
vict if it found “that the Government has established beyond a
reasonable doubt that any one of these items was falsely reported
on the return.” Tr. 4533.
56a
charge of violating 28 U.S.C. § 1001.** Counsel proposed the
truth-as-a-defense instruction for the first time after closing
arguments and final jury instructions. The district judge
committed no reversible error by failing to supplement his
charge, for “the substance of [the defense] theory was con-
veyed in the jury instructions as a whole.” Sayan, 968 F.2d
at 63 & n.9 (citing United States v. Tarantino, 846 F.2d 1384,
1400 (D.C. Cir.), cert. denied, 488 U.S. 867 (1988)); see also
United States v. GAF Corp., 928 F.2d 1258, 1263 (2d Cir.
1991) (no duty to marshal evidence).
The supplemental charge the defendants requested read:
With respect to counts 6 through 10, if you find that the
Defense Department forms allegedly filled out by the
defendants Dale, Ashton[,] and Automated Data Manage-
ment were, in fact, true when made by defendants Dale,
Ashton[,] and Automated Data Management, you must
find these defendants not guilty of the specific counts.
Tr. 4570. The proposed charge was designed to highlight the
defendants’ argument, discussed above in connection with the
sufficiency of the evidence, that Dale and Ashton may not
have qualified as legal owners of Hong Kong companies
Swaffham and Gemona at the relevant time. (The transfer
documents, the defendants had emphasized, remained to be
stamped.)
The instructions included in the charge, as the district
court observed to counsel, captured the correct proposition
that full and truthful disclosure would require acquittal on
counts 6 through 10. See Tr. 4565, 4567, 4568. On counts 6
through 9 the court explained that “a trick, scheme or device”
necessitated inter alia nondisclosure of a “fact.” Tr. 4543-44.
Similarly on count 10, the judge charged the jury that the
government was required to prove, inter alia, “that the
defendant made a false statement or made a false writing or
52 Defendants also argue that this omission, and other errors
asserted in connection with the section 1001 convictions, affect the
conspiracy convictions. Because we uphold the section 1001 convic-
tions, we do not reach this argued interrelationship.
57a
document in relation to a matter within the jurisdiction of the
Department of Defense.” Tr. 4545. The judge also instruct-
ed that “(t]he prosecution has the burden of proving beyond a
reasonable doubt that the defendant ... knowingly and will-
fully made a false statement.” Tr. 4546. We discern no fatal
omission or infirmity in these instructions.
E. Reasonable Doubt
Over the objections of all defendants, the trial judge used
the standard “Red Book” definition of reasonable doubt:
Reasonable doubt, as that name implies, is a doubt based
on reason, it is a doubt for which you can give a reason.
It is such a doubt as would cause a juror, after careful
and candid and impartial consideration of all the evi-
dence, to be so undecided that he cannot say that he has
an abiding conviction of the defendant’s guilt. It is such
a doubt as would cause a reasonable person to hesitate or
to pause in the graver or more important transactions of
life. However, it is not a fanciful doubt, nor a whimsical
doubt, nor a doubt based on conjecture. It is a doubt
that is based on reason. The government is not required
to establish guilt beyond all doubt or to a mathematical
certainty or to a scientific certainty. The government’s
burden is to establish guilt beyond a reasonable doubt.
Tr. 4506-07 (emphasis added to phrases defendants contest).
The defendants argue that the words “a doubt for which you
can give a reason” imply that a juror must be able to
articulate a reason; such a requirement, the defendants urge,
impermissibly lowers the government’s persuasion burden.
ADM Brief at 36-37; see Cage v. Louisiana, 498 U.S. 39, —,
111 S. Ct. 328, 329-30 (1990) (disapproving inclusion in “rea-
sonable doubt” charge of definitional words: “such doubt as
would give rise to a grave uncertainty,” “an actual substantial
53 See Criminal Jury Instructions for the District of Columbia,
No. 2.09 at 46 (3d ed. 1978) (substantially identical language). In
Moore v. United States, 345 F.2d 97, 98 & n.1 (D.C. Cir. 1965), we
approved a similarly worded charge.
58a
doubt,” “a moral certainty”); Perez v. Irwin, 963 F.2d 499,
502 (2d Cir. 1992) (disapproving definition of “reasonable
doubt” as “doubt to a moral certainty”). The defendants
consider the words “so undecided” to exacerbate the problem
by conveying the impression that a high degree of indecision
is needed in order to find a defendant not guilty. See ADM
Brief at 38 n.49.
We are satisfied that, “in the context of the instructions as
a whole and the trial record,” there is no “reasonable likeli-
hood that the jury ... applied the challenged instruction in a
way that violates the Constitution.” See Estelle v. McGuire,
112 S. Ct. 475, 482 (1991) (citations and internal quotations
omitted). The instruction in its entirety fairly conveyed that
the requisite doubt must be “based on reason” as distin-
guished from fancy, whim or conjecture. Cf Cage, 498 U.S.
at —, 111 S. Ct. at 329 (Court did not find offensive
instruction that “a reasonable doubt” is one “founded upon a
real tangible substantial basis and not upon mere caprice and
conjecture”).
X. SENTENCING ISSUES
A. Straddle Offenses
The defendants argue that the trial court erred in sentenc-
ing them on count 1 under the Sentencing Guidelines (“Guide-
lines”) because: (1) the Guidelines should not apply unless
every element of the offense is satisfied by conduct occurring
after the Guidelines took effect on November 1, 1987; (2) the
false statements purpose of the conspiracy was completed by
November 1, 1987, and since the jury’s verdict did not specify
whether the purpose of the conspiracy was to make false
statements or to evade taxes it is unclear whether the jury
found that the conspiracy continued after November 1, 1987;
or (3) the jury did not explicitly find that each defendant
continued to be involved in the conspiracy after that date.
We reject each of these arguments.
First, we agree with every circuit which has addressed the
issue that the Guidelines apply to offenses that begin before
59a
November 1, 1987, and continue after that date. See United
States v. Thomas, 895 F.2d 51, 57 (1st Cir. 1990); United
States v. Underwood, 932 F.2d 1049, 1053-55 (2d Cir.), cert.
denied, 112 S. Ct. 382 (1991); United States v. Rosa, 891 F.2d
1063, 1069 (3d Cir. 1989); United States v. Engleman, 916
F.2d 182, 185 (4th Cir. 1990); United States v. Van Nymegen,
910 F.2d 164, 166 (5th Cir. 1990); United States v. Sloman,
909 F.2d 176, 182-83 (6th Cir. 1990); United States v.
McKenzie, 922 F.2d 1323, 1328 (7th Cir.), cert. denied, 112 S.
Ct. 163 (1991); United States v. Tharp, 892 F.2d 691, 693-95
(8th Cir. 1989); United States v. Kohl, 972 F.2d 294, 297-98
(9th Cir. 1992); United States v. Williams, 897 F.2d 1034,
1040 (10th Cir. 1990), cert. denied, 111 S. Ct. 2064 (1991);
United States v. Terzado—Madruga, 897 F.2d 1099 (11th Cir.
1990).
Second, although the jury’s general verdict did not specify
whether the purpose of the conspiracy was to make false
Statements or to evade taxes, the district court itself deter-
mined that both objects of the conspiracy continued after
November 1, 1987. Since the timing of the conspiracy in this
regard implicates sentencing only, the district court was
entitled to make a factual determination on its duration under
a preponderance of the evidence standard. See Underwood,
932 F.2d at 1055. In their Memorandum Concerning the
Non-Applicability of the Sentencing Guidelines, the defen-
dants argued to the district court that, “the general verdicts
of guilty on Count One clearly do not establish that defen-
dants participated in a conspiracy continuing beyond Novem-
ber 1, 1987.” However, the court responded in an order:
“After giving careful consideration to the defendants’ objec-
tion to the applicability of the Sentencing Guidelines to Count
1 of the indictment the Court concludes that the Guidelines
apply to that Count....” JA 1772. The district court also
subsequently adopted the factual findings of the defendants’
presentence reports,“ which described both objects of the
4 The district court held: “I find for the purpose of the record
that the presentence reports in this record set forth an adequate
reflection of the facts presented in this case.” JA 1811.
60a
conspiracy as continuing after November 1, 1987. Since the
factual basis for the district court’s decision that the Guide-
lines should apply to the conspiracy count is not clearly
erroneous, we affirm. Underwood, 932 F.2d at 1055.
Third, the jury was not required to find that each of the
defendants continued to participate in the conspiracy after
November 1, 1987. Instead, the defendants had the burden
of proving that they affirmatively withdrew from the conspir-
acy before that date, and because they failed to do so, the
Guidelines were properly applied to them. See United States
v. Hirschfeld, 964 F.2d 318, 323-24 (4th Cir. 1992), cert.
denied, 113 S. Ct. 1067 (1993); Williams, 897 F.2d at 1040;
United States v. Watford, 894 F.2d 665, 670-71 (4th Cir.
1990); Rosa, 891 F.2d at 1069.
B. Base Offense Level
The trial court assigned the defendants Ashton and Dale a
base offense level of 16 under §§ 2T1.1 and 2T4.1 of the
Guidelines, the level for a conspiracy to evade taxes with a tax
loss of between $1,000,001 and $2,000,000. To reach this base
offense level, the district court first treated the different
objects of the conspiracy as separate counts of conviction
pursuant to § 1B1.2, which provides that “[a] conviction on a
count charging a conspiracy to commit more than one offense
shall be treated as if the defendant had been convicted on a
separate count of conspiracy for each offense that the defen-
Pursuant to 18 U.S.C. § 3742(d)(2), the presentence reports were
made a part of the record on appeal, and under this circuit’s
protocol, were filed with this court under seal. In considering the
defendants’ objections to their sentencing, we have, of course, had
occasion to review these reports in their entirety. For purposes of
this opinion, however, we cite only to specific statements in those
reports which defendants have explicitly discussed and objected to
in their publicly filed briefs on appeal, their publicly filed submis-
sions to the district court under Fed. R. Crim. P. 32(c)(3) or their
statements in open court at sentencing under Fed. R. Crim. P.
32(a)(1)(B).
mis «
6la
dant conspired to commit.” Next, under § 3D1.2, the district
court combined the object offenses “into a single Group,” such
that instead of sentencing the defendants for each object
offense, the court would sentence the defendants on the basis
of only one of the offenses.” Finally, according to § 3D1.3,
which states that “the offense level applicable to a Group is
the offense level ... for the most serious of the counts
comprising the Group, i.e., the highest offense level of the
counts in the Group,” the district court selected a base
offense level of 16 for tax evasion under §§ 2T1.1 and 2T4.1.
Dale and Ashton argue that because the jury verdict did
not identify the conspiratorial object, it was error for the
district court to use the tax evasion base offense level without
first determining that, were it sitting as the trier of fact, it
would convict the defendants of that offense. See U.S.S.G.
§ 1B1.2 application note 5; United States v. Tham, 948 F.2d
1107, 1115 (9th Cir. 1991). The record, however, indicates
that the district court did make the required determination of
the object of the conspiracy and therefore the base offense
level calculation was not erroneous. The district court, after
considering the record, explained: “I find, first, that the base
level that the court must consider in the case of Mr. Dale is a
base level of 16, that is, conspiracy with an attempt to avoid
taxes or tax evasion, rather than one based on false state-
ments.” JA 1811. Further, as mentioned above, the court
explicitly adopted the presentence reports and therefore
adopted the conclusion of those reports that “[i]n this conspir-
acy, the defendant(s] [Dale and Ashton] attempted to evade
both personal and corporate taxes.” JA 2775, 2814. See
United States v. Terry, 916 F.2d 157, 160 (4th Cir. 1990)
(court may rely on presentence report for factual findings in
setting defendant’s sentence); United States v. Murillo, 902
F.2d 1169, 1172 (5th Cir. 1990) (same). Finally, since the jury
convicted Dale and Ashton of the substantive offense of
attempting to evade taxes, the district court could reasonably
Section 3D1.2 provides in part that “{aJll counts involving
substantially the same harm shall be grouped together into a single
Group.” The presentence reports stated: “Since these object of-
fenses involved acts that were part of the same course of conduct or
common scheme or plan and substantially the same harm, they are
grouped according to section 3D1.2.” JA 2774.
62a
assume that the jury believed as well that tax evasion was an
object of the conspiracy. See United States v. Hubbard, 889
F.2d 277, 279 (D.C. Cir. 1989).
C. Tax Loss Computation
The defendants challenge the district court’s calculation of
the corporate tax loss, first arguing that the $417,532 pay-
ment to the Swaffham and Gemona accounts and the $311,643
concealment of Korean corporate income should not have
been included in the tax loss because these amounts were
later properly accounted for in the 1986 tax returns. This
argument is meritless because the calculation of tax loss for
Guidelines purposes includes the amount the taxpayer “evad-
ed or attempted to evade,” U.S.S.G. § 2T1.1, and therefore
whether the conspirators completed the substantive offense is
irrelevant for purposes of determining the offense level. See
Hirschfeld, 964 F.2d at 324.°
Next, the defendants contend that because the tax evasion
object was not completed, the district court should have
reduced their offense level by three levels under
§ 2X1.1(b)(2), which provides that
[i]f [the offense is] a conspiracy, decrease by 3 levels,
unless the defendant or a co-conspirator completed all
the acts the conspirators believed necessary on their part
for the successful completion of the substantive offense
or the circumstances demonstrate that the conspirators
were about to complete all such acts but for apprehen-
sion or interruption by some similar event beyond their
control.
The court’s decision not to grant the reduction was not clearly
erroneous because the record indicates that the offense would
56 Ashton argues additionally that these amounts should not be
attributed to her because the evidence did not establish that she
had joined the conspiracy at the time of these transactions. How-
ever, according to the facts in the presentence reports, as adopted
by the district court, see supra note 54, Ashton was a member of
the conspiracy in 1986 when these events transpired.
63a
have been completed but for Bowers’ resignation and refusal
to turn over the incriminating tapes and documents he pos-
sessed. See United States v. Oyegbola, 961 F.2d 11, 13-14
(1st Cir. 1992),5?
The defendants also argue that the district court should not
have included certain amounts, alleged to be legitimate ex-
penses, in calculating the corporate tax loss. The burden of
proving mitigating sentencing factors was on the defendants,
see United States v. Cuellar-Flores, 891 F.2d 92, 93 (5th Cir.
1989), but they failed to identify and quantify the payments
they alleged to be legitimate, with the exception of one
$88,000 payment. Even assuming that the defendants car-
ried their burden with respect to this $88,000, the total
attempted tax loss would not have fallen below $1,000,000 and
therefore the base offense level would not have changed.
Finally, Ashton and Dale argue that the district court
erroneously treated certain amounts of the corporate tax loss
as constructive dividends in calculating the personal tax loss.
The parties agree that a defendant’s skimming of corporate
receipts renders the defendant liable not only for the under-
statement of corporate income but also for the understate-
ment of his personal income. See United States v. Knight,
898 F.2d 436, 437 (5th Cir. 1990); United States v. Thetford,
676 F.2d 170, 175 (5th Cir. 1982), cert. denied, 459 U.S. 1148
(1983). However, they argue that corporate funds diverted to
the Swaffham and Gemona accounts and to Bourbonia should
not have been treated as constructive dividends because they
could not exercise control over the funds. In fact, however,
the presentence reports, as adopted by the district court,
characterized Swaffham and Gemona as “ ‘paper’ companies
57 At sentencing, the district court briefly addressed this conten-
tion, stating that “[w]ith respect to the argument as to an incom-
plete conspiracy and a request that the court depart downward for
that, I conclude that that argument must be rejected.” Sentencing
Transcript at 80. The presentence reports, which the district court
adopted, see supra note 54, made even clearer that an offense level
adjustment was unwarranted because the defendants’ “attempts to
cover up the criminality that underlay their conduct” was “precip-
itated by actions of co-conspirator David Bowers.” JA 2770.
64a
for they had no employees, just a bank account and mailing
address in Hong Kong.” JA 2765. Further, the record
indicates that Dale and Ashton controlled these companies as
directors, as 75% shareholders and, until March 1987, as
signatories to the corporate accounts. With regard to the
transactions in Europe, the presentence reports explained
that Dale and Ashton had accounts in Bourbonia and that
funds diverted to that company were not for the purpose of
paying legitimate business expenses. To evince Dale's and
Ashton’s control over these funds, the presentence reports
noted that a portion of the ADM funds diverted to Bourbonia
was subsequently transferred to ADM H&S, a company
owned 75% by Dale and Ashton, for “their own benefit.” JA
2766. Accordingly, we do not think the district court erred in
making the factual determination that the funds diverted
from ADM to Swaffham, Gemona and Bourbonia should be
considered constructive dividends because the funds came
under the control of Dale and Ashton and the diversion was
made primarily for their benefit. See Stone v. Commissioner,
865 F.2d 342, 343-44 (D.C. Cir. 1989).
D. Upward Adjustment
The trial court adjusted upward the offense level for Dale
by four levels and the offense level for Ashton by three levels
for their respective roles in the criminal activities. <#°tion
3B1.1 permits a four-level increase if “the defendant was the
organizer or leader of a criminal activity that involved five or
more participants or was otherwise extensive,” and a three-
level increase if “the defendant was a manager or supervisor
(but not an organizer or leader) and the criminal activity
involved five or more participants or was otherwise exten-
sive.” Dale and Ashton assert that their sentences must be
remanded to the district court for an explicit finding on
whether the upward adjustments were based on the exten-
siveness of the criminal activity or the fact that five or more
persons participated. We disagree that a remand is neces-
sary because the court’s adjustments could appropriately
have been founded on either factor based on the facts adopted
vi va; ——
65a
by the district court in the presentence reports for Dale and
Ashton.®
These reports, which the district court found to “set forth
an adequate reflection of the facts,” JA 1811, specifically
described the wide geographic reach of the criminal activity
and the extensiveness of the actions taken to further the
conspiracy, named Ashton and Dale as the leaders, and
identified at least five persons who were involved in the
scheme. Even more explicitly, the report for Dale stated he
“was an organizer and leader in a criminal activity that
involved more than five participants and was otherwise exten-
sive.” JA 2815. The report for Ashton was similarly worded.
JA 2776. Since the district court was entitled to rely on the
presentence reports in determining the defendants’ sentences,
see Murillo, 902 F.2d at 1172, we find no need for a remand.
E. Sweeney’s Downward Departure
In sentencing Sweeney, the district court departed down-
ward from the applicable Guidelines range approximately two
levels on the basis of a § 5K1.1 substantial assistance mo-
tion.** On appeal, Sweeney complains that the extent of the
departure, however, was based upon an improper application
of the Guidelines because in sentencing him the district court
impermissibly relied on a comparison to sentences typically
imposed on drug couriers. We reject Sweeney’s claim. In
Williams v. United States, a case where the defendant ap-
pealed the district court’s decision to depart upwards, the
58 At sentencing, the district court stated that “[w]ith respect to
Mr. Dale’s role in the offense ... it seems to me that under the
facts of this case ... as the jury has found them and as the court
has heard the evidence, Mr. Dale must be assigned a plus four.”
Regarding Ashton’s role, the court explained: “I do see a distinc-
tion here, ... I find that Ms. Ashton should be assigned ... a
three, rather than a four.”
5° Section 5K1.1 provides: “Upon motion of the government
stating that the defendant has provided substantial assistance in the
investigation or prosecution of another person who has committed
an offense, the court may depart from the guidelines.”
66a
Supreme Court held that reviewing courts “must remand for
sentencing: if the sentence was imposed as a result of an
incorrect application of the Guidelines or if the sentence is an
unreasonable departure from the applicable guideline range.”
112 S. Ct. 1112, 1120 (1992). The appellant “bears the initial
burden of showing that the district court relied upon an
invalid factor at sentencing.” Jd
The government contends that appellate courts have no
authority to review a defendant’s appeal of the extent of a
downward departure, citing our pre-Williams decision in
United States v. Hazel, 928 F.2d 420, 423-24 (D.C. Cir. 1991).
The Fourth Circuit, however, has decided otherwise:
If, as Williams held, a departure sentence may not stand
unless a reviewing court determines that an invalid factor
had no effect on the sentencing decision, it logically
follows that an appellate court may not countenance a
decision in which the district court extended an otherwise
proper departure sentence based upon a circumstance
that could not have supported a departure in the first
instance. The reasoning of Williams dictates that a
sentencing court may not consider in determining the
extent of a departure from the guideline range a factor
that would not constitute a valid basis for departure.
United States v. Hall, 977 F.2d 861, 865 (4th Cir. 1992). For
purposes of this case, we need not determine if Hazel and
Hall are in conflict or determine the effect of Williams on
Hazel. For even were we to review Sweeney's sentence, we
would conclude that remand is unnecessary because Sweeney
did not meet his burden of showing that the district court
relied on an invalid factor, i.e., a comparison to sentences
imposed on drug couriers, in sentencing him.
The record indicates that the comparison was made not as
a basis for the sentence but to provide a measure of comfort
to Sweeney. The court began: “Now, these sentences you
are possibly facing may seem harsh, but I think I should just
draw a reference to other individuals who appear before this
court day in and day out.” It explained with regard to drug
couriers:
aa
67a
(TJhey face a mandatory sentence of ten years imprison-
ment, and the government takes a very hard view on
whether or not they should be considered in certain
circumstances as having given substantial assistance, so
that they are taken out of that range. Ten years in
prison, with no sophistication at all. So that’s one of the
things that I also weigh in taking—in consideration of
what should be done in any other cases.
JA 1885-86. Next, the district court clarified that it was “not
in favor of the mandatory minimum in some cases, but that
doesn’t apply here....” JA 1886. Viewing the statements
as a whole, it appears that the district court was simply
explaining to Sweeney that, by comparison, the sentences he
faced were not that harsh. Moreover, the court made clear
what factors it was relying on to make the approximate two-
level departure, including: a comparison of the sentences
imposed on Sweeney’s co-defendants; the fact that Sweeney
had “already been given credit” for accepting responsibility;
that “under the facts of the case” a departure to a probation-
ary sentence was unwarranted; and that Sweeney had had
“plenty of opportunity to stop” the scheme. JA 1886-89.
Thus, while it might have been inappropriate for the district
court to base Sweeney’s sentence even in part on the sen-
tences imposed on drug couriers, see 18 U.S.C. § 3553(a)(6),
we do not believe that Sweeney met his burden of showing
that the district court actually relied on this factor.
F. Merger of Internal Revenue Code Offenses
All defendants contend that their convictions under 26
U.S.C. § 7206(1) (subscribing to a false tax return) and 26
U.S.C. § 7206(2) (aiding preparation of a false tax return)
merge with their convictions under 26 U.S.C. § 7201 (tax
evasion) because all the Internal Revenue Code counts rest
on the same two deductions, both taken on the 1986 ADM tax
return: the $500,000 accrued for software development and
the $316,000 wire transfer to Bourbonia. In response, the
government relies on the rule of statutory construction con-
tained in Blockburger v. United States, 284 U.S. 299, 304
(1932) (court should inquire “whether each provision requires
proof of a fact which the other does not”). As a rule of
68a
statutory construction, however, Blockburger does not dis-
place Congress’ own design. See Albernaz v. United States,
450 U.S. 333, 340 (1981).
The Internal Revenue Code sets out a comprehensive
scheme prohibiting and punishing tax fraud; section 7201, the
“evasion” provision, has been called the “capstone” of this
scheme. United States v. Helmsley, 941 F.2d 71, 99 (2d Cir.
1991) (citing Spies v. United States, 317 U.S. 492, 497 (1943)),
cert. denied, 112 S. Ct. 1162 (1992). As the pathmarking
opinion explained, under appropriate circumstances, lesser
section 7206 offenses merge with the “capstone” prohibition
of section 7201:
(W]Jhere proof of wilfully attempted evasion under § 7201
also proves, as an incident to the wilful evasion, the
preparing and subscribing of a fraudulent return, the
specific form of fraudulent conduct merges into the inclu-
sive fraud charged under § 7201. To cumulate penalties
beyond the maximum authorized by § 7201 is, therefore,
improper under these circumstances.
United States v. White, 417 F.2d 89, 94 (2d Cir. 1969)
(emphasis added), cert. denied, 397 U.S. 912 (1970).
The interpretation of congressional intent advanced in
White has been adhered to in sister circuits. See Helmsley,
941 F.2d at 99; United States v. Kaiser, 893 F.2d 1300, 1306
(11th Cir. 1990); United States v. Pulawa, 532 F.2d 1301,
1302 (9th Cir. 1976). United States v. Franks, 723 F.2d
1482, 1486-87 (10th Cir. 1983), cert. denied, 469 U.S. 817
(1984), the case emphasized by the government, see Govern-
ment Brief at 176, is not in conflict with White. In Franks,
the charged section 7206 offense involved “[a] misrepresenta-
tion of foreign bank account information”; that offense was
Cf Sansone v. United States, 380 U.S. 343, 349 (1965) (26
U.S.C. §§ 7203, 7207 are lesser included offenses within § 7201 in
appropriate cases); United States v. McGill, 964 F.2d 222, 239-40
(3d Cir.) (same), cert. denied, 113 S. Ct. 664 (1992); United States v.
Doyle, 956 F.2d 73, 75 (5th Cir. 1992) (same).
69a
“distinct and independent from [the charged section 7201
offense,] an understatement of gross income.” Franks, 723
F.2d at 1487. The Franks court, far from disagreeing with
the analysis presented in White, explicitly noted, with appar-
ent approval, the government’s acceptance and distinction of
that precedent. Jd at 1486; accord United States v. Stur-
man, 951 F.2d 1466, 1487-88 (6th Cir. 1991), cert. denied, 112
S. Ct. 2964 (1992); cf Helmsley, 941 F.2d at 99-101 (counts
involving criminal conduct beyond taxpayer’s evasion of per-
sonal income taxes do not merge).
The government, we note, did not cite, much less distin-
guish, the leading White decision.“ No cause has been
shown for our departure from a precedent so far accepted by
sister courts as guiding. We therefore hold that, on the facts
here presented, the section 7206 “subscribing” and “aiding
preparation of” false return convictions merge, as lesser
included offenses, into the “capstone” section 7201 tax evasion
convictions.
Given the absence of controlling D.C. Circuit precedent, the
trial court correctly submitted the section 7206 and section
7201 counts to the jury. See, e.g, Garris v. United States,
491 A2d 511, 514-15 (D.C. App. 1985) (“Initially permitting
convictions on both counts serves the useful purpose of
allowing [the appellate) court to determine whether there is
error concerning one of the counts that does not affect the
other.”). We now remand, in view of our acceptance of the
White analysis, and instruct the district court to vacate the
sentences for the section 7206 offenses and to resentence the
6! The lesser included offense analysis of White does not spill over
to embrace prosecutions for Internal Revenue Code offenses plus
offenses under other statutes with discrete objectives. Cf supra
Part V (on coupling tax code and wire fraud convictions); United
States v. Woodward, 469 U.S. 105, 106-10 (1985) (sustaining convic-
tions, based on same act, under 18 U.S.C. § 1001 for making false
statement to agency of United States and under 31 U.S.C. §§ 1058,
1101 for willfully failing to report defendant was carrying over
$5000 into the United States).
70a
defendants pursuant to the section 7201 convictions. See Ball
v. United States, 470 U.S. 856, 864-65 (1985).
CONCLUSION
For the reasons stated, we affirm all the defendants’ con-
victions and remand with instructions to revise the sentences
as required by Part X(F) of this opinion.
It is so ordered.
71a
CONSTITUTION OF THE UNITED STATES:
AMENDMENT V-GRAND JURY INDICTMENT FOR
CAPITAL CRIMES; DOUBLE JEOPARDY; SELF-
INCRIMINATION; DUE PROCESS OF LAW;
JUST COMPENSATION FOR PROPERTY
No person shall be held to answer for
a capital, or otherwise infamous crime,
unless on a presentment or indictment of a
Grand Jury, except in cases arising in the
land or naval forces, or in the Militia,
when in actual service in time of War or
public danger; nor shall any person be
subject for the same offence to be twice
put in jeopardy of life or limb; nor shall
be compelled in any criminal case to be a
witness against himself, nor be deprived
of life, liberty, or property, without due
process of law; nor shall private property
be taken for public use, without just
compensation.
72a
CONSTITUTION OF THE UNITED STATES:
AMENDMENT VI-JURY TRIAL FOR CRIMES, AND
PROCEDURAL RIGHTS
In all criminal prosecutions, the
accused shall enjoy the right to a speedy
and public trial, by an impartial jury of
the State and district wherein the crime
shall have been committed, which district
shall have been previously ascertained by
law, and to be informed of the nature and
cause of the accusation; to be confronted
with the witnesses against him; to have
compulsory process for obtaining witnesses
in his favor, and to have the Assistance
of Counsel for his defence.
73a
18 U.S.C. § 2
PRINCIPALS
(a) Whoever commits an offense
against the United States or aids, abets,
counsels, commands, induces or procures
its commission, is punishable as a
principal.
(b) Whoever willfully causes an act
to be done which if directly performed by
him or another would be an offense against
the United States, is punishable as a
principal
(As amended Oct. 31, 1951, c. 655 § 17b,
65 Stat. 717.)
74a
a5 U.S.C. § 372
CONSPIRACY TO COMMIT OFFENSE OR TO DEFRAUD
UNITED STATES
If two or more persons conspire either
to commit any offense against the United
States, or to defraud the United States,
or any agency thereof in any manner or for
any purpose, and one or more of such
persons do any act to effect the object of
the conspiracy, each shall be fined not
more than $10,000 or imprisoned not more
than five years, or both.
If, however, the offense, the
commission of which is the object of the
conspiracy, is a misdemeanor only, the
punishment for such conspiracy shall not
exceed the maximum punishment provided for
such misdemeanor. June 25, 1948, c. 645,
62 Stat. 701.
75a
18 U.S.C. § 1001
STATEMENTS OR. ENTRIES CENEPALIN
Whoever, in any matter within the
jurisdiction of any department or agency
of the United States knowingly and
willfully falsifies, conceals or covers up
by any trick, scheme, or device a material
fact, or makes any false, fictitious or
fraudulent statements or representations,
or makes or uses any false writing or
document knowing the same to contain any
false, fictitious or fraudulent statement
or entry, shall be fined not more than
$10,000 or imprisoned not more than five
years, or both. June 25, 1948, c. 645, 62
Stat. 749.
)
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18 U.S.C. § 1343
FRAUD BY WIRE, RADIO, OR TELEVISION
Whoever, having devised or intending
to devise any scheme or artifice to
defraud, or for obtaining money or
property by means of false or fraudulent
pretenses, representations, or promises,
transmits or causes to be transmitted by
means of wire, radio, or television
"communication in interstate or foreign
commerce, any writings, signs, signals,
pictures, or sounds for the purpose of
executing such scheme or artifice, shall
be fined not more than $1,000 or
imprisoned not more than five years, or
both. If the violation affects a
financial institution, such person shall
be fined not more than $1,000,000 or
imprisoned not more than 30 years, or
both.
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(As amended Aug. 9, 1989, Pub.L. 101-73,
Title IX, § 961(j), 103 Stat. 500; Nov.
29, 1990, Pub.L. 101-647, Title XXV, §
2504(i), 104 Stat. 4861.)
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26 U.S.C. § 7201
ATTEMPT TO EVADE OR DEFEAT TAX
Any person who willfully attempts in
any manner to evade or defeat any tax
imposed or this title or the payment
thereof shall, in addition to other
penalties provided by law, be guilty of a
felony and, upon conviction thereof, shall
be fined not more than $100,000 ($500,000
in the case of a corporation), or
imprisoned not more than 5 years, or both,
together with the costs of prosecution.
(Aug. 16, 1954, c. 736, 68A Stat. 851;
Sept. 3, 1982, Pub.L. 97-248, Title III,
§ 329(a), 96 Stat. 618.)
neha
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26 U.S.C. § 7206
FRAUD AND FALSE STATEMENTS
Any person who--
(1) Declaration under penalties of
perjury.--Willfully makes and subscribes
any return, statement, or other document,
which contains or is verified by a written
declaration that it is made under the
penalties of perjury, and which he does
not believe to be true and correct as to
every material matter; or
(2) Aid or assistance.--Willfully
aids or assist in, or procures, counsels,
or advises the preparation or presentation
under, or in connection with any matter
arising under, the internal review laws,
of a return, affidavit, claim, or other
document, which is fraudulent or is false
as to any material matter, whether or not
such falsity or fraud is with the
knowledge or consent of the person
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authorized or required to present such
return, affidavit, claim, or document; or
(3) Fraudulent bonds, permits, and
entries.--Simulates or falsely or
fraudulently executes or signs any bond,
permit, entry, or other document required
by the provisions of the internal review
laws, or by any regulation made in
pursuance thereof, or procures the same to
be falsely or fraudulently executed, or
advises, aids in, or connives at such
execution thereof; or
(4) Removal or concealment with
intent to defraud.--Removes, deposits, or
conceals, or is concerned in removing,
depositing, or concealing, any goods or
commodities for or in respect whereof any
tax is or shall be imposed, or any
property upon which levy is authorized by
section 6331, with intent to evade or
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defeat the assessment or collection of any
tax imposed by this title; or
(5) Compromises and closing
agreements.--In connection with any
compromise under section 7122, or offer of
such compromise, or in connection with any
closing agreement under section 7121, or
offer to enter into any such agreement,
willfully--
(A) Concealment of property.--
Conceals from any officer or employee of
the United States any property belonging
to the estate of a taxpayer or other
person liable in respect of the tax, or
(B) Withholding, falsifying, and
destroying records.--Receives, withholds,
destroys, mutilates, or falsifies any
book, document, or record, or makes any
false statement, relating to the estate or
financial condition of the taxpayer or
other person liable in respect of the tax;
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shall be guilty of a felony and, upon
conviction thereof, shall be fined not
more than $100,000 ($500,000 in the case
of a corporation), or imprisoned not more
than 3 years, or both, together with the
costs of prosecution.
(Aug. 16, 1954, c. 736, 68A Stat. 852;
Sept. 3, 1982, Pub.L. 97-248, Title III, §
329(c), 96 Stat. 618.)
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FEDERAL SENTENCING GUIDELINES:
§ 1B1.2. Applicable Guidelines
(a)
(b)
Determine the offense guidelines
section in Chapter Two (Offense
Conduct) most applicable to the
offense of conviction (i.e., the
offense conduct charged in the count
of the indictment or information of
which the defendant was convicted).
Provided, however, in the case of a
plea agreement (written or made orally
on the record) containing a
stipulation that specifically
establishes a more serious offense
than the offense of conviction,
determine the offense guideline
section in Chapter Two most applicable
to the stipulated offense.
After determining the appropriate
offense guidelines section pursuant to
subsection (a) of this section,
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determine the applicable guidelines
range in accordance with § 1B1.3
(Relevant Conduct).
(c) A plea agreement (written or made
orally on the record) containing a
stipulation that specifically |
establishes the commission of
additional offense(s) shall be treated
as if the defendant had been convicted
of additional count(s) charging those
offense(s).
(d) A conviction on a count charging a
| conspiracy to commit more than one
offense shall be treated as if the
defendant had been convicted on a
separate count of conspiracy for each
offense that the defendant conspired
to commit.
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COMMENTARY TO § 1B1.2
Application Notes:
1.
This section provides the basic rules
for determining the guidelines
applicable to the offense conduct
under Chapter Two (Offense Conduct).
As a general rule, the court is to use
the guidelines section from Chapter
Two most applicable to the offense of
conviction. The Statutory Index
(Appendix A) provides a listing to
assist in this determination. When a
particular statute proscribes only a
single type of criminal conduct, the
offense of conviction and the conduct
proscribed by the statute will
coincide, and there will be only one
offense guideline referenced. When a
particular statute proscribes a
variety of conduct that might
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constitute the subject of different
offense guidelines, this court will
determine which guideline section
applies based upon the nature of the
offense conduct charged in the count
of which the defendant was convicted.
However, there is a limited exception
to this general rule. Where a
stipulation that is set forth ina
written plea agreement or made between
the parties on the record during a
plea proceeding specifically
establishes facts that prove a more
serious offense or offenses than the
offense or offenses of conviction, the
court is to apply the guideline most
applicable to the more serious offense
or offenses established. The sentence
that may be imposed is limited,
however, to the maximum authorized by
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the statute under which the defendant
is convicted. See Chapter Five, Part
G (Implementing the Title Sentence of
Imprisonment). For example, if the
defendant pleads guilty to theft, but
admits the elements of robbery as part
of the plea agreement, the robbery
guideline is to be applied. The
sentence, however, may not exceed the
maximum sentence for theft. See H.
Rep. 98-1017, 98th Cong., 2d Sess. 99
(1984).
The exception to the general rule has
a practical basis. In cases where the
elements of an offense more serious
than the offense of conviction are
established by a plea agreement, it
may unduly complicate the sentencing
process if the applicable guidelines
does not reflect the seriousness of
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the defendant's actual conduct.
Without this exception, the court
would be forced to use an artificial
guidelines and then depart from it to
the degree the court found necessary
based upon the more serious conduct
established by the plea agreement.
The probation officer would first be
required to calculate the guideline
for the offense of conviction.
However, this guideline might even
contain characteristics that are
difficult to establish or not very
important in the context of the actual
offense conduct. As a simple example,
§ 2Bl.1 (Larceny, Embezzlement, and
Other Forms of Theft) contains
monetary distinctions which are more
significant and more detailed than the
monetary distinctions in § 2B3.1
(Robbery). Then, the probation
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officer might need to calculate the
robbery guideline to assist the court
in determining the appropriate degree
of departure in a case in which the
defendant pled guilty to theft but
admitted committing robbery. This
cumbersome, artificia
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