Tuesday, October 9, 2018

On the Klein/Defraud Conspiracy Used by Special Counsel Against Russian Targets; A Tool for Use Against Trump? (10/9/18)

In my federal tax crimes practice and writing I have often lamented the potential sweeping scope of what is called the "Klein conspiracy," which is the defraud conspiracy under 18 USC § 371.  There are two types of conspiracy in the statute -- (i) a conspiracy to commit an offense otherwise prescribed by statute, such as a conspiracy to commit tax evasion as defined in § 7201 (called an offense conspiracy) and (ii) a conspiracy to defraud the U.S., worded variously but generally stated as a conspiracy to impair or impede the lawful functions of a U.S. agency.  The second, the defraud conspiracy, is commonly called a Klein conspiracy named for a leading defraud conspiracy case.  The Klein conspiracy does not require a separate offense as the object of the conspiracy; it simply requires that two or more persons conspire together simply to impair or impede the Government agency.  The Klein conspiracy is frequently used for larger tax crimes where the alleged object is to impair or impede the IRS, but can be used in other agency settings as well.  (Klein itself was a tax case.)

A good general article on the potential dangers of the Klein conspiracy is here:  Eric Felten, A Conspiracy So Vast . . .: But where’s the crime? (The Weekly Standard 10/9/18), here.  I am quoted in the article because I have written, copiously about my concerns about the potential breadth of the Klein conspiracy.  (See links to the principal writings collected at the end of this blog entry.) Felten's article does not get into the twists and turns explored in my thrashings on the issue, but does provide a good summary overview for knowledgeable reader not otherwise steeped in the details of the law of conspiracy theories.  The particular interest of the article is the deployment of the Klein conspiracy by the special counsel in the investigation into Russian meddling in the 2016 election.

Here are some quotes from the article:
Dreeben argued that the United States needs only “to prove a conspiracy to defraud the United States.” But “we do not need to prove a criminal violation of the underlying statute,” he told the judge. In other words, the prosecution is claiming that a conspiracy to do “x” can be criminal even if “x” is not itself a criminal act. This may sound strange, but it’s not a mistake. Pressed by Judge Dabney Friedrich, the deputy solicitor general restated it: “There’s a legion of cases,” Dreeben said, that “have specifically said you don’t need to have an underlying illegality in a conspiracy to defraud.” 
He’s right. Conspiracy law is notoriously elastic. Even so, a prosecutor would rather have conspirators dead to rights on a clear, willful violation of a law than have to establish that colluding to do something not proved to be a crime is nonetheless a crime in and of itself. The latter sort of scenario is why you might need a deputy solicitor general on your team. 
The specific acts Concord is alleged to have engaged in—paying Russians to write social media posts about American politics—aren’t necessarily illegal. Such activities may violate the spirit of U.S. election law and the Foreign Agents Registration Act, but they don’t necessarily fit the elements of any crime on the books. That’s where the conspiracy charge comes in handy. Concord’s lawyers say their client has been charged “for a contrived crime not specifically defined in any statute, without notice and under a standard known only to the special counsel.” 
Yes, and so what? responds the special counsel’s office. Quoting case law, Mueller’s team asserts, “The [conspiracy to] defraud clause does not depend on allegations of other offenses.” And because of that, “even otherwise ‘lawful activity may furnish the basis for a conviction under [Section] 371’ ”—that is, the section of federal law dealing with criminal conspiracies. 
* * * * 
How did we get to a place where agreeing with someone to do something otherwise legal can be prosecuted as a criminal conspiracy? And is Concord Management likely to have any luck challenging the constitutionality of such a law?
* * * * 
To “defraud” the United States used to be understood in its common-law meaning—“to cheat the Government out of property or money.” But in 1924, Chief Justice (and former president) William Howard Taft wrote an expansion of the term big enough to fill the Taft bathtub. To conspire to defraud the United States “also means to interfere with or obstruct one of its lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest,” Taft wrote in his opinion in Hammerschmidt v. United States. “It is not necessary that the Government shall be subjected to property or pecuniary loss by the fraud, but only that its legitimate official action and purpose shall be defeated by misrepresentation.” 
It doesn’t take much imagination to see how such a definition of “defrauding” could be stretched into a sort of catch-all for federal prosecutors when they are short on evidence of a specific crime with which to charge a perp. Consider this advertisement for the utility of the “conspiracy to defraud” charge from a 2013 issue of the in-house Justice Department journal Prosecuting Criminal Conspiracies: “A defendant can be charged with the defraud prong of the conspiracy statute without any charge of violating a separate substantive statute.” The authors quote approvingly from a Seventh Circuit case: “Neither the conspiracy’s goal nor the means used to achieve it need to be independently illegal.” In short: “The Klein conspiracy is clearly an effective tool that prosecutors should consider.” 
The authors of the article admit that “the conspiracy to defraud prong is not without its limitations and courts have expressed concerns about its scope.” Courts indeed have been gradually warming up to the idea of constraining Klein conspiracy prosecutions. The First Circuit Court of Appeals, for example, recognized in a 1997 ruling that the “defraud clause of section 371 has a special capacity for abuse [by prosecutors] because of the vagueness of the concept of interfering with a proper government function.” More recently, a district court judge in a tax case alleging a “conspiracy to defraud” instructed the jury, “Not all conduct that impedes the lawful functions of a government agency is illegal. . . . It is not illegal simply to make the IRS’s job harder.”
The last quote in the excerpt is:  "It is not illegal simply to make the IRS’s job harder."  I titled my first writing on the subject (see below) Tax Obstruction Crimes: Is Making the IRS’s Job Harder Enough?.  The title echoed in the quote above was from Judge Kozinnski's famous opening line in United States v. Caldwell, 989 F.2d 1056 (9th Cir. 1993):  "We consider whether conspiring to make the government's job harder is, without more, a federal crime."  As framed in this opening question, one knew the answer he would give is no.  He then explains and states the answer explicitly.  But that does not settle the potential for uncertainty surrounding the Government's extravagant claims for the Klein conspiracy.  Hence, the ongoing concerns about the scope of the Klein conspiracy.

I mentioned above the key difference between an offense conspiracy and a Klein/defraud conspiracy.  I thought I would illustrate the difference:
Say Trump and Trump, Jr. agree to talk with the special prosecutor and agree, between themselves, that each will tell the special prosecutor a lie, either in a proffer session or a grand jury session.  The lie is material to the scope of the investigation.  Telling the lie will be a crime under 18 USC 1001 (false statement in the proffer session) or 18 USC 1621 (perjury in the grand jury session).  The offense conspiracy is a crime independent of the offense that is the object of the conspiracy.  The prosecutors can prosecute both for the offense and for the offense conspiracy.  And, even if Trump and Trump, Jr. do not then effect the conspiracy by telling the lie, they can be prosecuted for the offense conspiracy (which is a crime independent of the offense that is the object of the conspiracy). 
But, let's say that Trump and Trump, Jr. agree to do some other action, say tell the prosecutors some "white lie" that is not material to the scope of the investigation and, if told, would not support a prosecution for false statement or perjury.  But, still they tell the lie to divert the prosecutors' investigation in some way.  Then, while there is no offense that is the object for which they can be prosecuted, they can be prosecuted for the Klein conspiracy because the object of their conspiratorial agreement is to impair or impede the investigation by a diversion.  At least, that is the Government's claim as to the scope of the Klein conspiracy.
Now, to put this in the context of a real action, recall that, after the famous meeting among Trump colleagues and Russian representatives in Trump Tower, Trump himself drafted a false narrative about the meeting and presumably Trump, Jr., acquiesced and participated in spreading the false narrative.  That could easily be a prosecutable conspiracy between Trump and Trump, Jr.  It is not an offense conspiracy because releasing such a false explanation to the public is not a crime.  (Probably should be a crime for a President to lie to the public, but it's not.)  But, if the object of the false statement was to not only mislead the public but to mislead prosecutors or criminal investigation agents investigating Russian interference in the election (with collateral focus on their attempt to have Trump elected President), then that could be a Klein conspiracy because they are conspiring to impair or impede the lawful functions of the prosecutors.  
Another example of a Trump episode that could be prosecutable as a Klein conspiracy, if the requisite objective to impair or impede an investigation is the firing of FBI Director James Comey.  A fair inference can be drawn that the objective was there in the firing and the events leading up to the firing (including the deceptive request for and use of the Rosenstein memo) and then conflicting and false explanations as to why Comey was fired.  Note that I am not saying that it is a compelled inference on the facts I know because I don't know all the facts that would be necessary to make the determination.  I am just saying that it is a fair inference on the facts I know, one that can be accepted or rejected based with more facts that would be available to the prosecutor and, if charged, to the trier of fact (judge or jury).
Depending upon the facts, the prosecutors can charge both an offense conspiracy and a Klein conspiracy.  See e.g., Manafort Plea Documents and Comments (Federal Tax Crimes Blog 9/24/18), here.  I think that, in theory, with the right facts, they could be charged in two counts rather than one (thus increasing the maximum incarceration period to 10 years rather than 5), but I don't recall that I have seen that. And, in any event, the way sentencing works and with other possible counts of conviction, pleading two conspiracy counts rather than one is likely to have no effect.

I thought readers might be interested in this general discussion of the conspiracy charge in the federal crimes universe.  This is from my Federal Tax Crimes book (SSRN here) that I discontinued writing after I began authoring the Tax Crimes chapter in Saltzman's treatise.  I omit the footnotes:
Conspiracy charges are frequent “add-ons” in charging traditional tax crimes to permit the Government to increase its chances of obtaining a conviction.  Even beyond the considerable elasticity of the conspiracy concept from a substantive perspective, the conspiracy charge offers the Government great advantages.  The mere charge of “conspiracy” connotes something sinister, and the law treats a conspiracy as a serious criminal act independent of any offense which might be the object of the conspiracy.  Moreover, herding a gaggle of defendants into a single case with an overarching conspiracy charge may make it difficult for the jury to assess independently the guilt or innocence of each defendant and invite a finding of guilt by association.  Conspiracy cases tend to be more complex as the Government mounts extensive evidence to connect the dots – real or imagined – among the alleged conspirators, particularly in allegedly large conspiracies such as some of the tax shelter recent tax shelter, with the poster child being Stein.  Furthermore, the Government gets vicarious Pinkerton liability for offenses committed by others in furtherance of the conspiracy, ability to admit statements that would otherwise be inadmissible hearsay, relaxed standard of proof and relevancy, tolling or refreshing of the statute of limitations by remote participants, and venue in remote judicial forums of the Government’s choosing.  With all of these benefits and more, Judge Learned Hand long ago noted, correctly, that conspiracy is “the darling of the modern prosecutor's nursery.”  
Not surprisingly, therefore, the Government trots out the conspiracy charge whenever it can imagine more than one bad guy behind the tree – it is so easy to do.   The conspiracy count allegations are framed as a cascade of allegations telling a damning story (if true and, although literally true, not misleading), but sometimes producing more heat than light.  This contrasts with counts for the tax offenses which are dry, sparse, boring, and usually not even flowered up for dramatic effect. The benefits for the Government are great, and the downsides are few; after all, the prosecutors’ life and liberty are not at stake.  This means, of course, that the Government’s power to tack on conspiracy charges can be abused, particularly with a weapon as potent and elastic as conspiracy.  The Supreme Court has cautioned that: 
We agree that indictments under the broad language of the general conspiracy statute must be scrutinized carefully as to each of the charged defendants because of the possibility, inherent in a criminal conspiracy charge, that its wide net may ensnare the innocent as well as the culpable.
The briefs with respect to the reported motion are:
  • Concord Management & Consulting LLC Motion, here.
  • Government Response, here.
JAT writings on the Klein conspiracy.
  • John A. Townsend, Tax Obstruction Crimes: Is Making the IRS’s Job Harder Enough?, 9 HOUS. BUS. & TAX L.J. 260 (2009) Article available here; Appendix to article available here.  
  • Petition for Certiorari Seizing the Gauntlet Laid Down by the Second Circuit Majority Panel to Question the Klein Conspiracy (Federal Tax Crimes Blog 5/2/13), here.
  • Further on the Second Circuit Detour on the Interpretation of the Defraud / Klein Conspiracy (Federal Tax Crimes Blog 12/18/12), here.
  • Coplan #1 - Panel Questions Validity of Klein Conspiracy (Federal Tax Crimes Blog 12/1/12), here.
  • What Are the Implications for Marinello on the Defraud / Klein Conspiracy? (Federal Tax Crimes Blog 3/24/18), here.

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