Tax Crimes and Money Laundering (Particularly Defense Attorney Fees) (9/24/11)

In United States v. Blair, 661 F.3d 755 (4th Cir. 2011), here, cert. denied 2012 U.S. LEXIS 4469 (U.S. 2012), the Fourth Circuit opens with a high level summary of the case:

Walter L. Blair, a Maryland attorney, concocted and executed a scheme to launder drug proceeds that he obtained from a client. Blair was tried and convicted on eight counts of concealment money laundering in violation of 18 U.S.C. § 1956(a)(1)(B)(i); one count of laundering in violation of 18 U.S.C. § 1957(a); one count of tampering with a witness in violation of 18 U.S.C. § 1512; one count of obstructing justice in violation of 18 U.S.C. § 1503(a); one count of making a false statement in violation of 18 U.S.C. § 1001(a)(2); and two counts of failing to file an income tax return in violation of 26 U.S.C. § 7203.1 He received a 97-month sentence. Blair appeals several counts of conviction for money laundering as well as his obstruction of justice conviction. Blair also challenges the ruling of the district court denying his motion to sever the failure-to-file counts. We affirm the convictions for money laundering under §§ 1956 and 1957, and we affirm the district court's denial of Blair's motion to sever. We reverse, however, Blair's conviction on the obstruction-of-justice charge (Count 11 of the superseding indictment) for insufficient evidence. We remand for resentencing in light of this opinion.

The facts were, in their essence (at the expense of detail and nuance): (1) a drug dealer left the proceeds of the drug dealing with a third party otherwise uninvolved in the drug dealing; (2) after much violence related to the drug dealer's associates and the drug dealer's disappearance, the third party contacted Blair, a lawyer and, at his request, delivered the proceeds to his office; (3) Blair then orchestrated the deployment of the proceeds, in part in ways to (a) launder a portion of the proceeds and in part to pay for the legal representation of two of the drug dealer's associates. Blair was charged with a panoply of money launder, tax and obstruction offenses. Blair was convicted on these charges and appealed.

This being a tax crimes blog, I will open with the tax crime charged. Blair was charged with two counts of failure to file for the years 2002 and 2003. The conduct underlying the other, more serious charges did not even occur until 2003. Blair complained on appeal about the joinder of the tax charges with the other more serious charges. The court observed that the gravamen of the case was about the conduct giving rise to the money laundering and obstruction charges and, for that reason, particularly the year 2002 which had no relation to the gravamen of the case might have been improperly joined. Nevertheless, the court sustained the conviction because

Here, the evidence was overwhelming on all of the charges against Blair except for the obstruction offense. Moreover, there is no indication that evidence with respect to Blair's failure to file his 2002 tax returns substantially influenced the jury's verdicts on the other counts. Such evidence was "distinct and easily segregated from the evidence related to the heart of the case" against Blair; there was little chance that evidence relating to the misjoined count would have a prejudicial spillover effect on the other counts in the indictment. United States v. Mackins, 315 F.3d 399, 415 (4th Cir. 2003) (internal quotation marks omitted). Further limiting any chance of an improper spillover effect in this case was the cautionary instruction issued by the district court to the jury: 

Each count charges the defendant with a different crime and you have to consider each count separately and return a separate verdict of guilty or not guilty for each. And whether you find the defendant guilty or not guilty as to one offense should not affect your verdict with regard [*33] to any other offense charged. 

S.J.A. 1. We have previously considered the effect of a jury instruction containing virtually identical language, concluding that it substantially "mitigate[d] . . . any possible spillover of prejudicial evidence." Mackins, 315 F.3d at 415 (internal quotation marks omitted); see United States v. LaRouche, 896 F.2d 815, 831 (4th Cir. 1990) ("We have . . . made clear that curative instructions given to the jury by the district court go a long way in eliminating any prejudice resulting from the spillover effects of joinder.")

Okay, now with the tax segue behind us, I focus on the more controversial holding in the case. By way of background, in Caplin & Drysdale, Chartered v. United States, 491 U.S. 617 (1989), the Supreme Court held that, under the forfeiture statute, illegal proceeds such as the drug money involved here are forfeitable and deemed to be the U.S. property as of the date the crook receives the money. Hence, when law firm was not entitled to proceeds applied to legitimate legal fees.  WhenBlair caused the proceeds to be paid himself and others for legitimate legal defense work, there is no question that those fees would be forfeitable. But, Blair was convicted of money laundering with respect to those fees. 

Caplin's forfeiture holding, where the Supreme Court said that, because the proceeds belonged to the Government and in any event the money was not the third party's who delivered the proceeds to Blair,  

The Supreme Court has been clear that there is no Sixth Amendment right to use someone else's money to hire counsel: "A defendant has no Sixth Amendment right to spend another person's money for services rendered by an attorney. . . ." Caplin & Drysdale, 491 U.S. at 626.

The majority realized that, it was still a matter of interpreting Congress' intent under the statute, but concluded that Congress was not blessing the payment of all legal fees under Section 1957(f)(1) and intended the protection only to be coterminous with Sixth Amendment protections which Caplin held did not apply in this case.

The dissent, a strong one, is summarized in the opening paragraphs as follows:

I cannot subscribe to the view that the "safe harbor" provision Congress created to shield criminal defense attorneys from prosecution under § 1957 is no longer effective. I do not believe this view is consistent with the statute. Moreover, I am troubled by the potential fallout from the elimination of the protection Congress afforded legitimate criminal defense attorneys when they accept bona fide legal fees from clients charged with or suspected of drug trafficking and other criminal conduct.
Blair's conduct was unquestionably reprehensible, and it was particularly offensive to members of the legal profession. The actual text of the statute, however, constrains me to conclude that the two transactions in question—which secured competent, legitimate criminal defense attorneys for Saunders and Bernard—are exempt from prosecution under § 1957(f)(1).

Blair is a potent reminder that defense attorneys must pay attention of the front end in the type of manipulations to obtain and retain attorneys fees. We all know that Caplin has for a long time rendered attorneys fees at risk of forfeiture. We also need to be reminded that there is some risk that, depending upon the conduct, merely being paid for legitimate legal defense services may put us at risk of criminal prosecution.