3d Circuit Reverses False Statement Conviction Because Truth is a Defense (1/10/13)

In United States v. Castro, ___ F.3d ___, 2013 U.S. App. 442 (3d Cir. 2013), here, the Third Circuit reversed a conviction for false statements under 18 USC 1001, here.  Although Castro is not a tax case, the false statement charge is often made in tax cases.  Hence, Castro is worthy of consideration for the point I discuss below.

The key facts, highly summarized, is that the FBI pulled a sting operation on a Philadelphia Police Department official, Castro.  In part here pertinent, FBI money was used in the sting operation to pay Castro what was represented in the sting operation to be proceeds of a debtor, Encarnacion, of Castro paying the debt.  Castro then made statements to the FBI that "he had not received payments from [the debtor] towards the debt [the debtor] supposed owed him."  That statement was the basis of a false statement charge.  Castro was convicted of the charge but was hung on the remaining 8 counts.  Rather than face retrial, Castro entered a plea agreement with a seeming comprehensive appeals waiver.

The substantive problem, as you see, is that, even though Castro intended to make a false statement, it was in fact a true statement.  The money came from the FBI, not from the debtor.  The procedural problem was the appeals waiver.

I do not focus this blog on the appeals waiver.  Suffice it to say that the Court of Appeals got past that point.

Now, focusing on the false statement claim, the Court of Appeals held handily that Castro's intention to make a false statement was not enough; he had to make a false statement; and the statement was not false.  This gets to the literal truth defense, originating in Bronston v. United States, 409 U.S. 352 (1973).  The precise application of Bronston to 18 USC 1001 is not settled (see the concluding portion of this blog), but suffice it to say that the Third Circuit decided the case on the basis of Bronston, noting that 18 USC 1001 is a "close kin" to perjury, citing United States v. Serafini, 167 F.3d 812 (3d Cir. 1999).

I have given you the bottom-line holding.  Here is the Court's reasoning (footnote omitted):

Viewing the record as required by Bronston, it is devoid of evidence that Castro made a false statement when he told government agents that he had not received money from Encarnacion. On the contrary, that statement was completely, if unintentionally, accurate. Thus, allowing his conviction on Count Three to stand would be to allow a conviction when there has been a complete failure of proof on an essential element of the charged crime, and that would seriously impugn the fairness, integrity, and public reputation of our courts. In short, such a conviction constitutes a miscarriage of justice. 

The government nevertheless argues that, given Castro's belief that he was lying to FBI agents, there is nothing unfair in his conviction. (See Appellee's Br. at 37 ("Castro does not contend that he was unjustly charged with or convicted of this offense, but argues only that the evidence was legally insufficient to support his conviction.").) In the broadest sense, it is surely so that Castro was morally wrong even if not legally guilty, but our legal system does not convict people of being bad. If they are to be convicted, it is for specific crimes, and the government here undertook the burden of proving that Castro had committed each element of the specific crime set forth in § 1001. It failed to do that. 

The government tries to work its way around this failure-of-proof problem by arguing for a "sting operation exception" in § 1001 prosecutions. As the government sees it, whether Castro's statements were literally true is irrelevant, as long as he subjectively believed he was lying to the FBI when he made them. A contrary position, the government argues, "would pervert the very purpose of the literal truth defense, which is to protect people from prosecution for literally true responses to the precise question asked, and surely was not intended to protect those who knowingly and willfully lie about their actions solely because they unknowingly acted in collusion with a government agent instead of a true criminal cohort." (Appellee's Br. at 47.)

The ready and dispositive response to that argument is that, even if a "sting exception" to the strictures of § 1001 is a good idea, it is simply not in the statute. Congress knows how to pass laws that penalize statements made to law enforcement officers by a defendant who incorrectly believes the statements to be false. Compare 18 U.S.C. § 1956(a)(1) ("knowing" laundering of funds "which in fact involves the proceeds" of a crime), with id. § 1956(a)(3) (intentional laundering of funds "represented to be" proceeds of a crime). But it did not do so when it enacted § 1001, and we are not free to amend the law. Under analogous circumstances, the United States Court of Appeals for the Second Circuit reversed as plain error a conviction for "knowing possession" of stolen government property because the property was not actually "stolen" but was rather sold to the defendant by agents in a sting operation. United States v. Golomb, 811 F.2d 787, 792-93 (2d Cir. 1987). "Knowledge and belief are very different mental states," the court held, and although the defendant "may very well have believed the checks were stolen, ... [the statute] cannot be interpreted to support a conviction when the property at issue was not stolen." Id. at 792. 

The government nevertheless insists that a jury could conclude, based on the evidence,  "that the money Castro received came 'from' Encarnacion." (Appellee's Br. at 41.) According to the government, "[t]he FBI paid $21,000 in real cash to Castro, through its agent, Moshe, and represented through Moshe that the payments were on behalf of Encarnacion. A jury could thus readily determine that Castro received money 'from' Encarnacion, and lied about it to the agents when asked." (Id. at 41.) It is not clear how the quotation marks around the word "from" in that sentence help the argument. The money was not "from" Encarnacion in any sense, and we are frankly at a loss to understand the government's assertion that Castro "not only believed that his answer was false ... , but it was in fact false." (Appellee's Br. at 50.) There is, quite literally, no evidence whatsoever that even a penny of the money that Moshe handed over to Castro came from Encarnacion. To say, as the government does, that "[t]he FBI actually gave Castro $21,000 on Encarnacion's behalf" (Appellee's Br. at 52), is an invention, since nothing shows that Encarnacion owed Castro anything, much less that he authorized the government to pay Castro on his behalf. Castro is therefore not guilty on Count Three, because  the statement set forth in that count simply was not false

The complete failure of proof on the "actual falsity" element of the offense charged in Count Three requires reversal of Castro's conviction on that count, as the conviction is infected with plain error and constitutes a miscarriage of justice.

I said above that the precise relationship of Bronston to 18 USC 1001 is not settled.  The Third Circuit fudged the point by saying that perjury and 18 USC 1001 are "close kin," but Bronston controlled the result.  Here is the relevant portion of the most recent draft of my Federal Tax Crimes book (footnotes omitted).

Obviously, the question is the relevance of the Bronston analysis to the false statement charge under § 1001 which is the more commonly encountered perjury like charge in tax crimes where the taxpayer makes statements to the agent or the attorney assisting the grand jury.  The cases that brush up against this issue usually – but not always – treat Bronston as setting the standard for a § 1001 charge, and indeed the CTM suggests that as well.  I think we could dance on the head of a pin in debating this issue, but I think there is most unlikely to be a real world case where § 1001(a)(2) would apply where, in a sworn testimony setting, perjury would not.