Wednesday, March 27, 2013

First Circuit Decides NonTax Criminal Case With Issues Related to Issues in Tax Crimes Cases (3/27/13)

A reader, Eliot Silverman, here, brought to my attention a recent First Circuit opinion in a nontax criminal prosecution.  See United States v. Wu, 711 F.3d 1 (1st Cir. 2013), here.  In the case, the two defendants, formerly husband wife, were prosecuted for violating restrictions on the overseas shipment of weapons-grade technologies.  The criminal statute involved, like tax crimes, has a willfulness element.  I write this blog entry to address three issues in the case that may resonate with tax crimes.

Void for Vagueness

The defendants asserted that the prosecution which relied upon the defendants' violation of the law because of the inclusion of certain products on the Munitions List was void for vagueness.  Designated defense articles may not be exported without license from the State Department. The designations are made by regulations which are not subject to judicial review.  The designation is made by the Munitions List.  The Court explained the Munitions List as follows (p.12):
Pursuant to the President's authority under the AECA, the State Department has promulgated the International Traffic in Arms Regulations ("ITAR"), 22 C.F.R. pts. 120-130, which include the U.S. Munitions List, id. pt. 121. The Munitions List is not a compendium of specific controlled items; instead, it is a series of categories describing the kinds of items that qualify as "defense articles" requiring export licenses. The Munitions List contains "attributes rather than names" * * * *.
As noted, the crime involved required willfulness, which seems to be interpreted the same as the tax crimes element of willfulness -- intentional violation of a known legal duty.  The Court discussed the relationship of void for vagueness and the willfulness element as follows (pp. 13, 15):
Vagueness. At the outset, we address the defendants' argument that this carefully crafted regulatory scheme--which has remained in place for more than a quarter century--is unconstitutionally vague. The Fifth Amendment's Due Process Clause requires that "a criminal statute provide adequate notice to a person of ordinary intelligence that his contemplated conduct is illegal." Buckley v. Valeo, 424 U.S. 1, 77, 96 S. Ct. 612, 46 L. Ed. 2d 659 (1976) (per curiam); see also United States v. Anzalone, 766 F.2d 676, 678 (1st Cir. 1985). The "void for vagueness doctrine" addresses at least two discrete due process concerns: "first, . . . regulated parties should know what is required of them so they may act accordingly; second, precision and guidance are necessary so that those enforcing the law do not act in an arbitrary or discriminatory way." FCC v. Fox Television Stations, Inc., 132 S. Ct. 2307, 2317, 183 L. Ed. 2d 234 (2012).
* * * * 
Finally, the AECA's scienter requirement covers only "willful[]" violations of the law's export restrictions. 22 U.S.C. § 2778(c). The Act does not "impose criminal penalties on innocent or negligent errors." United States v. Davis, 583 F.2d 190, 193 (5th Cir. 1978). Where a statute "explicit[ly] provi[des] that a criminal violation of its terms must be 'willful,'" the void-for-vagueness doctrine is especially inapposite, see United Union of Roofers, Waterproofers & Allied Workers v. Meese, 823 F.2d 652, 659 (1st Cir. 1987) (Breyer, J.), since the statute itself ensures that "good-faith errors are not penalized," Harris v. McRae, 448 U.S. 297, 311 n.17, 100 S. Ct. 2671, 65 L. Ed. 2d 784 (1980). By criminalizing only willful violations of the law, the statute's scienter requirement "protects the innocent exporter who might accidentally and unknowingly export a proscribed component or part." Lee, 183 F.3d at 1032-33. 
Outside the First Amendment context, we consider "whether a statute is vague as applied to the particular facts at issue," for a defendant "who engages in some conduct that is clearly proscribed cannot complain of the vagueness of the law as applied to the conduct of others." Holder v. Humanitarian Law Project, 130 S.Ct. 2705, 2719, 177 L. Ed. 2d 355 (2010) (emphasis added) (internal quotation marks omitted). We need only determine whether the AECA and its regulations were vague "as applied to these particular defendants"-- in other words, whether Wu and Wei "in fact had fair notice that the statute and regulations proscribed their conduct." United States v. Hsu, 364 F.3d 192, 196 (4th Cir. 2004). And as the district court concluded, there was ample evidence at trial that Wu and Wei actually believed that the phase shifters required government licenses for export.
This reasoning is certainly internally consistent.  However, it does not seem to me to be consistent with the way similar concepts play out in tax crimes which also require willfulness.  I think the James/Dahlstrom/Garber line of cases are related.  Basically, as I read those cases (principally James), a defendant cannot be convicted for a tax crime requiring willfulness if, as a matter of law, the statute does not clearly impose the duty that the defendant is charged with having intentionally violated.  As I have synthesized this concept in a tax context, on an objective level, the law must clearly impose the duty, and the court (rather than the jury) must make that determination.  Next, if that requirement is met, then and only then is the factual issue presented of whether the defendant intended to violate that objectively determined legal duty.  The first inquiry is, I think, a variation of the void for vagueness standard; a vague law does not clearly set forth a legal duty.  And that necessary inquiry into whether the law clearly states a legal duty is not lessened or eliminated by the willfulness requirement that the defendant must have intended to violate the duty.

Go back to James.  The jury in James determined as a factual matter that the defendant intended to violate a legal duty known to him.  The Supreme Court did not question that factual holding.  The Supreme Court did question whether there was any such legal duty under the uncertain state of the law of the Supreme Court's own making.  The Supreme Court clarified that law in James, so that thereafter the legal duty was clear.  But, the Supreme Court held, because the law was uncertain at the time James committed the conduct (including, as found by the jury, the intent to violate the law), his prosecution for the crime was invalid.  So, whether or not he intended to violate the law is irrelevant; he could not have intended to violate the law because the law was objectively uncertain.  This certainly smacks of void for vagueness to me, and that problem is not cured by simply saying that the jury's determination of willfulness cured the problem.

I would appreciate readers' opinions on this matter.


The defendants were convicted of intentionally violating the requirement that the exports not be of items defined on the regulatory Munitions List.  As in James, it was not certain at the time of the export that the definitions on the Munitions List included the product in question.  It was later determined by the State Department that the product was included in the class of products stated on the List.  Here is the Court's discussion on the issue of what should have been submitted to the jury (pp. 17-20):
As of June 2006, the time of the exports in question, no official determination had been made as to the presence of the phase shifters on the Munitions List. Indeed, at the time there was disagreement even within the government as to the proper categorization of the phase shifters. The items apparently had some commercial utility, including in civilian aviation and cell phone technology. In February 2002, the Commerce Department issued Commodity Classifications concluding that the phase shifters were dual-use items covered by the Commerce Control List (which would indicate that they did not fall within the scope of Munitions List Category XI(c)). But in August 2003, the Defense Department's Tri-Services Committee verbally informed the manufacturer of the phase shifters that the items should be ITAR-controlled and thus under the authority of the State Department. This advice was never made public. 
It was not until December 2007, 18 months after Chitron exported the phase shifters in question, that the Directorate issued a CJ determination confirming that the MAPCGM0003 phase shifter fell within the coverage of the Munitions List. The Directorate never issued a CJ determination at all for the MAPCGM0002 phase shifter, but rather simply certified to the district court before trial, years after the export, that it was in fact covered by the Munitions List. 
Nevertheless, at the conclusion of the trial, the district court, over the defendants' objections, instructed the jury that it should not consider "the appropriateness of the determinations made by the State Department" as to whether the phase shifters fell under the Munitions List. Instead, the court told the jury that it should only decide "whether the government has proved beyond a reasonable doubt that the Secretary of State determined that the charged parts were defense articles on the [Munitions List] at the time of export." 
To see why this instruction improperly wrested a key question from the jury, we go back to first principles. "In the criminal law, both a culpable mens rea and a criminal actus reus are generally required for an offense to occur." United States v. Apfelbaum, 445 U.S. 115, 131, 100 S. Ct. 948, 63 L. Ed. 2d 250 (1980); accord United States v. Vilches-Navarrete, 523 F.3d 1, 21 (1st Cir.) (Lynch, J., and Howard, J., opinion of the court in part and concurring in part), cert. denied, 555 U.S. 897, 129 S. Ct. 208, 172 L. Ed. 2d 168 (2008). To use a straightforward and familiar example: the crime of possessing an unregistered firearm, 26 U.S.C. § 5861 (d), requires (1) that the defendant possessed an unregistered weapon classified as a "firearm" under the National Firearms Act (the actus reus), and (2) that the defendant "knew of the features of his [weapon] that brought it within the scope of the Act" (the mens rea). Staples v. United States, 511 U.S. 600, 619, 114 S. Ct. 1793, 128 L. Ed. 2d 608 (1994).
In the ordinary course, the actus reus element will be easier to prove than the mens rea. The National Firearms Act says that a shotgun having a barrel of less than 18 inches must be registered, see 26 U.S.C. § 5845(a), and barrel length may be readily measured. Thus, in United States v. Shaw, 670 F.3d 360 (1st Cir. 2012), it was uncontested that the barrel of the defendant's shotgun measured only sixteen and a quarter inches; the issue in dispute was whether the defendant knew that the barrel was shorter than the requisite length. Compare id. at 364 (majority opinion), and id. at 368-69 (Boudin, J., concurring), with id. at 376 (Lipez, J., dissenting). 
But even where the evidence is sufficient to show the necessary mens rea, the government still must always "meet its burden of proving the actus reus of the offense." United States v. Whiteside, 285 F.3d 1345, 1353 (11th Cir. 2002). For instance, if a defendant mistakenly thinks that the barrel of his unregistered shotgun is shorter than eighteen inches when in fact it is longer than that length, he is innocent of the crime of possessing an unregistered firearm, even though he had the requisite guilty mind. Cf. United States v. De La Torre, 599 F.3d 1198, 1204 (10th Cir. 2010) (government must "prove[] the defendant had the requisite guilty mind" and "prove the defendant did possess the particular controlled substance charged in the indictment"), cert. denied, 131 S. Ct. 227, 178 L. Ed. 2d 151 (2010). 
Here, to convict the defendants of violating the AECA, 22 U. S.C. § 2778(c), the jury had to find not only that the defendants acted with the requisite mens rea (willfulness), but also that they actually committed the actus reus charged (violation of regulations issued under the statute). Put differently, even if the jury found that Wu and Wei believed that phase shifters fell within the Munitions List restrictions, it would still have to conclude that the phase shifters actually did fall within the Munitions List restrictions (regardless of Wu and Wei's beliefs). And as to whether Wu and Wei violated regulations issued under the AECA, the proper question for the jury was whether Wu and Wei's conduct violated the relevant regulations as those regulations existed at the time the conduct occurred. See Lindsey v. Washington, 301 U.S. 397, 401, 57 S. Ct. 797, 81 L. Ed. 1182 (1937) ("The Constitution forbids the application of any new punitive measure to a crime already consummated, to the detriment or material disadvantage of the wrongdoer."). 
In defense of the jury instructions, the government argues that the question of whether the phase shifters fall within the Munitions List is a legal issue not suited for jury determination. Cf. Sparf v. United States, 156 U.S. 51, 106-07, 15 S. Ct. 273, 39 L. Ed. 343 (1895) (juries decide factual questions, not legal questions). In support, it cites to our cases construing the felon-in-possession statute, in which certain issues of law embedded in the definition of "prior conviction" (such as whether a former felon's right to carry a firearm has been restored) are denied to the jury. See, e.g., United States v. Bartelho, 71 F.3d 436, 440 (1st Cir. 1995). Yet in Bartelho, we held that "a showing that the [defendant's] right to carry a firearm has not been restored is not an element of a [felon-in-possession statute] violation." Id. at 439. By contrast, we have held that a showing that an exported item was on the Munitions List is an element of a § 2778 violation. See United States v. Murphy, 852 F.2d 1, 6 (1st Cir. 1988). And in order to convict a defendant under a criminal statute, the government must prove each element of the offense to a jury beyond a reasonable doubt. See Apprendi v. New Jersey, 530 U.S. 466, 490, 120 S. Ct. 2348, 147 L. Ed. 2d 435 (2000); see also S. Union Co. v. United States, 132 S. Ct. 2344, 2350, 183 L. Ed. 2d 318 (2012).
This is not to deny that "Congress enjoys latitude in determining what facts constitute elements of a crime which must be tried before a jury and proved beyond a reasonable doubt and which do not." Vilches-Navarrete, 523 F.3d at 20 (Lynch, J., and Howard, J.). But Congress has never said that a criminal defendant may be convicted on the basis of an ex post determination by a State Department official outside the regulatory process. 
* * * * 
We also acknowledge that our holding means that in at least some cases involving Category XI(c) of the Munitions List, the question of whether a particular part fell within Category XI(c) of the Munitions List at the time of the alleged export will be a question for the jury. This is not out of the ordinary. Juries are "commonly called upon to decide complex cases." Green Constr. Co. v. Kan. Power & Light Co., 1 F.3d 1005, 1011 (10th Cir. 1993). These include highly technical patent and tax cases as well as cases concerning terrorism and espionage. So too, juries are capable of determining whether phase shifters are specifically designed for military use with the items listed in Munitions List Categories XI (a) and (b) and whether they are exempt from the restrictions due to "normal commercial use." Although permitting juries to decide questions like these may complicate enforcement of our nation's export control regime, the constitutional rights at issue--the guarantee of due process of law, the right to a jury trial, the protection against ex post facto laws--are of "surpassing importance." Apprendi, 530 U.S. at 476.12

The defendants were convicted of conspiracy to export in violation of the Munitions Category List and another list, called a Commerce Control List.  The Court then discusses as follows (pp. 25-26):
It is black letter law that a defendant can be convicted of conspiracy to commit a substantive offense even if he is acquitted of the substantive offense itself. United States v. Ríos-Ortiz, No. 11-2200,     F.3d    , 2013 U.S. App. LEXIS 4068, at *15 (1st Cir. Feb. 27, 2013) (compiling cases). For example, a defendant can be convicted of conspiracy to steal a trade secret even if the documents he sought to steal did not in fact contain trade secrets. United States v. Yang, 281 F.3d 534, 542-43 (6th Cir. 2002), cert. denied, 537 U.S. 1170, 123 S. Ct. 1015, 154 L. Ed. 2d 912 (2003); United States v. Hsu, 155 F.3d 189, 203-04 (3d Cir. 1998). Similarly, a defendant can be convicted of conspiracy to distribute cocaine and narcotics even though, unbeknownst to him, the substances he was distributing turned out to be innocuous. United States v. Pietri, 683 F.2d 877, 879-80 (5th Cir. 1982); see also United States v. Roman, 728 F.2d 846, 859 (7th Cir. 1984) ("To establish conspiracy [to distribute L.S.D.] the items believed to be L.S.D. need not in fact be L.S.D."), cert. denied, 466 U.S. 977, 104 S. Ct. 2360, 80 L. Ed. 2d 832 (1984); United States v. Murray, 527 F.2d 401, 408-09 (5th Cir. 1976) (conspiracy to distribute heroin even though substance turned out to be lactose). "[T]he impossibility that the defendants' conduct would result in consummation of the contemplated substantive crime is not persuasive or controlling." United States v. Meyers, 529 F.2d 1033, 1037 (7th Cir.), cert. denied, 429 U.S. 894, 97 S. Ct. 253, 50 L. Ed. 2d 176 (1976). See generally United States v. Fiander, 547 F.3d 1036, 1042-43 (9th Cir. 2008) (compiling cases). 
Just as a defendant can be convicted of conspiracy to steal trade secrets even when the information he conspires to steal is not in fact a trade secret, and just as a defendant can be convicted of conspiracy to distribute narcotics even when the substance he conspires to distribute is not in fact a narcotic, so too can a defendant be convicted of conspiracy to export items on the Munitions List even when the items he conspires to export are not in fact on the Munitions List. Thus, whether the phase shifters that Wu and Wei exported to China were actually on the Munitions List was not essential to the conspiracy charge. The fact that the district court wrested this question from the jury does not undermine the conspiracy count, because this question was never part of the conspiracy inquiry anyway.

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