On Structuring and Forfeiture and Grand Juries (12/28/16)

In United States v. Fisher, 2016 U.S. Dist. LEXIS 176719 (WD NY 2016), here, the defendant is a woman whose husband had previously been convicted by plea agreement for mail fraud and filing false returns.  He had been sentenced to 36 months imprisonment and ordered to pay $969,647.09 in restitution.  Subsequently, while he was incarcerated, in a series of transactions of less than $3,000, the wife purchased money orders from a financial institution.  The purchases aggregated over $300,000.  The Government obtained an indictment and then a superseding indictment from the grand jury charging multiple "counts of causing a financial institution to fail to file a transaction report—i.e., structuring—in violation of 31 U.S.C. § 5325(a)(2)."  The superseding indictment alleged that she purchased $74,000 in money orders with the intent of evading the identification requirements.  Those identification requirements could have led to the institutions filing reports of the purchases.  The superseding indictment also included a forfeiture allegation.  Pursuant to the forfeiture allegation, the Government filed a notice of lis pendens on the house, thus, she alleged, impairing funds that could have been available for her defense.

Section 5325, here, requires a financial institution to require identification upon the purchase of "a bank check, cashier’s check, traveler’s check, or money order to any individual in connection with a transaction or group of such contemporaneous transactions which involves United States coins or currency (or such other monetary instruments as the Secretary may prescribe) in amounts or denominations of $3,000."

Pursuant to defendant's motion to dismiss the superseding indictment, the magistrate judge recommended dismissal and, in the alternative, dismissing the forfeiture notice.

[Magistrate] Judge Scott makes these recommendations because, during grand jury proceedings in this case, the Assistant United States Attorney (AUSA) made several references to the Defendant's ex-husband's criminal conduct. Judge Scott also recommends dismissal because, in response to grand juror questions, the AUSA and the IRS Special Agent who testified before the grand jury discussed whether and how Fisher's home could be forfeited in the event of a conviction.

The district judge, in this decision and order linked above, rejects that recommendation and sustains the superseding indictment.  I post on the district judge's order because it offers a fascinating look into the grand jury, a look usually denied because of the grand jury secrecy rules.  In summarizing the relevant parts of the grand jury proceeding, the Court said (Slip Op. 3, n3 (carries over to p. 4):

   n3 The Court's summary of grand jury proceedings in this case is based on transcripts the Government has filed under seal. See Docket No. 118. Fisher has moved to unseal those transcripts, as well as the parties' redacted briefing in support of, and in opposition to, her motion to dismiss. See Docket No. 127. That motion remains pending, and the Court will resolve it in due course. At present, however, the transcripts remain under seal. This Decision and Order's summary of the sealed grand jury transcripts is authorized by Federal Rule of Criminal Procedure 6(e)(3)(E)(i), which allows the Court to lift the seal on grand jury secrecy "in a manner, and subject to any other conditions that it directs" when doing so is necessary "in connection with a judicial proceeding." The Court does not make this decision lightly. Indeed, "the discretion of a trial court in deciding whether to make public the ordinarily secret proceedings of a grand jury investigation is one of the broadest and most sensitive exercises of careful judgment that a trial judge can make." In re Petition of Craig, 131 F.3d 99, 104 (2d Cir. 1997). The Court finds that unsealing the portions of the grand jury transcripts that are quoted and summarized in this Decision and Order is warranted for two reasons. First, because the parties' arguments focus so heavily on the grand jury proceedings, as well as serious accusations of grand jury misconduct, filing an un-redacted Decision and Order is the only way to ensure that the reasons for the Court's decision—and, more particularly, the Court's reasons for not adopting the Report and Recommendation—are accessible to both the bar and the public. Second, and relatedly, the Report and Recommendation, which has been publicly available for several months, see 2016 WL 2779018, quotes heavily from the grand jury transcripts. As a result, there is little basis for redacting the Court's Decision and Order. See Craig, 131 F.3d at 107 ("[T]he extent to which the grand jury material in a particular case has been made public is clearly relevant because even partial previous disclosure often undercuts many of the reasons for secrecy.")
   The Court's summary of the grand jury proceedings in this case condenses over 160 pages of grand jury transcripts. The Court's summary is, therefore, necessarily selective; the Court has neither quoted nor summarized every question and answer. The Court has nonetheless endeavored to provide a balanced summary and has, to the extent possible, identified in this Decision and Order each of the issues Fisher points to as a basis for dismissal.

As observers on the forfeiture front have observed, the forfeiture for structuring transactions has been controversial recently.  The public controversy has usually involved forfeiture for structuring to avoid the requirement that financial institutions file reports for $10,000+ currency deposits (either in a single deposit or related, structured, smaller deposits.  The filing requirement is designed to out the illegal activity and the flow of illegal funds.  Yet, the statute makes criminal the structuring to avoid the reporting requirement regardless of whether there is otherwise illegal activity or funds.  So, the IRS revised its policy.  Because of the controversy, the IRS changed its forfeiture policy to forego structuring charges "unless there are indications that the funds were illegally obtained." See Structuring Forfeitures Again in the News (Federal Tax Crimes Blog 2/12/15), here.  The Fisher case seems to implicate the likelihood that the funds in the money order purchases were from illegal funds related to the husband's conduct.

The court described the Fisher's motion as follows:

Fisher's motion to dismiss is based on the AUSA's conduct before the grand jury. She argues that dismissal is warranted for two reasons. First, Fisher notes that the AUSA referred to Gregory's criminal conviction several times during grand jury proceedings. According to Fisher, these references improperly suggested that Fisher conspired with Gregory or was somehow involved in his crimes. Second, Fisher claims that the AUSA incorrectly explained to the grand jury whether and how the Government could seize Fisher's home in the event of a conviction.

The court then summarizes the grand jury testimony of the Special Agent who worked the case and the back and forth between the grand jurors and the prosecutor.  In the course of the Special Agents' testimony, the Special Agent testified that they could not trace the proceeds from the husband's illegal activity into the funds Fisher used to purchase the money orders, but that about $500,000 was untraceable.  In addition, grand jurors asked a number of questions -- such as whether there would be a conspiracy charge against the husband with respect to the structuring charge and whether structuring was harsher than a money laundering charge.  As to the first question, the answer was no because there was insufficient proof of the conspiratorial agreement; as to the latter, the AUSA advised that money laundering required more proof of tracing from Fisher's illegal proceeds into the funds used to structure the purchase of money orders.  In the latter regard, the AUSA advised:

"[B]ut," the AUSA concluded, "it comes down to is there enough proof to prove that beyond a reasonable doubt . . . . Like here it's probable cause, right? 51 percent, but at trial, it's beyond a reasonable doubt." 

This drew my attention because I think the indicated 51 percent is a rough and ready statement of the preponderance of the evidence standard for burden of proof.  I think that the probable cause standard for the jury to return an indictment is less than suggested by the 51 percent.  (The check in the federal system is that the prosecutor is not supposed to seek an indictment unless he "believes that the person's conduct constitutes a Federal offense and that the admissible evidence will probably be sufficient to obtain and sustain a conviction." USAM 9-27.220, here; as the court notes elsewhere in the discussion of the functions of the grand jury, the grand jury can consider evidence other than admissible evidence and thus reach the probable cause determination, but the prosecutor should not factor inadmissible evidence into the decision to prosecute.)  I have done only limited research on that issue of the meaning of probable cause for indictment and include at the bottom of this entry some brief snippets from that limited research.  I would appreciate hearing from readers the fruits of their research and experience on this issue.

Now, turning to the Court's discussion of the function of the grand jury, the Court says that courts have limited authority to regulate a grand jury:

The Fifth Amendment provides in relevant part that "[n]o person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury." This guarantee preserves the grand jury's two historical duties. The grand jury's first duty is to determine "whether there is probable cause to believe a crime has been committed." United States v. Calandra, 414 U.S. 338, 343 (1974). And the grand jury's second duty is no less important: to "protect[] . . . citizens against unfounded criminal prosecutions." Id. Because the grand jury is charged with such enormous responsibilities, it is entrusted with a number of powers and characteristics that are unique in federal criminal law. See Whitehouse v. U.S. Dist. Court for Dist. of Rhode Island, 53 F.3d 1349, 1357 (1st Cir. 1995). These powers and characteristics inform the Court's conclusion that the grand jury presentations in this case do not warrant dismissal. The Court therefore discusses them briefly. 

First, unlike a petit jury, which may consider only what evidence the parties introduce and the Rules of Evidence allow, the grand jury "is not confined to a passive role." United States v. Nunan, 236 F.2d 576, 593 (2d Cir. 1956). Instead, a grand jury "may and often does proceed on its own initiative." Id. The grand jury may, for instance, initiate an investigation based on "tips, rumors, evidence proffered by the prosecutor, or the personal knowledge of the grand jurors." Calandra, 414 U.S. at 344. It may be "induced . . . by newspaper reports." Nunan, 236 F.2d at 593. And it may "investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not." United States v. Morton Salt Co., 338 U.S. 632, 642-43 (1950). The grand jury, in other words, has historically been "free to make [its] presentments or indictments on such information as [the grand jurors] deemed satisfactory." Costello v. United States, 350 U.S. 359, 362 (1956). The grand jury is entrusted with this nearly boundless investigative authority because it "sits not to determine guilt or innocence, but to assess whether there is adequate basis for bringing a criminal charge." United States v. Williams, 504 U.S. 36, 51 (1992). If this "public responsibility is adequately to be discharged," then the grand jury's "investigative power must be broad." Calandra, 414 U.S. at 344. 

Second, and relatedly, the grand jury's broad investigative power means that a grand jury investigation necessarily "paints with a broad brush." United States v. R. Enterprises, Inc., 498 U.S. 292, 297 (1991). See also Calandra, 414 U.S. at 343-44 (noting that, given "its special role in insuring fair and effective law enforcement," the grand [*19]  jury has "broad" investigative powers). Not only may it proceed on its own initiative and for its own reasons, but in conducting an investigation the grand jury's "sources of information are widely drawn." Id. at 344. Of course, the grand jury "may compel the production of documentary evidence or the testimony of witnesses, as it deems necessary." United States v. Davis, 702 F.2d 418, 422 (2d Cir. 1983). But the true breadth of the grand jury's investigative power is evident from the grand jury's ability to consider evidence that would typically be inadmissible at trial: a grand jury may, for instance, hear (and base an indictment on) hearsay, Costello, 350 U.S. at 361-64; evidence obtained in violation of the Fourth Amendment, Calandra, 414 U.S. at 349-52; evidence subject to a civil protective order, Davis, 702 F.2d at 421-22; and, possibly, "evidence previously obtained in violation of the privilege against self-incrimination." Williams, 504 U.S. at 49 (citing Calandra, 414 U.S. at 346). See also id. at 50 (noting that the Supreme Court "ha[s] received many requests to exercise supervision over the grand jury's evidence-taking process, but . . . ha[s] refused them all"). The Government, of course, may choose to not introduce evidence before the grand jury that would be inadmissible at trial. But the point is that, if the grand jury would like to consider such evidence, it may do so without affecting the validity of the indictment. In short, the grand jury "may compel the production of evidence or the testimony of witnesses as it considers appropriate, and its operation generally is unrestrained by the technical procedural and evidentiary rules governing the conduct of criminal trials." Calandra, 414 U.S. at 343 (emphasis added). 

Third and finally, although the grand jury "belongs to no branch of the institutional Government," Williams, 504 U.S. at 47, it does not operate entirely separate and apart from the other branches. The judiciary's relationship with the grand jury "has traditionally been, so to speak, at arm's length." Id. More relevant here, the grand jury and the United States Attorney have a unique relationship. The grand jury "serv[es] as a kind of buffer or referee between the Government" and those whom the Government suspects of committing crimes. Id. But at the same time, the grand jury cannot function without the U.S. Attorney, who serves both as the grand jury's legal advisor and as the conduit through which the grand jury obtains evidence. See United States v. Hogan, 712 F.2d 757, 759 (2d Cir. 1983) ("[I]t is the prosecutor who draws up the indictment, calls and examines the grand jury witnesses, advises the grand jury as to the law, and is in constant attendance during its proceedings."); Hon. Irving R. Kaufman, The Grand Jury—Its Role and Its Powers, 17 F.R.D. 331, 336 ("[The grand jury] is vested with the critically important power of subpoenaing witnesses . . . . The United States Attorney utilizes [the grand jury's] subpoena power to bring witnesses and documents before [the grand jury].") As a practical matter, then, the U.S. Attorney helps shape the grand jury's investigation. That is why the Court instructs every grand jury it empanels—including the one whose indictment Fisher now challenges—that, because the U.S. Attorney "has the duty of prosecuting . . . federal crimes, the U[.] S[.] Attorney . . . present[s] the matters . . . the government wants [the grand jury] to consider." Tr. of Nov. 2014 Grand Jury Empanelment 6:1-5. n4 In other words, while the grand jury is not an arm of the U.S. Attorney (nor is the U.S. Attorney an agent of the grand jury), "[t]he authority of the prosecutor to seek an indictment has long been understood to be coterminous with the authority of the grand jury to entertain the prosecutor's charges." Williams, 504 U.S. at 53 (quotations omitted).
   n4 Contemporaneous with the filing of this Decision and Order, the Court has filed a transcript of the instructions it gave the grand jury that indicted Fisher. "[J]uries are presumed to follow their instructions," Richardson v. Marsh, 481 U.S. 200, 211 (1987), and the Court assumes the grand jury did so in this case. 

Taken together, these principles illustrate the grand jury's investigative and institutional freedom. Two basic rules follow. 

The first is the well-settled rule that "an indictment valid on its face is not subject to challenge on the ground that the grand jury acted on the basis of inadequate or incompetent evidence." Calandra, 414 U.S. at 345. The Supreme Court has repeatedly rejected arguments that an indictment may be dismissed because of the source or the quality of evidence presented to the grand jury. See, e.g., Bank of Nova Scotia v. United States, 487 U.S. 250, 261 (1988) ("[T]he mere fact that evidence . . . is unreliable is not sufficient to require a dismissal of the indictment."); Costello, 350 U.S. at 362-63 ("'No case has been cited, nor have we been able to find any, furnishing an authority for looking into and revising the judgment of the grand jury upon the evidence, for the purpose of determining whether or not the finding was founded upon sufficient proof.'") (quoting United States v. Reed, 27 F. Cas. 727, 738 (Cir. Ct. N.D.N.Y. 1852) (No. 16,134) (Nelson, Circuit Justice)). Allowing dismissal of a facially-valid indictment because the grand jury was presented with insufficient or improper evidence "would run counter to the whole history of the grand jury institution, in which laymen conducted their inquiries unfettered by technical rules." Costello, 350 U.S. at 364. And entertaining such challenges would not only undermine the historic independence of the grand jury's evidence-gathering and deliberative functions, but it would also (as this case demonstrates) result in delay, as a court, before conducting a trial on the merits, conducted "a kind of preliminary trial to determine the competency and adequacy of the evidence before the grand jury. This is not required by the Fifth Amendment." Id. at 363. 

Second, the principles discussed above show that, if the grand jury is to effectively discharge its duties, federal courts must have relatively limited authority to intrude on a grand jury investigation. This is the foundation of the Supreme Court's decision in United States v. Williams. In Williams, the Supreme Court rejected the argument that a prosecutor has a constitutional obligation to present a grand jury with exculpatory evidence. 504 U.S. at 52. Specifically, the Court rejected the argument that a federal court may impose such an obligation as part of its supervisory authority over the grand jury. Id. Giving courts such power would, the Court observed, be inconsistent with "the grand jury's operational separateness from its constituting court." Id. at 49. This was why "it should come as no surprise that [the Supreme Court] ha[s] been reluctant to invoke the judicial supervisory power as a basis for prescribing modes of grand jury procedure." Id. at 49-50. Whatever limited supervisory authority a federal court might have over the grand jury, "[i]t certainly would not permit judicial reshaping of the grand jury institution, substantially altering the traditional relationships between the prosecutor, the constituting court, and the grand jury itself." Id. at 50. Put differently, a court may not, under the guise of imposing a procedural rule, invoke its supervisory authority to limit the type of evidence the grand jury has historically been permitted to consider, nor may a court regulate the way in which the grand jury receives that evidence. Relatedly, Williams held, requiring a prosecutor to present the grand jury with exculpatory evidence "would alter the grand jury's historical role, transforming it from an accusatory to an adjudicatory body." Id. at 51. And, moreover, requiring the presentation of exculpatory evidence would force courts to consider exactly the sort of argument that has long been rejected as inconsistent with the grand jury's investigative function: a challenge "based upon the sufficiency of the evidence relied upon by the grand jury." Id. at 53. 

Williams' holding is simple: a federal court may use its "supervisory power . . . to dismiss an indictment because of misconduct before the grand jury, at least where that misconduct amounts to a violation of one of those few, clear rules which were carefully drafted and approved by [the Supreme Court] and by Congress to ensure the integrity of the grand jury's functions." Id. at 46 (quotations omitted). n5 A federal court may therefore use its supervisory authority over the grand jury only to "enforce[e] or vindicat[e] legally compelled standards"—not "as a means of prescribing those standards of prosecutorial conduct in the first instance." Id. at 46-47 (emphasis in original). Williams, in short, makes clear that "nothing short of a violation of laws or procedural rules regulating grand jury matters will permit a court to exercise its supervisory authority in the grand jury arena." United States v. Gillespie, 974 F.2d 796, 801 (7th Cir. 1992).
   n5 Williams left open the possibility that federal courts "may" have the authority to "fashion, on their own initiative, rules of grand jury procedure." Id. at 50. The Court suggested, though, that any such power "is a very limited one, not remotely comparable to the power [courts] maintain over their own proceedings." Id. Fisher does not pursue this argument, nor, given the nature of the conduct in this case, would it likely affect the Court's conclusion that dismissal is unwarranted.

Fisher argues that the AUSA's grand jury presentations violate Williams' rule in two ways. First, Fisher argues that the AUSA "used false and inflammatory statements to cause the Grand Jury to believe that Ms. Fisher conspired with her ex-husband to launder fraud proceeds through the purchase of the money orders referenced in the Superseding Indictment." Docket No. 146 at 7. Second, Fisher claims that the AUSA "presented false theories of forfeiture" and "gave [the grand jury] false assurances on Ms. Fisher's remedies regarding the forfeiture of her home." Id. The Court addresses each argument in turn.

The Court then rejects Fishers arguments in both respects.  I refer readers to the discussion in the opinion.

Addendum:  Snippets from Quick and Limited Research on Probable Cause for Indictment

USAM 9-27.200 - Initiating and Declining Prosecution—Probable Cause Requirement, here.

The probable cause standard is the same standard as that required for the issuance of an arrest warrant or a summons upon a complaint (See Fed. R. Crim. P. 4(a)), for a magistrate' s decision to hold a defendant to answer in the district court (See Fed. R. Crim. P. 5.1(a)), and is the minimal requirement for indictment by a grand jury. 

* * * * failure to meet the minimal requirement of probable cause is an absolute bar to initiating a Federal prosecution, and in some circumstances may preclude reference to other prosecuting authorities or recourse to non-criminal sanctions as well.

USAM 9-11.101 - Powers and Limitations of Grand Juries—The Functions of a Grand Jury, here.

* * * the grand jury's principal function is to determine whether or not there is probable cause to believe that one or more persons committed a certain Federal offense within the venue of the district court.

Wikipedia Burden of Proof, here, discussing preponderance of the evidence in a Florda proceeding:

This is a far lower burden than "beyond a reasonable doubt," the threshold a prosecutor must meet at any proceeding criminal trial, but higher than the "probable cause" threshold generally required for indictment.

Wikipedia Probable cause for arrest
Main article: Probable cause, here.

Probable cause is a relatively low standard of proof, which is used in the United States to determine whether a search, or an arrest, is warranted. It is also used by grand juries to determine whether to issue an indictment. In the civil context, this standard is often used where plaintiffs are seeking a prejudgement remedy. 

In the criminal context, the U.S. Supreme Court in United States v. Sokolow, 490 U.S. 1 (1989), determined that probable cause requires "a fair probability that contraband or evidence of a crime will be found" in deciding whether Drug Enforcement Administration agents had a reason to execute a search. Courts vary when determining what constitutes a "fair probability": some[who?] say 30 [percent], others 40 [percent], others 51 [percent].