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UNITED STATES v. RICHTER

United States District Court, Northern District of Illinois, E.D


April 5, 1985

UNITED STATES OF AMERICA, PLAINTIFF,
v.
JACK RICHTER, SLOBODAN PAVLOVIC, HRISTO MANGOVSKI AND NIKOLA KONSTANTINOV, DEFENDANT.

The opinion of the court was delivered by: Aspen, District Judge:

  MEMORANDUM OPINION AND ORDER

In a sixteen count indictment*fn1 the government charges the four defendants with conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, and with violating reporting provisions of the so-called "Bank Secrecy Act," codified at 31 U.S.C. § 5311 et seq. and implemented by 31 C.F.R. § 103.11 et seq. (1984). The gist of the indictment is that the defendants "laundered" money by using a scheme to send large sums to Switzerland without alerting the watchful eye of the Internal Revenue Service ("IRS"). The defendants have filed a flurry of pretrial motions, the most significant being motions to dismiss the indictment under several theories. For the reason stated below, those motions are granted in part and denied in part: only Counts XI through XVI of the indictment are dismissed.

Facts

We have gleaned the following facts from the indictment, which we assume to be true for the purposes of the motions before us. In late 1982, defendant Nikola Konstantinov ("Konstantinov") met several times with federal agents, whom he believed to be drug dealers. They allegedly discussed laundering of drug money. On March 10, 1983, Konstantinov introduced Agents Perez and Perry to defendant Slobodan Pavlovic ("Pavlovic"), and the four talked about money-laundering. Pavlovic and Perry met several more times that spring. On June 6, 1983, Pavlovic introduced Perry and Agent Ahern to defendant Jack Richter ("Richter"), a lawyer in private practice. Pavlovic had been in the real estate business and, according to the defendants, was one of Richter's clients. On June 10, 1983, the agents gave Richter and Pavlovic $25,000 in cash to launder. That day the two defendants deposited amounts of about $9,600, $7,500 and $7,800 to Richter's client escrow account, keeping the rest as a fee. Three days later, they wired $23,000 to a Swiss bank account.

Similar transactions occurred throughout that summer. For example, on June 21, 1983, Richter and Pavlovic opened accounts at several Chicago banks, and they deposited another $85,000 of the agents' money in those accounts, with $9,900 going to eight of the accounts and $5,800 going to a ninth. On August 24, 1983, they received $115,000 and deposited the money in twelve accounts in $9,500 increments. All of this money was eventually wired to Switzerland, with Pavlovic and Richter deducting about 6% for fees.

Richter and Pavlovic broke up the large sums into units of less than $10,000 in order to prevent the federal government from learning about them. Under the Bank Secrecy Act and its implementing regulations, a "financial institution" must file a report with the IRS when it engages in a "transaction in currency" of more than $10,000. See 31 U.S.C. § 5313; 31 C.F.R. §§ 103.11, 103.22 (1984).*fn2 Richter and Pavlovic allegedly knew that single deposits of more than $10,000 would have required the bank to file a "Currency Transaction Report" ("CTR") on "Form 4789" with the IRS. Through the above scheme they intended to and managed to deposit and transfer some $225,000 to Switzerland without alerting the government.

On October 4, 1983, Richter and Pavlovic met with Agent Reger to discuss a new laundering scheme, which would involve the use of a diplomat from Yugoslavia to "match" deposits in U.S. banks with deposits in Yugoslavia. On November 28, 1983, Agent Ahern gave them $15,000 to launder, and they showed him a copy of a plane ticket in defendant Hristo Mangovski's ("Mangovski") name to indicate that he was in Yugoslavia working out the mechanics of the new scheme. On January 24, 1984, the three defendants caused $12,750 to be wired from the "Stopanska Banka Skopje" in Yugoslavia to Switzerland.

The three defendants again changed their operation. On February 2, 1984, the agents gave $35,000 to Richter and Pavlovic, who in turn gave it to Mangovski. He deposited the money in several increments of less than $10,000 in the account of "Stopanska Banka-Skopje" at the Gainer National Bank in Merrillville, Indiana. On February 21, 1984, a matching amount, less a fee, was wired from the Yugoslavia Banka to Switzerland. On March 1, 1984, a similar scheme was carried out with another $75,000, and on March 20, 1984, the agents gave another $1,000,000 to Richter and Pavlovic. They in turn gave the money to Mangovski, deducted another fee and were apparently arrested sometime before consummating this last act of alleged misconduct.

Count One of the indictment charges that all four defendants conspired to defraud the United States in violation of 18 U.S.C. § 371. Konstantinov is not named as a defendant or mentioned in the remaining fifteen counts. Counts Two, Four and Six rest on the theory that Richter and Pavlovic were de facto financial institutions and charge them with three acts of failing to file CTRs, in violation of 31 U.S.C. § 5313 and 5322(b). Counts Three, Five and Seven charge those two with causing banks to fail to file CTRs, in violation of 31 U.S.C. § 5313, 5322(b) combined with 18 U.S.C. § 2(b). Counts Eight, Nine and Ten charge Richter, Pavlovic and Mangovski with failing to file CTRs concerning the "Yugoslavian" transaction, in violation of 31 U.S.C. § 5313, 5322(b) and 18 U.S.C. § 2. The remaining counts charge Richter and Pavlovic with various acts of wire fraud in violation of 18 U.S.C. § 1343.

The defendants have made various statutory and constitutional challenges to the indictment. They argue principally that:

  (1) The indictment does not allege cognizable
      conspiracy offenses or violations of the Bank
      Secrecy Act.

  (2) The alleged violations of the Act are legally
      impossible because all of the money belonged
      to the government.

  (3) The indictment does not state cognizable wire
      fraud offenses.

(4) The indictment is impermissibly vague.

  (5) The Act as applied violates the Search and
      Seizure Clause of the Fourth Amendment and
      the Self-Incrimination Clause of the Fifth
      Amendment.

  (6) The government's undercover operation was
      outrageous in violation of the Due Process
      Clause, warranting dismissal of the
      indictment.

We now turn to these, and a few ancillary, challenges.

The Motion to Dismiss the Conspiracy Count

Count One of the indictment alleges that all four defendants conspired to defraud the United States, in violation of 18 U.S.C. § 371. That section states in relevant part:

  If two or more persons conspire either to commit
  any offense against the United States, or to
  defraud the United States, or any agency thereof
  in any manner or for any purpose, and one or more
  of such persons do any act to effect the object
  of the conspiracy, each shall be fined not more
  than $10,000 or imprisoned not more than five
  years, or both.

This section has two prongs. It reaches both conspiracies to commit substantive federal offenses and those to commit frauds against the United States which are not made criminal by other legislation. Paragraph 2 of Count One tracks both prongs. First, it charges the defendants with conspiring to defraud the United States by structuring their currency transactions to impair the lawful functions of the Department of the Treasury in collecting data about transactions greater than $10,000. See 31 U.S.C. § 5311 et seq.; 31 C.F.R. § 103.11 et seq. Second, it accuses the defendants of conspiring to conceal and cover-up, by scheme and device, material facts in a matter within the jurisdiction of the Treasury Department, in violation of 18 U.S.C. § 1001.
*fn3 In sum, Count One does not allege any violations of other substantive criminal offenses. It simply charges a conspiracy to defraud the United States and to violate 18 U.S.C. § 1001. We will first consider the alleged conspiracy to defraud.

"Fraud" as meant in § 371 is broader than its common law namesake. Dennis v. United States, 384 U.S. 855, 861, 86 S.Ct. 1840, 1844, 16 L.Ed.2d 973 (1966); United States v. Turkish, 623 F.2d 769, 771 (2d Cir. 1980), cert. denied, 449 U.S. 1077, 101 S.Ct. 856, 66 L.Ed.2d 800 (1981). It embraces "any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any department of government." Dennis, 384 U.S. at 861, 86 S.Ct. at 1844 (quotations and citations omitted). It is well established that the term "defraud" as used in § 371 not only reaches schemes which deprive the government of money or property, but also is designed to protect the integrity of the United States and its agencies, programs and policies. United States v. Johnson, 383 U.S. 169, 172, 86 S.Ct. 749, 751, 15 L.Ed.2d 681 (1966); United States v. Burgin, 621 F.2d 1352, 1356 (5th Cir. 1980), cert. denied, 449 U.S. 1015, 101 S.Ct. 574, 66 L.Ed.2d 474 (1980). The government charges that the defendants conspired to trick the banks into not filing CTRs with the IRS by breaking up their huge deposits into chunks of less than $10,000.

The defendants emphasize that the Bank Secrecy Act and its regulations imposed no duty on them to file CTRs as individuals.*fn4 Nor does any law specifically forbid them from making deposits in sums less than $10,000. Nor did they employ deceitful means, in the sense of using fictitious names or forging signatures. Rather, everything they did was in the "open." They agreed to make, and then made, deposits in their own names, with the hitch that they either made those deposits at several different banks or in increments at one bank. While, as we discuss later, the arguments are arguably relevant to whether the underlying substantive offenses were committed, they do not bear on whether an unlawful conspiracy was committed. The crime alleged in Count One is not the making of deposits of less than $10,000, but conspiring to use tricks to deprive the IRS of CTRs. To be held liable under the fraud prong of § 371, the defendants need not have agreed to commit, or actually committed, a substantive offense. They merely must have agreed "to interfere with or obstruct one of [the government's] lawful . . . functions by deceit, craft or trickery, or at least by means that are dishonest."*fn5 Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S.Ct. 511, 512, 68 L.Ed. 968 (1924). We think it plain that defendants' conspiracy contemplated "interfering with" or "obstructing" the government function of receiving CTRs. We also think that defendants' alleged means, while "open" in a limited sense, were "dishonest" in an overall sense. They clearly intended to disguise their transactions as something other than what they in fact were — deposits of greater than $10,000 — so that the government would not take notice of the movement of this money. See United States v. Hajecate, 683 F.2d 894, 896-97 (5th Cir. 1982) (acts which are themselves legal lose their legal character when they become elements of an unlawful scheme), cert. denied, 461 U.S. 927, 103 S.Ct. 2086, 77 L.Ed.2d 298 (1983).

Several other courts have held that similar agreements to "launder" money were indictable under § 371. See United States v. Puerto, 730 F.2d 627, 630-31 (11th Cir. 1984), cert. denied, ___ U.S. ___ 105 S.Ct. 162, 83 L.Ed.2d 98 (1984); United States v. Percival, No. 82-20026 (C.D.Ill. February 7, 1983) (Ackerman, J.).*fn6 As the Court in Puerto held:

  The government (IRS) has an interest in receiving
  accurate reports from financial institutions
  indicating when customers engage in transactions
  in excess of $10,000. It seeks this information
  in furtherance of its criminal, tax, and
  regulatory investigations and proceedings. In
  order for this lawful governmental function to
  proceed, it is vital that accurate reports be
  sent by financial institutions to the IRS. The
  Puertos and Everett interfered with and
  obstructed this lawful function of the IRS by
  conspiring to submit false CTRs to the financial
  institution. Thus, they interfered with and
  obstructed the lawful functions of the government
  in the collection of data and reports of currency
  transactions in excess of $10,000 for use in
  criminal, tax, and regulatory investigations and
  proceedings. The Puertos and Everett defrauded
  the United States Government, in violation of 18
  U.S.C.A. § 371, by conspiring to have the financial
  institution transmit false CTRs to the IRS.

730 F.2d at 631. It is true that the defendants in Puerto filed false documents, while the defendants here did not do so, but that is not important to the conspiracy count, as we described above.

Count I also tracks the second prong of § 371, charging that the defendants conspired to commit an offense against the United States, that is, to conceal by trick material facts within the jurisdiction of the Treasury Department in violation of 18 U.S.C. § 1001. The indictment does not charge the defendant with an actual violation of § 1001; it merely charges them with conspiring to do so. Like § 371, § 1001 encompasses two distinct offenses, false representation and concealment of a material fact. United States v. Tobon-Builes, 706 F.2d 1092, 1096 (11th Cir. 1983), rehg. denied, 716 F.2d 914 (1983); United States v. Diogo, 320 F.2d 898, 902 (2d Cir. 1963). This case involves only the second part of § 1001 — concealment — since no actual false statements or representations are alleged. A concealment charge requires that the defendant have been under some statutory or regulatory duty to disclose the material information. Tobon-Builes, 706 F.2d at 1096-97. It is "incumbent on the government to prove that the Defendant had the duty to disclose the material facts at the time he was alleged to have concealed them." United States v. Irwin, 654 F.2d 671, 678 (10th Cir. 1981), cert. denied, 455 U.S. 1016, 102 S.Ct. 1709, 72 L.Ed.2d 133 (1982). Transposed to the conspiracy context, the government here must prove that the defendants agreed to conceal material facts which they had a duty to disclose, and that they took one or more overt steps to further their agreement.

We think the indictment sufficiently alleges such a conspiracy. That an agreement and overt acts are alleged is not disputed. What is disputed is whether the defendants had a duty to disclose material facts. It is true, as we noted above, that the defendants had no duty to file a CTR with the government. But the defendants did have an affirmative duty not to cause the bank to fail to file a CTR.*fn7 By agreeing to break their deposits into chunks, the defendants agreed to "conceal or cover up by . . . trick, scheme, or device" the material fact that they were depositing sums totalling more than $10,000. As noted above, those acts, considered in isolation, were lawful, but they lost their lawful character when considered as part of a scheme to intentionally deprive the government of material information it would otherwise receive. Tobon-Builes, supra, supports this holding. While the defendants used false statements in that case, the court upheld their convictions under § 1001 on the basis of that statute's concealment clause. 706 F.2d at 1096-97. As we do, the court held that the material facts concealed "were the existence, origin, and transfer of [more than $10,000] in cash." Id. at 1096. The duty not to conceal those facts was imposed by the Bank Secrecy Act and its regulations. The Court rejected the same arguments that the defendants make here about duty to disclose. Id. We follow this holding.*fn8

In sum, then, we deny the defendants' motion to dismiss insofar as it challenges Count One of the indictment.

Counts Three, Five and Seven:

Substantive Violations of the Bank Secrecy Act

Counts III, V and VII name only Richter and Pavlovic as defendants, charging that on June 10, 1983, June 21, 1983, and August 24, 1983, they caused the American National Bank and Trust Company ("American") to fail to file CTRs.*fn9 The government concedes that if viewed as individual depositors the defendants had no duty to file CTRs themselves, but argues that by virtue of 18 U.S.C. § 2, the defendants violated 31 U.S.C. § 5313 and 5322(b) by causing the bank not to file CTRs. 18 U.S.C. § 2(b) provides:

  Whoever willfully causes an act to be done which
  if directly performed by him or another would be
  an offense against the United States, is
  punishable as a principal.

This section does not create any substantive offenses itself, see United States v. Cook, 745 F.2d 1311, 1315 (10th Cir. 1984), cert. denied, ___ U.S. ___, 105 S.Ct. 1205, 84 L.Ed.2d 347 (1985), but it imposes liability on one who causes a third party to commit a substantive offense. See United States v. Tobon-Builes, 706 F.2d 1092, 1099 (11th Cir. 1983) (and cases cited therein). A defendant can be convicted under § 2(b) even if the third party acted without criminal intent and therefore could not be convicted of the substantive offense charged. Id. Relying on these principles, the government argues that the defendants are liable for causing the bank to not file a CTR by acts, "which if directly performed by [it] . . . would be an offense against the United States," that is, a violation of 31 U.S.C. § 5313 and 31 C.F.R. § 103.22(a). The government relies on several similar cases which combined § 2 and § 5313 to uphold convictions. See Cook, 745 F.2d at 1315; United States v. Puerto, 730 F.2d 627, 632-34 (11th Cir. 1984); Tobon-Builes, 706 F.2d at 1099; see also United States v. Thompson, 603 F.2d 1200 (5th Cir. 1979) (same theory but no express reliance on § 2(b)); United States v. Konefal, 566 F. Supp. 698, 701-02 (N.D.N.Y. 1983) (same). The defendants argue that we should distinguish or simply decline to follow these decisions. We believe that these decisions are correct, so we will deal with defendants' attempts to distinguish these cases. Defendants rely heavily on the fact that in several of these cases, the defendants used false names and/or purchased cashier's checks in such a way as to cause the bank either to file false CTRs or to not file a CTR at all.*fn10 They read these cases as holding only that "by using a false name and through the purchase of cashier's checks, the depositor affirmatively prevented the bank from obtaining any information and thus `caused' the bank not to file the CTR." Defendants' Reply Memorandum at 7. They emphasize that in this case they simply and "openly" broke up their large cash deposits, without using forgery, aliases or other relatively overt deceptive acts. They conclude that in being so open they did not "cause" the banks to file a CTR, and that the above cases are thus inapposite.

Defendants read these cases too narrowly. Insofar as the above cases combined § 2 and § 5313,*fn11 they did not rely on the use of false statements as the basis for upholding convictions. The crimes upheld there were somehow causing a bank not to file a CTR, with the specific intent of evading the Bank Secrecy Act and its regulations. For example, the court in Tobon-Builes, relying on United States v. Thompson, 603 F.2d at 1203-04, rests on the theory that the basic wrong is intentionally structuring large transactions as multiple smaller transactions to avoid the reporting requirements of the Act. 706 F.2d at 1098. Similarly, United States v. Cook read the above cases as supporting a conviction "where proof exists that the individual knowingly and willfully caused a financial institution to fail to file an accurate CTR." 745 F.2d 1311. The crime likewise exists where the individual causes the bank's failure to file any CTR. United States v. Puerto, 730 F.2d at 632-33. The gravamen of these cases is that the crime rests on specific intent to evade the reporting requirements and acts which in fact cause the evasion of the requirement. The present indictment alleges these elements. The use of false statements in these cases was relevant only as the means by which defendants fulfilled their scheme. These cases do not foreclose prosecution of defendants who use other means to avoid the Act, even defendants who tell no overt lies.*fn12 Defendants' false statements distinction is a red herring.

The defendants miss the point when they argue that nothing they allegedly did affirmatively prevented the filing of CTRs. "No subterfuge was used to conceal the identity or amounts of deposits." Reply Memorandum at 8. However "open" the defendants' transactions were, by splitting their deposits they did allegedly manage to prevent the bank and, more importantly, the IRS, from learning that they were dealing in sums larger than $10,000. This was an affirmative subterfuge,*fn13 and did allegedly cause the bank not to file a CTR. This is all the statutes, as construed by the above cases, require.

The defendants next assume for argument's sake that the above theory is correct and argue alternatively that the Act and regulations do not prohibit multiple deposits totalling over $10,000. Their argument is somewhat complex and deserves some elaboration. But once elaborated and understood, it can be rejected as meritless.

They first point out that the Act and regulations do not expressly address the multiple deposit situation. They next establish that the bank itself is under no clear duty to file a CTR in the multiple deposit situation.*fn14 Given that the bank has no clear duty to file a CTR when a depositor comes in twice a day with money totalling more than $10,000, the defendants conclude that they cannot be charged with "causing" the bank not to fulfill a duty which it does not have.

This argument contains one fatal flaw. It silently mischaracterizes*fn15 the alleged offense. The alleged offense is intentionally causing the bank to not file a CTR. What caused the failure was the act of breaking up the large sums into smaller ones. Under § 2, it is these acts, "if directly performed by"*fn16 bank officials which would violate § 5313. Defendants' argument silently assumes that the alleged crime is something else: failure to file a CTR when a depositor comes in with multiple deposits of more than $10,000. See n. 14, supra. They focus on whether the bank officials had a duty to file a CTR had they known that defendants had come in with multiple deposits of more than $10,000. The defendants thus focus on a later part of time line. Even if the bank had no duty to file a CTR in the multiple deposit situation, the crime had already been committed: the defendants had intentionally structured their transactions to evade the reporting requirements of the Act. The crime was breaking up the deposits to cause the bank to fail to file a CTR where it would have done so had the deposits not been broken up. The relevant duty — the existence of which is not disputed — is the duty of the bank to file CTRs for single deposits of more than $10,000. The defendants allegedly caused the bank not to fulfill this duty. The other, later "duty" — whether the bank is required to report transactions already broken into increments — is irrelevant here. It does not matter whether the defendants caused the bank not to fulfill this possible duty.

Finally, as for defendants' related argument that the statutory scheme for imposing liability is void for vagueness, we follow the courts which have already rejected similar arguments. See United States v. Cook, 745 F.2d at 1315-16; United States v. Anzalone, No. 84-68-MA, slip op. at 19-20 (D.Mass. July 2, 1984).*fn17 We therefore reject defendants' attack on Counts III, V and VII of the indictment.

The Impossibility Defense

The defendants next argue that it was legally impossible for them to violate the criminal statutes in question.

As for the conspiracy count, Count I, the defense is of no avail. It is plain that the crime of conspiracy focuses on an agreement to defraud the United States or to violate the law and an overt act to further that agreement. Whether the actual crime could have been factually or legally consummated is not a defense. See United States v. Rose, 590 F.2d 232, 235 (7th Cir. 1978), cert. denied, 442 U.S. 929, 99 S.Ct. 2859, 61 L.Ed.2d 297 (1978); United States v. Meyers, 529 F.2d 1033, 1037 (7th Cir. 1976), cert. denied, 429 U.S. 894, 97 S.Ct. 253, 50 L.Ed.2d 176 (1976); United States v. Rosner, 485 F.2d 1213, 1229 (2d Cir. 1973), cert. denied, 417 U.S. 950, 94 S.Ct. 3080, 41 L.Ed.2d 672 (1974).

As for Counts III, V and VII, defendants cannot use the impossibility defense. They argue that all the money deposited in this case was government money, and that government money is exempt from the reporting requirements. See 31 C.F.R. § 103.22(b)(2)(iii).*fn18 Absent a legal duty on the bank to report, no offense is legally possible, conclude the defendants. We do not agree that this regulatory exemption reaches the situation alleged in the indictment. The language of the regulation asks not whether the deposit was simply of "government money," but rather whether the deposit was "by local or state governments, or the United States or any of its agencies." (emphasis added). This exemption embraces, we believe, transactions by government agencies in their normal course of governmental business. In this case, while the money "belonged" to the government, in the sense of "title," it was deposited by the defendants — private parties — who believed the money to also be private. This is not a normal deposit by the government as part of its day-to-day operations. If we were to read the exemption as broadly as do the defendants, we would cripple most, if not all, government undercover operations in this area. The regulation was obviously not written with this intent. Instead, it was presumably written to relieve the banks (and the IRS) of the heavy burden of filing forms for every routine governmental agency transaction of over $10,000. Government agencies deal every day in large sums, and the act and the regulations were not written for the IRS to monitor this enormous daily flow of government money. See 31 U.S.C. § 5311 (Act intended to be used for criminal, tax or regulatory investigation). Our reading of the regulation is consistent with this fundamental intent of the Act. Because we do not believe the exemption reaches the facts of this case, we need not decide whether it could have given defendants a viable defense had it applied.

Constitutionality of the Bank Secrecy Act

Defendants contend that the application of the reporting provisions of the Bank Secrecy Act violates their Fifth Amendment privilege against self-incrimination, their Fourth Amendment rights against unreasonable searches and seizures and their attorney-client privilege. The Court rejects all of these arguments.

a. Fifth Amendment

The defendants argue that the reporting provision of § 5313 force the defendants to reveal information to the government "which has a strong potential of becoming self-incriminating." Defendants' Memorandum in Support of Motion to Dismiss at 30. California Bankers Ass'n v. Shultz, 416 U.S. 21, 94 S.Ct. 1494, 39 L.Ed.2d 812 (1974) holds otherwise.

In California Bankers, several banks and individual depositors filed a civil suit challenging the constitutionality of, among other things, the reporting provisions at issue in this case. The Court rejected as "premature" the claims of the depositor-plaintiffs that their Fifth Amendment rights were violated. 416 U.S. at 75, 94 S.Ct. at 1524. This holding rested in part on the conclusion that none of the depositors had alleged that they had been or would be involved in transactions of greater than $10,000. Id. More importantly, the holding rested equally on the conclusion that no allegation or evidence suggested that any information required to be disclosed would tend to incriminate any plaintiff-depositor:

  Not only is there no allegation that any
  depositor engaged in such transactions, but there
  is no allegation in the complaint that any report
  which such a bank was required to make would
  contain information incriminating any depositor.
  To what extent, if any, depositors may claim a
  privilege arising from the Fifth Amendment by
  reason of the obligation of the bank to report
  such a transaction may be left for resolution
  when the claim of privilege is properly asserted.

Id. This holding controls here. The defendants here do not assert that compelled disclosure of their deposits might have tended to incriminate them. And the record does not, to our knowledge, indicate that disclosure would have revealed potentially incriminating information about these defendants. Like the depositors in California Bankers, defendants argue that the disclosure requirements could reveal information with a "strong potential" of becoming self-incriminating. They are arguing in the abstract, claiming that other depositor's rights may be infringed. Because they do not show how the information revealed might have potentially incriminated them, their arguments must be rejected for not resting on a cognizable Fifth Amendment right. See also United States v. Dichne, 612 F.2d 632 (2d Cir. 1979) (analogous foreign reporting requirement does contain substantial risk of revealing incriminating information), cert. denied, 445 U.S. 928, 100 S.Ct. 1314, 63 L.Ed.2d 760 (1980).

Defendants' reliance on the trilogy of Marchetti v. United States, 390 U.S. 39, 88 S.Ct. 697, 19 L.Ed.2d 889 (1968); Grosso v. United States, 390 U.S. 62, 88 S.Ct. 709, 19 L.Ed.2d 906 (1968); Haynes v. United States, 390 U.S. 85, 88 S.Ct. 722, 19 L.Ed.2d 923 (1968), is misplaced. In each of these cases the Court struck down reporting provisions of other statutes because disclosure would have revealed information which was substantially likely to incriminate defendants under other criminal statutes. See, e.g., Marchetti, 390 U.S. at 47-48, 88 S.Ct. at 702 (tax statute requiring disclosure of gambling revenues would necessarily reveal information incriminating defendant under state and federal substantive gambling offenses). Thus, those cases, unlike this one, involved compelled disclosure of incriminating evidence.*fn19 For this reason, the California Bankers opinion distinguished that trilogy. 416 U.S. at 74, 94 S.Ct. at 1524. So do we.

b. Fourth Amendment

The plaintiffs in California Bankers also argued that the Act violated their Fourth Amendment rights. The Court held that no Fourth Amendment rights of the banks were violated, 416 U.S. at 66, 94 S.Ct. at 1520, but that the individual depositors lacked standing to raise the Fourth Amendment issue. Id. at 68, 94 S.Ct. at 1520-21. The Court so held because none of the depositors had alleged that they had engaged in or would engage in transactions of greater than $10,000; the depositors lacked standing because no "search" had been conducted or was imminent.

The defendants here argue that the Act as applied violates the Fourth Amendment. However, as in the Fifth Amendment context, the defendants make no showing that their Fourth Amendment rights had been implicated. We therefore hold that they cannot properly raise the Fourth Amendment defense.

It is crucial that the defendants nowhere argue that a "search" or "seizure" of some kind has taken place. Obviously, they could not so argue. If we assume the truth of the facts in the indictment, we find that the defendants managed to deposit their money without triggering the Act's reporting requirements. Thus, no search or seizure actually happened in this case. The defendants successfully avoided a search and are being prosecuted for doing so. But the plain language of the Fourth Amendment protects citizens only from "unreasonable searches and seizures."

  A "search" occurs when an expectation of privacy
  that society is prepared to consider reasonable
  is infringed. A "seizure" of property occurs when
  there is some meaningful interference with an
  individual's possessory interests in that
  property.

United States v. Jacobsen, 466 U.S. 109, ___, 104 S.Ct. 1652, 1656, 80 L.Ed.2d 85 (1984). Here no expectation of privacy was, in fact, "infringed," and no "possessory interests" were "interfered with." Accordingly, no interests protected by the Fourth Amendment are involved in this case. See Rakas v. Illinois, 439 U.S. 128, 134-35, 99 S.Ct. 421, 426, 58 L.Ed.2d 387 (1978) (in order to qualify as a person aggrieved by a search, one must have been a victim of a search or seizure).

In so holding we are certainly not stating that defendants lack Article III standing to challenge the statute. Obviously, since they are being prosecuted under the Act, they have suffered an "injury in fact." But, while they have standing to challenge the statute, they must show that its application violated one of their constitutional rights. Their injury is not one cognizable under the Fourth Amendment, and thus they cannot base their challenge on that Amendment.*fn20 Defendants lack what used to be called "standing" under Fourth Amendment doctrine. Although the Rakas court rejected the "standing" label as part of Fourth Amendment doctrine, see 439 U.S. at 139-40, 99 S.Ct. at 428-29, it retained the basic principle that a person invoking the Fourth Amendment must himself suffer an injury cognizable under that Amendment. Id. Because no search or seizure took place in this case, defendants have suffered no Fourth Amendment injury.

In any event, we do not think that the Fourth Amendment defense is valid even on the merits. Courts since Shultz have held that information recorded by banks under the Act, or submitted in a CTR, is not protectible under the Fourth Amendment in that the depositor has no legitimate expectation of privacy in the records or information. United States v. Miller, 425 U.S. 435, 440-443, 96 S.Ct. 1619, 1622-24, 48 L.Ed.2d 71 (1976) (bank records compiled under recording provisions of Act may be subpoenaed because depositor lacks expectation of privacy); United States v. Kaatz, 705 F.2d 1237, 1242 (10th Cir. 1983) (no Fourth Amendment violation where bank submits CTR which later reveals evidence incriminating defendant of tax evasion). In sum, then, we reject the Fourth Amendment defense.

c. Attorney-Client Privilege

The defendants next argue that the Bank Secrecy Act as applied violates both the attorney-client privilege and the Sixth Amendment. Their argument rests principally on this hypothetical:

  An attorney who receives over $10,000 from a
  client would be required to deposit it in such a
  manner that a CTR would be filed. Unless he
  structured the deposit to avoid the filing of the
  CTR, the attorney would be furnishing a "link in
  the claim [sic] of evidence" that could lead to
  the prosecution and conviction of his client.
  See United States v. Kuh, 541 F.2d 672, 676 (7th
  Cir. 1976). The Government's construction of the
  Bank Secrecy Act compels attorneys to provide
  incriminating leads and evidence against their own
  clients.

Defendants' Motion to Dismiss Because Bank Secrecy Act as Applied Violates the Attorney-Client Privilege and Sixth Amendment, ¶ 4. The problem with this argument, like the Fifth Amendment defense, is that it is hypothetical. Defendants do not argue that their attorney-client privilege was pierced. Defendant Richter did not furnish incriminating evidence via a CTR; nor is there evidence that a CTR would have incriminated his client. The indictment does not address the situation of a lawyer in good faith trying to avoid revealing evidence within the privilege. Rather, it charges the defendants with simply unlawfully evading the Act. We fail to see how the privilege is implicated in this case.

Counts XI through XVI: Wire Fraud

The six wire fraud counts charge that defendants Richter and Pavlovic schemed to evade the IRS's currency reporting statutes, and that, in furtherance of this scheme, they wired funds on several occasions from the United States to Switzerland. The defendants argue that the indictment does not allege a cognizable violation of 18 U.S.C. § 1343, the wire fraud statute. Both sides agree that this is a question of first impression.

The wire fraud statute reads in relevant part:

    Whoever, having devised or intending to devise
  any scheme or artifice to defraud, or for
  obtaining money or property by means of false or
  fraudulent pretenses, representations, or
  promises, transmits or causes to be transmitted
  by

  means of wire, radio, or television communication
  in interstate or foreign commerce, any writings,
  signs, signals, pictures, or sounds for the
  purpose of executing such scheme or artifice,
  shall be fined not more than $1,000 or imprisoned
  not more than five years, or both.

18 U.S.C. § 1343.*fn21 This statute contains two essential elements: (1) a scheme to defraud; and (2) using, or causing the use of, wire communications in furtherance of the scheme. E.g., Pereira v. United States, 347 U.S. 1, 8, 74 S.Ct. 358, 362, 98 L.Ed. 435 (1954). The first element in turn encompasses two general categories of fraud schemes. One category includes schemes which intend the deprivation of tangible economic interests, i.e., money or property.*fn22 See, e.g., United States v. Lindsey, 736 F.2d 433, 436 (7th Cir. 1984). The second category concerns schemes to deprive an individual or entity of intangible rights or interests, otherwise known as "fiduciary fraud" or "intangible rights fraud." See United States v. Alexander, 741 F.2d 962, 964 (7th Cir. 1984); United States v. Margiotta, 688 F.2d 108, 121 (2d Cir. 1982), cert. denied, 461 U.S. 913, 103 S.Ct. 1891, 77 L.Ed.2d 282 (1983); United States v. Boffa, 688 F.2d 919, 925-26 (3d Cir. 1982), cert. denied, 460 U.S. 1022, 103 S.Ct. 1272, 75 L.Ed.2d 494 (1983); United States v. Freedman, 568 F. Supp. 450, 453 (N.D.Ill. 1983); United States v. Dorfman, 532 F. Supp. 1118, 1123 (N.D.Ill. 1981). The meaning of "fraudulent scheme" in the "tangible rights" category is certainly quite broad. See Lindsey, 736 F.2d at 436 (measure of fraud depends on departure from fundamental honesty, fair play and candid dealings). "Fiduciary fraud" can also encompass a wide range of schemes, but as its name suggests, it does have one significant limitation: so far as we have been able to determine liability under an intangible rights theory hinges on the existence of a fiduciary duty owed by at least one of the schemers to the person or entity defrauded. Alexander, 741 F.2d at 964; Freedman, 568 F. Supp. at 450; Dorfman, 522 F. Supp. at 1123. The fiduciary duty may exist between private parties, where the scheme, for example, is designed to deprive the victim of the loyal and honest service of an employee. See Dorfman, 532 F. Supp. at 1123 (and cases cited therein) (defendants who owe fiduciary duty to pension fund are indictable under § 1343 for depriving fund of intangible right of loyal service of employees). Or the fiduciary duty may exist between a public official and the citizenry, where the official is involved in, say, a bribery scheme or other misuse of power. Freedman, 568 F. Supp. at 453; see also United States v. Bush, 522 F.2d 641 (7th Cir. 1975), cert. denied, 424 U.S. 977, 96 S.Ct. 1484, 47 L.Ed.2d 748 (1976). Liability may even extend to a private person who is a non-fiduciary, if he or she has schemed with public employees who did owe a fiduciary duty to a public entity. See Alexander, 741 F.2d at 964; United States v. McManigal, 708 F.2d 276 (7th Cir. 1983), vacated, ___ U.S. ___, 104 S.Ct. 419, 78 L.Ed.2d 355 (1983), aff'd on remand, 723 F.2d 580 (1983); cf. United States v. George, 477 F.2d 508 (7th Cir. 1973) (non-fiduciary of corporation guilty for scheming with employee who did owe fiduciary duty to the corporation), cert. denied, 414 U.S. 827, 94 S.Ct. 155, 38 L.Ed.2d 61 (1973). The common thread in these intangible rights cases is that the defendant or a co-schemer must have owed a fiduciary duty of some kind to the defrauded party. This contrasts with the tangible rights case, where a schemer can be held liable regardless of his or her relationship to the victim. Alexander, 741 F.2d at 964.

The defendants argue that they owed no fiduciary duty to the IRS, and thus they cannot be indicted under an intangible rights theory. We agree. In response, the government cites a truckload of cases which miss the point. They cite several cases, many of which we relied upon in our discussion of the conspiracy count, which essentially hold that a "scheme to defraud" is very broad under 18 U.S.C. § 371. This is true, as we held earlier, but § 371 does not contain a fiduciary duty requirement in intangible loss cases; the courts do not distinguish intangible loss cases from tangible loss ones in imposing liability. See, e.g., Hammerschmidt, 265 U.S. at 188, 44 S.Ct. at 512. The government also cites several of the CTR cases which we have alluded to earlier. But none of these cases involved wire fraud charges, and none therefore discussed the fiduciary duty requirement. In sum, the government does not cite, and we have not found, any case that imposes liability under an intangible rights theory in a wire fraud prosecution where no fiduciary duty existed. We decline to so broaden the wire fraud statute to cover this non-fiduciary case. In so holding, we concur with other courts which have imposed some limits on the statute and have dismissed indictments or overturned convictions in cases involving admittedly improper conduct, but no cognizable wire (or mail) fraud offense. Freedman, 568 F. Supp. at 456 (defendant's scheme involved no public officials and no fiduciary duty); see also, e.g., United States v. Boffa, 688 F.2d 919, 926-930 (3d Cir. 1982) (scheme to deprive employees of NLRA rights is not within mail fraud statute); United States v. Rabbitt, 583 F.2d 1014, 1026 (8th Cir. 1978) (state representative who received a 10% commission on architectural contracts not liable under § 1341 because receipt did not deprive citizenry of his honest and faithful services), cert. denied, 439 U.S. 1116, 99 S.Ct. 1022, 59 L.Ed.2d 75 (1979).

The government argues that the "duty" defendants owed was the duty not to scheme to deprive the IRS of CTRs. We agree that the defendants owed this duty, and for that reason we earlier upheld Counts I, III, V and VII of the indictment. But such a duty is not fiduciary duty. The duty under § 371 to not conspire to defraud the United States is simply the duty under any criminal statute to not violate that law. The government simply has failed to show that the defendants owed some fiduciary duty to the United States. And the government has failed to cite any wire fraud cases imposing liability where no fiduciary duty existed. The wire fraud counts, XI through XVI, are therefore dismissed.

Vagueness of the Indictment

The defendants also argue that the indictment is impermissibly vague in violation of Fed.R.Crim.P. 7(c) and the Fifth and Sixth Amendments.*fn23 We disagree.

Rule 7(c)(1) requires that the indictment contain a "plain, concise and definite written statement of the essential facts constituting the offense charged." This rule is grounded in the Fifth Amendment guarantee of indictment by grand jury and the Sixth Amendment right to be informed of the nature of the charges. See, e.g., United States v. Dorfman, 532 F. Supp. 1118, 1124 (N.D.Ill. 1981). The indictment must adequately inform the defendant of the charge against him so that he can prepare his defense; and it must establish a record for the purpose of ruling on a defense of double jeopardy should defendant be prosecuted again. Id.; see generally Russell v. United States, 369 U.S. 749, 82 S.Ct. 1038, 8 L.Ed.2d 240 (1962). We must pay particular attention to the conspiracy count, Count I, since conspiracy theories can be very broad, and indictments must therefore clearly state what the alleged conspiracy involved. See United States v. Shoup, 608 F.2d 950, 956 M Cir. 1979); United States v. Porter, 591 F.2d 1048, 1057 (5th Cir. 1979).

The indictment is long, and while it arguably alleges some unnecessary facts, it does adequately inform the defendants of the charges against them. Count I specifies a violation of 18 U.S.C. § 371, and in paragraph 2, tracks the language of that statute. "In general, an indictment is sufficient if it tracks the language of the statute which creates the offense, provided that the words of the statute set forth all of the elements necessary to constitute the crime." Dorfman, 532 F. Supp. at 1124-25 (and cases cited therein). Of course, the elements of a conspiracy charge under § 371 are an agreement to defraud and at least one overt act to further that agreement. The indictment details the scheme to "defraud" the government, as discussed earlier, and it lists numerous overt acts in furtherance of the agreement. We think the defendants can understand and meet these charges.

Similarly, substantive Counts III, V and VII are not vague. They identify three dates on which Pavlovic and Richter brought in more than $10,000 to the American National Bank and broke it into deposits of less than $10,000. They specify that a CTR was required to be filed under the relevant sections of the Bank Secrecy Act, and that defendants knowingly and intentionally made their deposits to cause the bank not to file the CTR. It alleges that these acts violated 18 U.S.C. § 2 combined with 31 U.S.C. § 5313 and 5322(b). Thus, the three counts specify the acts considered to be illegal and the statutes violated. As we held earlier in this opinion, the alleged crime in each count is breaking a sum of money into increments on one day, with the specific intent of causing the American National Bank not to file a CTR, and in fact causing the bank not to file a CTR. We think the counts are clear enough in their charge, and our reading above answers defendants' "questions about these charges."*fn24

Much of the defendants' arguments in their brief do not really address the issue of vagueness, but instead address an issue of surplusage or prejudice.*fn25 Rule 7(d) permits the Court to strike "surplusage," that is, irrelevant, inflammatory and prejudicial allegations, from the indictment. However, where the information alleged is legally relevant, it is not surplusage. See United States v. Climatemp, Inc., 482 F. Supp. 376, 391 (N.D.Ill. 1979), aff'd, 705 F.2d 461 (7th Cir. 1983), cert. denied sub nom Fakter v. United States, 462 U.S. 1134, 103 S.Ct. 3116, 77 L.Ed.2d 1370 (1983). The defendants complain first about the indictment's frequent use of the term "laundering" as a label for their alleged activities. Of course, "laundering" is not a crime, as defendants point out. But defendants are not charged with any such crime. The indictment defines "laundering,"*fn26 and while the defendants disagree with this definition, it is not unduly prejudicial, and we think appropriate jury instructions will eliminate any problems from the use of the term. Similarly, defendants complain about the narcotics references. As we already held in our opinion on severance, references to narcotics will be excluded at trial, unless the government satisfies the Court that such references are relevant and not unduly prejudicial. Thirdly, defendants complain about the references in the indictment to the wiring of money to Switzerland. They are correct that no violations of foreign reporting provisions are alleged, but that is besides the point. Such evidence, while not necessary to the indictment itself, will be relevant at trial on the issue of defendants' intent and also as evidence of overt acts to complete the alleged conspiracy. Finally, the indictment's reference to the $1,000,000 transaction is also plainly relevant to the conspiracy count.

      Outrageous Government Misconduct in Violation of Due
                             Process

In addition to the various grounds for dismissal discussed above, defendants Richter, Pavlovic and Mangovski move to dismiss the indictment on the basis that the charges contained therein were induced by outrageous government misconduct. For the reasons set forth below, this motion is denied.

The Supreme Court recognized the defense of governmental misconduct in violation of due process in United States v. Russell, 411 U.S. 423, 93 S.Ct. 1637, 36 L.Ed.2d 366 (1973), a major entrapment decision. The Court stated that it "may some day be presented with a situation in which the conduct of the law enforcement agents is so outrageous that due process principles would absolutely bar the government from invoking judicial processes to obtain a conviction." Id. at 431-32, 93 S.Ct. at 1642. This due process defense is to be distinguished from a defense based on entrapment. While entrapment "focus[es] on the intent or predisposition of the defendant to commit the crime," Hampton v. United States, 425 U.S. 484, 488, 96 S.Ct. 1646, 1649, 48 L.Ed.2d 113 (1976), the due process defense involves an objective review of the government's conduct. Five of the justices who decided Hampton took pains to differentiate the two defenses, recognizing that no matter what the defendant's predisposition a separate due process defense might be made if the government's misconduct was sufficiently egregious.

The Seventh Circuit recently noted both the existence and the narrow scope of the due process defense. In United States v. Kaminski, 703 F.2d 1004 (7th Cir. 1983), the Court of Appeals observed:

  The Supreme Court has not yet given any content
  to the principle that governmental misconduct may
  bar prosecution even absent any other deprivation
  of defendant's constitutional rights. However, an
  examination of the post-Hampton cases decided by
  the courts of appeals indicates that due process
  grants wide leeway to law enforcement agencies in
  their investigation of crime. Assuming that no
  independent constitutional right has been violated,
  governmental misconduct must be truly outrageous
  before due process will prevent conviction of the
  defendant.

Id., 703 F.2d at 1009. See also United States v. Thoma, 726 F.2d 1191, 1198 (7th Cir. 1984), cert. denied, ___ U.S. ___, 104 S.Ct. 2683, 81 L.Ed.2d 878 (1984).

The nub of defendants' due process claim in this case is that the crimes charged were completely invented by law enforcement agents. Defendants state that they "believe that the evidence will show that law enforcement agents had no reason to suspect these defendants of having previously been involved in any kinds of crimes." Thus, it is argued that, rather than infiltrating existing criminal activity, the government allegedly manufactured new crimes merely for the sake of pressing criminal charges. Apparently to strengthen their claim that the government's conduct was outrageous, defendants also assert that the agents disregarded their own agency guidelines which prevent undercover operations from investigating corruption where the agents have no evidence that crimes have previously been committed.*fn27

The government's initial response is that rather than determining the validity of the due process defense before trial, the Court should allow the question to be submitted to the jury. However, most of the courts which have considered this aspect of the due process defense have held that the existence of outrageous government conduct is a question of law and thus may be properly raised in a pretrial motion to dismiss. See, e.g., United States v. Valdovinos-Valdovinos, 588 F. Supp. 551, 554-55 and n. 6 (N.D.Cal. 1984), rev'd on other grounds, 743 F.2d 1436 (9th Cir. 1984), cert. denied, ___ U.S. ___, 105 S.Ct. 799, 83 L.Ed.2d 791 (1985), and cases cited therein.

Even though this is a question of law, the Court is precluded from deciding the issue at this time because of certain material factual disputes. Controverting defendants' suggestion that the law enforcement agents had no reason to suspect them of any previous criminal activities, the government asserts that defendant Konstantinov introduced the agents to the other defendants,*fn28 indicating that they could help the agents launder drug money as they had performed a similar function for him in the past. The government portrays the investigation that led to this indictment as an offshoot of a narcotics investigation, not as a perverse scheme solely designed to create unprecedented crimes from a "peculiar piece of legislation," as defendants term the Bank Secrecy Act. Also relevant to defendants' due process defense is the degree to which the law enforcement agents planned and insisted upon the money laundering scheme. Defendants claim that they encouraged the agents to invest in real estate, but the agents urged them to take steps to violate the Bank Secrecy Act; the government, on the other hand, credits the defendants with engineering the details of the money moving operation. In light of these unresolved questions, the Court is presently unable to rule as a matter of law that defendants have a valid due process defense.*fn29 Accordingly, defendants' motion to dismiss the indictment must be denied at this time.*fn30

Conclusion

For the above reasons, Counts XI-XVI of the indictment are dismissed. In all other respects, defendants' motions to dismiss and their satellite motions are denied. It is so ordered.*fn31


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