ROBERTSON, United States Magistrate Judge.
Defendant Syed Bokhari ("Defendant") was initially indicted on charges of wire fraud, money laundering, aiding and abetting contraband smokeless tobacco trafficking, and violations of the PACT (Prevent All Cigarette Trafficking) Act (Dkt.
In December 2014, Defendant filed a motion seeking release of a portion of the Tobacco Funds to retain counsel of his choice (Dkt. No. 27). In July 2015, this court ruled that the government had demonstrated probable cause to believe that the Tobacco Funds were subject to forfeiture under the original indictment and denied Defendant's motion (Dkt. No. 112). The presiding District Judge reviewed this court's order and remanded the matter for a further evidentiary hearing before the undersigned to give Defendant the opportunity to make a showing that he had financial need for part or all of Tobacco Funds to pay counsel of his choice (Dkt. No. 133 at 14). On December 3, 2015, Defendant was charged in a superseding indictment with, among other things, conspiracy under the Racketeer Influenced and Corrupt Organizations ("RICO") Act in violation of 18 U.S.C. § 1962(d) (Dkt. No. 137). The superseding indictment also contains forfeiture allegations, including the allegation that the Tobacco Funds are subject to forfeiture under the RICO Act, 18 U.S.C § 1963(a).
While continuing to press his motion for release of a portion of the Tobacco Funds, Defendant has invoked his Fifth Amendment privilege against self-incrimination (Dkt. No. 141). The government opposes any release of the Tobacco Funds to Defendant and, by motion, seeks access to Defendant's financial information that previously was filed ex parte and under seal, or in the alternative, that the court disregard these filings in any ruling on Defendant's financial status (Dkt. No. 145). For the following reasons, Defendant's renewed motion for release of funds is denied. In light of the basis for the court's ruling on Defendant's motion, the government's motion for access to records that were filed ex parte and under seal is also denied.
This court's order of July 27, 2015 details the procedural history of this case prior to that date, as follows (Dkt. No. 112). See United States v. Bokhari, Criminal Case No. 3:14-300440-MGM, 2015 WL 4529611 (D.Mass. July 27, 2015) ("Bokhari I").
Bokhari I, at *1-2.
In compliance with an agreement for interlocutory sale between the government and Defendant, the Scranton Tobacco was sold at auction (Dkt. No. 98-3). The 147 pallets of tobacco products yielded the Tobacco Funds, $1,015, 523.48 after sales expenses (Dkt. No. 96 at 7, Exhs. 41, 42).
On October 16, 2014, Defendant was charged in a thirty-two count indictment with, inter alia, conspiracy to commit money laundering, specific acts of money laundering, and money laundering in violation of 18 U.S.C. §§ 1957 and 2 (Dkt. No. 2). The indictment included the Tobacco Funds as forfeitable property (id.). Defendant's Motion for Release of Funds Necessary for Legal Defense was filed on November 24, 2014 (Dkt. No. 27). "[F]ollowing a review of [the parties' ex parte] submissions, the court allowed so much of Defendant's Motion as sought an evidentiary hearing on the question of the Government's right to a continuing pre-trial restraint on assets Defendant claims he needs to retain his counsel of choice (Dkt. No. 73)." Bokhari I, at *2.
The evidentiary hearing was held on March 26, 2015 (Dkt. No. 88). On July 27, 2015, the court denied Defendant's motion based upon the government's demonstration of probable cause to believe that the Tobacco Funds would be forfeit if Defendant were convicted of money laundering. See Bokhari I, at *7-10, *12. Defendant objected to this court's order (Dkt. No. 120). See Fed. R. Crim. P. 59(a). The government countered that this court's ruling was correct and argued that Defendant should not have been granted an evidentiary hearing because he failed to make the requisite showing of financial need for the funds (Dkt. No. 122). After a hearing on November 19, 2015, the District Judge determined that a "new hearing before [this court] on the question of Defendant's financial need is required" and stated that, to make an adequate showing in support of his motion for release of funds Defendant would need to produce "additional documentary evidence that demonstrates Defendant's net worth and provides a comprehensive listing of his assets, sources of income, expenses, and liabilities" in order for Defendant to prove his financial need by a preponderance of the evidence (Dkt. No. 133 at 11, 13-15). United States v. Bokhari, Criminal Case No. 14-30044-MGM, 2015 WL 7303535, at *6-7 (D.Mass. Nov. 17, 2015) ("Bokhari II").
On December 3, 2015, Defendant was charged by way of a thirty-five count superseding indictment with the following crimes: racketeering conspiracy, in violation of 18 U.S.C. § 1962(d) (count one); wire fraud (counts two through eleven); aiding and abetting contraband smokeless tobacco trafficking (counts twelve through sixteen); conspiracy to commit money laundering (count seventeen); specific acts of money laundering (counts eighteen through twenty-five); money laundering in violation of 18 U.S.C. § 1957 (counts twenty-six through thirty); and violation of the PACT Act (counts thirty-one through thirty-five) (Dkt. No. 137). In addition, the government moved for asset forfeiture pursuant to 18 U.S.C. § 1963 (RICO), 18 U.S.C. § 981 and 28 U.S.C. § 2461 (wire fraud and contraband smokeless tobacco trafficking), and 18 U.S.C. § 982 (money laundering) (id.). The Tobacco Funds are included as forfeitable property (id.).
At Defendant's December 10, 2015 arraignment on the superseding indictment, Defendant represented that he intended to file additional documentary evidence demonstrating his net worth consistent with the District Judge's Memorandum and Order,
The government alleges that from about 2005 until June 5, 2012, when the search and seizure warrant was executed at the Scranton Warehouse, Defendant conducted a racketeering conspiracy through his control of an enterprise, which the government christens Bokhari, Inc., and which this court will refer to as the alleged RICO enterprise ("ARE"), which operated four warehouses and twenty gas stations and convenience stores in Massachusetts and Connecticut (Dkt. No. 137 at ¶¶ 11, 12). The racketeering conspiracy was designed to evade Massachusetts and Connecticut excise taxes on smokeless tobacco and cigars through the underreporting of sales and the filing of false state tax returns.
Both Massachusetts and Connecticut impose excise taxes on smokeless tobacco and cigars and the federal government requires interstate sellers of tobacco products to report their sales to state authorities (id. at ¶¶ 2, 5, 7). Massachusetts wholesalers who distribute smokeless tobacco and cigars are required to be licensed by the Massachusetts Department of Revenue ("DOR") (id. at ¶ 1). A wholesale business that sells smokeless tobacco in Massachusetts must, each month, file an excise tax return and pay excise tax on the smokeless tobacco that is brought into the state (id. at ¶ 2). Massachusetts mandates the filing of quarterly excise tax returns and the payment of excise taxes on cigars that are imported into the Commonwealth (id.). The law requires that "[t]he amount of the excise advanced and paid by a [tobacco wholesaler or retailer] ... be added to and collected as part of, the sales price" of cigars and smokeless tobacco. Mass. Gen. Laws ch. 64C, § 7B(d). A Connecticut wholesale distributor of smokeless tobacco and cigars is obligated to obtain a state license, to file a tobacco products tax return each month, and to pay excise tax on the tobacco products "purchased, imported, received, or acquired" (Dkt. No. 137 at ¶¶ 3, 4, 5). In relevant part, the federal PACT Act requires "[a]ny person who sells, transfers, or ships for profit cigarettes or smokeless tobacco in interstate commerce" into a state "taxing the sale or
Between 2005 and 2006, Massachusetts and Connecticut levied substantial state tobacco excise tax assessments against Defendant's wholly owned corporation that operated warehouses in Springfield, Massachusetts ("Springfield Warehouse") and Berlin, Connecticut ("Berlin Warehouse") (Dkt. No. 137 at ¶¶ 14, 15, 16). After the Massachusetts DOR served Defendant with a summons regarding its tax investigation, Defendant established a wholesale tobacco business at the Scranton Warehouse in Pennsylvania, which is the only state that does not impose an excise tax on smokeless tobacco and cigars (id. at ¶¶ 16, 17, 69). Defendant operated the Scranton Warehouse through a Pennsylvania Corporation, Cigar & Supplies, Inc. ("C & S") (id. at ¶ 17). Defendant, along with others, also operated the Springfield Warehouse and a similar wholesale business in Danbury, Connecticut ("Danbury Warehouse") by means of a series of nominal corporations and entities, while Defendant retained de facto ownership and control (id. at ¶¶ 14, 19, 23, 70, 77, 78, 79, 80, 93, 94, 95, 99, 100, 101, 102, 103, 106, 108, 109). Defendant sold the Berlin Warehouse in September 2006, but remained involved in the business's operation (id. at ¶¶ 15, 24, 25, 71, 72, 73, 74, 84, 85, 88, 89, 91, 96, 97, 98). In addition to the warehouses, Defendant owned and operated twenty gas stations and convenience stores in Massachusetts and Connecticut ("Gas Station Component") (id. at ¶ 18). The four warehouses and the Gas Station Component constitute the ARE (id. at ¶¶ 11, 12).
In response to orders, some of which were transmitted by fax, the Scranton Warehouse supplied tobacco products, including smokeless tobacco and cigars, to the ARE's other warehouses in Springfield, Danbury, and Berlin, to wholesalers in Hamden, Connecticut ("Hamden Warehouse") and Attleboro, Massachusetts ("Attleboro Warehouse"), which were not owned or controlled by Defendant (collectively "the five warehouses"), and to the Gas Station Component of the ARE (id. at ¶¶ 8, 9, 14, 15, 18, 19, 26, 27, 28, 51, 52, 69, 75).
The Scranton Warehouse was not required to pay state excise tax on its smokeless tobacco and cigars (id. at ¶ 17). But as an interstate seller of smokeless tobacco, the Scranton Warehouse violated the PACT Act by failing to report to the Massachusetts and Connecticut tax authorities its shipments of smokeless tobacco to
The Springfield, Danbury, and Berlin Warehouses, which were part of the ARE, did not include excise taxes in the prices that they charged their customers for most smokeless tobacco and cigars (id. at ¶¶ 11, 34, 37). This enabled these warehouses to capture market share from wholesalers who included taxes in their prices for tobacco products (id. at ¶ 21). The three ARE warehouses used "`no tax'" computers to calculate the cost of tobacco products for customers who did not want the state excise tax to be included in the prices that they paid to the ARE (id. at ¶¶ 35, 38).
The Scranton Warehouse evaded the excise taxes that Massachusetts and Connecticut imposed on wholesalers of tobacco products by failing to obtain the requisite licenses from Massachusetts and Connecticut and by failing to pay the state excise taxes on the tobacco products that it shipped to the Gas Station Component (id. at ¶¶ 1, 3, 5, 51, 52). Because the Gas
Each week, the Scranton Warehouse faxed invoices to the five warehouses to inform them of the amounts they owed Defendant for their purchased tobacco (id. at ¶ 29).
The government argues that none of the Tobacco Funds should be released prior to trial because they are subject to forfeiture if Defendant is convicted of the charges in the superseding indictment (Dkt. No. 149). Defendant, on the other hand, contends that there is not probable cause to believe that all of the Tobacco Funds are subject to forfeiture, and that he needs access to a portion of these assets to preserve his fundamental Sixth Amendment right to the assistance of counsel of his choice (Dkt. No. 27, 151). The court is presented with two related queries: (1) whether Defendant can be required to demonstrate financial need for the Tobacco Funds to retain the assistance of counsel as guaranteed by the Sixth Amendment in the face of his invocation of his Fifth Amendment right against self-incrimination; and (2) whether all of the Tobacco Funds are subject to pre-trial restraint based upon the charged RICO Act violation. These questions will be addressed in turn.
This case is before this court on remand from the District Judge for a hearing on Defendant's motion for release of seized funds to determine whether Defendant can sustain his burden to show, by a preponderance of the evidence, that he needs a portion of the Tobacco Funds to secure counsel of his choice (Dkt. No. 133 at 14-15). See Bokhari II, at *6; Fed. R. Crim. P. 59(a); 28 U.S.C. § 636(b)(1)(A). The District Judge held that Defendant must provide comprehensive financial information to demonstrate his need for access to the Tobacco funds, and suggested that making that showing on an ex parte basis would be disfavored (Dkt. No. 133 at 11-14). See Bokhari II, at *6-7. The landscape of the case has, however, changed significantly since the District Judge issued his decision and order. Defendant now stands indicted for conspiring to violate the RICO Act and the government seeks forfeiture of the Tobacco Funds pursuant to that law (Dkt. No. 137). Due to the far reaching nature of the RICO laws, Defendant has invoked his Fifth Amendment privilege against self-incrimination in response to the court's directive that he produce comprehensive financial records (Dkt. No. 141).
Defendant's quest for a portion of the Tobacco Funds to retain counsel of his choice is grounded in the Sixth Amendment (Dkt. No. 27). See U.S. Const.
"The Fifth Amendment declares in part that `No person ... shall be compelled in any Criminal Case to be a witness against himself.'" Hoffman v. United States, 341 U.S. 479, 485-86, 71 S.Ct. 814, 95 L.Ed. 1118 (1951) (quoting U.S. Const. amend. V). "This provision of the Amendment must be accorded liberal construction in favor of the right it was intended to secure." Hoffman, 341 U.S. at 486, 71 S.Ct. 814 (citing Arndstein v. McCarthy, 254 U.S. 71, 72-73, 41 S.Ct. 26, 65 L.Ed. 138 (1920); Counselman v. Hitchcock, 142 U.S. 547, 562, 12 S.Ct. 195, 35 L.Ed. 1110 (1892)). "The privilege afforded not only extends to answers that would in themselves support a conviction under a federal criminal statute but likewise embraces those which would furnish a link in the chain of evidence needed to prosecute the claimant for a federal crime." Hoffman, 341 U.S. at 486, 71 S.Ct. 814. See Kastigar v. United States, 406 U.S. 441, 445, 92 S.Ct. 1653, 32 L.Ed.2d 212 (1972) (the privilege "protects against any disclosures which the witness reasonably believes could be used in a criminal prosecution or could lead to other evidence that might be so used").
"To qualify for the Fifth Amendment privilege, a communication must be testimonial, incriminating, and compelled." United States v. Hilsen, No. 03 CR.919(RWS), 2004 WL 2284388, at *2 (S.D.N.Y. Oct. 12, 2004) (citing United States v. Hubbell, 530 U.S. 27, 34-38, 120 S.Ct. 2037, 147 L.Ed.2d 24 (2000)). See Fisher v. United States, 425 U.S. 391, 409, 96 S.Ct. 1569, 48 L.Ed.2d 39 (1976) (the privilege "applies only when the accused is compelled to make a testimonial communication that is incriminating"). The court's directive that Defendant prepare and submit comprehensive financial information has the result of requiring a communication that is compelled and testimonial. See id. at 410-11, 96 S.Ct. 1569; Doe v. United States, 487 U.S. 201, 210, 108 S.Ct. 2341, 101 L.Ed.2d 184 (1988) ("in order to be testimonial, an accused's communication must itself, explicitly or implicitly, relate a factual assertion or disclose information"). "To be self-incriminating, evidence obtained from a defendant must (1) tend to prove the defendant's guilt of any criminal offense, and (2) be admissible as substantive evidence of guilt against the defendant." United States v. Rechnitzer, No. 05-CR-368, 2007 WL 676671, at *5 (N.D.N.Y. Feb. 28, 2007) (citing United States v. Griffith, 385 F.3d 124, 126 (2d Cir.2004)). In view of the broad protections that the
Indeed, numerous courts have acknowledged the tension between a defendant's Fifth and Sixth Amendment rights in the related context of the requirement that a defendant disclose financial information to obtain court-appointed (CJA) counsel. See United States v. Salemme, 985 F.Supp. 197, 201-203 (D.Mass.1997) (where government sought access to defendants' CJA information, the parties before the court "disagree[d], however, about how the tension between defendants' Fifth and Sixth Amendment rights should be resolved"); see also, e.g., United States v. Hyde, 208 F.Supp.2d 1052, 1057 (N.D.Cal.2002) (where defendant was charged with mail fraud, health care fraud, and money laundering, the court concluded that his financial affidavit to obtain appointed counsel was compelled testimony that was protected by the Fifth Amendment); United States v. Hickey, 997 F.Supp. 1206, 1208-09 (N.D.Cal.1998) (where defendant was charged with mail fraud, wire fraud, and securities fraud, the court denied the government's motion to unseal financial affidavits submitted in support of a request for appointed counsel because defendants faced a substantial risk of self-incrimination). Contrast Hilsen, 2004 WL 2284388 at *9-10 (where defendant was charged with unlawful failure to pay a court-ordered child-support obligation, the court denied defendant's request to file a financial affidavit ex parte and under seal because defendant failed to demonstrate that the conflict between his Fifth and Sixth Amendment rights was "immediate and real").
"The Supreme Court has not decided whether the use of information provided to assert a defendant's Sixth Amendment right to counsel may be used against him as substantive evidence of guilt." United States v. Aguirre, 605 F.3d 351, 357 (6th Cir.2010) (citing United States v. Kahan, 415 U.S. 239, 243, 94 S.Ct. 1179, 39 L.Ed.2d 297 (1974)). The Courts of Appeals that have addressed the issue posed by the conflict between a defendant's Fifth and Sixth Amendment rights in the CJA context are divided on whether a defendant's financial information should be disclosed to the government for testing at an adversarial hearing. See United States v. Madrzyk, 990 F.Supp. 1004, 1006-07 (N.D.Ill.1998) ("In the appointment of counsel context, so as not to place defendant in the untenable position of having to choose between his Sixth Amendment right to counsel and his Fifth Amendment privilege against self-incrimination, circuit courts have adopted two approaches" (citing United States v. Sarsoun, 834 F.2d 1358, 1363-64 (7th Cir.1987))). See also United States v. Gravatt, 868 F.2d 585, 590 (3d Cir.1989). Some circuit courts permit access by the government, but preclude the government from using the evidence in its case-in-chief at trial. See United States v. Pavelko, 992 F.2d 32, 34 (3d Cir.1993) (prohibiting government from using as part of its direct case any testimony given by a defendant at a hearing where he is seeking the assignment of counsel on the ground of his financial inability to secure
So far as this court has been able to determine, there are no cases that provide guidance on reconciling the tension between the Fifth Amendment and the Sixth Amendment in the circumstances presented in this case, where Defendant would have to produce financial data to prevail in his quest for the release of seized assets to hire counsel of his choice. This court, however, does not have to resolve the constitutional dilemma posed by Defendant's motion and his invocation of his Fifth Amendment rights, and does not believe that it should do so.
"It is bedrock that the `long-standing principle of judicial restraint requires that courts avoid reaching constitutional questions in advance of the necessity of deciding them.'" Sony BMG Music Ent'mt v. Tenenbaum, 660 F.3d 487, 511 (1st Cir. 2011) (quoting Lyng v. Nw. Indian Cemetery Protective Ass'n, 485 U.S. 439, 445, 108 S.Ct. 1319, 99 L.Ed.2d 534 (1988)). There is a purely statutory basis on which to resolve Defendant's motion. See Buchanan v. Maine, 469 F.3d 158, 172 (1st Cir.2006) ("`prior to reaching any constitutional questions, federal courts must consider nonconstitutional grounds for decision'" (quoting Gulf Oil Co. v. Bernard, 452 U.S. 89, 99, 101 S.Ct. 2193, 68 L.Ed.2d 693 (1981))). It is well-settled that, regardless
Under the superseding indictment, Defendant is now charged with conspiracy to violate the RICO Act (Dkt. No. 137 at ¶¶ 1-109). See 18 U.S.C. § 1962(d). Section 1963(d)(1)(A) of the RICO Act authorizes a court, on application of the government, to restrain a defendant's assets pre-trial if those assets are subject to forfeiture under 18 U.S.C. § 1963(a) upon the defendant's conviction. See 18 U.S.C. § 1963(d)(1)(A). Here, the government alleges that the Tobacco Funds are subject to forfeiture upon conviction and they have been frozen by the court pending trial (Dkt. No. 27 at 3; Dkt. No. 137 at 37-38). "[A] pre-trial asset restraint [is] constitutionally permissible whenever there is probable cause to believe that the property is forfeitable." Kaley, 134 S.Ct. at 1095 (citing United States v. Monsanto, 491 U.S. 600, 615, 109 S.Ct. 2657, 105 L.Ed.2d 512 (1989)). This standard applies even when a defendant seeks to use the restrained assets to pay for an attorney. Id. The determination of whether the property is forfeitable "has two parts, reflecting the requirements for forfeiture under federal law: There must be probable cause to think (1) that the defendant has committed an offense permitting forfeiture, and (2) that the property at issue has the requisite connection to that crime." Kaley, 134 S.Ct. at 1095.
In Kaley, the Supreme Court said that a grand jury indictment is sufficient to meet the first requirement. Id. at 1094, 1105. Accordingly, here, the only question is whether there is probable cause to believe that the Tobacco Funds have the requisite connection to the RICO conspiracy charge to make them forfeitable under the RICO Act. Id. at 1095. "Probable cause... is not a high bar: It requires only the `kind of "fair probability" on which "reasonable and prudent [people,] not legal technicians, act."'" Id. at 1103 (quoting Florida v. Harris, ___ U.S. ___, 133 S.Ct. 1050, 1055, 185 L.Ed.2d 61 (2013), quoting Illinois v. Gates, 462 U.S. 213, 231, 103 S.Ct. 2317, 76 L.Ed.2d 527 (1983)). The government does not dispute that it bears the burden to make this showing (Dkt. No. 149 at 7-8), which is consistent with the decisions of a majority of the circuits that have placed the burden on the government at a pre-trial adversarial hearing to determine whether assets should be restrained. See United States v. Bonventre, 720 F.3d 126, 128, 131 (2d Cir.2013) ("the government will bear the relatively modest burden of demonstrating probable cause to believe the assets are properly forfeitable");
Count One of the superseding indictment charges Defendant with conspiring to violate the RICO Act, specifically 18 U.S.C. § 1962(c) (Dkt. No. 137 ¶ 63). See 18 U.S.C. § 1962(d). "Five elements must coalesce to make out a substantive RICO violation. The government must show: `(1) an enterprise existed; (2) the enterprise participated in or its activities affected interstate commerce; (3) the defendant was employed by or was associated with the enterprise; (4) the defendant conducted or participated in the conduct of the enterprise; (5) through a pattern of racketeering activity.'" United States v. Nascimento, 491 F.3d 25, 31 (1st Cir.2007) (quoting United States v. Marino, 277 F.3d 11, 33 (1st Cir.2002)). See Salinas v. United States, 522 U.S. 52, 62, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997) ("The elements predominant in a [18 U.S.C. § 1962(c)] violation are: (1) the conduct (2) of an enterprise (3) through a pattern of racketeering activity"). The statutory definition of "racketeering activity" includes acts that are indictable under 18 U.S.C. § 2341-2346 (trafficking in contraband cigarettes and smokeless tobacco), 18 U.S.C. § 1341 (mail fraud); 18 U.S.C. § 1343 (wire fraud), and 18 U.S.C. §§ 1956 & 1957 (money laundering) (Dkt. No. 137 at ¶ 17), which are charged here (Dkt. No. 137 ¶¶ 111, 113, 116, 117).
Section 1963(a) of Title 18 of the United States Code, which governs criminal forfeiture for a RICO Act conviction, is broad. See United States v. Cherry, 330 F.3d 658, 669 n. 18 (4th Cir.2003) (the RICO statute contains what is "`by far the most far reaching' forfeiture provision, `sweeping far more broadly' than `the substantive RICO offense itself'") (quoting United States v. Voigt, 89 F.3d 1050, 1084 (3d Cir.1996)). The RICO forfeiture statute provides that a defendant who violates any provision of section 1962 shall forfeit:
18 U.S.C. § 1963(a).
The subsections of the statute distinguish between forfeiture of proceeds and forfeiture of an interest in a RICO enterprise. See United States v. Morrison, 656 F.Supp.2d 338, 344-45 (E.D.N.Y.2009). This distinction was articulated in United States v. Anguilo, 897 F.2d 1169 (1st Cir.), cert. denied, 498 U.S. 845, 111 S.Ct. 130, 112 L.Ed.2d 98 (1990):
Anguilo, 897 F.2d at 1211-12. See also Porcelli, 865 F.2d at 1364-65 (distinguishing between a RICO enterprise which is "indivisible and is forfeitable in its entirety" and interests outside the enterprise which are forfeitable under § 1963(a)(1) only to the extent they were derived from racketeering activity). The difference between subsections (a)(1) and (a)(2) was further explained in Horak:
Horak, 833 F.2d at 1243. "As to subsection (a)(3), the statutory language, as well as the legislative history accompanying its enactment, compels the conclusion that a nexus must exist between the property sought to be forfeited and one or more racketeering acts." Morrison, 656 F.Supp.2d at 345.
Based upon the facts alleged in the superseding indictment, there is probable cause to think that the Tobacco Funds, which were obtained from the sale of the inventory of Scranton Warehouse, will be forfeitable in their entirety under three subsections of § 1963(a) if Defendant is convicted of violating the RICO Act.
The government first contends that the Tobacco Funds are forfeitable under 18 U.S.C. § 1963(a)(2)(A) (Dkt. No. 149 at 10-13). Under this subsection of the RICO forfeiture statute, upon conviction of conspiracy to violate § 1962(c), a RICO enterprise is "indivisible and forfeitable in its entirety." Porcelli, 865 F.2d at 1364. See Anguilo, 897 F.2d at 1212 ("[T]he forfeiture of any interest in an enterprise ... are `inside' interests subject to forfeiture regardless of percentage of taint"). The RICO enterprise, itself, is "the villain, conducting its affairs through a pattern of racketeering." Porcelli, 865 F.2d at 1362. Because the allegations in the indictment, which this court must accept, establish that the Scranton Warehouse is part of the ARE, and because the Tobacco Funds are proceeds of the sale of the Scranton Warehouse's inventory, the Tobacco Funds are subject to forfeiture in their entirety under § 1963(a)(2)(A). See Busher, 817 F.2d at 1413 ("forfeiture is not limited to those assets of a RICO enterprise that are tainted by use in connection with racketeering activity, but rather extends to the convicted person's entire interest in the enterprise"); United States v. Walsh, 700 F.2d 846, 857 (2d Cir.1983) (a defendant's "entire interest in [a] RICO enterprise" is forfeitable, independent of an enterprise's degree of criminal taint); Hosseini, 504 F.Supp.2d at 381 ("under Section 1963(a)(2) a defendant's entire interest in the RICO enterprise that served as the basis for his or her Section 1962 conviction is forfeitable, regardless of the extent to which any part of that enterprise was engaged in legitimate activity" (citing United States v. Segal, 495 F.3d 826, 838 (7th Cir.2007))); United States v. Cianci, 218 F.Supp.2d 232, 236 (D.R.I.2002) ("The forfeiture provision of [18 U.S.C. § 1963](a)(2)(A) is especially severe because
"The `enterprise' is a separate element that must be proven in a RICO action." Porcelli, 865 F.2d at 1362 (citing Turkette, 452 U.S. at 583, 101 S.Ct. 2524). An "enterprise includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). The grand jury returned an indictment that established probable cause to believe that Defendant conspired to violate § 1962(c) and that he owned or directed all elements of the ARE, an association-in-fact RICO enterprise, which encompassed the Scranton Warehouse, the Springfield Warehouse, the Danbury Warehouse, the Berlin Warehouse and the Gas Station Component (Dkt. No. 137 at ¶¶ 14, 15, 17-19, 23-25, 70-74, 77-79, 80, 84, 85, 88, 89, 91, 93-103, 106, 108, 109).
After Massachusetts and Connecticut levied excise tax assessments on Defendant in about 2005, Defendant moved his base of operations to the Scranton Warehouse in Pennsylvania (id. at ¶¶ 14-17). The Scranton Warehouse, which Defendant owned and controlled, became "the keystone in [Defendant's] racketeering arch" (Dkt. No. 44 at 1, Docket for Case # 3:12-cv-30167-RWZ; Dkt. No. 27 at 3). Porcelli, 865 F.2d at 1364. The Scranton Warehouse shipped tobacco products from Pennsylvania to the other ARE warehouses and to the Gas Station Component (Dkt. No. 137 at ¶¶ 14, 15, 18, 19, 26-28, 51, 52, 69, 75). Because Pennsylvania did not impose an excise tax on smokeless tobacco and cigars, the Scranton Warehouse did not include excise tax in the prices that it charged the other ARE entities for tobacco products (id. at ¶ 17). The Scranton Warehouse's failure to report its shipments of smokeless tobacco to the Connecticut and Massachusetts tax authorities in violation of the PACT Act enabled the other ARE entities to evade state excise taxes on the smokeless tobacco that they received from the Scranton Warehouse (id. at ¶¶ 1-7, 27, 28, 34, 37, 40, 45, 50, 52, 54, 66). The Scranton Warehouse further aided tax evasion by the ARE's three other warehouses by preparing phony invoices that concealed their actual inventories of smokeless tobacco and cigars (id. at ¶¶ 1-5, 35-39, 41-44, 76). The inventory amounts on the fake invoices were used to prepare the three warehouses' Massachusetts and Connecticut excise tax returns (id. at ¶¶ 43, 44, 46-49). The ARE's gross underreporting of the warehouses' quantities of tobacco products to the tax authorities resulted in the underpayment of state excise taxes and an increase in the enterprise's profits (id. at ¶¶ 1-5, 46-49, 68, 81).
The Scranton Warehouse faxed invoices to collect payment for the tobacco products that it supplied to the other components of the ARE (id. at ¶ 29). The other warehouses paid the Scranton Warehouse in cash to conceal the actual volume of sales and the "extent of the tax underpayment" (id. at ¶ 30). To further obscure the actual sales volume and the concomitant underpayment of state taxes, Defendant transferred the cash to multiple bank accounts and unrelated businesses and used it to purchase real estate that was not connected to the wholesale distribution of smokeless tobacco and cigars (id. at ¶¶ 20, 57-62). Because the indictment's allegations establish that the Scranton Warehouse was central to the conduct of the ARE, the proceeds of the sale of its inventory — the Tobacco Funds — are forfeitable in their entirety under 18 U.S.C. § 1963(a)(2)(A).
Defendant argues that forfeiture under 18 U.S.C. § 1963(a)(2)(A) is not available for a conviction of conspiracy to violate RICO and cites Cianci, 218 F.Supp.2d at
"In a statutory construction case, the beginning point must be the language of the statute, and when a statute speaks with clarity to an issue, judicial inquiry into the statute's meaning, in all but the most extraordinary circumstance, is finished." Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469, 474-76, 112 S.Ct. 2589, 120 L.Ed.2d 379 (1992). "In other words, the court need not consult legislative history and other aids to statutory construction when the words of the statute neither create an ambiguity nor lead to an unreasonable interpretation." Riva v. Massachusetts, 61 F.3d 1003, 1007 (1st Cir.1995). Based on the first sentence of § 1963(a) — "[w]hoever violates any provision of section 1962 of this chapter ... shall forfeit" — a conviction under any subsection of § 1962 exposes a defendant to forfeiture liability under § 1963(a)(1), (2), or (3). 18 U.S.C. § 1963(a) (emphasis added). Under the plain language of the statute, which employs the word "any," a conspiracy conviction under § 1962(d) is not excluded from the reach of the RICO forfeiture statute. See Ali v. Fed. Bureau of Prisons, 552 U.S. 214, 219, 128 S.Ct. 831, 169 L.Ed.2d 680 (2008) ("`Read naturally, the word "any" has an expansive meaning, that is, "one or some indiscriminately of whatever kind"'" (quoting United States v. Gonzales, 520 U.S. 1, 5, 117 S.Ct. 1032, 137 L.Ed.2d 132 (1997))). This interpretation is reinforced by the far reaching purpose of § 1963. See Busher, 817 F.2d at 1412-13 ("Section 1963 is purposely broad.... Section 1963 was designed to totally separate a racketeer from the enterprise he operates" (citing Russello v. United States, 464 U.S. 16, 28, 104 S.Ct. 296, 78 L.Ed.2d 17 (1983))); United States v. Bonanno Organized Crime Family of La Cosa Nostra, 683 F.Supp. 1411, 1445-46 (E.D.N.Y.1988), aff'd, 879 F.2d 20 (2d Cir.1989) ("The reach of the forfeiture sanction under § 1963 has been held to be very broad, reaching a defendant's entire interest in a racketeering enterprise even if there is no proof that all of the property forfeited is tainted by criminal activity"); see also United States v. Ginsburg, 773 F.2d 798, 801-02 (7th Cir.1985).
Other courts' determinations that § 1963(a)(2) permits forfeiture after a conspiracy conviction under § 1962(d) further confirms this analysis. In United States v. Caporale, 806 F.2d 1487 (11th Cir.1986), cert. denied, 482 U.S. 917, 107 S.Ct. 3191, 96 L.Ed.2d 679 and 483 U.S. 1021, 107 S.Ct. 3265, 97 L.Ed.2d 763 (1987), the defendants were convicted only of conspiracy to violate RICO. "The court rejected their argument that a conviction on conspiracy alone was insufficient to subject them to the forfeiture provision of Section 1963." United States v. Bloome, 777 F.Supp. 208, 211 (E.D.N.Y.1991).
Caporale, 806 F.2d at 1509. See also Hosseini, 504 F.Supp.2d at 381 (holding that, after a conspiracy conviction under § 1962(d), all of defendant's interest in three car dealerships was subject to forfeiture under § 1962(a)(2)); United States v. Saccoccia, 823 F.Supp. 994, 1001 (D.R.I. 1993) (holding that defendants' interest in the criminal enterprise was forfeitable under § 1963(a)(2) after their conviction of RICO conspiracy), aff'd, 58 F.3d 754 (1st Cir.1995); Bangiyev, 141 F.Supp.3d at 597-98, 2015 WL 6672539, at *6 (holding that assets of defendant's business were subject to forfeiture under § 1963(a)(2) after defendant pled guilty to participating in a RICO conspiracy).
If Defendant is convicted of violating § 1962(d), Defendant's entire interest in the RICO enterprise will be subject to forfeiture under § 1963(a)(2)(A). Accordingly, because the facts alleged in the indictment establish probable cause to believe that Defendant owned and controlled the Scranton Warehouse, which was central to the charged enterprise, Defendant's whole interest in the enterprise — including all of the Tobacco Funds from the sale of the Scranton Warehouse's inventory — will be subject to forfeiture under § 1963(a)(2)(A) and are properly restrained pre-trial under § 1963(d).
The Tobacco Funds will also be forfeitable under 18 U.S.C. § 1963(a)(1) if Defendant is convicted of violating § 1962(d). This provision demands that any defendant found guilty of violating Section 1962: "shall forfeit to the United States ... any interest the person has acquired or maintained in violation of section 1962." 18 U.S.C. § 1963(a)(1). See Russello, 464 U.S. at 20-21, 104 S.Ct. 296; Saccoccia, 823 F.Supp. at 1002 ("The Supreme Court has held that the term `interest,' as used in § 1963(a)(1), is not limited to a defendant's interest in the enterprise but, rather encompasses any interest acquired in violation of RICO"). "It is ... apparent that the term `interest' comprehends all forms of real and personal property, including profits and proceeds." Russello, 464 U.S. at 21, 104 S.Ct. 296.
Anguilo, 897 F.2d at 1213 (citations omitted).
Defendant does not dispute that 53% of the Tobacco Funds can be directly traced to criminal activities that are alleged in the indictment, but contends that 47% is not
Accepting as true the allegations in the superseding indictment as supplemented by the transcript and exhibits from the July 2015 hearing, see Kaley, 134 S.Ct. at 1094, 1105, Defendant would not have been able to obtain tobacco products on credit but for the tainted proceeds that he obtained from the operation of the RICO enterprise. See Porcelli, 865 F.2d at 1365 ("Funds derived from the operation of the RICO enterprise [are] profits obtained from racketeering activity"). The tainted proceeds were an integral part of the ARE's business cycle over a period of years. The Scranton Warehouse obtained tobacco products from its suppliers either for cash or credit, then distributed the tobacco products to the other members of the ARE, which sold the tobacco products to their retail customers (Dkt. No. 93 at 67-73, 94; Dkt. No. 137 at ¶¶ 14, 15, 18, 19, 52, 53, 57, 69, 75). The ARE engaged in racketeering activity — specifically wire fraud, mail fraud, trafficking in contraband tobacco, and money laundering — in order to evade state excise taxes on the majority of the cigars and smokeless tobacco that its components sold to its customers and to conceal its tax fraud scheme (Dkt No. 137 at ¶¶ 27-54, 67, 68, 111, 113, 115, 116, 117). See 18 U.S.C. § 1961(1) (defines "racketeering activity"). Because the ARE's warehouses and the Gas Station Component did not pay excise taxes on the majority of the cigars and smokeless tobacco that they distributed, they did not include taxes in the prices that they charged their customers for their tobacco products (Dkt. No. 137 at ¶¶ 17, 34, 36, 37, 39, 50, 52, 53). This tax evasion scheme enabled the ARE to undercut its competitors' prices thereby increasing the ARE's market share and profits (id. at ¶ 21). The ARE entities used their profits, which were tainted by the racketeering activity, to pay the Scranton Warehouse for the tobacco products, mostly in cash (id. at ¶¶ 30, 31, 33, 57). The Scranton Warehouse, in turn, used a portion of the tainted profits to procure additional tobacco products from suppliers either for cash or on credit, and the sequence repeated (Dkt. No. 93 at 67-73, 94; Dkt. No. 137 at ¶¶ 17, 57, 69). The tainted profits from the ARE that were used to pay the Scranton Warehouse's creditors enabled the Scranton Warehouse to purchase additional tobacco products on credit. Compare Porcelli, 865 F.2d at 1365 ("When [defendant] used his tainted profits to buy new properties, he acquired interests that were forfeitable under section 1963(a)(1)"). Cf. United States v. Patel, 949 F.Supp.2d 642, 650-51 (W.D.Va.2013) (in calculating the amount of forfeitable property based upon contraband cigarette trafficking and money laundering, the court considered the fact that proceeds of contraband cigarette sales were used to purchase more contraband cigarettes).
Accordingly, the portion of the Tobacco Funds that represented tobacco that was obtained on credit will be subject to forfeiture under § 1963(a)(1) if Defendant is convicted.
Section 1963(a)(3) of Title 18 of the United States Code provides another avenue for the government to obtain the Tobacco Funds through postconviction forfeiture proceedings. Proceeds that Defendant "obtained, directly or indirectly, from racketeering activity ... in violation of section 1962" are subject to forfeiture under
Saccoccia, 823 F.Supp. at 1005. See Ginsburg, 773 F.2d at 801 (discussing § 1963(a)(1)); United States v. Navarro-Ordas, 770 F.2d 959, 969-70 (11th Cir. 1985) (same). "Under (a)(3), as under (a)(1), the `but for' test applies in determining whether the required nexus exists between the property sought to be forfeited and the criminal activity." Cianci, 218 F.Supp.2d at 237. See United States v. DeFries, 129 F.3d 1293, 1313 (D.C. Cir. 1997).
"Proof that the proceeds of racketeering activity enabled a defendant to acquire the property is sufficient to warrant forfeiture under § 1963(a)(3)." Saccoccia, 823 F.Supp. at 1005. See Horak, 833 F.2d at 1243. Here, the government is seeking forfeiture of specific property, as opposed to monetary profits, which can be apportioned between a business's legitimate and illegitimate activity. Compare Morrison, 656 F.Supp.2d at 346 (distinguishing between property and a money judgment in the application of the rule of proportionality under § 1963(a)(3)). As demonstrated above in the discussion of forfeiture of the Tobacco Funds under § 1963(a)(1), the allegations in the indictment are sufficient to show that the entire amount of the property — the Tobacco Funds — are traceable to proceeds of the racketeering activity. This nexus supports forfeiture of the Tobacco Funds under § 1963(a)(3). See Fed. R. Crim. P. 32.2(b)(1)("If the government seeks forfeiture of specific property, the court must determine whether the government has established the requisite nexus between the property and the offense").
The government has sustained its burden of demonstrating that there is sufficient probable cause to support pre-trial restraint of the Tobacco Funds under three provisions of 18 U.S.C. § 1963(a).
For the reasons stated above, Defendant's motion for release of funds necessary
It is so ordered.
