COGAN, District Judge.
The Government instituted this action to seize funds that were purportedly involved in "structured" transactions. Federal law requires domestic financial institutions to file a currency transaction report ("CTR") for any cash transaction in an amount greater than $10,000. 31 U.S.C. § 5313(a). The law applies to individuals as they may not break up transactions in order to "cause a domestic financial institution to fail to file" a CTR. 31 U.S.C. § 5324(a); see also Ratzlaf v. United States, 510 U.S. 135, 136, 114 S.Ct. 655, 126 L.Ed.2d 615 (1994). If they do, the funds involved in the transactions become forfeitable. See 31 U.S.C. § 5317(c)(2).
The Government is seeking the forfeiture of $879,836.43. This sum is comprised of $587,536.43 from a Merrill Lynch account in the name of PRP Restaurant, $230,400 from a Merrill Lynch account in the name of Robert Potenza, and $61,900 from a TD Bank account in the name of PRP Restaurant. The Government alleges that a TD Bank account belonging to three owners of PRP Restaurant—one of whom is Potenza, president of PRP and claimant in this action—was involved in structuring activity between September 12, 2008 and November 9, 2009. During this time, claimant made over 100 cash depositions under the CTR-triggering $10,000 amount.
There are three elements to a structuring offense. The Government must show by a preponderance of the evidence that claimant: (1) engaged in structuring, (2) with knowledge of the CTR filing requirement, and (3) with intent to evade this requirement. See United States v. MacPherson, 424 F.3d 183, 189 (2d Cir.2005). Claimant did not dispute that he made the transactions or that the money seized was traceable to the initial, purportedly structured, deposits.
I held a bench trial on the question of knowledge and intent. The Government advanced three theories to prove these elements: First, it pointed to the sheer number of transactions and their proximity. Second, it introduced a letter from claimant's former bank that identified suspected structuring activity as the reason for terminating that account. Claimant maintained that he never received the letter because it was misaddressed. Third— the theory that consumed most of the trial—the Government purported to show that claimant was running a "cash business" that avoided paying taxes and was
PRP Restaurant, also known as Gallagher's 2000, is a strip club located in Long Island City. It is organized as an S Corporation with three owners: Robert Potenza (70 percent shareholder), his sister, Patricia Potenza (15 percent), and Allen Reale (15 percent). The restaurant's profits come from various sources, including sale of alcohol, entrance fees, and "house fees." The dancers perform on stage and privately, in the "champagne room." They keep most of the fees collected from their customers, but PRP retains a share; the "house mom"—who assists the dancers— keeps the rest. The club is at its busiest Thursday through Saturday nights and predictably charges more for admission on those days. Most of these fees go to the cashier and are reflected on the register tape. The club has a healthy revenue stream—hundreds of patrons come through the club through the week, spending hundreds of dollars on admission, drinks, and dances in the private room.
Joseph Johnson is a disgruntled former manager of PRP of about nine years; he worked for Potenza at another topless bar prior to joining PRP. The Government introduced copies of daily cover and register sheets that Johnson claimed were stored by PRP for about a week and were used to record PRP's cash revenues and expenses, including employee payroll. He did not copy the relatively small register tapes, which contain a summary of the days' revenue and which, according to Johnson, would have corroborated his cover sheets. Johnson conceded that the register tapes would in fact be the best evidence of the revenue taken in, and that the sheets he produced depend on the accuracy of what he himself recorded on those days since he did not copy sheets from nights on which he did not work.
When asked who prepared the daily sheets, Johnson testified that "Robert Potenza started it off, Richard Gleeson and then myself most of the time" as Richard Gleeson was the day-time manager and Johnson came to relieve him. Johnson admitted that he kept these documents as a potential bargaining chip against Potenza: "I was basically having problems with Robert Potenza, so I just felt I need— might need a little bit security or I might to get back at him one day ... or to protect myself."
Johnson admitted that the cover sheets are for a period of two months and not every day within those months, only 36 days; that at least two of the sheets are incomplete; that he retained these photocopies after he left PRP; that there are no daily sheets filled out by Ben Schmidt— another general manager at PRP; and that Johnson was not responsible for storing them but that he nevertheless saw Ms. Potenza take them home with her. He explained that one of his duties was to pay employees, and that the documents presented to the Court show that some of the employees were paid off the books.
Johnson expanded on that testimony by describing PRP's general practice—established by Potenza five or six years ago according to him—to pay employees in cash and partly "off the books" as part of a tax evasion scheme. When Ms. Potenza
Johnson's relationship with PRP went beyond his employment; in 2007, during a time of financial distress for him, he borrowed $21,000 from the company. Johnson still owes about $9,800. He testified that while he was on a repayment plan, Potenza decided to start taking out more money from his paychecks without his consent. Johnson suggested that this might have been a result of their souring relationship following President Obama's election. He claimed that he ultimately left PRP because Potenza was upset because
Johnson had determined to pay certain employees an extra $10: "[Potenza] told me he wanted me to fire those three employees. I said it was not their fault. If you have a problem, you have a problem with me. He wanted me to fire them, because he was the owner. So, I went crazy, I went nuts with him, and that was it."
But despite professing not to have problems with Ms Potenza and despite testifying at his deposition that he did not email PRP, Johnson admitted to sending her an email conveying his threat of whistleblowing. The email stated: "Here we go, lets [sic] see what happens next." To this email, Johnson attached one of the daily sheets that the Government has produced at trial. Ms. Potenza expressed surprise in her emailed reply: "I don't understand
During his deposition, as well as at trial, Johnson was represented by counsel. He described how he retained counsel. According to Johnson, the Government's investigator on the case, Richard Guerci, initiated the process, and the Government helped him receive free representation.
Johnson was not a convincing witness, and I do not credit his testimony and his many allegations against PRP. If he did not admit to perjury at trial, he came close; certainly, he was misleading to the Government and to the Magistrate Judge when the Government retained counsel for him. He also admitted that he had a vendetta against Potenza—indeed that he hated him; that he tried to blackmail Ms. Potenza; that he had a motive to get back at PRP, which fired him, has sued him, cancelled his insurance, and is attempting to collect on a loan; and that he has a reason to testify favorably for the Government as he has an expectation—whether or not reasonable—that the Government will be forgiving when it comes to prosecuting him.
This is all to say nothing of his repeated invocation of the Fifth Amendment, which undoubtedly was meant to protect not only his credibility, but limited his testimony about PRP's revenue.
Unlike Johnson, I found Ms. Potenza to be a credible witness. Ms. Potenza, who is a shareholder, bookkeeper, corporate officer, and secretary treasurer of PRP, acknowledged that Johnson was "absolutely" a trusted employee. In conducting her bookkeeping, she consults with PRP's independent accountant, Marciano Filippone almost weekly. She maintains PRP's cashbooks to reflect the business' cash flow and regularly turns them over to the accountant along with checkbook stubs and bank statements. The cashbooks reflect all of PRP's incoming revenue, from house fees to admission charges to the cash register income. She compiles them by referring to the register tapes and sometimes "Post It" notes, which also refer to various other fees collected by the bar.
Ms. Potenza described the ATM that is owned by PRP and maintained on its premises for the convenience of its customers and as another source of revenue.
Credits from the ATM deposits were previously made to PRP's JP Morgan Chase account before that account was closed. Chase bank statements indicate individual transmissions of under $10,000 that would sometimes aggregate to more than $10,000 per day. The Government alleged that the Chase account was closed because of structuring activity as explained in a warning letter purportedly sent to PRP. Ms. Potenza credibly testified that this letter was misaddressed, and that the only letter they received informed them that the account was closed without providing an explanation. Both documents were admitted into evidence. The letter that Ms. Potenza received was addressed to "PRP Restaurant INC; DBA Gallaghers 2000; C O PSP INC," while the misaddressed letter did not provide anything other than "PRP Restaurant Inc."
Ms. Potenza credibly testified that prior to this case she did not know what a CTR was, much less discuss it with her brother. Although she was not involved with Potenza's banking activity, she understood him to have a routine—that he would deposit even sums of about $8,000 into the bank. Part of this routine, she explained, stemmed from the times he had been robbed and became concerned about carrying too much cash. She also credibly testified that neither she nor her brother try to avoid these under—$10,000 transfers or care that they occurred. The sum would be even because he would deposit $50 and $100 bills as they were the least useful for business—only $20 bills were used for the ATM machine and smaller bills could be used for change and tips.
Employees and independent contractors, save for officers, were paid in cash, Ms. Potenza explained, and their incomes were recorded in her cashbook. She rejected Johnson's allegations that she paid employees half on the book and half off.
As for the copies of the daily sheets described by Johnson, Ms. Potenza testified that although she recognized the form, these documents were not kept in the usual course of business. Instead, she understood them to be used by the general managers for their own convenience, "to balance out their information." They were never given to her, nor did she ever use them to prepare the cashbook. She denied Johnson's testimony that she ever took these sheets home.
She also denied pleading with Johnson, or even being concerned about, his reporting PRP to the authorities.
Ms. Potenza admitted that PRP was audited in May 2010 to investigate whether it was paying employees off the books. The resolution was what she termed a "nuisance settlement"—$9,000 to be paid over a three-year period. PRP accepted it, she explained, partly on the recommendation of her accountant because it would have cost more to contest. PRP has also been the subject of a sales-tax audit in a dispute over the allocation of its revenue.
Filippone confirmed Ms. Potenza's testimony, describing his role as an independent accountant for PRP. For the relevant time period, Filippone reviewed the company's income, sales, and corporate tax returns based on the financial information provided by Ms. Potenza. He estimated PRP to have gross annual revenue of about three to five million dollars. Filippone explained that the number of days an employee worked was not important to his calculation of the proper amount to be withheld; he instead relied on Ms. Potenza's information about each employee's weekly gross pay. He also confirmed Ms Potenza's description of how the ATM machine worked, that PRP would load it with its own cash and that customer withdrawals would in effect be considered wire transfers into PRP's account. Filippone explained that he compared the bank statements with the cash deposits listed in Ms. Potenza's cashbook, and that he never noticed discrepancies. He did not use or even see the kind of daily sheets that Johnson copied and the Government presented to the Court.
Filippone also described PRP's audits. The New York Department of Labor, contrary to what Johnson suggested, did more than "nothing;" it asked PRP to produce documents to show that certain employees were accounted for and properly taxed. Filippone worked with PRP to provide the information, but ultimately, he explained, PRP decided to settle the matter based on a cost-benefit analysis of going through a full audit.
Finally, with regard to CTR filing requirements, he answered that prior to this litigation, he "had heard about it" and "knew there was something."
Although this Government witness did not add much to Ms. Potenza's testimony, as he prepared PRP's taxes based on the cashbooks she provided, it also did nothing to advance its claim. I found Filippone to be a credible witness and no hint in this testimony that he knew or was complicit in any tax evasion or CTR-evading scheme.
Financial Investigator Guerci testified as a fact and expert witness for the Government.
Guerci described the background of the Bank Secrecy Act, which he explained was passed to monitor the injection of large amounts of cash into the banking system in order to identify illegal activity such as money laundering and tax evasion. This was the reason for the CTR filing requirements, Guerci explained. When a CTR is filed by a financial institution, it is forwarded to a computer center maintained by the IRS, where it is inputted into a database and available for review. A "multiple transactions CTR" is a CTR that
Describing common modes of structuring, Guerci explained that individuals who typically structure are ones who are engaging in illicit activity, most notably narcotics or money laundering but also individuals who are involved in tax evasion. Tax evaders would not deposit unreported cash, Guerci testified: "The first thing that any investigator or auditor would do if they are looking at a business would be [to] request those bank records and look at those bank records, so it is not something that you would typically see." But reported income, he explained, is sometimes structured to "stay off the government radar—the IRS radar." Structuring can be done in multiple ways—using different banks, different branches, or simply breaking down the deposits to get under the $10,000 triggering amount. Those who choose the latter method and have a steady revenue stream would have to engage in many transactions to avoid drowning in cash, Guerci explained.
Guerci testified about his investigation into PRP. He reviewed PRP's activity in its former Chase account and its TD Bank account, concluding that it was "consistent with structuring." The only CTRs that were filed during the relevant period, according to Guerci, were multiple transaction CTRs. He admitted, however, that a few dozen CTRs were filed going back to 2006. The TD Bank account saw different activity after the Chase account was closed, which "related more towards the cashing of checks, not so much the deposit activity [which] ... remained fairly constant."
Crucial to Guerci's conclusion were deposit amounts, which would never exceed $10,000 for the period he examined, when over $1 million dollars had been deposited. Most, but not all, of the deposits were for $8,000. The Government introduced a summary of these deposits that Guerci prepared based on his review of the bank records that had been introduced as evidence. Guerci's other summary showed how money deposited into the TD Bank account was then transferred in larger sums into the Merrill Lynch accounts. Guerci explained that only multiple transactions CTRs were filed based on the deposits, and that these transactions occurred on a weekend or a holiday and the next business day. Guerci also reviewed the insurance policies of PRP and found that it was insured for a cash loss of only $2,500 despite having, by Guerci's account, about $500,000 of cash on hand. This accumulation of cash seemed unusual to Guerci and indicative of tax evasion.
In reaching his opinion, Guerci considered PRP's ATM that held $20,000 and that, like Ms. Potenza described, wired money into PRP's Chase and TD Bank accounts. He understood that customers pay service charges for using the ATM, and PRP would receive commissions from the settlement company by way of separate transfers into the same accounts. These transfers were reflected as credits on the bank statements and could be distinguished
Guerci also based his opinion on the conversation he had with a Chase representative about the letter that Ms. Potenza claimed and Guerci conceded had an incomplete address. The representative, Debra Miranda, after referring to her case file notes, told him that another Chase employee, Shay Cavanaugh, a compliance officer, spoke with Potenza regarding the bank activity about a week after sending the letter. Miranda could not find any receipt confirming delivery of this letter. Guerci's conversation with the representative was "fairly important"—albeit not determinative—in forming his opinion that PRP structured transactions, because from it, he concluded that the letter and Potenza's subsequent conversation with the Chase employee "essentially put [Potenza] on notice about what he was doing."
When deposed, Cavanaugh (the Chase compliance officer) testified that she had no recollection (separate from her notes) of talking to Potenza.
Guerci testified about these notes as they related to the affidavit he prepared that was used to obtain a seizure order for the funds at issue. Although Guerci admitted that nothing in Cavanaugh's case file notes seemed to suggest that a Chase representative had spoken with Potenza specifically about the warning letter, he would not retract any part of the affidavit that he submitted with Special Agent Westrich
After executing the warrants and seizing the funds, Guerci, together with Special Agent Westrich, interviewed Potenza. He found Potenza to be cooperative. In fact, Potenza gave unsolicited statements to Guerci and Westrich about the existence of another account, the Merrill Lynch account, which Potenza explained did not accept cash deposits. Guerci testified that he only asked generally about any Chase letters that Potenza might have received rather than ask pointedly about the letter that Potenza claims was misaddressed and the only letter that mentioned structuring.
According to Guerci, Potenza indicated that he knew what structuring meant,
Guerci met with Johnson after this action had already been instituted, and Johnson
Guerci performed a similar analysis with respect to the payroll, comparing Johnson's daily sheets with the cashbooks, although it does not appear that these parts of the Johnson records were or could have been corroborated. From a sample of 36 days, Guerci estimated that PRP had about $624,818 of unreported cash payroll in 2009.
Ultimately, Guerci concluded that "PRP was engaged in a large tax evasion scheme, which involved the evasion of income taxes, which would extend to the state, federal and sales tax, as well as payroll tax by paying a number of employees essentially off the books, at least for a portion of their income." Based in part on this conclusion, Guerci opined that PRP was engaged in structuring.
As a fact witness, Guerci was credible. His opinion that PRP had unreported revenue, however, rested on Johnson's daily sheets, which as I explain, I do not credit because they contain additional, unverified entries. Guerci and the Government suggest that these sheets are corroborated by the register tapes. On the surface, this appears to be true with regard to the Bar/Door Revenue Daily Sheets. But these documents reveal additional employees, collecting additional revenue for those days; subtracting those numbers from the daily sheets—in other words, discounting those additional entries—produces the amount noted in the cashbooks. That Guerci and the Government credited these entries without any apparent concern is troubling; I do not share their confidence in the accuracy of Johnson's reporting.
Gleason and Schmidt were claimant's first witnesses and I found both to be credible. Gleason is one of PRP's current general managers. When Johnson was employed by PRP as a night time manager, Gleason worked the day shift. Reviewing Johnson's daily sheets, Gleason credibly testified that these are "balance
Schmidt described his position as a "person in charge" at PRP who clears the registers on nights that he closes the restaurant. He is also responsible for paying employees, who he testified are not paid off the books at PRP. Like Gleason, he referred to a Johnson daily sheet as a "scratch sheet" that he sometimes uses "if it is there." Again echoing Gleason, Schmidt testified that he discards the sheets after he is done with them because he copies the information to Post It notes. He denied that these sheets were ever stored at the end of a day.
Potenza took the stand last. While his sister handles the accounting aspect of the business, Potenza explained, he handles the banking. Like the others, he denied Johnson's allegation that employees are paid off the books.
Describing his day, Potenza explained that he tends to the ATM in the morning, retrieving a "journal" from it with the summary of the money that went in the day before. This is how the ATM is "cleared" and the prior day's withdrawals transferred to PRP's bank account. He never delays these transfers; the only time there is a delay, he testified, is when the ATM is cleared on a weekend night as the credits are not registered in the bank account until the following Monday. The ATM is not only a source of revenue, Potenza explained, but a matter of convenience. Comparing it to direct cash deposits, Potenza explained: "I felt they were almost like the same thing. It was—it helped me to not have to go to the bank all the time. The cash would go from the machine into the Chase or the TD Bank. And there—I wouldn't have to go make a deposit because it's very dangerous."
Next, he counts the money left from the previous night's person in charge or general manager and compares it with the breakdown of the revenue listed on the Post It notes. He separates the different bills for the day time employees and the ATM, taking the $50 and $100 with him to the bank if he needs change. Potenza used to have an arrangement with one of the banks to have $6,000 of singles ready each time he came, which was about three times a week. He explained that when he needed to get a gun license by showing that he carried a lot of money with him, he would write checks to the bank to receive the singles instead so that the exchange would have a paper trail to show the NYPD.
Confirming Ms. Potenza's testimony, he testified that the warning letter from Chase alluding to potential structuring activity did not have a complete address on it, and that PRP never received it. He learned that the account was closed when he went to the teller to pick up his $6,000 of singles. The teller could not explain why the account was closed, so he asked his sister to find out. They could not get
Potenza described how general managers would close out for the night, checking the registers and storing the tape registers together with Post It notes for him to review. Looking at Johnson's daily sheets, Potenza testified that general managers use "form[s] like this ... to balance out the registers." Potenza uses them too when he closes for the night; other times he just uses a blank piece of paper.
Potenza explained that the business keeps a large amount of cash on hand—in the vicinity of $300,000 to $400,000—but claimed that it was all reported to the accountant and the IRS. He never thought about insuring most of the cash in part because the business has an alarm system. Potenza echoed his sister's testimony about making regular cash deposits when their $50 and $100 bills accumulate to a certain number—this is a matter of routine for him, and one to which he has adhered going back as far as the 1970s with his other businesses.
Recounting the interview with Guerci and Westrich, he confirmed Guerci's testimony that he answered all their questions despite their having just notified him that they seized funds in his account. They asked Potenza whether he knew about structuring. He told them what he "thought money laundering was[.] I said I thought it was if I was selling drugs and I put money through a business and took it out as income or whatever. And then structuring, I really didn't know. I said that I might have read things about, you know, money laundering, structuring, you know, because I read the paper all the time but I am not that familiar with it." Although he admitted that he knew about the $10,000 triggering amount for CTR filing purposes, Potenza assured them that he was not structuring and gave the same business reasons for his banking activity that he gave at trial.
Potenza did not remember whether either Guerci or Westrich asked about a specific letter from Chase, but he told them about a conversation he had with a "lady ... from down South" who called him and asked him about his business. He informed them that Chase never gave him a reason as to why his account was closed.
As an initial matter, I note that Johnson's daily sheets fit within the business records exception despite claimant's insistence that they are not stored or regularly used. See Fed.R.Evid. 803(6). Unless it is untrustworthy, a business record is admitted under the Rule if it is made in "the course of regularly conducted business activity." Id. "The purpose of the rule is to ensure that documents were not created for personal purposes or in anticipation of any litigation." United States v. Kaiser, 609 F.3d 556, 574 (2d Cir.2010) (citation and quotation marks omitted). The Second Circuit "favors the admission of evidence [under Rule 803(6)] rather than its exclusion if it has any probative value at all." Id.
I have already rejected Johnson's claim that these sheets are stored or invariably used by PRP. But even claimant concedes that the form is used to facilitate bookkeeping. Not just "miscellaneous jottings," when general managers choose to use them, the forms are filled completely, with a specific business purpose. See id. at 575 ("A business record need not be mechanically generated to be part of a `regular practice.'").
Their trustworthiness, however, is a different story. Because this was a bench trial where Johnson was one of the witnesses, I admitted the documents. See id. at 576 ("[T]he degree of reliability necessary for admission is greatly reduced where ... the declarant is testifying and is available for cross-examination, thereby satisfying the central concern of the hearsay rule.") (citation and quotation marks omitted). And in deciding how much weight to accord them, I do not intend to revisit that ruling. See id. ("Residual doubts on the question of trustworthiness... go to the weight of the evidence, not its admissibility.") (citation and quotation marks omitted).
The Government argues that the Johnson documents are corroborated by other evidence and that they should be credited even if his testimony is not. As I explained
The Government rejects this explanation, arguing that some of the missing entries are interspersed between others rather than just being tacked on to the end of the lists and appear in the daytime portion of the sheets, which a daytime manager must have recorded. The former, of course, refutes only one potential method of falsification by Johnson—adding information after having been terminated by PRP. In other words, if the original sheets reflected accurate information, it would have been impossible for Johnson to add "phantom" entries unless there were unexpected gaps in the lists. But that assumes initial accuracy, which is an assumption I reject given Johnson's admitted motivation for photocopying the sheets in the first place.
The Government's second observation is more persuasive. Yet remarkably, despite taking the daytime manager's deposition on the eve of trial, the Government asked Richard Gleason about the recorded figures for only two of the day time bartenders, neither of which, the Government concedes, were "pulled" from the cashbook. The Government did not confirm with Gleason at the deposition or at trial that the entries for the daytime bartenders that are missing in the cashbooks were also recorded by him. Like its investigative techniques, the Government's litigation strategy is not on trial here, but failure to pin down crucial evidence time and time again leaves it short of meeting its burden.
The Government contends that Johnson's records are also confirmed by the insignificant discrepancies of a few dollars between the cash register tapes and the cashbooks; in these instances, the Government claims, the cashbook amount corresponds with Johnson's daily sheets, not with the cash registers. As Guerci admitted, this is not evidence of tax evasion,
I also reject other evidence that Guerci submitted as indicative of tax evasion, such
The Government also submits Gleason's testimony—not from the trial (the Government chose not to cross examine him or introduce him as its own witness)—but from his deposition, where he stated that his salary as a person-in-charge at PRP was $900 per week. The Government points to his 2008 W-2 Form that shows income of $23,400, which, the Government explains, is exactly half of a salary of someone receiving $900 per week for 52 weeks. This in turn supports Johnson's claim, according to the Government, that employees were paid half off the books.
Although perhaps the Government's strongest evidence of tax evasion, the failure to develop it prevents me from according it much weight. First, the Government's argument rests on the assumption that Gleason worked every week of the year or that he had vacation time. Yet it failed to ask him that at the deposition or trial. Second, according to PRP's records from its independent account, Gleason received a raise in 2008, further undermining the Government's neat calculation. With the burden of proof resting squarely on the Government, I find this evidence, together with other evidence recounted above, insufficient to show tax evasion.
But even though it consumed most of the trial, evidence of tax evasion is not required to establish knowledge or intent of the CTR filing requirements.
Potenza, however, provided a credible and logical explanation for his banking activity. A creature of habit and someone who had been robbed, Potenza made regular trips to the bank with an amount he felt comfortable, usually $8,000. Since he supplied his ATM with $20 bills, Potenza also explained that he had limited use for $50 and $100 bills, which in turn explains the round-numbered deposits. The Government did nothing to refute these explanations.
With the Government failing to establish evidence of tax evasion and the Court having credited claimant's innocent explanation for the cash deposits, the Government's evidence of intent rests solely on the warning letter sent by Chase. The letter contained the correct address, but the addressee, "PRP Restaurant Inc." was not located there; it was the site of another of Potenza's businesses, PSP Jewelers'. That is why, Ms. Potenza explained, the rest of the care of field, including "C O PSP INC," was important for the letter to be deliverable. Again, the Government did nothing to refute Potenza's and his sister's testimony, and the Chase representative could not find receipts showing that the letter was mailed or received— receipts that Guerci admitted are normally requested.
The Government submits that the Chase case file notes show that Potenza called Chase after receiving the letter. But Potenza credibly testified that it was a Chase employee that contacted him. The Government did nothing to disprove that either; the "lady from down South" (Shay Cavanaugh), who works out of Chase's Texas office, could not remember her conversation with Potenza or how it took place. She appears not to have been asked about her standard practice; that is, whether she follows up the letter with an investigative phone call or waits for the customer to contact her. The Court is therefore left with two competing inferences to draw from Cavanaugh's notes about the conversation: (1) based on the letter's invitation to call, that Potenza received the letter and called Cavanaugh, or (2) based on the investigative questions that she apparently asked regarding Potenza's banking practices, that it was Cavanaugh who reached out to Potenza. With Potenza's credible testimony asserting the latter and with nothing to show otherwise, I make the second inference.
The Government argues that this conclusion defies logic and common sense. I disagree. What strains logic is the suggestion that Potenza received the warning letter, called Chase in an attempt, as the Government puts it, to convince Chase that he was not structuring in his account; that Chase did not find his explanations convincing and closed his account; and that Potenza simply opened another account and, as Guerci admitted, continued substantially the same pattern of cash deposits, undaunted by the apparent red flags raised by his steady, just-under-$10,000 deposits at Chase.
The Government also points to Cavanaugh's file notes, which, when describing the conversation with Potenza, refer specifically to CTR requirements. The more logical conclusion from these notes is that Cavanaugh asked questions about Potenza's banking activity, and when he gave her the same explanation that he offered at trial, in an attempt to be concise, she referred specifically to the CTR requirements.
To be sure, as the Government correctly points out, Potenza admitted on the stand that he knew (if vaguely) about CTRs and their triggering amount. This knowledge, however, is insufficient to find intent.
To find that Potenza acted intentionally to evade the CTR filing requirement, I would have to credit Potenza with a highly nuanced understanding of the law while at the same time find him to have at least one large blind spot and virtually no appreciation for the practical aspect of how potential structuring is monitored. Potenza would have to have known that while his cash deposits "counted" towards the CTR filing requirements, his deposits into the
This is a much more elaborate dance than the one the jury accepted in United States v. Botti, No. 08-cr-230, 2010 WL 341328, 2010 U.S. Dist. LEXIS 4927 (D.Conn. Jan. 22, 2010) (denying motion for a new trial and judgment for acquittal), a case the Government finds analogous. In Botti, the defendant urged the Court to reject the jury's finding of intent because he testified that he knew that multiple transactions under $10,000 could still result in filings by his bank. The Court dismissed his argument for a number of reasons, but the one the Government finds most useful here is the Court's observation that knowledge of potential detection does not necessarily undercut a finding of intent.
That, of course, is self-evident. The obstacle for the Government in the present case—one which it has not overcome and one it did not face in Botti—is to show that claimant had either an unbalanced level of knowledge or that he acted irrationally; unlike the defendant in Botti, the claimant here could not be said to have just taken a measured chance that his activity would go undetected. See id. at *4, 2010 U.S. Dist. LEXIS 4927 at *13 ("In truth, the fact that an individual may be aware that there is some chance that his structuring will be detected even though he keeps his deposits below $10,000 does not preclude his having acted with the intent to evade the CTR requirement that applies to deposits in excess of $10,000."). In any event, the Court in Botti was reviewing a jury verdict, albeit in a criminal case. Although I find that the Government has failed to carry its burden of persuasion on the element of intent, this conclusion says nothing about its burden of production, which claimant has not tested in this action. Set against Potenza's credible and logical explanations, the Government's theory of intent is easily dismissed.
For the foregoing reasons, the Clerk of the Court is directed to enter judgment dismissing the complaint and ordering the Government to return the seized funds forthwith in addition to any interest paid to United States on those funds as well as
A No, our question was do you recall getting a letter from J.P. Morgan Chase and I indicated what he informed us of. I recall getting a letter—
Q Any letter—
A He recalled getting a letter but he does not remember the context of the letter or the contents. Those are his exact words or—not verbatim, but in summary.
Q Sir, you spent 26 years as an IRS agent, right?
A Yes.
Q You know how to elicit admissions, right?
A I believe I do, yes.
Q On December 10th, you had already seized the money. You were looking for admissions from Robert Potenza?
A Yes.
Q It's your testimony that even though you're looking for admissions, you say did you ever get a letter and he said yeah, I got a letter, but you didn't say I'm talking about a specific letter. On September 7th, 2007, and it warned you that you could be engaged in CTR evasion, words or substance, you didn't bring that up, did you?
A I don't recall getting into that amount of specificity, no.
