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Summary: Revised May 3, 1999 UNITED STATES COURT OF APPEALS For the Fifth Circuit No. 97-40241 UNITED STATES OF AMERICA, Plaintiff - Appellee - Cross-Appellant, VERSUS WALTER MATTHEW THREADGILL, JR.; WALTER MATTHEW THREADGILL, III; MICHAEL GLENN RIGLER; TIMOTHY RAY KLEMENT; MARK VICTOR THREADGILL, Defendants - Appellants - Cross-Appellees. Appeals from the United States District Court for the Eastern District of Texas April 13, 1999 Before REYNALDO G. GARZA, JONES, and DeMOSS, Circuit Judges. DeMOSS, Cir
Summary: Revised May 3, 1999 UNITED STATES COURT OF APPEALS For the Fifth Circuit No. 97-40241 UNITED STATES OF AMERICA, Plaintiff - Appellee - Cross-Appellant, VERSUS WALTER MATTHEW THREADGILL, JR.; WALTER MATTHEW THREADGILL, III; MICHAEL GLENN RIGLER; TIMOTHY RAY KLEMENT; MARK VICTOR THREADGILL, Defendants - Appellants - Cross-Appellees. Appeals from the United States District Court for the Eastern District of Texas April 13, 1999 Before REYNALDO G. GARZA, JONES, and DeMOSS, Circuit Judges. DeMOSS, Circ..
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Revised May 3, 1999
UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 97-40241
UNITED STATES OF AMERICA,
Plaintiff - Appellee - Cross-Appellant,
VERSUS
WALTER MATTHEW THREADGILL, JR.; WALTER MATTHEW
THREADGILL, III; MICHAEL GLENN RIGLER; TIMOTHY
RAY KLEMENT; MARK VICTOR THREADGILL,
Defendants - Appellants - Cross-Appellees.
Appeals from the United States District Court
for the Eastern District of Texas
April 13, 1999
Before REYNALDO G. GARZA, JONES, and DeMOSS, Circuit Judges.
DeMOSS, Circuit Judge:
In this appeal we are asked to review the convictions and
sentences of five defendants who operated a gambling operation in
Gainesville, Texas. We also are presented with a cross-appeal
from the government, challenging the district court’s decision to
depart downward at sentencing. As explained in this opinion, we
detect no infirmity in the defendants’ convictions or sentences,
and affirm.
I.
On February 15, 1996, a federal grand jury returned a
fourteen count indictment charging Walter Matthew Threadgill, Jr.
(“Walter Threadgill”), and his sons, Walter Matthew Threadgill,
III (“Matthew Threadgill”) and Mark Victor Threadgill (“Mark
Threadgill”), with various crimes relating to their involvement
with an illegal gambling operation in Gainesville, Texas. Also
charged in the indictment were codefendants Michael Glen Rigler
(“Rigler”), and Timothy Ray Klement (“Klement”), who were closely
involved with the Threadgills. Count one of the indictment
charged the defendants with conducting an illegal gambling
business in violation of 18 U.S.C. § 1955.1 Count two alleged
that the defendants had conspired to commit money laundering in
violation of 18 U.S.C. § 1956(h). Counts three through ten
charged the defendants with various instances of money laundering
in violation of 18 U.S.C. § 1956(a)(1)(A)(i) and (B)(i), and with
aiding and abetting in the commission of those crimes in
violation of 18 U.S.C. § 2. Counts eleven through fourteen were
brought against Rigler only, alleging that he structured various
1
On August 14, 1996, the grand jury returned a
superseding indictment, alleging the same charges with minor
modifications.
2
financial transactions to evade reporting requirements, in
violation of 31 U.S.C. § 5324.
At trial the evidence showed that Walter Threadgill had been
a bookmaker since the early 1980s. He started alone, but was
later joined by his sons Matt and Mark when the great Texas oil
bust hit. That small family business eventually blossomed into a
large scale gambling operation that handled millions of dollars
in bets every year, and serviced hundreds of bettors in numerous
states.2 Eventually, the Threadgills were joined by Klement, who
brought his own bookmaking business to the organization, and
Rigler, who was a practicing accountant.
The enterprise was profitably run for several years out of a
windowless building in Gainesville, Texas. On an ordinary day
the defendants would arrive in the morning, make sure that the
game schedules in the computers were accurate, and then obtain
various point spreads from a service in Florida. As the day
progressed the defendants would take bets over the telephone and
would enter the wagers on several computers, which ran on
customized software designed to manage wagering. All
conversations with bettors were automatically recorded on
cassette tapes to avoid later disagreements. Once a week a
computer printout was run of the bettors’ accounts in order to
2
During a typical month in football season the group
would write about $1,000,000 in wagers. Basketball, in
comparison, brought in roughly $100,000.
3
settle the balances. Generally, bettors were told to make their
checks payable to “Tom Johnson,” a fictitious person, although
some checks were made payable to the individual defendants.
Rigler, who worked for the organization as its accountant,
would endorse and deposit the checks in the bank account of
Hesperian Investment Corp (“Hesperian”), at North Texas Bank &
Trust, a nationally insured bank. Hesperian was a legitimate
business, owned by Rigler and Matthew Threadgill, that made small
loans to individuals in advance of their income tax returns.
Once the checks from the gambling operation were commingled with
Hesperian’s money, Rigler would withdraw cash from the account in
amounts always less than $10,000. The proceeds were then divided
equally among the other defendants, although some of the money
was used to pay the gambling operation’s expenses. For his
services, Rigler initially charged $500 a month, which later
increased to $700.
In the Fall of 1994, the Texas Department of Public Safety
received anonymous tips about the Threadgills’ bookmaking
operation. The ensuing investigation revealed that ten telephone
lines were being operated in the Threadgills’ building, all
listed to Cool Water Productions, a defunct corporation. The
investigation also revealed heavy telephone activity at that
address: over 1,600 calls were made to that location in one
weekend alone. In December 1994, the defendants heard rumors
4
that the police were investigating their gambling operation. The
operation was then temporarily closed, and later reopened in a
barn owned by Paul Smith (“Smith”), who also worked for the
bookmaking operation. On March 8, 1995, state law enforcement
officers searched Smith’s residence and arrested Smith and Mark
Threadgill for engaging in organized crime in violation of Texas
law. In a search of the barn the police recovered gambling
computers, cassette tapes, and sports schedules. Additional
gambling records and cassette tapes were found in Smith’s home
and vehicle. When the officers realized how extensive the
operation was -- wagers were coming from nineteen states outside
of Texas -- federal assistance was requested.
On April 22, 1995, federal officers searched numerous
locations related to the gambling operation. Discovered at
Walter Threadgill’s house were numerous sports schedules and
excerpts from the Texas Penal Code, including a copy of Chapter
71 on organized crime, as well as §§ 47.02 through 47.06 of the
Code, which covers various gambling activities. At Matthew
Threadgill’s house the officers found several computer printouts
of betting records and sports schedules. At Klement’s residence
the officers found gambling records, notebooks containing betting
information, bettors’ names and addresses, and cashier’s checks
made payable to various bettors. Similar evidence was found at
Mark Threadgill’s home. A search of the Hesperian offices
5
produced numerous corporate documents related to the bookmaking
operation. The officers also found carbon copies of cashier’s
checks made payable to known bettors, and a ledger that tracked
the various transactions.
At trial the jury heard 30 taped telephone conversations in
which the defendants accepted wagers from their clients. Several
bettors who had been given immunity also testified about their
dealings with the defendants. Several of those bettors were from
out of state. The jury also heard testimony from Smith, who
turned government’s witness and provided the jury with many
details about the gambling operation. Finally, the jury heard
from Rigler’s bookkeeper, who stated that at Rigler’s behest she
commingled checks made payable to “Tom Johnson” with legitimate
Hesperian funds. The jury ultimately found the defendants guilty
on count one, the gambling charge, and guilty on count two, the
conspiracy charge. The jury acquitted the defendants on the
substantive money laundering offenses alleged in counts three
through ten. Rigler was also found guilty on counts eleven
through fourteen, the unlawful structuring counts.
The district court subsequently sentenced each of the
defendants to 42 months imprisonment. Although their respective
guideline ranges varied, the district court arrived at that
uniform sentence by departing downward as to each defendant under
U.S.S.G. § 5K2.0. The defendants now appeal their convictions.
6
Mark Threadgill is the only defendant that appeals his sentence.
The government cross-appeals, contending that the district court
erred in departing downward.
II.
The defendants contend that their convictions must be set
aside because federal agents used gambling tax records kept by
the organization to secure search warrants and to later obtain a
grand jury indictment. The defendants assert that the federal
agents’ use of those records abridged their Fifth Amendment
rights against self-incrimination, and also violated the
statutory requirements of 26 U.S.C. § 4424(c).
Walter Threadgill raised this argument in a motion to
suppress filed in the district court, which was subsequently
adopted by each of his codefendants. The district court, after
holding a hearing, denied the motion in a written order. In
reviewing a district court’s denial of a defendant’s motion to
suppress, we review factual findings for clear error and
conclusions of law de novo. See United States v.
Carrillo-Morales, 27 F.3d 1054, 1060-61 (5th Cir. 1994), cert.
denied,
513 U.S. 1178 (1995). Additionally, we review the
evidence in the light most favorable to the prevailing party
which, in this case, is the government. United States v.
Ishmael,
48 F.3d 850, 853 (5th Cir.), cert. denied,
516 U.S. 818
7
(1995).
Under federal law, persons who unlawfully accept wagers must
nevertheless pay an excise tax equal to two percent of the
unauthorized wagers. 26 U.S.C. §§ 4401 & 4411. That tax must be
paid on a monthly basis, and must be reported on what is known as
an IRS Form 730. 26 C.F.R. § 44.6011(a)(1)(a). To assist the
IRS in determining whether a taxpayer has correctly stated his
taxes, the taxpayer must “keep a daily record showing the gross
amount of all wagers on which he is so liable.” 26 U.S.C. §
4403.
There are limits, however, on the extent to which those
records may be used against a taxpayer. Under § 4424(a) of the
Internal Revenue Code, officials or employees of the Treasury
Department are forbidden from divulging the tax records.3 26
3
Section 4424(a) provides:
(a) General rule.--Except as otherwise
provided in this section, neither the
Secretary nor any other officer or employee
of the Treasury Department may divulge or
make known in any manner whatever to any
person--
(1) any original, copy, or abstract of any
return, payment, or registration made
pursuant to this chapter,
(2) any record required for making any
such return, payment, or registration,
which the Secretary is permitted by the
taxpayer to examine or which is produced
pursuant to section 7602, or
(3) any information come at by the
exploitation of any such return, payment,
registration, or record.
8
U.S.C. § 4424(a). Moreover, § 4424(c) prohibits the use of
certain gambling tax records “in any criminal proceeding.”4 An
added constraint also flows from the Fifth Amendment, which
protects every person from being “compelled in any criminal case
to be a witness against himself.” U.S. Const. amend. V. With
those principles in mind, we turn to the particular facts of this
case.
On March 8, 1995, two search warrants were executed by state
law enforcement officers on Smith’s residence, barn, and vehicle.
The search produced computers, ledgers, tape recordings of
telephone calls with bettors, address books containing coded
information on bettors, and numerous sports schedules. The
evidence was eventually turned over to federal authorities who
then applied for a search warrant with an affidavit summarizing
26 U.S.C. § 4424(a)
4
Section 4424(c) provides:
(c) Use of documents possessed by taxpayer.--
Except in connection with the administration
or civil or criminal enforcement of any tax
imposed by this title--
(1) any stamp denoting payment of the
special tax under this chapter,
(2) any original, copy, or abstract
possessed by a taxpayer of any return,
payment, or registration made by such
taxpayer pursuant to this chapter, and
(3) any information come at by the
exploitation of any such document,
shall not be used against such taxpayer in
any criminal proceeding.
26 U.S.C. § 4424(c).
9
the evidence. The acting magistrate judge granted the
application, and the resulting search by the federal agents
uncovered more incriminating evidence: additional gambling
records in the form of computer printouts, financial ledgers, and
a notebook containing bettors’ names and addresses. The federal
agents then used the evidence to obtain the grand jury indictment
that gave rise to the present action.
In their motion to suppress, the defendants argued that the
gambling records were kept for the specific purpose of complying
with the federal tax laws. The defendants thus reasoned that the
federal agents’ subsequent use of those records violated their
rights under the Fifth Amendment and § 4424(c). Notably, the
defendants explicitly limited their argument to the seized
computer records, two ledgers, and 170 tape recordings.
In denying the motion, the district court found that the
defendants’ Fifth Amendment rights had not been violated because
the challenged materials were not the types of records compelled
by the tax statutes. The court observed that the computer
records were irreversibly purged every two weeks, strongly
suggesting that they were not used for tax purposes. Similarly,
the court found that the defendants permanently erased
information on the cassette tapes by routinely taping over
conversations. As for the two ledgers, the district court found
that one was used simply to account for checks taken to Rigler,
10
while the other was used to keep track of bettors’ accounts.
On those facts the district court concluded that the
gambling records were kept to further the gambling business, not
to comply with federal tax laws. We agree. The record plainly
establishes that the defendants used the gambling records to
better the profitability of their criminal enterprise. There is
little, if any, evidence that the gambling records were actually
used for a law-abiding purpose. We affirm the district court’s
denial of the motion to suppress.
III.
The defendants contend that the superseding indictment was
deficient with respect to count two, the conspiracy charge. We
review de novo a challenge to the sufficiency of an indictment.
United States v. Fitzgerald, 89 F.3d 218, 221 (5th Cir.), cert.
denied,
117 S. Ct. 446 (1996). Generally, we measure the
sufficiency of an indictment “by whether (1) each count contains
the essential elements of the offense charged, (2) the elements
are described with particularity, without any uncertainty or
ambiguity, and (3) the charge is specific enough to protect the
defendant against a subsequent prosecution for the same offense."
United States v. Lavergne,
805 F.2d 517, 521 (5th Cir. 1986)
(citing United States v. Gordon,
780 F.2d 1165, 1171-72 (5th Cir.
1986)). The elements of the offense of conspiracy to commit
11
money laundering are: (1) that there was an agreement between
two or more persons to commit money laundering; and (2) that the
defendant joined the agreement knowing its purpose and with the
intent to further the illegal purpose.5 United States v. Garcia
Abrego, 141 F.3d 142, 163-64 (5th Cir.), cert. denied,
119 S. Ct.
182 (1998).
On appeal, the defendants argue that count two is flawed
because it fails to recite two necessary elements of the crime.
First, the defendants contend that the count fails to allege that
they knew the specified property represented the proceeds of
unlawful activity. Second, they assert that the count fails to
allege that the defendants knew the specified unlawful activity,
illegal gambling, was a felony.6
Count two cites the applicable statute for conspiracy to
5
Presently, there is an open question in this Circuit as
to whether conspiracy to commit money laundering under 18 U.S.C.
§ 1956(h) requires proof of an overt act in furtherance of the
conspiracy as one of its required elements. The Supreme Court
has held that a conviction for conspiracy to commit a drug
offense in violation of 21 U.S.C. § 846 does not require an overt
act. See United States v. Shabani, 513 U.S. 10, 15 (1994). As
we have recognized on a previous occasion, the language of § 846
is nearly identical to the language of § 1956(h), and neither the
Supreme Court nor this Court has squarely decided whether §
1956(h) also lacks an overt act requirement. United States v.
Garcia Abrego,
141 F.3d 142, 163-64 (5th Cir.), cert. denied,
119
S. Ct. 182 (1998). We need not address that issue here, however,
because even if an overt act is an element of § 1956(h), count
two of the superseding indictment alleges several overt acts.
6
Each of the defendants raised this challenge in the
district court in a joint motion to dismiss count two of the
superseding indictment.
12
commit money laundering, 18 U.S.C. § 1956(h), and proceeds to
charge the defendants with the necessary elements of that
offense.7 Critically, the wording of the charge is sufficiently
specific to apprise the defendants of the charged crime, and to
protect them from subsequent prosecution for the same offense.
See Lavergne, 805 F.2d at 521 (5th Cir. 1986) (setting forth the
criteria for determining the validity of an indictment).
The defendants’ argument is unavailing because the two
elements the defendants claim are missing from count two are not
even elements of the crime of conspiracy. Cf. 18 U.S.C. §
1956(h) (statutory language not reflecting these elements);
Garcia Abrego, 141 F.3d at 163-64 (5th Cir. 1998) (setting forth
7
Count two provides in pertinent part:
[the defendants] did knowingly, unlawfully,
and willfully combine, conspire, confederate,
and agree with each other . . . to conduct
and attempt to conduct financial transactions
affecting interstate commerce, which involved
the proceeds of a specified unlawful
activity, that is:
An illegal gambling business in
violation of Title 18, United States
Code § 1955 and more completely
described in Count One;
a. With the intent to promote the carrying
on of specified unlawful activity; and,
b. Knowing that the transaction was
designed in whole or in part to conceal and
disguise the nature, location, source,
ownership and control of the proceeds from
specified unlawful activity;
In violation of Title 18, United States
Code § 1956(a)(1)(A)(i) and (B)(i).
13
list of elements that does not include defendants’ claimed
elements). The claimed elements go instead to the substantive
crime of money laundering. 18 U.S.C. § 1956; see also United
States v. Burns, 162 F.3d 840, 847 (5th Cir. 1998) (stating that
the government must prove (1) conducted or attempted to conduct a
financial transaction, (2) which the defendant knew involved the
proceeds of unlawful activity, and (3) which the defendant knew
was designed to conceal or disguise the nature, location, source,
ownership, or control of the proceeds of the unlawful activity).
The critical error in the defendants’ position is its presumption
that a conspiracy charge must also describe the legal elements
that comprise the substantive crime that is the object of the
conspiracy. It is settled law that conspiring to commit a crime
is an offense wholly separate from the crime which is the object
of the conspiracy. United States v. Nims,
524 F.2d 123, 126 (5th
Cir. 1975), cert. denied,
426 U.S. 934 (1976). Thus, we have
consistently held that a conspiracy charge need not include the
elements of the substantive offense the defendant may have
conspired to commit. United States v. Fuller,
974 F.2d 1474,
1479-80 (5th Cir. 1992), cert. denied,
510 U.S. 835 (1993);
United States v. Graves,
669 F.2d 964, 968 (5th Cir. 1982).
Accordingly, the defendants’ attempt to challenge count two by
referencing the elements of money laundering is improper. We
14
reject the claim that count two is defective.8
IV.
The defendants jointly argue that the district court’s jury
instructions were defective. Rigler and Mark Threadgill also
bring separate, individual challenges to the jury instructions.
We review each argument in turn.
A.
The defendants jointly contend that the district court erred
by giving the jury a “deliberate ignorance” instruction when
there was insufficient evidence to support its submission. We
review challenges to jury instructions by determining “whether
the court’s charge, as a whole, is a correct statement of the law
and whether it clearly instructs jurors as to the principles of
law applicable to the factual issues confronting them.” United
States v. Stacey, 896 F.2d 75, 77 (5th Cir. 1990) (citation and
quotation omitted). “A district court has broad discretion in
framing the instructions to the jury and this Court will not
reverse unless the instructions taken as a whole do not correctly
reflect the issues and law.” United States v. Moser,
123 F.3d
813, 825 (5th Cir.) (citation and quotation omitted), cert.
8
The defendants contend that the jury instructions were
defective for the same reasons. We reject that argument as well.
15
denied, 118 S. Ct. 613 (1997).
At trial the defendants claimed that they lacked the
necessary criminal intent because they did not know that their
gambling activities were a felony. See 18 U.S.C. § 1956(c)
(establishing the felony-knowledge requirement for money
laundering, that is, knowledge that the laundered property
represents proceeds from a felony under state, federal, or
foreign law). Accordingly, in its charge to the jury the
district court instructed that:
The fact of knowledge or willfulness may be
established by direct or circumstantial
evidence. The element of knowledge or
willfulness may be satisfied by inference
drawn from proof that a Defendant closed his
eyes to or acted in deliberate ignorance of
what would otherwise have been obvious to
him. A showing of negligence or mistake is
not sufficient to support a finding of
willfulness or knowledge.
The district court placed the instruction at the end of the jury
instructions in a general section that explained the various mens
rea requirements. As such, the deliberate ignorance instruction
applied to all of the counts in the superseding indictment.9
On appeal, the defendants assert that the district court’s
use of the deliberate ignorance instruction was an abuse of
discretion because the evidence at trial did not satisfy the
legal requirements for invoking the charge. We look first to the
9
The appellants timely objected to the deliberate
ignorance instruction in the district court.
16
general principles that guide the use of a deliberate ignorance
instruction.
A deliberate ignorance charge is intended “to inform the
jury that it may consider evidence of the defendant’s charade of
ignorance as circumstantial proof of guilty knowledge.” United
States v. Lara-Velasquez, 919 F.2d 946, 951 (5th Cir. 1990). It
is only to be given when a defendant claims a lack of guilty
knowledge and the proof at trial supports an inference of
deliberate indifference. United States v. Wisenbaker,
14 F.3d
1022, 1027 (5th Cir. 1994). Although we have stated that a
deliberate ignorance instruction “should rarely be given,” United
States v. Ojebode,
957 F.2d 1218, 1229 (5th Cir. 1992), cert.
denied,
507 U.S. 923 (1993), we also have “consistently upheld
such an instruction as long as sufficient evidence supported its
insertion into the charge.” United States v. Daniel,
957 F.2d
162, 169 (5th Cir. 1992). The instruction is proper where the
evidence shows (1) subjective awareness of a high probability of
the existence of illegal conduct, and (2) purposeful contrivance
to avoid learning of the illegal conduct. United States v.
Cavin,
39 F.3d 1299, 1310 (5th Cir. 1994).
The defendants assert that the use of the deliberate
ignorance instruction was improper in this case because there was
no evidence that the defendants were subjectively aware, to a
high probability, that their gambling operation was a felony.
17
The defendants also maintain that there was no evidence that they
purposefully contrived to avoid learning that fact. There are
serious flaws in the defendants’ position.
The basic thrust of the defendants’ argument is that the
deliberate ignorance instruction should not have been used to
assist the jury in determining whether the defendants knew their
gambling operation was a felony. That assertion, of course, is
only relevant to counts three through ten, the substantive money
laundering counts, since those are the only counts in the
superseding indictment which carry that particular mens rea
requirement. Compare 18 U.S.C. § 1956(a), with 18 U.S.C. § 1955,
and 18 U.S.C. § 1956(h), and 31 U.S.C. § 5324. Thus, the first
flaw in the defendants’ argument is that it overlooks the fact
that the jury acquitted the defendants on counts three through
ten. Whether the deliberate ignorance instruction was properly
submitted with respect to the money laundering counts is an
interesting, but irrelevant, question.
However, even if we generously construe the defendants’
argument as a challenge to the deliberate ignorance instruction
as applied to all of the counts in the superseding indictment, we
still must reject the contention. We concede, after reviewing
the record, that there is little evidence that the defendants
purposefully contrived to avoid knowing that their actions were
unlawful. In fact, the evidence reveals just the opposite, that
18
the defendants knew that their conduct was criminal and took
elaborate measures to hide it. Thus, we must conclude that the
district court erred by including the deliberate ignorance
instruction in the jury instructions. However, it is the
evidence of actual knowledge that proves fatal to the defendants’
claim. We have consistently held that an “error in giving the
deliberate ignorance instruction is . . . harmless where there is
substantial evidence of actual knowledge.” United States v.
Cartwright, 6 F.3d 294, 301 (5th Cir. 1993), cert. denied,
513
U.S. 1060 (1994); United States v. Breque,
964 F.2d 381, 388 (5th
Cir.1992), cert. denied,
507 U.S. 909 (1993). Accordingly, even
if we construe the defendants’ argument liberally, and find that
the district court erred in giving the deliberate ignorance
instruction, the error was harmless.
B.
Rigler was the only defendant charged and convicted of
structuring transactions to evade reporting requirements in
violation 31 U.S.C. § 5324(a)(3). On appeal Rigler challenges
the deliberate ignorance instruction as it relates to those
convictions. Specifically, he contends that the use of the
instruction was improper as a matter of law because it violated
the Supreme Court’s holding in Ratzlaf v. United States, 510 U.S.
135 (1994). In Ratzlaf, the Supreme Court held that a defendant
19
may be convicted of violating § 5324 only on a showing that the
defendant “willfully” violated anti-structuring laws. Id. at
136-38. According to the Court, the government must “prove that
the defendant acted with knowledge that his conduct was unlawful”
in order to prove a “willful” violation of § 5324.
Id. at 137.
Rigler maintains that under Ratzlaf the government was
required to prove that he had particularized knowledge; in other
words, that he knew that the subject transactions were in
violation of § 5324. He then asserts that the district court’s
deliberate ignorance instruction conflicts with Ratzlaf because
it lessens the government’s burden. In Rigler’s view, the
instruction allowed the government to secure his conviction on
mere evidence that he knew, only in a general sense, that
structuring was against the law. We do not agree.
Our review of the jury instructions reveals that the
district court correctly explained the law with respect to the
unlawful structuring counts, and did not lessen the government’s
burden under Ratzlaf. Although we base our conclusion on the
jury instructions as a whole, we call attention to a particular
provision that significantly undermines Rigler’s claim:
if you find beyond a reasonable doubt that
the defendant structured a transaction in
currency with a financial institution, that
the defendant did so for the purpose of
evading the transaction reporting
requirement, and that the defendant knew that
the structuring itself was unlawful, then you
20
should find the defendant guilty as charged.
(emphasis added.) Parsed, that statement required proof beyond a
reasonable doubt that “the defendant structured a transaction .
. . for the purpose of evading the transaction reporting
requirement . . . [knowing] that the structuring itself was
unlawful.” In that way, it permitted a conviction under § 5324
only upon evidence that Rigler knew the particular structuring
transactions were in violation of § 5324. We reject Rigler’s
claim that the deliberate ignorance instruction reduced the
government’s burden under Ratzlaf.
C.
Mark Threadgill contends that his convictions must be
reversed because the jury instructions constructively amended the
superseding indictment. He raises that issue for the first time
on appeal, so we must review it under our plain error standard.
United States v. Rogers, 126 F.3d 655, 660 (5th Cir. 1997).
Under that doctrine, a defendant must show (1) the existence of
actual error; (2) that the error was plain; and (3) that it
affects substantial rights. United States v. Calverley,
37 F.3d
160, 162-64 (5th Cir. 1994) (en banc). Applying this stringent
standard to the facts of this case, we cannot conclude that plain
error occurred.
“The Fifth Amendment guarantees that a criminal defendant
21
will be tried only on charges alleged in a grand jury
indictment." United States v. Arlen, 947 F.2d 139, 144 (5th Cir.
1991), cert. denied,
503 U.S. 939 (1992). As a result, “[t]he
indictment cannot be ‘broadened or altered’ except by the grand
jury."
Id. (citations omitted). “A constructive amendment
occurs when the trial court, through its instructions and facts
it permits in evidence, allows proof of an essential element of a
crime on an alternative basis permitted by the statute but not
charged in the indictment.”
Id. (citation and quotation
omitted). Normally, a constructive amendment is considered
prejudicial per se and grounds for reversal of a conviction.
United States v. Fletcher,
121 F.3d 187, 192 (5th Cir. 1997),
cert. denied,
118 S. Ct. 640 (1997). However, if a defendant
raises a claim of constructive amendment for the first time on
appeal, we nonetheless have the discretion to deny the claim.
Id.; United States v. Reyes,
102 F.3d 1361, 1364-66 (5th Cir.
1996).
Mark Threadgill’s allegations regarding a constructive
amendment are advanced with suspect reasoning. He starts by
noting that the jury instructions for count two, the conspiracy
charge, reference the money laundering instructions for counts
three through ten. He next observes that the jury instructions
for counts three through ten allege three state law crimes as
possible underlying felonies, a required element of money
22
laundering, 18 U.S.C. § 1956, and notes that those same crimes
have not been alleged in the corresponding counts in the
indictment. He then leaps to the conclusion that a constructive
amendment occurred, without addressing what relevance a
constructive amendment on the money laundering counts, which
resulted in an acquittal, would have on the conspiracy charge in
count two. Having looked at that question ourselves, we conclude
that any constructive amendment which did occur had no legal
bearing on Mark Threadgill’s conspiracy conviction under count
two.
Mark Threadgill makes a colorable argument that the jury
instructions for money laundering constructively amended the
corresponding money laundering counts in the superseding
indictment. However, we do not see what legal relevance that has
to Mark Threadgill’s conspiracy conviction. As noted, the
elements for proving the crime of conspiracy are separate and
distinct from the elements needed to establish the substantive
offense of money laundering. See Nims, 524 F.2d at 126.
Therefore, while the purported amendment may have impermissibly
broadened the money laundering counts in the superseding
indictment by alleging three new state crimes that could satisfy
the underlying felony requirement of § 1956, that specific
amendment could not have broadened the conspiracy charge, which
has an entirely different set of elements. See Garcia Abrego,
23
141 F.3d at 163-64 (providing that elements of money laundering
are (1) agreement between two or more persons to commit money
laundering, and (2) that the defendant joined the agreement
knowing its purpose and with the intent to further the illegal
purpose). Thus, if the jury instructions for counts three
through ten worked a constructive amendment, they did so only
with respect to the money laundering counts. We find no error
that warrants relief under our plain error standard.
V.
The defendants contend that the district court erred in
failing to dismiss the superseding indictment because the
gambling, money laundering, and unlawful structuring counts are
worded in a manner that violates the federal Commerce Clause.
The defendants also argue that the jury instructions are flawed
for the same reason.
We note as an initial matter that the defendants were
acquitted on counts three through ten, the money laundering
counts. Thus, we limit our consideration to whether the
superseding indictment and jury instructions allege the gambling
and unlawful structuring counts in a manner inconsistent with the
Commerce Clause. We begin that inquiry with a review of the
elements of those offenses.
The elements of the crime of illegal gambling are (1) the
24
existence of a gambling business which is illegal under the laws
of the state in which it is conducted; (2) the involvement of
five or more persons in the operation of the business; and (3)
the substantially continuous operation of the business for a
period in excess of 30 days, or, gross revenues of $2,000 in any
single day. 18 U.S.C. § 1955; United States v. Tucker, 638 F.2d
1292, 1294 (5th Cir.), cert. denied,
454 U.S. 833 (1981). The
elements of the crime of unlawful structuring were, at the time
of the offenses in question, (1) that the defendant willfully and
knowingly structured a currency transaction; (2) with the purpose
of evading the reporting requirements; (3) the transaction
involved one or more domestic financial institutions; and (4)
the defendant knew that the structuring was unlawful.10 31
U.S.C. § 5324; see also Ratzlaf v. United States,
510 U.S. 135
(1994).
In this case, the superseding indictment and jury
instructions carefully track the language of the gambling and
unlawful structuring statutes, accurately reciting all of the
generally recognized elements of those offenses. The defendants,
10
After Ratzlaf, Congress expressly overruled the Court's
decision by passing a new statute, 31 U.S.C. § 5324 (1994),
making plain that knowledge of the law against structuring was
not required for guilt. See H.R. Rep. No. 103-438, at 22 (1994)
(stating that § 5324 restores Congress’ clear intent that
currency reporting crime requires only an intent to evade
reporting requirements, not proof that the defendant knew that
structuring was illegal).
25
however, insist that the counts are constitutionally infirm
because they fail to allege that the charged conduct had a
“substantial effect on interstate commerce,” as that term was
explained in United States v. Lopez, 514 U.S. 549 (1995). They
assert that after Lopez the federal government cannot prohibit
individual conduct without proving that jurisdictional element.
The defendants’ interpretation of Lopez is incorrect.
In Lopez, the Supreme Court struck 18 U.S.C. § 922(q)(1)(A),
a statute which prohibited “‘any individual knowingly to possess
a firearm at a place [he] knows . . . is a school zone,’” as an
unconstitutional exercise of Congress’ power under the Commerce
Clause. Id. at 551. That power, the Court observed, only
extends to three types of activity: (1) the use of the channels
of interstate commerce; (2) the instrumentalities of interstate
commerce, or persons or things in interstate commerce; and (3)
those activities having a substantial relation to interstate
commerce, namely, those activities that substantially affect
interstate commerce.
Id. at 558-59. Since § 922(q)(1)(A) did
not involve channels or instrumentalities of interstate commerce,
the Court reasoned that the statute would be constitutional only
if it qualified under the third category, as a statute that
regulated an activity which substantially affected interstate
commerce.
Id. at 559.
In considering that question, the Court recognized that its
26
case law had not always been clear as to whether an activity must
“affect” or “substantially affect” interstate commerce. The
Court then explained that “consistent with the great weight of
our case law . . . the proper test requires an analysis of
whether the regulated activity ‘substantially affects’ interstate
commerce.” Id. at 559. Having clarified that point, the Court
concluded that several critical factors prevented § 922(q)(1)(A)
from qualifying as a valid exercise of congressional authority
under the third category. First, since § 922(q)(1)(A) did not
regulate a commercial activity, the statute could not be upheld
as regulating “activities that arise out of or are connected with
a commercial transaction, which viewed in the aggregate,
substantially affects interstate commerce.”
Id. at 561.
Further, the statute contained no “jurisdictional element which
would ensure, through case-by-case inquiry, that the [activity]
in question affects interstate commerce.”
Id. Finally, the
statute was not supported by specific “congressional findings
[that] would enable [the Court] to evaluate the legislative
judgment that the activity in question substantially affected
interstate commerce, even though no such substantial effect was
visible to the naked eye.”
Id. at 563.
On appeal, the defendants essentially argue that Lopez has
created a new jurisdictional element in all federal prosecutions
of individual conduct. That element would require the government
27
to plead and prove that the charged conduct “substantially
affected” interstate commerce. We are not persuaded. Lopez is
significant because it limits Congress’ ability to regulate
intrastate activities not related to the channels or
instrumentalities of interstate commerce. But contrary to the
defendants’ contention, nothing in Lopez purports to announce any
broader rule.11
Whether a defendant’s conduct has a “substantial effect on
interstate commerce” is a question that only becomes relevant
when the statute at issue, or the facts of the case, cast doubt
on Congress’ ability to use the Commerce Clause to regulate the
charged conduct. In this case neither circumstance is present.
Unlike the Gun Free Zones Act in Lopez, the gambling and unlawful
structuring statutes regulate purely commercial activities.12
Also, the facts of this case indicate that the defendants
actually engaged in significant interstate activity in
furtherance of their gambling operation. Accordingly, we reject
the defendants’ claim that the gambling and structuring counts
11
The defendants have failed to cite a single case that
supports their novel interpretation of Lopez.
12
Furthermore, § 1955 contains a jurisdictional element
that ensures a sufficient jurisdictional nexus on a case-by-case
basis. See 18 U.S.C. § 1955(b). Also, the gambling statute is
supported with express congressional findings that have prompted
this Court to affirm the constitutionality of § 1955, see United
States v. Harris, 460 F.2d 1041, (5th Cir.) (finding § 1955 valid
exercise of Commerce Clause power after summarizing legislative
history), cert. denied,
409 U.S. 877 (1972).
28
are invalid under Lopez for not alleging a “substantial effect on
interstate commerce.”
VI.
Finally, Klement argues that count one of the superseding
indictment, the gambling count, was defective because it did not
cite the particular state statute that the defendants allegedly
violated. See 18 U.S.C. § 1955(b) (requiring the existence of a
gambling business that is illegal under state law). Normally,
this Court applies a de novo standard of review to a district
court’s finding that an indictment is sufficient. United States
v. Fitzgerald, 89 F.3d 218, 221 (5th Cir.), cert. denied, 117 S.
Ct. 446 (1996). But because Klement raised this issue after
trial, the indictment must be liberally construed in favor of
validity, “unless it is so defective that by any reasonable
construction, it fails to charge an offense for which the
defendant is convicted.” United States v. Salinas,
956 F.2d 80,
82 (5th Cir. 1992) (citations and quotations omitted).
As we have explained, a person violates § 1955 if he
operates an “illegal gambling business . . . [in] violation of
the law of a State . . . in which it is conducted.” 18 U.S.C. §
1955(b)(1). In this case, the superseding indictment tracked the
language of § 1955, recited all of its necessary elements, and
alleged that the defendants operated a “bookmaking business” that
29
“violated the laws of the State of Texas.” As Klement points
out, however, it did not specifically cite the Texas statute that
prohibits bookmaking. That argument need not detain us long.
The Federal Rules of Criminal Procedure provide that the
failure to cite a statute in an indictment “shall not be ground
for . . . reversal of a conviction if the error or omission did
not mislead the defendant to the defendant’s prejudice.” Fed. R.
Crim. P. 7(c)(3). Moreover, this Court has recognized that “to
be sufficient, an indictment needs only to allege each essential
element of the offense charged so as to enable the accused to
prepare his defense and to allow the accused to invoke the double
jeopardy clause in any subsequent proceeding." United States v.
Webb, 747 F.2d 278, 284 (5th Cir. 1984). The test for the
validity of an indictment is “not whether the indictment could
have been framed in a more satisfactory manner, but whether it
conforms to minimal constitutional standards."
Id.
Here, the Texas Penal Code criminalizes bookmaking in only
one location See Tex. Penal Code Ann. § 47.03(2). Thus, in
light of the fact that the superseding indictment expressly
alleged the crime of “bookmaking,” the defendants must have known
that they were being charged with violating § 47.03 of the Texas
Penal Code. The superseding indictment’s identification of the
state offense provided adequate notice. Thus, Klement was not
prejudiced by the superseding indictment’s failure to expressly
30
cite the statutory provision. We reject Klement’s challenge to
count one of the superseding indictment.
VII.
In its cross-appeal, the government challenges the district
court’s decision to downwardly depart at to each defendant’s
sentence. As a general rule, when a case before a district court
is a typical one, the court must impose a sentence within the
applicable Sentencing Guidelines range. 18 U.S.C. § 3553(a);
United States v. Arce, 118 F.3d 335, 338 (5th Cir. 1997), cert.
denied,
118 S. Ct. 705 (1998). However, the Sentencing
Commission recognized that unusual cases would arise requiring
special consideration. See U.S.S.G. Ch. 1, Pt. A, intro. comment
4(b). Thus, the district courts were reposed with a significant
measure of sentencing discretion for cases with atypical or
unusual circumstances. The Commission explained:
The Commission intends the sentencing courts
to treat each guideline as carving out a
“heartland,” a set of typical cases embodying
the conduct that each guideline describes.
When a court finds an atypical case, one to
which a particular guideline linguistically
applies but where conduct significantly
differs from the norm, the court may consider
whether a departure is warranted.
Id. That intent has been codified in 18 U.S.C. § 3553(b), which
provides that a district court may depart from the applicable
guideline range when it “finds that there exists an aggravating
31
or mitigating circumstance of a kind, or to a degree, not
adequately taken into consideration by the Sentencing Commission
in formulating the guidelines that should result in a sentence
different from that described.” 18 U.S.C. § 3553(b). In
determining whether a circumstance was adequately taken into
consideration by the Sentencing Commission, our inquiry is
limited to the Sentencing Guidelines, policy statements, and
official commentary of the Commission. 18 U.S.C. § 3553(b). In
this appeal, the government alleges that the facts of this case
do not support the district court’s determination that the
defendants’ case was “outside the heartland” of money laundering
cases. To properly consider that claim, we must first set forth
the basic framework for analyzing a district court’s decision to
depart.
After the Supreme Court’s landmark decision in Koon v.
United States, 518 U.S. 81 (1996), our analysis of a district
court’s decision to depart consists of three separate
determinations.13 An appellate court must ask: (1) whether the
13
Before Koon, this Court utilized a two-step inquiry
based on the Supreme Court’s decision in Williams v. United
States, 503 U.S. 193 (1992). See United States v. Kay,
83 F.3d
98, 100-01 (5th Cir. 1996). That approach asked (1) whether the
sentence was imposed either in violation of law or as a result of
an incorrect application of the Guidelines; and (2) whether the
sentence is an unreasonable departure from the computed guideline
range.
Id. In Koon, the Supreme Court elaborated at length on
the first step of that approach. In this opinion we have refined
our two-step approach to incorporate Koon’s teachings.
32
factors relied on by the district court for departure are
permissible factors under the Guidelines; (2) whether the
departure factors, as supported by evidence in the record, remove
the case from the heartland of the applicable guideline; and (3)
whether the degree of departure is reasonable. See United States
v. Whiteskunk, 162 F.3d 1244, 1249 (10th Cir. 1998) (recognizing
the same determinations, although dividing them into four
separate inquiries). In this case, the parties’ arguments center
on the first two questions, so that is where we turn our
attention.
A.
The first question an appellate court must ask is whether a
particular factor relied on by the district court is a
permissible factor for departure under the Guidelines. See Koon,
518 U.S. at 92-96. In addressing that question, we start with
the basic rule that a district court may depart based on
circumstances “not adequately taken into consideration” by the
Sentencing Commission. 18 U.S.C. § 3553(b). But how do we
determine whether a given factor has been adequately considered
by the Commission? Koon speaks to that question at length.
In Koon, the Supreme Court explained that a court must
specifically look to whether the departure factor is forbidden,
encouraged, discouraged, or unmentioned by the Guidelines. Id.
33
at 94-96; United States v. Winters,
105 F.3d 200, 205-06 (5th
Cir. 1997). If the factor is expressly forbidden in the
Guidelines, Koon instructs that the sentencing court is
completely precluded from using it as a basis for departure.
Koon,
518 U.S. 95-96. However, the Court noted that the
Sentencing Commission “chose to prohibit consideration of only a
few factors, and not otherwise to limit, as a categorical matter,
the considerations which might bear on the decision to depart.”
Id. at 94. Thus, Koon makes clear that except for a limited
number of forbidden factors, the Guidelines do not limit the
kinds of factors that could constitute grounds for a departure.
See also U.S.S.G. Ch. 1, Pt. A, intro. comment 4(b) (indicating
that the Commission “does not intend to limit the kinds of
factors, whether or not mentioned anywhere else in the
guidelines, that could constitute grounds for departure in an
unusual case”). Thus, a district court must not be precluded,
categorically, from considering a factor unless the use of that
factor is plainly foreclosed by the Guidelines. United States v.
Green,
152 F.3d 1202, 1207 (9th Cir. 1998).
If the departure factor is not forbidden, the district court
may presumably depart on that factor although the appropriate
circumstances will vary depending on whether the factor is
encouraged, discouraged, or unmentioned. Koon, 518 U.S. at 94-
96. If a factor is encouraged, courts can depart only “if the
34
applicable Guideline does not already take it into account.” Id.
at 96. If the factor is discouraged, or encouraged but already
taken into account by the applicable guideline, courts can depart
“only if the factor is present to an exceptional degree or in
some other way makes the case different from the ordinary case
where the factor is present.”
Id. If the factor is unmentioned,
“the court must, after considering the ‘structure and theory of
both relevant individual guidelines and the Guidelines taken as a
whole’ . . . decide whether [the factor] is sufficient to take
the case out of the Guideline’s heartland.”
Id. (quoting United
States v. Rivera,
994 F.2d 942, 949 (1st Cir. 1993)).
So, whether a given factor is permissible depends on how the
factor is classified. An impermissible factor is a forbidden
factor, a discouraged factor not present to an exceptional
degree, or an encouraged factor already considered by the
Guidelines and not present to an exceptional degree. Id. at 94-
96. All other factors cannot be precluded categorically as a
possible basis for departure.
Id. at 94. These rules comprise
the method by which we determine whether a particular factor is a
permissible ground for departure under the Guidelines. However,
we are still left with the question of what deference to accord
various aspects of district court’s decision. Fortunately, Koon
speaks to that point as well.
35
B.
In Koon the Supreme Court fashioned a straightforward rule
that guides appellate review: “[t]he deference that is due
depends on the nature of the question presented.” Id. at 98.
Thus, when the question presented by the district court’s
decision to depart is legal in nature, the appellate court gives
no deference to the district court.
Id. at 100. For instance,
“whether a factor is a permissible basis for departure under any
circumstances is a question of law, and the court of appeals need
not defer to the district court’s resolution on the point.”
Id.
at 100; United States v. Hemmingson,
157 F.3d 347, 360 (5th Cir.
1998).
When the question presented to the appellate court is
factual, on the other hand, appellate review must accord
substantial deference to the district court’s decision to depart.
Koon, 518 U.S. at 97-99; United States v. Collins,
122 F.3d 1297,
1302-33 (10th Cir. 1997). Deference is required “to afford the
district court the necessary flexibility to resolve questions
involving ‘multifarious, fleeting, special, narrow facts that
utterly resist generalization.’”
Koon, 518 U.S. at 99 (citation
and quotation omitted). As the Court explained in Koon, most
departure cases hinge on factual determinations, and thus fall
within this category: “[a] district court’s decision to depart
from the guidelines . . . will in most cases be due substantial
36
deference, for it embodies the traditional exercise of discretion
by the sentencing court.” Id. at 98. As such, an appellate
court must expect that in many instances:
The district court’s [decision to depart] .
. . will not involve a ‘quintessentially
legal’ interpretation of the words of a
guideline, but rather will amount to a
judgment about whether the given
circumstances, as seen from the district
court’s unique vantage point, are unusual,
ordinary or not ordinary, and to what extent.
Rivera, 994 F.2d at 951. But when are the particular
circumstances of a case so unusual as to warrant a departure
under the Guidelines? That question takes us to the second
determination an appellate court must make when reviewing a
district court’s decision to depart.
C.
After determining whether a departure factor relied on by
the district court was permissible, the appellate court must ask
whether the given factor is present to a degree not adequately
considered by the Commission. Koon, 518 U.S. at 98. In other
words, are the circumstances of the case so unusual as to remove
the case from the heartland?
Id. (“Before a departure is
permitted, certain aspects of the case must be found unusual
enough for it to fall outside the heartland of cases in the
Guideline.”). In Koon the Supreme Court explained that this
question is largely within the province of the district court.
37
Id. at 97-99. The Court observed that “[d]istrict courts have an
institutional advantage over appellate courts in making these
sorts of determinations.”
Id. at 98. The Court further added
that “[t]o resolve this question, the district court must make a
refined assessment of the many facts bearing on the outcome,
informed by its vantage point and day-to-day experience in
criminal sentencing.”
Id.
Koon thus teaches that when a district court decides to
depart based on the particular facts of a case, it is acting
within its special competence.
Id. at 99 (“To ignore the
district court’s special competence -- about the ‘ordinariness’
or ‘unusualness’ of a particular case’ -- would risk depriving
the Sentencing Commission of an important source of information,
namely, the reactions of the trial judge to the fact-specific
circumstances of the case.” (citation and quotation omitted));
see also
Hemmingson, 157 F.3d at 361 (“Koon also stresses that
courts of appeals owe considerable deference in reviewing a
decision to depart”). Accordingly, it is the near-exclusive
province of the district court to decide whether a particular
factor, or set of factors, removes a case from the applicable
heartland. We must accord those decisions the greatest
deference.
To summarize our departure principles in the context of the
present case, we first must determine whether the departure
38
factors relied on by the district court were permissible. Koon
tells us that we need not defer to the district court on that
question. We next must determine whether those factors, if
permissible, were sufficient to remove the case from the
applicable heartland. Koon teaches that the district court’s
resolution of that question must be accorded substantial
deference on appeal. We now apply this analysis to the case
before us.
D.
In the present action, the district court cited two separate
factors in support of its decision to depart. The court first
found that the defendants’ money laundering activities were
incidental to the gambling operation. The court next found that
the defendants’ conduct was atypical because the defendants never
used the laundered money to further other criminal activities.
Based on those two factors, the district court departed downward
under U.S.S.G. § 5K2.0, sentencing each of the defendants to 42
months imprisonment.
In reviewing the district court’s decision to depart, we
first must determine whether the district court relied on
permissible departure factors. As instructed, we turn to the
Guidelines Manual to see whether the two factors cited by the
district court are forbidden, encouraged, discouraged, or
39
unmentioned. Koon, 518 U.S. at 94-96;
Hemmingson, 157 F.3d at
360-61. Sections 5H1 and 5K2 of the Guidelines list numerous
factors that a district court may, or may not, take into account
in deciding whether to depart. See U.S.S.G. §§ 5H1 & 5K2.
Neither of the two factors relied on by the district court in
this case are mentioned in those provisions. Thus, since neither
of the factors are expressly forbidden by the Guidelines, under
Koon the district court cannot be precluded, as a categorical
matter, from relying on those factors.
Koon, 518 U.S. at 94.
The government contends, however, that the district court’s
first factor, that the money laundering was incidental to the
gambling operation, must be declared impermissible based on this
Court’s holding in United States v. Willey, 57 F.3d 1374, 1392
(5th Cir.), cert. denied,
516 U.S. 1029 (1995). In that case, we
suggested that a downward departure could not be justified on a
finding that the subject crime was a disproportionately small
part of the overall criminal conduct.
Id. at 1391-92. Willey is
inapplicable to the present case.
In Willey it was the defendant who appealed the district
court’s refusal to grant a downward departure, and we denied that
appeal based largely on the principle that “[a] district court’s
refusal to grant a downward departure provides no basis for
appeal.” Id. at 1391. More importantly, even if our language in
Willey could be read as casting doubt on the permissibility of
40
the district court’s first factor, that language is no longer
controlling authority in light of Koon. In Koon the Court made
clear that the Sentencing Commission “chose to prohibit
consideration of only a few factors, and not otherwise to limit,
as a categorical matter, the considerations which might bear on
the decision to depart.” Koon, 518 U.S. at 94. Thus, to the
extent that Willey conflicts with Koon, Willey is no longer
binding precedent.
Our conclusion comports with the expressed intent of the
Sentencing Commission. The Commission has stated that with the
exception of only a few forbidden factors, it “does not intend to
limit the kinds of factors . . . that could constitute grounds
for departure in an unusual case.” U.S.S.G. Ch. 1, Pt. A, intro.
comment 4(b). The Guidelines are intended to provide the
district courts with the flexibility needed to address the
“unusual cases outside the range of the more typical offenses for
which the guidelines were designed.” Id.
In light of Koon, and considering “the sentencing
guidelines, policy statements, and official commentary of the
Sentencing Commission,” 18 U.S.C. § 3553(b), we decline the
government’s invitation to declare, categorically, that the
district court’s reliance upon the fact that the money laundering
was incidental to the gambling operation was an impermissible
basis for departure under the Guidelines.
41
E.
Having concluded that the district court relied on
permissible factors, we move to the second inquiry in our
departure analysis, whether the district court’s two factors,
when viewed in light of the evidence, remove this case from the
heartland of the Guidelines. Since the factors are unmentioned
in the Guidelines, we “must, after considering the structure and
theory of both relevant individual guidelines and the Guidelines
taken as a whole, decide whether it is sufficient to take the
case out of the Guideline's heartland.” Koon, 518 U.S. at 96
(citation and quotation omitted). That question is highly
factual, so we review the district court’s findings with
substantial deference.
In considering the defendants’ motion for downward
departure, the district court concluded that this was not a
typical money laundering case. The court observed that the
defendants had received over $20,000,000 in gross wagers over the
course of the gambling operation, but had laundered only
$500,000, or roughly three percent.14 The district court further
14
The government assails this finding on appeal, alleging
that it was incorrect for the district court to compare the
amount of laundered money to the amount of total wagers. The
government alleges instead that the district court should have
compared the amount of laundered money against the likely profits
of the gambling organization, roughly $1,000,000. We fail to see
the logic of that argument. Criminal organizations need to
launder not just the profits from the criminal enterprise, but
presumably the gross revenues as well.
42
found that the defendants’ conduct was unusual because they never
used the laundered money to finance other criminal activities.15
Finally, the district court considered its decision to depart in
light of the statutory purposes of sentencing. See 18 U.S.C. §
3553. Referring specifically to 18 U.S.C. § 3553(a), the Court
found that its decision to depart would reflect the seriousness
of the offense, promote respect for the law, and afford adequate
deterrence. Id.
Significantly, in departing the district court did not
ignore the money laundering convictions and only consider the
defendants’ sentences under the illegal gambling provisions.
Instead, the district court used the applicable offense levels
for money laundering as its baseline, and then departed to an
offense level of 21, a far cry from the base offense level of 12
for illegal gambling. Thus, this was certainly not a case where
the district court disregarded an applicable Guidelines range in
favor of another it preferred. See U.S.S.G. § 5K2.2 commentary
(“dissatisfaction with the available sentencing range or a
preference for a different sentence than that authorized by the
guidelines is not an appropriate basis for a sentence outside the
15
The government takes issue with this finding as well,
asserting that “[i]t would be safe to say that most money
laundering cases are based on only one specified unlawful
activity.” We trust that this is the government’s belief. But
when we review the district court’s decision to depart, it is the
district court’s judgment which is due substantial deference, not
the government’s.
43
applicable guideline range”).16
Given the district court’s special competence in making the
refined factual comparisons necessary to the determination of
whether to depart in this case, see Koon, 518 U.S. 98-99, we are
not inclined to substitute our judgment for the considered
findings of the district judge. Accordingly, we conclude that
the district court did not abuse its discretion in finding the
facts of this case atypical and a proper basis for a departure.
We quote a passage from Koon which bears repeating:
It has been uniform and constant in the
federal judicial tradition for the sentencing
judge to consider every convicted person as
an individual and every case as a unique
study in the human failings that sometimes
mitigate, sometimes magnify, the crime and
the punishment to ensue. We do not
understand it to have been the congressional
purpose to withdraw all sentencing discretion
from the United States District Judge.
Discretion is reserved within the Sentencing
Guidelines, and reflected by the standard of
appellate review we adopt.
Koon, 518 U.S. at 113. Consistent with that principle, and in
view of the applicable Guidelines provisions, we affirm the
district court’s downward departure in this case.
VIII.
The defendants also allege that they were denied a fair trial
16
We find the degree of the district court’s departure
entirely reasonable, and commend the district court for striking
a middle ground.
44
based on a laundry list of alleged mistakes by the district court.
That claim is meritless. Mark Threadgill also alleges that there
was insufficient evidence supporting his conviction for conspiracy
to commit money laundering. He also contends that the district
court erred in sentencing him to 42 months imprisonment because he
withdrew from the conspiracy, and the scope of the conspiracy was
not foreseeable to him. Alternatively, he asserts that the
district court should have reduced his sentence because he was a
minor participant. Having reviewed those arguments in light of the
record and applicable law, we find no cognizable grounds for
relief.
IX.
We affirm the defendants’ convictions and sentences in all
respects.
45
EDITH H. JONES, Circuit Judge, dissenting in part:
Because I disagree that these defendants’ money-
laundering is outside the “heartland” of such offenses, I
respectfully dissent only from the majority’s downward departure
holding. The district court’s departure reduced these defendants’
exposure by 40% to 75% of the otherwise applicable guideline range.
The Sentencing Guidelines were structured to carve out a
“heartland” of “typical cases embodying the conduct that each
guideline describes.” In typical criminal cases, courts are to
impose a sentence within the range set by the guidelines; only if
the facts of a particular case render it unusual or “one to which
a particular guideline linguistically applies but where conduct
significantly differs from the norm” are courts permitted to depart
from the guidelines and impose a sentence outside the range. In
commentary, the Commission states that “despite the courts’ legal
freedom to depart from the guidelines, they will not do so very
often.” U.S.S.G. ch. 1, pt. A (4)(b).
In Koon v. United States, the Supreme Court directed the
courts to ask four questions when considering whether a particular
case is atypical for departure purposes:
1. What features of this case, potentially, take it
outside the Guidelines’ “heartland” and make of it
a special, or unusual, case?
2. Has the Commission forbidden departures based on
those factors?
3. If not, has the Commission encouraged departures
based on those factors?
4. If not, has the Commission discouraged departures
based on those factors?
518 U.S. 81, 95,
116 S. Ct. 2035, 2045 (1996) (quoting United
States v. Rivera,
994 F.2d 942, 949 (1st Cir. 1993); see also
United States v. Hemmingson,
157 F.3d 347, 360-61 (5th Cir. 1998);
United States v. Winters,
105 F.3d 200, 205 (5th Cir. 1997).
District courts must articulate “compelling facts necessary to
satisfy the very high standard” of departures based on “outside the
heartland” reasoning.
Winters, 105 F.3d at 208.
The district court justified its departure because the
defendants’ money laundering was “incidental” to gambling and
because they allegedly did not recirculate the laundered money into
the gambling business. As such factors are not mentioned by the
Guidelines in connection with departures, the courts must “consider
the ‘structure and theory of both relevant individual guidelines
and the Guidelines taken as a whole’ and decide whether the
factor[s are] sufficient to take the case outside the heartland.”
Hemmingson, 157 F.3d at 361 (quoting
Rivera, 944 F.2d at 949). It
is important to note that departures based on grounds not mentioned
in the guidelines, as in this case, should be “highly infrequent.”
Id. (quoting U.S.S.G. ch. 1, pt. A (4)(b)).
Neither the district court’s nor the panel majority’s
reasoning is persuasive. In no sense can the money laundering here
be deemed “incidental” or somehow divorced from the conduct of the
illegal enterprise.
47
The district court considered the laundering of a half
million dollars “incidental” in relation to the overall $20 million
in bets placed with the Threadgills. To any average observer, a
half million laundered dollars is a lot of money. In fact, in a
recent telemarketing case, one defendant was sentenced to 60 months
imprisonment -- much longer than the 42 months imposed here -- for
laundering only $3,300! United States v. Leonard, 61 F.3d 1181
(5th Cir. 1995). Moreover, the devices used by the defendants --
checks payable to non-existent names and run through a legitimate
front business -- embody the classic laundering scheme.
Beyond this, the court might more usefully have compared
the amount actually laundered (about $500,000) with the total
profits the defendants could have potentially laundered, which were
around 1 million dollars,17 rather than the $20 million in the whole
scheme. If the profit approach makes sense at all, then comparing
the laundering with the actual profits reflects the defendants’
substantial efforts to conceal their source of income.
Rejecting the government’s profits argument, the majority
observes, “[c]riminal organizations need to launder not just the
profits from the criminal enterprise, but presumably the gross
revenues as well.” Infra p. 41 n.14. I fully agree. To the
17
According to the government, the reason the appellants could not
have laundered the full $20 million is because they earn money by
charging a 10% fee (called “juice”) to the losing gamblers. Thus,
assuming they were “even” (had equal bets on each side of the wager),
$20 million in wagers would net $1 million.
48
extent the defendants laundered the full amount of their gambling
revenues ($20 million) by recycling money from losers to winners
for a percent of the proceeds, then it cannot possibly be said that
the amount of money laundered was “incidental.” The majority
cannot have it both ways. Either the government is correct and the
amount of profit that could have been laundered was $1 million,
making the $500,000 actually laundered proportionately more
significant, or, as the majority notes, all of the money taken in
by the operation was laundered, negating the district court’s
finding that the amount laundered was insignificant. Regardless
which reasoning is adopted, this factor used by the district court
to conclude that the money laundering was atypical cannot be
upheld.
The district court also departed downward because
“[t]here is no evidence that the Defendants used any of this money
to finance any other criminal enterprise . . . .” This is wrong.
From a common-sense standpoint, a typical purpose for operating an
illicit gambling ring is to make easy money for personal use--not
to fund other criminal ventures. There is nothing unusual about an
illegal gambling conspiracy that takes its profits for personal
consumption instead of using them as seed money to fund other
criminal ventures. See e.g., United States v. LeBlanc, 24 F.3d
340, 346 (1st Cir. 1994); United States v. Termini,
992 F.2d 879
(8th Cir. 1993).
49
More generally, nothing about the appellants’ gambling
enterprise and associated money laundering takes the case outside
the heartland of money laundering cases. Congress passed the Money
Laundering Control Act of 1986 to fill “the gap in the criminal law
with respect to the post-crime hiding of ill-gotten gains,” United
States v. Johnson, 971 F.2d 562, 569 (10th Cir. 1992) (quoting
United States v. Edgman,
952 F.2d 1206, 1213 (10th Cir. 1991)), and
intended to “criminalize a broad array of transactions designed to
facilitate numerous federal crimes, including illegal gambling.”
LeBlanc, 24 F.3d at 346; see also
Hemmingson, 157 F.3d at 361
(“[T]he money laundering guideline primarily targets large-scale
money-laundering, which often involves the proceeds of drug
trafficking or other types of organized crime.”). The facts of
this case fall well within the contemplation of Congress when it
passed the money laundering statute: The appellants collected
large amounts of cash to run an illicit gambling operation and,
with the complicity of an experienced accountant, deposited the
proceeds in a bank in such a way as to evade currency reporting
requirements and maintain the guise of conducting legitimate
business transactions. See
LeBlanc 24 F.3d at 346. Since the
district court did not sufficiently “articulate relevant facts and
valid reasons why the circumstances of this case were of a kind or
degree not adequately considered by the Guidelines,”
Winters, 105
F.3d at 208, I can see no basis for distinguishing this case from
other similar money laundering cases. See e.g.
LeBlanc, 24 F.3d at
50
346-47 (reversing a district court’s decision to depart downward in
a gambling/money laundering case because the defendants’ acts were
typical of such cases).
Since the facts of this case and factors relied on by the
district court are not “highly infrequent,” U.S.S.G. ch. 1, pt. A
(4)(b), but in fact are typical of money laundering, I respectfully
dissent from the majority’s decision to uphold the downward
departure.
51
