Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-18-1999

USA v. Nathan, et. al.
Precedential or Non-Precedential:

Docket 98-6262, 98-6264, & 98-6299




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Recommended Citation
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Filed August 18, 1998

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

NOS. 98-6262, 98-6263, 98-6299

UNITED STATES OF AMERICA

v.

DENNIS NATHAN, Appellant in No. 98-6262

(D.C. Crim. No. 96-cr-00127-2)

UNITED STATES OF AMERICA

v.

VICTOR ARON LANDER, Appellant in No. 98-6263

(D.C. Crim. No. 96-cr-00127-3)

UNITED STATES OF AMERICA

v.

ELECTRODYNE SYSTEMS CORPORATION,
Appellant in No. 98-6299

(D.C. Crim. No. 96-cr-00127-1)

On Appeal From the United States District Court
For the District of New Jersey
District Judge: Honorable Alfred J. Lechner, Jr.

Argued: May 20, 1999

BECKER, Chief Judge, RENDELL and GARTH,
Circuit Judges.
(Filed August 18, 1998)

       MICHAEL CRITCHLEY, ESQUIRE
        (ARGUED)
       JOHN MICHAEL VAZQUEZ,
        ESQUIRE
       354 Main Street
       West Orange, NJ 07052

       Counsel for Appellant Dennis Nathan

       LAWRENCE S. LUSTBERG,
        ESQUIRE (ARGUED)
       MARK A. BERMAN, ESQUIRE
       Gibbons, Del Deo, Dolan, Griffinger
        & Vecchione
       A Professional Corporation
       One Riverfront Plaza
       Newark, NJ 07102-5497

       Counsel for Appellant Victor Aron
       Lander

       J. BARRY COCOZIELLO, ESQUIRE
        (ARGUED)
       LISA J. TREMBLY, ESQUIRE
       Podvey, Sachs, Meanor, Catenacci,
        Hildner & Cocoziello
       One Riverfront Plaza
       Newark, NJ 07102

       Counsel for Appellant Electrodyne
       Systems Corporation

                               2
       FAITH S. HOCHBERG, ESQUIRE
       United States Attorney
       GEORGE S. LEONE, ESQUIRE
       Assistant United States Attorney
       NOEL L. HILLMAN, ESQUIRE
        (ARGUED)
       Assistant United States Attorney
       970 Broad Street
       Newark, NJ 07102

       Counsel for Appellee United States of
       America

OPINION OF THE COURT

BECKER, Chief Judge.

This opinion addresses a number of sentencing issues
presented by the consolidated appeal of three defendants:
Dennis Nathan, who pled guilty to importing goods into the
United States that were not marked with the country of
origin in violation of 18 U.S.C. S 545; Victor Lander, who
pled guilty to unlawfully introducing merchandise into the
United States in violation of 18 U.S.C. S 542; and
Electrodyne Systems Corporation, which pled guilty to
violating the Arms Control Export Act, 22 U.S.C.S 2778,
and making false statements in violation of 18 U.S.C.
S 1001. Only two of the issues are of general interest and
precedential value. The first involves the proper definition of
a "stipulation" under U.S.S.G. S 1B1.2, the presence of
which may take a sentence to a higher guideline level. We
conclude that statements made during the factual basis
portion of the plea colloquy after the plea agreement has
been made are not stipulations for the purpose of section
1B1.2, as such statements cannot be said to be part of a
plea agreement. Because the District Court relied on such
non-cognizable statements in finding that Nathan and
Lander had stipulated to the greater offense of fraud, we
will reverse the judgment to the extent that it relied on the
fraud guidelines in sentencing the defendants.

                               3
The second question concerns whether the president of a
defense contracting company occupies a position of trust
with regard to the government, an issue we must resolve to
decide whether the District Court correctly applied the
adjustment for the abuse of a position of trust. We
conclude that the District Court's findings that Nathan held
a position of trust, and that he breached that trust, are
supported by the record and are legally correct. We will
therefore affirm the District Court's decision to increase
Nathan's base offense level two points on this ground. For
these reasons and the reasons that follow in our discussion
of the other more fact-bound issues before us, we will
affirm in part, reverse in part, and remand to the District
Court so that each defendant can be resentenced.

I. Facts and Procedural History

A. The Charges and the Pleas

Electrodyne Systems Corporation, a defense contracting
company, specialized in providing military components to
the United States government. Nathan was Electrodyne's
president and vice-president. Lander was its director of
marketing. Between November 1989 and March 1994,
Electrodyne entered into six contracts to provide United
States government agencies and the United States
military--including the National Aeronautics and Space
Administration ("NASA") and the United States Air
Force--with electronic components to be used in research,
communications, radar, and weapons systems. Each
contract required Electrodyne to comply with the Buy
American Act, 41 U.S.C. S 10a-10d (1988), and in each
contract Nathan (on Electrodyne's behalf) represented that
Electrodyne (a) intended to manufacture the components in
the United States; (b) would not use foreign components;
and (c) would not use offshore manufacturing sites.

Despite their contractual and statutory obligations,
Nathan and Electrodyne entered into agreements with
foreign companies in Russia and the Ukraine to build the
components specified in the contracts. In so agreeing,
Nathan disclosed to the foreign manufacturers the

                                  4
drawings, specifications, and technology of the contracted-
for components. To conceal this plan, Nathan instructed
Electrodyne's employees not to disclose the use of foreign
components, instructed the foreign manufacturers not to
mark the components with the country of manufacture,
and directed his own employees to mark the components to
make it appear as if they had been manufactured in the
United States. Nathan failed to disclose these foreign
contracts to the government and failed to register with the
State Department as a manufacturer or exporter of defense
articles.

A federal grand jury returned a thirteen-count indictment
charging Electrodyne, Nathan, and Lander with, inter alia,
violating the Arms Export Control Act ("AECA") and the
International Traffic in Arms Regulations ("ITAR"), making
false or fraudulent claims, and smuggling goods into the
United States. A few months later, pursuant to written plea
agreements, all three defendants pled guilty to various
parts of the indictment. Electrodyne pled guilty to exporting
defense-related items in violation of the AECA and to
making false statements in violation of 18 U.S.C.S 1001.
Nathan pled guilty to Count 12 of the indictment, which
alleged that he had illegally imported goods into the United
States because he failed to mark the items with the country
of origin, in violation of 18 U.S.C. S 545. Lander pled guilty
to a one-count information alleging unlawful introduction of
merchandise into the commerce of the United States in
violation of 18 U.S.C. S 542.

As part of their plea agreements, Nathan and Lander and
the government drafted a schedule of stipulations. They
stipulated that the applicable sentencing guideline was the
smuggling guideline, which is found at section 2T3.1,1 and
that the government would not seek an upward departure
for either defendant. They also stipulated that Nathan's and
Lander's actions did not threaten national security. In
Nathan's plea agreement, the government stated that it did
not suffer a tax loss as a result of Nathan's conduct.
Finally, each of Nathan's and Lander's agreements recited
_________________________________________________________________

1. Appendix A of the U.S.S.G. lists S 2T3.1 as the applicable guideline
section for violations of 18 U.S.C. SS 542 and 545.

                               5
that the schedule attached to the agreement contained all
of their stipulations and that any changes to the agreement
had to be in writing and signed by both the defendant and
the government.

At the plea hearing for Nathan and Lander, the District
Court questioned them on their understanding of the
agreement, and then asked each of them to provide a
factual basis for the plea, using questions contained in a
government plea memorandum. During this questioning,
Nathan admitted that, when he entered into a contract with
the Naval Research Laboratory ("NRL") to provide it with
amplifiers, he knew that Lander had ordered the amplifiers
from a Ukrainian company. He also admitted that he had
instructed Electrodyne's employees to obscure markings
indicating foreign manufacturing and to affix Electrodyne
labels to the amplifiers in an effort to deceive the NRL.
Lander in turn conceded that Electrodyne had contracted
with the Ukrainian company, that he had instructed the
Ukrainian manufacturer not to mark the components in a
way that indicated where they were made, and that he had
informed the manufacturer that Electrodyne would relabel
all future shipments of amplifiers to indicate that the
amplifiers were made in the United States. Lander admitted
that he knowingly assisted Electrodyne in deceiving the
United States government.

B. The Sentencing Proceedings

1. The Factual Record

Prior to sentencing, Nathan submitted to the Court a
report from Retired Rear Admiral Lawrence Layman of the
United States Navy stating that no American troops had
been put in danger by Nathan's disclosure of information.
In addition, the government researched whether the
defendants had divulged any sensitive information and
concluded: (i) that they had not revealed sensitive
information; (ii) that all relevant information was already in
the public domain; and (iii) that the parts supplied by the
defendants to the government agencies were not defective.
In its sentencing memorandum, the government: (1)

                                6
represented that all affected government agencies approved
of the plea agreement; (2) conceded that the defendants had
taken action to prevent classified material from being
disclosed; and (3) noted that some of the components
imported by the defendants actually represented aflow of
technology into, rather than out of, the United States.

Also prior to sentencing, the U.S. Probation Office
submitted a proposed Presentence Investigation Report
("PSI"). The PSI recommended that Nathan and Lander be
sentenced under the fraud guidelines (section 2F1.1),
rather than the smuggling guidelines (section 2T3.1). The
PSI acknowledged that, under section 1B1.2, the more
severe fraud guidelines would in normal circumstances
apply only if Nathan and Lander stipulated to the greater
offense of fraud, but opined that their statements during
the District Court's "factual basis" inquiry at the plea
hearing were stipulations sufficient to establish fraud
offenses. The PSI also suggested that the case was
"atypical" under Appendix A of the Guidelines, such that
the fraud guidelines might at all events apply. Both
Nathan's and Lander's counsel objected to a number of
paragraphs in the PSI. In addition, Lander informed the
Court that he intended to move for a downward departure
at sentencing based upon his status as a political refugee.

The Probation Office issued a revised PSI. The PSI
continued to recommend that the fraud guidelines should
apply, but now implicitly conceded that the defendant's
verbal admissions were not stipulations. For example, the
PSI for Lander stated, "Although not a stipulation, the
probation office posits that the defendant's verbal
admissions, under oath and on the record, are more
persuasive or, at least, as binding as a stipulation to a
more serious offense." Lander PSI P148 (emphasis added).
An addendum to Nathan's revised PSI argued that, if the
court applied section 2T3.1 rather than section 2F1.1,
Nathan could be subject to an upward departure under
section 5K2.0 on the ground that the smuggling guidelines
inadequately captured the seriousness of Nathan's offense.

The District Court sentenced Electrodyne to a five year
term of probation, $1,000,000 in fines, and restitution to
three government agencies, part in cash and part in kind.

                                7
Electrodyne filed a timely notice of appeal from the
judgment on the ground that the corporation lacked the
ability to pay such fines. In United States v. Electrodyne
Systems Corp., 

(3d Cir. 1998) (Electrodyne I),
we vacated the $1,000,000 fine and remanded with
instructions to the District Court to make more detailed
findings on the company's ability to pay.

2. The Present Sentences

At sentencing for Nathan and Lander, both the
government and the defendants' attorneys asked the Court
to sentence them in accordance with their plea agreements,
but the Court declined to do so. It offered two bases for the
sentences it was about to impose. First, it found that the
parties had stipulated to a more serious offense under
section 1B1.2 based on Nathan's and Lander's responses to
the questions posed at the plea colloquy. The Court deemed
the facts that came out at the colloquy to be "stipulations"
to fraud offenses, rendering the fraud guidelines applicable.
Second, the Court stated that even if it sentenced the
defendants under the smuggling guidelines, it would reach
the same ultimate sentence by relying on Application Note
2 of section 2T3.1 and section 5K2.0.

Application Note 2 provides that an upward departure
may be warranted where the items for which the defendant
evaded paying import duties were items whose import was
prohibited or limited, since the duties evaded may not
adequately reflect the harm to society. The Court
determined that the duties evaded by Nathan and Lander
did not adequately reflect the harm to society and that the
dismissed counts of the indictment more accurately
measured that harm. Finding that Nathan and Lander had
shared with the Ukraine and Russia information that was
"not generally known," see United States v. Electrodyne Sys.
Corp., 

, 268 (D.N.J. 1998) (Electrodyne
II), the Court repeatedly stated that the defendants' conduct
threatened national security and the safety of United States
troops, see, e.g. 

268, 269, 270. On this basis,
the Court departed upward nine levels from section 2T3.1's
base offense level of four. The Court also determined that
Nathan was in a position of trust vis-a-vis the government

                               8
because he received military data, and that he abused this
trust by sharing the information with foreign
manufacturers. It therefore added two points to his offense
level in accordance with section 3B1.3. We now describe
the actual sentences: first Nathan, then Lander, then
Electrodyne.

The District Court concluded that Nathan's base offense
level under the fraud guidelines was six; that the loss was
between $350,000 and $500,000 and thus, in accordance
with the table set out in section 2F1.1(b)(1), Nathan
warranted a nine-level increase of his base offense level;
that he deserved a two-level increase for more than minimal
planning and a four-level increase under section 3B1.1(a)
for his role as the leader or organizer of an extensive
criminal activity; and that he should receive a three-point
reduction for acceptance of responsibility. This calculation
led to a total offense level of eighteen, and with a criminal
history category of I, the Guideline imprisonment range is
27-33 months. The District Court imposed a thirty-month
sentence.

The Court calculated an alternative sentence for Nathan
as follows, using the smuggling guidelines: a base offense
level of four; an increase of two points for use of
sophisticated means; an increase of four points for his role
in the offense; an increase of two points for abuse of trust;
a nine-level upward departure for the atypical nature of the
offense (based on the national security threats resulting
from the offense, the violations of the Buy American Act
and the AECA, and the fraud that the defendants
committed); and a three-point reduction for acceptance of
responsibility. The total offense level in the wake of these
calculations is also eighteen. As noted above, with a
criminal history category of I, the Guidelines imprisonment
range is 27-33 months; the thirty-month sentence imposed
was mid-range.

The Court determined that Lander's offense level under
the fraud guidelines was fourteen: his base offense level
was six; the loss was between $350,000 and $500,000,
which, under section 2F1.1(b)(1), calls for a nine-level
increase of his base offense level; he deserved a two-level
increase for more than minimal planning; and he should

                               9
receive a three-point reduction for acceptance of
responsibility. With a criminal history category of I, the
Guideline imprisonment range was therefore 15-21 months.
The Court sentenced Lander to eighteen months in prison,
which was in the middle of that range.

As it did with Nathan, the Court sentenced Lander in the
alternative under the smuggling guidelines: it calculated a
base offense level of four; an increase of two points for use
of sophisticated means; an increase of four points for his
role in the offense; a nine-level upward departure for the
atypical nature of the offense (based on the security threats
seen to have resulted from the offense, the violations of the
Buy American Act and the AECA, and the fraud that the
defendants committed); and a three-point reduction for
acceptance of responsibility, for a total offense level of
thirteen. The applicable imprisonment range under the
smuggling guideline was 12-18 months, so the Court's
eighteen-month sentence was at the very top of that range.

Before re-sentencing, Electrodyne argued--and the
government agreed--that the appropriate loss amount was
$189,255.65. Nevertheless, the District Court, referencing
the PSI's statement that Electrodyne had stipulated to
paying $369,105.70 in restitution, concluded that the
restitution amount served as an appropriate measure of
loss. The District Court calculated that the restitution
broke down as follows: $170,660 was for investigation and
reprocurement costs associated with two Air Force
contracts; $139,200 reflected the value of a settlement
agreement between the Air Force and Electrodyne relating
to one of the contracts, because the settlement agreement
had been canceled as a result of the plea agreement; $2000
was to go to the Naval Research Lab ("NRL"); and either (a)
$14,595.65 plus three converters or (b) $42,650.05 plus
one converter was to go to NASA.2 The Court also ordered
Electrodyne to pay $500,000 in fines.

All three defendants appeal from the District Court's
sentencing determinations. We have jurisdiction under 28
_________________________________________________________________

2. The District Court stated that the total amount of restitution could be
paid by the defendants collectively. Electrodyne appears to have
assumed full responsibility for paying restitution.

                                10
U.S.C. S 1291 and 18 U.S.C. S 3742(a). Nathan and Lander
argue that the District Court erred in applying the fraud
guidelines since, they contend, their factual basis
statements did not constitute a stipulation to the greater
offense of fraud. Second, assuming that the District Court
did err in using the fraud guidelines, they submit that the
Court abused its discretion in departing upward under the
smuggling guidelines and section 5K2.0. Nathan contests
the District Court's conclusion that he abused a position of
trust. Lander objects to the Court's decision not to depart
downward based on his status as a political refugee.
Electrodyne argues that the District Court overvalued the
loss the company caused to the government and that the
Court erred in concluding that Electrodyne had the current
or future ability to pay any amount over $140,000. Each
defendant argues that, on remand, we should assign the
case to a different judge.

II. Nathan and Lander

A. Sentencing Under Section 2F1.1 (Fraud Guidelines):
Was There a "Stipulation"?

A court must sentence a defendant under the guideline
most applicable to the offense of conviction (here,
smuggling) unless: (1) as explained in Appendix A of the
Guidelines, the case is an "atypical" case such that the
guideline section indicated for the statute of conviction is
inappropriate for the particular conduct involved; or (2)
under U.S.S.G. S 1B1.2(a), the parties stipulated to a more
serious offense in a written or oral plea agreement.

The relevant smuggling guideline's introductory
commentary states: "This Subpart deals with violations of
18 U.S.C. SS 496, 541-45, 547, 548 . . . and is designed to
address violations involving revenue collection or trade
regulation." The text of the section 2T3.1 guideline states:

       (a) Base Offense Level:

       (1) The level from S2T4.1 (Tax Table) corresponding to
       the tax loss, if the tax loss exceeded $1,000; or

                                 11
       (2) 5, if the tax loss exceeded $100 but did not exceed
       $1,000; or

       (3) 4, if the tax loss did not exceed $100.

       For purposes of this guideline, the "tax loss" is the
       amount of the duty.

U.S.S.G. S 2T3.1. While the District Court expressly
determined that this case was not "atypical" in the context
of Appendix A, see Electrodyne 

-
45, it did find that Nathan's and Lander's answers to the
factual basis questions were stipulations to fraud (which
the Guidelines treat more seriously than smuggling) and
thus that section 2F1.1 was the proper sentencing
guideline.

We must perforce determine whether the District Court
erred as a matter of law by treating Nathan's and Lander's
oral statements at the factual basis hearing as
"stipulations," an issue over which we have plenary review.
See United States v. Morelli, 

, 803 (3d Cir.
1999). This Court has not yet determined what constitutes
a stipulation for the purpose of U.S.S.G. S 1B1.2(a). If the
statements on which the District Court based itsfinding of
fraud were not stipulations, then it erred in applying the
fraud guidelines rather than the smuggling guidelines.

Nathan and Lander contend that: (i) the PSI conceded
that their statements at the hearing were not stipulations;
(ii) the plea agreement and its attendant stipulations
contained a "four corners" provision that all stipulations
between the parties were contained therein and could only
be modified in writing; and (iii) they never signed the plea
memorandum from which the government asked its
questions at the factual basis colloquy. The government
does not argue that the District Court was correct to deem
Nathan's and Lander's responses "stipulations"; in fact, it
argues only that, since the District Court properly
sentenced Nathan under section 2T3.1, we need not resolve
this issue. However, the Court clearly relied on the fraud
guidelines in sentencing Nathan. See Electrodyne II, 28 F.
Supp. 2d at 251 ("Accordingly, the Individual Defendants
stipulated to the more serious offense of fraud and Section
2F1.1 is the applicable Guideline."). We therefore must

                               12
determine the meaning of "stipulation" in the section
1B1.2(a) context.

The Supreme Court was presented with (but did not
decide) the meaning of "stipulation" in Braxton v. United
States, 

(1991). The version of section 1B1.2
that existed in 1991 stated:

       Provided, however, in the case of conviction by plea of
       guilty . . . containing a stipulation that specifically
       establishes a more serious offense than the offense of
       conviction, [the court should] determine the offense
       guideline section . . . most applicable to the stipulated
       offense.

U.S.S.G. S 1B1.2(a) (emphasis added). In Braxton, the
defendant pled guilty to assault but not to attempted
murder, though there was no formal plea agreement.
Nevertheless, he agreed with the version of the facts
proffered by the government at the plea hearing, which
facts included a basis for an attempted murder charge. The
district court, which sentenced him under the attempted
murder guidelines, found--and the court of appeals
agreed--that the defendant had stipulated to the more
serious charge. Before the Supreme Court, the defendant
argued that a stipulation had to be part of a formal plea
agreement. The Court acknowledged a circuit split on the
meaning of "stipulation" but declined to resolve the
question, since the Sentencing Commission had just
requested public comment on whether section 1B1.2(a)
should be "amended to provide expressly that such a
stipulation must be as part of a formal plea agreement."
See 

(quoting 56 Fed. Reg. 1891
(1991)).

In 1991, the Sentencing Commission amended section
1B1.2(a) to read:

       [A court must determine] the offense guideline section
       . . . most applicable to the offense of conviction. . . .
       Provided, however, in the case of a plea agreement
       (written or made orally on the record) containing a
       stipulation that specifically establishes a more serious
       offense than the offense of conviction, [the court must]

                                13
       determine the offense guideline section . . . most
       applicable to the stipulated offense.

U.S.S.G. S 1B1.2(a) (emphasis added); U.S.S.G. App. C,
amend. 434. Application Note 1 to this section provides:

       Where a stipulation . . . made between the parties on
       the record during a plea proceeding specifically
       establishes facts that prove a more serious offense or
       offenses than the offense or offenses of conviction, the
       court is to apply the guideline most applicable to the
       more serious offense or offenses established.

note 1.

Section 6B1.4 of the Guidelines, which governs
stipulations, states, "A plea agreement may be accompanied
by a written stipulation of facts relevant to sentencing." See

(emphasis added). The Commentary to this
section notes that

       [b]ecause of the importance of the stipulations and the
       potential complexity of the factors that can affect the
       determination of sentences, stipulations ordinarily
       should be in writing. However, exceptions to this
       practice may be allowed by local rule. The Commission
       intends to pay particular attention to this aspect of the
       plea agreement procedure as experience under the
       guidelines develops.

Though the Commission has not
foreclosed the possibility that stipulations may be oral, it
clearly favors written stipulations over oral ones. 3

While neither the language of section 1B1.2(a) itself nor
the language of section 6B1.4 is dispositive of whether
Nathan's and Lander's statements during the factual basis
were stipulations, section 1B1.2(a)'s reference to a
stipulation as something contained within the plea
agreement strongly suggests that statements made in
factual basis colloquies are not stipulations. Section
1B1.2(a) speaks of stipulations as part of a plea agreement.
A scrupulous reading of section 1B1.2(a), which will require
_________________________________________________________________

3. We note that the District Court for the District of New Jersey has not
established local rules providing for oral stipulations.

                               14
that all of the defendant's stipulations be either part of or
annexed to his plea agreement, would provide notice to the
defendant as to exactly what facts underlying his offense he
is agreeing to and will ensure that the defendant receives
the benefit of his bargain. In addition, though section 1B1.2
itself provides for oral plea agreements and, presumably,
oral stipulations contained therein, the Guidelines favor
written stipulations over oral ones. The Application Note
also suggests that we should give a common sense reading
to "stipulation," such that it refers to situations in which
both parties specifically and explicitly agree, on the record,
to the truth of the relevant facts. We thus think the
language of the Guidelines compels the conclusion that
Nathan's and Lander's statements should not be construed
as stipulations.

We find support for our position in the caselaw,
especially in United States v. Guerrero, 

(2d
Cir. 1988). Guerrero held that a stipulation between the
government and defense counsel, entered into to obviate
fact-finding at a sentencing hearing, did not trigger the
proviso of section 1B1.2(a). The court explained that section
1B1.2(a)

       applies only to a stipulation contained in a plea of
       guilty or nolo contendere, not to a stipulation
       negotiated after a plea in connection with sentencing.
       Prior to plea, the prosecution has the opportunity to
       condition its willingness to accept a plea to less than
       all counts of an indictment on the defendant's
       willingness to stipulate that he committed crimes in
       addition to those to which he is pleading guilty. In
       offering to reduce the defendant's maximum exposure
       to the penalties in the conviction counts, the
       prosecution is entitled to extract an admission of facts
       that may justify a substantial sentence within that
       maximum. But once the Government agrees to a plea
       bargain without extracting such an admission, facts
       admitted by the defendant to shorten or obviate a
       sentencing hearing do not establish a "stipulated
       offense" within the meaning of section 1B1.2(a).

see also United States v. Gardner, 

,
591 (10th Cir. 1991) (requiring a "knowing agreement by

                               15
the defendant, as part of a plea bargain, that facts
supporting a more serious offense occurred and could be
presented to the court" for the court to apply section
1B1.2(a)); United States v. McCall, 

, 816 n.4
(2d Cir. 1990) (requiring that any stipulation be part of the
plea agreement itself); United States v. Rutter, 

, 1561 (10th Cir. 1990) (explaining that once the
government agrees to a plea bargain without extracting an
admission, facts admitted by the defendant can be
considered only as relevant conduct in determining the
appropriate guideline range, not as stipulations under
section 1B1.2(a)). But see United States v. Loos, 

, 508 (7th Cir. 1998) (concluding that the objective
behind section 1B1.2(a) is best achieved by reading
"stipulation" to mean any acknowledgment by the
defendant that he committed the acts that justify use of the
more serious guideline), cert. denied, 

(1999); United States v. Domino, 

, 722 (5th Cir.
1995) (assuming that the factual resume--the equivalent of
the "factual basis" in this case--can contain stipulations).

In this case, where the parties drafted and agreed to a
document that explicitly contained all of the relevant
stipulations between them, it is clear that their"deal"
encompassed only those stipulations contained in that
document. Though it is true that Nathan, Lander, and their
attorneys had, in advance, read the plea memorandum
from which the government asked its questions at the
factual basis, see Electrodyne 

n.20 & 231 n.22, the defendants never signed it or in any
other way assented to it. Here the facts at issue came out
at the plea hearing itself while the judge was deciding
whether to accept the plea, rather than in negotiations after
the plea had been accepted, as in Guerrero. We nevertheless
conclude that the plea agreements between the government
and the defendants were complete before the factual basis
hearing, and that the facts admitted in the factual basis
hearing were in no way part of the government's "deal" with
Nathan and Lander. We also think it significant that the
government did not attempt to defend the District Court's
determination that Nathan's and Lander's comments were
stipulations.

                               16
In sum, we conclude that the text of section 1B1.2(a),
examined especially in light of the changes the Commission
made from the earlier version of that section, indicates that
a statement is a "stipulation" only if: (i) it is part of a
defendant's written plea agreement; (ii) it is explicitly
annexed thereto; or (iii) both the government and the
defendant explicitly agree at a factual basis hearing that
the facts being put on the record are stipulations that
might subject a defendant to the provisions of section
1B1.2(a). Nathan's and Lander's statements at the factual
basis hearing do not meet this definition of "stipulation,"
and we conclude that the District Court erred infinding
otherwise.

Because the District Court rejected the only other ground
on which it could have relied to invoke the fraud guidelines
when it concluded that the defendants' case was not
atypical under Appendix A of the Guidelines, we hold that
the District Court erred in applying the fraud guidelines in
sentencing Nathan and Lander. In light of this, we examine
whether he correctly sentenced Nathan and Lander in the
alternative using the smuggling guidelines.

B. Sentencing Under Section 2T3.1 (Smuggling Guidelines)

As noted above, after sentencing Nathan and Lander
under the fraud guidelines, the District Court held that
even if the defendants did not stipulate to fraud, it would
have reached the same sentence had it used the smuggling
guidelines, which were the guidelines to which the
defendants had stipulated. See Electrodyne II , 

at 272. Because a court may properly sentence in the
alternative, we must analyze the propriety of the sentence
under section 2T3.1. See United States v. Bermingham, 

, 934-35 (2d Cir. 1988) (noting that a court may
still affirm a sentence despite an alleged error in the
application of the Guidelines when it is clear that the
sentencing judge would have imposed the same sentence
under the alternative Guidelines scheme proposed); see
also United States v. Barnes, No. 98-50418, 

(9th Cir. June 30, 1999) (reviewing each of two
alternative Guidelines grounds on which District Court
sentenced defendant); United States v. Gonzalez-Lopez, 911

                               

(11th Cir. 1990) (considering both of District
Court's alternative grounds for sentencing and reversing on
both grounds).

Having invoked the smuggling guidelines, the District
Court found that an upward departure under section 5K2.0
was appropriate based on the "seriousness of the offenses."
Electrodyne II, 

at 266. The Court relied on
Application Note 2 to section 2T3.1, which states:

       Particular attention should be given to those items for
       which entry is prohibited, limited, or restricted.
       Especially when such items are harmful or protective
       quotas are in effect, the duties evaded on such items
       may not adequately reflect the harm to society or
       protected industries resulting from their importation.
       In such instances, an upward departure may be
       warranted.

concluded that the duties evaded by the
defendants did not adequately measure the harm they
caused. Specifically, the Court found that four aspects of
the defendants' conduct rendered this case an "atypical"
smuggling case: the fact that the defendants defrauded the
government for their own financial gain; the fact that the
actions of the defendants compromised and may in the
future compromise the national security of the United
States; the fact that they violated the AECA; and the fact
that they violated the Buy American Act, which permitted
them to gain an unfair financial advantage over those
companies that complied with the statute. The Court
appears to have used the fraud guidelines as a framework
to help it determine how large an upward departure to
impose, since it reached a total offense level of 18 under the
smuggling guidelines, just as it did under the fraud
guidelines.

Nathan and Lander object to the upward departure for
several reasons. First, the Court earlier had found that this
case was not atypical under section 2T3.1, and so should
not have departed upwards in light of the Commentary to
section 5K2.0, which requires that a case be "sufficiently
atypical" before a court may depart upward. Second, the
Court's four bases for an upward departure--that Nathan

                               18
and Lander defrauded the government for their own
financial gain, that they violated the BAA, that they violated
the AECA and the regulations promulgated thereunder, and
most importantly that their actions threatened the
operational integrity of the United States military--were
either not factually supported by the record or could not be
said to render their offense atypical. Third, even if one of
the four bases was a proper basis on which to upwardly
depart, they argue that we must remand for resentencing
under Koon v. United States, 

, 98-99 (1996),
since the other bases were improper.

The government responds that the Court properly relied
on Application Note 2 to section 2T3.1 to conclude that acts
like those committed by the defendant warranted an
upward departure. The government stresses that the
components at issue here were, contrary to the defendants'
assertions, "prohibited, limited, or restricted" under 19
U.S.C. S 1304(d), which says that items that do not bear
proper markings may not be brought into United States
commerce. It submits that, because of the prohibited
nature of the components, Application Note 2 suggests that
an upward departure may be warranted. Nevertheless, the
government also acknowledges that it never alleged that the
defendants' actions posed any threat to national security.

Section 5K2.0 states:

       Under 18 U.S.C. S 3553(b), the sentencing court may
       impose a sentence outside the range established by the
       applicable guidelines, if the court finds that "there
       exists an aggravating 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."

to this section requires that the case
be "sufficiently atypical" before a departure is warranted. As
a preliminary matter, we note an anomaly in this case. In
discussing whether the case was sufficiently atypical to
take it out of the smuggling guidelines under the terms of
Appendix A, the Court found that, because the smuggling
guidelines intended to target offenses involving revenue

                               19
collection or trade regulation, Nathan's case was not atypical.4
It stated, "Accordingly, the instant matter is not atypical as
to the Guideline section ordinarily applicable to the offense
of conviction." Electrodyne II, 

at 245. For
the Court to later find that the case is sufficiently atypical
to warrant an upward departure is enigmatic. We believe
that the Court's later decision can be reconciled on the
theory that it thought the case was mechanically similar
enough to a typical smuggling case for it to fall within the
smuggling guidelines, but was so much more offensive than
most smuggling cases that an upward departure was
warranted.

At all events, the District Court decided that the case was
sufficiently atypical that it would depart upward from the
base offense level. We must examine the bases for the
District Court's departure under section 5K2.0 under an
abuse of discretion standard. See 

.
The dominant basis for the District Court's upward
departure was its conviction that the defendants had
threatened the national security of the United States. At the
sentencing hearing, the District Court stated:

       I find the position [that there was no threat to national
       security or the safety of any member of the military]
       laughable. . . . Maybe [there was no threat to national
       security] on a strategic basis, but for the ships' crews,
       the troops in place, for the pilots, it certainly did. I
       think [the government's] position flies in the face of
       logic and I can't and will not accept it.

Sent. Tr. at 14. In its opinion, the Court wrote,"The actions
of the Individual Defendant potentially could have
compromised, and in the future may compromise, the
operational safety of the military and/or the operational
readiness and effectiveness of communications, weapons
and radar systems." Electrodyne II, 

at 268.
It repeated this theme several more times. See, e.g., 

269, 270.
_________________________________________________________________

4. The Introductory Commentary to section 2T3.1 states, "This Subpart
deals with violations of 18 U.S.C. SS 496, 541-545 . . . and is designed
to
address violations involving revenue collection or trade regulation."

                               20
Despite the Court's oft-expressed concern that the
defendants' actions posed a current or future threat to
national security, its reference to the fact that the
defendants shared information with the Ukraine that was
not generally known, and its determination that this harm
was not adequately captured by the monetary duties
evaded by the defendants, there is no support in the record
for the District Court's concerns. In fact, the record is
uniformly and explicitly to the contrary. The government
stipulated that: (a) there were no defects in the products
imported by the defendants; (b) no confidential information
was disclosed to Russia or the Ukraine; and (c) the
defendants' acts posed no threat to national security or the
safety of the military.

More importantly, the government consulted each
affected government agency before it agreed to accept the
defendants' plea agreements, all of which assented. In
addition, the government conceded in its sentencing
memorandum that the defendants had taken affirmative
action to prevent classified material from being disclosed. It
also noted that some of the components imported by the
defendants represented a flow of technology into, rather
than out of, the United States. In sum, the District Court
clearly erred to the extent that it found that the defendants'
conduct created a threat to national security and it abused
its discretion in departing upward on the ground that the
defendants' actions threatened national security, since
there is no support in the record for that conclusion.

Nor was the District Court correct in using the presence
of fraud as a reason to find the instant case atypical. The
Court stated, "The focus and intent of the conduct
underlying the crimes . . . were to criminally and
fraudulently deviate from the contract provisions entered
into with the United States Government . . . ." Electrodyne
II, 

at 268. Conceiving of the smuggling as
a way to further that fraud, the Court treated the fraud as
something that made the defendants' smuggling case
atypical.

But this use of fraud is problematic. Smuggling by
definition involves some element of fraud, and often occurs

                               21
to further fraud. The statute to which Lander pled guilty,
18 U.S.C. S 542, states:

       Whoever enters or introduces . . . into the commerce of
       the United States any imported merchandise by means
       of any fraudulent or false invoice, declaration . . . or by
       means of any false statement . . . or by means of any
       false or fraudulent practice . . . shall befined for each
       offense under this title or imprisoned not more than
       two years, or both.

U.S.C. S 545, to which Nathan pled guilty,
states:

       Whoever knowingly and willfully, with intent to defraud
       the United States . . . passes . . . any false, forged, or
       fraudulent invoice . . . or [w]hoever fraudulently or
       knowingly imports or brings into the United States, any
       merchandise contrary to law . . . [s]hall be fined under
       this title . . . .

of courts have noted that "the intent to
defraud element of that statute should be construed as
meaning intent to avoid and defeat the United States
customs laws . . . rather than the narrower construction
`intent to deprive the United States of revenue.' " See United
States v. Robinson, 

, 853 (9th Cir. 1998), cert.
denied, 

(1999); see also United States v.
Borello, 

, 51 (2d Cir. 1985). Given that fraud is
a critical part of the crime of smuggling, the mere fact that
Nathan and Lander engaged in fraud as part of their
smuggling violation does not render the smuggling atypical.

Third, the District Court's upward departure was in part
based on the defendants' violations of the AECA and the
ITAR, violations that the Court found had been established
by a preponderance of the evidence. See Electrodyne II, 

at 269-70. However, as with fraud, the fact
that the defendants' smuggling scheme also violated the
AECA does not render their smuggling atypical. The AECA
provides that "no defense articles or defense services . . .
may be exported or imported without a license for such
export or import . . . ." 22 U.S.C.S 2778(b)(2). The
smuggling offenses to which Nathan and Lander pled guilty
included this self-same conduct: knowingly and willfully

                                22
bringing certain merchandise into the United States
contrary to law or introducing such merchandise into the
commerce of the United States by means of a false or
fraudulent practice. A violation of the AECA is arguably the
archetypal smuggling offense.

To the extent that there is anything about a violation of
the AECA that makes such act an atypical smuggling
offense, it is the fact that the AECA applies only to defense
articles and services, to which national security concerns
may attach. However, as 

, any violations of
national security in this case are chimerical. Therefore, the
District Court abused its discretion to the extent that it
relied on the presence of an AECA violation to find this case
to be an atypical smuggling case.

Finally, the District Court stated that the defendants'
violations of the Buy American Act created additional harm
that was not accounted for under the smuggling guidelines,
thereby rendering the case atypical. See Electrodyne II, 

at 270. The Court reasoned that Congress
enacted the BAA to protect American labor and industry,
that the defendants received an unfair commercial
advantage by using cheaper manufacturers abroad, and
that they profited financially from this advantage. The BAA
is a civil statute, and the penalty for its violation is simply
that a contractor shall not be awarded such contracts for
three years after the violation is detected. See 41 U.S.C.
S 10b. This facet of the sentencing decision appears to be
only a small factor in the upward departure, given the
Court's emphasis on the threat to national security, as well
as fraud. At all events, to the extent that the BAA, standing
alone, would be a ground for upward departure, it could
not begin to support one of the magnitude applied here.

Because the District Court improperly determined that
national security concerns, fraud, and an AECA violation
rendered this case an atypical smuggling case, we will
vacate Nathan's and Lander's sentences under the
smuggling guidelines and remand for further sentencing
proceedings. The District Court may consider on remand
whether their violations of the BAA caused harm to "society
or protected industries" to an extent not captured by the

                               23
smuggling guidelines and, if so, whether this factor justifies
an upward departure.

C. Abuse of Position of Trust

In determining that Nathan should receive a thirty-month
sentence, the District Court concluded that Nathan had
abused a position of trust under U.S.S.G. S 3B1.3 and, in
accordance with that section, added two points to his total
offense level. The Court opined that a double-counting
problem would arise if it enhanced Nathan's section 2F1.1
sentence based on abuse of a position of trust, but
concluded that it was appropriate to enhance his section
2T3.1 sentence for that factor. See Electrodyne II, 28 F.
Supp. 2d at 260 n.80. Under section 3B1.3, the court must
find (i) that the defendant was in a position of trust; and (ii)
that he abused the position of trust in a manner that
significantly facilitated the crime. See United States v.
Sokolow, 

, 412 (3d Cir. 1996).

Nathan argues that he and the government should be
treated merely as arm's length parties to a contract, and
thus that he held no specific position of trust. He points
out that the government assigned Electrodyne a quality
assurance representative, who was to monitor Electrodyne's
compliance with its government contracts. He also submits
that if he held such a position of trust, that position did not
facilitate the offenses here. The Court found significant
facilitation based on the fact that Nathan was able to
provide plans to Russia and the Ukraine for the
components in question, but Nathan reminds us that those
plans were public. And to the extent that the Court found
facilitation based on Nathan's order to his employees that
they conceal foreign markings, he contends that this
offense was included in the "role in the offense" adjustment
and that to consider it here would be double-counting.

The government responds that the quality assurance
representative was not assigned to oversee the contracts in
question here. It also notes that Nathan's position allowed
him to cover his tracks by directing employees to cover over
foreign markings, and it contends that the District Court's
finding on this point does not constitute double-counting

                                24
because the two different enhancements serve different
sentencing goals: the aggravating role targets those whose
conduct uses others to create more extensive harm, while
the abuse of trust role targets those defendants who abuse
their own positions. The government argues that we can
affirm on the ground that Nathan's abuse of trust consisted
of instructing his employees to cover foreign markings, and
that we need not address whether Nathan abused his trust
by transferring military data.

We review de novo whether Nathan occupied a position of
trust, and we review for clear error whether he used his
position of trust to significantly facilitate the offense. See 

of a Position of Trust

In deciding whether a defendant holds a position of trust,
a court must consider:

       (1) whether the position allows the defendant to
       commit a difficult-to-detect wrong; (2) the degree of
       authority which the position vests in defendant vis-a-
       vis the object of the wrongful act; and (3) whether there
       has been reliance on the integrity of the person
       occupying the position.

United States v. Pardo, 

, 1192 (3d Cir. 1994).
Application Note 1 to section 3B1.3 states:

       "Public or private trust" refers to a position of public or
       private trust characterized by professional or
       managerial discretion (i.e., substantial discretionary
       judgment that is ordinarily given considerable
       deference). Persons holding such positions ordinarily
       are subject to significantly less supervision than
       employees whose responsibilities are primarily non-
       discretionary in nature.

S 3B1.3 application note 1. The Court found that Nathan's
position allowed him to commit hard-to-detect crimes, since
he was able to breach contracts without interference from
superiors and was able to conceal those breaches through
instructions to subordinates. (Though it also found that the
government had relied on Nathan's integrity in revealing
military information to him, this finding has no potency in

                                25
light of the fact that the information was already in the
public domain.) The Court took note of the fact that Nathan
submitted to the government an agreement acknowledging
all of his responsibilities under United States export control
laws and stating that he would not provide access to critical
military data to persons other than Electrodyne's employees
without Department of Defense consent.

We have frequently determined that individuals who held
high positions in their companies had positions of trust.
For example, in Sokolow, we concluded that the defendant,
as president and owner of his company, held a position of
trust because he "was able to commit difficult-to-detect
wrongs, as he had sole control over [the company's]
accounts without oversight or supervision." 

. We also noted that he had the authority to
withdraw his victims' funds from his company and that
such authority was necessary to complete the offense. See

had the authority to determine how his
company would fulfill its contracts, which authority was
critical to the success of his fraud.

In United States v. Bennett, 

(3d Cir. 1998),
petition for cert. filed, 

(U.S. June 4, 1999)
(No. 98-1957), we held that the defendant, who held a
fiduciary position "as president and sole director of the . . .
organizations" and who possessed "absolute control over
the organizations," 

held a position of trust. The
defendant created a phony board of directors, invented
benefactors, and used the contributions for his own
businesses. The court concluded that his victims--donors
who were told that their money would be used for
charitable purposes--trusted him and that his position
enabled him to abuse that trust. See 

Like
Bennett, Nathan held the highest position in the company,
managed to conceal the breaches of contract forfive years,
and owned a controlling block of stock.

In analyzing whether a defendant held a position of trust
in a contracting situation, courts have given weight to
whether the victim reposed additional trust in the
defendant by ceding its ability to confirm compliance with
the contract, thus relying more heavily on the honesty of
the defendant than an ordinary party to a contract would.

                                26
In a government contract case, United States v. Glymph, 

(4th Cir. 1996), the Fourth Circuit concluded that
a defense contractor who was allowed to certify his own
compliance with his contract with the Department of
Defense ("DoD") deserved an abuse of position of trust
enhancement. The defendant, who was convicted of
knowingly supplying to the DoD parts that did not conform
to the agency's specifications, owned a company that was
approved to participate in the DoD's "Alternate Release
Procedure." This procedure allowed the company to ship
parts without prior inspection by a government quality
assurance representative so long as Glymph certified that
each shipment had passed the required tests and
conformed to the specifications. Though Glymph argued
that he was merely an arm's length contractor with the
government, the court held that in light of the self-
certification procedure and the difficulty in detecting the
fraud, he held a position of trust.

Likewise, in United States v. Velez, 

(9th
Cir. 1999), the defendant, who operated a private
immigration consulting firm, helped aliens file applications
with the INS. He also directed a group that was a"qualified
designated entity" (QDE), which meant that it had been
given statutory authority to assist aliens in preparing
legalization applications. Over three years, Velez submitted
six thousand applications to the INS, many of which
contained false information. At some points in time, the INS
was only accepting applications from QDEs. The Ninth
Circuit affirmed the district court's conclusion that Velez
held a position of trust because of his special status with
the INS as a director of a QDE and because his false
documents could not be discovered as a matter of routine.
See 

It also affirmed that he had used his
position to facilitate the offense, since he used his status to
attract clients and to expedite the filing process at a time
when only QDEs could file applications.

Velez is a more clear-cut case than the present one, since
Velez had statutory authorization (comparable to an
oligopoly) that entitled him to benefits--and
responsibilities--other entities did not have. However, like
Velez, Nathan had a formal understanding with the

                               27
government that he would perform certain services in a
certain way, and it was difficult for the government to
monitor compliance with that understanding. See also
United States v. Sherman, 

, 970 (3d Cir. 1998)
(holding that doctor who committed insurance fraud
abused a position of trust because the victim-insurer used
an honor system and costs to insurer of double-checking
doctor's submissions would be prohibitively high).

Much like the defendants in Glymph, Velez, and
Sherman, Nathan, as president of the company, was in a
unique position to make decisions for the company and to
decide how Electrodyne would fill the government
contracts. Since no one else--neither the government nor
anyone at Electrodyne--was supervising his acts, he held a
position that allowed him to commit wrongs, and that
permitted him to make those wrongs harder to detect by
requiring subordinates to mark over foreign labels and add
"Made in the U.S.A." labels. Importantly, the government
did not appoint a quality assurance representative to
monitor the contracts at issue here, diverging from what
appears to be its regular practice; thus, the government
vested a significant degree of authority in Nathan. Finally,
the government relied on Nathan's integrity not only in
opting to contract with him (as the head of Electrodyne),
but also in deciding not to assign an enforcement
representative to ensure that he was complying with his
contracts. Applying this court's abuse of position of trust
jurisprudence, which is captured in the tripartite test set
forth in Pardo, we conclude that the District Court correctly
determined that the government was a victim within the
meaning of Sokolow and that accordingly Nathan held a
position of trust vis-a-vis the government.5
_________________________________________________________________

5. In another government contracting case, United States v. Broderson,

(2d Cir. 1995), the Second Circuit concluded that the
defendant, who was an executive at Grumman, did not hold a position
of trust. Grumman and NASA had contracted for Grumman to buy a
supercomputer and lease it to the government; NASA was to pay fees
based on the interest rate Grumman was paying to its bank. Broderson,
a vice president of business operations, lied about the rate, charging the
government a higher rate than Grumman was paying. This lie violated
statutes requiring truth in contracting with the government.

                                28
2. Abuse of Position of Trust

Since we conclude that Nathan held a position of trust,
we must determine whether the evidence supports the
conclusion that he used that position of trust to
significantly facilitate his crimes. The District Court
concluded that he abused his position because he revealed
technical plans that had been entrusted to him. As
discussed above, none of the evidence suggests that Nathan
revealed confidential information. The Court also found,
however, that his position allowed him to instruct his
employees to paint over marks that identified the goods as
made in Russia and the Ukraine and to re-mark the items
as made in the United States. We review this finding of fact
for clear error. See United States v. Coyle, 

,
1250 (3d Cir. 1995).

In United States v. Hickman, 

(3d Cir.
1993), we stated, "To abuse a position of trust, a defendant
_________________________________________________________________

The court decided that, though Broderson had discretion, the
discretion was entrusted to him by his company, not by the victim
agency. See 

(stating that "whatever `trust' NASA placed in
Broderson was based strictly on the explicit commands of" the two
relevant statutes he breached). In addition, the court was concerned that
the government's theory might cause anyone who, by statute, must
make accurate reports to the government (including taxpayers) to be
subject to S 3B1.3. Finally, the court found that any abuse of trust that
may have occurred was subsumed in the underlying base offense. See 

declined to hold that Broderson held a position of trust.

We believe that Broderson is distinguishable both from Glymph and
from the instant case. In Glymph, the DoD specifically delegated its
inspection responsibilities to Glymph when it allowed him to certify his
own compliance with his contract. In Nathan's case, the government
essentially relied on Nathan to certify compliance with his contract,
since
it did not or could not appoint an inspector to comply with the particular
set of contracts at issue in this case. In Broderson, the government
simply trusted the defendant in the same way that parties to a contract
trust each other to comply with the terms thereof. The additional
certification responsibilities in Glymph, and the added level of trust by
the government in deciding not to install an inspector to watch over
Nathan's particular contracts, render those cases worthy of an abuse of
trust enhancement.

                                29
must, by definition, have taken criminal advantage of a
trust relationship between himself and his victim." 

In Sokolow, we found such abuse where the
defendant's role as president facilitated the commission of
the money laundering offenses, and by virtue of his
position, he was free to spend the money as he wished. See

. The Sherman court readily
concluded that "by virtue of the discretion given to
Sherman [a doctor] in his position of trust," he was able to
submit medical charges with no supervision, and he
abused his position of trust when he submitted bills to the
insurance company for services never provided and created
fraudulent progress notes to support the fraudulent bills.
See 

. In a similar vein, in United
States v. Lieberman, 

(3d Cir. 1992), we
stated:

       Lieberman stresses that he was only one of 40 vice
       presidents of the bank, that he merely transferred the
       funds from one account to another, and that the
       detection of missing funds occurred in a routine
       examination. We believe, to the contrary, that the
       apparent ease with which Lieberman was able to effect
       the crime over a four-year period shows the nexus
       between the position of trust which he held and the
       commission and concealment of the embezzlement.

The District Court did not clearly err in concluding that
Nathan had abused his position of trust, since Nathan (i)
was able to order his employees to help him cover up the
telltale signs that his products were not being made in the
United States; (ii) could instruct the Ukrainian and Russian
companies not to label their products; and (iii) was
successful in covering up the operation for five years.

D. Summary

We will reverse the District Court's decision to apply the
fraud guidelines to Nathan and Lander. We also will vacate
its alternative sentence based on the smuggling guidelines.
However, we will remand for the District Court to
resentence Nathan and Lander under the smuggling

                               30
guidelines, cautioning that violations of the BAA cannot
merit an upward departure of the magnitude previously
imposed. We will affirm to the extent that the District Court
concluded that Nathan abused a position of trust. We
dispose in the margin of Lander's appeal of the District
Court's refusal to grant a departure based on his alleged
status as a refugee who fled oppression and religious
persecution in the Soviet Union, finding the argument
lacking in merit.6

III. Electrodyne

The District Court calculated that Electrodyne's conduct
caused a loss of $369,105.70. "Loss" as defined in the
Guidelines represents the loss to the victims before
restitution takes place, and is used to set a fine
corresponding to the monetary harm caused by the
defendants' conduct. The Court imposed a $500,000fine,
which was within the Guideline range for losses of that
magnitude, after finding that Electrodyne had the ability to
_________________________________________________________________

6. As an initial matter, we must determine whether the District Court
recognized its discretion to depart on this ground and declined to do so,
or whether it concluded that it was legally precluded from departing. In
the letter opinion, which the Court stated would control in cases of
conflict with oral statements on the record, the Court discussed Lander's
argument that his refugee status was not adequately taken into
consideration by the Sentencing Guidelines. The Court considered United
States v. Vue, 

, 1359-60 (D. Neb. 1994), in which the
sentencing court granted a departure to defendants convicted of
smuggling a large amount of heroin based on the fact that they were
refugees from Laos who had been persecuted in their home country for
spreading democratic ideals. The Vue court reasoned, inter alia, that the
defendants were not voluntarily governed by American law but were
forced here because they fought our enemies. The District Court rejected
the "reasoning and rationale" of Vue. Electrodyne II, 

at
274 n.102. Rather, the Court found, Lander lives here and must be
governed by our law. While the written opinion is arguably unclear as to
the basis of its rejection of Lander's argument, it is supplemented by the
sentencing hearing, during which the Court concluded that it had the
legal authority to depart on the requested ground. Because the Court
recognized its discretion but declined to exercise it, we lack
jurisdiction
over Lander's appeal on this point, see United States v. McQuilkin, 

, 729 (3d Cir. 1996), and to that extent it is dismissed.

                               31
pay such a fine. Our review of the District Court's findings
of fact is for clear error. See United States v. Figueroa, 

, 876 (3d Cir.), cert. denied, 

(1997).

A. The Loss Calculation

Loss must be established by a preponderance of the
evidence. See United States v. Evans, 

, 253
(3d Cir. 1998). Application Note 9 (formerly Note 8) to
section 2F1.1 states, however, that a loss need not be
determined with precision, but can be a reasonable
estimate. Here, where Electrodyne pled guilty to unlawfully
exporting defense-related items and to making false
statements, we think that its conduct should be treated as
loss from fraud rather than loss from theft. In general, the
loss from fraud is the financial loss actually suffered by the
victim, or the loss that the criminal intended the victim to
suffer if that is greater. See United States v. Maurello, 

, 1309 (3d Cir. 1996).7 Because of the nature of
the crime, which involved manufacturing fully functional
parts, albeit in foreign countries, it is difficult to see what
the monetary loss was, though both Electrodyne and the
government use the restitution amount as a starting point.8
Because Electrodyne agrees that some version of the
restitution amount is the touchstone for the loss
calculation, we direct our attention to that figure.

The District Court found that Electrodyne stipulated to a
$369,105.70 loss by stipulating to that amount in
_________________________________________________________________

7. The offender's gain is an alternative estimate that, according to the
Guidelines, ordinarily understates loss. The PSI attempted to calculate
Electrodyne's gain from the fraud, but concluded that it was impossible
because the foreign components were just part of the overall assemblies
that Electrodyne contracted with the government to deliver.

8. Nathan and Lander argue that Electrodyne's stipulation on restitution
did not mean that they themselves had stipulated to an amount of loss
attributable to their conduct. Because we have concluded that the
District Court should not have used the fraud guidelines, and therefore
that the amount of loss should not be used to set the individual
defendants' threshold offense levels, and because it appears that
Electrodyne has assumed responsibility for any fine, we need not reach
this issue.

                               32
restitution. However, because the restitution agreement
contained various provisions, including in-kind transfers, it
does not have an obvious face value. Electrodyne offers a
loss calculation of $189,255.65, calculated by eliminating
two items that the District Court and the Probation Office
considered part of the restitution, on the ground that those
two items did not reflect any actual or intended loss. The
government acceded to Electrodyne's calculation in the
District Court, though it argues before us that the Court
did not clearly err in finding otherwise. We turn to the
specific items whose valuation Electrodyne contests.

1. The Air Force Contract

The first contested item is the District Court's inclusion
of $139,200 in the loss calculation, which represented
Electrodyne's claim against the Air Force for a canceled
contract. Electrodyne represents that this claim arose from
a contract pursuant to which Electrodyne had to provide
the Air Force with pin diode switches. During the pendency
of the criminal investigation, the Air Force canceled the
contract, which was one of Electrodyne's two contracts with
the Air Force, on the grounds of delay. Electrodynefiled an
administrative appeal, arguing that the contract had been
canceled for the convenience of the Air Force. The parties
reached a tentative settlement that Electrodyne would fulfill
the contract and be paid $139,200 if Electrodyne was not
convicted. When Electrodyne pled guilty, that settlement
became void and the contract was canceled.

The District Court found that the full amount of the
$139,200 settlement was part of the "loss" to the Air Force.
Therefore, the District Court calculated a total loss to the
Air Force of $309,860, which also included $170,660
relating to investigation and reprocurement costs for two
contracts: the pin diode contract that was the subject of the
settlement agreement and a separate contract for phase
shifters. Electrodyne submits that, as a legal matter, the
District Court's finding was in error. Our review of what
constitutes "loss" is plenary and requires us to look for
actual or intended harm to the victim. See 

.

                               33
The government argues that the $139,200 would have
been Electrodyne's but for the plea agreement, and that the
money would have been fraudulently acquired. However,
the issue is not Electrodyne's potential total gain but the
Air Force's actual or intended loss, if any, stemming from
the criminal conduct. We have repeatedly emphasized that
the amount of loss in a fraud case, unlike that in a theft
case, often depends on the actual value received by the
defrauded victim. See United States v. Dickler, 

,
825 (3d Cir. 1995). Thus, when a defendant obtains a
secured loan by means of fraudulent representations, the
amount of loss is the difference between what the victim
paid and the value of the security, because only that
amount was actually lost. See United States v. Kopp, 

, 528-31 (3d Cir. 1991). In a fraudulent
procurement case, the principles enunciated in Dickler and
Kopp require us to offset the contract price by the actual
value of the components provided in order to determine the
amount of loss. See United States v. Schneider, 

, 558 (7th Cir. 1991) (following this procedure in a
fraudulent procurement case).

In short, the face value of the contract does not reflect a
reliable loss figure because Electrodyne was prepared to
provide the components to the Air Force, and the value of
those components must be offset against the amount the
Air Force agreed to pay. This is true whether we speak of
actual or intended loss. The government's argument ignores
the value that the Air Force would have received for its
money if the settlement had proceeded. That is, if the
parties had carried out the agreement, the Air Force would
have received pin diode switches that, for all this record
shows, were worth $139,200. Because the loss to the
government would not have been the full settlement
amount, we cannot charge Electrodyne with the full
amount as intended loss.

More importantly, the government does not address the
argument that the harm suffered by the Air Force was
reflected in the $170,660 already attributed to
Electrodyne's conduct. The crucial consideration here is
that the District Court included the loss attributable to
investigation and reprocurement relating to the pin diode

                               34
switches in its calculation of $170,660 due to the Air Force,
independent of the $139,200 in dispute here. See
Electrodyne II, 

at 255 & n.67. Thus, the
difference between the value that would have been received
by the Air Force and the materials Electrodyne was
supposed to have provided has already been taken into
account in the $170,660 loss calculation, which included
the costs to the Air Force of getting the components from
another source.

We find that the settlement amount of $139,200
duplicates the $170,660 for reprocurement and
investigation, regardless of whether actual or intended loss
is considered. The Air Force only suffered one loss relating
to the pin diode switches, and the District Court double-
counted that loss when it included both the canceled
settlement and the reprocurement. We conclude that the
Court erred when it treated this element of the restitution
agreement as having value over and above the $170,660 for
reprocurement of the items covered by the canceled
settlement agreement.

2. The Four Converters for NASA

The District Court adopted the PSI's calculation that the
four converters (a type of electronic component)
contemplated in Electrodyne's restitution agreement had a
value of $57,245.70, the cost of buying four new
converters. The restitution agreement provided that
Electrodyne would provide NASA with either (1) $14,595.65
and three functioning converters, or (2) $42,650.05 and one
functioning converter. The Probation Office apparently
added the two dollar amounts together to come up with a
total value, presumably on the theory that $14,595.65 was
the value of one converter and $42,650.05 was the value of
three, although $42,650.05 is not three times $14,595.65.
Electrodyne does not challenge the inclusion of the
converters' value in the loss calculation as such; rather, it
disputes the valuation of particular converters. Thus, we
need not address how the converters became part of the
loss initially.

The parties agree that two of the converters were already

                                  35
in NASA's possession.9 They were damaged during the
criminal investigation when government investigators
opened them to look for foreign-manufactured components.
Electrodyne argues that the restitution agreement
contemplated that Electrodyne would fulfill part of its
obligation by repairing those two converters, which it did at
a cost of $2000. Electrodyne also provided NASA with a
sample converter already in stock; it represents that the
cost of that converter was "de minimis." Therefore,
Electrodyne argues, the appropriate value of the particular
four converters involved in this case is $14,595.65 (one
converter) plus $2000 (repairs to two converters) plus zero
(the fourth, sample converter), because this reflects the cost
of restitution to Electrodyne.

The government again responds that Electrodyne
obtained the underlying contract through fraud by
promising American-made components for the contract
price and thus can be charged with the full contract price.
This ignores the distinction in our caselaw between fraud
and theft; NASA's gains have to be counted against the
loss.

We are persuaded by Electrodyne's argument about the
repairs, but not by its argument about the sample
converter. NASA had two converters that were damaged by
Electrodyne's criminal conduct.10 As part of its restitution,
Electrodyne repaired the harm for $2000. It seems logical
that the proper measure of harm is the cost of repairs when
that was all that was required, and not the full cost of the
converters. See United States v. Sablan, 

, 869
(9th Cir. 1996) (charging the defendant with the cost of
repairs when the result of her activity was damage, not
destruction). Indirect support for this proposition is
provided by 

, in which we held that
customers who were satisfied by the services of a defendant
_________________________________________________________________

9. The government points out that the restitution agreement said that
Electrodyne would "provide" converters, but it concedes that two of the
converters were in NASA's possession at the time of the agreement.

10. We consider the damage caused by the investigation as included in
the harm of Electrodyne's crime, because detection of the fraud required
physical inspection of the components.

                               36
who fraudulently represented that he could practice law did
not suffer "losses." Though the defendant's actions risked
harm to them, if that harm did not materialize he could not
be assessed with a "loss." Similarly, if the harm that
materialized was a need for repairs and not a need to
replace the entire machine, then the repairs should serve
as the measure of the loss. The government does not
dispute that the repairs were worth approximately $2000.

When it comes to the sample converter, though,
Electrodyne is mistaking its costs (which may well be de
minimis) with the harm inflicted on NASA. If NASA was
deprived of a converter by Electrodyne's criminal conduct,
then it was harmed by the value of one converter, which is
apparently worth about $14,000 to a buyer. It was not clear
error to value the converter at approximately $14,000,
reflecting its market value, even if it was not worth as
much to Electrodyne, the manufacturer.

Basing our calculation of loss on actual harm, it appears
from the record that NASA was harmed by being deprived
of two converters and by needing repairs to two others.
Therefore, the total amount associated with the NASA
converters would be approximately $30,000, the value of
two converters plus $2000 in repairs.

3. Summary

We conclude that the Air Force contract and the full
prices of two converters were improperly included in the
loss calculation; hence vacatur and remand is necessary.
The full price of a third converter was, however, properly
included. Our rough calculation, derived from Electrodyne's
plea agreement, is as follows:

       Stipulated restitution to Air Force      $170,660.00
       Stipulated restitution to Naval
       Research Laboratory                         2,000.00
       Value of one converter                     14,595.65
       Approximate value of sample
       converter                                  14,000.00
       Repair of two converters for NASA           2,000.00
       Total Approximate Loss                   $203,255.65

                               37
(The first three items have values that are not here in
dispute.) This recalculation affects the Guideline range for
Electrodyne's fine. On remand, the District Court may
clarify its finding on the value of one converter to set the
exact fine.

B. Ability to Pay

1. Background

Electrodyne argues that it is unable to pay a $500,000
fine.11 As a result of its plea, Electrodyne was suspended
from new government contracts and lost its export
privileges, which constituted 80% of its business before the
plea. At the time of the plea, Electrodyne had $1.9 million
in back orders from the government and anticipated no
profit on those contracts. The PSI stated that Electrodyne
would cease to exist once it fulfilled its obligation under
those remaining contracts. Electrodyne sold its assets to
another company, AdComm; contracted out most of the
remaining contract work; and fired all but five employees.

The District Court calculated Electrodyne's ability to pay
as follows:
$25,219.48        First Union Account
$162,000          Promissory note from AdComm
$31,486           Security deposit from AdComm
$340,000          Navy contract
_________________________________________________________________

11. Electrodyne also contends that the government is estopped from
arguing that Electrodyne can pay more than $140,000, because the plea
agreement included an agreement on the appropriatefine to be
presented to the District Court. This argument is without merit.
Electrodyne had the benefit of its bargain: The government diligently
argued the position set forth in the plea agreement to the District Court,
which on its own initiative rejected the government's position. The plea
agreement allowed the government to take any position on appeal. The
appeal provision of the plea agreement contemplated exactly this sort of
situation, in which a sentencing court rejects the government's position
but the government chooses to support the court on appeal. See United
States v. Griswold, 

, 298-99 & n.10 (3d Cir. 1995).

                               38
$132,000        "Equitable adjustment" requested on
                Defense Supply Center contract12

Total: $690,705.48.

Guideline section 5E1.2 requires that a fine be waived
when an individual defendant is unable to pay. By contrast,
section 8C3.3(b), the corresponding provision in the
corporate Sentencing Guidelines, does not require waiver or
reduction. At all events, as we recognized in Electrodyne I,
the fine must not be unrealistic. The sentencing court must
take account of the corporate defendant's financial
resources, putting the burden on the defendant to produce
relevant materials, before setting a fine that may consume
all of the defendant's assets. See Electrodyne 

.

Currently, Electrodyne states, it has only those physical
assets that are being used to fulfill the remaining contracts.
There is also a $162,000 balance on the promissory note
AdComm gave for Electrodyne's inventory. Moreover,
AdComm gave Electrodyne a security deposit of $31,486.
Finally, Electrodyne submitted a statement showing that it
had $1200 in its bank account as of May 31, 1998. It
represents that these various sources of income will allow
it to pay the $140,000 fine contemplated in its plea
agreement, but no more.

2. The Remaining Contracts

In Electrodyne I, we remanded for findings on
Electrodyne's ability to pay. By the time of resentencing, in
August 1998, two of Electrodyne's remaining five contracts
had been completed. The PSI had initially stated that the
_________________________________________________________________

12. We admit to some confusion here. The contract amount, according to
the facts recited by the District Court, was $173,000. The amount used
by the District Court, $132,000, was apparently the upward adjustment
in the contract amount requested by Electrodyne but not yet granted at
the time of sentencing. We are unsure why the Court used the
adjustment number and not $173,000 or the combined total of
$305,000. Although the parties do not discuss this issue, it might be
useful for the Court to clarify its finding on remand, particularly if the
contract amount has been resolved.

                               39
contracts were break-even projects, and no further evidence
on their profitability was presented. On one of the three
outstanding contracts, the Defense Supply Center has
declared Electrodyne in default. Electrodyne is appealing
that declaration, and if it wins it will owe the government
nothing, while if it loses it will owe $49,458. Thus, there are
two remaining executory contracts, one with the Defense
Supply Center and another with the Navy.

On the contract with the Defense Supply Center,
Electrodyne submitted an affidavit stating that it was
negotiating for a $132,000 increase in the contract price
(originally $173,000). On the contract with the Navy, the
contract amount was $340,000, and Electrodyne had
delivered $88,000 worth of product and had received a
$100,000 progress payment. The affidavit does not state
whether these contracts are break-even; Electrodyne argues
that it was entitled to rely on the PSI, which stated that the
five contracts remaining at the time of the PSI were break-
even. However, the District Court found that, because
Electrodyne failed to specify the expenses incurred in
connection with the manufacture of the components under
the two remaining contracts, it would deem the full amount
of the projected sales--$472,000--available to pay a fine.
But see supra note 12 (noting that this might not be the full
amount of the projected sales). Electrodyne argues that the
Court ignored the obvious fact that manufacturing has
costs, and that it made its findings in the face of the
information in the PSI.

The government suggests that, consistent with our
opinion in Electrodyne I, Electrodyne's failure to provide all
the financial information requested by the Court upon
remand insulates the Court's conclusions from attack. The
government submits that the Court did not clearly err in
deciding that the entire income stream from the remaining
contracts would be available to pay a fine. It suggests that
the materials for the contract might already have been
manufactured and merely awaiting delivery, and so there
might be no remaining manufacturing costs.

Electrodyne responds that it did not culpably fail to
provide information. It points out that, after remand in
Electrodyne I, the District Court ordered Electrodyne to

                               40
produce a number of documents relating to past expenses
and profits, but did not order Electrodyne to set forth
expenses projected for the remaining contracts. Moreover,
Electrodyne produced a good deal of the requestedfinancial
information, and it explained its inability to produce the
missing information. It had never been subject to an audit
according to generally accepted accounting principles. It
submitted an affidavit from an accountant that a
retroactive audit would not provide any reliable information
because inventory could no longer be verified, that a full
audit could cost up to $12,000 per year, and that because
of the cost it was not standard for a business Electrodyne's
size to undergo audits unless an investor or lender required
them. It also submitted an affidavit from Sol Schneiderman,
a consultant who was by mid-1998 the only person working
full-time for Electrodyne, identifying the years for which
Electrodyne did not have complete records and noting the
current status of the remaining contracts. The District
Court amended its order, relieving Electrodyne of the
burden of producing documents that did not, according to
Schneiderman, exist.

Electrodyne was able to provide tax returns from 1990 to
1997 and unaudited financial statements and balance
sheets for 1990-1991, 1994-1997, and through May 31,
1998. The balance sheets showed sales costs between 65%
(1995) and 82% (1994) of gross sales and operating
expenses between 17% (1994) and 34% (1995 & 1996) of
gross sales. In every year but 1990, therefore, Electrodyne's
balance sheets show net operating pretax income of under
1% of gross sales. Electrodyne argues that the District
Court ignored this record in concluding that Electrodyne
would have no expenses for the remaining contracts. It
asserts that if Electrodyne's net profit on the executory
contracts averaged what it had been between 1990 and
1997, it would make $3304 in profit from the two
contracts, a sum consistent with the prediction that the
remaining contracts would be break-even propositions.

We have been unable to find guidance in the extant
caselaw on determination of ability to pay. We find it
difficult to believe that Electrodyne had no expenses when
fulfilling its remaining contracts, but we are also

                               41
unconvinced that Electrodyne provided sufficient
information. As Electrodyne changed from a going concern
to a dying business, it is not obvious that past expenses are
an appropriate guide; a one- or five-employee operation that
is contracting out most of its work doubtless runs
differently than a business that employs nearlyfifty
employees. Therefore, Electrodyne's proposed measure of
profit from the remaining contracts seems as unlikely to be
accurate as the conclusion that the contract amounts
represent pure profit.

However, Electrodyne may have been legitimately
surprised by the District Court's conclusion that the two
remaining contracts represented pure profit, given that the
PSI stated otherwise and that the government never argued
the issue. Because the only record evidence on the
remaining contracts comes from the PSI, which labeled
them break-even, we conclude that the District Court erred
in deeming all contract payments available to pay afine.
We emphasize that, were there other evidence in the record
to the contrary, the District Court could have accepted it.
On remand, we think that Electrodyne should be required
to offer proof of its expenses in carrying out the remaining
parts of the contracts. See 

n.8
(sentencing court should inquire about the defendant's
financial prospects). The burden of proving expenses is
properly on Electrodyne, and the District Court may
conclude that money not accounted for is available to pay
a fine. See Electrodyne 

; United States v.
Carr, 

, 1211-12 (3d Cir. 1994) (court may sua
sponte recalculate a defendant's net worth in determining
his ability to pay if the PSI recommends a fine; the burden
is on the defendant to prove inability to pay a larger fine).13
_________________________________________________________________

13. Electrodyne also argues that the District Court clearly erred in
concluding that Electrodyne's May 1998 checking account balance of
$25,219.48 was available in August. Schneiderman's June 26, 1998
affidavit stated that Electrodyne had $1200 in the bank, while a First
Union bank statement dated June 30, 1998 listed $419.57 in the
account. The government does not contest this point. On remand, the
District Court should put together as accurate a picture of Electrodyne's
financial position as possible, although we reiterate that it may properly
place the burden on Electrodyne to account for funds.

                               42
3. Payment Schedule

Electrodyne further argues that it should not have to pay
the total fine immediately. Guideline section 8C3.2(b)
requires organizations to pay immediately unless the court
finds that they are financially unable to do so or that
immediate payment imposes an undue burden. Full
payment should be required at the earliest possible date or
in installments, within five years. See U.S.S.G. S 8C3.2(b).
In Electrodyne I, we remanded for findings on the time
within which Electrodyne's fine should be paid; while, on
remand, the District Court ordered immediate payment, it
did not specifically address the question whether all the
assets it had identified were immediately available to pay a
fine.

The District Court counted $162,000 on AdComm's
promissory note as available funds. However, that money is
paid monthly in $1566.35 increments, scheduled to end in
February 2002. Similarly, the Court considered the
amounts due on the executory contracts immediately
available. However, the government had, at the time of
briefing, made only a $100,000 progress payment on one of
the two contracts. An unaudited balance sheet from May
31, 1998, showed that Electrodyne's liabilities exceeded its
assets by $32,156 on that date. The government does not
address the issue of a payment schedule. In view of the
foregoing, we are constrained to conclude that the District
Court abused its discretion in finding the total amounts
due from AdComm and from the remaining government
contracts immediately available, because it is
incontrovertible that Electrodyne does not yet have that
money. Again, the judgment must be set aside, and on
remand the District Court should determine a proper
schedule of payments.

IV. Reassignment on Remand

An impartial judge is a basic due process requirement.
We have on occasion exercised our supervisory power to
reassign judges on remand in order to preserve the reality
and appearance of impartiality. See Alexander v. Primerica
Holdings, Inc., 

(3d Cir. 1993); Haines v. Liggett
Group, Inc., 

, 98 (3d Cir. 1992).

                               43
The defendants argue that the District Court appears to
have made up its mind about important elements of the
case without having any information to back up its
suppositions. It is clear that the District Court repeatedly,
and contrary to the record, stated that the defendants'
conduct had endangered the safety of American troops,
arguably relying on its own deeply held patriotic views in
derogation of the clear record and skewing the sentencing
decision. Therefore, the defendants submit, the judge gave
an appearance of partiality and prejudgment sufficient to
justify reassignment to a different judge on remand. The
government responds that there is no evidence that the
District Court would defy our mandate. It did indeed cut
Electrodyne's fine in half, from $1 million to $500,000, after
the first remand, and it adhered to our mandate while
exercising its discretion to resolve a number of contested
issues (though not all) against the defendants.

The matters left for resolution in the wake of this opinion
are few and relatively circumscribed. We conclude that the
drastic remedy of reassignment is not necessary here.
Moreover, the case remains a complex one that would
weigh heavily on a sentencing judge unfamiliar with the
facts. We have every confidence that the able and
industrious District Judge will, as he has before, follow our
mandate.

V. Conclusion

For the foregoing reasons, the judgment of the District
Court will be reversed, and the cases will be remanded for
further proceedings consistent with this opinion.14
_________________________________________________________________

14. In one respect, the appeal is dismissed. See supra note 6 and
accompanying text.

                               44
RENDELL, Circuit Judge, concurring and dissenting:

I concur in part and dissent in part from Chief Judge
Becker's comprehensive opinion, because I would affirm the
District Court's upward departure decision.

This is a difficult case, factually and legally. It is made
perhaps more difficult by several "disconnects" along the
way. Principal among these are: first, the government's
willingness to accept guilty pleas to violations of statutes
punishing false entry documents and false markings on
goods, when the admitted conduct consisted of a well-
orchestrated scheme to produce, in foreign countries, goods
for military use that were, by law and by contract, to be
produced in the United States, in violation of several federal
statutes; and second, the lack of "fit" of the crime charged
and the conduct conceded with the specified sentencing
guideline, which applies primarily to crimes involving
revenue collection and trade regulation.15

I fault these mismatches for the District Court's need to
resort to an upward departure. Unlike the majority, I read
the District Court's upward departure as having been based
not so much on the threat to the military that the majority
references, but rather, on entirely proper grounds. These
are: (1) that the offense was outside the heartland duty
evasion case because the falsification and absence of
markings was done not merely to evade duties, but to
conceal an extensive criminal scheme that violated several
other laws; and (2) to account for the uncharged fraudulent
conduct (i.e., dismissed counts) clearly conceded by
defendant at the guilty plea colloquy, both permissible
grounds for upward departure under our holding in United
States v. Baird, 

(3d Cir. 1997). 16
_________________________________________________________________

15. The majority characterizes the applicable guideline as a "smuggling"
guideline and it is in the sense that it applies to improper introduction
of goods into the country, but it is addressed primarily at duty evasion.
The guideline itself notes that importing of contraband or restricted
goods is covered by other guideline provisions.

16. It is ironic that while a sentencing court could not start with an
applicable guideline offense level unless the defendant actually
stipulated to the conduct, the sentencing court can clearly arrive at that
level in the end by departing upward, based upon relevant conduct
admitted in connection with the plea but uncharged (or dismissed). In
United States v. Baird, we held that result to be quite permissible.

                                45
This sentencing would have proceeded differently had
there been a more suitable starting point than a duty
evasion guideline. The absence of a more specific guideline
as to the type of crime committed -- which is, by its nature,
not your run-of-the-mill duty evasion or, even, fraud,
offense -- was, I believe, at the heart of the dilemma facing
the sentencing judge. The District Court did the best it
could with the hand it was dealt by the Sentencing
Commission. The majority concludes that the sentencing
judge abused his discretion. I submit that he reached an
understandable -- and, I believe, appropriate-- result.

I agree with the thorough analysis of my colleague with
respect to all of the issues, save this one. I would affirm the
upward departure determination of the District Court and
therefore respectfully dissent from that portion of the
opinion.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                               46