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23.00 CONSPIRACY TO COMMIT OFFENSE OR TO DEFRAUD THE UNITED STATES
Updated June 2001
23.01 STATUTORY LANGUAGE: 18 U.S.C. § 371
23.02 GENERALLY
23.03 ELEMENTS
23.04 AGREEMENT
23.04[1] Proof of Agreement
23.04[2] Two or More Persons
23.04[2][a] Limitation on Naming Unindicted Coconspirators
23.04[2][b] Conspiring With Government Agents
23.04[2][c] Corporations as Conspirators
23.04[3] Scope of the Agreement -- Single or Multiple Objects
23.05 MEMBERSHIP
23.05[1] Intent Requirement
23.05[2] Proof of Membership
23.05[3] Pinkerton Liability
23.06 OVERT ACT
23.06[1] Definition
23.06[2] Acts of Concealment
23.07 CONSPIRACY TO DEFRAUD THE UNITED STATES
23.07[1] Generally
23.07[1][a] Sec. 371: Two Forms of Conspiracy
23.07[1][b] Scope of Defraud Clause
23.07[1][c] Pleading Requirements
23.07[2] Klein Conspiracy
23.07[2][a] Generally
23.07[2][b] Examples: Klein fact patterns
23.07[2][c] The Ninth Circuit's Caldwell Decision
23.07[3] Overlapping Conspiracies
23.07[4] Scope of Intent
23.07[4][a] Generally
23.07[4][b] Klein Conspiracy Coupled With a Narcotics or Money Laundering Prosecution
23.08 STATUTE OF LIMITATIONS
23.08[1] Generally
23.08[2] Beginning of Limitations Period
23.08[3] Withdrawal Defense
23.09 VENUE
23.01 STATUTORY LANGUAGE: 18 U.S.C. § 371
§371. Conspiracy to commit offense or to defraud United
States
If two or more persons conspire either to commit any offense against
the United States, or to defraud the United States, or any agency
thereof in any manner or for any purpose, and one or more of such persons
do any act to effect the object of the conspiracy, each shall be fined*
not more than $10,000 or imprisoned not more than five years, or both.
If, however, the offense, the commission of which is the object of
the conspiracy, is a misdemeanor only, the punishment for such conspiracy
shall not exceed the maximum punishment provided for such misdemeanor.
* As to offenses committed after December 31, 1984, the Criminal
Fine Enforcement Act of 1984 (P.L. 98-596) enacted 18 U.S.C. § 3623,
which increased the maximum permissible fines for misdemeanors and
felonies. Where 18 U.S.C. § 3623 [FN1] is applicable, the maximum
fine under section 371 for felony offenses committed after December 31,
1984, would be at least $250,000 for individuals and $500,000 for
corporations. Alternatively, if any person derives pecuniary gain from
the offense, or if the offense results in a pecuniary loss to a person
other than the defendant, the defendant may be fined not more than the
greater of twice the gross gain or twice the gross loss.
23.02 GENERALLY
The criminal tax statutes in Title 26 of the United States Code do not
include a statute for the crime of conspiracy. [FN2] As a result, tax-related
conspiracies are generally prosecuted under 18 U.S.C. § 371, the general
conspiracy statute. Section 371 sets out two types of conspiracies. United
States v. Hitt, 249 F.3d 1010, 1015 (D.C. Cir. 2001); United States v.
Kraig, 99 F.3d 1361, 1366 (6th Cir. 1996); United States v. Helmsley,
941 F.2d 71, 90 (2d Cir. 1991); United States v. Arch Trading Co.,
987 F.2d 1087, 1091 (4th Cir. 1993).
Section 371 may also be violated by conspiring or agreeing to defraud the
United States. "To conspire to defraud the United States means primarily to
cheat the Government out of property or money, but it also means to interfere
with or obstruct one of its lawful governmental functions by deceit, craft, or
trickery, or at least by means that are dishonest." Hammerschmidt v. United
States, 265 U.S. 182, 188 (1924). See also, United States v.
Collins, 78 F.3d 1021, 1037 (6th Cir.1996). In criminal tax prosecutions,
this conduct is typically charged as a "Klein conspiracy," where the government
alleges the defendant conspired to defraud the United States for the purpose of
"impeding, impairing, obstructing and defeating the lawful government functions
of the Internal Revenue Service of the Department of the Treasury in the
ascertainment, computation, assessment, and collection of the revenue: to wit,
income taxes." United States v. Klein, 247 F.2d 908, 915 (2d Cir. 1957).
See also United States v. Furkin, 119 F.3d 1276, 1280-81 (7th Cir.
1996); Kraig, 99 F.3d at 1366; United States v. Sturman, 951 F.2d
1466, 1472 (6th Cir. 1991); Alexander v. Thornburgh, 943 F.2d 825, 829
(8th Cir. 1991); Helmsley, 941 F.2d at 90-91; United States v.
Vogt, 910 F.2d 1184, 1202 (4th Cir. 1990); United States v. Cambara,
902 F.2d 144, 146 (1st Cir. 1990).
The body of law on conspiracy covers a large number of issues which have
been thoroughly analyzed and summarized in various treatises and other sources.
See, e.g., P. Marcus, Prosecution and Defense of Criminal Conspiracy
Cases (1979); O,Malley, Grenig, and Lee, Federal Jury Practice and
Instructions: Criminal, ch. 31 (5th Ed. 2000) (successor to Devitt &
Blackmar); Goldstein, Conspiracy to Defraud the United States, 68 Yale
L.J. 405 (1959). As such, the following discussion is intended to highlight only
those issues relevant to criminal tax prosecutions.
23.03 ELEMENTS
To establish a violation of 18 U.S.C. § 371, the following elements
must be proved beyond a reasonable doubt:
1. The existence of an agreement by two or more persons to commit an
offense against the United States or defraud the United States;
2. The defendant's knowing and voluntary participation in the
conspiracy; and
3. The commission of an overt act in furtherance of the conspiracy.
[FN3]
United States v. Falcone, 311 U.S. 205, 210 (1940); United States v.
Hitt, 249 F.3d 1010, 1015 (D.C. Cir. 2001); United States v.
Fleschner, 98 F3d 155, 159-60 (4th Cir. 1996); United States v.
Rankin, 870 F.2d 109, 113 (3d Cir. 1989); United States v. Yamin,
868 F.2d 130, 133 (5th Cir. 1989); United States v. Mealy, 851 F.2d 890,
896 (7th Cir. 1988); United States v. Wiley, 846 F.2d 150, 153-54 (2d Cir.
1988); United States v. Cerone, 830 F.2d 938, 944 (8th Cir. 1987);
United States v. Penagos, 823 F.2d 346, 348 (9th Cir. 1987); United
States v. Gonzalez, 797 F.2d 915, 916 (10th Cir. 1986); United States v.
Porter, 764 F.2d 1, 15 (1st Cir. 1985); United States v. Cure,
804 F.2d 625, 628 (11th Cir. 1986); United States v. Treadwell, 760 F.2d
327, 333 (D.C. Cir. 1985); United States v. Bostic, 480 F.2d 965, 968
(6th Cir. 1973).
23.04 AGREEMENT
23.04[1] Proof of Agreement
The essence of the crime of conspiracy is the agreement. United States
v. Falcone, 311 U.S. 205, 210 (1940). Stated another way, without an
agreement there can be no conspiracy. Further, because the agreement is the
essence of the crime, success of the conspiracy is irrelevant. United States
v. Labat, 905 F.2d 18, 21 (2d Cir. 1990); United States v. Kibby,
848 F.2d 920, 922 (8th Cir. 1988); United States v. Nicoll, 664 F.2d 1308,
1315 (5th Cir. 1982);. It is for this reason that a defendant may be charged
with conspiracy as well as the substantive offense which served as the object of
the conspiracy. Iannelli v. United States, 420 U.S. 770, 791 (1975);
Pinkerton v. United States, 328 U.S. 640, 645-46 (1946).
The agreement need not be expressly stated, be in writing, or cover
all the details of how it is to be carried out. United States v.
Aubin, 87 F.3d 141, 145 (5th Cir. 1996); United States v.
Boone, 951 F.2d 1526, 1543 (9th Cir. 1992); United States v.
DePew, 932 F.2d 324, 328 (4th Cir. 1991); United States v.
Hopkins, 916 F.2d 207, 212 (5th Cir. 1990); United States v.
Pearce, 912 F.2d 159, 161 (6th Cir. 1990); United States v.
Powell, 853 F.2d 601, 604 (8th Cir. 1988).
Rather, the existence of an agreement may be proved by inference from the
actions and statements of the conspirators or from the surrounding circumstances
of the scheme. Glasser v. United States, 315 U.S. 60, 80 (1942);
United States v. Collins, 78 F.3d. 1021, 1037 (6th Cir. 1996); United
States v. Young, 954 F.2d 614, 618-19 (10th Cir. 1992); United States v.
Penagos, 823 F.2d 346, 348 (9th Cir. 1987); United States v. Mariani,
725 F.2d 862, 865-66 (2d Cir. 1984); United States v. Ballard, 663 F.2d
534, 543 (6th Cir. 1981).
Moreover, the government is not required to prove that the members of the
conspiracy directly stated to each other the purpose of the agreement or all of
the details of the agreement. United States v. Gonzalez, 940 F.2d 1413,
1417 (11th Cir. 1991); United States v. McNeese, 901 F.2d 585, 599
(7th Cir. 1990); United States v. Schultz, 855 F.2d 1217, 1221 (6th Cir.
1988).
23.04[2] Two or More Persons
A defendant cannot conspire with himself or herself. Morrison v.
California, 291 U.S. 82, 92 (1934). In order to establish the existence of
an agreement, the government must show that the defendant and at least one other
person reached an understanding or agreement to carry out the objective of the
conspiracy. United States v. Giry, 818 F.2d 120, 125 (1st Cir. 1987);
United States v. Barnes, 604 F.2d 121, 161 (2d Cir. 1979); United
States v. Chase, 372 F.2d 453, 459 (4th Cir. 1967); Sears v. United
States, 343 F.2d 139, 141-42 (5th Cir. 1965).
It makes no difference whether the other person is another defendant or
even named in the indictment. Rogers v. United States, 340 U.S. 367, 375
(1951) ("identity of the other members of the conspiracy is not needed, inasmuch
as one person can be convicted of conspiring with persons whose names are
unknown"). See also United States v. Galvan, 961 F.2d 738, 742
(8th Cir. 1992); United States v. Rey, 923 F.2d 1217, 1222 (6th Cir.
1991); United States v. Lewis, 902 F.2d 1176, 1181 (5th Cir. 1990);
United States v. Allen, 613 F.2d 1248, 1253 (3d Cir. 1980); United States
v. Anderson, 611 F.2d 504, 511 (4th Cir. 1979);.
23.04[2][a] Limitation on Naming Unindicted Coconspirators
Prosecutors should be aware that it is the position of the Department of
Justice that, in the absence of some sound reason, it is not desirable to
identify unindicted coconspirators in conspiracy indictments. United States
Attorneys' Manual (USAM) 9-11.130 (Sept. 1997). The recommended practice in
such cases is to merely allege that the defendant "conspired with another person
or persons known to the grand jury" and supply the identity, if requested, in a
bill of particulars. The above policy does not apply, however, where the fact
of the person's conspiratorial involvement is a matter of public record or
knowledge.
23.04[2][b] Conspiring With Government Agents
Because the government must prove that at least two culpable parties
reached an agreement, proof of an agreement solely between a defendant and a
government agent or informer will not support a conspiracy conviction. Rogers
v. United States, 340 U.S. 367, 375 (1951); Morrison v. California,
291 U.S. 82, 92 (1934); United States v. Giry, 818 F.2d 120, 125 (1st Cir.
1987); United States v. Escobar de Bright, 742 F.2d 1096, 1099 (9th Cir.
1984); United States v. Pennell, 737 F.2d 521, 536 (6th Cir. 1984);
United States v. Barnes, 604 F.2d 121, 161 (2d Cir. 1979); United States
v. Chase, 372 F.2d 453, 459 (4th Cir. 1967);
Even though it is impossible to conspire with an undercover agent or
informer, this issue should be distinguished from instances where a valid
agreement exists between two or more conspirators, one of whom committed overt
acts solely with a government agent. In these situations, it is proper to charge
and prove at trial an overt act that involves only one of the conspirators and
an undercover agent. United States v. Enstam, 622 F.2d 857, 867 (5th Cir.
1980).
23.04[2][c] Corporations as Conspirators
A corporation may be criminally liable for conspiracy under section 371.
United States v. Stevens, 909 F.2d 431, 432-34 (11th Cir. 1990); United
States v. S & Vee Cartage Co., 704 F.2d 914, 920 (6th Cir. 1983). Moreover,
a corporation can enter into a conspiracy with its own employees. United
States v. Ams Sintering Co., 927 F.2d 232, 236 (6th Cir. 1990); United
States v. Hartley, 678 F.2d 961, 972 (11th Cir. 1982).
23.04[3] Scope of the Agreement -- Single or Multiple Objects
A single conspiracy may have multiple objectives and involve a number of
sub-agreements to commit each of the specified objectives. Braverman v.
United States, 317 U.S. 49, 53 (1942); United States v. Berger, 224
F.3d 107, 113-115 (2d Cir. 2000); United States v. Maldonado-Rivera,
922 F.2d 934, 963 (2d Cir. 1990); United States v. Warner, 690 F.2d 545,
550 n.8 (6th Cir. 1982); United States v. Rodriguez, 585 F.2d 1234,
1248-49 (5th Cir. 1978). Multiple-object conspiracy cases frequently raise the
issue of single or multiple conspiracies. In determining whether a single
conspiracy or multiple conspiracies exist, the courts consider whether there is
one agreement to commit multiple objectives or more than one agreement, each with
a separate object. The general test is whether there was "one overall agreement"
to perform various functions to achieve the objectives of the conspiracy.
See Berger, 224 F.3d at113-115; United States v. Leavis,
853 F.2d 215, 218 (4th Cir. 1988); United States v. Springer, 831 F.2d
781, 784 (8th Cir. 1984); United States v. Arbelaez, 719 F.2d 1453, 1457
(9th Cir. 1983); United States v. Warner, 690 F.2d 545, 548-49 (6th Cir.
1982).
A single conspiracy does not become multiple conspiracies simply because
of personnel changes or because its members are cast in different roles.
United States v. Richerson, 833 F.2d 1147, 1153-54 (5th Cir. 1987);
United States v. Spector, 793 F.2d 932, 935-36 (8th Cir. 1986); United
States v. Cambindo-Valencia, 609 F.2d 603, 625 (2d Cir. 1979); United
States v. Mayes, 512 F.2d 637, 642 (6th Cir. 1975). In determining whether
there is a single conspiracy or multiple conspiracies, the courts apply a
totality of the circumstances test under which a combination of the following
factors are considered: (1) commonality of goals; (2) nature of the scheme; and
(3) overlapping of participants in the various dealings. See Berger,
224 F.3d at114-115; United States v. David, 940 F.2d 722, 724 (10th Cir.
1991); United States v. Tarantino, 846 F.2d 1384, 1392-93 (D.C. Cir.
1988); United States v. Smith, 789 F.2d 196, 201-02 (3d Cir. 1986);
United States v. DeLuna, 763 F.2d 897, 918 (8th Cir. 1985); United
States v. Plotke, 725 F.2d 1303, 1308 (11th Cir. 1984); United States v.
Mayo, 646 F.2d 369, 372 (9th Cir. 1981); United States v. Bastone,
526 F.2d 971, 979-80 (7th Cir. 1975);. See also United States v.
Marable, 578 F.2d 151, 154 (5th Cir. 1978) (court looks to (1) time;
(2) coconspirators; (3) statutory offenses charged; (4) overt acts charged; and,
(5) location where the events took place).
23.05 MEMBERSHIP
23.05[1] Intent Requirement
In order to establish a defendant's membership in a conspiracy, the
government must prove that the defendant knew of the conspiracy and that he or
she intended to join it and to accomplish the object of the conspiracy. See
United States v. Berger, 224 F.3d 107, 114-115 (2d Cir. 2000); United
States v. Dale, 991 F.2d 819, 851 (D.C. Cir. 1993); United States v.
Lynch, 934 F.2d 1226, 1231 (11th Cir. 1991); United States v. Brown,
934 F.2d 886, 889 (7th Cir. 1991); United States v. Esparza, 876 F.2d
1390, 1392 (9th Cir. 1989); United States v. Rankin, 870 F.2d 109, 113
(3d Cir.1989); United States v. Yanin, 868 F.2d 130, 133 (5th Cir.
1989); United States v. Zimmerman, 832 F.2d 454, 457 (8th Cir. 1987);
United States v. Christian, 786 F.2d 203, 211 (6th Cir. 1986); United
States v. Southland, 760 F.2d 1366, 1169 (2d Cir. 1985); United States v.
Norris, 749 F.2d 1116, 1121 (4th Cir. 1984); United States v.
Flaherty, 668 F.2d 566, 580 (1st Cir. 1981);. A defendant may become a
member of a conspiracy without knowing all of the details of the unlawful scheme
and without knowing all of the members. Blumenthal v. United States,
332 U.S. 539, 557 (1947); United States v. Horn, 946 F.2d 738, 740
(10th Cir. 1991); United States v. Noble, 754 F.2d 1324, 1327 (7th Cir.
1985); United States v. Massa, 740 F.2d 629, 636 (8th Cir. 1984);
United States v. Diecidue, 603 F.2d 535, 548 (5th Cir. 1979).
Similarly, a defendant may become a member of a conspiracy even if that
person agrees to play a minor role in the conspiracy, so long as he or she
understands the essential nature of the scheme and intentionally joins in it.
United States v. Andrews, 953 F.2d 1312, 1318 (11th Cir. 1992); United
States v. Medina, 940 F.2d 1247, 1250 (9th Cir. 1991); United States v.
Warner, 690 F.2d 545, 550 (6th Cir. 1982).
23.05[2] Proof of Membership
Although the government must prove that a defendant was a member of a
conspiracy, this requirement may be satisfied by a showing of only a "slight
connection" to the conspiracy so long as the connection is proven beyond a
reasonable doubt. United States v. Boone, 951 F.2d 1526, 1543 (9th Cir.
1991); United States v. Moya-Gomez, 860 F.2d 706, 758-59 (7th Cir.
1988); United States v. Christian, 786 F.2d 203, 211 (6th Cir. 1986).
A defendant's knowledge of a conspiracy need not be proved by direct
evidence; circumstantial evidence is sufficient. United States v. Hayes,
190 F.3d 939, 946 (9th Cir. 1999), aff'd en banc, 231 F.3d 663, 667
n.1 (9th Cir. 2000), cert. denied, 121 S.Ct. 1388 (2001);
United States v. David, 940 F.2d 722, 724 (1st Cir. 1991); United
States v. Beale, 921 F.2d 1412, 1430 (11th Cir. 1991); United States v.
Christian, 786 F.2d 203, 211 (6th Cir. 1986). Generally, this knowledge can
be inferred from the defendant's own acts and statements. United States v.
Kane, 944 F.2d 1406, 1410 (7th Cir. 1991); United States v. Martin,
920 F.2d 345, 348 (6th Cir. 1990).
Mere presence at the scene of a transaction or event is insufficient, of
itself, to make someone a member of a conspiracy. United States v.
Cintolo, 818 F.2d 980, 1003 (1st Cir. 1987); United States v. Holcomb,
797 F.2d 1320, 1327 (5th Cir. 1986); United States v. Raymond, 793 F.2d
928, 932 (8th Cir. 1986); United States v. Marian, 725 F.2d 862, 865
(2d Cir. 1984); United States v. Bostic, 480 F.2d 965, 968 (6th Cir.
1973).
Similarly, merely acting in the same way as others or merely associating
with others does not prove that someone joined in an agreement or understanding.
United States v. Davenport, 808 F.2d 1212, 1218 (6th Cir. 1987); United
States v. Apker, 705 F.2d 293, 298 (8th Cir. 1983). Also, mere knowledge
that something illegal is going on is insufficient to show membership in a
conspiracy. United States v. Schmidt, 947 F.2d 362, 365 (9th Cir.
1991); United States v. Brown, 584 F.2d 252, 260 (8th Cir. 1978);
United States v. Webb, 359 F.2d 558, 562 (6th Cir. 1966).
23.05[3] Pinkerton Liability
A conspirator is responsible for offenses committed by another member of
the conspiracy if the conspirator was a member of the conspiracy when the offense
was committed and if the offense was committed in furtherance of, or as a
foreseeable consequence of, the conspiracy. Pinkerton v. United States,
328 U.S. 640, 645-48 (1946). The government is not required to prove that each
defendant specifically agreed to commit the offense or knew that the offense
would be committed. United States v. Lemm, 680 F.2d 1193, 1204 (8th Cir.
1982); United States v. Etheridge, 424 F.2d 951, 965 (6th Cir. 1970).
Rather, it is sufficient if the government establishes that the offense was in
furtherance of the conspiracy or was reasonably foreseen as a necessary or
natural consequence of the unlawful agreement. United States v. Carpenter,
961 F.2d 824, 828 (9th Cir. 1992); United States v. Eyster, 948 F.2d 1196,
1206 (11th Cir. 1991); United States v. Cummings, 937 F.2d 941, 944
(4th Cir. 1991); United States v. Labat, 905 F.2d 18, 21 (2d Cir.
1990); United States v. Redwine, 715 F.2d 315, 322 (7th Cir. 1983);
United States v. Heater, 689 F.2d 783, 788 (8th Cir. 1982); United
States v. Tilton, 610 F.2d 302, 309 (5th Cir. 1980); United States v. Van
Hee, 531 F.2d 352, 357 (6th Cir. 1976);
Moreover, there is some authority for the proposition that a person who
joins a conspiracy adopts the prior acts of the other conspirators and may be
held responsible for offenses committed before he or she joined the conspiracy.
United States v. Rea, 958 F.2d 1206, 1214 (2d Cir. 1992); United States
v. Cimini, 427 F.2d 129, 130 (6th Cir. 1970).
23.06 OVERT ACT
23.06[1] Definition
In order to establish a conspiracy, the government must prove that a member
of the conspiracy committed an overt act in furtherance of the conspiracy. The
function of the overt act requirement is to show that the conspiracy is at work
and is simply not an agreement existing solely in the minds of the conspirators.
Yates v. United States, 354 U.S. 298, 334 (1957); United States v.
Arboleda, 929 F.2d 858, 865 (1st Cir. 1991).
An overt act is any act done by a member of the conspiracy for the purpose
of carrying out or accomplishing the object of the conspiracy. United States
v. Falcone, 311 U.S. 205, 210 (1940). Because the purpose of the overt act
requirement is merely to show that the conspiracy is at work, the overt act need
not be criminal in character. Yates v. United States, 354 U.S. at 334;
Braverman v. United States, 317 U.S. 49, 53-54 (1942); United States
v. Touhey, 867 F.2d 534, 537 )9th Cir. 1989). Indeed, it may be totally
legal in itself. See United States v. Hermes, 847 F.2d 493, 495
(8th Cir. 1988).
The government is not required to prove all of the overt acts alleged in
an indictment. Proof of at least one overt act committed in furtherance of the
conspiracy is sufficient. United States v. Lewis, 759 F.2d 1316, 1344
(8th Cir. 1985); United States v. Zielie, 734 F.2d 1447, 1456 (11th Cir.
1984); United States v. Anderson, 611 F.2d 504, 510 (4th Cir. 1979).
Also, it is not essential that the government establish that each
conspirator knew of all the activities of the other conspirators, or that each
conspirator participated in all of the activities of the conspiracy. United
States v. Berger, 224 F.3d 107, 114-115 (2d Cir. 2000); United States v.
Colson, 662 F.2d 1389, 1391 (11th Cir. 1981); United States v.
Brunetti, 615 F.2d 899, 903 (10th Cir. 1980).
In connection with pre-trail discovery of overt acts, the government is not
required to disclose all of the overt acts it will establish at trial. United
States v. Murray, 527 F.2d 401, 411 (5th Cir. 1976); United States v.
Armocida, 515 F.2d 49, 54 (3d Cir. 1975); United States v. Carroll,
510 F.2d 507, 509 (2d Cir. 1975). Moreover, the government may prove at trial
overt acts not charged in the indictment. United States v. Lewis,
759 F.2d 1316, 1344 (8th Cir. 1985); United States v. Diecidue, 603 F.2d
535, 563 (5th Cir. 1979); United States v. Johnson, 575 F.2d 1347, 1357
(5th Cir. 1978); United States v. Fassoulis, 445 F.2d 13, 19 (2d Cir.
1971).
23.06[2] Acts of Concealment
Acts of concealment may constitute overt acts. However, these acts are
only admissible if they were committed prior to the object of the conspiracy
being fully accomplished. Once accomplished, the conspiracy is over and
subsequent overt acts are not probative of the conspiracy. Grunewald v.
United States, 353 U.S. 391, 405 (1957).
In Grunewald, the Supreme Court was concerned with the government's
attempts to lengthen indefinitely the duration of a conspiracy by simply showing
that the conspirators took steps to cover their tracks in order to avoid
detection and punishment after the central criminal purpose had been
accomplished. The Court stressed that a "distinction must be made between acts
of concealment done in furtherance of the main criminal objectives of the
conspiracy, and acts of concealment done after these central objectives have been
obtained, for the purpose only of covering up after the crime." 353 U.S. at 405.
In the context of criminal tax conspiracies, the object of the crime is
usually to conceal income and expenses from the IRS. Indeed, the very definition
of an affirmative act of tax evasion is "any conduct, the likely effect of which
would be to mislead or conceal." Spies v. United States, 317 U.S. 492,
499 (1943). Overt acts in furtherance of conspiracies to defraud the United
States in connection with tax assessment and collection or to commit tax offenses
generally involve acts which mislead or conceal. Thus, criminal tax conspiracies
usually contemplate acts of concealment to further the crime and such acts are
admissible as overt acts. See, e.g., United States v. Vogt,
910 F.2d 1184, 1201-02 (4th Cir. 1990); United States v. Pinto, 838 F.2d
426, 435 (10th Cir. 1988); United States v. Cunningham, 723 F.2d 217, 229
(2d Cir. 1983); United States v. Mackey, 571 F.2d 376, 383-84 (7th Cir.
1978); United States v. Feldman, 731 F. Supp. 1189, 1197 (S.D.N.Y. 1990).
Note that care must be taken when drafting an indictment charging a conspiracy
contemplating concealment. If the indictment is not properly drafted to include
concealment as an object of the conspiracy, Grunewald might preclude the
admission into evidence of certain acts of concealment.
23.07 CONSPIRACY TO DEFRAUD THE UNITED STATES
23.07[1] Generally
23.07[1][a] Sec. 371: Two Forms of Conspiracy
Section 371 is written in the disjunctive and prohibits two distinct types
of conspiracies.
United States v. Hitt, 249 F.3d 1010, 1015 (D.C. Cir. 2001); United
States v. Kraig, 99 F.3d 1361, 1366 (6th Cir. 1996); United States v. Arch
Trading Co., 987 F.2d 1087, 1091 (4th Cir. 1993); United States v.
Helmsley, 941 F.2d 71, 90 (2d Cir. 1991). The first part of the statute,
which is generally known as the "offense clause," prohibits conspiring to commit
offenses that are specifically defined in other federal statutes. The second
part of the statute, which is generally known as the "defraud clause," prohibits
conspiring to defraud the United States. United States v. Hurley,
957 F.2d 1, 3 (1st Cir. 1992); United States v. Touhey, 867 F.2d 534, 536
(9th Cir. 1989); United States v. Cure, 804 F.2d 625, 628 (11th Cir.
1986).
The offense clause requires reference in the indictment to another criminal
statute which defines the object of the conspiracy. The defraud clause, however,
stands on its own and an indictment charging a conspiracy to defraud does not
need to refer to another statute to define the crime. United States v.
Bilzerian, 926 F.2d 1285, 1301 (2d Cir. 1991); United States v.
Minarik, 875 F.2d 1186, 1187 (6th Cir. 1989) (see later discussion on
Overlapping Conspiracies; Section 23.07[3], supra). In criminal tax
prosecutions, section 371 is used to charge conspiracies to commit tax offenses
and/or to defraud the Internal Revenue Service. United States v. Jerkins,
871 F.2d 598, 602 (6th Cir. 1989); United States v. Little, 753 F.2d 1420,
1442 (9th Cir. 1984); United States v. Shermetaro, 625 F.2d 104, 109
(6th Cir. 1980);.
It should be noted that although section 371 provides for two distinct
types of violations, the courts have consistently held that the statute provides
for one offense, not two. United States v. Hope, 861 F.2d 1574, 1578 n.8
(11th Cir. 1988); Braverman v. United States, 317 F.2d 49, 52-53 (1942);
but see United States v. Haga, 821 F.2d 1036, 1039 (5th Cir. 1987)
(section 371 makes out two separate offenses).
23.07[1][b] Scope of Defraud Clause
The defraud clause of section 371 is very broad and encompasses a vast
array of conduct, including acts which do not constitute a crime under a separate
federal statute. United States v. Tuohey, 867 F.2d 534, 537 (9th Cir.
1989). This is because the term "defraud" when used in section 371 is broader
than its common law definition and even goes beyond the definition used in the
mail and wire fraud statutes. McNally v. United States, 483 U.S. 350, 356
(1987); Dennis v. United States, 384 U.S. 855, 861 (1966); Tuohey,
867 F.2d at 537-38. But see United States v. Caldwell, 989 F.2d
1056 (9th Cir. 1993).
The Supreme Court has held that "conspiracy to defraud the United States"
means: (1) to cheat the government out of money or property; or (2) to interfere
with or obstruct one of its lawful governmental functions by deceit, craft,
trickery, or at least by dishonest means. Hammerschmidt v. United States,
265 U.S. 182, 188 (1924).
Under the defraud clause, the government does not have to establish a
pecuniary loss to the United States. Hammerschmidt, 265 U.S. at 188;
Tuohey, 867 F.2d at 537; United States v. Puerto, 730 F.2d 627, 630
(11th Cir. 1984). Moreover, the government is not required to show that the
scheme to defraud was a success or that the government was actually harmed.
United States v. Rosengarten, 857 F.2d 76, 79 (2d Cir. 1988); United
States v. Everett, 692 F.2d 596, 599 (9th Cir. 1982).
More importantly, however, under the defraud clause the government is not
required to show that the "fraud" was a crime on its own. United States v.
Jerkins, 871 F.2d 598, 603 (6th Cir. 1989). This means the prosecutor is not
burdened with having to establish all of the elements of an underlying offense
(e.g., tax evasion) and each member's intent to commit that offense
(e.g., willfulness). Rather, all the prosecutor must show is that the
members agreed to interfere with or obstruct one of the government's lawful
functions "by deceit, craft, trickery, or at least by means that are dishonest."
Hammerschmidt, 265 U.S. at 188; United States v. Hurley, 957 F.2d
1, 4-5 (1st Cir. 1992); United States v. Jerkins, 871 F.2d 598, 603
(6th Cir. 1989); United States v. Nersesian, 824 F.2d 1294, 1313 (2d Cir.
1987). Accord United States v. Caldwell, 989 F.2d 1056 (9th Cir.
1993) (see discussion as §23.07[2][c], infra.
Though a conspiracy to defraud may exist where no substantive offense has
been committed, deceit or trickery in the scheme is essential to satisfying the
defrauding requirement in the statute. Hammerschmidt, 265 U.S. at 188.
Similarly, since the purpose of the defraud clause of section 371 is to protect
the integrity of the programs and policies of the United States and its agencies,
the prosecutor must establish that the target of the fraud was the United States
or one of its agencies. United States v. Johnson, 383 U.S. 169, 170
(1966); United States v. Lane, 765 F.2d 1376, 1379 (9th Cir. 1985);
United States v. Pintar, 630 F.2d 1270, 1278 (8th Cir. 1980). Moreover, a
conspiracy to defraud is not limited to those aiming to deprive the government
of money or property, but may include a conspiracy to interfere with government
functions. United States v. Goldberg, 105 F.3d 770, 773 (1st Cir. 1997).
23.07[1][c] Pleading Requirements
Because of the broad scope of section 371's defraud clause, the Supreme
Court in Dennis v. United States, 384 U.S. 855 (1966), warned the lower
courts to proceed with care in interpreting section 371 cases, stating:
[I]ndictments under the broad language of the general conspiracy statute
must be scrutinized carefully as to each of the charged defendants because
of the possibility inherent in a criminal conspiracy charge, that its wide
net may ensnare the innocent as well as the culpable.
384 U.S. at 860.
Following the warning in Dennis, the Third Circuit in United
States v. Shoup, 608 F.2d 950 (3d Cir. 1979), added that the courts "must be
mindful that the statute is a broad one, and that there is a danger that
prosecutors may use it arbitrarily to punish activity not properly within the
ambit of the federal criminal sanction." 608 F.2d at 955-56. See also
United States v. Rosenblatt, 554 F.2d 36, 41 n.6 (2d Cir. 1977) (potential
for abuse under the defraud clause is much greater than under the offense clause
because (1) under the former the charge is broader and less precise; (2) the
former expands the scope of conspiracy and, thus, liability for crimes,
coconspirators, and admissibility of coconspirators' declarations; (3) the former
includes more overt acts and, thus, both lengthens the period of the statute of
limitations and increases the number of jurisdictions where venue can be laid;
and, (4) charges under the former may avoid the limit placed on the penalty for
conspiracy to commit a misdemeanor).
Thus, the courts have held that when the government proceeds under the
conspiracy to defraud clause, it must plead the "essential nature" of the alleged
fraudulent scheme. See, e.g., United States v. Helmsley, 941 F.2d
71, 91 (2d Cir. 1991). It is not sufficient for the indictment to simply
reallege the language in the statute; rather, it must allege the fraudulent
scheme in its particulars. United States v. Rosenblatt, 554 F.2d 36, 41
(2d Cir. 1977). This means that a defraud clause indictment should include:
(1) the name of the agency impeded; (2) what functions of the agency were
impeded; (3) what means were used to impede the agency; and (4) the identity of
those charged with impeding the agency. United States v. Mohney,
949 F.2d 899, 904 (6th Cir. 1991).
23.07[2] Klein Conspiracy
23.07[2][a] Generally
A conspiracy to defraud the IRS generally charged under section 371's
defraud clause is commonly referred to as a "Klein conspiracy." See,
e.g., United States v. Klein, 247 F.2d 908, 915 (2d Cir. 1957).
The general description of a Klein conspiracy is as follows:
[T]o defraud the United States by impeding, impairing, obstructing and
defeating the lawful functions of the Internal Revenue Service of the
Department of the Treasury in the ascertainment, computation, assessment,
and collection of the revenue: to wit, income taxes. [FN4]
Klein, 247 F.2d at 915. See also United States v.
Sturman, 951 F.2d 1466, 1472 (6th Cir. 1992); Alexander v. Thornburgh,
943 F.2d 825, 829 (8th Cir. 1991); United States v. Helmsley, 941 F.2d 71,
90-91 (2d Cir. 1991); United States v. Vogt, 910 F.2d 1184, 1202 (4th Cir.
1990); United States v. Cambara, 902 F.2d 144, 146 (1st Cir. 1990).
In the Klein case, the Second Circuit upheld the government's use
of the defraud clause to charge conduct that impeded the functions of the IRS and
upheld the conspiracy conviction, finding sufficient evidence to make out the
crime. 247 F.2d at 916. The court summarized twenty acts of concealment that
qualified as efforts to impede the functions of the IRS. These acts included:
1. Alteration of the books to make liquidating dividends appear as
commissions;
2. Alteration of the books to make a gratuitous payment of $1,500,000
appear as a repayment of a loan;
3. A false entry in the books disguising as commissions what was
actually a dividend, which in turn was diverted to corporate
nominees;
4. A false statement in Klein's personal income tax return regarding
the payment for a stock purchase;
5. Klein's false answer to Treasury interrogatories seeking to identify
the owners of various Cuban corporations;
6. A return falsely reporting that stock was sold in 1950 for an
immense profit;
7. The evasive affidavit of Klein's secretary denying that he
remembered altering certain books; and
8. Income tax returns which falsely claimed a sale of stock.
247 F.2d at 915.
While it is not necessary to have evidence of acts as pronounced as those
in Klein, the government must introduce evidence establishing that the
intent of each member of the conspiracy was to impede the functions of the IRS.
23.07[2][b] Examples: Klein fact patterns
First Circuit
1. United States v. Goldberg, 105 F.3d 770, 772 (1st Cir. 1997)
(scheme to conceal payments to individuals through use of "straw
employees" and benefits to third parties).
2. United States v. Hurley, 957 F.2d 1 (1st Cir. 1992)
(money laundering scheme using front companies set up in
Panama and the Bahamas, and unconventional business practices
such as $100,000 transactions in currency and checks made out
in names of third parties).
3. United States v. Cambara, 902 F.2d 144 (1st Cir. 1990)
(laundering money through use of real estate management company as
front company; structuring cash withdrawals; and purchasing large
assets with currency).
4. United States v. Lizotte, 856 F.2d 341 (1st Cir. 1988) (money
laundering scheme using cash to purchase real estate through
nominees).
5. United States v. Tarvers, 833 F.2d 1068 (1st Cir. 1987)
(money laundering scheme using nail polish remover company set up as
front and nominees using cash to purchase real estate).
Second Circuit
1. United States v. Macchia, 35 F.3d 662, 666 (2nd Cir. 1994)
(gasoline excise tax scheme using daisy chain of fictitous
transactions to make it appear that the insolvent "burn" company had
been the first entity to engage in a sale requiring payment of the
fuel excise tax).
2. United States v. Aracri, 968 F.2d 1512 (2d Cir. 1992)
(Klein conspiracy in federal gasoline excise tax context,
creation of sham paper sales of gas among various entities, creation
of shell corporations to hold tax exemption licenses).
3. United States v. Bilzerian, 926 F.2d 1285 (2d Cir. 1991)
(dual objective conspiracy -- to defraud SEC and IRS by parking
stock to generate false tax losses and false claims for deductions;
accumulating stock through nominees; and failing to comply with SEC
reporting requirements under § 13(d)).
4. United States v. Attanasio, 870 F.2d 809 (2d Cir. 1989)
(creating false capital gain transactions and laundering $600,000
through attorney trust accounts).
5. United States v. Gurary, 860 F.2d 521 (2d Cir. 1988)
(creation of phoney invoices for non-existent goods which
companies would buy and include in their cost-of-goods sold figure
on corporate tax returns).
6. United States v. Rosengarten, 857 F.2d 76 (2d Cir. 1988)
(creation of false tax deductions by backdating documents relating
to a real estate tax shelter investment).
7. United States v. Turoff, 853 F.2d 1037 (2d Cir. 1988)
(failing to report substantial interest income derived from mail
fraud scheme and depositing monies into a credit union which did not
report interest to the IRS).
8. United States v. Mollica, 849 F.2d 723 (2d Cir. 1988)
(issuing phoney corporate checks with forged endorsements to create
funds used to pay personal expenses that were then deducted as
business expenses; diverting earned income into secret bank
accounts; and not reporting interest income received on loans).
9. United States v. Nersesian, 824 F.2d 1294 (2d Cir. 1987)
(converting $117,000 in cash into money orders and traveler's checks
in amounts less than $10,000 increments to avoid CTR filings).
10. United States v. Sigalow, 812 F.2d 783 (2d Cir. 1987) (use of
third party as a frontman owner of massage parlors under
investigation by IRS; systematic destruction of business records).
11. United States v. Heinemann, 801 F.2d 86 (2d Cir. 1986) (sale
of ministries in purported tax exempt churches offering vow of
poverty and false charitable deductions).
Third Circuit
1. United States v. American Investors of Pittsburgh, Inc.,
879 F.2d 1087 (3d Cir. 1989) (money laundering scheme using
structured currency transactions and unauthorized use of other
customer accounts to funnel currency).
2. United States v. Olgin, 745 F.2d 263 (3d Cir. 1984) (use of
corporate checks to fictitious payees to generate cash proceeds;
failure to record cash sales; and failure to issue receipts for cash
sales).
Fourth Circuit
1. United States v. Fleschner, 98 F.3d 155 (4th Cir. 1996)
(defendants, associated with the Hickory Carolina Patriots, advised
others to claim excess allowances on W-4 forms, not to file tax
returns, to hide income from the banking system, and to deal in
cash).
2. United States v. Hirschfeld, 964 F.2d 318 (4th Cir. 1992)
(complex series of financial transactions designed to create
significant tax losses and provide cash flow from illegal
underwriting of a small corporation; creation of fraudulent
settlement of sham lawsuit to generate $2.1 million false tax
deduction).
3. United States v. Schmidt, 935 F.2d 1440 (4th Cir. 1991)
(scheme to sell trusts known as Unincorporated Business
Organizations (UBOs) where participants could assign income and
assets to the trusts and take false business deductions on personal
expenses, as well as hide their income in financial institutions in
the Marshall Islands).
4. United States v. Vogt, 910 F.2d 1184 (4th Cir. 1990) (money
laundering scheme using front corporations and foreign bank
accounts).
5. United States v. Kelley, 769 F.2d 215 (4th Cir. 1985) (leader
of tax protestor organization counseled members to claim exempt
status on Forms W-4 to avoid withholding, to report zero wages on
tax returns, and to deal only in cash).
Fifth Circuit
1. United States v. Aubin, 87 F.3d 141 (5th Cir. 1996) (land
flip, purchase and simultaneous resale devised to obtain cash
without identifying parties).
2. United States v. Breque, 964 F.2d 381 (5th Cir. 1992) (money
laundering scheme using money exchange business to exchange U.S.
currency into pesos without CTRs being filed).
3. United States v. Bourgeois, 950 F.2d 980 (5th Cir. 1992)
(creation of false tax deductions by backdating documents relating
to a real estate tax shelter investment).
4. United States v. Chesson, 933 F.2d 298 (5th Cir. 1991)
(corporation paying personal expenses of owner, as well as
construction costs for new church and school, all of which were
written off as business deductions or charitable donations and use
of altered invoices).
5. United States v. Montalvo, 820 F.2d 686 (5th Cir. 1987)
(money laundering scheme using front companies and foreign bank
accounts which disguised drug proceeds as loan repayments).
6. United States v. Lamp, 779 F.2d 1088 (5th Cir. 1986) (drug
trafficker under IRS criminal investigation concocts story with
codefendant to justify his increases in net worth and corroborate
his lack of ownership of certain property and assets).
Sixth Circuit
1. United States v. Kraig, 99 F.3d 1361 (6th Cir. 1996)
(attorney aided client in concealing assets, mainly real estate,
through foreign shell corporations).
2. United States v. Sturman, 951 F.2d 1466 (6th Cir. 1991),
(creating 150 corporations, five of which were in foreign countries
with strict secrecy laws; listing nominees as owners of the
corporations; using the corporations to conceal income and make it
difficult to trace income, expenses and cash skims; and destroying
corporate records after receipt of subpoenas).
3. United States v. Mohney, 949 F.2d 899 (6th Cir. 1991) (using
nominees as owner of adult entertainment businesses; skimming cash
receipts; and using corporate checks to pay personal expenses).
4. United States v. Iles, 906 F.2d 1122 (6th Cir. 1990)
(promotion and sale of three sham tax shelters and preparation of
tax returns of investors in the shelters).
5. United States v. Jerkins, 871 F.2d 598 (6th Cir. 1989) (money
laundering scheme purchasing real estate in the name of nominees;
structuring currency deposits; and filing false returns).
Seventh Circuit
1. United States v. Furkin, 119 F.3d 1276 (7th Cir. 1997) (not
reporting income from gambling machines and encouraging others to
lie).
2. United States v. Price, 995 F.2d 729 (7th Cir. 1993)
(concealing corporate receipts using secret bank account, second
sales journal, alteration of deposit tickets, false notations on
memo portion of corporate checks, and forged sales invoices supplied
to IRS auditor).
3. United States v. Brown, 944 F.2d 1377 (7th Cir. 1991)
(structuring currency transactions and using a nearly bankrupt
mortgage brokerage firm to engage in elaborate and time-consuming
transfers of funds).
4. United States v. Beverly, 913 F.2d 337 (7th Cir. 1990) (use
of codefendant as nominee owner of certain assets, real estate and
businesses and of codefendant's bank account to pay expenses of drug
trafficker).
5. United States v. Bucey, 876 F.2d 1297 (7th Cir. 1989) (money
laundering scheme using bogus church as a front to move proceeds to
offshore bank accounts and foreign corporations).
6. United States v. Hooks, 848 F.2d 785 (7th Cir. 1988)
(diversion of bearer bonds worth $375,000 from inclusion in estate
and liquidation of bonds through nominee).
Eighth Circuit
1. United States v. Sileven, 985 F.2d 962 (8th Cir. 1993)
(untaxed cash receipts from business transferred to Canada and
returned as nontaxable loan proceeds).
2. United States v. Tierney, 947 F.2d 854 (8th Cir. 1991)
(backdating documents to create a paper trail to falsely corroborate
that ethanol plants, promoted and sold as tax shelters, had been
placed in service by the end of 1982).
3. United States v. Derezinski, 945 F.2d 1006 (8th Cir. 1991)
(money laundering scheme by precious metals dealer attempting to
conceal income of drug dealer utilizing structured currency
transactions and the falsification of business records by using
fictitious names for the trades).
4. Alexander v. Thornburgh, 943 F.2d 825 (8th Cir. 1991) (owner
of adult entertainment business set up sham corporations and
operated his companies using false names and names of employees).
5. United States v. Telemaque, 934 F.2d 169 (8th Cir. 1991) (the
sale of packages to participants in a Form 1099 scheme).
6. United States v. Zimmerman, 832 F.2d 454 (8th Cir. 1987)
(sale of ministries in Universal Life Church which allowed
participants to engage in sham transactions, check kiting, and fund
rotation schemes).
Ninth Circuit
1. United States v. Huebner, 48 F.3d 376, 378 (9th Cir. 1994)
(defendants created sham debts and advised clients to file
bankruptcy to impede IRS collection activity).
2. United States v. Hobbs, 991 F.2d 569 (9th Cir. 1993)
(defendants brokered real estate transactions for a narcotics
dealer, arranged for properties to be put in name of nominee, and
structured purchase of cashier's checks).
3. United States v. Caldwell, 989 F.2d 1056 (9th Cir. 1993) (use
of warehouse bank where participants used numbered bank accounts, no
records were kept of financial transactions, and participants' bills
were paid through generic bank account).
4. United States v. Bosch, 914 F.2d 1239 (9th Cir. 1990)
(laundered drug sale proceeds using CTRs which did not reveal the
true source of the money).
5. United States v. Murphy, 809 F.2d 1427 (9th Cir. 1987) (money
laundering scheme, using foreign corporation and foreign bank
accounts, and supplying false or incomplete information for
preparation of CTRs).
6. United States v. Crooks, 804 F.2d 1441 (9th Cir. 1986)
(promotion and sale of bogus mineral royalty tax shelters using
check cyclone system to create canceled checks representing loans
and tax deductible payments from the shelter).
7. United States v. Moran, 759 F.2d 777 (9th Cir. 1985) (money
laundering scheme using foreign bank accounts and foreign
corporations).
8. United States v. Little, 753 F.2d 1420 (9th Cir. 1985)
(promotion and sale of real estate tax shelters using retroactive
application to new partner of partnership losses attributable to
periods prior to partner's entry into partnership).
Tenth Circuit
1 United States v. Scott, 37 F.3d 1564 (10th Cir. 1994)
(promotion of trusts and unincorporated business organizations to
eliminate income tax liability without losing control of money or
assets).
2. United States v. Tranakos, 911 F.2d 1422 (10th Cir. 1990)
(selling sham common law trusts in an attempt to redirect income and
avoid taxation).
3. United States v. Pinto, 838 F.2d 426 (10th Cir. 1988)
(concealed drug income by using cash to purchase the first in a
series of three homes and later obtaining sham mortgages to create
the appearance that the purchase money came from loans).
4. United States v. Kapnison, 743 F.2d 1450 (10th Cir. 1985)
(scheme to obtain loans from banks for various borrowers, receive
kickbacks from the proceeds of the loans, and fail to report the
kickbacks).
Eleventh Circuit
1. United States v. Hernandez, 921 F.2d 1569 (11th Cir. 1991)
(money laundering scheme where funds were converted to money orders
and then deposited into a nominee bank account for nightclub owned
in name of third party).
2. United States v. Lafaurie, 833 F.2d 1468 (11th Cir. 1987)
(money laundering scheme using foreign bank accounts, front
corporations, and structured purchases of cashier's checks and money
orders to avoid CTR filing).
3. United States v. Cure, 804 F.2d 625 (11th Cir. 1986) (money
laundering scheme in which purchases of cashier's checks were
structured).
4. United States v. Carrodeguas, 747 F.2d 1390 (11th Cir. 1984)
(scheme to avoid reporting of bonus income by arranging for
corporate accounting records to be falsified).
5. United States v. Barshov, 733 F.2d 842 (11th Cir. 1984)
(promotion and sale of limited partnership to buy movies where
purchase price was inflated thereby overstating depreciation costs
and investment credits).
6. United States v. Sans, 731 F.2d 1521 (11th Cir. 1984) (money
laundering scheme using structured currency transactions to avoid
CTR filings).
7. United States v. Browning, 723 F.2d 1544 (11th Cir. 1984)
(money laundering scheme used investment counseling firm as front
and foreign bank accounts to return money in the form of fictitious
loans or salaries from offshore companies).
District of Columbia Circuit
1. United States v. Dale, 991 F.2d 819 (D.C. Cir. 1993) (scheme
to defraud by falsifying deductions, misclassifying payments, and
creating phony debts, etc.).
2. United States v. Treadwell, 760 F.2d 327 (D.C. Cir. 1985)
(scheme to misappropriate assets from a low-income housing project
by misapplication, diversion, and theft).
23.07[2][c] The Ninth Circuit's Caldwell Decision
Prosecutors charging Klein conspiracies in the Ninth Circuit should
be aware of United States v. Caldwell, 989 F.2d 1056 (9th Cir. 1993).
There, the court of appeals found the district court's jury instructions
concerning the charge of conspiracy to defraud to be deficient because the court
did not tell the jurors that, in order to convict the defendant, they had to find
that she agreed to defraud the United States by "deceitful or dishonest means."
Caldwell, 989 F.2d at 1060. According to the court, the Supreme Court had
made it clear that the term "defraud" as used in section 371 was limited to
wrongs done by "deceit, craft or trickery, or at least by means that are
dishonest" and obstructing governmental functions in other ways did not amount
to "defrauding." Caldwell, 989 F.2d at 1059 (citing Hammerschmidt v.
United States, 265 U.S. 182, 188 (1924)). The court of appeals concluded
that, under the instructions given, the jury might have improperly convicted
based solely on a determination that the defendant agreed to obstruct the IRS.
Caldwell, 989 F.2d at 1060-61.
Although the Department does not believe that the jury instructions in
Caldwell were deficient, the wiser course of action may be to use jury
instructions incorporating language similar to that found in Hammerschmidt v.
United States, 265 U.S. at 188. In other words, the prudent course of action
is to instruct the jury that section 371 prohibits not only conspiracies to
defraud the United States by cheating the government out of money, such as income
tax payments or property, but also conspiracies to defraud the United States for
the purpose of impairing, impeding, obstructing, or defeating of the lawful
functions of an agency of the government, such as the IRS, by deceit, craft,
trickery, or means that are dishonest. See, e.g., pattern jury
instructions cited in Caldwell, 989 F.2d at 1060.
23.07[3] Overlapping Conspiracies
As stated earlier, section 371 provides for two forms of conspiracies
depending on which clause in the statute is charged. These two clauses overlap,
however, when a fraud on the United States also violates a specific federal
statute. United States v. Helmsley, 941 F.2d 71, 90 (2d Cir. 1991). The
question then becomes which clause should be charged.
In United States v. Minarik, 875 F.2d 1186 (6th Cir. 1989), the
Sixth Circuit held that in order to properly alert defendants of the charges
against them, prosecutors must use the offense clause, rather than the defraud
clause, when the conduct charged constitutes a conspiracy to violate a specific
statute. 875 F.2d at 1187.
Other circuits reject the holding in Minarik and allow the
government to charge the defraud clause where the fraud constitutes a separate
federal criminal offense. United States v. Arch Trading Co., 987 F.2d
1087, 1092 (4th Cir. 1993); United States v. Harmas, 974 F.2d 1262,
1266-67 (11th Cir. 1992); United States v. Hurley, 957 F.2d 1, 3 (1st Cir.
1992); Alexander v. Thornburgh, 943 F.2d 825, 830-31 (8th Cir. 1991);
United States v. Notch, 939 F.2d 895, 901 (10th Cir. 1991); United
States v. Bilzerian, 926 F.2d 1285, 1301-02 (2d Cir. 1991); United States
v. Reynolds, 919 F.2d 435, 438-39 (7th Cir. 1990);.
The Sixth Circuit itself has restricted Minarik to its facts.
United States v. Sturman, 951 F.2d 1466, 1473-74 (6th Cir. 1991);
United States v. Mohney, 949 F.2d 899, 902-03 (6th Cir. 1991).
Nonetheless, a review of the relevant case law is instructive on this issue.
In Minarik, defendant Aline Campbell had been issued three tax
assessments totalling $108,788.15. Campbell told the IRS she did not owe the
money. Campbell then solicited the aid of her friend, defendant Robert Minarik,
to help her sell her home and conceal the sales proceeds. The home was sold,
with the buyer issuing seven checks to Campbell in the amount of $4,900 each and
one check in the amount of $3,732.18. Campbell and Minarik began cashing the
checks at various branches of the same bank. When Campbell cashed two checks at
the same branch, the IRS was contacted. The defendants were charged with
conspiracy to "defraud the United States by impeding, impairing, obstructing and
defeating the lawful functions of the Department of the Treasury." 875 F.2d at
1187-88.
The Sixth Circuit found that the defendant's conduct could have been
properly charged under 26 U.S.C. § 7206(4), which makes it a felony to
conceal any goods or commodities on which a tax or levy has been imposed. The
court then held that "the offense and defraud clause as applied to the facts of
this case are mutually exclusive, and the facts proved constitute only a
conspiracy under the offense clause to violate 26 U.S.C. § 7206(4)."
875 F.2d at 1187.
The Sixth Circuit articulated three rationales for its decision. First,
the court stated that the purpose of the defraud section "was to reach conduct
not covered elsewhere in the criminal code" and thus should not be used when a
specific provision covers that conduct. 875 F.2d at 1194. Second, section 371's
misdemeanor clause, which limits punishment of conspiracies whose object is
defined as a misdemeanor, would be defeated if those crimes could be prosecuted
as felonies under the defraud clause. 875 F.2d at 1194. Finally, the court
found that the prosecution created impermissible confusion as to the nature of
the charge by incorrectly charging a conspiracy to violate 26 U.S.C.
§ 7206(4) as a conspiracy to defraud, by failing to allege the essential
nature of the scheme, and by changing its theory of the case at trial. 875 F.2d
at 1195.
The Sixth Circuit revisited the section 371 issue raised in Minarik
two years later in United States v. Mohney, 949 F.2d 899 (6th Cir. 1991).
The defendant, Harry Virgil Mohney, and three others were charged with conspiring
to "defraud the United States by impeding, impairing, obstructing, and defeating
the lawful functions of the Department of the Treasury in the ascertainment,
computation, assessment, and collection of the revenue." The indictment
described the object as follows:
[T]o defraud the United States by concealing the true ownership and
control of particular adult oriented sexually explicit entertainment
businesses, for the purpose of concealing the source of funds used to
acquire and expand their businesses, their source of supply and their
customers, and the amount and disposition of their income.
949 F.2d at 904.
The defense moved to dismiss the conspiracy count, asserting that it was
impermissibly brought under the defraud clause instead of the offense clause.
The district court, relying on Minarik, granted the motion to dismiss,
finding that 26 U.S.C. § 7206(1), which prohibits the filing of false tax
returns, "fits perfectly the conduct which is the core, the very essence of the
government's charge in Count I." 949 F.2d at 904.
The Sixth Circuit reversed the lower court's decision. The court limited
Minarik to the specific facts of that case and stressed that
Minarik was not to be read as requiring "all prosecutors to charge all
conspiracies to violate a specific statute under the offense clause of section
371." 949 F.2d at 902. The court also acknowledged that other circuits have
allowed prosecutions under the defraud clause despite the availability of a
separate applicable substantive offense. 949 F.2d at 902-03.
In explaining its position, the Sixth Circuit offered two justifications.
First, in this case, unlike in Minarik, there were no "constantly shifting
government theories depriving the defendants of notice of the charges against
them." 949 F.2d at 903. Instead, the indictment "tracked the language of
section 371, named the agency impeded and explained how, and by whom, the agency
was impeded, and clearly charged a violation of the defraud clause of section
371." 949 F.2d at 903-04. Second, the court found that the conduct charged
under the conspiracy did not all fit under section 7206(1). Rather, the court
found that the conduct involved violations of several statutes, including
26 U.S.C. § 7206(1), § 7206(2), § 7203, § 7201, § 7202
and 18 U.S.C. § 1001. As a result, the court concluded that "where the
conduct charged violates several statutes, the most complete description of the
objective may be a conspiracy to defraud a particular agency of the government."
949 F.2d 904, 905.
In United States v. Sturman, 951 F.2d 1466 (6th Cir. 1991), the
Sixth Circuit directly addressed the situation where the conduct charged did
violate several statutes and still was charged under the defraud clause. The
defendant, Reuben Sturman, and others were charged with a Klein
conspiracy. The defense filed a motion to dismiss, relying on Minarik,
and argued that the conduct alleged in the conspiracy should have been charged
under the offense clause as a conspiracy to commit either a violation of
26 U.S.C. § 7206(1) or § 7206(4). The district court denied the
motion. 951 F.2d at 1472.
The court of appeals upheld the district court's decision, finding that the
broad nature of the conspiracy and the associated violation of several statutes
distinguished the case from Minarik. The court highlighted the "broad
nature" of Sturman's conduct, stating:
Reuben Sturman set up a complex system of foreign and domestic
organizations, transactions among the corporations, and foreign bank
accounts to prevent the IRS from performing its auditing functions.
Evidence shows that he committed a wide variety of income tax violations
and engaged in numerous acts to conceal income. This large conspiracy
involved many events which were intended to make the IRS impotent. No
provision of the Tax Code covers the totality and scope of the conspiracy.
This was not a conspiracy to violate specific provisions of the Tax Code,
but one to prevent the IRS from ever being able to enforce the Code
against the defendants. Only the defraud clause can adequately cover all
the nuances of a conspiracy of the magnitude this case addresses.
951 F.2d at 1473.
More recently, the Sixth Circuit rejected a Minarik argument,
finding that an indictment under the defraud clause is appropriate when the
conspiracy alleges violations of more than one statute. United States v.
Kraig, 99 F.3d 1361, 1367 (6th Cir. 1996). The Kraig Court found
that a scheme to use nominees, sham transactions and other means of obstruction
was more analogous to Sturman and Mohney than Minarik. 99
F.3d at 1367. In addition, the Sixth Circuit found that the Kraig
indictment, unlike the indictment in Minarik, provided adequate notice
of the conduct constituting the charges. 99 F.3d at 1367.
Thus, Minarik has been limited to its facts and it would appear that
it is applicable only if the following conditions exist: (1) the government
charged a conspiracy under the defraud clause when the facts show that the
alleged conduct violated a single, separate federal criminal offense;
(2) the government failed to charge the essential nature of the scheme or the
details of how the United States was impeded and impaired; and, (3) the
government constantly changed its prosecution theory and failed to adequately
inform the defendant of the charges.
On a somewhat related issue, the Third Circuit, in United States v.
Alston, 77 F.3d 713, 721 (1996), found that. although the government had
charged the defendant with conspiracy to defraud the United States where he acted
in concert with another to avoid the requirement to file currency transaction
reports, the conspiracy was, in fact, a "straight-out structuring conspiracy."
The court noted that the government "conceded that its theory against Alston for
fraud against the United States is nothing more than structuring." 77 F.3d at
720. Because the court found that Alston had been charged with conspiring "to
defraud by structuring," the court held that the government had to prove that the
defendant knew structuring was illegal and reversed his conviction because it had
failed to do so. 77 F.3d at 718 (citing Ratzlaff v. United States, 510
U.S. 135, 146-49 (1994). The court rejected the government's argument that
because Alston was charged with conspiracy to defraud, the government did not
have to prove willfulness. 77 F.3d at 720. Because the government conceded that
it had not proven thatthedefendant had knowledge of the illegality of
structuring, the court reversed the conviction. 77 F.3d at 714-715, 721.
Alston stands in stark contrast to decisions holding that in order to
establish a conspiracy to defraud, the government need only establish an intent
to defraud and not the intent necessary to commit some other substantive offense.
See United States v. Khalife, 106 F.3d 1300, 1303 (6th Cir. 1997)
(quoting United States v. Collins, 78 F.3d 1021, 1038 (6th Cir. 1996));
United States v. Alston, 77 F.3d at 721-31 (Roth, J., dissenting);
United States v. Jackson, 33 F.3d 866, 871-72 (7th Cir. 1994); United
States v. Cyprian, 23 F.3d 1189, 1201-02 (7th Cir. 1994); United States
v. Derezinski, 945 F.2d 1006, 1012 (8th Cir. 1991); United States v.
Zimmerman, 832 F.2d 454, 457 (8th Cir. 1987).
23.07[4] Scope of Intent
23.07[4][a] Generally
The crime of conspiracy includes an intent element which requires the
government to show that each member of the conspiracy had knowledge of the object
of the conspiracy and joined the conspiracy intending achieve that object.
Ingram v. United States, 360 U.S. 672, 678 (1959). The government may use
circumstantial evidence to establish this element. United States v.
Hayes, 190 F.3d 939, 946 (9th Cir. 1999), aff'd en banc, 231
F.3d 663, 667 n.1 (9th Cir. 2000), cert. denied, 121 S.Ct. 1388
(2001); Further, the government need only show that a defendant knew of
the essential nature of the scheme -- the government need not show that a
defendant knew all of the details or the identity of all other members of the
conspiracy. See, e.g., United States v. Browning, 723 F.2d
1544, 1546 (11th Cir. 1984).
In the context of a Klein conspiracy, this typically means that the
government must show that each member knew that at least one of the objects of
the scheme was to impede the functions of the IRS and intended to join in the
scheme to achieve that object. See, e.g., United States v.
Shermetaro, 625 F.2d 104, 109 (6th Cir. 1980).
23.07[4][b] Klein Conspiracy Coupled With a Narcotics or Money
Laundering Prosecution
In many cases, prosecutors will charge a Klein conspiracy in
connection with narcotics and/or money laundering charges. Such cases typically
involve the failure to report income derived from the sale of narcotics and/or
the laundering of drug proceeds to disguise the source of the funds. In these
cases, the element of intent, especially as to the Klein objective,
becomes an issue. A question is raised as to whether acts of concealing sources
of income and disguising the character of narcotics proceeds are alone sufficient
to infer an intent to impede and impair the functions of the IRS.
The courts are split on this issue. One line of authority reserves ruling
on the issue and instead uses a fact-based analysis to determine a particular
defendant's intent. United States v. Browning, 723 F.2d 1544, 1546-49
(11th Cir. 1984); United States v. Enstam, 622 F.2d 857, 861-64 (5th Cir.
1980);. See also United States v. Hernandez, 921 F.2d 1569,
1575-76 (11th Cir. 1991); United States v. Beverly, 913 F.2d 337, 357-58
(7th Cir. 1990); United States v. Vogt, 910 F.2d 1184, 1202-03 (4th Cir.
1990); United States v. Bucey, 876 F.2d 1297, 1311-13 (7th Cir. 1989);
United States v. Montalvo, 820 F.2d 686, 689-91 (5th Cir. 1987).
For example, in Enstam, 622 F.2d 857 (5th Cir. 1980), the Fifth
Circuit upheld the defendant's conviction for a Klein conspiracy, finding
sufficient evidence of his intent to impede the IRS. The defendant and his
associates sent drug money out of the country and returned it to the United
States in the form of fictitious loans. The government charged Enstam with a
Klein conspiracy. The defense argued that the object of the conspiracy
was to hide the source of the drug profits and not to impede the IRS. 622 F.2d
at 860-61.
The court of appeals found that although one object of the conspiracy was
to launder drug proceeds, another object of the conspiracy was to obstruct the
functioning of the IRS. 622 F.2d at 861-62. The court based its finding of the
second object on the fact that the defendant's own explanations as to the purpose
of the money laundering scheme, combined with his coconspirators' references to
their fear of the IRS, created a reasonable inference of an intent to "thwart the
effective functioning of the Internal Revenue Service." 622 F.2d at 861-63.
Similarly, in Browning, the Eleventh Circuit upheld the defendant's
conviction for a Klein conspiracy, finding sufficient evidence of his
intent to impede the IRS. Defendant Browning and three others were indicted on
a Klein conspiracy relating to a scheme to launder large amounts of cash
generated by illegal drug transactions. The court of appeals found overwhelming
evidence that one of the objectives of the conspiracy was to launder illegally
obtained money. 723 F.2d at 1546. The court also found the evidence supported
an additional object: "impairing the identification of revenue and the collection
of tax due and owing on such revenue." In addressing the defendant's lack of
intent on the Klein object, the court stated:
Whether the form of the money laundering transaction alone is sufficient
to support the jury's finding that one of the objectives of the conspiracy
was to impair the identification of revenue and the collection of tax due
and owing on such revenue is a question that, as in United States v.
Enstam, we do not reach on the record. In this case, there is ample
evidence that one of the purposes of the money laundering schemes utilized
by the conspirators was to thwart the effective functioning of the IRS.
723 F.2d at 1547.
This ample evidence included: (1) videotaped meetings in which Browning's
coconspirators stated that the purpose in laundering the money was to hide the
source of the income in the event of an audit by the IRS; (2) a videotaped
meeting where one of Browning's coconspirators expressed a desire to have certain
proceeds designated as a fictitious consulting fee and paid in the next taxable
year so as to avoid showing a large amount of income in any one taxable year and
risking a possible IRS audit; and (3) a videotaped meeting with one of Browning's
coconspirators in which he discussed his hesitation in setting up a corporation
in the Grand Cayman Islands for fear that the authorities there might release
information to the IRS. 723 F.2d at 1547-49.
A second line of authority holds that when acts of concealment are
reasonably explainable in terms other than a motivation to evade taxes, the
government must produce independent evidence of an intent to evade taxes.
United States v. Pritchett, 908 F.2d 816, 820-22 (11th Cir. 1990);
United States v. Krasovich, 819 F.2d 253, 256 (9th Cir. 1987)..
For example, in Krasovich, 819 F.2d 253 (9th Cir. 1987), the Ninth
Circuit reversed a defendant's Klein conspiracy conviction where the
evidence failed to show a link between the defendant and the tax laws. 819 F.2d
at 256. Krasovich was an auto mechanic for John and Andrea Drummond, who were
cocaine traffickers. The evidence at trial showed that Krasovich knew the
Drummonds sold narcotics, and that Krasovich knowingly registered vehicles and
equipment purchased by the Drummonds as his own, for the purpose of keeping title
out of their names. 819 F.2d at 254.
The government charged Krasovich and the Drummonds with a Klein
conspiracy relating to the personal income taxes of John Drummond. Krasovich
argued that there was no direct or circumstantial evidence to indicate that he
agreed with anyone to impede the functions of the IRS. The government pointed
to the defendant's acts of concealment as circumstantial evidence of his intent.
819 F.2d at 255-56. The court of appeals rejected the government's position.
The court found that when efforts at concealment can be explained in terms of
motivation other than to evade taxes, the government must supply other evidence
to show the defendant knew the purpose of the concealment was to impede the
function of the IRS. 819 F.2d at 256.
The Krasovich court based it holding on the Supreme Court case of
Ingram v. United States, 360 U.S. 672 (1959). There, the Court reversed
the convictions of two low level coconspirators in a gambling operation who had
been charged under the offense clause of section 371 with conspiracy to evade the
wagering tax. 360 U.S. at 673. The Supreme Court stressed that, under the
offense clause, the government must establish an intent to agree and an intent
to commit the substantive offense itself. 360 U.S. at 678.
The Court in Ingram found the record barren of any direct evidence
to establish an underlying intent to evade taxes. Further, the Court held that
the government could not use the acts of concealing the gambling operation to
infer a tax motive because concealment is common to all crime and may be used to
infer any number of motives. Without independent proof to show knowledge of the
tax motive, the intent element could not be made out and the Court reversed the
convictions. 360 U.S. at 678-80.
In United States v. Pritchett, 908 F.2d 816 (1990), the Eleventh
Circuit followed the rationale of Ingram and Krasovich. The
defendants, David and Mark Pritchett, along with three others, were indicted for
conspiracy to distribute cocaine and conspiracy to evade the personal income
taxes of Joe Pritchett. The evidence showed that both defendants knew of the
drug operation and participated in concealing assets of Joe Pritchett, including
the unknown contents of several safe deposit boxes. 908 F.2d at 821.
Relying on Ingram, and Krasovich, the court found that:
[T]hese two . . . [defendants'] efforts at concealing Joe's source of
income and ownership interests are "not reasonably explainable only in
terms of motivation to evade taxes." . . . Because David knew about and
participated in the drug sales, his efforts at hiding the income are
explained in terms of an effort to prevent detection of the drug business.
The evidence does not show that Mark knew Joe's cash represented current
income, and therefore only shows that Mark knew that Joe was hiding his
ownership interests in various assets.
908 F.2d at 821.
The court distinguished its earlier cases of Enstam and
Browning by pointing to the independent proof issue. According to the
court, the opposite findings in these other two decisions were reconcilable
because in those cases the government offered independent evidence of an intent
to avoid income taxes. That evidence consisted primarily of statements made by
coconspirators evincing an intent to avoid taxes. 908 F.2d at 821-22.
The court in Pritchett did not address, however, the fact that:
(1) the Enstam and Browning cases dealt with Klein
conspiracies, not conspiracies to commit a specific offense like tax evasion; and
(2) the coconspirator statements that evinced an intent to evade taxes were made
outside the presence of the defendants and yet were being used to infer their
intent to impede the IRS.
A third line of authority on this issue holds that the act of "laundering"
money itself constitutes impeding the IRS in its ability to collect taxes.
United States v. Hurley, 957 F.2d 1, 4-8 (1st Cir. 1992); United States
v. Paiva, 892 F.2d 148, 162 (1st Cir. 1989); United States v. Tarvers,
833 F.2d 1068, 1075-76 (1st Cir. 1987).
In the context of money laundering schemes charged under a Klein
conspiracy theory, the First Circuit has held that an agreement to launder money
derived from narcotics trafficking is evidence of an act of impeding the IRS in
its collection of taxes. See, e.g., United States v. Tarvers,
833 F.2d 1068, 1076 (1st Cir. 1987).
Thus, in the First Circuit, the government need not necessarily be
concerned about other motives behind acts of concealment or in establishing
independent proof of the tax motive. However, the government must establish:
(1) the defendant participated in or knew about the money laundering scheme; and
(2) the defendant knew the money being laundered came from illegal activities.
Tarvers, 833 F.2d at 1076. Where possible, however, the prosecutor should
seek to introduce evidence of an intent to impede the IRS.
23.08 STATUTE OF LIMITATIONS
23.08[1] Generally
The statute of limitations for a conspiracy to evade taxes under the
offense clause of section 371 is six years. Similarly, the statute of
limitations for a Klein conspiracy under the defraud clause of section 371
is six years. Both of these offenses are controlled by 26 U.S.C. § 6531,
which provides in pertinent part:
No person shall be prosecuted, tried, or punished for any of the various
offenses arising under the internal revenue laws unless the indictment is
found or the information instituted within 3 years next after the
commission of the offense, except that the period of limitation shall be
6 years --
(1) for offenses involving the defrauding or attempting to defraud the
United States or any agency thereof, whether by conspiracy or not, and in
any manner;
. . . .
(8) for offenses arising under section 371 of Title 18 of the United
States Code, where the object of the conspiracy is to attempt in any
manner to evade or defeat any tax or the payment thereof.
26 U.S.C. § 6531 (1988).
Occasionally, defendants charged with a tax conspiracy under section 371
will argue that a five year statute of limitations should apply to section 371,
pursuant to 18 U.S.C. § 3282, which is the general limitations statute for
Title 18 offenses. The courts have routinely rejected this position and affirmed
the application of the six-year limitations period to tax conspiracies.
See United States v. Aubin, 87 F.3d 141, 145 (5th Cir. 1996);
United States v. Aracri, 968 F.2d 1512, 1517 (2d Cir. 1992); United
States v. Waldman, 941 F.2d 1544, 1548 (11th Cir. 1991); United
States v. Vogt, 910 F.2d 1184, 1201 (4th Cir. 1990); United States v.
Pinto, 838 F.2d 426, 435 (10th Cir. 1988); United States v.
White, 671 F.2d 1126, 1133-34 (8th Cir. 1982); United States v.
Brunetti, 615 F.2d 899, 901 (10th Cir. 1980); United States v.
Fruehauf, 577 F.2d 1038, 1070 (6th Cir.); United States v.
Lowder, 492 F.2d 953, 955-56 (4th Cir. 1974).
23.08[2] Beginning of Limitations Period
The statute of limitations in a conspiracy begins to run from the last
overt act proved. Grunewald v. United States, 353 U.S. 391, 397 (1957).
See also United States v. Fletcher, 928 F.2d 495, 498 (2d Cir.
1991); United States v. Vogt, 910 F.2d 1184, 1201 (4th Cir. 1990);
United States v. Pinto, 838 F.2d 426, 435 (10th Cir. 1988).
23.08[3] Withdrawal Defense
The government is not required to prove that each member of a conspiracy
committed an overt act within the statute of limitations. Hyde v. United
States, 225 U.S. 347, 369-70 (1912). See also United States
v. Read, 658 F.2d 1225, 1234 (7th Cir. 1981) (interpreting the Hyde
decision). Once the government shows a member joined the conspiracy, their
continued participation in the conspiracy is presumed until the object of the
conspiracy has been achieved. See, e.g., United States v.
Barsanti, 943 F.2d 428, 437 (4th Cir. 1991); United States v.
Juodakis, 834 F.2d 1099, 1103 (1st Cir. 1987); United States v.
Finestone, 816 F.2d 583, 589 (11th Cir.1987); United States v. Krasn,
614 F.2d 1229, 1236 (9th Cir. 1980).
However, a showing of withdrawal before the limitations period
(i.e., more than six years prior to the indictment where the limitations
period is six years) is a complete defense to a conspiracy charge. Read,
658 F.2d at 1233. The defendant carries the burden of establishing this
affirmative defense. United States v. Berger, 224 F.3d 107, 118 (2d Cir.
2000); United States v. Lash, 937 F.2d 1077, 1083 (6th Cir. 1991);
Juodakis, 834 F.2d at 1102-03; Finestone, 816 F.2d at 589;
Krasn, 614 F.2d at 1236; United States v. Boyd, 610 F.2d 521, 528
(8th Cir. 1979); United States v. Parnell, 581 F.2d 1374, 1384 (10th Cir.
1978); United States v. Borelli, 336 F.2d 376, 385 (2d Cir. 1964). But
see United States v. MMR Corp., 907 F.2d 489, 501 (5th Cir. 1990)
(burden is two step process on defense and government); United States v.
West, 877 F.2d 281, 289 (4th Cir. 1989) (government retains burden of
persuasion); United States v. Jannoti, 729 F.2d 213, 221 (3d Cir. 1984)
(burden, initially on defense, shifted to government); Read, 658 F.2d at
1236 (burden of production on defendant; burden of persuasion remains on
government to negate withdrawal defense); Manual of Model Criminal Jury
Instructions for the Ninth Circuit (1997 Ed.), § 8.5.4, p.151.
(following Read).
In United States v. U.S. Gypsum Co., 438 U.S. 422 (1978), the
Supreme Court defined withdrawal from a conspiracy to mean:
Affirmative acts inconsistent with the object of the conspiracy and
communicated in a manner reasonably calculated to reach co-conspirators
have generally been regarded as sufficient to establish withdrawal or
abandonment.
438 U.S. at 464-65. The courts have held that mere cessation of activity is
insufficient to prove withdrawal. Rather, some sort of affirmative action to
defeat the object of the conspiracy is required. See Berger, 224
F.3d at 118; United States v. Antar, 53 F.3d 568, 583 (3d Cir. 1995);
Lash, 937 F.2d at 1083; Juodakis, 834 F.2d at 1102;
Finestone, 816 F.2d at 589; Gonzalez, 797 F.2d at 917;
Krasn, 614 F.2d at 1236.
In short, the government technically is not required to prove that each
member of the conspiracy committed an overt act within the limitations period.
However, in practice, the prosecutor should critically review those conspirators
whose membership predates the limitations period, and be prepared to rebut a
withdrawal defense coupled with a statute of limitations defense.
23.09 VENUE
The crime of conspiracy is a continuing offense, the prosecution of which
is proper "in any district in which such offense was begun, continued or
completed." 18 U.S.C. § 3237(a) (1988); United States v. Tannenbaum,
934 F.2d 8, 12 (2d Cir. 1991).
Thus, venue is appropriate in any district where the agreement was made or
where an overt act in furtherance of the conspiracy was committed. Hyde v.
United States, 225 U.S. 347, 363 (1912); United States v. Lam
Kwong-Wah, 924 F.2d 298, 301 (D.C. Cir. 1991); United States v. Smith,
918 F.2d 1551, 1557 (11th Cir. 1990); United States v. Uribe, 890 F.2d
554, 558 (1st Cir. 1989); United States v. Ahumada-Avalos, 875 F.2d 681,
682 (9th Cir. 1989); United States v. Record, 873 F.2d 1363, 1366
(10th Cir. 1989); Finestone, 816 F.2d at 589; United States v.
Ramirez-Amaya, 812 F.2d 813, 816 (2d Cir. 1987); United States v.
Sandini, 803 F.2d 123, 128 (3d Cir. 1986); United States v. Levy Auto
Parts of Canada, 787 F.2d 946, 952 (4th Cir. 1986); United States v.
Andrus, 775 F.2d 825, 846 (7th Cir. 1985); United States v. Moeckly,
769 F.2d 453, 460-61 (8th Cir. 1985).
The government is not required to show that all of the members of a
conspiracy committed an overt act within the district of prosecution. So long
as one conspirator committed an overt act within the district, venue is
established as to all members of the conspiracy. See, e.g.,
United States v. Tannenbaum, 934 F.2d 8, 13 (2d Cir. 1991); Uribe,
890 F.2d at 558; United States v. Meyers, 847 F.2d 1408, 1411 (9th Cir.
1988).
The government must establish venue by a preponderance of the evidence.
Smith, 918 F.2d at 1557; Record, 873 F.2d at 1366; United States
v. Moeckly, 769 F.2d 453, 460 (8th Cir. 1985). Moreover, the overt act
serving as the basis of the venue need not be committed within the statute of
limitations. See Tannenbaum, 934 F.2d at 13 (rules governing venue
and limitations serve different purposes).
Courts have also held that "where a criminal conspirator commits an act in
one district which is intended to further a conspiracy by virtue of its effect
in another district, the act has been committed in both districts and venue is
properly laid in either." United States v. Lewis, 676 F.2d 508, 511
(11th Cir. 1982). See United States v. Brown, 739 F.2d 1136, 1148
(7th Cir. 1984). Finally, the government may rely on an overt act not alleged
in the indictment as the basis for venue. United States v. Schwartz,
535 F.2d 160, 164-65 (2d Cir. 1976).
FN 1. Changed to 18 U.S.C. § 3571, commencing November 1, 1986.
FN 2. 26 U.S.C. § 7214(a)(4) contains a provision prohibiting
conspiracy to defraud the United States. However, this statute only applies
to officers and employees of the United States acting in connection with any
revenue law of the United States.
FN 3. See discussion at section 23.07[2][c] concerning the need to
prove that a conspiracy to defraud the United States for the purpose of
impeding, impairing, obstructing, or defeating the lawful functions of an
agency of the government was accomplished by deceit, craft, trickery, or
means that are dishonest.
FN 4. When drafting an indictment charging a Klein conspiracy, it is
preferable to use slightly different language to describe the object of the
conspiracy. In Haas v. Henkel, 216 U.S. 462, 479 (1910), the Supreme
Court stated that section 371 "is broad enough in its terms to include any
conspiracy for the purpose of impairing, obstructing, or
defeating the lawful function of any department of Government." (Emphasis
added.) See also Hammerschmidt v. United States, 265 U.S. at
185-86 (quoting Hass v. Henkel, 216 U.S. at 479). Using the words
"for the purpose of" more accurately describes the object of a conspiracy to
defraud the United States.