Conspiracy to Defraud the U.S.

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Conspiracy to Defraud the U.S.

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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

.

 
 

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