Immunity

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7206- Fraud and False Statements: Immunity

 

 

[84-2 USTC ¶9797] United States of America , Appellant v. Joseph E. Todaro, Defendant-Appellee

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 84-1086, 744 F2d 5, 9/11/84 , Reversing unreported District Court order

[Code Secs. 7201 and 7206]

Crimes: Attempt to evade tax: Fraud and false statements: Defenses: Immunity.--In reversing an order of the District Court, the Court of Appeals held that the Government did not have to confer use immunity upon defense witnesses who were actual or potential targets of prosecution and who invoked the privilege against self-incrimination. The District Court had issued an order which did not allow the Government to introduce evidence at trial which indicated that loans were not made to the taxpayer, nor could the Government ask the jury to infer from any evidence that such loans did not occur if the Government declined to grant immunity to such defense witnesses. When the Government was reconstructing the taxpayer's net worth, the taxpayer claimed that a possible source of non-taxable funds was loans made by certain individuals. When the individuals were called to testify before the grand jury, they declined to answer any questions regarding such loans by invoking the Fifth Amendment. Furthermore, the Court of Appeals held that even if the witnesses were not actual or potential targets of prosecution, the taxpayer's claim for defense witness immunity should have been summarily rejected for lack of sufficient showing that the witnesses' testimony was clearly exculpatory, material, and unobtainable from other sources.

Salvatore R. Martoche, United States Attorney, Buffalo, N. Y. 14202, Glenn L. Archer, Jr., Assistant Attorney General, George L. Hastings, Jr., Michael L. Paup, Robert E. Lindsay, Department of Justice, Washington, D. C. 20530, for appellant. Joseph M. La Tona, Condon, La Tona & Klingensmith, 300 Statler Building , Buffalo , N. Y., for defendant-appellee. Charles F. Crimi, Sr., David Rothenberg, Lawrence J. Andolina, Criminal Defense League, Inc., Rochester, N. Y., Mark J. Mahoney, Diebold, Bermingham, Gorman, Brown & Cook, 1500 Statler Building, Buffalo, N. Y. 14202, Ephraim Margolin, San Francisco, Calif., National Association of Criminal Defense Lawyers, Washington, D. C., for amici curiae.

Before FRIENDLY, VAN GRAAFEILAND, and NEWMAN, Circuit Judges.

NEWMAN, Circuit Judge:

This is an appeal by the Government, pursuant to 18 U. S. C. §3731 (1982), from the February 7, 1984 , order of the District Court for the Western District of New York (John T. Elfvin, Judge) precluding the introduction of certain evidence at trial unless the Government confers use immunity on two potential defense witnesses. Because we conclude that defense witness immunity, if ever available, was precluded by the standards set forth in United States v. Turkish [80-2 USTC ¶9478], 623 F. 2d 769 (2d Cir. 1980), cert. denied, 449 U. S. 1077 (1981), we reverse.

Facts

Defendant-appellee Joseph E. Todaro, Sr. was charged in an indictment with three counts of willfully attempting to evade federal income tax liabilities, in violation of 26 U. S. C. §7201 (1982), and four counts of willfully subscribing false tax returns, in violation of 26 U. S. C. §7206(1) (1982). With respect to the tax evasion counts, the Government informed the District Court and the defendant that it intended to demonstrate the defendant's unreported taxable income by using the "net worth" method of proof. See Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 (1954).

Prior to the filing of the indictment, Todaro advised the Government of three possible sources of non-taxable funds. Todaro requested that the grand jury investigate loans allegedly made to Todaro by John Grieco, John Ryding, and Peter Marino in the respective amounts of $50,000, $30,000, and $10,000. After investigating these leads, the Government concluded that Marino had probably made a $10,000 loan to Todaro and accordingly credited Todaro's "net worth" calculation with the amount of the loan. However, the Government's investigation unearthed no evidence corroborative of the Grieco and Ryding loans. In response to a Government request for reciprocal discovery, Fed. R. Crim. P. 16(b)(1), Todaro indicated that he had no documentary evidence substantiating the existence of the loans. When Ryding and Grieco were called to testify before the grand jury investigating Todaro, each invoked his Fifth Amendment privilege against self-incrimination and declined to answer questions regarding the loans.

On August 23, 1983 , after the filing of the indictment, Todaro moved for an order "directing" the United States to obtain use immunity for Grieco and Ryding. In an accompanying affidavit, defense counsel noted that the Government had already conferred use immunity upon a number of grand jury witnesses. Without specifying the substance of Grieco and Ryding's anticipated trial testimony or the unavailability of the crux of that testimony from other sources, defense counsel simply stated that the two defense "leads" would account for "the nontaxable receipt of approximately $80,000." Defense counsel also stated that "[a]bsent an immunity grant, it appears that testimony from these individuals cannot be obtained by the defense." Relying on Holland v. United States , supra, defense counsel contended that the Government's duty to investigate defense leads as to the source and amount of non-taxable income encompasses the duty to confer use immunity "whenever that investigative technique is necessary to exhaust a 'lead.'" Defense counsel advanced two reasons for judicially compelled defense witness immunity. First, the "prosecution has engaged in selective use of immunity to gain a tactical advantage." Second, this selective practice amounts to a deliberate refusal to pursue defense leads as required by Holland v. United States , supra. Counsel concluded that Todaro "may be unfairly deprived of material and exculpatory evidence" (emphasis added).

The Government opposed the request primarily on the ground that this Circuit has "uniformly rejected" requests for defense witness immunity. It also noted that Todaro failed to supply any evidence indicating the existence of the loans or to make any proffer that the witnesses would testify if immunized and what their testimony would be. Further, the Government emphasized the absence of an affidavit of Todaro indicating the particulars surrounding the loans. Most notably, the Government submitted to the District Court, in camera, an affidavit of the prosecutor indicating the extent of the then existing evidence of possible criminal activity by each of the prospective defense witnesses and representing that any grant of immunity to either witness might impede further prosecutions.

On February 7, 1984 , without making any factual findings, the District Court summarily ordered that, because there existed "conflicting factors of fairness" and "matters of third persons' privacy and confidentiality,"

it shall be presumed for purposes of this trial that each of Greico [sic] and Ryding and Marino was financially able at all pertinent times to have made a substantial loan or loans to Todaro and that the government may not adduce any evidence showing or tending to show that Greico [sic] or Ryding or Marino was at any pertinent time financially unable to have made a substantial loan or loans to Todaro unless Grieco or Ryding or Marino shall respectively have been accorded use immunity as to testimony on trial concerning such ability or the making vel non of such loan or loans to Todaro. . . .

At the Government's request, the District Court held a hearing to clarify the effect of its order. In response to the Government's representation that Marino had freely testified before the grand jury, had never indicated an intent to invoke his Fifth Amendment privilege, and that Todaro never requested immunity for Marino, the District Court withdrew the order with respect to Marino. However, in response to the Government's asserted intent to introduce at trial evidence that it had investigated the alleged Grieco and Ryding loans and was unable to find evidence substantiating their existence, the District Court stated:

Now, that carries with it, of course, an implication that there was nothing [i.e., no loans], which is why the Government is going to put it in. If it is put in merely to show that the Government has carried out the burden imposed upon it by Holland versus United States, namely to follow up lead such as that given to the Government by the defendant, that's one thing. And if it is limited to that purpose and constrained to that use by the jury, it is probably all right. If there is going to be some attempt to have the jury infer from that that there was not the loan, then you are into the area covered by my Order.

When asked whether the Government could present proof that, although Grieco had ample financial means, his funds were tied up so that he lacked the cash flow to finance the loan in question, Judge Elfvin further clarified his order by agreeing with the prosecutor's interpretation that it required the Government "to abstain from the evidence with respect to Mr. Grieco entirely." Both sides understand this statement to apply equally to Ryding. The Court's rationale appears to have been that since Grieco and Ryding's testimony was then equally unavailable to both sides, fairness considerations preclude the Government from establishing, in an inferential fashion, the non-existence of the loans, when it had the statutory authority to resolve the uncertainty by extending use immunity to the witnesses. We think the Government fairly summarizes the effect of the District Court's order: "absent a grant of immunity, [the Court] will not permit the Government at trial to introduce any evidence for the proposition that the alleged loans did not occur, nor ask the jury to infer from any evidence that the loans did not occur." Brief for Appellant at 6. From this ruling, the Government appeals. ¹

Discussion

In United States v. Turkish, supra, this Court considered both substantive and procedural aspects of a defendant's request to have use immunity conferred upon defense witnesses who invoke their privilege against self-incrimination. ² We first noted that this Circuit had "uniformly rejected" requests for defense witness immunity. ³ After rejecting the compulsory process clause of the Sixth Amendment as a constitutional basis for defense witness immunity, we explored the possibility that such immunity might arise from the requirement of basic fairness protected by the Fifth Amendment's Due Process Clause. We rejected the view that fairness considerations, without more, require equal availability of use immunity for prosecution and defense witnesses. However, reluctant to rule out the possibility that some exceptional circumstances might warrant defense witness immunity, we said: "Without precluding the possibility of some circumstances not now anticipated, we simply do not find in the Due Process Clause a general requirement that defense witness immunity must be ordered whenever it seems fair to grant it." 623 F. 2d at 777.

Turkish also reckoned with the implications of defense witness immunity upon the division of responsibilities between judges and prosecutors. Mindful of the substantial risks to potential future prosecutions inherent in grants of use immunity, we emphasized that such risks "are matters normally better assessed by prosecutors than by judges." Id. at 776. To avoid intruding into the sphere of prosecutors and to spare district courts the burden of holding needless hearings, we explicitly set forth guidance that should have been dispositive of the claim in this case:

Trial judges should summarily reject claims for defense witness immunity whenever the witness for whom immunity is sought is an actual or potential target of prosecution. No hearing should be held to establish such status. The prosecutor need only show that the witness has been indicted or present to the court in camera an ex parte affidavit setting forth the circumstances that support the prosecutor's suspicion of the witness's criminal activity. No duty is imposed upon the prosecutor; he simply has an option to rely upon the witness's status as an actual or potential target of prosecution to foreclose any inquiry concerning immunity for that witness.

Id. at 778. ⁴ The Government here made the necessary showing under Turkish to foreclose any further inquiry into the propriety of defense witness immunity.

Even if the witnesses had not been prosecution targets, Todaro's claim for defense witness immunity should have been summarily rejected for lack of a sufficient showing that the witnesses' testimony is clearly exculpatory, material, and unobtainable from other sources. Id. Defense counsel's affidavit accompanying the motion was patently insufficient to satisfy these requirements. There is no indication of what the witnesses could be expected to testify about at trial. Nor does the affidavit state whether evidence of the alleged loans is unavailable from other sources and whether the two witnesses would testify if immunized.

This Circuit has had no occasion since Turkish to consider what "exceptional circumstances," if any, might warrant a grant of defense witness immunity. Todaro contends that this case presents such circumstances and invites us to ignore the Government's asserted prosecutorial interest in the witnesses. We reiterate our view that a witness' status as an actual or potential target of prosecution always warrants summary rejection of a claim for defense witness immunity. Beyond this, however, Todaro has not presented circumstances that would require serious consideration of use immunity for even a non-target witness.

Todaro relies first on what he characterizes as "the selective use of immunity to gain a tactical advantage." Brief for Appellee at 22. Though this Court has intimated that discriminatory use of immunity to gain a tactical advantage might support a due process claim for defense witness immunity, United States v. Calvente, supra, 722 F. 2d at 1025, there is no suggestion of this sort of gamesmanship in the record. The number of witnesses immunized by the Government, without more, would not support a finding of this type of misconduct. Todaro's argument, based on conclusory and unsupported allegations of prosecutorial misconduct, is no different than the "equalizing" argument already rejected in Turkish.

Nor do we find persuasive Todaro's second argument that this case differs from a standard defense witness immunity claim because Holland v. United States, supra, 348 U. S. at 135-36, imposes on the prosecution in a "net worth" case the duty to pursue defense leads as to possible sources of nontaxable income and directs the trial judge to consider the leads as true if the Government fails to show a reasonable investigation into their validity. Todaro contends that the investigation requirement of Holland includes an obligation to grant use immunity to "lead" witnesses who invoke their self-incrimination privilege. We disagree.

Holland obliges the Government to pursue only those leads "reasonably susceptible of being checked." 348 U. S. at 136. That obligation does not require the Government to displace a lawful claim of privilege. The Supreme Court emphasized that it was not within the province of the courts to dictate governmental investigative procedures. Id.

Nor do we agree with amici's related suggestion that the order in this case is sustainable as a remedial sanction for the Government's failure to fulfill its Holland obligation. The District Court made no finding of a Holland violation, and the record would not support such a finding. Finally, any determination of a Holland violation, should one occur, and of the need for a remedy other than defense witness immunity should await the close of the Government's case at trial, when the fairness of using the "net worth" method may be assessed on a complete record.

The order of the District Court is reversed.

¹ This Court has jurisdiction, pursuant to 18 U. S. C. §3731, over this appeal from what amounts to a conditional order excluding evidence. See United States v. Horwitz, 622 F. 2d 1101, 1104-05 (2d Cir. 1980), cert. denied, 449 U. S. 1076 (1981).

² Todaro suggests that the principles set forth in Turkish are not applicable to an order that merely conditions the admission of evidence and argument to the jury on the grant of use immunity to potential defense witnesses. We have previously ruled, however, that the same reasons that weigh against requiring a grant of immunity also apply when the grant is a condition of admitting evidence. See United States v. Horwitz, supra, 622 F. 2d at 1105.

³ In the wake of Turkish, this Court has regularly upheld district court denials of requests for defense witness immunity, United States v. Calvente, 722 F. 2d 1019, 1025 (2d Cir. 1983); United States v. Burns, 684 F. 2d 1066, 1077-78 (2d Cir. 1982), cert. denied, 459 U. S. 1174 (1983), and has remanded for reconsideration in light of Turkish a district court order suppressing testimony of government-immunized witness unless use immunity granted to a defense witness. United States v. Horwitz, supra, 622 F. 2d at 1105-06, remanding United States v. De Palma, 476 F. Supp. 775 (S. D. N. Y. 1979). See also Grohulski v. Henderson, 637 F. 2d 50, 52-53 (2d Cir. 1980) (similar claim raised in federal habeas attack upon state criminal conviction), cert. denied, 450 U. S. 927 (1981). But see United States v. Smith, 17 M. J. 994 (A. C. M. R. 1984).

⁴ As the D. C. Circuit has noted, this passage obviously does not mean that "the government must grant immunity in every case unless the witness is 'an actual or potential target of prosecution.'" United States v. Heldt, 668 F. 2d 1238, 1283 n. 85 (D. C. Cir. 1981), cert. denied, 456 U. S. 926 (1982).

 

 

 

[88-2 USTC ¶9530] United States of America, Plaintiff-Appellant v. Jerry Lee Harvey, Defendant-Appellee

(CA-11), U.S. Court of Appeals, 11th Circuit, 87-5051, 7/14/88 , 848 F2d 1547, Affirming an unreported District Court decision

[Code Secs. 7201 , 7203 , and 7206 --Result unchanged by the Tax Reform Act of 1986 ]

Tax evasion: Immunity from prosecution.--An indictment charging a taxpayer with income tax evasion and with filing a false tax return was properly dismissed where the taxpayer had been given transactional and use immunity in a prior case. A grant of transactional and use immunity given to the taxpayer in a prior case involving illegal drug activities precluded the government from pursuing its tax case. Because the government had neglected to reduce the terms of the immunity agreement to writing, the court would not infer that the immunity agreement did not cover the charges set forth in the indictment.

Leon B. Kellner, United States Attorney, Miami, Fla. 33130, Thomas L. Fink, Roger M. Olsen, Michael L. Paup, Robert E. Lindsay, Alan Hechtkopf, Department of Justice, Washington, D.C. 20530, for plaintiff-appellant. Leonard Alan Sands, Sands & Moskowitz, P.A., 3225 Aviation Ave., Coconut Grove, Fla. 33133, for defendant-appellee.

Before KRAVITCH and CLARK, Circuit Judges, and ESCHBACH, ^* Senior Circuit Judge.

ESCHBACH, Senior Circuit Judge:

The United States appeals the dismissal of an indictment charging appellee with income tax evasion and filing a false income tax return. The district court dismissed the indictment on the ground that it violated the government's grants of transactional and use immunity to the appellee in a prior drug case. We affirm.

I

On November 27, 1985 , a grand jury in the Southern District of Florida returned an indictment charging the appellee, Jerry Lee Harvey, with five counts of income tax evasion for the years 1978 through 1982, in violation of 26 U.S.C. §7201 , and one count of filing a false income tax return in April of 1981, in violation of 26 U.S.C. §7206(1) . Essentially, the government maintains that Harvey failed to report substantial interest income earned on funds deposited in bank accounts in the Cayman Islands, and that Harvey's 1980 tax return falsely represented that he had no foreign bank accounts.

On June 2, 1986, Harvey filed a motion for a pretrial Kastigar hearing, ¹ in which he alleged that in 1980 the government had informally granted him use immunity in return for his cooperation in a drug investigation. The motion requested that the court require the government to reveal all of its evidence supporting the tax indictment and to demonstrate that the evidence was derived from sources independent of the information Harvey had revealed to the government pursuant to the 1980 plea agreement. In support of his allegation that he had been granted use immunity, Harvey submitted a letter written by the United States Attorney for the Southern District of Alabama, indicating that Harvey and the government had reached a plea agreement in 1980. The terms of the agreement, however, were not clear from the letter. The government objected to holding a Kastigar hearing on the ground that Harvey had not demonstrated that he actually had been granted use immunity in 1980, and thus, a Kastigar hearing would be premature at that time. Given the ambiguities surrounding the unwritten plea agreement, the magistrate did not hold a traditional Kastigar hearing, as Harvey had requested. Instead, she held a series of "pre-Kastigar" hearings in order to determine (1) whether Harvey had been granted immunity in 1980, (2) if so, what kind of immunity had been granted, and (3) what information Harvey had revealed to the government. ²

The pre-Kastigar hearings revealed the following facts. One June 13, 1980 , Harvey was arrested in Mobile, Alabama in connection with the attempted importation of a large quantity of quaalude tablets. He and others were later indicted in the Southern District of Alabama for federal drug offenses. Because the case against Harvey was strong, his attorney advised him to cooperate with the government and attempt to negotiate a deal with respect to the pending charges. Although the United States Attorney did not need Harvey's testimony or cooperation in the Mobile case, the United States Attorney's Office for the Southern District of Florida desired his cooperation in connection with investigations in its district. Accordingly, Harvey and the government reached an agreement, and in September of 1980, DEA agents from the Southern District of Florida interrogated Harvey in a hotel room in Mobile. Harvey's name eventually was dropped from the Mobile indictment.

By a glaring act of omission, the government lawyers for the Southern Districts of Alabama and Florida never reduced the agreement with Harvey to writing. Moreover, the DEA agents responsible for debriefing Harvey failed to make any written reports or keep any notes detailing the information that Harvey revealed to them in 1980. Consequently, the magistrate was left with the difficult task of trying to piece together, from over fifteen hours of conflicting testimony from numerous witnesses, the terms of the plea agreement, what representation the government made to Harvey, and what Harvey told the government pursuant to the agreement. After carefully reviewing the record, Magistrate Vitunac concluded that the plea agreement had granted Harvey both transactional and use immunity for any information or transactions that he had revealed to the DEA agents in 1980. Furthermore, the magistrate found that Harvey had told the DEA agents about all of the drug deals in which he had been involved prior to and at the time time of his arrest in 1980 and had also "divulged . . . his financial dealings with respect to his illegal drug deals." This information included the identification of the funds in the Cayman Islands bank.

To determine the legal effect of these findings upon the pending indictment against Harvey, Magistrate Vitunac next reviewed the testimony of Stephen Snyder, the prosecutor who investigated the tax case against Harvey and presented it to the grand jury. According to Snyder, the government used the net worth method of proof, corroborated by specific items of unreported income, to establish that Harvey had failed to report income. Snyder testified that he advised the grand jury that the likely source of Harvey's income was narcotics trafficking and that the largest increase in his net worth occurred in 1978 and 1979 when he deposited large amounts of money in bank accounts in the Cayman Islands. The corroborating specific items of unreported income presented to the grand jury were amounts of interest income earned in the years 1980 through 1982 on certificates of deposit issued by the Bank of Nova Scotia in the Cayman Islands.

The magistrate decided that the information concerning Harvey's drug activities and related financial dealings formed the basis for the tax indictment and was "inextricably tied" to the information that Harvey had revealed to the DEA agents in 1980. Thus, the magistrate concluded that the indictment violated the grants of immunity extended to Harvey and recommended that the district court dismiss the indictment.

District Judge Paine agreed with the magistrate's factual finding that the government had extended both use and transactional immunity to the appellee. He also agreed with the magistrate's legal conclusion that the indictment violated those grants of immunity. Refusing the government's request to prove that its evidence was derived from independent sources, the district court dismissed the indictment against Harvey, 651 F.Supp 894. The government now appeals the dismissal of Counts three through six of the indictment, which charge the appellee with tax evasion for the years 1980 through 1982 and filing a false income tax return in April of 1981.

II

The government does not take issue with the district court's finding of fact that under the terms of the plea agreement, appellee Harvey was granted both transactional immunity and use immunity. Nevertheless, it maintains that as a matter of law Harvey cannot be insulated from indictment for crimes he allegedly committed after that bargain was struck. We do not disagree with the general parameters of the government's analysis of the law pertaining to transactional and use immunity and the scope of immunity that can be afforded by statutory and informal written grants of immunity. Were we interpreting a written plea agreement incorporating an express grant of immunity, the government's position might well prevail. However, because of the most unusual circumstances of this case, we are obliged to conclude that the traditional law pertaining to transactional and use immunity is inapposite and does not control the disposition of the government's appeal.

We deal here with an informal (non-statutory), unwritten grant of immunity that arose as part of an unwritten plea agreement which provided the basis for the government's dismissal of a criminal indictment against appellee in exchange for his willingness to furnish information as to illegal drug and related activities. Our analysis is further complicated by the fact that the government agents who interviewed Harvey pursuant to the unwritten plea agreement either failed to make any written notes, or at least failed to retain those notes, and prepared no report documenting the substance and scope of the information Harvey provided.

Thus, we have no way of discerning the precise parameters of the immunity the government promised to Harvey. Appellee's assertion regarding his understanding of the scope of immunity granted him orally is supported by the findings of the magistrate. A careful examination of the case law relied upon by the government reveals that none of those opinions address circumstances involving an unwritten grant of immunity of uncertain type and scope. Thus, the government's attempt to solve the dilemma created by its inexplicable acts of omission by applying precedent is misdirected because there simply is no precedent applicable to the bizarre situation presented by this case.

On the basis of the evidence adduced at the "pre-Kastigar" hearing conducted before her, Magistrate Vitunac found, and District Judge Paine agreed, that the government had granted appellee both use immunity and transactional immunity in exchange for the information he could provide. Given the nature of the evidence presented at the "pre-Kastigar" hearing, Magistrate Vitunac simply had no other choice but to infer that both types of immunity had been promised to Harvey.

The magistrate also found that in exchange for the government's promises of use and transactional immunity, Harvey told the government agents about all of his drug dealings prior to his 1980 arrest and also divulged his financial dealings with regard to those illegal drug transactions. The information disclosed to the government by appellee included reference to the deposits he had made in the Cayman Islands bank. The government now claims that the district court erred because the indictment against Harvey was dismissed even though it was not given the opportunity, in a Kastigar hearing, to demonstrated that the evidence it would present at trial was obtained from sources independent of the information disclosed by appellee.

The government's argument misses one critical point. Harvey was granted both use and transactional immunity with regard to all matters he disclosed to the government. Transactional immunity shields an individual from prosecution for any matters disclosed under that grant of immunity. See Rowe v. Griffin, 676 F.2d 524, 526 (11th Cir. 1982); United States v. Weiss, ³ 599 F.2d 730, 737, n. 14 (5th Cir. 1979), United States v. Quatermain, 613 F.2d 38, 40 (3d Cir. 1980). See also Kastigar v. United States, 406 U.S. 441, 453, 92 S.Ct. 1653, 1661, 32 L.Ed.2d 212 (1972). That the government might have been able to secure information pertaining to those same matters from a different, independent source has no significance in a situation in which transactional immunity has been granted.

By its very nature a Kastigar hearing would go only to the question of whether the government breached the promise of use immunity it made to Harvey. ⁴ Because it is limited to matters concerned with use immunity, the Kastigar hearing the government seeks would have no effect on the grant of transactional immunity Harvey was accorded with regard to the funds he holds in the Cayman Islands bank. This is so because the government had effectively agreed not to prosecute appellee with regard to those funds. See Quatermain, 613 F.2d at 45 (Aldisert, J., dissenting) (characterizing informal grants of immunity as "discretionary agreements not to prosecute").

In Santobello v. New York, 404 U.S. 257, 92 S.Ct. 495, 30 L.Ed.2d 427 (1971) the Supreme Court made clear that included among the safeguards it considers necessary to guarantee the fairness of the plea bargaining processs is a requirement that prosecutors honor the bargains they make with defendants. Thus, the Court stated: "a constant factor is that when a plea rests in any significant degree on a promise or agreement by the prosecutor, so that it can be said to be part of the inducement or consideration, such promise must be fulfilled." 404 U.S. at 262, 92 S.Ct. at 498. Our Court has stated its intention to "follow[] the principles enunciated in Santobello by requiring that the government adhere strictly to the terms of plea agreements." In re Arnett, 804 F.2d 1200, 1204 (11th Cir. 1986) (referring to Santobello, supra) (citing United States v. Avery, 621 F.2d 214, 216 (5th Cir. 1980), cert. denied, 450 U.S. 933, 101 S.Ct. 1396, 67 L.Ed.2d 367 (1981) and United States v. Shanahan, 574 F.2d 1228 (5th Cir. 1978)).

Therefore, since the government had effectively promised Harvey it would not prosecute him with regard to the Cayman Islands funds, proof on its part that the prosecution it seeks to pursue would be based on evidence derived from sources independent of the information Harvey provided would be of no consequence. The government promised Harvey it would not prosecute him and it must honor that promise. The district court did not err in refusing the government's request for a Kastigar hearing.

III

In general, the scope of an enforceable grant of immunity, exchanged either for compelled or voluntary testimony, or for information supplied, extends only to crimes a person has already committed or is in the process of committing. The case law leaves little room for the contention that even a negotiated, non-statutory grant of transactional immunity can shield an "immunee" from prosecution for his future illegal acts. See Counselman v. Hitchcock, 142 U.S. 547, 562, 12 S.Ct. 195, 198, 35 L.Ed. 1110 (1892); United States v. Freed, 401 U.S. 601, 606-07, 91 S.Ct. 1112, 1117, 28 L.Ed.2d 356 (1971); Quatermain, 613 F.2d at 42-43; Rule v. United States, 362 F.2d 215, 217 (5th Cir. 1966). Cf. Marchetti v. United States [68-1 USTC ¶15,800 ], 390 U.S. 39, 53, 88 S.Ct. 697, 705-06, 19 L.Ed.2d 889 (1968) (holding that the fifth amendment privilege against self-incrimination provided a complete defense to the prosecution of a defendant based on his refusal to comply with a federal statute when that compliance would have subjected him to a substantial and real threat of incrimination in the future).

The general rule of law regarding immunity for future illegal acts notwithstanding, the fact remains that the unwritten transactional immunity agreement the government consummated with Harvey may well have been couched in terms that appeared to Harvey to insulate all matters which he revealed, including the monies he then had on deposit in the Cayman Islands bank. That such a grant of perpetual transactional immunity may not have been enforceable is beside the point here. Harvey, perhaps misunderstanding the oral immunity discussions, performed his end of the agreement. If the government left him with the impression that all matters he revealed would be forever immune from prosecution, it cannot now, at least in the context of this prosecution, be permitted to renege on that promise. See Rowe, 676 F.2d at 527-28 (holding that an individual who had provided grand jury testimony after being assured of immunity from prosecution was entitled to judicial enforcement of that promise not to prosecute). See also Weiss, 599 F.2d at 737 (citing Santobello, 404 U.S. at 262, 92 S.Ct. at 498). Cf. United States v. Abou-Saada, 785 F.2d 1, 7 (1st Cir.1986) (finding no "basic unfairness" in violation of due process in the government's use of evidence pertaining to a defendant's conduct when that conduct was not proven to have resulted from a promise by the government not to prosecute and where there was no proof that defendant relied on such a promise); United States v. Fountain, 776 F.2d 878, 884 (10th Cir.1985) (affirming a district court holding that a defendant who did not perform on his obligation under an immunity grant was not entitled to immunity).

The government's inability to discredit the more expansive reading of the immunity grant advocated by Harvey is a direct result of the gross neglect of its officials in failing to memorialize that grant of immunity, or the agreement underlying the grant, in written form. Those government officials may or may not have misled Harvey as to the scope of the immunity offered him. Because there is no written document or any other reliable evidence to which the Court can turn, we cannot ascertain what bargain was struck by appellee and the government. Nevertheless, because the government's acts of omission have created this predicament, we believe due process considerations require that the defendant/appellee not be made to suffer. See Rowe, 676 F.2d at 526 n. 4 (citing Santobello, 404 U.S. at 262, 92 S.Ct. at 498).

Although we do not adopt the precise terminology employed in Rowe, supra, we note the consistency of our analysis with Judge Fay's discussion in that opinion of the concept of "equitable immunity." In Rowe an assistant state attorney general had made a commitment not to prosecute defendant/appellee Rowe in exchange for his willingness to provide information regarding a notorious murder. Thirteen years later new information persuaded a local district attorney to present a case to a county grand jury seeking an indictment of Rowe for the murder. The indictment was returned by the grant jury and Rowe subsequently secured an injunction from the federal district court to halt his prosecution in state court.

Proceeding under the "bad faith" exception to the abstention doctrine of Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), the Court in Rowe affirmed the district court's injunction of the pending state court prosecution. In doing so, the Court observed that when a promise of immunity from prosecution:

induces a defendant to waive his fifth amendment rights by testifying at the trial of his confederates or to otherwise cooperate with the government to his detriment, due process requires that the prosecutor's promise be fulfilled. We hold that once the defendant's good faith compliance with the terms of the agreement is established, the state must perform on its side and any attempt by the state to breach the agreement is per se a bad faith prosecution.

Rowe, 676 F.2d at 528. In applying the concept of equitable immunity, the Rowe Court held that:

as a matter of fair conduct, the government ought to be required to honor [an agreement granting transactional immunity to an informant] when it appears from the record that: (1) an agreement was made; (2) the defendant has performed on his side; and (3) the subsequent prosecution is directly related to offenses in which the defendant, pursuant to the agreement, either assisted with the investigation or testified for the government.

Id. at 527-28.

We are not presented with an attempt by an accused to block a state court prosecution. Therefore, the Younger doctrine and the "bad faith" exception to it are inappropriate here. For that reason and because of other differences in the fact situation of our case, we are reluctant to expressly adopt the three-part test of Rowe as controlling here. Nevertheless, the analysis and the result in Rowe do indicate that the outcome we reach is the proper one and we cite both with approval. See Weiss, 599 at 735 n. 9.

A second alternative analytical approach to the circumstances presented by this case is suggested by the dissenting opinion of Judge Aldisert in Quatermain, supra. That case involved an ambiguous, written grant of immunity of uncertain scope exchanged by the government for Quatermain's willingness to testify against an associate of his. Characterizing the case as an "odd mix of civil contract and estoppel law thrust into the context of a criminal prosecution" Judge Aldisert chose to view the bargain between Quatermain and the government as a "discretionary agreement not to prosecute." Quatermain, 613 F.2d at 45. He impliedly rejected the majority's conclusion that the scope of the immunity Quatermain could properly claim was limited by the relevant law pertaining to the scope of the fifth amendment protection against self-incrimination. See Counselman, 142 U.S. at 562, 12 S.Ct. at 198; Marchetti, 390 U.S. at 53, 88 S.Ct. at 705-06; Freed, 401 U.S. at 606-07, 91 S.Ct. at 1117; Kastigar, 406 U.S. at 453, 92 S.Ct. at 1661. Instead, Judge Aldisert would have enforced the terms of the agreement not to prosecute which he believed the government had entered into with Quatermain. His dissent concludes with the following observations.

While recognizing that in entering into these agreements the government is not negotiating with Sunday School teachers and that the negotiations may be, if not loathsome, at least unpleasant experiences, it seems to me a clearer understanding of the bargain than that presented by the facts of this case should be the sine qua non of any such undertaking. Conditions describing the extent of [a] no-prosecution [agreement] should be set forth with maximum specificity. The courts should put a premium on such specificity and impose a penalty on generality. . . . the burden of proving the limitations of the no-prosecution provisions of the agreement should be on the government and ambiguities resolved against it, as they would be against the drafter of any written instrument.

Id. at 46-47.

Unlike the defendant in Quatermain, Harvey was represented by counsel during the negotiations that resulted in his being granted immunity from prosecution. Nevertheless, we believe that the emphasis Judge Aldisert's dissent places upon the importance of specificity in no-prosecution agreements, the obligation of the government to insure that requisite specificity is achieved, and the propriety of resolving doubts as to the terms of an ambiguous or indiscernible immunity grant against the government is well-placed and consistent with the approach we take here.

Whatever label is applied to the analytical paradigm used, the principle is the same. The government has an obligation to clearly define the parameters of any grant of immunity it extends to a person who in exchange agrees to provide information or testimony the government desires. Once that person has performed his/her end of the bargain, the government must be held to its promises. Fundamental fairness commands that any uncertainty as to exactly what the government promised the informant or witness cannot be permitted to work in the government's favor.

IV

It is clear that even if the government actually did grant Harvey transactional immunity intended to insulate him forever from any prosecution related to the interest earned from the Cayman Islands funds, that component of the 1980 immunity grant would be unenforceable. See Freed, 401 U.S. at 606-07, 92 S.Ct. at 1117; Quatermain, 613 F.2d at 42-43; Rule, 362 F.2d at 217. We do not maintain that appellee, or any other defendant, may under any circumstances enjoy perpetual immunity from prosecution for failure to report and/or pay taxes on future interest income realized from bank accounts or other income producing instruments whose existence and location are disclosed in the course of fulfilling his commitments under an informal plea agreement/grant of immunity. However, at a minimum the government had an obligation, when Harvey disclosed the existence and location of the Cayman Islands interest-bearing accounts, to point out that his immunity did not extend to future interest payments derived from those accounts or otherwise to alert Harvey as to the bounds of the immunity granted. It failed to do so.

The government never directly told Harvey, or gave him reason to infer, that the scope of the immunity he was being granted did not extend to the income tax obligations that would accrue on any future interest he realized from the monies which he disclosed were deposited in the Cayman Islands bank. However, it can be fairly said that the return of the grand jury indictment against Harvey on November 25, 1985 charging him with income tax evasion and filing a false income tax return was sufficient to put appellee on clear notice that from that day forward he was not insulated from future prosecution for failure to report, and pay federal income taxes on, the Cayman Islands interest income accruing thereafter. However, because Harvey had not been unequivocally and authoritatively informed of the limitations of the immunity grant that he attained from the government in 1980 before November, 1985, it would be a violation of due process to permit his prosecution for income tax-related offenses related to the Cayman Islands funds that occurred prior to the tax year 1985. Because the indictment at issue charges crimes that occurred before the tax year 1985 the district court did not err when it determined that dismissal of the indictment was warranted. ⁵

V

The point of our holding is a simple one. When the government by its conduct, here grossly negligent conduct, has created the situation leading to misunderstandings regarding the nature of a plea agreement and the scope of immunity granted, the fair play dictated by due process requires nothing less than that the doubts as to either be resolved in favor of the individual misled. Rowe, 676 F.2d at 528 n. 4 (citing Santobello, 404 U.S. at 262, 92 S.Ct. at 498). See also Quatermain, 613 F.2d at 46-47 (Aldisert, J., dissenting). Accordingly, the judgment of the district court is AFFIRMED.

^* Honorable Jesse E. Eschbach, Senior U.S. Circuit Judge for the Seventh Circuit, sitting by designation.

¹ A Kastigar hearing is triggered once a defendant establishes that he provided the government with information or testimony under a grant of immunity. It gives the government an opportunity to prove that the evidence it wishes to adduce at trial is derived from a legitimate source wholly independent of the compelled testimony or the information the defendant disclosed under the immunity grant. Kastigar v. United States, 406 U.S. 441, 460-62, 92 S.Ct. 1653, 1665, 32 L.Ed.2d 212 (1972).

² Magistrate Vitunac apparently chose the "pre-Kastigar" label because the purpose of the proceeding was to enable her to determine if Kastigar hearing was called for.

³ The Eleventh Circuit in the en banc decision Bonner v. City of Pritchard, 661 F.2d 1206 (11th Cir. 1981), adopted as precedent decisions of the former Fifth Circuit rendered prior to October 1, 1981 .

⁴ In Kastigar, supra, the Supreme Court was confronted with the question of the constitutionality of the use immunity protection granted witnesses who are compelled to testify in federal court trials by 18 U.S.C. §6002. Thus, it is clear that the type of hearing directed by the Court in Kastigar is not called for when, as in this case, a defendant is determined to have been granted transactional immunity that shields him absolutely from prosecution.

⁵ Harvey remains subject to prosecution for any income tax-related or other offenses pertaining to the Cayman Islands funds that arose from his actions or acts of omission during the year 1985 and thereafter.

Dissenting Opinion

KRAVITCH, Circuit Judge

Respectfully, I dissent. The majority holds that Harvey is free from prosecution for crimes he allegedly committed after an unwritten agreement not to prosecute him was reached in September of 1980. The majority's rationale is that because the government neglected to reduce the agreement to writing, thus creating confusion as to its exact parameters, it had an obligation, as part of due process, to warn Harvey that the agreement did not protect him from prosecution for future crimes. ¹ Conceding that the government lacks the power to grant a defendant immunity from prosecution for future crimes, ² the majority nevertheless holds, in effect, that this limitation is not operative until the government warns a defendant that it does not possess such authority. The notion that due process requires the government to warn a defendant of the obvious--that an agreement not to prosecute or a grant of immunity does not give the defendant carte blanche to continue committing related crimes with impunity--is untenable. I cannot endorse such an unprecedented ³ extension of due process.

Despite my disagreement with the majority's holding in this case, I share its consternation with the government's failure to reduce to writing the 1980 agreement, and I agree that the government must suffer certain consequences as a result of its oversight. Thus, I concede that although the government may have intended to grant Harvey immunity from prosecution only in the Mobile drug case, ⁴ the magistrate was not clearly erroneous in finding that the agreement granted transactional and use immunity for any and all information or transactions that Harvey had revealed to the DEA agents in 1980, including information about his illegal drug and financial transactions in Florida and the Cayman Islands. Based on this factual finding, I agree that Harvey is immune from prosecution for any related drug or financial crimes committed before September of 1980, and that the first two counts of the indictment were properly dismissed. ⁵ However, despite the magistrate's finding that the agreement conferred both transactional and use of immunity on Harvey, the dismissal of the remaining counts of the indictment, which charged Harvey with crimes allegedly committed after 1980, was improper.

Transactional immunity "accords full immunity from prosecution for the offense to which the compelled testimony relates." Kastigar v. United States, 406 U.S. 441, 453, 92 S.Ct. 1653, 1661, 32 L.Ed.2d 212 (1972). Although federal law no longer provides for formal, statutory grants of transactional immunity, ⁶ a prosecutor may, as in this case, informally grant transactional immunity to a witness in return for his cooperation in a criminal case. See 1 W. LaFave & J. Israel, Criminal Procedure, §8.11(d) (1984). Use immunity prohibits the use of compelled testimony, or any evidence derived directly or indirectly from that testimony, against the witness in a criminal prosecution. See 18 U.S.C. §6002. In contrast to transactional immunity, use immunity does not prohibit the government from prosecuting the witness for crimes about which he testified, provided the government proves that it has other evidence to support the prosecution that "is derived from a legitimate source wholly independent of the compelled testimony." Kastigar, 406 U.S. at 460, 92 S.Ct. at 1665. Pursuant to 18 U.S.C. §§6002, 6003, a district court may formally grant use immunity to a witness who refuses to testify on the basis of his fifth amendment privilege, or, as here, a prosecutor may informally grant use immunity to a witness in return for his cooperation in a criminal case. See 1 W. LaFave & J. Israel, supra, §8.11(d).

The purpose of a grant of either transactional or use immunity is to preclude a witness' reliance on his fifth amendment privilege against compelled self-incrimination. See Kastigar v. United States, 406 U.S. 441, 449, 92 S.Ct. 1653, 1659, 32 L.Ed.2d 212 (1972); Counselman v. Hitchcock, 142 U.S. 547, 564, 586-87, 12 S.Ct. 195, 198, 206, 35 L.Ed. 1110 (1892); 1 W. LaFave & J. Israel, supra, §8.11(a), at 684. As such, in deciding the scope or constitutionality of immunity grants, the Supreme Court traditionally has referred to the scope of the fifth amendment privilege itself. For example, in Heike v. United States, 227 U.S. 131, 33 S.Ct. 226, 57 L.Ed. 450 (1913) (Holmes, J.), the Court refused to construe broadly a transactional immunity statute, ⁷ seeing "no reason for supposing that the act offered a gratuity to crime." Id. at 142, 33 S.Ct. at 228. Instead, according to the Court, a grant of immunity "should be construed, so far as its words fairly allow the construction, as coterminous with what otherwise would have been the privilege of the person concerned." Id., 33 S.Ct. at 228. ⁸ See also Shapiro v. United States, 335 U.S. 1, 19, 68 S.Ct. 1375, 1385, 92 L.Ed. 1787 (1948) (following rule of construction of Heike). More recently, in Kastigar, the Court upheld the constitutionality of 18 U.S.C. §6002 on the ground that use immunity "is coextensive with the scope of the privilege against self-incrimination, and therefore is sufficient to compel testimony over a claim of the privilege." 406 U.S. at 453, 92 S.Ct. at 1661. Thus, in order to determine the scope of both immunity grants in this case, we must look to the scope of the fifth amendment privilege. ⁹

In general, the privilege against self-incrimination only prohibits compelled testimony that might incriminate a witness for crimes he had already committed, or was in the process of committing, at the time the testimony was given. See Counselman, 142 U.S. at 562, 12 S.Ct. at 198 (purpose of privilege is "to insure that a person should not be compelled, when acting as a witness in any investigation, to give testimony which might tend to show that he himself had committed a crime") (emphasis added); United States v. Quatermain, 613 F.2d 38, 42 (3d Cir.), cert. denied, 446 U.S. 954, 100 S.Ct. 2923, 64 L.Ed.2d 812 (1980); Rule v. United States, 362 F.2d 215, 217 (5th Cir.1966), cert. denied, 385 U.S. 1018, 87 S.Ct. 744, 17 L.Ed.2d 554 (1967); United States v. Phipps, 600 F.Supp. 830, 831 (D.Md. 1985).

In Marchetti v. United States [68-1 USTC ¶15,800 ], 390 U.S. 39, 88 S.Ct. 697, 19 L.Ed.2d 889 (1968), however, the Supreme Court held that the fifth amendment privilege was not entirely inapplicable to prospective acts. The petitioner in Marchetti was convicted of violating provisions of a statute that required professional gamblers to register annually with the Internal Revenue Service and pay an occupational tax. The Court held that the petitioner's assertion of his fifth amendment privilege in refusing to comply with the statute provided a complete defense to his prosecution for failing to register and pay the occupational tax. In so holding, the Court explicitly rejected the notion that the fifth amendment privilege offers protection only as to past and present acts, id. at 53, 88 S.Ct. at 705, ¹⁰ and emphasized that "[t]he central standard for the privilege's application has been whether the claimant is confronted by substantial and 'real,' and not merely trifling or imaginary, hazards of incrimination," Id., 88 S.Ct. at 705. Relying on this standard, the Court held that the hazards of incrimination created by the registration and occupational tax provisions as to future acts were not "trifling or imaginary" because prospective registrants could reasonably expect that compliance with these provisions "may serve as decisive evidence that they have in fact subsequently violated state gambling prohibitions." Id., 88 S.Ct. at 706. Although application of this standard proved favorable to the petitioner in Marchetti, the Court stressed that this would not usually be the case, as prospective acts "will doubtless ordinarily involve only speculative and insubstantial risks of incrimination." Id. at 54, 88 S.Ct. at 705. Thus, Marchetti created a very narrow exception to the general rule that the fifth amendment privilege applies only to past and present acts.

In United States v. Freed, 401 U.S. 601, 91 S.Ct. 1112, 28 L.Ed.2d 356 (1971), the Court emphasized the narrowness of the fifth amendment privilege's application to future conduct. In Freed, the Court rejected the argument that a registration requirement of the National Firearms Act violated the fifth amendment because the information disclosed could be used in connection with offenses that the transferee of the firearm might commit in the future. In so doing, the Court stated:

Appellees' argument assumes the existence of a periphery of the Self-Incrimination Clause which protects a person against incrimination not only against past or present transgressions but which supplies insulation for a career of crime about to be launched. We cannot give the Self-Incrimination Clause such an expansive interpretation.

Id. at 606-07, 91 S.Ct. at 1117.

Lower court opinions also make clear that the fifth amendment privilege rarely will apply to future conduct. For example, in United States v. Quatermain, 613 F.2d 38, 42-43 (3d Cir.) cert. denied, 446 U.S. 954, 100 S.Ct. 2923, 64 L.Ed.2d 812 (1980), the court noted that Marchetti did not support the defendant's argument that the fifth amendment privilege applies to a witness who refuses to testify because he asserts that his testimony somehow may be used to incriminate him in a prosecution for a different type of criminal act that he may commit in the future. Accordingly, the court held that the defendant's testimony under an informal grant of use immunity about his involvement in a drug ring did not prevent the government from indicting him for subsequently manufacturing a gun silencer, even though the district court found that the defendant's immunized testimony had helped lead to the indictment on the gun charge. See also United States v. Phipps, 600 F.Supp. 830, 832 (D.Md.1985) (testimony under use immunity grant about involvement in drug conspiracy does not prohibit indictment for subsequently threatening witness who planned to testify against members of conspiracy).

The present case also is distinguishable from Marchetti and does not fit within the narrow exception where the privilege against self-incrimination permits a witness to refuse to testify because of the possibility that such testimony will incriminate him concerning future criminal conduct. The statute in Marchetti required the petitioner, a professional gambler, to either admit that he had broken gambling laws and intended to continue doing so, or risk prosecution for tax avoidance. As pointed out earlier, the Marchetti Court intimated that revealing the required information would practically amount to an admission of guilt in a prosecution for a future violation of the gambling laws. See 390 U.S. at 54, 88 S.Ct. at 706. Given this, it is not surprising that the Court concluded that the hazards of incrimination created by the statute, even as to future acts, were "substantial and real," and "not merely trifling or imaginary." Id. at 53, 88 S.Ct. at 705.

In contrast, the information that Harvey revealed to the DEA agents in September of 1980 could not have created substantial and real hazards that it would incriminate him for tax crimes he allegedly subsequently committed in April of 1981, 1982 and 1983. ¹¹ According to his testimony at the pre-Kastigar hearing, Harvey had revealed to the DEA agents that he had deposited millions of dollars, earned through illegal drug transactions, into his accounts at the Nova Scotia Bank in the Cayman Islands. He also told the agent how he set up corporations in the Cayman Islands to launder drug money. In September of 1980, the defendant could not have had "substantial and real" fears that this information would incriminate him for evasion of taxes on interest income that either was not yet required to be reported ¹² or had not yet been earned, or for filing a false income tax return that was not due for months to come.

Having concluded that Harvey could not have invoked his fifth amendment privilege in 1980 on the ground that the information he was asked to reveal might incriminate him for future tax offenses, it follows, based on Heike and Kastigar, that neither the grant of transactional immunity nor the grant of use immunity prevents the government from pursuing Harvey's prosecution on counts three through six of the indictment. In affirming the district court, the majority erroneously "assumed the existence of a periphery of the Self-Incrimination Clause which . . . supplies insulation for a career of crime about to be launched." United States v. Freed, 401 U.S. 601, 606-07, 91 S.Ct. 1112, 1117, 28 L.Ed.2d 356 (1971). I would reverse the district court as to counts three through six. Accordingly, I dissent. ¹³

¹ More precisely, according to the majority "the government had an obligation, when Harvey disclosed the existence and location of the Cayman Island interest-bearing accounts, to point out that his immunity did not extend to future interest payments derived from those accounts . . . ."

² The majority states that "[i]t is clear that even if the government actually did grant Harvey transactional immunity intended to insulate him forever from any prosecution related to the interest earned from the Cayman Islands funds, that component of the 1980 immunity grant would be unenforceable. We do not maintain that appellee, or any defendant, may under any circumstance enjoy perpetual immunity from prosecution for failure to report and/or pay taxes on future interest income realized from bank accounts or other income producing instruments whose existence and location are disclosed in the course of fulfilling his commitments under an informal plea agreement/grant of immunity." (citations omitted).

³ None of the cases cited in the majority opinion support the proposition that due process requires the government to warn a defendant that immunity does not extend to crimes the defendant may commit in the future. At best, the majority convinces me that due process requires the government to adhere to the terms of any plea bargains it makes. See Santobello v. New York, 404 U.S. 257, 92 S.Ct. 495, 30 L.Ed.2d 427 (1971); Rowe v. Griffin, 676 F.2d 524 (11th Cir. 1982). However, I fail to see how this proposition even remotely supports the majority's holding that the government must warn a defendant that immunity does not extend to future crimes.

⁴ The DEA agents testified to this effect at the "pre-Kastigar" hearing.

⁵ The district court was correct in dismissing counts one and two of the indictment, which charged Harvey with income tax evasion for 1978 and 1979, as the grant of transactional immunity undoubtedly accorded Harvey full immunity from prosecution for any past transactions to which his compelled testimony related. When Harvey spoke to the DEA agents in 1980 he had allegedly already committed the offenses charged in counts one and two of the indictment. Furthermore, Harvey's disclosures of the existence of his foreign bank accounts and his past involvement in money laundering schemes were related to the tax offenses charged in the first two counts of the indictment.

⁶ Transactional immunity statutes typically provided that "no person shall be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter or thing, concerning which he may testify, or produce evidence, documentary or otherwise . . ." Kastigar v. United States, 406 U.S. 441, 451, 92 S.Ct. 1653, 1660, 32 L.Ed.2d 212 (1972) (quoting from Compulsory Testimony Act of 1893, which served as a model for numerous federal immunity statutes).

⁷ The statute provided that "no person shall be prosecuted or be subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he may testify or produce evidence, documentary or otherwise, in any proceeding, suit, or prosecution under [the interstate commerce and anti-trust acts]." Heike, 227 U.S. 141, 33 S.Ct. at 227.

⁸ In Kastigar v. United States, 406 U.S. at 453, 92 S.Ct. at 1661, 32 L.Ed.2d 212, the Court noted that transactional immunity, by specifically providing for full immunity from prosecution, is broader than the fifth amendment privilege, which "has never been construed to mean that one who invokes it cannot subsequently be prosecuted." The Court has never indicated that transactional immunity is in any other respect broader than the fifth amendment privilege.

⁹ Although Heike, Shapiro, and Kastigar all interpreted formal, statutory grants of immunity, the rationale underlying those decisions is also applicable to informal grants of immunity, as both formal and informal grants of immunity serve to supplant a witness' fifth amendment privilege against self-incrimination. See United States v. Quatermain, 613 F.2d 38, 41 (3d Cir.) (scope of informal grant of use immunity determined in reference to fifth amendment privilege), cert. denied, 446 U.S. 954, 100 S.Ct. 2923, 64 L.Ed.2d 812 (1980).

¹⁰ Marchetti overruled United States v. Kahriger [53-1 USTC ¶9245 ], 345 U.S. 22, 73 S.Ct. 510, 64 L.Ed.2d 754 (1953), which held that the same provisions of the tax statute at issue in Marchetti did not violate the privilege against compelled self-incrimination because "that privilege has relation only to past and present acts, not to future acts that may or may not be committed." 345 U.S. at 32, 73 S.Ct. at 515.

Marchetti also overruled Lewis v. United States [55-1 USTC ¶49,100 ], 348 U.S. 419, 75 S.Ct. 415, 97 L.Ed. 475 (1955), which held that the wagering tax provisions did not violate the fifth amendment privilege because they were not compulsory. According to the Lewis Court, "[t]he only compulsion under the Act is that requiring the decision which would-be gamblers must make at the threshold. They may have to give up gambling, but there is no constitutional right to gamble. If they elect to wager, though it be unlawful, they must pay the tax." 348 U.S. at 422-23, 75 S.Ct. at 418.

¹¹ Counts three through five of the indictment charged Harvey with evasion of income taxes for the years 1980, 1981, and 1982, offenses that could not have occurred until April of 1981, 1982, and 1983, when Harvey filed his tax returns for the preceding years. See Sansone v. United States [65-1 USTC ¶9307 ], 380 U.S. 343, 351, 85 S.Ct. 1004, 1010, 13 L.Ed.2d 882 (1965) (violation of 26 U.S.C. §7201 does not occur until the defendant commits an affirmative act constituting an evasion or attempted evasion of the tax). Furthermore, the crime of willfully filing a false tax return for income earned in 1980, as charged in count six of the indictment, could not have occurred until April of 1981 when Harvey filed the allegedly fraudulent return. See United States v. Bishop [73-1 USTC ¶9459 ], 412 U.S. 346, 357-58, 93 S.Ct. 2008, 2016, 36 L.Ed.2d 941 (1973). Thus, although the crimes charged in Counts three and six of the indictment related to Harvey's 1980 taxes, the immunity granted in 1980 did not apply to these crimes, as they did not occur until April of 1981, well after immunity was granted.

¹² The interest Harvey earned in 1980 was not required to be reported until April of 1981. See supra note 11.

¹³ The majority asserts that because of "the most unusual circumstances of this case," specifically the government's failure to keep a record of its agreement with Harvey and the resulting confusion as to its exact parameters, it is "obliged to conclude that the traditional law pertaining to transactional and use immunity is inapposite and does not control the disposition of the government's appeal." The majority, however, does not explain why this case is any different from the legion of cases in which facts are unknown or unclear, and a factfinder is relied upon to sort out a confusing situation. Here, the magistrate found, as a matter of fact, that Harvey had been granted use and transactional immunity in 1980. I do not read the majority as holding that this finding is clearly erroneous. Therefore, I do not understand why the majority concludes that "the traditional law pertaining to transactional and use immunity is inapposite and does not control" this case.

I also perceive a weakness in one of the factual assumptions underlying the majority opinion. The majority repeatedly states that Harvey may have been misled into believing that he was immune from prosecution for future crimes and therefore, as a matter of fairness, all doubts as to the scope of the agreement should be resolved in favor of Harvey. The record in this case, however, indicates that Harvey never believed that he was immune from prosecution for future crimes. For example, at the pre-Kastigar hearing Harvey testified that during the September, 1980 meeting with the DEA agents his attorney reminded the agents of the scope of Harvey's immunity by stating that Harvey had complete immunity and there was nothing the government could "ever do about what he has done in the past." Furthermore, Harvey testified on cross-examination that he believed he had complete immunity for crimes he had committed from 1975 until 1980, but that the agreement did not "cover anything"past 1980.

Other events also suggest that Harvey never believed that the agreement extended to crimes committed after the agreement was reached. In 1983, Harvey was subpoenaed to testify at the trial of Scott Combs, who had been indicted for various drug offenses. At this point, the IRS was investigating Harvey for the tax offenses charged in this case. Harvey's attorney somehow found out about the investigation and made a written request for immunity in exchange for Harvey's testimony at Combs's trial. The letter requesting immunity states that Harvey had "certain real concerns about his possible exposure to criminal prosecution by [the IRS] if he voluntarily testifies at [the Combs] trial." Immunity was not granted and when Harvey was called to testify at Combs's trial, he asserted his fifth amendment privilege in response to any questions that could in any way be related to the tax case. Had Harvey believed that he was immune from prosecution for the tax crimes as a result of the 1980 agreement, he hardly would have perceived a need to ask for immunity and assert his fifth amendment privilege in the 1983 trial.

Regardless of what Harvey actually believed the scope of the 1980 agreement to be, I would still reverse the district court as to counts three through six of the indictment, because a defendant's belief that an immunity grant extends to future crime would be unreasonable. I have included this discussion only because I believe that the majority's attempt to portray Harvey as some sort of dupe mischaracterizes the record and considerably weakens its "fundamental fairness" argument.

 

 

[89-1 USTC ¶9266] United States of America, Plaintiff-Appellant v. Jerry Lee Harvey, Defendant-Appellee

(CA-11), U.S. Court of Appeals, 11th Circuit, 87-5051, 4/14/89 , 869 F2d 1439, Reversing and remanding an unreported District Court decision

[Code Secs. 7201 , 7203 and 7206 ]

Crimes: Fraud and false statements: Immunity from prosecution: Informal immunity agreement.--An informal agreement, whereby the government granted use and transactional immunity to a drug dealer pursuant to a 1980 narcotics investigation, did not immunize the drug dealer from subsequently being prosecuted for his failure to report the existence of a foreign bank account and the interest earned on that account in years after the grant of immunity, even though the tax violations with which the drug dealer was subsequently charged related to his 1980 taxes. The court found that, absent any factual finding to the contrary, the grant of immunity the drug dealer received was no more comprehensive than that of the Fifth Amendment privilege he gave up; the information the drug dealer revealed to government agents could not have created substantial and real hazards that would incriminate him for tax crimes he later allegedly committed; and the drug dealer's disclosure of the existence of bank accounts and funds under the informal grant of immunity did not relieve him of his independent duty to subsequently report his income accurately.

Leon B. Kellner, United States Attorney, Miami, Fla. 33130, Thomas L. Fink, Roger M. Olsen, Michael L. Paup, Robert E. Lindsay, Alan Hechtkopf, Department of Justice, Washington, D.C. 20530, for plaintiff-appellant. Leonard Alan Sands, Sands & Moskowitz, P.A., 3225 Aviation Ave., Coconut Grove, Fla. 33133, for defendant-appellee.

Before RONEY, Chief Judge, TJOFLAT, HILL, FAY, VANCE, KRAVITCH, JOHNSON, HATCHETT, ANDERSON, CLARK, EDMONSON, and COX, Circuit Judges.

KRAVITCH, Circuit Judge:

Appellee Jerry Lee Harvey disclosed his illegal activities in the drug trade to Drug Enforcement Administration agents under an unwritten informal grant of immunity in 1980. Four years later a grand jury indicted Harvey for failing to report the interest income earned on the proceeds of those drug-related activities in the years leading up to and following the 1980 grant of immunity. Harvey moved to dismiss the indictment, arguing that the 1980 informal grant of immunity protected him from prosecution. The district court, upon the recommendation of the magistrate, agreed and dismissed the indictment with prejudice. United States v. Harvey, 651 F.Supp. 894 (S.D.Fla. 1986). The government appealed the dismissal of those counts that charged violations for the years following the grant of immunity. A divided panel of this court affirmed. 848 F.2d 1547 (11th Cir. 1988). We determined to rehear this case in banc and vacated the panel opinion. 855 F.2d 1492 (11th Cir. 1988). We now REVERSE the order of the district court dismissing those counts of the indictment that relate to offenses allegedly committed after the grant of immunity to Harvey.

I. THE FACTS

On November 27, 1985 a grand jury in the Southern District of Florida returned an indictment charging Harvey with five counts of income tax evasion for the years 1978 through 1982, in violation of 26 U.S.C. §7201 , ¹ and one count of filing a false income tax return in April of 1981, a violation of 26 U.S.C. §7206(1) . ² The government alleges that Harvey kept millions of dollars derived from his lucrative drug dealings in a bank account in the Cayman Islands. In his individual income tax return for the year 1980, however, Harvey denied that he had any proprietary interest in, or authority over, any bank account outside the United States. ³ Harvey also failed to report the interest income he allegedly earned on his Cayman Islands account on his individual income tax returns for the years 1978 to 1982.

Harvey filed a motion in the district court on June 2, 1986 in which he alleged that the government had informally granted him use immunity in return for his cooperation in a drug investigation in 1980. Harvey sought a pretrial hearing to require the government to prove that the evidence it proposed to use at trial was derived from a legitimate source independent of the immunized testimony, as Kastigar v. United States, 406 U.S. 441, 92 S.Ct. 1653, 32 L.Ed.2d 212 (1972), required. The immunity agreement was never reduced to writing, but Harvey was able to point to a letter from the United States Attorney for the Southern District of Alabama acknowledging that Harvey had reached an agreement with the government in 1980.

The government denied that Harvey had been granted any immunity other than a simple agreement not to prosecute him for certain charges pending in Alabama. Because it disputed the very existence of a grant of immunity, the government objected to the holding of a Kastigar hearing as unwarranted.

Faced with this disputed claim of an unwritten grant of immunity, the magistrate did not hold a traditional Kastigar hearing, as Harvey had requested. Instead, she held a series of "pre-Kastigar " hearings in order to determine (1) whether Harvey had been granted immunity in 1980, (2) if so, what kind of immunity the government had granted, and (3) what information Harvey had revealed to the government.

The "pre-Kastigar " hearings revealed that in June of 1980 a grand jury sitting in the Southern District of Alabama had indicted Harvey and several others for the attempted importation of a large quantity of quaalude tablets. The government's case against Harvey was indefensible--"slam dunk" to use the evocative words of Harvey's lawyer at the time. Making the best of the situation, Harvey decided to cooperate with the government.

Although the United States Attorney in the Southern District of Alabama did not need any of the testimony Harvey offered, his counterpart in the Southern District of Florida did. Thus, Harvey was able to reach a three-sided agreement with the government. Although there was some dispute at the "pre-Kastigar " hearings about the specific terms of the actual bargain struck between Harvey and the government, the witnesses agreed that the United States Attorney for the Southern District of Alabama offered to dismiss the indictment pending in that district in return for Harvey's cooperation with an investigation that the United States Attorney for the Southern District of Florida was conducting. The United States Attorney for the Southern District of Florida sent several Drug Enforcement Administration ("DEA") agents to Alabama where they interviewed Harvey. Apparently Harvey met his side of the bargain, and the United States Attorney dismissed the indictment against Harvey in the Alabama Quaalude case.

The testimony differed sharply as to any further elements of the agreement. After weighing all the evidence, the magistrate found that in addition to agreeing to drop the Alabama indictment, the government had granted Harvey both transactional immunity and use immunity for any information he had revealed to the DEA officials in 1980.

Because the DEA agents who interviewed Harvey had failed to keep any records whatsoever of their conversations with Harvey, the daunting task of reconstructing what Harvey disclosed to the DEA agents in 1980 now faced the magistrate. The magistrate found that Harvey had told the agents about all of the drug deals in which he had been involved before and at the time of his arrest in 1980, and had also "divulged . . . his financial dealings with respect to his illegal drug deals." This information included the identification of the funds in the Cayman Islands bank.

Having thus determined what had happened in 1980, the magistrate turned to the 1985 tax evasion indictment. Stephen Snyder, the Justice Department's Criminal Tax Division attorney responsible for the investigation of the government's case and its presentation to the grand jury appeared at the "pre-Kastigar " hearings. Synder testified that the government had used the net worth method of proving to the grand jury that Harvey had substantially underreported his income in the prior years. ⁴ In addition, the government also introduced documents obtained from the Bank of Nova Scotia in the Cayman Islands showing payment of interest to Harvey during the years in question. ⁵ Snyder further testified that he told the grand jury that the probable source of Harvey's income was his drug-related activities.

The magistrate did not allow the government to show that it had derived the evidence it presented to the grand jury--or that it intended to introduce at trial--from legitimate independent sources. The hearing transcript, currently under seal, reveals conclusively that Snyder began to testify about the trial that led to Harvey's Cayman Islands bank account, but upon the objection of Harvey's counsel, the magistrate stopped Snyder from testifying further. The magistrate considered such information irrelevant to the "pre-Kastigar " hearing; instead, the magistrate reasoned that whether the government derived the information leading to the indictment from independent sources was properly a matter only for a true Kastigar hearing.

With the findings of fact set out, the magistrate then made a "Finding of Law" in which she concluded that the information concerning Harvey's drug activities and related financial dealings formed the basis for the tax indictment and was "inextricably tied" to the information that Harvey had revealed to the DEA agents in 1980. Even though she had refused the government the opportunity to demonstrate that the evidence against Harvey came from a source independent of the immunized testimony, the magistrate concluded that the evidence presented to the grand jury was "tainted." The magistrate further concluded that the indictment violated the grant of immunity extended to Harvey and recommended that the district court dismiss the indictment.

The district court reviewed the record de novo and agreed with the magistrate's factual finding that the government had extended both use and transactional immunity to the appellee. The district court dismissed the indictment with prejudice.

For the purposes of this appeal the government does not dispute the factual findings of the magistrate and district court that Harvey received transactional and use immunity in 1980 and that he told the DEA agents about his financial dealings, including the existence of the funds in the Cayman Islands. The government, however, vigorously disagrees with the legal conclusion that such a grant of immunity given in 1980 bars Harvey's prosecution for failure to report the existence of a foreign bank account or the interest earned on that account in years after that grant of immunity. ⁶

II. INFORMAL GRANTS OF IMMUNITY

We note at the outset that this appeal would not be necessary had the United States Attorneys for the Southern Districts of Alabama and Florida reduced their agreement with Harvey to writing. The magistrate and district court have been put through the arduous task of reconstructing the terms of the agreement with the government, a task made still more difficult by the astonishing failure of the DEA agents who interviewed Harvey to keep any written records of those interviews. Informal grants of immunity are by their very nature less certain than formal grants, and thus are much more likely to create confusion for the government and for the courts in the future. As long as prosecutors continue the practice of unwritten grants of immunity, they open the door for subsequent litigation such as this, and for adverse decisions as well.

Due process requires the government to adhere to the terms of any plea bargain or immunity agreement it makes. See Mabry v. Johnson, 467 U.S. 504, 104 S.Ct. 2543, 81 L.Ed.2d 437 (1984) (plea agreement); Santobello v. New York, 404 U.S. 257, 92 S.Ct. 495, 30 L.Ed.2d 427 (1971) (plea agreement); In re Arnett, 804 F.2d 1200 (11th Cir. 1986) (plea agreement); Rowe v. Griffin, 676 F.2d 524 (11th Cir. 1982) (immunity); United States v. Weiss, 599 F.2d 730, 737 (5th Cir. 1979) (immunity) (Tuttle, J.) ("To protect the voluntariness of a waiver of fifth amendment rights, where a plea, confession, or admission is based on a promise of a plea bargain or immunity, the government must keep its promise."). See also Plaster v. United States, 789 F.2d 289 (4th Cir. 1986) (immunity); Johnson v. Lumpkin, 769 F.2d 630 (9th Cir. 1985) (plea agreement); United States v. Carter, 454 F.2d 426, 427 (4th Cir. 1972) (in banc) (immunity) ("if the promise was made to defendant as alleged and the defendant relied upon it in incriminating himself, the government should be held to abide by its terms"). This is true because by entering into a plea agreement the defendant forgoes his important constitutional right to a jury trial, or by testifying under a grant of immunity he forgoes his fifth amendment privilege. In either case courts will enforce the agreement when the defendant or witness has fulfilled his side of the bargain.

Although federal law no longer provides for formal, statutory grants of transactional immunity, ⁷ a prosecutor may, as in this case, informally grant transactional immunity to a witness in return for his cooperation in a criminal case. Similarly, although 18 U.S.C. §§6002-6003 provide for court-supervised grants of use immunity, prosecutors may extend such immunity informally as well. Harvey did not receive a formal (statutory) grant of transactional or use immunity, yet because due process requires us to enforce the government's agreement with Harvey, we apply the same rules and method of analysis to an informal grant of use or transactional immunity as we would to a formal grant. ⁸ E.g., United States v. Quatermain, 613 F.2d 38, 41 (3d Cir.), cert. denied, 446 U.S. 954, 100 S.Ct. 2923, 64 L.Ed.2d 812 (1980). We will examine each in turn.

III. USE IMMUNITY

The first issue we address is the effect the 1980 grant of use immunity has on the current prosecution for tax evasion. This question is essentially evidentiary in nature. As we discuss below, the government may not use, either directly or derivatively, any testimony Harvey gave under the 1980 grant of use immunity against him in a subsequent related prosecution. We discuss in a separate section the analytically distinct question of whether the government may ever prosecute Harvey for tax evasion. Resolution of that question depends on the scope of the 1980 grant of transactional immunity Harvey received.

Use immunity prohibits the use of compelled testimony, or any evidence derived directly or indirectly from that testimony, against the witness in a criminal prosecution. See generally Kastigar v. United States, 406 U.S. 441, 92 S.Ct. 1653, 32 L.Ed.2d 212 (1972). In contrast to transactional immunity, use immunity does not prohibit the government from prosecuting the witness for crimes about which he testified, provided the government proves that it has other evidence to support the prosecution that "is derived from a legitimate source wholly independent of the compelled testimony." Id., 406 U.S. at 460, 92 S.Ct. at 1665. Pursuant to Title 18 U.S.C. §§6002-6003, a district court may formally grant use immunity to a witness who refuses to testify on the basis of his fifth amendment privilege, or, as here, a prosecutor may informally grant use immunity to a witness in return for his cooperation in a criminal case. When a defendant has demonstrated that he testified under a grant of use immunity, the burden shifts to the prosecution which then has "the affirmative duty to prove that the evidence it proposes to use is derived from a legitimate source wholly independent" of the testimony given under the grant of immunity. See Braswell v. United States [88-2 USTC ¶9546 ], -- U.S. --, 108 S.Ct. 2284, 2295, 101 L.Ed.2d 98 (1988); Kastigar, 406 U.S. at 460, 92 S.Ct. at 1665. See also Murphy v. Waterfront Comm'n, 378 U.S. 52, 79 n. 18, 84 S.Ct. 1594, 1609 n. 18, 12 L.Ed.2d 678 (1964).

The government contends that it derived the evidence it used to secure Harvey's indictment by the grand jury and the evidence it intended to use at trial, from an independent source. In essence, the government claims that while investigating someone else the Criminal Tax Division of the Justice Department came upon a trail of evidence that led to Harvey's bank account in the Cayman Islands.

As we noted above, the record reveals that the magistrate did not permit the government to show the independent sources of its evidence against Harvey. The magistrate recommended that the indictment be dismissed after having conducted only the "pre-Kastigar " hearing. Similarly, the district court dismissed the indictment in part because it believed that all of the government's evidence was given under the 1980 grant of immunity. Yet such a conclusion was premature without giving the government the opportunity to meet its burden under Kastigar of proving the independent source of its evidence. For the same reason, any conclusion that tainted evidence sufficient to justify dismissing the indictment was presented to the grand jury was also premature because the government may have been able to demonstrate that the evidence was not tainted at all.

IV. TRANSACTIONAL IMMUNITY

A.

The more difficult issue in this appeal is whether the transactional immunity Harvey received in 1980 prohibits the government from prosecuting him for tax violations committed after that grant of immunity. We conclude that it does not.

Transactional immunity "accords full immunity from prosecution for the offense to which the compelled testimony relates." Kastigar v. United States, 406 U.S. 441, 453, 92 S.Ct. 1653, 1661, 32 L.Ed.2d 212 (1972). ⁹ The purpose of a grant of transactional (or use) immunity is to preclude a witness's reliance on his fifth amendment privilege against compelled self-incrimination: the government may compel a witness to testify by granting him immunity, provided that the scope of the immunity is at least as great as that of the fifth amendment privilege that the witness must forego. See Kastigar v. United States, 406 U.S. at 449, 92 S.Ct. at 1659; Counselman v. Hitchcock, 142 U.S. 547, 564, 586-87, 12 S.Ct. 195, 198, 206, 35 L.Ed 110 (1982). As such, in deciding the scope of a grant of immunity the Supreme Court traditionally has referred to the scope of the fifth amendment privilege itself.

For example, in Heike v. United States, 227 U.S. 131, 33 S.Ct. 226, 57 L.Ed. 450 (1913) (Holmes, J.), the Court refused to construe broadly a transactional immunity statute that provided that "no person shall be prosecuted or be subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he may testify or produce evidence, documentary or otherwise, in any proceeding, suit, or prosecution under [the interstate commerce and anti-trust acts]." Heike, 227 U.S. at 141, 33 S.Ct. at 227 (quoting Act of February 25, 19 05, ch. 755, 32 Stat. 904). The Court saw "no reason for supposing that the act offered a gratuity to crime." Id. at 142, 33 S.Ct. at 228. Instead, the Court reasoned that a grant of immunity "should be construed, so far as its words fairly allow the construction, as coterminous with what otherwise would have been the privilege of the person concerned." Id., 33 S.Ct. at 228. See also Shapiro v. United States, 335 U.S. 1, 19, 68 S.Ct. 1375, 1385, 92 L.Ed. 1787 (1948) (following rule of construction of Heike ). More recently, in Kastigar, the Court upheld the constitutionality of 18 U.S.C. §6002 on the ground that use immunity "is coextensive with the scope of the privilege against self-incrimination, and therefore is sufficient to compel testimony over a claim of the privilege." 406 U.S. at 453, 92 S.Ct. at 1661.

The Court noted in Kastigar that transactional immunity is broader than the fifth amendment privilege because it provides for full immunity from future prosecution, while the fifth amendment privilege "has never been construed to mean that one who invokes it cannot subsequently be prosecuted." Id. Yet the Court has never indicated that transactional immunity is in any other respect broader than the fifth amendment privilege. Thus, transactional immunity and use immunity are coterminous with the fifth amendment privilege in all respects other than their effect on the government in the future. A grant of use immunity prohibits the government from using evidence disclosed either directly or derivatively, while a grant of transactional immunity prohibits the government from prosecuting the witness at any time with respect to the incriminating matters the witness disclosed.

Although Kastigar and Heike were cases in which the witness refused to testify, and thus the Court had to look to the scope of the fifth amendment privilege in order to determine whether the proffered immunity sufficed to displace that privilege, we believe the same principles apply to the case before us now. The magistrate found as a fact, and the district court affirmed her finding, that the government extended use and transactional immunity to Harvey in return for his cooperation, i.e., his testimony. Absent any factual finding to the contrary, we believe it proper to conclude that this grant of immunity was fully as broad as the fifth amendment privilege that Harvey gave up when he disclosed his illegal activities to the DEA agents. By the same token, we believe that--absent any contrary factual finding--we should not conclude that the scope of the immunity Harvey received was any greater than that of the fifth amendment privilege he gave up. ¹⁰ Thus, Harvey received transactional and use immunity for any testimony as to which he could have invoked his fifth amendment privilege in September of 1980.

With this in mind, we turn now to the issue of when may a witness invoke his fifth amendment privilege with respect to a crime he has not yet committed.

B.

In general, the privilege against self-incrimination only prohibits compelled testimony that might incriminate a witness for crimes he had already committed, or was in the process of committing, at the time the testimony was given. See Counselman, 142 U.S. at 562, 12 S.Ct. 198 (purpose of privilege is "to ensure that a person should not be compelled, when acting as a witness in any investigation, to give testimony which might tend to show that he himself had committed a crime") (emphasis added); United States v. Quatermain, 613 F.2d 38, 42 (3d Cir.), cert. denied, 446 U.S. 954, 100 S.Ct. 2923, 64 L.Ed.2d 812 (1980). Twenty years ago, however, the Supreme Court rejected a rigid chronological test under the fifth amendment privilege, focusing instead on the substantiality of the risk the witness faced.

In Marchetti v. United States [68-1 USTC ¶15,800 ], 390 U.S. 39, 88 S.Ct. 697, 19 L.Ed.2d 889 (1968) the Supreme Court held that the fifth amendment privilege was not entirely inapplicable to prospective acts. The petitioner in Marchetti was convicted of violating provisions of a statute that required professional gamblers to register annually with the Internal Revenue Service and pay an occupational tax. The Court, overruling a prior case that had upheld the very same statute, United States v. Kahriger [53-1 USTC ¶9245 ], 345 U.S. 22, 73 S.Ct. 510, 97 L.Ed. 754 (1953), held that the petitioner's assertion of his fifth amendment privilege in refusing to comply with the statute provided a complete defense to his prosecution for failing to register and pay the occupational tax. ¹¹

Marchetti explicitly rejected the notion that the fifth amendment privilege offers protection only as to past and present acts. Id. 390 U.S. at 53, 88 S.Ct. at 705. Instead, the Court emphasized that "[t]he central standard for the privilege's application has been whether the claimant is confronted by substantial and 'real,' and not merely trifling or imaginary, hazards of incrimination." Id., 88 S.Ct. at 705. Relying on this standard, the Court held that the hazards of incrimination created by the registration and occupational tax provisions as to future acts were not "trifling or imaginary" because prospective registrants could reasonably expect that compliance with these provisions "may serve as decisive evidence that they have in fact subsequently violated state gambling prohibitions." Id., 88 S.Ct. at 706.

Although application of this standard proved favorable to the petitioner in Marchetti, the Court stressed that this would not usually be the case, as prospective acts "will doubtless ordinarily involve only speculative and insubstantial risks of incrimination." Id. at 54, 88 S.Ct. 705. Thus, although Marchetti created an exception to the general rule that the fifth amendment privilege applies only to past and present criminal acts, the exception is a very narrow one.

In United States v. Freed, 401 U.S. 601, 91 S.Ct. 1112, 28 L.Ed.2d 356 (1971), the Court emphasized the narrowness of the fifth amendment privilege's application to future conduct. In Freed, the Court rejected the argument that a registration requirement of the National Firearms Act violated the fifth amendment because the information disclosed could be used in connection with offenses that the transferee of the firearm might commit in the future. In so doing the Court stated:

Appellee's argument assumes the existence of a periphery of the Self-Incrimination Clause which protects a person against incrimination not only against past or present transgressions but which supplies insulation for a career of crime about to be launched. We cannot give the Self-Incrimination Clause such an expansive interpretation.

Id. at 606-07, 91 S.Ct. at 1117. Thus, Marchetti and Freed teach that the focus of inquiry under the fifth amendment is whether the witness faces a substantial risk of incrimination. When the witness has not yet committed the crime, or is not in the process of committing it, his risk of incrimination is generally so speculative as to remove him from the aegis of the fifth amendment privilege.

Lower court opinions also make clear that the fifth amendment privilege rarely will apply to future conduct. For example, in United States v. Quatermain, 613 F.2d 38, 42-43 (3d Cir.), cert. denied, 446 U.S. 954, 100 S.Ct. 2923, 64 L.Ed.2d 812 (1980), the court noted that Marchetti did not support the defendant's argument that the fifth amendment privilege applies to a witness who refuses to testify because he asserts that his testimony somehow may be used to incriminate him in a prosecution for a different type of criminal act that he may commit in the future. Accordingly, the court held that the defendant's testimony under an informal grant of use immunity about his involvement in a drug ring did not prevent the government from indicting him for subsequently manufacturing a gun silencer, even though the district court found that the defendant's immunized testimony had helped lead to the indictment on the gun charge. See also United States v. Gallo, 859 F.2d 1078, 1088 (2d Cir.1988) (Van Graafeiland, J., concurring) ("Licensing and taxing statutes aside, the only hazards of incrimination that are likely to be considered substantial and real are those which relate to existing or past misdeed or a continuing course of criminal activity.").

C.

 

When we apply these principles to the case at hand, we see that the information Harvey revealed to the DEA agents in September of 1980 could not have created substantial and real hazards that it would incriminate him for tax crimes he later allegedly committed in April of 1981, 1982 and 1983. Counts three through five of the indictment charged Harvey with evasion of income taxes for the years 1980, 1981, and 1982, offenses that could not have occurred until April of 1981, 1982, and 1983, when Harvey filed his tax returns for the preceding years. ¹² Furthermore, the crime of willfully filing a false tax return for income earned in 1980, as charged in count six of the indictment, could not have occurred until April of 1981 when Harvey filed the allegedly fraudulent return. ¹³ Thus, although the crimes charged in counts three and six of the indictment related to Harvey's 1980 taxes, the immunity granted in 1980 did not apply to these crimes, because they did not occur until April of 1981, well after immunity was granted.

According to his testimony at the pre-Kastigar hearing, Harvey had revealed to the DEA agents that he had deposited millions of dollars, earned through illegal drug transactions, into his accounts at the Nova Scotia Bank in the Cayman Islands. He also told the agents how he set up corporations in the Cayman Islands to launder drug money. In September of 1980, the defendant could not have had "substantial and real" fears that this information would incriminate him for evasion of taxes on interest income that either was not yet required to be reported or had not yet been earned, or for filing a false income tax return that was not due for months to come. ¹⁴ Harvey could not have asserted his fifth amendment privilege with respect to these matters, therefore they are outside the scope of the immunity he received in 1980.

Put another way, each failure to report income and each failure to disclose the Cayman Islands account was a separate transaction, in the eyes of the law separable from the transactions for which Harvey received immunity. Harvey had a right by contract to receive the interest income on his money, a right he presumably could have enforced in a Cayman Islands court. Similarly, each year Harvey's failure to report the interest on the foreign account was a separate transaction. The duty to report the existence of the foreign bank account in April of 1981, was a separate transaction, unrelated to what had gone before. The mere fact that Harvey failed to disclose funds the existence of which he had disclosed under a grant of immunity does not alter the independent duty Harvey had to report his income accurately.

We must reject Harvey's argument that the 1980 grant of transactional authority somehow shielded the Cayman Islands funds themselves from the reach of the tax laws. ¹⁵ There is no such thing as in rem immunity. Harvey became immune from prosecution for those transactions about which he testified, but the money he disclosed did not somehow partake of this immunity. The grant of transactional immunity the government extended to Harvey in 1980 does not prohibit prosecution for tax violations he allegedly committed in the years following that grant of immunity.

V. CONCLUSION

 

For the reasons we have stated above, we REVERSE the decision of the district court and REMAND for proceedings consistent with this opinion.

¹ Title 26 U.S.C. §7201 provides in part as follows:

Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined . . ., or imprisoned not more than 5 years, or both, together with the costs of prosecution.

The fine for a violation of section 7201 committed before September 3, 1982 is an amount not more than $10,000. For violations committed after that date, Congress has increased the potential penalty to not more than $100,000. Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, §329, 96 Stat. 324, 617-18 (1982).

² Title 26 U.S.C. §7206(1) provides in part:

Any person who--

(1) DECLARATION UNDER PENALTIES OF PERJURY.--Willfully makes and subscribes any return statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or

* * *

shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation) or imprisoned not more than 3 years, or both, together with the costs of prosecution.

As for violations of section 7201 , the fine for a violation of section 7206(1) is an amount not more than $10,000 for violations committed before September 3, 1982 , $100,000 if committed after that date. Tax Equity and Fiscal Responsibility Act of 1982, Pub.L. No. 97-248, §329, 96 Stat. 324, 617-18 (1982).

³ Harvey answered "no" to the following question: "At any time during the tax year, did you have an interest in or a signature or other authority over a financial account in a foreign country (such as a bank account, or other financial account)?" See U.S. Individual Income Tax Return 1980 (Form 1040), Schedule B, Part III (Foreign Accounts and Foreign Trusts). See also 31 C.F.R. §§103.24, 103.26(c) (1980) and form TD-F 90-22.1 (requiring each person subject to U.S. jurisdiction to report any interest in a bank account in a foreign country).

⁴ Under the net worth method the government establishes the taxpayer's total assets and liabilities at the beginning of the year and compares them with the taxpayer's assets and liabilities at the end of the year. If the excess of assets over liabilities increases during the year the increase is taxable unless the taxpayer can show that the increase represents nontaxable income. See, e.g., Holland v. United States [54-2 USTC ¶9714 ], 348 U.S. 121, 75 S.Ct. 127, 99 L.Ed. 150 (1954) (approving net worth method of reconstructing taxable income under predecessor of current Internal Revenue Code section 446 ).

⁵ In a separate motion before the district court Harvey sought to have the court exclude these documents which the government had obtained through the "United Kingdom-United States: Agreement Concerning Obtaining Evidence From Cayman Islands With Regard to Narcotics Activities." The gravamen of Harvey's argument is that the United States may obtain evidence from the Cayman Islands under the agreement only when it does so as part of an investigation for narcotics violations. Because the government was investigating him solely for tax evasion, Harvey argues that it could not invoke the provisions of the agreement (even though the corpus of the money was derived from narcotics activity). The district court dismissed the indictment against Harvey before addressing this question; therefore, because this question is not now before us, we do not address it, nor do we address Harvey's standing to raise it.

During oral argument Harvey also suggested that the government must have used the testimony he gave under immunity when it certified to the government of the Cayman Islands--as it had to in order to obtain documentary evidence under the terms of the agreement--that Harvey was involved in narcotics activity. Because we conclude that the government is entitled to prove that it derived the evidence against Harvey from sources independent of the immunized testimony, we need not address this.

⁶ Thus, the government at least implicitly has come to recognize that the 1980 immunity agreement bars any prosecution for tax evasion allegedly committed before September of 1980 (the date of the immunity agreement), or any other legal action, such as forfeiture, that might arise from violations that allegedly took place before the immunity agreement. Harvey got a fresh start in 1980, including his Cayman Islands money.

⁷ As a part of the Organized Crime Control Act of 1970 Congress added the current scheme for statutory grants of use immunity, currently codified at 18 U.S.C. §§6001 -6005, and repealed several other immunity statutes, including transactional immunity provisions, that had been scattered throughout the United States Code. Pub.L. No. 91-452, §§201-260. 84 Stat. 922 (1970).

⁸ We note that the government has not alleged that Harvey in some way failed to meet his end of the bargain. Therefore, our task is simply to enforce the agreement with Harvey.

⁹ Transactional immunity statutes typically provided that "no person shall be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter or thing, concerning which he may testify, or produce evidence, documentary or otherwise . . ." Kastigar v. United States, 406 U.S. 441, 451, 92 S.Ct. 1653, 1660, 32 L.Ed.2d 212 (1972) (quoting from Compulsory Testimony Act of 1893, which served as a model for numerous federal immunity statutes).

¹⁰ We note that neither the magistrate nor the district court found that the plea agreement included anything other than the dismissal of the Alabama indictment and the grant of use and transactional immunity. Nor does Harvey suggest during this appeal that this agreement involved anything more. Thus, we are working solely with the familiar categories of transactional and use immunity, and do not face any different "species" of immunity--e.g., an express agreement not to prosecute for future tax violations with respect to the Cayman Islands funds.

¹¹ Marchetti also overruled Lewis v. United States [55-1 USTC ¶49,100 ], 348 U.S. 419, 75 S.Ct. 415, 99 L.Ed. 475 (1955), which had held that the wagering tax provisions did not violate the fifth amendment privilege because they were not compulsory. According to the Lewis Court, "[t]he only compulsion under the Act is that requiring the decision which would-be gamblers must make at the threshold. They may have to give up gambling, but there is no constitutional right to gamble. If they elect to wager, though it be unlawful, they must pay the tax." 348 U.S. at 422-23, 75 S.Ct. at 418.

¹² See Sansone v. United States [65-1 USTC ¶9307 ], 380 U.S. 343, 351, 85 S.Ct. 1004, 1010, 13 L.Ed.2d 882 (1965) (violation of 26 U.S.C. §7201 does not occur until the defendant commits an affirmative act constituting an evasion or attempted evasion of the tax).

¹³ See United States v. Bishop [73-1 USTC ¶9459 ], 412 U.S. 346, 357-58, 93 S.Ct. 2008, 2016, 36 L.Ed.2d 941 (1973).

¹⁴ Even if Harvey was certain that he intended to conceal the existence of the Cayman Islands money and the interest earned there from his future tax returns, that would not suffice to make the threat of future prosecution "real and substantial." A witness may not say under a grant of immunity, "I am an inveterate tax cheat," and later claim immunity from any future tax violations. The law will not deem his risk of incrimination substantial because the law expects him to be honest in the future.

¹⁵ Whether Harvey himself reasonably believed this is a matter for the jury, which under 26 U.S.C. §§7201 and 7206(1) must find that he wilfully violated the reporting requirements of the tax code. See supra, notes 1 & 2. We need not address the reasonableness of Harvey's belief.

Dissenting Opinion

 

CLARK, Circuit Judge

The majority has written a well reasoned opinion on the scope of formal statutory immunity. Insofar as the court holds that under a formal grant of immunity, an individual is shielded from prosecution only to the extent of his Fifth Amendment privilege, I believe it correctly states the law. Unfortunately, this case does not involve formal statutory immunity. Instead, this case involves an agreement between the defendant and the prosecutor in which the prosecutor agreed not to prosecute the defendant in return for his cooperation. Not only does the majority fail to recognize the fundamental difference between the two forms of immunity, it assumes that the same rules apply to formal and informal immunity. Since the same principles do not apply, I dissent. To understand why the analysis of the majority is erroneous, it is necessary to understand the various forms of "immunity." Only with that understanding it is possible to apply the correct analysis to the case at hand.

I

 

In two key sections, the majority states that the same rules apply to formal and informal immunity. Supra slip op. at 2033-2035, at --, --. Specifically the majority holds that the scope of any grant of immunity is defined by the Fifth Amendment. Before explaining this error, it is necessary to understand the difference between transactional and use immunity as well as the difference between formal and informal immunity. Transactional immunity "accords full immunity from prosecution for the offense to which the compelled testimony relates." Kastigar v. United States, 406 U.S. 441, 453, 92 S.Ct. 1653, 1661, 32 L.Ed.2d 212 (1972). Use immunity, on the other hand, is more limited; it protects the individual from prosecution through the use of the immunized testimony or evidence derived from that testimony. Therefore, while transactional immunity prohibits any future prosecution, use immunity only limits the government's manner of proof in a subsequent prosecution. This distinction is significant in this case because the magistrate found that the government granted Harvey "transactional immunity" or full immunity from prosecution. As the majority correctly states, the issue in this case is the scope of that "transactional immunity." The majority holds that the scope is coextensive with the Fifth Amendment privilege. To understand why the majority is incorrect, it is necessary to understand the distinction between formal and informal immunity. Because the two forms of immunity come from different sources, the scope of each type of immunity differs.

Formal or statutory immunity is set out in 18 U.S.C. §6001 et seq. Immunity is granted by a court upon the U.S. Attorney's request when a witness refuses to testify before a grand jury or at trial based on his Fifth Amendment privilege against self-incrimination. 18 U.S.C. §6003(a). The statute authorizes the granting of "use" and derivative use immunity. 18 U.S.C. §6002. Several points are noteworthy. First, a United States Attorney does not have the power to grant formal immunity. Instead, he must first subpoena a witness and if the witness invokes the Fifth Amendment privilege, the prosecutor must obtain approval by the Attorney General or Deputy Attorney General and then request the court to order the witness to testify. 18 U.S.C. §6003. ¹ Second, the statute only authorizes use immunity, not transactional immunity. Third, since formal immunity is granted to overcome a witness' invocation of the Fifth Amendment, the Supreme Court has held that the scope of the immunity granted must be as broad as the privilege. Kastigar, 406 U.S. at 450, 92 S.Ct. at 1659.

Due to the cumbersome requirements of obtaining properly authorized statutory immunity, U.S. Attorneys often make informal agreements with individuals in return for their cooperation. See United States v. Quatermain, 613 F.2d 38, 45 (3d Cir.) (Aldisert, J., dissenting), cert. denied, 446 U.S. 954, 100 S.Ct. 2923, 64 L.Ed.2d 812 (1980). The agreements are perfectly analogous to plea agreements: an individual with valuable information bargains with the prosecutor with respect to pending charges in return for that individual's cooperation. A usual condition of cooperation is that the individual not be subject to prosecution for any of the information he provides. See id. A prosecutor's power to grant informal immunity derives from his inherent discretion over prosecuting cases; just as a prosecutor has the discretion to plea bargain, he has the discretion to grant an individual immunity from prosecution. We have held that "due process requires the prosecutor's promise to be fulfilled." Rowe v. Griffin, 676 F.2d 524, 528 (11th Cir.1982); see also Plaster v. United States, 789 F.2d 289, 293 (4th Cir.1986); United States v. Fountain, 776 F.2d 878, 882 (10th Cir.1985); United States v. Carter, 454 F.2d 426, 428 (4th Cir.1972).

This practice has been dubbed "informal immunity," "hip pocket immunity," see Quatermain, 613 F.2d at 45, or "equitable immunity." Rowe, 676 F.2d at 526. Additionally, since the prosecutor often agrees not to prosecute at all, these agreements are sometimes carelessly labeled "transactional immunity." See Rowe, 676 F.2d at 526 (since prosecutor promised Rowe there would be no subsequent prosecution, court stated he was offered "transactional immunity"). All these terms are unfortunate misnomers because they lead to confusion with formal statutory immunity. Such confusion ignores the fact that the two types of immunity derive from totally different sources and that the source of the immunity determines the scope of a specific grant of immunity. For example, 18 U.S.C. §6002 only authorizes use immunity. More importantly, because statutory immunity is granted to avoid reliance on the Fifth Amendment privilege, the scope of immunity must be coextensive with the Fifth Amendment privilege. The Fifth Amendment only protects an individual against divulging information about future conduct if he faced a substantial risk of incrimination as to those events at the time. See United States v. Freed, 401 U.S. 601, 603, 91 S.Ct. 1112, 1115, 28 L.Ed.2d 356 (1971) (firearm registration requirement did not violate Fifth Amendment); Marchetti v. United States [68-1 USTC ¶15,800 ], 390 U.S. 39, 53, 88 S.Ct. 697, 705, 19 L.Ed.2d 889 (1968) (tax registration requirements violated fifth amendment because registrants could expect provisions to serve as evidence of violation of gambling laws). It therefore follows that under a formal grant of immunity, a witness is only immunized with respect to conduct if he faced a substantial risk of incrimination as to those events when he testified.

In cases of informal immunity, however, the scope of the immunity is not limited by the Fifth Amendment. As Judge Fay has pointed out,

under the self-incrimination clause of the fifth amendment, evidence of guilt induced by a government promise of immunity is 'coerced' evidence and may not be used against the accused. For purposes of compelling testimony which otherwise would be privileged by the fifth amendment, all that is constitutionally required is a grant of use immunity. However, in order to secure testimony, evidence or other cooperation from a potential criminal defendant, a prosecutor may see fit to promise complete immunity from prosecution.

Rowe, 676 F.2d at 527 (emphasis added). Rowe holds that the government must offer at least use immunity when an individual is induced to cooperate, but that there is no limit to what the defendant can demand in return for his cooperation. See Quatermain, 613 F.2d at 45 (Aldisert, J., dissenting) ("[T]he United States Attorney is at liberty to impose conditions that usually relate to testifying or providing certain information. For his part the . . . informant often imposes conditions of his own, usually relating to agreements not to prosecute but often covering other matters as well[.]"). If the potential informant demands too much, the government may decide that the information is not worth the price or the government can always subpoena the potential informant to testify before a grand jury or at the trial thereby ensuring that the informant is only granted use immunity. This discussion illustrates that the scope of an informal grant of immunity depends on the bargain struck.

The majority therefore is incorrect to assume the same principles apply to determining the scope of formal and informal immunity. In determining that the Fifth Amendment defines the scope of a grant of informal immunity, the majority ignores the cited quotation from Rowe. The only case the majority cites as support for its conclusion is United States v. Quatermain, 613 F.2d 38 (3d Cir.1984). Unfortunately, in Quatermain, the court specifically held that the informant was granted "the minimum immunity required by the Constitution"--that is, use immunity. Id. at 48. Therefore, the fact that the agreement provides use immunity made the Fifth Amendment case law relevant, not the fact that it was an informal grant of immunity.

Rowe provides the appropriate analysis to apply in cases of informal immunity. In Rowe, the court considered a prosecutor's agreement not to prosecute a Ku Klux Klan informant in return for the information he provided the state concerning a murder during the Selma to Montgomery Civil Rights March. 676 F.2d at 525. ² The court held that such an agreement must be enforced when the defendant proves that an agreement was made, that he performed his side and that the prosecution was directly related to the assistance the defendant had given. The court specifically analogized to the case law on plea agreements and held that "as a matter of fair conduct, the government [must] honor such an agreement[.]" Id. at 527.

It follows then that the case law concerning the interpretation of plea agreements is relevant to the interpretation of this type of an agreement made by the prosecutor. See id. at 528 ("this contractual analysis applies equally well to promises of immunity from prosecution"). This court interprets a plea agreement consistently with what the defendant reasonably understood when he entered the plea. In re Arnett, 804 F.2d 1200, 1201-02 (11th Cir.1986). The court first determines whether the written agreement is ambiguous on its face. If the agreement is unambiguous and there is no allegation of government overreaching, the court will enforce the agreement according to its plain words. United States v. (Michael) Harvey, 791 F.2d 294, 300 (4th Cir.1986). If the agreement is ambiguous, the ambiguity "should be resolved in favor of the criminal defendant." Rowe, 676 F.2d at 526 n. 4 (ambiguity over whether Attorney General's promise bound future Attorney General was resolved in favor of the defendant); see In re Arnett, 804 F.2d at 1203 (government breached the agreement when it sought forfeiture of defendant's farm since written agreement ambiguous as to whether government would seek forfeiture of property and government could not satisfy heavy burden of proving defendant understood government reserved right to seek property forfeiture): United States v. (Michael) Harvey, 791 F.2d at 301 (imprecision in terms of written agreement construed against the government).

II

 

In this case, Harvey was not granted formal statutory immunity. He was never called to testify and never invoked his Fifth Amendment privilege. If he had been granted statutory immunity, a discussion of the scope of Harvey's Fifth Amendment privilege would be relevant. Instead, Harvey bargained with the government. In return for the information he provided, the government agreed to drop the charges against him in Mobile and agreed not to prosecute him for any crimes related to the information he gave. There is no doubt that Harvey entered an agreement with the government and that he performed his side. The crux of this case, therefore, depends on an interpretation of the agreement not to prosecute.

The magistrate reconstructed the agreement and found that Harvey had been granted both "transactional" and "use" immunity for the information he provided. The magistrate also determined that Harvey had told the government about the Cayman Islands funds. The majority apparently takes comfort from this finding, stating "we are working solely with the familiar categories of transactional and use immunity, and do not face any different 'species' of immunity--e.g., an express agreement not to prosecute for future tax violations with respect to the Cayman Islands." Supra slip op. at 2035 n. 10, at -- n. 10. Indeed as I read the majority opinion, its holding that Harvey's immunity is only as broad as the fifth amendment is explicitly dependent on this factual finding. See supra slip op. at 2035 at -- ("By the same token, we believe that--absent any contrary factual finding--we should not conclude that the scope of the immunity Harvey received was any greater than that of the fifth amendment privilege he gave up.") I find this statement incomprehensible since the only "species of immunity" the prosecutor was authorized to grant was an agreement not to prosecute. Additionally, the magistrate's use of the terms "transactional" and "use" immunity should not be given such great weight since the term "transactional" immunity has been used by this court to describe an agreement not to prosecute. See Rowe, 676 F.2d at 526; Quatermain, 613 F.2d at 44 (Aldisert, J., dissenting) (although the district court phrased its discussion in terms of transactional and use immunity, analyzing it as an agreement not to prosecute leads to the same result). Furthermore, it is clear from the magistrate's opinion that although she used the terms "transactional" and "use" immunity, she understood the critical distinction between formal and informal immunity. In rejecting the government's argument that it had no power to grant "transactional" immunity, the magistrate held

what the government confuses with respect to immunity is the court's power under 18 U.S.C. 6001 et seq. to force an unwilling defendant to testify versus the government's virtually unbridled discretion to plea bargain with any defendant as to terms offered by the government. With respect to §6001 immunity, the court can compel a defendant to testify, but can only grant him use and not transactional immunity. On the other hand, the executive branch can grant transactional immunity in the form of a bargain and does not need the blessing of the court to do so.

Record, Vol. 3, Tab 72 at 22. Indeed, the magistrate applied the principles applicable to plea agreements to what she described "transactional" immunity. Therefore, despite the majority's wishful thinking, we are dealing with an agreement not to prosecute.

In this case, the government never wrote down the terms of the agreement. Additionally, there is no record of the information Harvey provided. Clearly the written terms of the agreement would be the starting place for determining the scope of immunity Harvey was granted. Due to the government's gross negligence, however, we are forced to reconstruct the terms of the agreement. ³ In order to do so, the court must look to the testimony of those involved in negotiating the agreement to determine what Harvey believed the agreement provided and whether Harvey's expectations were reasonable.

Jerry Harvey testified that the government "agreed nothing I ever give [sic] them would be used against me, nor would any U.S. Attorney's Office seek to prosecute me for anything; that I was just getting a clean walk, and I should stay on the Government's side and help them." Record Vol. 3, Tab 72 at 14. Harvey's attorney, Tom Haas, testified that "the understanding I had with [the government] was that nothing that Jerry Harvey said to them, or any agent on the Government would ever at any time be used against Jerry Harvey." Id. slip op. at 2030-2031, at -- - --. This testimony supports Harvey's argument that he believed he was immune from any prosecution related to the information he gave. Significantly, no testimony by either of the prosecutors involved in the negotiations rebutted Harvey's broad interpretation of the agreement. In response to a question by the court, the U.S. Attorney for the Southern District of Alabama, William Kimbrough, testified that Harvey was given use immunity but that he did not know whether or not be was given transactional immunity. Finally, the prosecutor most intimately involved with the agreement, Patrick Sullivan, an Assistant U.S. Attorney in the Southern District of Florida had no recollection of any involvement with Jerry Lee Harvey. ⁴ He could not remember speaking to the Mobile U.S. Attorney's office or having any negotiations with Harvey.

The court must interpret an agreement consistently with the defendant's reasonable interpretation of the agreement. In this case, the government has failed to offer any evidence to disbelieve Harvey's view of the agreement. Instead, the government argues that it was unreasonable for Harvey to believe that the agreement would shield him from prosecution for future tax violation relating to the Cayman Islands funds. I do not agree. It is not at all clear that a lay citizen would understand that a government's agreement not to prosecute for anything related to the Cayman Islands funds would not preclude prosecution for failure to declare interest from those funds. In addition, since we have no record of the agreement we have no way of knowing what the government officials represented to Harvey as the terms of the agreement. In the absence of some evidence that Harvey knew the agreement would not cover these crimes, ⁵ I cannot accept the government's position. See (Michael) Harvey, 791 F.2d at 300 (due process requires holding government to a greater degree of responsibility for ambiguity in plea agreement than defendant). Futhermore, to the extent that the government's argument is based on the belief the government had no authority to enter the agreement as Harvey perceived it because it granted immunity for future crimes, it is not persuasive. First, it is not apparent that Harvey would know that the government did not have the power to enter the agreement as he perceived it. Second, that argument ignores the possibility that the government may have lead Harvey to believe (or at least contributed to his misunderstanding) that the agreement offered such immunity. Finally, this court has never refused to enforce a plea agreement just because the government made a bad deal.

I would therefore hold that the government agreed that it would not prosecute Harvey with respect to the Cayman Islands funds and that Harvey believed that he would not be prosecuted for failing to report the interest on the Cayman Islands funds. This does not mean that Harvey was immunized from declaring the interest. Quite the contrary, I believe that Harvey was required to pay taxes on the interest and that the government may collect those back taxes. It may not, however, criminally prosecute Harvey for failing to report his interest. I also do not believe that the agreement forever insulates Harvey from criminal prosecution for failing to report his taxes. Because the government failed to provide any evidence to disbelieve Harvey's view of the agreement, it is apparent that the indictment entered against Harvey on November 25, 1985 for the first time put Harvey on notice that his understanding of the agreement conflicted with the government's view. After that point, it became unreasonable for Harvey to believe the agreement provided such broad immunity.

III

 

In conclusion I wish to emphasize that this case presents unique facts and concerns which fortunately are of infrequent occurrence. The concern of the majority is that my view provides carte blanche authority to U.S. Attorneys to enter into plea agreements that will insulate criminals from liability for future criminal conduct. That concern has many answers, the chief of which is that U.S. Attorneys are responsible persons who do not conduct themselves as apprehended by the majority. I have tried to make clear that the holding is limited to the facts of this case. In this case, it was not unreasonable for Harvey to believe that the agreement covered the future tax consequences from the information he provided. Indeed, I have attached as an appendix excerpts from the testimony before the magistrate which show that the government may have interpreted the agreement to cover even more than this. I have also made clear that once Harvey was put on notice by the government that he was required to include income from the Cayman Island bank accounts on his income tax returns, he no longer could consider himself immune from prosecution for failure to report the income. Due process of law in the context of this case requires that Harvey be provided advance notice of the government's interpretation of the agreement, especially if the government's interpretation changed.

The majority contorts this simple case concerning an agreement not to prosecute into a use or transactional immunity case and then relies on irrelevant Fifth Amendment case authority. Here the same government that promised Harvey in a bona fide agreement that it would not seek to jail him based on information furnished in 1980 now seeks to breach that agreement. It must be remembered that the district court found: "that tainted evidence, evidence for which the defendant received both use and transactional immunity, was presented before the grand jury which returned the [tax evasion] indictment against him."

The majority fears that if the government is required to abide by its contract, a pandora's box will be opened where federal prosecutors will immunize criminals from being prosecuted for future crimes. That is obviously unreal. As I have explained, this case is an aberration. U.S. Attorneys seldom make oral agreements like this. We can have confidence that U.S. Attorneys will not abuse the informal method of granting immunity and presumably such agreements will be reduced to writing.

Harvey's due process rights not to be prosecuted pursuant to the government's agreement are violated by the majority's reversal of the district court's dismissal of the tainted indictment.

APPENDIX

 

The following are excerpts from the magistrate's report. (Record, Vol. 3, Tab 72).

Tom Haas [Harvey's attorney] and William Kimbrough, who was at the time of the agreement the U.S. Attorney in the Southern District of Alabama, testified the deal negotiated with Harvey was that Harvey would not be prosecuted for anything about which he told the Government nor would anything he said be used against him.

* * *

 

Q. by Leonard Sands

A. by Tom Haas

Q. What was the bargain that was ultimately struck with the two of them?

A. Once it had been understood that he might be able to supply these things, the understanding I had with Ruddy and Billy was that nothing that Jerry Harvey said to them, or any agent on the Government would ever at any time be used against Jerry Harvey.

Q. And what does that mean, "would ever be used against Jerry Harvey?

A. That he wouldn't be prosecuted on the basis of what they found out from him.

Q. What instructions or advice did you give Jerry Harvey prior to his attending this meeting at the Sheraton?

A. Well, I told him just what I just said, and I remember that Jerry was very skeptical about that. He didn't seem to trust anybody, and maybe he didn't trust me either. Really, he didn't know me; anything about me. I was a small town lawyer in a small town to him, and I don't recall who had referred him to me. I usually try to find that out, particularly in drug cases, because I don't want to get in a situation where I am getting paid by somebody else.

I know that he was skeptical. I know he didn't trust anybody, and I had to literally force him to comply. I said, "I know these people, U.S. Attorney, and Assistant U.S. Attorney." I said, "I would stake my life on their honor and veracity."

* * *

 

Mr. Sands asked Mr. Kimbrough:

Q. In return for Harvey's furnishing information, what was he to receive?

A. I was to dismiss the indictment against him.

Q. Do you know whether or not any--

A. And I would not prosecute him for anything he said; and I would not use anything he said as a means of going beyond this agreement to try to stir up trouble for Harvey.

Q. At that time as United States Attorney, you were speaking for yourself, and Southern District of Florida?

A. I can't say that. It was certainly my understanding that somebody had touched base with South Florida who wanted the information, and I assumed, and I continued to assume that nobody would have--

I certainly would not have asked Mr. Harvey to make a total disclosure had I thought that in doing so, I, you know, turned him loose to prosecution in some other district. I have no personal knowledge of that. That is all I am saying. That is not the way we operated, I assure you. We tried to treat everybody as human beings, although we tried to put some of them in the penitentiary.

* * *

 

THE COURT: I need to interrupt you, Mr. Sands. Mr. Kimbrough, you made the statement that you would not have prosecuted him for anything he told you about.

Now, there are all different kinds of immunities, and we have been discussing that. We have been discussing transactional immunity versus use immunity.

If in telling you about all drug-related murders about which he had knowledge, Mr. Harvey told you that he killed somebody in Mobile, Alabama, pursuant to this agreement, and this letter, and your understanding of this, could you prosecute him for that murder?

THE WITNESS: I don't know. I probably wouldn't have.

THE COURT: Could you use his statement or facts that he gave you in the statement in building of the murder case?

THE WITNESS: No, because it would be derived from the statement he gave.

* * *

 

Q. by Leonard Sands

A. by Jerry Lee Harvey

Q. As a result of those conversations, was it your understanding you had an agreement with the U.S. Attorney's Office in the Southern District of Alabama?

A. I knew I did. Mr. Kimbrough, and Mr. Favre told me, and Tom Haas told me.

Q. What did they tell you your deal was? What were you supposed to do?

A. I was supposed to tell them everything I knew about drug trafficking, people involved, how it took place, what happened to the funds, how you would register airplanes fictitiously. Anything I knew from 1975, and everything I had done from '75 up to the present time.

Q. And what was the Government's obligation to you in return for your cooperation?

A. They agreed nothing I ever give them would be used against me, nor would any U.S. Attorney's office seek to prosecute me for anything; that I was just getting a clear walk, and I should stay on the Government's side and help them.

* * *

 

The best that can be said as a summary of the evidence or statement made by Harvey to the Drug Enforcement Agents at that meeting is that Harvey told them all about his drug dealings in which he had been involved prior to his arrest in June of 1980, and including the arrest of 1980. This Court specifically finds from the facts adduced at the hearing that the defendant Harvey also divulged to the Drug Enforcement Administration his financial dealings with respect to his illegal drug deals.

¹ Immunity is only available when the testimony is necessary to the public interest and the individual has refused or is likely to refuse to testify on the basis of the privilege. 18 U.S.C. §6003.

² In 1965, the state Attorney General agreed not to prosecute Rowe in return for his testimony at the grand jury and at trial. After new information arose that Rowe might have lied about whether he actually fired any of the fatal shots, the state attempted to prosecute him for murder. Rowe brought suit under 42 U.S.C. §1983 to enjoin the state prosecution. 676 F.2d at 525-26.

³ I emphasize this point because the majority suggests, supra slip op. at 2030-2031, at ------, that the only problem is that there is no record of the information provided by Harvey. While that omission is important, it is equally problematic (and ultimately decisive in my mind) that there is no record of the terms of the agreement.

⁴ This is despite the fact that a letter from Mr. Sullivan was introduced in which he asked a state prosecutor to consider the fact that Harvey had cooperated with both the U.S. Attorney and the Drug Enforcement Agency. Additionally, Mr. Sullivan was unable to recall having used Harvey as a witness in a case in which he was the trial prosecutor some three to five years before the agreement.

⁵ I emphasize the narrowness of such a holding. The terms of the agreement, if preserved, might have contradicted Harvey's interpretation. Even if the agreement was ambiguous, a transcript or even notes of the negotiations might have shown that Harvey's position is unreasonable.

Dissenting Opinion

 

HATCHETT, Circuit Judge

I join Judge Clark's dissent. The agreement in this case covers the subject funds.

I hasten to add that nothing is gained by encouraging the government to enter into informal agreements, the terms of which are determined through evidentiary hearings in the district court and fact-finding in the in banc court, after the accused has completed performance.

 

[91-2 USTC ¶50,522] United States of America, Plaintiff-Appellee v. Charles W. Lawrence, Jr., Joseph A. Bertucci, and Norah S. Bertucci, Defendants-Appellants

(CA-7), U.S. Court of Appeals, 7th Circuit, 90-1614, 90-1630, 6/10/91 , 934 F2d 868, Affirming an unreported District Court decision

[Code Sec. 7206 ]

Authentication of business records: Jury instructions: Immunized witness: Sentencing considerations.--The convictions of individual taxpayers for filing false corporate returns, aiding and assisting in the preparation of false corporate returns, and conspiracy were upheld. The trial court did not abuse its discretion by admitting daily sales sheets as properly authenticated business records because the sales sheets were delivered by the defendants' attorney pursuant to a subpoena and were identified by government witnesses. Further, although the testimony of an immunized witness unexpectedly ran in favor of the defense, the trial court did not abuse its discretion by advising the jury to review it with "caution and great care." Finally, the trial court did not abuse its discretion by considering for sentencing purposes conduct of which the taxpayers had been acquitted at trial.

Nathan A. Fishbach, Assistant United States Attorney, Milwaukee, Wis. 53202, for plaintiff-appellee. Thomas E. Brown, Marna M. Tess-Mattner, Gimbel, Reilly, Guerin & Brown, 111 E. Kilbourn Ave., Milwaukee, Wis. 53202, Terry E. Mitchell, Mitchell, Baxter & Zieger, 225 E. Michigan St., Milwaukee, Wis. 53202, for defendants-appellants.

Before BAUER, Chief Judge, CUMMINGS, and RIPPLE, Circuit Judges.

BAUER, Chief Judge.

This is an appeal from a criminal tax prosecution of three business partners, Joseph and Norah Bertucci, who are husband and wife, and Charles W. Lawrence, Jr. (collectively, "Defendants"). The three owned and operated two bookstores in Wisconsin: Paradise Books in Milwaukee, and Popular News (LOK, Inc.) in Oshkosh. The bookstores sold "adult oriented" books, magazines, films, and other products. The stores also operated video arcades featuring sexually explicit films. Whenever a customer purchased merchandise over the counter, the sales clerks carefully noted the type and quantity of the product on a daily sales sheet and rang up the sale on a cash register. Video arcade sales were handled differently. Clerks kept bags of 200 tokens worth fifty dollars at the counter. In order to enter the arcade area, a customer was required to purchase a minimum of two dollars' worth of tokens for use in a private viewing booth. When a clerk sold a bag of tokens, he would take the fifty dollars generated from the sale, band it, and place it in the safe. Video arcade token sales were not rung up on the cash register like merchandise sales, and the daily sales sheet did not contain spaces to keep track of token sales. The video booth coin boxes were emptied once or twice per week. Tokens and coins removed from booth boxes (the boxes accepted both tokens and coins) were identified on bank deposit slips as arcade sales.

The government theorized that Defendants were skimming off a portion of the receipts from the sale of tokens to avoid paying federal taxes on the undisclosed amounts and that they "washed" the skimmed money by concocting phony loans from stockholders and from Norah Bertucci's sister, Morel Fry. In January 1986, Steven J. Facik and John R. Schlicht, Special Agents with the Internal Revenue Service ("IRS") Criminal Investigation Division, visited Popular News and informed the Bertuccis that their 1982, 1983, and 1984 personal income tax returns were under investigation. Fifteen minutes into the interview, Lawrence showed up, and the agents questioned all three Defendants together. They were asked about the source of the income generated by their partnership, L&B Enterprises, and also about their purchases of real estate, stock, a boat, and other items. The agents also asked Defendants if they had deposited all the receipts generated by the token sales into the bookstores' corporate bank accounts, and if these undeposited amounts were reported on their tax returns.

As a result of information garnered during the investigation, the case went to a federal grand jury in Milwaukee. On March 7, 1989 , the grand jury returned an indictment against Defendants charging them with conspiracy to impede the IRS in violation of 18 U.S.C. §371 , plus twenty-four other substantive tax charges. After a jury trial, Defendants were found guilty of the conspiracy charge. Additionally, Joseph Bertucci and Lawrence were convicted of filing false corporate income tax returns for Paradise Books and LOK, Inc., in violation of 26 U.S.C. §7206(1) , and aiding and assisting in the preparation of false corporate tax returns for fiscal years 1982 through 1984, in violation of 26 U.S.C. §7206(2) . Norah Bertucci was convicted of filing false corporate tax returns for Paradise Books for fiscal years 1982 through 1984 and one count of aiding or assisting in the preparation of a false corporate tax return for LOK, Inc. for 1984. Defendants were acquitted on all charges arising out of their personal and partnership tax returns for 1982 through 1984, and Norah Bertucci also was acquitted on two counts for the corporate returns for LOK, Inc. for the years 1982 and 1983. All three received prison terms, probation, and fines. This appeal followed.

Defendants raise several contentions with regard to the daily sales sheets from Paradise Books and Popular News, compiled during the period between July 31, 1983 , to April 7, 1984 . On many of the sheets, there appeared two handwritten numbers, one at the top right hand corner, and one at the bottom right hand corner. The government used these sheets to bolster its skimming theory by hypothesizing that the top number represented the number of bags of tokens available at the beginning of the day, and the bottom number represented the number left at day's end. The difference between these amounts represented the value of the tokens sold during the day. According to the government, because some weekly bank deposits were less than the amounts that should have come in using this method, Defendants must have been skimming off a portion of the token sales for their personal use.

Defendants argue that the trial court abused its discretion by admitting the sheets into evidence without requiring that they be properly authenticated as business records under Federal Rule of Evidence 803(6). In order for evidence to fall under the business record exception to the hearsay rule, the government must lay a proper foundation establishing that the documents produced were records kept in the course of regularly-conducted activity and that "it was the regular practice of that business to make [the document] as shown by the testimony of the custodian or other qualified witness." Fed. R. Evid. 803(6). The business records exception to the hearsay rule "does not require that the witness have personal knowledge of the entries in the records. The witness need only have knowledge under which the records were created." United States v. Wables, 731 F.2d 440, 449 (7th Cir. 1984).

In a pretrial motion, the government argued that the bookstores' records (including the daily sales sheets) were authenticated adequately because Defendants admitted to the investigating agents that the bookstores made and kept the records in connection with their corporations, and because Defendants' attorney produced the records in response to the government's summonses and subpoenas. The district court rejected Defendants' contention that the documents can be authenticated only by a witness who is an employee or agent of the organization familiar with the organization's practices and procedures. Pronouncing our decision in United States v. Brown, 688 F.2d 1112 (7th Cir. 1982) (Bauer, J.), "controlling," the court held that "once a defendant voluntarily produces documents and implicitly represents them to be the subpoenaed corporate records, he cannot be heard to contend that they are not so." United States v. Bertucci, No. 89-CR-35, slip op. at 9 (E.D. Wis. Sept. 25, 1989 ).

In Brown, the defendant had been subpoenaed to appear before a grand jury with company records pertinent to his indictment for embezzlement of federal funds. The defendant negotiated an agreement whereby his attorney would produce the documents without the defendant having to appear. At a pretrial hearing, the defendant refused to authenticate the records and was held in contempt of court. The records then were identified by an Assistant United States Attorney and an FBI Special Agent. Both testified that the defendant's attorney delivered the records to them, representing that he was the defendant's agent, and that the records he was delivering were the records that had been subpoenaed. The court admitted the records on the basis of this testimony. On appeal, the defendant maintained that identification by the government witnesses was not proper authentication. We held that once the defendant voluntarily produced the records and implicitly represented them to be the company records, he could not later complain that the documents did not originate from the company. Further, Federal Rule of Evidence 901 provides that "[t]he requirement of authentication or identification as a condition precedent to admissibility is satisfied by evidence sufficient to support a finding that the matter in question is what the proponent claims." The defendant was an officer of the company, and produced the documents voluntarily. He thus was in a position to vouch for their authenticity, and his "very act of production was implicit authentication." Brown, 688 F.2d at 1115-16.

With Brown's principles in mind, we conclude that the trial court did not abuse its discretion in admitting the daily sales sheets as properly authenticated business records. The subpoenaed documents were delivered by Defendants' attorney and they were identified by the government witnesses. Other factors lend reliability to the documents as well. Defendants admitted to Special Agent Facik during the investigation that they kept various records, including daily sales sheets, as part of their method of operation. In addition, the collective testimony of several of Defendants' employees--testimony of custodians or otherwise qualified witnesses who can explain the recordkeeping of the organization--established the regular practices and procedures under which the records were created, the very elements necessary for a finding of trustworthiness. Michael Traudt, Robert Frank, Steven Bong, and Thomas Martin, clerks from Defendants' stores, and Raymond Manis, a manager of Popular News, testified that numbers were placed at the top and bottom right hand corners of the daily sales sheets, indicating the number of bags of tokens that were available at the beginning and end of each day. Manis instituted a system to give Joseph Bertucci a daily count of sales. He testified that he used the daily sales sheets to prepare a deposit ticket for the receipts from the weekly token sales. He also provided the daily sales sheets and deposit tickets to either Joseph Bertucci or Lawrence. Frank testified that he discussed the daily sales sheets with Joseph Bertucci and that he gave them to Bertucci at the end of his shift. Bong related that Joseph Bertucci told him to place the notations on the daily sales sheets, and Martin indicated that he saw all three Defendants emptying the safe where the receipts from token sales were kept and comparing the receipts in the safe against the notation on the upper right hand corner of the daily sales sheets.

This testimony, together with Defendants' own statements to government investigators that they kept these records in connection with their businesses and the production of those records by their attorney in response to a government subpoena, leads us to conclude that the trial court properly admitted the daily sales sheets into evidence as properly authenticated business records. Defendants contend that the "sources of information and the documents themselves indicate such a complete absence of trustworthiness that any apparent authentication under Rule 803(6) is invalid." Defendant's Brief at 28-29. Defendants point out that none of the clerks really knew if there was a standard procedure for recording token sales or how it worked. Defendants also suggest that the daily sales sheets themselves were untrustworthy because many bore missing or incomplete numbers in the top and bottom corners. The evidence is to the contrary. Several of Defendants' employees testified in some detail concerning the practice of making notations on the right hand corners of the daily sales sheets indicating token sales. Moreover, Special Agent Facik analyzed 783 daily sales sheets, and only 33 failed to contain these notations on the top and bottom right hand corners.

Next, we turn to the Bertuccis' argument that the trial court abused its discretion by granting the government's request for an "immunity instruction" for Morel Fry, a government witness and the younger sister of Norah Bertucci. Fry's testimony was relevant to the government's "net worth analysis" of Defendants' finances. If the taxpayer's net worth at the end of a period exceeds that at the beginning of the period, and the increase cannot be attributed to reported income, an inference may be drawn that there is unreported taxable income. See United States v. Marrinson [87-2 USTC ¶9610 ], 832 F.2d 1465, 1469 (7th Cir. 1987). Part of the government's case was that one of the ways that the Bertuccis concealed the true source of their income was by creating false loans from Fry. The Bertuccis reaped another benefit from the arrangement as well. Because the initial loan required repayments at 19% interest and the subsequent loan required interest payments at 17% and 15%, the Bertuccis could take a tax deduction for the interest paid on these loans.

Fry's testimony, therefore, was important to the government's case, but she refused to testify on the grounds that her answers might tend to incriminate her. Consequently, Fry testified on behalf of the government before the grand jury and during the trial under a grant of immunity. She told the jury that, in July 1982, Joseph Bertucci asked her to lend him money. Despite the fact that Fry worked as a librarian or a library administrator averaging $18,818 per year, she "loaned" her brother-in-law $53,400. When challenged as to her ability to come up with this amount, Fry indicated that she had saved $25,000 from her salary and that she obtained the remainder from her mother. She was questioned closely about this considerable financial "cushion" in light of her salary, bank transactions, and funds she had borrowed from her stepfather to purchase a car that remained unpaid.

Fry basically was a hostile witness. The government requested and received the standard Seventh Circuit jury instruction regarding immunized witnesses:

You have heard testimony . . . from Morel Fry who received immunity. That is a promise from the government that any testimony or other information [she] provided would not be used against [her] in a criminal case. You may give [her] testimony such weight as you feel it deserves, keeping in mind that it must be considered with caution and great care.

See Federal Criminal Jury Instructions of the Seventh Circuit §3.19 (1980). At trial, and in this appeal, the Bertuccis argued that the immunity instruction is a "defense instruction" that should not have been given because it improperly bolstered the government's case. They argue that it is unfair for the government to grant a witness immunity and then ask for an instruction that the testimony should be considered suspect because it was given under a grant of immunity. Defendants failed to object to the same immunity instruction given with regard to the testimony of Michael Kostal, a bookstore employee who also testified on behalf of the government under a grant of immunity. Kostal's testimony was that there was a pattern of skimming at LOK, Inc. We thus understand Defendants' argument to be that the government somehow undermined their case by attacking the credibility of the witness who gave evidence in their favor.

It is true that the immunity instruction ordinarily is a "defense instruction." After all, only the government can grant immunity to gain testimony from a recalcitrant witness. See 18 U.S.C. §§6002, 6003. Here, however, Defendants had no reason to ask for the instruction because they benefitted from Fry's immunized testimony, in that it corroborated their claim that she loaned Joseph Bertucci a sizable sum of money in currency at about the time he and Lawrence went into the adult bookstore business. Instead, it was the government who asked the jury to consider its own witness's testimony with a greater degree of caution than that of other witnesses. Although it is somewhat unusual for the government to ask for such an instruction, we do not find the practice troubling. An immunized witness may have a strong motive to falsify. Rule 607 of the Federal Rules of Evidence provides that "[t]he credibility of a witness may be attacked by any party, including the party calling him." Furthermore, the government's request of the immunity instruction did not serve to deprive Defendants of exculpatory evidence necessary to present an effective defense. Even if the immunity instruction had not been given, it is not unfathomable that the jury would have disbelieved that an $18,000-a-year librarian would have loaned her brother-in-law $53,400 to open an adult bookstore, and the immunity instruction did not improperly suggest to the jury that it do so.

Jury instructions must be reviewed in their entirety and be taken as a whole, United States v. Ruiz, No. 90-1787, slip op. at 8-9 (7th Cir. May 17, 1991 ), and we will not interfere if the instructions treated the issues fairly and adequately. United States v. Durades, 929 F.2d 1160, 1167 (7th Cir. 1991). Immunized witnesses receive a benefit for their testimony, and their testimony may be colored. Even if, as here, the testimony of an immunized witness unexpectedly runs in favor of the defense, a trial court does not abuse its discretion by advising the jury to view it with "caution and great care." The jury's function of assessing credibility and weighing testimony is aided by such an instruction, regardless of who requests it.

Defendants' final challenge is to their sentences. They contend that the trial court abused its discretion by considering for purposes of sentencing conduct for which Defendants had been acquitted at trial. Out of a total of twenty-five counts in the original indictment, Defendants were acquitted on fourteen counts, including all charges relating to filing, or aiding or assisting in the preparation of, false tax returns for L&B Enterprises, and filing false joint individual income tax returns. Norah Bertucci was acquitted on two counts involving corporate returns. Prior to sentencing, Defendants objected to the inclusion of information in their presentence reports regarding the offenses of which they had been acquitted. Defendants unsuccessfully argued--as they do in this appeal--that because the facts supporting the acquitted charges were in dispute, the district court's consideration of these facts under a standard of proof less than beyond a reasonable doubt vitiated the jury's verdict.

On appeal, the district court disagreed, stating that it had broad discretion to consider for purposes of sentencing all the evidence presented at trial. United States v. Bertucci, 730 F. Supp. 1483, 1488 (E.D. Wis. 1990). It based its conclusion upon the express language of section 3661 of Title 18 of the United States Code, which states "No limitation shall be placed on the information concerning the background, character, and conduct of a person convicted of an offense which a court of the United States may receive and consider for the purpose of imposing an appropriate sentence." Section 3661, as well as its predecessor, §3577 (originally enacted as 18 U.S.C. §3577 (1984)), are applicable to offenses committed prior to November 1, 1987 . The court also relied upon several of our opinions, including United States v. White, 888 F.2d 490 (7th Cir. 1990); United States v. Marshall, 719 F.2d 887, 891 (7th Cir. 1983) ("there is little limit on the type of information the district court can consider in sentencing"); United States v. Ray, 683 F.2d 1116, 1120 (7th Cir.) (only limit on type of information is "due process limitations on the degree to which the judge may rely on convictions obtained without the benefit of counsel, or convictions based on materially false or unreliable information"), cert. denied, 459 U.S. 1091 (1982); and United States v. Cardi, 519 F.2d 309, 311 (7th Cir. 1975) (sentencing judge has "wide discretion"). The district court noted that before imposing sentence, it had viewed the trial evidence in its entirety. Denying Defendants' assertion that the sentencing procedure was a "one-man retrial," Bertucci, 730 F. Supp. at 1488, the court indicated that it merely considered the same evidence presented at trial, but under the less stringent evidentiary standard.

Against all this, Defendants point to language in White that suggests that a judge ought not to undermine a jury's verdict of "not guilty" by considering facts underlying an acquittal for purposes of sentencing: "[I]t might make sense to treat an acquittal as a bar in order to avoid both nice questions of proof and the appearance of inconsistency." 888 F.2d at 499. White was a Sentencing Guidelines case and involved a completely different issue: may drugs that were not part of the offense of which the defendant was convicted but that were part of the same course of conduct as the offense of conviction be used to compute the sentence? The answer to that question was "yes," and we decline the invitation to extend White's dicta to the facts of this pre-Guidelines case. We note that before the enactment of the Guidelines, "judges routinely took related bad acts into account when imposing sentence." Id. at 496. For example, in Cardi, we stated that an "acquittal does not preclude the district court from considering the information concerning [the defendant's] association with these activities" for purposes of sentencing. 519 F.2d at 314 n.3. Indeed, a sentencing court may consider uncorroborated hearsay that the defendant has had an opportunity to rebut, illegally obtained evidence, and evidence for which the defendant has not been prosecuted. United States v. Plisek, 657 F.2d 920, 926-27 (7th Cir. 1981). See generally Burke, Limitations, Under Federal Constitution's Guaranty of Due Process of Law, as to Consideration of Personal Information about Accused in Imposition of Initial Sentence for Criminal Offense--Federal Cases, 63 L. Ed.2d 872 (1980).

The information the district court considered in this case was tested and found reliable by "the crucible of cross-examination." Id. The information was relevant, and the court reasonably believed that it was reliable and accurate. Thus, the consideration of the information for sentencing purposes was proper, and the resulting sentence was not a denial of due process, particularly when the sentences imposed did not exceed the statutory maximum penalties.

For all the foregoing reasons, the Defendants' convictions and sentences are, in all respects, AFFIRMED.

Concurring Opinion

RIPPLE, Circuit Judge

I join the principal opinion and the judgment of the court. The question of whether a sentencing judge may consider the underlying facts of a charge which resulted in an acquittal of the defendant is a difficult and troublesome one. Although the case law is hardly a seamless garment, it does appear, as the principal opinion suggests, that this circuit has joined the majority of other circuits in holding that the sentencing judge may consider such information. As the principal opinion notes, we expressed approval of the majority position in United States v. Cardi, 519 F.2d 309, 314 n.3 (7th Cir. 1975). Among our more recent reiterations of this principle, the language in United States v. Fonner, 920 F.2d 1330, 1332 (7th Cir. 1990), is perhaps the most succinct:

Nothing in either the guidelines or the Constitution prevents a judge from taking account of conduct in which the defendant engaged, whether or not an acquittal prevents the imposition of criminal penalties directly on that conduct. A verdict of "not guilty" does not mean that the defendant didn't do it; it means that the prosecution failed to establish culpability beyond a reasonable doubt.

On the other hand, in United States v. Perez, 858 F.2d 1272, 1277 (7th Cir. 1988), this court appeared to limit the general rule when it wrote that "this court has upheld the trial court's consideration of a prior acquittal as long as the acquittal is not relied upon to enhance the sentence." Furthermore, as the principal opinion points out, in United States v. White, 888 F.2d 490, 499 (7th Cir. 1989), a panel of this court suggested in dicta that "it might make sense to treat an acquittal as a bar in order to avoid both nice questions of proof and appearance of inconsistency." Moreover, recently, in United States v. Brady, 928 F.2d 844, 851 (9th Cir. 1991), a panel of the Ninth Circuit has held that "[w]e would pervert our system of justice if we allowed a defendant to suffer punishment for a criminal charge for which he or she was acquitted."

While the holding of the Ninth Circuit and the dicta in some of the opinions in this circuit raise serious doubts, and might even carry the day if this were a matter of initial impression and a matter purely within the cognizance of the judiciary, I believe that Chief Judge Wallace was correct in his partial dissent in Brady when he noted that the statutory mandate of 18 U.S.C. §3661 as well as the doctrines of stare decisis and precedent require affirmance here. See 928 F.2d at 854-57 (Wallace, C.J., concurring in part and dissenting in part). The Supreme Court has already granted certiorari in several cases raising analogous questions. See, e.g., United States v. Williams, 910 F.2d 1574 (7th Cir. 1990), cert. granted, 111 S. Ct. 1305 (1991); United States v. Braxton, 903 F.2d 292 (4th Cir.), cert. granted, 111 S. Ct. 426 (1990). If Brady is the preferable view, the Supreme Court shall tell us in due course. In the meanwhile, we ought to follow, as the principal opinion does, the plain wording of the statute and the weight of authority.

A true Copy: Teste:

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

 

 

 

[92-1 USTC ¶50,081] United States of America, Plaintiff-Appellee v. Harry V. Mohney, Defendant-Appellant

(CA-6), U.S. Court of Appeals, 6th Circuit, 90-1527, 11/27/91, 949 F2d 1397, 949 F2d 1397. Affirming an unreported District Court decision

[Code Sec. 7206 ]

Crimes: False return information.--The taxpayer's conviction for filing false corporate and individual tax returns relating to income from adult entertainment businesses was affirmed on appeal. It was found that the prosecutor's refusal to grant immunity to three persons who best understood the businesses' operations and who were crucial to the defense, after indicating that immunity would be provided and while granting immunity to 20 other persons, did not constitute prosecutorial misconduct or deprive the defendant of a fair trial. The government had a legitimate interest in prosecuting the three witnesses and could properly refuse to immunize a witness who would present exculpatory evidence for the defense where it did not wish to hinder future criminal prosecutions of the witnesses. Further, it was found that the taxpayer did not have standing to challenge the legality of searches of his businesses since he did not have a reasonable expectation of privacy in the documents that he claimed he did not prepare and which were kept at offices he claimed to rarely visit. It was also found that the lower court did not abuse its discretion in (1) denying the defense motion to sequester one IRS agent during the summary testimony of another agent, (2) allowing the agents' use of summary charts, (3) allowing the IRS agents access to documents not provided to the defense and not submitted as evidence, and (4) allowing the summary witnesses to render opinions on the ultimate issue, i.e., whether business funds were diverted to the defendant and underreported on the corporate and individual returns. Moreover, the lower court did not err in denying the motion for judgment of acquittal based on the insufficiency of the evidence since a reasonable juror could have concluded that the defendant received skimmed money from the business that was unreported on his personal tax return. Finally, the lower court did not impermissibly restrict the taxpayer's right to present a defense by refusing to permit him to examine witnesses concerning a closing agreement and by quashing subpoenas of witnesses.

[Code Secs. 7121 and 7122 ]

Compromises: Criminal case.--The taxpayer's conviction for filing false corporate and individual tax returns relating to income from adult entertainment businesses was affirmed on appeal. It was not erroneous to refuse the taxpayer's motion to dismiss certain criminal counts based on a closing agreement reached with the IRS because the agreement referred to Code Sec. 7121 rather than to Code Sec. 7122 , which governs criminal compromises, and because the agreement itself did not indicate that criminal liability was contemplated.

Edith Thomas, 918 Buhl Bldg., Detroit, Mich. 48226, for appellant. Joseph Allen, Richard Delonis, Office of U.S. Attorney, 231 Lafayette Blvd., Federal Bldg., Detroit, Mich. 48226, for appellee.

Before RYAN and BOGGS, Circuit Judges; and DOWD, District Judge. ^*

RYAN, Circuit Judge:

Defendant Harry Mohney appeals his conviction for filing false individual income tax returns, in violation of 26 U.S.C. §7206(1) , and aiding and assisting in filing false corporate tax returns, in violation of 26 U.S.C. §7206(2) . The following issues are before us on appeal:

1. Whether prosecutorial misconduct and judicial errors deprived Mohney of a fair trial and the right to present a defense;

2. Whether the district court erred in denying the motion to suppress evidence obtained through a search warrant;

3. Whether the district court abused its discretion in rulings regarding the summary witness testimony;

4. Whether the district court erred in denying the motion for judgment of acquittal based on the insufficiency of the evidence;

5. Whether the district court erred in refusing Mohney's motion to dismiss Counts IV-VI based on a closing agreement Mohney reached with the IRS; and

6. Whether the district court impermissibly restricted Mohney's right to present a defense by refusing to permit him to examine witnesses concerning the closing agreement and by quashing subpoenas of witnesses to testify regarding the agreement?

We agree with the district court's disposition of these matters and therefore affirm.

I.

In 1966, Harry Mohney began acquiring what are euphemistically known by some as "adult entertainment" businesses which he ran as a sole proprietorship. These businesses included theaters, bookstores, peep machines, and novelty and film distributors, all featuring sex-oriented "entertainment." He organized each aspect of the business as a separate corporation. Most of these businesses had offices in Durand, Michigan. Mohney formed Modern Bookkeeping Services ("MBS") to handle and centralize the bookkeeping and tax preparation aspects of his businesses. He hired Elizabeth Scribner as the manager of MBS.

In 1984, federal agents, investigating a pattern of arsons at adult theaters, executed a search warrant of MBS headquarters. During the search, agents seized $400,000 in currency and records indicating that Mohney had not declared income collected from International Amusement's ("IA") peep machines. The income was skimmed by the route drivers who, after collecting coins from the peep machines, paid the location managers a "split" prior to recording the coins as income in the corporation's books. Based on these records, the government obtained an indictment against Mohney and three MBS employees.

Count I charged Mohney, Scribner, Thomas Tompkins (MBS' accountant), and Lee Klein (an attorney retained by MBS) with conspiring to defraud the IRS, in violation of 18 U.S.C. §371 . The district court dismissed this charge prior to trial. ¹ The remaining counts named only Mohney. Counts II-IV charged Mohney with filing false individual income tax returns for the calendar years 1981-83, respectively, in violation of 26 U.S.C. §7206(1) . Counts V-VII charged that Mohney willfully aided and assisted in the filing of false corporate tax returns for Otis Mohney, Inc. ("OMI"), later IA, for the fiscal years 1982-84, respectively, in violation of 26 U.S.C. §7206(2) .

At trial, the government called fifty-two witnesses over a nine-week period. Many of these witnesses were former MBS employees who testified, under a grant of immunity, that Mohney was not actively involved in preparing the tax returns. Route drivers, who paid the splits to the location managers, also testified under immunity.

Key witnesses for the government were Kenneth and Barbara Goodrich, both of whom were directly involved with keeping IA's books. Pursuant to an immunity grant, the Goodriches testified concerning a two percent bonus Kenneth received, based on the revenue of certain peep machines. The calculation of this bonus showed that the peep machines produced income that Mohney had not declared.

A number of witnesses, including both Mohney's ex-wife and his former girlfriend, Gail Parmentier, testified that Mohney used cash to pay for living expenses, travel, family support, and film production. Witnesses involved in the sex-oriented film business testified that it was standard procedure to pay expenses for such films in cash. Parmentier also testified about her illicit relationship with Mohney.

The government concluded its case by presenting two summary witnesses, IRS Revenue Agents Robert Bednarczyk and Kenneth Peterson. Bednarczyk summarized the evidence regarding the corporate tax returns and presented his estimate of IA's revenue understatement on the individual returns. Peterson summarized the evidence regarding the individual returns and gave an estimate of the understatement. The district court denied a defense motion to sequester these witnesses to prevent Peterson from relying on Bednarczyk's testimony.

The government did not call MBS manager Scribner as a witness, although she had been listed on its witness list. The government also refused to grant her immunity. Mohney attempted to call her as a witness, but she filed an affidavit asserting that she would invoke her Fifth Amendment privilege if called. The government also did not call or grant immunity to accountant Tompkins or attorney Klein.

Mohney's defense focused on his claimed peripheral and infrequent involvement with the businesses. He alleges that he was prevented from effectively presenting his defense because Jack Mohney, who handled IA's revenues and splits, was deceased, and because the government refused to call the only witnesses with direct knowledge of the IA returns: Tompkins, Scribner, and Klein.

The jury found Mohney guilty on each charge. The district court sentenced him to concurrent three-year terms of imprisonment on Counts II-VI, imposed a four-year probation term on Count VII, and fined him a total of $255,000. The court also imposed a special condition of probation requiring Mohney to pay back taxes found to be due and owing by the IRS.

II.

A.

Right to a Fair Trial

Mohney contends that prosecutorial misconduct, compounded by the district court's errors, denied him a fair trial. In evaluating this claim, we recall that "the touchstone of due process analysis in cases of alleged prosecutorial misconduct is the fairness of the trial, not the culpability of the prosecutor." Smith v. Phillips, 455 U.S. 209, 219 (1982).

1.

Immunity

Mohney alleges that the prosecutor's refusal to grant immunity to Tompkins, Scribner, and Klein, who best understood MBS' operations and were crucial to his defense, while granting immunity to 20 other witnesses, and after indicating that the three would receive immunity and testify, amounted to prosecutorial misconduct. Mohney also protests the district court's refusal to compel the prosecution to grant immunity. The government responds that it is not obligated to grant immunity to key defense witnesses and that it properly refused to grant immunity to witnesses who were putative defendants.

The grant of immunity by a prosecutor is governed by 18 U.S.C. §6002 et seq. This statute gives the executive branch sole authority to grant "use immunity" to witnesses. 18 U.S.C. §6003; see also United States v. Hooks [88-1 USTC ¶13,771 ], 848 F.2d 785, 798 (7th Cir. 1988). In exercising this power, the statute gives the prosecutor considerable discretion to request immunity when "in his judgment" it is "necessary to the public interest." Id. The statute does not require the government to grant a defense witness immunity. Id. at 799.

Two theories have emerged under which defendants would be entitled to a grant of immunity for prospective defense witnesses. The first theory, rejected by most courts, allows immunity for defense witnesses when necessary for an effective defense. The second theory provides immunity to remedy prosecutorial misconduct.

Under the effective defense theory, immunity is available when it is properly sought in the district court, the witness is available to testify, the proffered testimony is both essential and clearly exculpatory, and no strong governmental interests countervail against an immunity grant. Virgin Islands v. Smith, 615 F.2d 964, 972 (3d Cir. 1980). Although our circuit recognized the serious problems refusal to extend immunity may present for defendants wishing to introduce essential evidence not otherwise available, we have held that federal courts do not have the inherent power to immunize witnesses whose testimony is essential to an effective defense. United States v. Pennell, 737 F.2d 521, 526-27 (6th Cir. 1984), cert. denied, 469 U.S. 1158 (1985). We rejected this theory because it would violate separation of powers to recognize an inherent judicial right to grant immunity when immunity is a legislative creation explicitly entrusted to the executive branch. Id. at 527. Compelled judicial use immunity could also impair the subsequent prosecution of the witness. United States v. Thevis, 665 F.2d 616, 640 (5th Cir.), cert. denied, 459 U.S. 825 (1982). If the government will be limited to prosecuting either the defendant or the immunized witness because it will not be able to prove that the immunized testimony would not taint the prosecution of the witness, the choice of which one to prosecute should rest with the government, not with the courts. Id.; Pennell, 737 F.2d at 528. The majority of other circuits have also rejected this theory. United States v. Angiulo, 897 F.2d 1169 (1st Cir.), cert. denied, 111 S. Ct. 130 (1990); United States v. Paris, 827 F.2d 395 (9th Cir. 1987); United States v. Tindle, 808 F.2d 319, 325 (4th Cir. 1986), cert. denied, 490 U.S. 1114 (1989); United States v. Sawyer, 799 F.2d 1494, 1506 (11th Cir. 1986), cert. denied sub nom., Leavitt v. United States, 479 U.S. 1069 (1987); Thevis, 665 F.2d 616; United States v. Turkish [80-2 USTC ¶9478 ], 623 F.2d 769 (2d Cir. 1980), cert. denied, 449 U.S. 1077 (1981); In re Daley, 549 F.2d 469, 479 (7th Cir.), cert. denied, 434 U.S. 829 (1977); United States v. Graham, 548 F.2d 1302, 1315 (8th Cir. 1977); Earl v. United States, 361 F.2d 531, 534-35 (D.C. Cir. 1966), cert. denied, 388 U.S. 921 (1967).

Even if we accepted the effective defense theory, Mohney still could not prevail on the facts of this case. Immunity under this theory is not available if a strong countervailing government interest exists, such as a legitimate interest in prosecuting the witness where no appropriate safeguards are available. Smith, 615 F.2d at 973. The government here indicted Tompkins, Scribner, and Klein, along with Mohney. Although the district court dismissed the charge in the indictment naming the three potential witnesses, the dismissal was subject to a motion to reconsider throughout trial and was reversed on appeal. Moreover, even if the appeal had failed, the prosecution could have pursued charges against Tompkins, Scribner, and Klein for conspiracy to file false returns. Thus, the prosecution had a legitimate interest in prosecuting the witnesses.

This circuit has yet to rule on the second theory for granting immunity, to remedy prosecutorial misconduct. Pennell, 737 F.2d at 526. The theory was briefly considered in a recent unpublished opinion but found inapplicable to the facts in the case. United States v. Doss, No. 90-1447 (6th Cir. Feb. 6, 1991 ). Under this theory, due process requires an immunity grant where the prosecution abuses its discretion by intentionally attempting to distort the fact-finding process. Angiulo, 897 F.2d at 1191. Immunity under this theory should not be granted lightly. Smith, 615 F.2d at 968. The defendant must show " 'that the government's decisions were made with the deliberate intention of distorting the judicial fact finding process." ' Id. (quoting United States v. Herman, 589 F.2d 1191, 1204 (3d Cir. 1978), cert. denied, 441 U.S. 913 (1979)). Mohney contends that the government here deliberately withheld immunity in order to keep necessary exculpatory evidence from the jury. It is clear that the government kept out important and relevant testimony of how the returns were prepared, including Mohney's involvement. The prosecution, however, is only prevented from refusing to immunize a witness when the prosecution's "sole desire" is to keep exculpatory testimony from the jury. Angiulo, 897 F.2d at 1193. The prosecution may properly refuse to immunize a witness where it does not wish to hinder future criminal prosecutions of the witnesses. Id.

Mohney also argues that the government's selective grants of immunity to its own witnesses, while denying immunity to his witnesses, deprived him of a fair trial. Selective grants of immunity could violate due process where they produce " 'egregiously lopsided access to evidence.'" Hooks [88-1 USTC ¶13,771 ], 848 F.2d at 802-03 (quoting United States v. Buljubasic, 808 F.2d 1260, 1268 (7th Cir.), cert. denied, 484 U.S. 815 (1987)); see also United States v. De Palma, 476 F. Supp. 775, 781 (S.D.N.Y. 1979). A defendant, however, does not have a right to have his witnesses immunized simply because the prosecution relies on immunized witnesses to make its case. See United States v. Chagra, 669 F.2d 241, 259 (5th Cir.), cert. denied, 459 U.S. 846 (1982); see also Hooks [88-1 USTC ¶13,771 ], 848 F.2d 785.

[T]he balance between the government's interest in prosecuting accused felons and the accused's interest in presenting exculpatory and otherwise unobtainable evidence should not be inflexibly resolved by the fortuity that the government grants immunity to a particular witness in a particular case. If the government's prosecutorial interest outweighs a defendant's interest in presenting such evidence, . . . then the government's interest also outweighs any abstract concern with symmetry.

Chagra, 669 F.2d at 259. The government had already indicted Tompkins, Scribner, and Klein and thus had a real and legitimate interest in prosecuting them. Although our circuit has not directly addressed the issue of selective immunity grants, we have noted problems with compelling the prosecution to grant immunity to potential defendants:

[T]he government as a practical matter may encounter great difficulty in satisfying the "heavy burden" of proving that its evidence against the witness is neither directly nor indirectly traceable to the immunized testimony . . . [T]he government in almost all such cases would be constrained to curtail the cross-examination of the immunized witnesses in order to "narrow the scope of the testimony that the witness will later claim tainted his subsequent prosecution."

Pennell, 737 F.2d at 528 (quoting Turkish [80-2 USTC ¶9478 ], 623 F.2d at 775). In light of these concerns, we do not believe that selective immunity grants violated due process on these facts.

Because Mohney failed to establish that he was entitled to a judicially compelled immunity grant, even if our circuit were to recognize such a judicial power, we hold that the district court properly refused to order the prosecution to grant immunity to Tompkins, Scribner, and Klein.

2.

Other Allegations of Unfairness

Mohney raises other allegations of prosecutorial misconduct and judicial errors depriving him of a fair trial. First, he protests the district court's refusal to give the missing witness instruction which he requested, although the court did give a missing witness instruction. Second, he objects on relevancy grounds to the prosecution's references to the nature of his business and his illicit relationship with a seventeen-year-old female, and to the testimony of his former partner, Burton Gorelick, regarding a skim of profits with Mohney from theaters and bookstores. We find these remaining allegations wholly without merit.

B.

Motion to Suppress

Mohney argues that the district court erred in refusing to suppress evidence found during searches of MBS and OMI, IA's predecessor. The government conducted these searches under the authority of three warrants: two authorizing the search of MBS and one authorizing the search of Entertainment World, another Mohney business located in the same building as OMI. On appeal, Mohney argues that the evidence should have been suppressed because the government failed to show probable cause and because the warrants failed to state with sufficient particularity the items to be seized. We need not reach these issues, however, as Mohney does not have standing to challenge these searches.

The "rights assured by the Fourth Amendment are personal rights, [which] . . . may be enforced by exclusion of evidence only at the instance of one whose own protection was infringed by the search and seizure." Simmons v. United States, 390 U.S. 377, 389 (1968), quoted in Rakas v. Illinois, 439 U.S. 128, 138 (1978). In some circumstances, an officer of a corporation may be a "person aggrieved" by a corporate search and seizure and thus have standing to challenge the search. For example, in Henzel v. United States, 296 F.2d 650 (5th Cir. 1961), the appellant could challenge the search because he was the organizer, sole shareholder, and president of the corporation, who prepared much of the material seized from his office, where he spent the greater part of every working day. Where the documents seized were normal corporate records not personally prepared by the defendant and not taken from his personal office, desk, or files, in a search that was not directed at him personally, the defendant cannot challenge a search as he would not have a reasonable expectation of privacy in such materials. United States v. Britt, 508 F.2d 1052, 1055 (5th Cir.), cert. denied, 423 U.S. 825 (1975). See also Williams v. Kunze, 806 F.2d 594 (5th Cir. 1986). Without a reasonable expectation of privacy in the seized materials, an officer may not challenge a search of the corporation:

When a man chooses to avail himself of the privilege of doing business as a corporation, even though he is its sole shareholder, he may not vicariously take on the privilege of the corporation under the Fourth Amendment; documents which he could have protected from seizure, if they had been his own, may be used against him, no matter how they were obtained from the corporation. Its wrongs are not his wrongs; its immunity is not his immunity.

Lagow v. United States, 159 F.2d 245, 246 (2d Cir. 1946), cert. denied, 331 U.S. 858 (1947), quoted in Britt, 508 F.2d at 1055; cf. United States v. Salvucci, 448 U.S. 83, 91-93 (1980). Mohney argues that he had a reasonable expectation of privacy because MBS' and OMI's offices were not open to the public. However, it is hard to see how Mohney could have a reasonable expectation of privacy in documents he claimed to be completely uninvolved in preparing and which were kept in offices he claimed to rarely visit. Nor were the searches targeted at "getting" Mohney; the searches were conducted as part of an arson investigation begun by Indiana officials. Mohney, then, did not have a reasonable expectation of privacy in the materials seized that would permit him to challenge the search warrants and thus the evidence seized during these searches was properly admitted.

C.

Summary Witnesses

The prosecution presented the testimony of two summary witnesses, IRS Agents Bednarczyk and Peterson. These witnesses attended the entire trial and reviewed the voluminous documents entered into evidence in order to calculate the amount of gross income and/or gross receipts underreported on IA's and Mohney's tax returns. Bednarczyk's testimony addressed the corporate returns and Peterson testified as to the income underreported on the individual returns. Both used summary schedules which were admitted into evidence.

Mohney raises several objections to the testimony of Bednarczyk and Peterson. First, he argues that the district court erred in denying his motion to sequester Peterson during Bednarczyk's testimony. Second, he submits that they should not have been allowed to use summary charts. Third, he contends that the summary witnesses should not have been given access to documents not provided to the defense and not submitted as evidence. Fourth, he contends that the trial court erred in allowing the summary witnesses to render opinions on the ultimate issue, whether funds were diverted.

1.

Exclusion of Witnesses

Federal Rule of Evidence 615 provides, in relevant part, that:

At the request of a party the court shall order witnesses excluded so that they cannot hear the testimony of other witnesses, and it may make the order of its own motion. This rule does not authorize exclusion of . . . (3) a person whose presence is shown by a party to be essential to the presentation of the party's cause.

Mohney moved to sequester Peterson under this rule so that Peterson, in testifying regarding the individual returns, would not "parrot" Bednarczyk's calculations and testimony. Because Peterson's testimony was based on Bednarczyk's calculations, the court denied the sequestration request so that if cross-examination should bring out any facts not considered by Bednarczyk in making his calculations, Peterson would be present to ensure the accuracy and completeness of his own testimony.

The decision to permit a witness to remain in the courtroom "is within the discretion of the trial judge and should not normally be disturbed on appeal." Morvant v. Construction Aggregates Corp., 570 F.2d 626, 630 (6th Cir.), cert. dismissed, 439 U.S. 801 (1978). This court has recognized that

the presence in the courtroom of an expert witness who does not testify to the facts of the case but rather gives his opinion based upon the testimony of others hardly seems suspect and will in most cases be beneficial, for he will be more likely to base his expert opinion on a more accurate understanding of the testimony as it evolves before the jury.

Id. at 629-30. Therefore, "where a fair showing has been made that the expert witness is in fact required for the management of the case, and this is made clear to the trial court, we believe that the trial court is bound to accept any reasonable, substantiated representation to this effect by counsel." Id. at 630. The prosecution explained that the calculations of the individual returns depended on the calculations of the corporate returns and thus it would be beneficial for Peterson to hear Bednarczyk's testimony. The court thus did not abuse its discretion in allowing Peterson to remain in the courtroom. However, even if the court had abused its discretion, Mohney failed to show that the asserted error "'created sufficient prejudice to require reversal.'" United States v. Bobo, 586 F.2d 355, 366 (5th Cir. 1978) (quoting United States v. Warren, 578 F.2d 1058, 1076 (5th Cir. 1978) (en banc), cert. denied, 446 U.S. 956 (1980)), cert. denied sub nom., Rowan v. United States, 440 U.S. 976 (1979).

Mohney contends that the court should have sequestered Peterson because this court's decision in United States v. Pulley, 922 F.2d 1283, 1285-86 (6th Cir. 1991), petition for cert. filed, 59 U.S.L.W. 3825 (May 28, 1991), limits the government to designating only one agent-witness to represent it. Pulley, however, dealt with subsection (2) of Fed. R. Evid. 615 prohibiting the sequestration of "an officer or employee of a party which is not a natural person designated as its representative by its attorney." Fed. R. Evid. 615. Because this case involves subsection (3) and because the prosecution established that both witnesses were "essential to the presentation of [its] cause" under that subsection, Pulley does not control.

2.

Flow Charts

Agent Bednarczyk used a chart as a visual aid in explaining how profits were skimmed. In commenting on such charts, this circuit has noted that "[t]here is an established tradition, both within this circuit and in other circuits, that permits a summary of evidence to be put before the jury with proper limiting instructions." United States v. Scales, 594 F.2d 558, 563 (6th Cir.), cert. denied, 441 U.S. 946 (1979). Such a limiting instruction should explain "that the chart is not itself evidence but is only an aid in evaluating the evidence." Id. at 564. The court here provided such an instruction. Before the chart was shown to the jury, the court cautioned that "this is generally known as a visual aid. It is not evidence at this point. It's a visual aid to verbal testimony." After the defense objected that the testimony based on the flow chart was improper as the jury would accept the facts shown in the chart as conclusively proven, the court once again reminded the jury that the chart served simply as the foundation for Bednarczyk's calculations. Finally, the district court instructed the jury:

This witness has been qualified as an expert witness in the area of general accounting principals [sic] and knowledge of the Internal Revenue Code and the regulations under the Internal Revenue Code. He is not qualified of course to summarize testimony before you in this case. Therefore the diagram that you see before you is merely an explanation of his understanding of what the testimony has been with regard to the matters that are on that chart. It is not the subject of his expert testimony. It is the facts upon which his expert testimony is based.

To the extent that those facts you find not be established in this case then you will determine whether or not and what effect if any the fact that something has not been established or something on that chart is inaccurate affects his expert opinion, whether it does or it does not is a matter for you. . . . I just want to indicate that that is not evidence in this case. It's merely before you as his understanding or the basis upon which he renders his opinion, his factual understanding of the flow.

Because the court instructed the jury very clearly that the flow charts were simply used to establish the basis of the calculations, it did not abuse its discretion in allowing their use.

3.

Witness Reliance on Documents

Not Available to Defense

Mohney contends that the summary witnesses unfairly based their testimony on documents not available to the defense. He points to the testimony of Bednarczyk that he "had access to some backup information like the numerous other books and records of the corporation" and that he reviewed a grand jury transcript. He also notes Peterson's testimony that he read a special agent's report to which the defense did not have access. Mohney, however, through the government's disclosure of Jencks Act materials, 18 U.S.C. §3500, had all of the grand jury transcripts. Moreover, expert witnesses may properly base their opinions on evidence not presented at trial. Fed. R. Evid. 703. However, both witnesses explicitly stated that they had not based their calculations or testimony on material not in evidence. As Mohney cites no authority for the proposition that experts cannot use materials which they were exposed to outside of court and because the experts did not base their calculations upon these materials, no error occurred.

4.

Ultimate Issue Testimony

Mohney argues that the summary witness testimony was improper "ultimate issue" testimony which invaded the province of the jury. Mohney objects to the following testimony of Bednarczyk:

Q. Mr. Bednarczyk, do you have an opinion as to whether or not currency picked up by route drivers was reported as part of the gross receipts?

. . .

A. In my opinion the currency was not reported.

Peterson also testified that the currency did not reach the bank and thus was not reported. The court allowed this testimony to explain the basis for the witnesses' conclusions. Decisions regarding the admissibility of expert testimony are within the discretion of the trial court and ordinarily may be reversed only for abuse of discretion. Hanson v. Parkside Surgery Center, 872 F.2d 745, 750 (6th Cir.), cert. denied sub nom., Hanson v. Arrowsmith, 110 S. Ct. 349 (1989).

Under Fed. R. Evid. 704(a), "testimony in the form of an opinion or inference otherwise admissible is not objectionable because it embraces an ultimate issue to be decided by the trier of fact." However,

[t]he abolition of the ultimate issue rule does not lower the bars so as to admit all opinions. Under Rules 701 and 702, opinions must be helpful to the trier of fact, and Rule 403 provides for exclusion of evidence which wastes time. These provisions afford ample assurances against the admission of opinions which would merely tell the jury what result to reach, somewhat in the manner of the oath-helpers of an earlier day.

Fed. R. Evid. 704, Advisory Committee's Notes. The summary witnesses' testimony did not deprive the jury of its function by telling it what result to reach. As this court explained in reference to the opinion of another IRS agent:

Appellant's argument that [the agent] usurped the function of the jury is also without merit. [The agent] did not give her opinion about whether appellant was guilty or not; she gave her opinion regarding whether tax was due and owing for the years in question in order to assist the jury in determining a fact in issue. There was no abuse of discretion. . . .

United States v. DeClue [90-1 USTC ¶50,198 ], 899 F.2d 1465, 1473 (6th Cir. 1990). Moreover, even if an ultimate issue was involved, the district court did not abuse its discretion in finding that the testimony would be helpful to the jury in understanding the testimony of the expert witnesses because "an IRS expert's analysis of the transaction itself, which necessarily precedes his or her evaluation of the tax consequences, is . . . admissible evidence." United States v. Windfelder [86-1 USTC ¶13,668 ], 790 F.2d 576, 581 (7th Cir. 1986). In order for the jury to understand the calculations and thus determine whether they accepted the analysis of the two witnesses, they needed to understand the assumptions upon which the testimony and calculations were based.

D.

Motion for Judgment of Acquittal

After the guilty verdict, Mohney moved for a judgment of acquittal pursuant to Fed. R. Crim. P. 29 based on the insufficiency of the evidence. The district court denied the motion without explanation. On appeal, this court asks "whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Jackson v. Virginia, 443 U.S. 307, 319 (1979) (emphasis in original).

Mohney was charged under 26 U.S.C. §7206(1) for filing false individual income tax returns and §7206(2) for aiding and assisting in filing false corporate tax returns. Those sections state:

(1) Declaration under penalties of perjury.--Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or

(2) Aid or assistance.--Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document. . . .

Mohney argues that because the government failed to prove willfulness and knowledge, he should not have been convicted under section 7206(2) . He challenges his conviction for underreporting his individual income under section 7206(1) based on the government's failure to show that he received the money allegedly skimmed from IA.

Mohney alleges that the prosecution failed to show that he willfully filed false returns. Willfulness under section 7206 "requires proof of specific intent to do something that the law forbids; more than a showing of careless disregard for the truth is required." United States v. Loney [83-2 USTC ¶9673 ], 719 F.2d 1435, 1436 (9th Cir. 1983). A taxpayer's signature on a return does not in itself prove his knowledge of the contents, but knowledge may be inferred from the signature along with the surrounding facts and circumstances, and the signature is prima facie evidence that the signer knows the contents of the return. United States v. Harper [71-2 USTC ¶16,019 ], 458 F.2d 891, 894 (7th Cir. 1971), cert. denied, 406 U.S. 930 (1972). Such surrounding facts and circumstances include the defendant's knowledge of the business' revenues, his active role in the operations, his hiring of the accounting firm, and his payment of the taxes. Id. at 895. The government here offered evidence that Mohney was aware of and involved in the tax preparation: for example, memoranda and correspondence regarding a donation of films to the National Sex Forum as a tax deduction in 1980 show that the idea originated with Mohney. Other memoranda between Mohney, Tompkins, and Klein also show Mohney's involvement in and awareness of the tax returns. Willfulness may also be shown through the government's evidence that Mohney knew about the skim and the falsity of the returns. Gorelick testified that they had an agreement during the relevant time period to skim profits from bookstores and theaters, and that they agreed not to report certain peep show revenues. Gorelick also testified that the skimming was done in order to pay less taxes. The government also showed proof that Mohney knew of the IA skim through memoranda written to Mohney's father and to his accountant asking that the currency from IA, kept at Jack Mohney's home, be delivered to Scribner every Monday, Wednesday, and Friday. This currency was not recorded in the corporate books. Finally, the willful intent to evade taxes was also shown by the testimony of Gail Parmentier that Mohney paid all of his expenses in cash so that the government could not keep track of his spendings, and that he frequently expressed hatred towards the government and likened the payment of taxes to enslavement. From this evidence, a reasonable juror could conclude that Mohney willfully filed false returns.

Mohney submits that the government's evidence was also insufficient to show that he received skimmed funds. The government, however, offered evidence showing Mohney's possession and control of diverted funds. Richard Hardy, a former bookkeeper for MBS, testified that Jack Mohney gave him money kept at Jack Mohney's home to give to Harry Mohney. Mohney's memorandum directing that the money kept at his father's home be given to Scribner three times per week is also evidence that he received the funds. Gorelick's testimony about how he split the skimmed profits from the bookstores and theaters with Mohney also shows that Mohney received the money skimmed from the peep shows. A reasonable juror could thus conclude that Mohney received the skimmed profits.

E.

Motion to Dismiss Based on Closing Agreement

Mohney brought a motion to dismiss based on a closing agreement which he entered into with the government pursuant to 26 U.S.C. §7121 . The district court denied the motion to dismiss because section 7122 , not section 7121 , covers compromises regarding criminal prosecutions, and because there was no evidence on the face of the document indicating that the parties intended it to preclude criminal prosecutions.

26 U.S.C. §7121(a) provides:

(a) Authorization.--The Secretary is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal revenue tax for any taxable period.

If such an agreement is approved, it is final and conclusive, unless there is a showing of fraud or malfeasance. 26 U.S.C. §7121(b) .

26 U.S.C. §7122(a) provides:

(a) Authorization.--The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.

The closing agreement expressly stated that it was entered into pursuant to section 7121 . The district court correctly concluded that such an agreement, particularly this agreement, does not cover criminal cases. Although section 7121 does not expressly state whether it covers criminal prosecutions, its failure to address a matter clearly stated in the following section may suggest it is not intended to cover criminal cases. Moreover, the language of section 7121(a) authorizing an agreement "with any person relating to the liability of such person . . . in respect of any internal revenue tax for any taxable period," does not indicate that closing agreements cover criminal prosecutions and penalties. Finally, nothing in the present closing agreement indicates that the parties intended it to cover criminal liability. The facts and objectives stated in the agreement relate only to suits brought by Mohney to claim refunds for the tax years 1971-83. The agreement details the overpayments and deficiencies for the relevant years and obligates Mohney to dismiss his suit. It does not discuss criminal liability, penalties, or any obligation on the part of the government to cease its investigation. The district court, then, did not err in finding "it not credible that the IRS would have so intended [to cover criminal liability] without reducing that understanding to an explicit writing."

F.

Limitation of Cross-Examination

Regarding Closing Agreement

Mohney alleges that the district court abused its discretion in refusing to permit cross-examination regarding the closing agreement and in granting a government motion to quash subpoenas of government witnesses with knowledge of the agreement. The government argues that the closing agreement was not relevant to any issue in this case. In reviewing these arguments, this court notes that the district court has broad discretion under Fed. R. Evid. 611 to limit the scope of cross-examination and that this court should only reverse for a clear abuse of discretion. United States v. Mahar, 801 F.2d 1477, 1495 (6th Cir. 1986). A decision to quash a subpoena should not be disturbed unless " 'fundamental rights were affected by the court's ruling.' " Id. at 1497 (citation omitted).

The district court refused to allow cross-examination regarding the agreement and quashed the subpoenas because it found that the agreement was not relevant to the issues before it. Mohney, citing Jonson v. United States [60-2 USTC ¶9680 ], 281 F.2d 884 (9th Cir. 1960); Rau v. United States, 260 F. 131 (2d Cir. 1919); and Willingham v. United States, 208 F. 137 (5th Cir. 1913), argues that "a defendant in a tax prosecution is entitled to present any substantial evidence tending to support his defense that his criminal liability was the subject of a settlement agreement." The cases cited by Mohney, however, deal with compromises under section 7122 . Unlike section 7121 , section 7122 specifically states that an agreement made under its requirements relieves a defendant of criminal liability. Thus, the ability of a defendant to show a compromise under section 7122 would be relevant to a criminal defense, whereas showing that civil liability was determined would not be relevant to showing whether the defendant willfully filed false returns. The district court, then, did not abuse its discretion in refusing to allow cross-examination regarding an issue Mohney failed to show was relevant, nor did the court prejudice Mohney's rights by quashing subpoenas regarding that issue.

III.

For the reasons set forth, we AFFIRM Mohney's conviction.

^* The Honorable David D. Dowd, Jr., United States District Judge for the Northern District of Ohio, sitting by designation.

¹ The dismissal of this charge was reversed in United States v. Mohney, No. 90-1738 (6th Cir. Nov. 27, 1991 ).

 

 

 

[Dec. 50,002(M)] Ronald Keith Stump v. Commissioner

Docket No. 10266-93., TC Memo. 1994-357, 68 TCM 251, Filed July 27, 1994

[Appealable, barring stipulation to the contrary, to CA-9.--CCH.]

[Code Secs. 6653 , prior to amendment by P.L. 101-239, 6661, prior to repeal by P.L. 101-239, and 7206 ]

Plea bargain: Immunity: Civil tax liability.--A plea bargain arrangement under which an individual pleaded guilty to the criminal charges of making a false statement and false representation and of making and subscribing a false income tax return did not immunize the individual from civil tax liability. Contrary to the individual's contention, there was no indication in the plea agreement or in the sentencing memorandum that the IRS would not pursue collection of the civil tax liabilities in exchange for the guilty plea.

Ronald Keith Stump, pro se. Thomas S. DiLeonardo, for the respondent.

Memorandum Findings of Fact and Opinion

WRIGHT, Judge:

Respondent determined deficiencies in and additions to petitioner's Federal income tax as follows:

                                              Additions to Tax

                                              ----------------

Year              Deficiency Sec. 6653(b)(1) Sec. 6653(b)(2) Sec. 6661

1983 ............  $ 28,282      $14,141     50 percent of    $ 7,071

                                              the interest

                                              due on $28,282

1984 ............    10,860        5,430     50 percent of      2,715

                                              the interest

                                              due on $10,860

 

Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue.

The sole issue for consideration for taxable years 1983 and 1984 is whether a plea bargain arrangement entered into by petitioner and the United States in a previous criminal prosecution immunizes petitioner from civil tax liability. We hold that it does not.

Findings of Fact

Most of the facts have been stipulated and are found accordingly. The stipulation of facts and attached exhibits are incorporated herein. Petitioner resided in Phoenix, Arizona, at the time the petition was filed.

In 1988, petitioner was indicted in the United States District Court for the Northern District of California on one count of making a false statement and a false representation, one count of accepting a bribe, and two counts of making and subscribing a false Federal income tax return under section 7206(1) for taxable years 1983 and 1984.

On April 27, 1989 , petitioner entered a plea agreement with the United States with respect to the criminal charges filed against him. Pursuant to the plea agreement, petitioner agreed to plead guilty to making a false statement and false representation, and to one count of making and subscribing a false income tax return for taxable year 1983. Petitioner alleges that Government agents assured him that by entering such a plea the Internal Revenue Service (IRS) would not pursue collection of his civil tax liabilities. Petitioner's written plea agreement contains no reference to civil tax liabilities.

Opinion

Petitioner contends that he is immune from civil tax liability in each of the years at issue because at the time he entered the plea agreement with the Government regarding the criminal charges, the United States agreed not to pursue collection of the civil tax liabilities in exchange for his guilty plea. Petitioner testified that he assumed all of the Government's positions would be canceled as a result of his plea agreement. He believed that it was a global agreement and it should have included the taxes.

The Government's sentencing memorandum, which incorporates the plea agreement, states that "In exchange for Stump's plea, * * * the government would not seek prosecution for other crimes of which the government is aware." The sentencing memorandum also stated that as a result of certain thefts, "the government agreed not to prosecute Stump for failing to declare the income he derived therefrom." (Emphasis added.) Neither the written plea agreement nor the sentencing memorandum, however, contain any reference to civil tax liabilities. Further, petitioner's attorney during the criminal proceedings mailed a letter, which summarizes petitioner's understanding of the terms and conditions of the guilty plea, to Rodolfo Orjales, the assistant U.S. attorney who prosecuted the criminal case. The letter states that in exchange for his guilty plea "the civil suit ¹ against Mr. Stump * * * will be dismissed", and that "Mr. Stump will not be prosecuted for * * * additional tax charges." (Emphasis added.) The letter makes no reference to civil tax liabilities. Accordingly, we find that the plea bargain arrangements entered into by petitioner do not immunize him from the civil tax liabilities at issue in the instant case. See United States v. O'Brien, 853 F.2d 522 (7th Cir. 1988); Gallucci v. Commissioner [Dec. 48,390(M) ], T.C. Memo. 1992-435.

To reflect the foregoing,

Decision will be entered for respondent.

¹ The record does not contain specific evidence of a civil suit against petitioner; however, on cross-examination petitioner admitted that the plea agreement immunized him from civil liabilities with respect to a mass spectrometer.