UNITED STATES of America, Plaintiff-Appellee, v. Russell G. BARAKAT, Defendant-Appellant.
No. 96-5013.
United States Court of Appeals, Eleventh Circuit.
Dec. 15, 1997.
130 F.3d 1448
Before ANDERSON, DUBINA and CARNES, Circuit Judges.
IV. CONCLUSION
The judgment of sentencing is REVERSED and the case is REMANDED for proceedings consistent with this opinion.
Dawn Bowen and Robert B. Cornell, Asst. U.S. Attys., Miami, FL, for Plaintiff-Appellee.
CARNES, Circuit Judge:
A jury acquitted Russell G. Barakat of mail fraud conspiracy involving a kickback scheme but convicted him of filing a false income tax return in violation of
Barakat‘s challenge to the tax evasion conviction is meritless and requires no discussion. However, several of his contentions involving the sentence enhancements applied in this case present novel issues. As dis-
I. FACTS
Barakat was the head of the Broward County Housing Authority (“Authority“) during the late 1980‘s. His contract with the Authority barred him from working for clients other than the Authority, and Florida law prohibited him from holding any employment or having any contractual relationship with any entity that did business with his agency. In the event that Barakat had outside income exceeding 5 percent of his annual Authority salary, he was required to file a public disclosure statement.
During his tenure with the Authority, Barakat gained experience working with the United States Department of Housing and Urban Development (“HUD“) and the Federal Housing Authority (“FHA“). He also became acquainted with Frank Daniels, an executive of the Benton Mortgage Company. Benton Mortgage financed $26,600,000 of the Authority‘s projects while Barakat headed the Authority. At the same time, Benton Mortgage was seeking to finance several HUD and FHA projects around the country, including projects in San Antonio and Los Angeles. In its application to the San Antonio and Los Angeles housing authorities, Benton Mortgage listed Barakat as a reference. When representatives of the Los Angeles and San Antonio authorities contacted Barakat, he gave Daniels and Benton Mortgage favorable references. Both of those housing authorities thereafter selected Benton Mortgage to help finance their projects.
Sometime after Barakat gave those favorable references for Benton Mortgage, Daniels instructed a Benton Mortgage loan underwriter to pay E. Lewis Fields, an attorney, a $5,000 “referral fee.” The underwriter who received those instructions had worked closely with Daniels on the San Antonio project but he had never heard of Fields and, as far as he knew, Fields had not performed any legal work on the project.
In 1990, a federal investigation began to focus on Fields’ law firm. Investigators discovered that Fields had received large fees on at least two bond issues and that those fees were deposited into his firm‘s trust account instead of an operating account. In reviewing documents subpoenaed from Fields’ law firm, investigators came across five checks that had been drawn on Fields’ trust account and made payable to Barakat in 1989. The total amount of these five checks was $9,666.
The government interviewed Barakat in connection with its investigation of Fields. During his interview, Barakat told the government that in 1989 he had done some consulting work for Fields on projects “located in San Antonio ... and Los Angeles.” He had been hired, he claimed, based on his experience in dealing with HUD and FHA. After further questioning, he admitted that he had done the consulting work for Benton Mortgage and Frank Daniels, for which he had received $15,000. According to Barakat, Fields had initially received the $15,000 but the funds were thereafter split, with two-thirds going to Barakat and one-third being kept by Fields.
The government investigated Barakat‘s story. Bank records revealed that Benton Mortgage had written two checks to Fields. The first, for $5,000, was deposited in Fields’ trust account on December 30, 1988. The second, for $10,000, was deposited in Fields’ trust account on January 31, 1989. On January 10, 1989, a check drawn on Fields’ trust account for $3,333 was made payable to Barakat. On February 16, 1989, Barakat received a second check, for $5,000, drawn on that account. Later in 1989, Barakat received three additional checks from the trust account in the amounts of $700, $333, and $300. The government determined that Barakat had not reported any of the money he received from Fields’ trust account as income in 1989.
Based on its investigation, the government obtained an indictment of Barakat for conspiracy to commit mail fraud and income tax evasion. The government introduced the evidence of Barakat‘s relationship with Benton Mortgage, the recommendations made by Barakat to the Los Angeles and San Antonio housing authorities, the suspicious payments from Benton Mortgage to Fields’ trust account, and the payments from Fields’ trust account to Barakat. Apparently, the government‘s position was that these activities were part of an illegal “kickback” scheme, in which Barakat aided Benton Mortgage in obtaining business by using his position at the Authority in return for money. A jury acquitted Barakat on the mail fraud conspiracy charge, but convicted him on the income tax evasion charge.
The United States Probation Office prepared a Presentence Investigation Report (“PSI“) for Barakat and, in accordance with the jury‘s verdict that the tax loss did not exceed $5,000, calculated Barakat‘s base offense level at eight. See
At his sentencing hearing, Barakat objected to the PSI on several grounds: (1) that the income he did not report was not derived from criminal activity; (2) that he did not receive more than $10,000 in any year; (3) that the government failed to establish that he had abused a position of trust; (4) that the government failed to establish that he had used sophisticated means to commit the offense of income tax evasion; and (5) that he should not be given an enhancement for being “an organizer or leader” of the criminal activity.
At the sentencing hearing, IRS Special Agent Steven Musgrave, who was stipulated to be an expert on tax matters, testified that Barakat should have reported $15,000 in income rather than $9,666. Musgrave testified that the entire $15,000 was income to Barakat and that the $5,334 Barakat “paid” to Fields could not be deducted as an “ordinary and necessary expense.”
The district court found that the evidence concerning the tax count and the mail fraud conspiracy count were “inextricably intertwined,” because the court could not distinguish between the acquitted conduct and the conduct underlying the tax evasion count. However, the court stated that even if it did manage to separate the evidence concerning of tax evidence from the evidence of mail fraud conspiracy, it would still determine that Barakat‘s base offense level was twelve, because Barakat had received more than $10,000 in income from criminal activity in one year. The court found that Fields was just a “conduit,” and therefore rejected Barakat‘s suggestion that he should not be held accountable for the full $15,000 in payments. The court also held that Barakat had used “sophisticated means” in committing the offense, and therefore deserved a two-level enhancement. However, the court rejected the PSI‘s recommendation that Barakat be given a two-level enhancement for being an “organizer or leader” of criminal activity. Finally, the court found that it was “rather obvious” that Barakat had abused the public trust. The court therefore determined that Barakat‘s total offense level was sixteen and
III. STANDARD OF REVIEW
We review de novo the district court‘s interpretation and application of the United States Sentencing Guidelines (“Sentencing Guidelines“). See United States v. Lewis, 115 F.3d 1531, 1536 (11th Cir. 1997). In the context of applying enhancements to specific offense characteristics, this Court has held that our review is de novo. See United States v. Taylor, 88 F.3d 938, 942 (11th Cir. 1996); cf. United States v. Scroggins, 880 F.2d 1204, 1206 n. 5 (11th Cir. 1989) (holding that the misapplication of guidelines to undisputed facts raises a question of law subject to de novo review). However, we review the district court‘s factual findings related to the imposition of sentencing enhancements only for clear error. See Lewis, 115 F.3d at 1536 (citing United States v. Dukovich, 11 F.3d 140, 141 (11th Cir. 1994)).
IV. DISCUSSION
Barakat challenges each of the three sentence enhancements that the district court applied, and we will discuss each one in turn.
A. THE § 2T1.1(b)(1) ENHANCEMENT FOR FAILURE TO REPORT MORE THAN $10,000 FROM CRIMINAL ACTIVITY IN ONE YEAR.
The district court found that Barakat had failed to report more than $10,000 that he received from criminal activity. Barakat contends that he did not receive the unreported income from criminal activity. He argues that because he was acquitted of the mail fraud count, the money he received from Fields’ trust account and did not report on his tax return was not income from “criminal activity.” Moreover, he argues that the government failed to establish that the checks from Fields’ trust account represented the proceeds of criminal activity, with the result being that the district court clearly erred in determining the money he received was obtained from criminal activity. Furthermore, he says, it would be “unfair” and violative of his Fifth Amendment Double Jeopardy and Due Process rights to consider conduct for which he was acquitted when enhancing his sentence.
1. Whether the Court Erred In Considering the Mail Fraud Evidence
Relevant conduct of which a defendant was acquitted nonetheless may be taken into account in sentencing for the offense of conviction, as long as the government proves the acquitted conduct relied upon by a preponderance of the evidence. See United States v. Watts, 519 U.S. 148, 117 S. Ct. 633, 636, 136 L. Ed. 2d 554 (1997); United States v. Frazier, 89 F.3d 1501, 1506 (11th Cir. 1996); United States v. Averi, 922 F.2d 765, 766 (11th Cir. 1991). Courts have uniformly rejected the Double Jeopardy and Due Process arguments Barakat makes, because “the defendant is punished only for the fact that the present offense was carried out in a manner that warrants increased punishment.” Watts, 117 S. Ct. at 636. Moreover, the burden of proof the government carries in a sentencing hearing is the preponderance of the evidence standard, not the “beyond a reasonable doubt” standard. See id. at 637 (citing Witte v. United States, 515 U.S. 389, 401-02, 115 S. Ct. 2199, 2207-08, 132 L. Ed. 2d 351 (1995)). Therefore, the district court was free to consider Barakat‘s conduct which formed the basis of the mail fraud conspiracy charge as long as it was established by a preponderance of the evidence.
2. Whether Barakat Received More Than $10,000 From Criminal Activity
The record before us indicates that the finding that Barakat had failed to report more than $10,000 in income from criminal activity was not clearly erroneous, either.
Furthermore, the district court did not clearly err in finding that Barakat‘s unreported criminal income exceeded $10,000. IRS Special Agent Steven Musgrave testified that the entire $15,000 paid by Benton Mortgage to Fields’ trust account was attributable to Barakat. The district court accepted that testimony, finding that Fields was merely a “conduit,” so that the entire amount was income to Barakat. The district court did not clearly err in finding that Barakat had received more than $10,000 in income from his criminal activity. See Anderson v. City of Bessemer City, 470 U.S. 564, 575, 105 S. Ct. 1504, 1512, 84 L. Ed. 2d 518 (1985)(recognizing that a trial court‘s finding based on a decision to credit the testimony of one of two or more witnesses, which extrinsic evidence does not contradict, can virtually never be clear error); Krys v. Lufthansa German Airlines, 119 F.3d 1515, 1523 (11th Cir. 1997). Whether he received that amount in any one year is another matter.
3. Whether Or Not the More Than $10,000 In Income From Criminal Activity Was Received In One Year
Barakat contends that the district court erred by concluding that he received the $15,000 in “one year.” He points to the undisputed evidence that a $5,000 check from Benton Mortgage was deposited into Fields’ trust account in December of 1988 and a $10,000 check was deposited in January of 1989. Because Barakat used a calendar year as his tax reporting period and the checks arrived in different calendar years, he argues he did not fail to report more than $10,000 in any one year.
The government argues that the district court was correct, because Barakat received the money during a time period of less than one year, i.e. less than twelve months, even though that time period spanned parts of two calendar years. Counting from either Benton Mortgage‘s payments to the trust account or from the checks to Barakat, Barakat did receive all of the money in a twelve-month period spanning parts of 1988 and 1989. Therefore, the government asserts, he failed to report more than $10,000 in income in one year.
The resolution of this issue depends on the definition of a “year” for the purposes of
The
The government concedes that Barakat did not receive more than $10,000 from criminal activity in 1989. Therefore, we hold he did not fail to report more than $10,000 from criminal activity in calendar year 1989—the “one year” for the purposes of
B. THE § 3B1.3 ENHANCEMENT FOR “ABUSE OF A POSITION OF TRUST”
The district court also gave Barakat a two-level enhancement pursuant to
The resolution of this issue depends on our delineation of the boundaries of what is an abuse of trust for the purposes of
If the defendant abused a position of public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the offense, increase [the sentence] by two levels.
The commentary provides an elaboration about which abuses of trust are contemplated by the guideline:
The position of trust must have contributed in some substantial way to facilitating the crime and not merely have provided an opportunity that could easily have been afforded to other persons....
This Court‘s case law is lean on the issue of when an abuse of trust facilitates or contributes in a significant way to the commission or concealment of an offense. In United States v. Mullens, 65 F.3d 1560, 1566 (11th Cir. 1995), we noted that the Sentencing Guidelines require that the abuse of trust “must have contributed in some significant way to facilitating the commission or concealment of the offense,” but, our holding in Mullens was based on another ground, that the defendant‘s cultivation of ordinary social relationships did not place him in a “position of trust.” See id. By contrast, in this case it is clear that Barakat was in a position of trust and that he abused that trust to obtain the income he did not report on his 1989 tax return.
Other circuits have addressed the issue now before us more directly. In United States v. Broderson, 67 F.3d 452, 456 (2d Cir. 1995), the Second Circuit held that an enhancement for an abuse of trust requires that the discretion or trust abused must have been placed with the defendant by the victim. Because the defendant in Broderson was placed in a position of trust by his employer but not by the government, which was the entity victimized by his fraudulent statements, the
The Seventh Circuit has applied the
It is enough that identifiable victims of Bhagavan‘s overall scheme to evade his taxes put him in a position of trust and that his position “contributed in some significant way to facilitating the commission or concealment of the offense.”
Id. (citation omitted).
However, Judge Cudahy dissented in Bhagavan, because he recognized that the majority had failed to tie the abuse of trust closely enough to the offense of conviction. He explained:
[A]lthough minority stockholders may be victims of the diversion of revenue, they are not victims of the crime of conviction—tax evasion—or any other crime, for that matter. Thus, there is no nexus between the putative victims, the minority stockholders, and the crime of conviction, tax evasion. No nexus, no enhancement....
Id. at 194 (Cudahy, J., dissenting).
We agree with Judge Cudahy‘s statement, however, we believe it is more accurate to phrase the required connection as between the abuse of the position of trust and the offense of conviction. That is how the Sentencing Guidelines themselves phrase it. They say that the defendant‘s abuse of trust must “significantly facilitate the commission or concealment of the offense.”
The Sentencing Guidelines provide examples of what constitutes “significant facilitation“:
This adjustment, for example, would apply in the case of an embezzlement of a client‘s funds by an attorney serving as a guardian, a bank executive‘s fraudulent loan scheme, or the criminal sexual abuse of a patient by a physician under the guise of an examination.
Applying the concept drawn from those examples to this case, it is clear that Barakat did not use an advantage he, as distinguished from an ordinary criminal, had in order to commit the crime of tax evasion. The government‘s contention that Barakat abused his position of trust to obtain the income he did not report would broaden the crime of tax evasion to include the manner in which the income was obtained. However, the law prohibiting tax evasion is neutral as to the method by which the defendant obtained the income, caring not whether it was ill-gotten or richly deserved. The crime of tax evasion is simply the willful filing of a return known to be false. See
C. THE § 2T1.1(b)(2) ENHANCEMENT FOR USE OF SOPHISTICATED MEANS
The district court also gave Barakat a two-level enhancement pursuant to
1. Standard of Review
This Court has addressed the issue of what “sophisticated means” are once before, and then only briefly. In United States v. Paradies, 98 F.3d 1266, 1292 (11th Cir. 1996), we held that the district court did not clearly err in enhancing the defendant‘s conviction for tax evasion where the evidence showed that the defendant routinely transferred money through shell corporations. Although reaching that conclusion in Paradies, we did not discuss in any detail the standard by which this Court would review the district court‘s application of the sophisticated means enhancement.
The Sentencing Guidelines explain that “sophisticated means ... includes conduct that is more complex or demonstrates greater intricacy or planning than a routine tax-evasion case.”
In Koon, the Supreme Court noted that findings of fact relevant to sentencing decisions are to be accepted unless clearly erroneous. See id. at 116 S. Ct. at 2046. That is essentially what this Court did in Paradies. See 98 F.3d at 1291 (accepting the district court‘s finding that the defendant had used shell corporations to conceal his income because it was not clearly erroneous). The Supreme Court did note in Koon that if the district court makes a ruling of law in its sentencing decisions, the court of appeals “need not defer to the district court‘s resolution of the point.” 518 U.S. at 116 S. Ct. at 2047. Therefore, we will review any rulings of law made by the district court in conjunction with the sophisticated means enhancement de novo.
2. Discussion
Barakat argues that in committing the offense of tax evasion, his only act was to misrepresent his 1989 income on his tax return. He asserts that because everyone fills out a tax form, his means of committing tax evasion are no different than the means used by anyone else, and therefore he cannot be said to have used “sophisticated means” to commit the offense of tax evasion. That contention misses the mark, because it focus-
Barakat also relies on United States v. Stokes, 998 F.2d 279 (5th Cir. 1993), to argue that he did not use “sophisticated means” to conceal his tax evasion. In Stokes, the Fifth Circuit held that the defendant‘s concealment of income from her accountant could not be “sophisticated means” for the purposes of
Second, we do not think that merely failing to report income to an accountant, which is all that was involved in Stokes, is analogous to using an attorney‘s trust account. As the government points out, because Benton Mortgage paid the $15,000 to Fields’ trust account, no IRS Form 1099 (used to report payments to non-employees) was generated. As a result, Barakat could fail to disclose the Benton Mortgage payments knowing that, in the absence of a Form 1099, it was unlikely the IRS would ever become aware of that income. Therefore, based on the evidence, we could not say that the district court clearly erred in finding that Barakat had used “sophisticated means” to conceal his tax evasion if we were convinced the district court‘s reasoning was untainted by any error of law.
However, more analysis is required. While this is essentially a factual issue, which is entrusted primarily to the district court, see Koon, 116 S. Ct. at 2047, Barakat asserts that the court committed legal error by taking into consideration conduct pertaining to the mail fraud conspiracy count when deciding whether to apply the
The district court stated that, had it considered only the evidence relating to the tax count, it would not have given Barakat an enhancement for either an abuse of trust or use of sophisticated means. We read that statement to mean the district court found that Barakat had used sophisticated means to conceal his mail fraud conspiracy, but not his tax evasion. If that is the district court‘s holding, it is error. However, it is unclear how the district court could consider only evidence relating to the tax count when it noted that the evidence relating to the mail fraud conspiracy and tax evasion charges was “inextricably intertwined.” Given this uncertainty, and because the issue of whether the use of a trust account in these circumstances is a “sophisticated means” of concealing tax evasion is a close question,1 we vacate the district court‘s imposition of this enhancement and remand for a reconsideration in light of our holding that only evidence relat-
V. CONCLUSION
Barakat‘s conviction for tax evasion is AFFIRMED. We VACATE his sentence and REMAND to the district court for further proceedings consistent with this opinion.