RATZLAF ET UX. v. UNITED STATES
Legal provision: 31 U.S.C. 5322
IN THE SUPREME COURT OF THE UNITED STATES
WALDEMAR RATZLAF AND LORETTA RATZLAF, Petitioners v. UNITED STATES
November 1, 1993
The above-entitled matter came on for oral argument before the Supreme Court of the United States at 12:59 p.m.
STEPHEN R. LaCHEEN, ESQ., Philadelphia, Pennsylvania; on behalf of the Petitioners.
PAUL J. LARKIN, JR., ESQ., Assistant to the Solicitor General, Department of Justice, Washington, D.C.; on behalf of the Respondent.
CHIEF JUSTICE REHNQUIST: We'll hear argument now in No. 92-1196, Waldemar Ratzlaf and Loretta Ratzlaf v. the United States.
ORAL ARGUMENT OF STEPHEN R. LaCHEEN, ESQ. ON BEHALF OF THE PETITIONERS
MR. LaCHEEN: Mr. Chief Justice, and may it please the Court:
The case before the Court this afternoon involves a statutory construction. The statute in question is part of the antistructuring act. It's title 31, U.S. Code section 5322, as it is applied to section 5324.
The statute was enacted in 1986 to become effective in 1987, and the Ratzlafs were convicted -- the statute punishes the structuring of financial -- currency transactions with financial institutions for the purpose of evading the reporting requirements. The Ratzlafs were tried for activities on their part which took place in 1988, approximately 1 year after the statute became effective, for engaging in several transactions without any knowledge on their part that what it was that they were doing was prohibited activity.
The question before this Court is the interpretation of the word "willfully" as it is used in section 5322 to apply to section 5324.
The statute -- and in the lower court, the court charged the jury that it was not an essential element of the offense that the Ratzlafs knew that structuring was prohibited. That it was sufficient if the Government established that there was a financial institution and that there was a reporting requirement, that the Ratzlafs knew about the reporting requirement and they acted with the intent to "frustrate" that reporting requirement. That was the specific word that was used. The court's specific --
QUESTION: Mr. LaCheen, you said a moment ago that the Ratzlafs acted in this case without any knowledge of the prohibition against structuring.
MR. LaCHEEN: That's correct.
QUESTION: There's no finding to that effect, is there?
MR. LaCHEEN: No. The judge excluded that as a defense on their part. He specifically told the jury that the jury was not to consider whether or not -- that was not an essential element of the offense, knowledge that structuring was prohibited.
QUESTION: So that the jury found what it did without any instruction that the Ratzlafs be required to know about the structuring. But we don't know as a fact what they knew, and presumably it's not material.
MR. LaCHEEN: That's correct, Your Honor, it is not material to the Court's determination. What is material is the specific mens rea that is required to sustain a conviction in this case. The case went to the jury without that element, and we submit that a requisite element should be the intentional violation of one's own known legal duty. And that is what we submit that the word "willfully" means as it is used in section 5322 to apply to 5324.
Initially, let me say that in -- the words of 5322 simply say that a person who willfully violates this subsection -- and there an argument can be made, and I suppose should be made, that those words themselves require knowledge of the statutory prohibition. 5322 does not say anybody who commits the following acts is guilty of willful structuring. It says willful -- willfully violating this subchapter, or any regulation under this subchapter.
Now, we understand that the cases indicate that this is an ambiguity, and we submit that we can refer to statutory construction, and language construction in the statute itself, to support our argument that what "willfully" means in this context is, in fact, the intentional violation of one's own legal duty.
I point first to the fact that if that's not what "willfully" means, then "willfully" doesn't mean anything in this context, because 5324 makes unlawful structuring for the purpose of evading the reporting requirement. And there is no criminal penalty in 5324, that was enacted in 1986. To find a criminal penalty, one must look to 5322. 5324 was enacted to become part of this subchapter. 5322 it is, which says willful violations are criminally penalized.
And so, therefore, if one must structure a transaction for the purpose of evading the reporting requirement to commit the unlawful act or the prohibited act under 5324, what more is needed with the word "willfully" in 5322 except knowledge that one is violating a known legal duty that is one's own legal duty? Because, as you see, 5324 is the structuring statute which applies to the depositor, and 53 -- it does not create the duty on the depositor. So "willfully" must, in fact, have that meaning, or it doesn't have --
QUESTION: You say 5324 doesn't create a duty on the depositor.
MR. LaCHEEN: 5324, does, Your Honor. It's the -- the structuring with the intent to evade the reporting requirement is what is made unlawful in 5324. The reporting requirement is the bank's obligation to file the report for the CTR. It is only the willfulness, which comes in in 5322, which makes it a criminal offense, and that's why we say the use of the word "willfully" in 5322 to apply to 5324, that supplies the additional -- the requisite element of mens rea that is required.
The second argument --
QUESTION: But isn't it correct that 5322 doesn't just apply to 5324? It applies to a lot of other sections. And the word --
MR. LaCHEEN: That's correct. And that's another --
QUESTION: The word "willfully" would have meaning with respect to those other sections, whether or not it has meaning with respect to 5324.
MR. LaCHEEN: Justice Scalia, you've anticipated --
QUESTION: So you can't say that "willfully" is read out of the statute otherwise.
MR. LaCHEEN: It's read out of the statute insofar as it would apply to 5324. Then it has -- then what is the difference --
QUESTION: That's a good deal weaker argument. I mean, you're just saying that they put in a word in 5322 that has substantial application in a lot of other aspects; it happens to have no application with respect to 5324.
MR. LaCHEEN: Well, we don't say it has no application. We say it has every application to 5324.
QUESTION: But on their theory, it happens to have.
MR. LaCHEEN: On their theory, that's what they say. But Congress -- I think one of the principles of statutory construction is that Congress must presume that every word in a statute has meaning, and one of the other arguments I wish to make is that by the time 5324 --
QUESTION: Has all the possible meanings it could? This has meaning. It has meaning with respect to other sections. It just has no meaning, as you say, with respect to 5324.
MR. LaCHEEN: But Congress was aware in 1986 when it enacted 5324, without using the word "willfully" or any other word to describe the requisite intent, that "willfully" had already been defined and construed in numerous other cases to mean the intentional violation of a known legal duty.
And so one of our other arguments, which Your Honor had anticipated, is that in 1986 when Congress enacted 5324, knowing what these other cases had decided with regard to sections 5313, 5314, 5316, then they incorporated into 5324 by putting it in the subchapter, the same subchapter, where the only criminal penalty was in 5322, which is defined as being a willful violation, then Congress well knew what they were doing.
In fact, Congress had the option to change the intent requirement, when it passed 5324, to consider using the word "knowing" instead of the word "willful." That was not accepted. And so we say that knowing what the interpretation had been up to that point, Congress incorporated by placing 5324 within that same subchapter where it was subject only to the criminal penalty in 5322, then Congress well knew what it did and did it intentionally, willfully if I may use that word, to require 5322 to apply to 5324.
The second argument that we make is that unless "willfully" in this context is read as meaning exactly what we say it means, which is the intentional violation of a known legal duty, then the word would have two different meanings in its same use in the same sentence, because "willfully" has, as I mentioned earlier, been interpreted in a context of these other cases as requiring the intentional violation of one's own legal duty.
When the courts -- all of the circuits interpreted the other sections: 5313, which was the section requiring the banks to file the currency transactions reports, and 5314 and 5316, which was the statute which prohibited the movement of in excess of $10,000 across international lines. The word had been defined in all of these other cases. Why would the word "willfully" be used in those to relate to all of those subsections, to mean --
QUESTION: Now, Mr. LaCheen, did Congress use the same statutory language for international structuring violations?
MR. LaCHEEN: I believe it's close enough so that the issue was exactly the same when it was decided by the court, Justice O'Connor.
QUESTION: And do you think -- and what result should we reach on the willful requirements or the mens rea requirement under the international structuring?
MR. LaCHEEN: That a person had to know that they were, in fact, violating what the proscription was against moving $10,000 -- in excess of $10,000 without filing a report. The cases --
QUESTION: You think the requirement would have to be the same.
MR. LaCHEEN: Yes, I do. In fact, I think as a result of those decisions we now have notices in all the airports and in all the boat ports where people come and go across the border. There is a warning.
Strangely enough, this is the one situation, in this, where the depositor is never warned. In fact, when the Government had an opportunity to give a warning and the Treasury Department suggest -- proposed certain regulations to provide warnings in all the banks, that sat there for 6 or 8 months and then, at the behest of the Department of Justice, Treasury withdrew. So you can go into any bank. There's not a bank that you can go into in this country where you will be warned that the activity which is proscribed by 5324 is prohibited activity.
QUESTION: Well, how much good does a warning poster do? Is it up with the 10 public enemies on a bank bulletin board?
MR. LaCHEEN: Judge, it does the same as it does outside this building when you walk in and it says don't bring guns or drugs here. It's the same as when you see one in the subway that says no spitting on the sidewalk. If you don't know what it is that you're not supposed to have done, unless the act is itself a malum in se or some -- has it's own evil motive, I believe then you must have a warning. Excuse me.
QUESTION: Well, so these warning notices are posted. Then what effect do they have at a trial where you're talking about the issue of intent?
MR. LaCHEEN: You have the -- you have the effect of the Government being able to say, these people can't say they didn't know that structuring was prohibited. This is the sign that was in the bank. And the Government would hold up a large sign that says --
QUESTION: They take the stand and testify it was over there with the public enemies list; I never looked there.
MR. LaCHEEN: That may then be a jury question, which the jury would be entitled to consider, just as this Court -- if I remember correctly, when you sent Cheek back for retrial you said, of course, one of the things that the jury will consider is whether this man's subjective belief was a good faith subject belief.
This would go to the jury the same way. The problem here was that these people were deprived of presenting their good faith defense on this issue. They were convicted for conduct which might very well have been totally innocent conduct, because --
QUESTION: Mr. LaCheen, that's a point that your brief left me in doubt about, because sometimes you characterize what they did as a mere regulatory violation of 5324, and at other times you seem to say that what they did, absent "willfulness," as you define it, was no offense at all. So what is it? Is what they did a mere regulatory violation or is it no violation at all?
MR. LaCHEEN: What the Ratzlafs did was no violation at all. There is some provision for regulatory violation where the Court could adopt a different standard, for example, for the forfeiture provisions for -- in the same statutory scheme there are various offenses. One, you know, commission of certain acts under the scheme subject you to forfeiture; commission of certain other acts subject you to a civil penalty; commission of the acts in this case were deemed sufficient to subject them to criminal liability; and then you have the money laundering.
There's a whole hierarchy, and one of our arguments is that unless -- if this Court adopts our rationale for "willfully," that puts it in its proper place in this hierarchy. The Ratzlafs simply didn't commit an offense.
QUESTION: When you say a different standard, you're referring to the possibility of a reckless standard in the civil context?
MR. LaCHEEN: Yes, Justice Souter. For a lesser penalty then, it would be conceivable that a lesser standard, either -- if not, you know, direct disobedience, then perhaps disregard of whether or not there is a statute that applies to -- for example, to use the regulatory cases like McLaughlin and Hazen Paper where there is a different standard because we're talking about a different penalty.
The cases that seem to have discussed these various points seem to indicate that you can supply -- there is a requisite mental element in every offense. The question is what is the appropriate element for the offense in question, and the word has been defined differently in different cases.
You have -- if you have an offense which is itself malum in se, then the act itself is sufficient. If you have an offense which is a regulatory violation or an offense which involves a dangerous instrumentality, then the courts have said, well, maybe a little bit less is needed. Maybe because you're doing this -- I'm sorry.
QUESTION: Is it malum in se that ought to be the test, or is it rather whether the act in question is an act that no one would be likely to do for other than a bad motive?
MR. LaCHEEN: I think -- I would --
QUESTION: Then why -- and why would anyone want to avoid this reporting requirement that could possibly -- it's not that if you had to report you had to fill out any papers. You didn't have to fill out any papers, the bank would, right?
MR. LaCHEEN: You have -- yes, but you do have to disclose not only all of your identifying information -- which, by the way, these people did -- but also the fact that you have this kind of money. There are still people in this country who value their privacy, which Justice Brandeis described as, you know, the mark of a free society. This is --
QUESTION: You're willing -- you're willing to go to 10 different banks and tell each of them that you have $2,000, but not to go to one and --
MR. LaCHEEN: To some people it's important.
QUESTION: -- Say that you have $10,000.
MR. LaCHEEN: To some people it is --
QUESTION: You think that's plausible?
MR. LaCHEEN: It's plausible if you feel that strongly about your privacy and don't think that the Government has to know everything that it's not entitled to know. The conduct here is only avoidance, Justice Scalia. It's not an evasion.
QUESTION: It's avoidance of a nonburden as far as I can tell, and therefore avoidance that has the smell of malefaction about it. I can't understand why anyone would want to avoid this particular imposition except for the Government not to know that this person has $10,000 in cash, that came from God knows where because it wasn't reported on the income tax return.
MR. LaCHEEN: Why don't we simply use exactly what the situation was in this case, which is that these people were already being looked at by the Government and they simply didn't want the Government to have one shred more additional information about them than the Government was entitled to have. And so therefore -- it's just like if you happen to know that there's a subpoena out for you and you choose not to be served. There's nothing wrong with avoiding service as long as you haven't committed an illegal act. And the tradition is deeply rooted in the American --
QUESTION: I thought the requirement was evade?
MR. LaCHEEN: Except that it's been read out of the statute the way in which the judge here -- the position that the Government takes and the way in which the court instructed the jury. Evade has been equated with avoid, and so what they've done is that they have removed totally the element of moral blameworthiness. Because all you have to do to be convicted is, for example, go to the bank and simply knowing that the bank has the reporting requirement, which doesn't say that there's any duty on you, you simply act in a way so as not to trigger the regulation that applies.
QUESTION: Well, did you get a charge on the question of evading?
MR. LaCHEEN: The charge -- was there a charge on evading? There was a charge that specifically requested that they have knowledge that the statute -- that structuring was prohibited. There --
QUESTION: That doesn't answer my question.
MR. LaCHEEN: Yes, I know, I'm begging that. I do not think there was a specific question -- a specific request for evading.
QUESTION: Did you request such a charge?
MR. LaCHEEN: We were not trial counsel, Your Honor, but --
QUESTION: Well, then did trial counsel request it?
MR. LaCHEEN: I do not think that was requested. I think the definition that was given to the jury obviated that request. We can -- I believe at page 13 of our appendix, the court read the regulation and the regulation defines evading so that it means avoiding. It simply says for purposes of section -- the court has it: "A person structures a transaction if that person, acting alone or in conjunction with or on behalf of other persons, conducts or attempts to conduct one or more transactions in any amount at one or more financial institutions at one or more days in any manner, for the purpose of evading the reporting requirements."
Evading was defined as it is used in the statute. I you simply did what was necessary to avoid the report being made, you were -- you had, in fact, evaded.
QUESTION: Well that was a definition of regulation, not of a statute, wasn't it?
MR. LaCHEEN: That's correct. Your Honor is correct in that. Let me see, where am I?
The other point I wished to make -- and this picks up what we've discussed previously -- was that it seems to be -- it has been traditional and is deeply rooted in the American system of criminal justice that there must be some moral -- some concept, some component of moral blameworthiness, not simply just an act which may avoid the onus of a legal regulation or, in fact, a tax.
I mean, this has been traditional. If a line is -- if the law draws a line, the avoidance of that line by legal means, it does not subject one to any legal censure. I mean, this Court said that in 1873 in Isham versus -- U.S. v. Isham, where, on facts extremely similar to this, a man decided to issue drafts in amounts less than $10 -- actually, less than $11, because the stamp duty tax applied to drafts in amounts exceeding $10. So this --
QUESTION: Well, it makes sense to me. I mean, the man didn't want to pay more money. I don't have to attribute any nefarious motive. If going above $10 bucks makes you pay a tax, I'd say you're just avoiding the tax.
MR. LaCHEEN: And that's what we have here.
QUESTION: I can't, for the life of me, understand why someone would go to all this trouble, go to all these different banks, in order to save the bank the trouble of filing this statement. No tax on him, no filling out of forms, nothing except that the bank has to fill out forms.
MR. LaCHEEN: Let me give you another situation. Perhaps this will answer --
QUESTION: It smells bad to me.
MR. LaCHEEN: This statute, as it is currently applied -- it has not only been applied to these people, but we cited another situation in our brief in which a legitimate businessman who is very busy and makes one deposit of cash a week for years and years. He's busy. He doesn't have time to run to the bank every day.
And the bank then says to him we re not going to exempt your deposits any more; you're now going to have to file a report every time you put in $10,000. He values his privacy. And the bank says, anyway, we've been telling you to put more money in. The man does that. He deposits his money twice a week instead of once a week. He's guilty of structuring.
That's not a made-up case. That's one of the -- that's a defendant whose case is pending cert. And if you accept the Government's analysis of what "evade" means, that it doesn't mean anything more than avoid, and you accept the Government's argument, which the court did in this case, that all you had to do was tell -- know that there was a bank reporting requirement, then your actions in avoiding exposing your business and invading your privacy constitutes some kind of an offense without any act of moral blameworthiness on your part.
I ask leave to reserve 5 minutes for rebuttal. Thank you.
QUESTION: Very well, Mr. LaCheen.
Mr. Larkin, we'll hear from you.
ORAL ARGUMENT OF PAUL J. LARKIN, JR. ON BEHALF OF THE RESPONDENT
MR. LARKIN: Thank you, Mr. Chief Justice, and may it please the Court:
We start with the elementary principle that ignorance of the law is no excuse. And we, like 10 of the 11 courts of appeals that have considered the question presented in this case, believe that that principle, considered together with the standard tools of statutory interpretation, show that it is our theory of the case and not petitioners' that is the correct one.
So let's start with the text of the statute. Section 5324 requires the Government to prove that a person structured a transaction for the purpose of evading the reporting requirement. The jury was so instructed in this case. The instructions are in the Joint Appendix at pages 11 to 12 of our brief, and there is no complaint raised by the petitioners that those instructions, in that regard, were erroneous.
Section 5322 imposes criminal liability if a person acts willfully, and this Court in various cases such as Browder, Murdock, and most recently Cheek, has said that the term "willfully" generally means intentionally rather than inadvertently, accidentally, or negligently. Now, the Court has gone on to say --
QUESTION: That's -- the price of adopting that interpretation here is redundancy of the requirement.
MR. LARKIN: Not across the board, as Justice Scalia pointed out.
QUESTION: Yeah. But in -- with respect to this transaction, it is absolutely redundant on your theory.
MR. LARKIN: And we don't see that as being a flaw, and let me explain why, if the structuring -- of the way the statute is put --
QUESTION: You're a very tolerant man.
MR. LARKIN: Well, Your Honor, the reason is this: Congress didn't pass section 5324 as a model code of money laundering. Congress didn't pass this statute to completely revamp the whole area. It has a precise problem that it wanted to focus on. There were two lines of lower court cases that had addressed this problem here, structuring transactions to evade these reporting requirements which Congress, in 1970, believed were an invaluable means of helping to root out money laundering.
There was a line of cases typified by decisions such as the Tobon-Builes case, which has come to be known as the leading case in this area from the Government's perspective, that were decided by the Eleventh Circuit, and there a similar decision by the Second Circuit. There were contrary decisions by the First and Ninth Circuits, so that in different parts of the country it was clear that the same conduct could and could not be criminally prosecuted, and Congress passed this statute to deal with that precise problem.
So in this context, if there is some redundancy we're willing to accept that fact. The reason is the principle that the other side relies on, the canon against construing something to create redundancy, we agree is a valuable one, but it's not invaluable in every context. It's most valuable in the context that I've mentioned; it's far less valuable in this one. And --
QUESTION: Not unless it's no value at all. I mean your argument is that the 5324 offense is just what it would be if you never had 5322. 5322 adds nothing.
MR. LARKIN: That's right. Because 5324 was added to deal with this problem.
Congress passed this statute and added the scienter requirement to deal with the precise problem that it had to focus on because of that, as I said, clear disagreement among the lower courts. And Congress added the scienter requirement that it believed was necessary. It didn't add the scienter requirement that was discussed in cases such as Bishop and Pomponio. They were on the books. Congress could have added that requirement, as petitioners believe they did, but Congress didn't do it.
QUESTION: What was the scienter requirement you say Congress was addressing in 5324?
MR. LARKIN: The scienter requirement discussed in the lower court cases such as Tobon-Builes, which said that a person violates this statute when he structures a transaction for the purpose of evading the reporting requirement. That's what the Eleventh Circuit said and that's what the relevant committee reports discussed. Those committee reports can be found at pages 33 to 35 of our brief. That's what Congress focused on as far as the relevant scienter requirement in this statute.
QUESTION: So you say Congress was there addressing exactly the same issue we're dealing with here.
MR. LARKIN: Yes, Your Honor, I do. That's exactly what happened here in this case. Congress had a very real world, practical problem to deal with, and it focused precisely on that problem, rather than revisiting the entire area of money laundering.
QUESTION: Assuming it did that, why did it use evade rather than avoid?
MR. LARKIN: Because, Your Honor, "evade" is a term that indicates, as Justice Scalia pointed out, a certain nefarious purpose involved. After all, the petitioners here in this case were driving around Lake --
QUESTION: Which is consistent, isn't it, with the argument that they probably intended "willfully" to mean what your opponents say it does?
MR. LARKIN: Not necessarily, Your Honor. Because you can have the term "willfully" used in a context where deception is at issue, and you don't require the heightened scienter requirement that they've discussed. The Browder case that we cited in our brief is such an example. In that case, this Court considered an argument from the Murdock case, which is a case that you -- was the grandfather of this more recent line of tax cases imposing the heightened scienter requirement.
And the Court expressly rejected the defendant's attempt to rely on the Murdock decision in that case. It said instead, in a context where deception was at issue since it was the knowing use and the willful use of a falsely obtained passport, that only an intentional act, not the type of action that the petitioners are asking for, is sufficient. So you can have deceptive conduct, which is at issue here, where you have the lower scienter requirement that we're talking about in this context.
QUESTION: Mr. Larkin, can I ask you a question to help me understand this statute? In the Tobon case, as I remember it, there were several transactions where the man and the woman each bought a $9,500 cashier's check, and so each transaction was structured in the sense that each bank had a duty to report more than $10,000 if it had been done. Now, would the same reasoning apply if one individual went to six separate banks and got $9,500 thinking that no one of those banks would have had a reporting requirement?
MR. LARKIN: Yes. The legislative history, for example, that I mentioned earlier expressly says that if you go to more than one bank you can be guilty of violating the statute. And the regulation that defines structuring also makes clear that going to more than one bank can amount to structuring under the statute.
Now, the problem you've talked about, Your Honor, is a problem dealing more with the actus reas element, the structuring, than the mens rea element.
QUESTION: That's correct.
MR. LARKIN: But what it does indicate, I think is this, that you don't have a situation here where Congress just said there's a line in sand and anyone who crosses it is guilty of illegal conduct. And you're encouraging people to go up to it, as you do in the tax area. In the tax area you require a heightened mental state because this Court has said Congress didn't want to criminalize good faith disagreements with the IRS over tax liability.
This case is different. This is a case where Congress saw what was happening and drew not only a line in the sand, it said you can't go near it. It said you can't structure a transaction for the purpose of evading this reporting requirement, so it was clearly signalling that it wanted people to step back further. So it wasn't a situation like in the tax area where you have, as a good policy argument, the fact that there is socially valuable conduct here.
After all, these people were driving around Lake Tahoe with a shopping bag full of cash. The petitioners have said that this case is a good case, on its fact, to look at, so let's look at it.
QUESTION: How many offenses did they commit?
MR. LARKIN: The way I would -- I would count the unit of prosecution is that when you get to an amount of cash that gets you above $10,000, that's one unit. And you put those aside, and you go on to the next one. So if you have a $9,500 check and a $9,500 check, that's one violation, rather than there being two.
QUESTION: Then if you have a third $9,500 check, that's still another violation?
MR. LARKIN: No. You need the fourth one. One and two are above $10, $10,000.
QUESTION: I see.
MR. LARKIN: Three and four. Now, the unit of prosecution problem has not come up in this case. It wasn't --
QUESTION: I understand.
MR. LARKIN: It wasn't addressed at trial or on appeal. But that's, we think, a reasonable way of looking at this problem here.
QUESTION: Part of the problem for us is to try and decide what it is that the defendant must know before -- to satisfy the requirement of willfulness.
MR. LARKIN: Well, they -- they certainly were engaged in the type of conduct that they had reason to keep from the IRS. After all, in -- this is 1988 in October when this occurred, October 27th. In May of that year they had been told that they were under audit, and they were under audit because the CTR's that had previously been filed by casinos, when crosschecked by computer against their gambling -- excuse me, against their income tax records, showed that there had been a lot of cash transactions at casinos, and they hadn't reported gambling income for 1986.
QUESTION: Could you have submitted this case to the jury based on the instruction that the petitioner wants to give?
MR. LARKIN: No, Your Honor. Even as egregious as the facts are here, we think it's not -- it's not clear that a jury would say that they knew that this was illegal. And, after all, you have bank tellers, bank managers, and even casino --
QUESTION: But there would be a jury question on it, would there not? The --
QUESTION: You don't think this could go to the jury?
MR. LARKIN: I think it's sufficient to allow it to go to the jury. I don't think I can say with a great deal of assurance that a great many juries would find it sufficient. After all, take a look at the record here. You had bank tellers and bank managers conversing with the Ratzlafs, and the bank managers and bank tellers didn't tell them that this was illegal. You had --
QUESTION: Did you -- does the Government prosecute cases on its theory of willfulness in which the bank tellers and the bank managers did not inform the parties?
MR. LARKIN: Prosecute them against who, Your Honor, the bank tell?
QUESTION: No, against individuals accused of structuring. You don't let those cases go, do you? You prosecute it.
MR. LARKIN: Well, we prosecute them on our theory. My point is --
QUESTION: Sure. And when you prosecute them on your theory, you have to prove that they did this for the purpose of evading -- of resulting in the evasion of the bank's reporting requirement, don't you?
MR. LARKIN: Well, that's assuming the facts show that they knew of the reporting requirement. But now here in this case there had been prior CTR's --
QUESTION: Sure. But you don't confine your prosecutions, as a matter of fact, only to those cases in which the bank personnel informed the individuals that they would have to file these reports, do you?
MR. LARKIN: Oh, no, no.
QUESTION: So if it's possible to prosecute those cases in which you've got to find some kind of extraneous circumstantial proof of knowledge of the reporting requirement, I don't know that you're significantly worse off if you've got to find circumstantial evidence of the -- of knowledge of the structuring prohibition.
MR. LARKIN: Well, we think we are, Your Honor. We think that the situation would clearly be far worse from the Government's perspective. But more important --
QUESTION: Do you think many juries are going to come to the conclusion that they had knowledge of the reporting requirement and that they were intending to evade or intending to effect the evasion of that reporting requirement, and not conclude that they -- that they also knew that they were prohibited from doing that?
MR. LARKIN: Your Honor, I fear that a good many juries would. And what's more important, however, is Congress didn't require us to prove that element.
QUESTION: Well, that's -- well, that's the issue in the case.
MR. LARKIN: Right.
QUESTION: The defendant here thinks so, anyway. I mean or this is a waste of time.
MR. LARKIN: I mean there are --
QUESTION: They certainly think that they have a shot at establishing to the jury that they didn't know.
MR. LARKIN: And I'm sure they would, if they were given that opportunity, rely on the sorts of matters that I mentioned, that no one brought it --
QUESTION: Mr. Larkin, could the Secretary have made these CTR's obligatory for the depositor as well? I mean, it's not the financial institution, but also people in the position of the Ratzlafs. Is that something the Secretary could do and then there wouldn't be any question about people having notice?
MR. LARKIN: Well, the Secretary has the statutory authority to impose that obligation on --
QUESTION: And hasn't done it. Is there any indication why?
MR. LARKIN: There's no formal indication why, but I've been advised by the Treasury Department it was designed to avoid creating problems with consumer dissatisfaction of having them fill out the forms, rather than the bank do it. So that was the reason the obligation was imposed on the banks rather than individuals.
I mean that -- that is what gave rise, in part, to the problem that I mentioned earlier. Because since you didn't have an obligation imposed on individuals to fill out these forms, and since there was no express prohibition against structuring transactions to avoid -- to evade the obligation placed on the banks, you had a situation in which people were able to engage in a practice of going around, getting as many $9,500 negotiable instruments as they could.
QUESTION: But in the smell's bad department, it would smell a lot worse if these people -- if they had an obligation and they defaulted on it.
MR. LARKIN: It would smell worse, Your Honor, but we think this is pretty foul right here, and sufficiently foul that what you have is precisely the type of conduct that Congress feared was connected with other and even more serious conduct.
QUESTION: Well, but you would prosecute -- I take it you would have to prosecute if a small business owner used to make one trip a week to the bank and decided to make two just to not be burdened by the reporting requirement, you'd have to prosecute that, wouldn't you?
MR. LARKIN: Well, there -- let me make two points about that, because of the last phrase you mentioned. One is, you can always get -- a business can get an exemption from the bank if the cash is in the normal course of business. In other words, if you run a grocery store and deal in a large quantity of cash, you can ask the bank to exempt you from having to fill out these requirements. The --
QUESTION: No, no, no. But the hypothetical is the businessman doesn't know that there's a structuring requirement. He thinks that what he does is lawful.
MR. LARKIN: Well, he doesn't have to know that it's unlawful --
QUESTION: So it's not as though he -- so he wouldn't ask for an exemption if he thinks what he's doing is lawful.
MR. LARKIN: Well, if -- if he doesn't know of the obligation that the bank has to report these.
QUESTION: No, no. We have to assume that he knows that --
MR. LARKIN: Okay, well if he --
QUESTION: -- Or the hypothetical won't work.
MR. LARKIN: Yeah. If he does -- if he does know that, then he's in a different position. And if he -- if he's been engaged in these transactions for a long period of time and he doesn't get an exemption then, yes, Your Honor, he would be guilty of a technical violation of the act. That would be the type of conduct that could criminally be prosecuted. Now, I would hope it wouldn't happen, but I have to admit that it could.
QUESTION: But why are you putting in "long period of time?" That would be a question of prosecutorial discretion if he does it once, twice.
MR. LARKIN: I was using that phrase because that was the phrase that, I think, the petitioners' counsel used to describe the earlier case that he mentioned. It can happen once or twice. I'm not saying there has to be a long period of time. I was just trying to refer back to the particular case that he had mentioned, so --
QUESTION: There was a point of information that you put in your brief, and I was wondering why you did. And if you thought it was relevant, perhaps you could bring us up to date. But you pointed out in footnote 5, I believe, and 6, that the Ratzlafs were under criminal investigation for tax evasion.
And you give -- you tell us that there was a criminal investigation -- they were contacted by a criminal investigator in November, 1988. And that's -- then you don't tell us any more and you file this in 1993. What are we supposed to infer from the information that in 1987 and 1988 there were the beginnings of a criminal investigation for income tax evasion?
MR. LARKIN: Well, that's part of the historical narrative of what happened. An IRS --
QUESTION: Well, why didn't you bring us up to date a little further, after 1988? Why do you just drop it at that point?
MR. LARKIN: Oh, well this prosecution came thereafter. There wasn't a prosecution for willfully evading taxes. And the record doesn't indicate why these charges were chosen rather than the tax -- a charge under title XXVI. Now I --
QUESTION: So, are you telling us by that that the tax investigation was dropped and this one was substituted for it?
MR. LARKIN: No. This was part of it. This -- it started out as an investigation to determine whether someone had violated the tax laws, and a prosecutorial decision was made to seek an indictment under title 31 rather than title XXVI.
QUESTION: So nothing happened in the criminal case -- in the criminal investigation after November '88. That just sort of --
MR. LARKIN: No, no. This was the criminal case. What I'm saying is the same criminal investigation went forward, but a decision came down the -- a decision had to be made down the road as to what, if any, charges should be brought before the grand jury, and the grand jury should be asked to return a true bill on.
QUESTION: So --
MR. LARKIN: And the decision then was made to seek charges under title 31, rather than title XXVI.
QUESTION: Instead of seeking charges for unreported gambling income.
MR. LARKIN: Right. Those were not brought. Now, the record doesn't indicate why the prosecutor made the decision to go the one route rather than the other.
QUESTION: Mr. Larkin, can I just ask you for some comment on sort of the general thrust that Justice Scalia's questioning raised? Is it reasonable to suppose that a legitimate person would be concerned about the disclosure of this kind of information?
And the question that -- one question that -- I have two questions. One is what is the use made by the Government of this? Does this go to the Internal Revenue Service, is that it, or does it also go to U.S. Attorneys General if you're suspicious of narcotics dealings and all the rest?
And before you answer it, the reason I ask is it occurs to me that a legitimate citizen might think, well, if I have to file this report, I'm increasing substantially the chance of a tax audit. I don't know if -- there's no great sin in not wanting to be audited by the IRS. Is that a possibly legitimate reason for thinking I'd rather not report this and call the Government's attention to the fact I have $11,000 in cash?
MR. LARKIN: Well, Your Honor, the reports go to the IRS, where there are uses made of them such as the one that was made here. If you look at pages 7 to 8 of the April 10, 1991 transcript, and you'll see the testimony of IRS Agent Connie Fox, you will see that she indicates that what happened was the computer did a crosscheck of CTR's filed by gambling casinos involving individuals against the income tax records of those individuals. And it indicated here that there was a fair amount of cash activity involved and there were no gambling winnings reported there.
So it can come up in that way. Now, to my knowledge, these are not generally circulated throughout the law enforcement community, either to other bureaus such as the Federal Bureau of Investigation, or to U.S. Attorneys offices. But I don't --
QUESTION: There are no statutory restrictions on the way they could be circulated, are there?
MR. LARKIN: No. Congress is presently considering whether there should be, but you don't have a statute similar to the one that governs tax returns have to be filed under title XXVI, but it is presently under consideration.
QUESTION: So these forms can trigger an audit.
MR. LARKIN: They did in this case. This is a good proof of it. They --
QUESTION: Is there anything malum in se about an attorney or an advisor telling someone they should structure their transactions to avoid an audit?
MR. LARKIN: Well, it's not malum in se, but i would have to -- I would want to say this, Your Honor.
QUESTION: It isn't bad policy, is it?
MR. LARKIN: Well, it may well be, Your Honor. After all, even if $10,001 in cash shouldn't be treated the same as a hand grenade as in Freed, or dangerous chemicals as in International Minerals, $10,001 in a cash transaction is something that Congress is entitled to believe is very suspicious. After all, that's what we're dealing with here. And the types of crimes that oftentimes lead to money laundering activities are narcotics trafficking, racketeering, and gambling. And so it's not unreasonable for Congress to think that it's a little suspicious --
QUESTION: Yes, but your statute applies to every person who has cash in the United States.
MR. LARKIN: Well, it --
QUESTION: I mean, I had thought that there's nothing wrong with structuring your transaction so the Government knows as little as possible about what you're doing.
MR. LARKIN: Well, Your Honor, I have to, I think, on this point agree with Justice Scalia, that what you have here is activity that, as I've said, is very suspicious, and activity that indicates that someone may have something to hide. Now, it may not be perfect. I can't --
QUESTION: Well, perhaps in this case, but we're interpreting the statute for all cash transactions throughout the country.
MR. LARKIN: That's right.
QUESTION: Most of which are legitimate.
MR. LARKIN: That's right. But this Court said in the Liparota case there may be times when Congress regulates broadly and hopes that prosecutorial discretion will fill in underneath. Congress here had a serious concern that people were using the loopholes that existed in the 1970 statute as a way of furthering criminal activity in the various areas I've mentioned.
If I could completely assure you and other judges that there was never going to be an impermissible prosecution under this, I certainly would do so. I can't. But I do think what we have here is a situation where, fairly read, the statute deals with the precise problem that Congress had considered, given the conflicting lower court precedents.
And, in sum, we think that when you start with the principle that ignorance of the law is no excuse, and when you work through all the other tools of statutory construction, we think that our interpretation of this statute is --
QUESTION: Mr. Larkin, you didn't even cite this U.S. against Isham that was about breaking instead of having -- was it $20, you break it -- the example that was given in that old case was to avoid the stamp tax, it's okay to pay in two units of $10 rather than one of $20. You had to put a stamp on it if you did it in a unit of $20. So you just divide it in two, and it's just done purely for the purpose of avoiding having to pay the Government money.
I thought that case was at least relevant, and wondered why you didn't address it?
MR. LARKIN: Well, I would say it's not a difficult precedence for us for two reasons. One is the one Justice Scalia mentioned, that there's a difference between trying to avoid keeping information like this, which is closely tied to criminal activity, out of the hands of the Government, versus trying to just reduce your tax liability.
And the second is this. That dealt with a statute that, as I said earlier, drew a line and said those who cross it have to engage certain obligations. Here, Congress was drawing a statute that was designed to keep people away from the line. They saw that what had happened before was they drew a line and people found a way through it. They breached it by taking advantage of a loophole. Congress here was trying to make sure there weren't loopholes, so we don't think that Isham case is dispositive here.
QUESTION: In other words, you say that case would be more germane if the statute in question were a statute that made it unlawful to structure your transactions in order to buy two $9.90 stamps instead of one $20 stamp.
MR. LARKIN: That's a reasonable way of looking at it.
QUESTION: That's the kind of statute we have here specifically as to the structuring.
MR. LARKIN: Thank you, Your Honor.
QUESTION: Thank you, Mr. Larkin.
Now, Mr. LaCheen, you have 9 minutes remaining.
REBUTTAL ARGUMENT OF STEPHEN R. LaCHEEN ON BEHALF OF PETITIONERS
MR. LaCHEEN: I don't think I need 9, but I'll do the best I can, Your Honor.
Apropos of this case, I received in the mail not too long ago a book that says "how to win in the no-nonsense nineties." And the first -- published by Board Reports. And it says one of the best things you can do is keep a low profile, because there have never been more legitimate reasons for wanting financial privacy. These days, the more the IRS knows you have, the greater the chance of expensive, time-consuming audits.
And the first thing it says is: "In moving funds into private investments, maintain a low profile. Avoid Government reporting requirements whenever it's legal." This is not some tax --
QUESTION: I suppose the editor of that publication, if he reads our decision in the case and you lose --
QUESTION: -- Will probably let everybody on his subscriber list know what that risk is.
MR. LaCHEEN: I think that's a good faith defense for those people right there, Your Honors.
I want to comment on the lower scienter that was discussed by my colleague. With regard to those offenses, I want to remind the Court that in almost every one of those situations, there was at least an element of moral blameworthiness in the initial act.
One can compare this not to the hand grenade case so much as to, for example, U.S. v. Feola, where this Court said it wasn't necessary that the person who struck an individual knew that the person was a Federal officer to be convicted of the offense of assaulting a Federal officer. In the case of U.S. v. Yermian, this Court decided that you didn't have to know that a falsehood was given to a Federal agency or within the jurisdiction of the Federal agency once you made the falsehood.
But in those cases and every similar case, there was something morally blameworthy in the initial act. It was either an assault, it was perjury, it was a lie, or it was some other act which says, contrary to just having $10,000, there's something morally blameworthy about it.
Counsel astounds with the remark that having $10,001 or $10,000 is some evidence or probable evidence of some criminal conduct. Congress may have thought that because drug dealers engage in large amounts of money, that people that have large amounts of money are necessarily drug dealers. That is not the case.
And if that was the case they could have crafted a statute which the Court and the Government would interpret in such a way as to catch only the guilty, not to catch the minnows in the shark -- in the net that was intended for the sharks. And what we --
QUESTION: Well, Congress, if it chooses, can set out and devise a net that will catch minnows and sharks.
MR. LaCHEEN: If they notify them, Your Honor, absolutely. And the difference in this case is that up to January -- to pick a date -- January 1, 1987, the conduct which the Government wants to use to create the moral blameworthiness here, that is the avoidance of certain regulations, was never considered -- not only was it considered noncriminal, it was never considered unlawful.
So how can doing that act constitute the moral blameworthy element that makes you guilty of what you don't know, which is the fact that there is a statute that specifically prohibits the conduct? This is exactly the kind of case where you have to have knowledge of the statute, because otherwise you don't know that you're violating the law, and the only thing morally blameworthy is that you violated a law which Congress has passed.
QUESTION: There is a statute here which specifically prohibits the conduct, and it's 5324.
MR. LaCHEEN: That's correct, Your Honor. But what the Government says is you do what it says in 5324, and therefore you are -- you've committed an act which is -- subjects you to the criminal penalty of 5322. But prior to January, 1987, no one knew that, and the Government has taken every step not to notify anyone that that is an offense.
QUESTION: Where do you get any requirement like that out of our cases, that every time Congress passes a new criminal statute it has to notify everybody?
MR. LaCHEEN: Only if it is conduct which was not previously blameworthy. In the situations which we have had -- for example, in Morissette, one of the cases, which says where the offense was a common law offense, even if Congress doesn't put the requirement in the statute, the requirement in there.
If the conduct itself -- the badness, the evil intent, the concurrence, as Your Honor said -- the concurrence of the evil-meaning mind and the evil-doing hand. You have to have something that's wrong to make a person subject to a 20-year --
QUESTION: But that's not true.
MR. LaCHEEN: -- Felony.
QUESTION: But that's not true. I mean, really the basic rule is ignorance of the law is no excuse.
MR. LaCHEEN: Except --
QUESTION: Congress need not, and a State legislature need not make knowledge of the law an element. It happens all the time. People, if they choose not to look up the State law as to what the speeding limit is, if they violate it that's their tough luck, whether they knew about it or not.
MR. LaCHEEN: Only because --
QUESTION: All sorts of clauses like that.
MR. LaCHEEN: -- Everyone knows that those conduct -- that that conduct is regulated. If it's bad in itself, if it's conduct which the -- of which it's proper to say you have reason to know it's regulated, then you --
QUESTION: Okay, now we're adding things. What about conduct which --
MR. LaCHEEN: You've just invented --
QUESTION: -- Would ordinarily be done for a nefarious -- not always, but in the ordinary course of things it's conduct that there's no explanation for except something shady?
MR. LaCHEEN: Well, there are hundreds of thousands of businesses -- small businesses in this country -- in this country which deal in cash. Restaurants, luncheonettes, a lot of retail businesses and a lot of wholesale businesses. The case I mentioned before was a wholesale gun dealer. He deals in $20,000 worth of cash a week, puts the money in --
QUESTION: Right. And do they all trot over and deposit only $9,999 at a time?
MR. LaCHEEN: No, they don't all do that.
QUESTION: No, they don't.
MR. LaCHEEN: But they don't --
QUESTION: That's the conduct we're talking about. That's the conduct that seems to me usually to be nefarious.
MR. LaCHEEN: But usually, but not always, and when you --
QUESTION: Not always.
MR. LaCHEEN: When you have a statute which permits the conviction of people who did it with innocent motives, or let's say just non -- say noncriminal motives.
QUESTION: Statutes can do that, though. Statutes can do it. If the only issue here --
MR. LaCHEEN: If you notify people.
QUESTION: The only issue here is whether we should believe that Congress, in this case, has passed such a statute. And it seems to me that if in the vast majority of cases it's going to be picking up people who do have some nefarious motive, then maybe Congress did pass such a statute.
MR. LaCHEEN: I don't think that we've gotten to the point where we don't mind convicting innocent people because we're going to get some guilty people with the same act, and that's what they did with this statute.
QUESTION: What innocent? They violated the law.
MR. LaCHEEN: They didn't violate the law. They didn't knowingly violate the law, and --
QUESTION: Well, of course, Mr. LaCheen, that's, of course, the issue in the case.
MR. LaCHEEN: That is.
QUESTION: But let me just ask you this question, because --
MR. LaCHEEN: Yes, Justice Stevens.
QUESTION: You don't -- you're not arguing any constitutional objection to the Government's reading of the statute.
MR. LaCHEEN: We --
QUESTION: And if it's -- at least assuming you're not, what do you do with the legislative history that suggests they wanted to codify the result in the Tobon case?
MR. LaCHEEN: Two things. One, that's not that -- it's specific that that's what they wanted to deal with. It is not clear that that -- the way in which they resolved it was to lower the element of scienter. They did not change -- and they specifically did not change "willfully" to "knowingly" when they enacted 5324. That being the case, I think it's proper to assume that they continued, in effect, the application of "willfully" as it had previously been developed, and that is what they wanted.
Yes, they wanted the guilty people, but the guilty people are the ones that "willfully" violate the statute, not the guy like Ratzlaf or the guy like Shirk, the other case I mentioned, where people do it as part of their normal business procedure or because they want to maintain their own privacy for a nonnefarious, nonmorally blameworthy act.
QUESTION: In the Tobon case, the argument was made that we didn't do anything that was -- that we had any reason to know it was unlawful. They did --
MR. LaCHEEN: The jury may have rejected that, Justice Stevens. The jury may have rejected it in that case, but at least those people had the benefit of going to the jury, I believe, with that instruction. The people in this case didn't have that benefit. They were told that all they had to know was that there was a requirement and that they acted in such a way so that the bank didn't file the report. They were never told that they had to know there was some duty on them.
And most of the cases which go the other way, which Justice Scalia has mentioned, are cases where the duty is directly upon the person violating the duty. If the -- you're driving down the street, you can say I didn't see that stop sign or that speeding sign, but you're the person in the car and you're the person that has the duty to obey that law.
In this case -- this is a rhetorical question, but I want to know how a depositor who walks into a bank is supposed to know that because the bank has a duty to file a paper, that there's some duty on him to give them the information necessary to file it? And that's what this is about. The duty has been -- there's a kind of transferred; not only a transferred of intent, but a transferred of duty. And I submit that that is so far beyond anything that this Court has ever approved --
QUESTION: If the Secretary had issued a regulation requiring your client to file these transactions, you would have no case.
MR. LaCHEEN: That's a different story. And they didn't do it because they -- that's exactly right. That's a different story, Your Honors.
CHIEF JUSTICE REHNQUIST: Thank you, Mr. LaCheen.
The case is submitted.
(Whereupon, at 1:52 p.m., the case in the above-entitled matter was submitted.)
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 92-1196, Ratzlaf against the United States will be announced by Justice Ginsburg.
Argument of Justice Ginsburg
Mr. Ginsburg: This case presents a question of statutory interpretation.
Federal law requires banks to report cash transactions that exceed $10,000.00.
It is illegal to structure cash transactions above $10,000.00 to break them up into separate transactions to circumvent the reporting requirement imposed on the bank.
The law makes it a crime to willfully violate this prohibition.
Defendant Ratzlaf to pay off a large debt to a casino in Reno, Nevada purchase cashier's check from many banks each check for less than $10,000.00 each from a different bank.
For this conduct he was convicted, fined, and sentenced to prison.
His conviction was affirmed by the Court of Appeals for the Ninth Circuit.
Ratzlaf maintained that the willfulness specification in the law means that the government must prove he knew not only at the banks reporting requirement but of the prohibition on breaking up transactions to evade that requirement.
We agree that to give effect to the willfulness specification, the government had to prove Ratzlaf knew the structuring he undertook was unlawful.
Of course the trial judge did not so charged the jury.
Ratzlaf conviction cannot stand.
We therefore, reverse the judgment of the Court of Appeals.
Justice Blackmun has filed a dissenting opinion in which the Chief Justice, Justice O'Connor and Justice Thomas concur.