United States District Court, D. Massachusetts
MEMORANDUM AND ORDER ON DEFENDANT’S MOTION FOR RELEASE OF FUNDS NECESSARY FOR LEGAL DEFENSE AND ON THE GOVERNMENT'S MOTION FOR ACCESS TO RECORDS FILED EX PARTE AND UNDER SEAL (DKT. NOS. 27 & 145)
KATHERINE A. ROBERTSON, UNITED STATES MAGISTRATE JUDGE
Defendant Syed Bokhari ("Defendant") was initially indicted on charges of wire fraud, money laundering, aiding and abetting contraband smokeless tobacco trafficking, and violations of the PACT (Prevent All Cigarette Trafficking) Act (Dkt. No. 2). The indictment included forfeiture allegations, including an allegation that $1, 015, 523.48 in proceeds from the sale of 147 pallets of smokeless tobacco, cigars, and other non-cigarette tobacco products ("Tobacco Funds"), which the government seized from a warehouse in Scranton, Pennsylvania ("Scranton Warehouse"), was subject to forfeiture.
In December 2014, Defendant filed a motion seeking release of a portion of the Tobacco Funds to retain counsel of his choice (Dkt. No. 27). In July 2015, this court ruled that the government had demonstrated probable cause to believe that the Tobacco Funds were subject to forfeiture under the original indictment and denied Defendant's motion (Dkt. No. 112). The presiding District Judge reviewed this court's order and remanded the matter for a further evidentiary hearing before the undersigned to give Defendant the opportunity to make a showing that he had financial need for part or all of Tobacco Funds to pay counsel of his choice (Dkt. No. 133 at 14). On December 3, 2015, Defendant was charged in a superseding indictment with, among other things, conspiracy under the Racketeer Influenced and Corrupt Organizations ("RICO") Act in violation of 18 U.S.C. § 1962(d) (Dkt. No. 137). The superseding indictment also contains forfeiture allegations, including the allegation that the Tobacco Funds are subject to forfeiture under the RICO Act, 18 U.S.C § 1963(a).
While continuing to press his motion for release of a portion of the Tobacco Funds, Defendant has invoked his Fifth Amendment privilege against self-incrimination (Dkt. No. 141). The government opposes any release of the Tobacco Funds to Defendant and, by motion, seeks access to Defendant's financial information that previously was filed ex parte and under seal, or in the alternative, that the court disregard these filings in any ruling on Defendant’s financial status (Dkt. No. 145). For the following reasons, Defendant's renewed motion for release of funds is denied. In light of the basis for the court's ruling on Defendant's motion, the government's motion for access to records that were filed ex parte and under seal is also denied.
II. Procedural Background
This court's order of July 27, 2015 details the procedural history of this case prior to that date, as follows (Dkt. No. 112). See United States v. Bokhari, Criminal Case No. 3:14-300440-MGM, 2015 WL 4529611 (D. Mass. July 27, 2015) (“Bokhari I”).
On June 5 and 8, 2012, pursuant to search and seizure warrants issued by this court, the government seized assets of Defendant, including bank accounts, motor vehicles, cash, and tobacco products that were in the Scranton Warehouse ("Scranton Tobacco") (Dkt. No. 98 at 1). On October 1, 2012, the government filed a civil forfeiture proceeding for possession of the seized assets (Case # 3:12-cv-30167-RWZ). In November 2013, after certain assets had been returned to Defendant, the parties entered into a settlement agreement in the civil forfeiture case, which provided, inter alia, that the United States would retain custody of the Scranton Tobacco unless the parties agreed to the forfeiture or release of the Scranton Tobacco or the United States filed an indictment that included the Scranton Tobacco as forfeitable, in which case the parties agreed that the United States would retain custody of the Scranton Tobacco until final adjudication of the criminal case, or until such time as "an order for the return of some or all of the Scranton Tobacco prior to the final adjudication of the criminal case was entered by the District Court presiding over such criminal case" (Dkt. No. 279-1 at 13, Docket for Case # 3:12-cv-30167-RWZ).
Bokhari I, at *1-2.
In compliance with an agreement for interlocutory sale between the government and Defendant, the Scranton Tobacco was sold at auction (Dkt. No. 98-3). The 147 pallets of tobacco products yielded the Tobacco Funds, $1, 015, 523.48 after sales expenses (Dkt. No. 96 at 7, Exhs. 41, 42).
On October 16, 2014, Defendant was charged in a thirty-two count indictment with, inter alia, conspiracy to commit money laundering, specific acts of money laundering, and money laundering in violation of 18 U.S.C. §§ 1957 and 2 (Dkt. No. 2). The indictment included the Tobacco Funds as forfeitable property (id.). Defendant’s Motion for Release of Funds Necessary for Legal Defense was filed on November 24, 2014 (Dkt. No. 27). "[F]ollowing a review of [the parties' ex parte] submissions, the court allowed so much of Defendant’s Motion as sought an evidentiary hearing on the question of the Government’s right to a continuing pre-trial restraint on assets Defendant claims he needs to retain his counsel of choice (Dkt. No. 73)." Bokhari I, at *2.
The evidentiary hearing was held on March 26, 2015 (Dkt. No. 88). On July 27, 2015, the court denied Defendant's motion based upon the government's demonstration of probable cause to believe that the Tobacco Funds would be forfeit if Defendant were convicted of money laundering. See Bokhari I, at *7-10, *12. Defendant objected to this court's order (Dkt. No. 120). See Fed. R. Crim. P. 59(a). The government countered that this court's ruling was correct and argued that Defendant should not have been granted an evidentiary hearing because he failed to make the requisite showing of financial need for the funds (Dkt. No. 122). After a hearing on November 19, 2015, the District Judge determined that a "new hearing before [this court] on the question of Defendant's financial need is required" and stated that, to make an adequate showing in support of his motion for release of funds Defendant would need to produce "additional documentary evidence that demonstrates Defendant's net worth and provides a comprehensive listing of his assets, sources of income, expenses, and liabilities" in order for Defendant to prove his financial need by a preponderance of the evidence (Dkt. No. 133 at 11, 13-15). United States v. Bokhari, Criminal Case No. 14-30044-MGM, 2015 WL 7303535, at *6-7 (D. Mass. Nov. 17, 2015) (“Bokhari II”).
On December 3, 2015, Defendant was charged by way of a thirty-five count superseding indictment with the following crimes: racketeering conspiracy, in violation of 18 U.S.C. § 1962(d) (count one); wire fraud (counts two through eleven); aiding and abetting contraband smokeless tobacco trafficking (counts twelve through sixteen); conspiracy to commit money laundering (count seventeen); specific acts of money laundering (counts eighteen through twenty-five); money laundering in violation of 18 U.S.C. § 1957 (counts twenty-six through thirty); and violation of the PACT Act (counts thirty-one through thirty-five) (Dkt. No. 137). In addition, the government moved for asset forfeiture pursuant to 18 U.S.C. §1963 (RICO), 18 U.S.C. § 981 and 28 U.S.C. § 2461 (wire fraud and contraband smokeless tobacco trafficking), and 18 U.S.C. § 982 (money laundering) (id.). The Tobacco Funds are included as forfeitable property (id.).
At Defendant's December 10, 2015 arraignment on the superseding indictment, Defendant represented that he intended to file additional documentary evidence demonstrating his net worth consistent with the District Judge’s Memorandum and Order, and that he was not moving for leave to file this evidence on an ex parte basis. The court set deadlines for submissions by the parties of further filings related to Defendant’s motion for release of funds on a sealed basis. Rather than filing a comprehensive listing of his assets, sources of income, expenses, and liabilities, Defendant’s further filing invoked his right against compelled self-incrimination under the Fifth Amendment to the United States Constitution due to the "nature of the allegations contained in the Superseding Indictment" (Dkt. No. 141). For its part, the government filed two affidavits from an Internal Revenue Service investigator, which provided some additional information about Defendant's financial resources, including the fact that Defendant did not file income tax returns for the years 2012, 2013, and 2014 (Dkt. No. 144; Dkt. No. 144-2 ¶8). The government also moved for access to Defendant's financial information previously filed ex parte and under seal, or, in the alternative, for the court to disregard those financial disclosures when ruling on Defendant's motion for access to the Tobacco Funds (Dkt. No. 145). The parties presented argument on the Defendant's motion for release of funds (Dkt. No. 146), and, thereafter, filed supplemental briefs addressing the effect of the RICO allegations in the superseding indictment on the government’s right to a pre-trial restraint of the Tobacco Funds (Dkt. Nos. 149 and 151).
III. Relevant Facts Alleged in the Superseding Indictment to Support the Charge of Conspiracy to Violate the RICO Act
The government alleges that from about 2005 until June 5, 2012, when the search and seizure warrant was executed at the Scranton Warehouse, Defendant conducted a racketeering conspiracy through his control of an enterprise, which the government christens Bokhari, Inc., and which this court will refer to as the alleged RICO enterprise (“ARE”), which operated four warehouses and twenty gas stations and convenience stores in Massachusetts and Connecticut (Dkt. No. 137 at ¶¶11, 12). The racketeering conspiracy was designed to evade Massachusetts and Connecticut excise taxes on smokeless tobacco and cigars through the underreporting of sales and the filing of false state tax returns.
Both Massachusetts and Connecticut impose excise taxes on smokeless tobacco and cigars and the federal government requires interstate sellers of tobacco products to report their sales to state authorities (id. at ¶¶2, 5, 7). Massachusetts wholesalers who distribute smokeless tobacco and cigars are required to be licensed by the Massachusetts Department of Revenue ("DOR") (id. at ¶1). A wholesale business that sells smokeless tobacco in Massachusetts must, each month, file an excise tax return and pay excise tax on the smokeless tobacco that is brought into the state (id. at ¶2). Massachusetts mandates the filing of quarterly excise tax returns and the payment of excise taxes on cigars that are imported into the Commonwealth (id.). The law requires that "[t]he amount of the excise advanced and paid by a [tobacco wholesaler or retailer] . . . be added to and collected as part of, the sales price" of cigars and smokeless tobacco. Mass. Gen. Laws ch. 64C, § 7B(d). A Connecticut wholesale distributor of smokeless tobacco and cigars is obligated to obtain a state license, to file a tobacco products tax return each month, and to pay excise tax on the tobacco products "purchased, imported, received, or acquired" (Dkt. No. 137 at ¶¶3, 4, 5). In relevant part, the federal PACT Act requires "[a]ny person who sells, transfers, or ships for profit cigarettes or smokeless tobacco in interstate commerce" into a state "taxing the sale or use of cigarettes or smokeless tobacco" to register with the "Attorney General of the United States and with the tobacco tax administrators of the State . . . into which such shipment is made" and to file "a memorandum or a copy of the invoice covering each and every shipment of cigarettes or smokeless tobacco" with the "chief law enforcement officers of the local governments . . . that apply their own local . . . taxes on cigarettes or smokeless tobacco" (Dkt. No. 137 at ¶¶6, 7). 15 U.S.C. § 376(a). The memorandum or invoice must contain specific information about each shipment of cigarettes and smokeless tobacco, including the name and address of the person who received the shipment, and the brand and quantity of the products that were shipped. Id.
Between 2005 and 2006, Massachusetts and Connecticut levied substantial state tobacco excise tax assessments against Defendant's wholly owned corporation that operated warehouses in Springfield, Massachusetts ("Springfield Warehouse") and Berlin, Connecticut ("Berlin Warehouse") (Dkt. No. 137 at ¶¶14, 15, 16). After the Massachusetts DOR served Defendant with a summons regarding its tax investigation, Defendant established a wholesale tobacco business at the Scranton Warehouse in Pennsylvania, which is the only state that does not impose an excise tax on smokeless tobacco and cigars (id. at ¶¶16, 17, 69). Defendant operated the Scranton Warehouse through a Pennsylvania Corporation, Cigar & Supplies, Inc. ("C & S") (id. at ¶17). Defendant, along with others, also operated the Springfield Warehouse and a similar wholesale business in Danbury, Connecticut ("Danbury Warehouse") by means of a series of nominal corporations and entities, while Defendant retained de facto ownership and control (id. at ¶¶14, 19, 23, 70, 77, 78, 79, 80, 93, 94, 95, 99, 100, 101, 102, 103, 106, 108, 109). Defendant sold the Berlin Warehouse in September 2006, but remained involved in the business's operation (id. at ¶¶15, 24, 25, 71, 72, 73, 74, 84, 85, 88, 89, 91, 96, 97, 98). In addition to the warehouses, Defendant owned and operated twenty gas stations and convenience stores in Massachusetts and Connecticut ("Gas Station Component") (id. at ¶18). The four warehouses and the Gas Station Component constitute the ARE (id. at ¶¶11, 12).
In response to orders, some of which were transmitted by fax, the Scranton Warehouse supplied tobacco products, including smokeless tobacco and cigars, to the ARE’s other warehouses in Springfield, Danbury, and Berlin, to wholesalers in Hamden, Connecticut ("Hamden Warehouse") and Attleboro, Massachusetts ("Attleboro Warehouse"), which were not owned or controlled by Defendant (collectively "the five warehouses"), and to the Gas Station Component of the ARE (id. at ¶¶8, 9, 14, 15, 18, 19, 26, 27, 28, 51, 52, 69, 75). The five warehouses were wholesale distributors of tobacco products and non-tobacco items to retail establishments (id. at ¶¶8, 9, 14, 15, 19). The Gas Station Component sold tobacco products and other items at retail (id. at ¶51).
The Scranton Warehouse was not required to pay state excise tax on its smokeless tobacco and cigars (id. at ¶17). But as an interstate seller of smokeless tobacco, the Scranton Warehouse violated the PACT Act by failing to report to the Massachusetts and Connecticut tax authorities its shipments of smokeless tobacco to the five warehouses and to the Gas Station Component (id. at ¶¶6, 7, 27, 28, 40, 54).
The Springfield, Danbury, and Berlin Warehouses, which were part of the ARE, did not include excise taxes in the prices that they charged their customers for most smokeless tobacco and cigars (id. at ¶¶11, 34, 37). This enabled these warehouses to capture market share from wholesalers who included taxes in their prices for tobacco products (id. at ¶21). The three ARE warehouses used "'no tax'" computers to calculate the cost of tobacco products for customers who did not want the state excise tax to be included in the prices that they paid to the ARE (id. at ¶¶35, 38). But the Springfield Warehouse sold a small number of cigars with the tax included in the price, and the Berlin and Danbury Warehouses sold small quantities of smokeless tobacco and cigars in this manner (id. at ¶¶36, 39, 81). Each month, the Springfield, Berlin, Danbury, and Hamden Warehouses informed Defendant, or his employee at the Scranton Warehouse, of the amounts of tax-included smokeless tobacco and cigars that they sold to their customers (id. at ¶¶36, 39, 41, 42, 76). Either Defendant or a Scranton Warehouse employee, who acted at Defendant's behest, prepared "fake invoices" to reflect: the approximate number of cigars that the Springfield Warehouse sold to customers with the Massachusetts excise tax included in the price during the preceding quarter; and the quantity of cigars and smokeless tobacco that the Berlin, Danbury and Hamden Warehouses sold with the Connecticut excise tax added to the purchasers' costs (id. at ¶¶7, 43, 44, 68, 76). The ARE warehouses provided the phony invoices to an accountant, who used them -- with Defendant's knowledge -- to prepare and file Massachusetts and Connecticut excise tax returns, which "vastly underreported the true volume [the warehouses] received" from the Scranton Warehouse (id. at ¶¶43, 44, 46, 47, 48, 49). The Springfield Warehouse did not pay any Massachusetts excise tax on smokeless tobacco because it did not have a license to sell it (id. at ¶¶45, 50, 66). In 2011, Defendant instructed an employee of the Springfield Warehouse to misrepresent to a Massachusetts DOR agent that the Springfield Warehouse did not sell smokeless tobacco (id. at ¶99).
The Scranton Warehouse evaded the excise taxes that Massachusetts and Connecticut imposed on wholesalers of tobacco products by failing to obtain the requisite licenses from Massachusetts and Connecticut and by failing to pay the state excise taxes on the tobacco products that it shipped to the Gas Station Component (id. at ¶¶1, 3, 5, 51, 52). Because the Gas Station Component did not pay state excise taxes on the smokeless tobacco and cigars that it received from the Scranton Warehouse, the Gas Station Component did not incorporate the tax cost into the prices that it charged its retail customers for these tobacco products (id. at ¶53). The Gas Station Component's lower prices enabled it to capture market share of the gas station and convenience store tobacco business by undercutting the prices of competitors who included tobacco taxes in their prices (id. at ¶21).
Each week, the Scranton Warehouse faxed invoices to the five warehouses to inform them of the amounts they owed Defendant for their purchased tobacco (id. at ¶29). These entities made most payments to the Scranton Warehouse in cash because noncash payments "would create records that could lead to the detection of the illegal scheme to avoid state tobacco excise taxes" (id. at ¶30). Defendant, or his Scranton Warehouse employee, picked up large cash payments that were generated by the Springfield, Danbury, Berlin, and Hamden Warehouses' sales of untaxed tobacco products and transported the money to Defendant's offices in Berlin and Waterbury, Connecticut and to accounts at Connecticut banks, including Defendant's attorney's IOLTA account (id. at ¶56). The IOLTA funds were ultimately transferred to Defendant (id. at 60). Cash from the five warehouses' sales of untaxed smokeless tobacco and cigars was deposited into the Scranton Warehouse's bank accounts and, from there, it was moved to Defendant's account, and to the joint account of Defendant and a family member (id. at ¶¶57, 59, 60). In an effort to conceal the fact that the cash originated from tax evasion, the five warehouses' sales proceeds were also used to purchase hotels and real estate and were deposited into the bank accounts of two businesses, the Hawthorne Inn and the Litchfield on the Green Inn, which were not involved in the wholesale distribution of tobacco products (id. at ¶¶20, 58, 59). The government alleges that funds from these bank accounts were further transferred and spent in order to "conceal the nature, location, source, ownership, and control of the funds received by the Scranton Warehouse for tobacco product[s]" (id. at ¶¶61, 62).
The government argues that none of the Tobacco Funds should be released prior to trial because they are subject to forfeiture if Defendant is convicted of the charges in the superseding indictment (Dkt. No. 149). Defendant, on the other hand, contends that there is not probable cause to believe that all of the Tobacco Funds are subject to forfeiture, and that he needs access to a portion of these assets to preserve his fundamental Sixth Amendment right to the assistance of counsel of his choice (Dkt. No. 27, 151). The court is presented with two related queries: (1) whether Defendant can be required to demonstrate financial need for the Tobacco Funds to retain the assistance of counsel as guaranteed by the Sixth Amendment in the face of his invocation of his Fifth ...