Opinion Offers Narrow View of “Safe Harbor” Provision for Defense Attorneys Accepting Tainted Funds from Clients
Second in Series of Two Blog Posts Pertaining to Attorneys Convicted of Money Laundering
On April 25, the U.S. Court of Appeals for the Fourth Circuit affirmed the conviction of Baltimore defense attorney Kenneth Ravenell (“Ravenell”) for money laundering conspiracy, in violation of 18 U.S.C. § 1956(h). Ravenell had proceeded to trial and had been acquitted of six charges, including conspiracy to distribute narcotics. However, he was convicted on the single count of money laundering conspiracy, based on his alleged assistance to two drug dealer clients, and received a sentence of 57 months of imprisonment.
The Ravenell opinion (“Opinion”) involves a splintered set of findings across the three-judge panel. It involves findings on important technical issues pertaining to the statute of limitations and the use of the conscious avoidance/willful blindness theory of prosecution, which is often critical in cases involving third-party professionals such as lawyers, accountants, and real estate agents. But, more importantly, it involves a discussion of when defense attorneys may accept illegally-obtained proceeds from their clients as payment for legal representation, and if such funds ever may be provided through third parties. As we will discuss, the Fourth Circuit interpreted very narrowly a “safe harbor” provision under 18 U.S.C. § 1957(f) for defense attorneys – and did so in a case in which the evidence, if accepted, made clear that the safe harbor did not apply. Stated otherwise, bad facts may have resulted in inappropriately broad language applicable to other cases.
As we just blogged, the U.S. Attorney’s Office for the Southern District of New York also announced on April 25 that Robert Wise (“Wise”), a New York attorney, had pled guilty to a single count of conspiring to commit money laundering, in violation of 18 U.S.C. § 371. This case arose out of the indictment of Vladimir Voronchenko, who has been charged in connection with a scheme to make payments to maintain multiple properties in New York and Florida owned by his friend and associate, sanctioned Russian oligarch Viktor Vekselberg.
These two cases are very different. But they both illustrate how attorneys – either business attorneys, or criminal defense attorneys – can get caught up in the problems of their own clients, particularly given the ability of the government to pursue a theory of willful blindness.
The Ravenell Facts
According to the Opinion, “[t]he government put forth evidence at trial attempting to show that Ravenell, a criminal defense attorney, used his position as a partner at his law firm . . . to laundering money in tandem with the illegal drug activities of his clients [between 2009 and 2017].” Most of the evidence at trial focused on a marijuana distribution organization led by an individual named Richard Byrd (“Byrd”), who had known Ravenell since the 1990s and who had pleaded guilty to money laundering and drug charges. Because it is important to understand the trial evidence in order to understand the application of Section 1957(f)’s “safe harbor” provision, much of the Opinion’s discussion of the facts is set forth here. Specifically, Byrd and his associates testified at trial that:
Ravenell gave Byrd’s drug ring valuable advice. Ravenell told them how to evade law enforcement detection, how to launder drug proceeds through businesses and real estate investments, and how to then mix drug profits with the money generated from these other ventures to conceal their illicit source. Ravenell advised Byrd to run cash-focused businesses, such as a concert promotion business known as LOC Marketing, which served as a front for the money laundering. On Ravenell’s advice, Byrd used drug proceeds to put on concerts and then charge people in cash at the door. This allowed Byrd to mix drug cash with cash generated at the event, helping conceal and promote Byrd’s narcotics venture. Byrd and others testified that Byrd’s drug ring provided Ravenell with stacks of cash in payment for his services in evading law enforcement.
Byrd also testified that Ravenell used his law firm to launder Byrd’s money directly. Prior to February 2011, at which point Byrd was arrested in Arizona in a reverse-sting operation for attempting to buy hundreds of pounds of marijuana from federal agents, he was not a formal client of Ravenell’s firm. Following Byrd’s arrest, however, Byrd began sending money to Ravenell’s firm via third parties like LOC Marketing. Byrd testified that all the money sent came from drug proceeds, businesses funded with drug proceeds, or drug money mixed with legitimate business revenue. Byrd and others testified that Ravenell knew of the source of these funds.
The record showed that [Ravenell’s law firm’s] bank accounts accepted $1.8 million of drug funds and co-mingled drug funds from entities and individuals associated with Byrd. Evidence presented in the form of bank account information and ledgers also showed that Ravenell directed around $1.1 million of these funds to various projects and third parties to benefit Byrd. Ravenell then kept around $600,000 for legal fees, in addition to the alleged cash payments.
Another convicted marijuana dealer, Leonaldo Harris (“Harris”), testified that Ravenell represented Harris after he had been arrested on federal drug charges, and that his associate, Avarietta Bailey (“Bailey”), gave Ravenell over $350,000 in drug proceeds – although the ledger at Ravenell’s law firm only showed a payment of $187,000 relating to Harris. Bailey testified that she had explained to Ravenell exactly where the money had come from, and how she had collected it – although she also testified, in contrast to the testimony of Harris, that she had paid Ravenell between $175,000 and $200,000.
At trial, Ravenell argued that he lacked knowledge of either drug organization, and that he had believed that LOC Marketing was a legitimate and profitable business, based on Byrd’s lies and the fact that LOC Marketing was actually putting on well-attended and high-profile concerts. Ravenell further attacked the credibility of the government’s witnesses and stressed that there was no physical evidence of the alleged millions of dollars in drug cash payments from Byrd’s organization to Ravenell: the only evidence of such payments consisted of cooperator testimony.
“Safe Harbor” Under Section 1957(f)
Because he had not requested at trial the jury instruction at issue, Ravenell argued on appeal that it had been “plain error” for the district court to not instruct the jury on the so-called “safe harbor” provision under 18 U.S.C. § 1957(f) for attorneys accepting illegal proceeds as payment for attorney fees. Generally, Section 1957 prohibits conducting a monetary transaction of more than $10,000 in funds known to be illegal proceeds. In contrast, Section 1956 contains no monetary threshold and sets forth the money laundering crimes most commonly charged (laundering with intent to promote illegal activity; laundering with intent to conceal the source of illegal funds, etc.). Thus, the basic differences between Sections 1956 and 1957 are that Section 1956 requires knowledge and specific intent, but no monetary threshold; Section 1957 requires knowledge and a transaction exceeding $10,000, but no specific intent. Section 1957(f)’s definition of a “monetary transaction” subject to potential prosecution excludes “any transaction necessary to preserve a person’s right to representation as guaranteed by the sixth amendment to the Constitution.” However, Section 1956 does not contain any such “safe harbor” provision.
The “safe harbor” provision of Section 1957(f) serves to prevent payments by individuals to defense counsel, made for the purpose of compensating counsel for work performed in a criminal matter involving the payor, from being transformed necessarily into money laundering transactions. Because multiple payments relating to the same transaction can be aggregated to satisfy the $10,000 threshold of Section 1957, and given the statute’s lack of a specific intent requirement, Section 1957 would constitute a constant threat of prosecution to defense attorneys were it not for this exception. Even so, the exemption has limits. It does not state that all payments of attorney fees in criminal matters are removed entirely from the definition of a monetary transaction. Instead, the exemption applies to a narrower category of transactions, defined imprecisely as those “necessary to preserve” a person’s rights under the Sixth Amendment.
As noted, Ravenell was convicted of conspiring to launder money, in violation of 18 U.S.C. 1956(h). The conspiracy charge alleged that Ravenell acted to commit one to three different forms of “substantive” money laundering: money laundering to promote an unlawful activity, in violation of 18 U.S.C. § 1956(a)(1)(A)(i); money laundering to conceal the source of funds, in violation of 18 U.S.C. § 1956(a)(1)(B)(i); and/or engaging in a monetary transaction involving $10,000 or more using the proceeds of unlawful activity, in violation of 18 U.S.C. § 1957.
The Fourth Circuit rejected Ravenell’s plain error argument. First, the Section 1956(h) conspiracy conviction did not require proof of a substantive Section 1957 violation, because the conspiracy charge allowed the jury to convict on any one of three different theories, two of which rested on Section 1956 and specific intent, to which Section 1957(f) does not apply. Second, Ravenell invited any error by agreeing to instructions lacking a definition of “monetary transaction.”
Third, and more importantly for our discussion here, one judge on the panel – Judge J. Harvie Wilkinson III – found that Section 1957(f)’s safe harbor provision did not protect Ravenell’s actions. This section of the opinion – in which the other two judges on the panel did not join, but wrote separately – began by quoting the 1989 Supreme Court civil forfeiture case Caplin & Drysdale, Chartered v. United States, for the proposition that “no one has a constitutional right to use . . . criminally derived proceeds to retain a defense attorney.” Further, Judge Wilkinson pointed to the 2011 opinion by the Fourth Circuit in United States v. Blair, which found that Section 1957(f) did not apply if an attorney accepted illegal funds from a third-party in order to represent a criminal defendant, because Sixth Amendment rights are personal to the accused. Thus, the fact that Bailey paid drug funds to Ravenell on behalf of Harris meant that Section 1957(f) could not apply.
Certain dicta by Judge Wilkinson appears to go farther, suggesting that because a criminal defendant does not have a right to use illegally obtained funds to hire a lawyer – a true statement regarding a defendant’s options for obtaining representation and as to potential civil forfeiture actions – therefore an attorney cannot accept illegally procured gains as payment for legal services for the purposes of Section 1957(f). If taken literally, this language would obviate the entire point of Section 1957(f), which indeed provides an explicit and statutory safe harbor from criminal prosecution (not civil forfeiture) for defense attorneys who knowingly accept fees representing illegal funds, if done in furtherance of Sixth Amendment goals and without specific intent under Section 1956. However, in a separate opinion joining in the result of upholding the conviction, Judge Toby J. Heytens, joined by Chief Judge Roger L. Gregory, took a more nuanced approach by finding that, regardless of how Blair should be interpreted and applied, there could be no plain error in this case because the defendant never requested an instruction on Section 1957(f) and the conspiracy count also encompassed substantive violations of Section 1956.
Nonetheless, some of the very broad language in Ravenell is concerning because it exemplifies how potentially bad law can be made in the context of bad facts. Ravenell involves drug dealing and evidence, if credited, that the defendant lawyer essentially offered himself up as a professional money launderer and advisor to two drug distribution organizations in exchange for a seven-figure sum. But some language in Ravenell on the general application of Section 1957(f) and its limits are not cabined to cases involving drugs or seemingly bad facts. For example, in so-called “white collar” cases, companies accused of committing fraud (or other) schemes routinely pay for outside counsel to represent company executives and employees as a result of indemnification agreements. Further, such arrangements often occur during internal investigations occurring before any charges. The Sixth Amendment only attaches once charges are filed. Accordingly, under the logic of the Fourth Circuit, are such payment arrangements inherently not protected by Section 1957(f)?
Ravenell made three additional arguments on appeal, all of which the Fourth Circuit rejected. We now turn to those arguments.
Statute of Limitations
Ravenell argued at trial that the government had not proven that the money laundering conspiracy lasted into the applicable statute of limitations period, which is five years, because the government had not proven any “overt act” in furtherance of the conspiracy past July 2, 2014 (Ravenell was indicted on September 19, 2019, but a pre-indictment tolling agreement rendered July 2, 2014 as the operative date). Ravenell similarly argued on appeal that the district court erred by denying his request for a jury instruction on the statute of limitations, stressing that the last payments to Ravenell’s law firm were in January 2014, and that Byrd had been arrested in April 2014. The Fourth Circuit rejected this argument, finding that the jury instructions proffered by Ravenell on the statute of limitations were not legally correct, primarily because Section 1956(h) does not require any proof of an overt act in furtherance of the conspiracy. Instead, the conduct prohibited by Section 1956(h) is merely the initial agreement to launder money. The Fourth Circuit further found that a money laundering conspiracy continues unless a defendant can show affirmative withdrawal or termination, which Ravenell had not done.
Stressing the difficulty of a statute of limitations defense to a conspiracy charge that does not require the government to prove an overt act (in contrast, such proof is required under the general criminal conspiracy statute, 18 U.S.C. § 371), the Fourth Circuit observed that the “mere cessation of activity in furtherance of the conspiracy is insufficient” to demonstrate an affirmative withdrawal or termination. Finally, the Fourth Circuit found that the government actually had presented evidence of overt acts past the July 2, 2014 cut-off date, including the fact that Ravenell continued to represent Byrd until October 2014, and that Byrd’s drug ring proceeds remained at Ravenell’s law firm until August 2014.
Chief Judge Gregory dissented on this point and found that the district abused its discretion by not instructing the jury on the relevant statute of limitations period. Chief Judge Gregory criticized the majority’s analysis as “formalistic,” and found that the heart of the defendant’s proffered jury instruction regarding the statute of limitations was legally correct. Further, the requested jury instruction was so important that the failure to provide it seriously impaired Ravenell’s ability to defend himself. Finally, Chief Judge Gregory observed that the district court could have instructed the jury on the additional complexities relating to non-overt act conspiracies, thereby addressing the concerns raised by the majority and the government.
Ultimately, “[i]f the district court had properly instructed the jury, Ravenell could have highlighted this evidenece of the conspiracy’s termination in his closing argument, which could have led to his acquittal.” Chief Judge Gregory’s dissent ended with a withering and pragmatic comment:
The majority culminates its decision by opining that the conviction of Kenneth Ravenell, a criminal defense attorney, stands to serve all criminal defendants’ best interests by maintaining society’s faith in the integrity of the criminal defense bar. One might imagine that we would more effectively protect the rights of the accused by ensuring that a jury is properly informed about the limitations on a defendant’s punishable conduct. Nevertheless, while the majority’s position might serve as fodder for a rich philosophical discussion, it is not an appropriate basis in which to ground the affirmance of a criminal conviction.
Ravenell has petitioned the Fourth Circuit for en banc review of the statute of limitations issue.
Ravenell next argued that the district court erred by giving the government’s jury instruction on conscious avoidance, otherwise known as willful blindness. In money laundering cases, knowledge that the proceeds at issue had been derived from illegal activity can be proven via a conscious avoidance theory by evidence that a defendant took deliberate actions to avoid learning of that fact. The Fourth Circuit found that the instruction was proper because the record contained direct evidence of knowledge by Ravenell that the funds at issue were drug proceeds, and that at a minimum Ravenell had deliberately tried to avoid learning the specifics of the money laundering scheme, such as by directing Byrd to send money to Ravenell’s law firm through third parties.
Legally Infirm Theory Upholding the Conviction
Finally, Ravenell argued that his conviction should be vacated under Yates v. United States because it was impossible to tell if the jury had convicted him under a legally infirm theory – specifically, either convicting him for conduct that was time-barred by the statute of limitations, or for conduct that was lawful under Section 1957. This argument failed, however, because the majority already had rejected Ravenell’s arguments regarding both of those issues.
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