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UNITED STATES v. MORDECHAI KRASELNICK

December 1, 1988

UNITED STATES OF AMERICA
v.
MORDECHAI KRASELNICK, et al., Defendants



The opinion of the court was delivered by: BROTMAN

 Presently before the court are the pretrial motions of defendants Mordechai Kraselnick and Allan M. Bart (1) for dismissal of the indictment on multiple grounds; (2) for disclosure of grand jury materials; and (3) for logs showing that the United States is in compliance with the Financial Right to Privacy Act. Oral argument was held on most of these motions on May 6, 1988, and the court reserved its decision. *fn1"

 Since that time the Third Circuit has handed down its decision in United States v. Mastronardo, 849 F.2d 799 (3d Cir. 1988), which addresses several of the issues relevant to the defendants' motion to dismiss the indictment. Therefore, the parties were summoned back to court on October 14, 1988, to address the applicability of the Third Circuit's decision to this case. In addition, the parties were asked to address the Government's most recent pretrial motions (a) for an order precluding defendants from introducing evidence that should have been produced pursuant to the reciprocal discovery obligations of Rule 16(b); (b) for an order precluding defendant Bart from seeking Bruton redaction of his codefendant's statements; and (c) for an order, pursuant to Rule 26.2, requiring that prior statements of defense witnesses be identified and marked by defense counsel for production at or before trial. For the reasons stated below, with the exception of defendants' motion for the production of logs regarding the Financial Right to Privacy Act, the motions of defendants and of the government are denied in their entirety.

 I. FACTS AND PROCEDURE

 The facts surrounding this case, as gleaned from the indictment and the submissions of the parties, are as follows. On or about January 26, 1983, defendant Kraselnick, the Chairman of the Board of Village Bank ("the Bank"), "caused" a package containing $ 81,000 in United States currency to be delivered to the Village Bank in South Orange, New Jersey. No Currency Transaction Report ("CTR") was filed by the Bank concerning this delivery. At Kraselnick's direction, the $ 81,000 was divided into amounts of $ 9,000 and deposited into three separate accounts over a three-day period. Those individual accounts belonged to various persons or entities including Kraselnick, defendant Bart, and a corporation controlled by Kraselnick and a business associate. No single account received more than $ 10,000 in a single day and, therefore, no CTR was filed for any of the deposits by defendants or by the Bank.

 Two months later, on or about March 31, 1983, defendant Bart, the Vice-Chairman of the Village Bank, sent $ 63,000 in United States currency to the Bank, along with seven filled-out deposit slips for seven different accounts, each for an amount less than $ 10,000. No CTR was filed by any party with respect to these funds.

 Thereafter, on April 4, 1983, Bart caused $ 49,100 in currency to be delivered to the Bank. Included with the cash were six completed deposit tickets, each for a different account and each for an amount less than $ 10,000. Once again, no CTR was filed.

 Finally, on April 5, 1983, defendant Bart caused $ 35,000 in cash to be delivered to the Bank, along with four deposit tickets for different accounts, each filled out for an amount less than $ 10,000. No CTR was filed regarding this money either.

 None of the cash involved in the above transactions belonged to either Kraselnick or Bart and was instead the property of a "Columbian Corporation." Furthermore, most, if not all, of the money deposited above was later internally transferred to the account of the Columbian Corporation, a procedure for which no CTR is required to be filed.

 On January 22, 1988, a federal grand jury returned a five-count indictment against defendants Kraselnick and Bart as well as against the Bank and John Bjerke, Executive Vice President and Senior Loan Officer of the Bank. Count One charged defendants with conspiring to fail and causing the Bank to fail to file CTR's for cash transactions in excess of $ 10,000, in violation of 18 U.S.C. § 371. *fn2" Counts Two through Five, keyed to each of the transactions described above, charged defendants with concealing and causing to be concealed reportable transactions in cash from the Internal Revenue Service, in violation of 18 U.S.C. §§ 2 and 1001. *fn3" In addition, all of the Counts rely on the existence of a legal duty, under 31 U.S.C. § 5313 and 31 C.F.R. § 103.22(a), to file CTR's for cash transactions in excess of $ 10,000.

 II. DISCUSSION

 A. Defendants' Motion To Dismiss the Indictment

 Defendants move to dismiss the instant indictment on the grounds that (1) the underlying statute and regulations are unconstitutionally vague; (2) each Count of the indictment fails to charge a criminal offense; (3) the government withheld substantial exculpatory evidence from the grand jury; and (4) the government's inordinate delay in bringing this prosecution has deprived defendants of their fifth amendment due process rights. This court will address each of defendants' arguments seriatim.

 1. The Constitutionality of the Statute and Regulations

 Defendants challenge the application of 31 U.S.C. §§ 5313 and 5322, and the regulations promulgated thereunder, 31 C.F.R. § 32, on the grounds that they are unconstitutionally vague and that they violate their due process rights under the fifth amendment by giving insufficient notice that the actions alleged in the indictment were proscribed. In support of their argument, defendants rely almost exclusively on the Third Circuit's decision in United States v. Mastronardo, 849 F.2d 799 (3d Cir. 1988) and the First Circuit's ruling in United States v. Anzalone, 766 F.2d 676 (1st Cir. 1985). Both courts held certain provisions of the Reporting Act -- 31 U.S.C. § 5311 et seq. -- and its corresponding regulations to be constitutionally deficient because they violated the fair warning requirements of the fifth amendment's due process clause, and, thus, reversed the appellants' convictions and dismissed the relevant parts of the indictments. The essence of defendants' argument is that the statute and regulations do not give fair warning that anyone other than a bank can be held liable for failing to file CTR's and that the statute and regulations do not clearly outlaw the "structuring" of deposits to avoid the reporting requirement.

 Both the Mastronardo and Anzalone decisions, as well as defendants' argument here, center around the following language in the Reporting Act:

 
(a) When a domestic financial institution is involved in a transaction for the payment, receipt, or transfer of United States coins or currency (or other monetary instruments the Secretary of the Treasury prescribes), in an amount, denomination, or amount and denomination, or under circumstances the Secretary prescribes by regulation, the institution and any other participant in the transaction the Secretary may prescribe shall file a report on the transaction at the time and in the way the Secretary prescribes.

 31 U.S.C. § 5313 (emphasis added). Significantly, the corresponding regulations, as originally enacted, only required financial institutions and not "any other participant" to file what became known as a CTR concerning each transaction of currency of more than $ 10,000. The relevant section of the Code of Federal Regulations states:

 
each financial institution other than a casino shall file a report of each deposit, withdrawal, exchange of currency or other payment or transfer, by, through, or to such financial institution which ...

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