United States v. Evans
844 F.2d 36, 1988 WL 31529 (1988)
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Rule of Law:
For a conviction under federal mail and wire fraud statutes (18 U.S.C. §§ 1341, 1343), the government must prove that the scheme aimed at depriving the deceived party of money or property, and the United States' interest in regulating the future alienation of U.S.-made arms by foreign nations does not constitute a 'property right' for these statutes.
Facts:
- Samuel Evans, general counsel to Adnan Khashoggi, and other defendants allegedly planned to sell arms manufactured in, or by license from, the United States (and owned by various foreign countries) to Iran.
- Defendants intended to deceive the United States about the true identity of the country purchasing the arms to obtain necessary government approval for the transactions.
- In furtherance of this scheme, defendants were charged with conspiring to provide and providing false end-user certificates and other documents to the United States Department of State or Defense, hoping to make the government believe the arms were being sold to an acceptable country.
- The arms were actually destined for Cyrus Hashemi, a government agent who was pretending to be an Iranian buyer.
- Hashemi's negotiations with the defendants were tape-recorded as part of an undercover operation.
- The undercover operation was terminated before any arms actually changed hands or were sold to Iran.
Procedural Posture:
- An original indictment against defendants was returned in May 1986.
- Five superseding indictments followed, with the latest filed in July 1987, charging defendants with conspiracies related to the Arms Export Control Act, making false statements, and 46 counts of wire and mail fraud (18 U.S.C. §§ 1341, 1343).
- Defendants challenged the federal fraud counts, arguing that McNally v. United States required the deceived party (the United States) to be deprived of money or property, which was not alleged.
- The United States District Court for the Southern District of New York (Judge Sand) asked the parties to address whether the United States' 'right' to control future 'alienation' of armaments could be classified as a 'property right' for federal fraud purposes.
- The District Court granted defendants' motion to dismiss the 46 federal mail and wire fraud counts, holding that McNally required the victim of the deception to lose money or property, and that the United States' interest in controlling arms alienation was not property for McNally purposes.
- The government filed an interlocutory appeal to the United States Court of Appeals for the Second Circuit pursuant to 18 U.S.C. § 3731.
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Issue:
1. Does a violation of the federal mail and wire fraud statutes require the government to prove that the goal of the fraudulent scheme was to deprive the deceived party (the United States) of money or property? 2. Is the United States' right to control the future resale or retransfer of U.S.-made or licensed weapons by one foreign government to another considered a 'property right' for the purposes of the federal mail and wire fraud statutes?
Opinions:
Majority - Feinberg, Chief Judge
Yes, for a mail or wire fraud conviction, the government must prove that the scheme aimed at depriving the deceived party (the United States) of money or property. No, the United States' right to control the future alienation of U.S.-made or licensed weapons by foreign governments is not a property right for federal fraud statute purposes. The court affirmed the district court's dismissal of the mail and wire fraud counts. The court began by analyzing the Supreme Court's decision in McNally v. United States, which clarified that mail and wire fraud statutes are limited in scope to the protection of property rights, not intangible rights like honest government. While McNally did not explicitly state that the deceived party itself must lose money or property, the Second Circuit interpreted Supreme Court dicta and its own precedents (United States v. Covino) to mean that the victim of the fraud must be defrauded of money or property. Crucially, the government conceded it would not attempt to prove ownership of the weapons. Thus, the court focused on the 'alienation theory' – whether the government's right to control resales constitutes a property right. The court acknowledged that common-law definitions can help interpret 'property' and that some rights to control alienation are property rights (e.g., real property estates, Carpenter v. United States regarding confidential business information). However, it found significant distinctions in this case. The United States would never have the right to possess the weapons, even if a foreign government violated resale restrictions. Instead of traditional property remedies like replevin or damages, Congress established an elaborate statutory scheme of retaliatory measures (e.g., restricting future sales). This substitution of remedies, combined with the general disfavor of restraints on alienation in common law versus the highly regulated nature of arms sales, suggested that the government's interest was 'ancillary to a regulation, not to property.' The court emphasized that a law prohibiting a particular use of a commodity that the government does not possess or use ordinarily does not create a property right. Finally, applying the rule of lenity, which mandates interpreting ambiguous criminal statutes in favor of the defendant, the court concluded that the alienation theory was not a sufficiently solid basis for a criminal prosecution under the broad fraud statutes, especially when other specific laws existed to punish such conduct.
Analysis:
This case significantly clarifies the reach of federal mail and wire fraud statutes following the Supreme Court's ruling in McNally. It reinforces that these statutes are narrowly confined to protecting definable 'money or property' interests, rather than broader governmental regulatory or policy interests, however important. The decision limits prosecutors' ability to apply these expansive fraud statutes as a 'blunderbuss solution' to conduct that violates specific federal regulations but does not involve the direct deprivation of the government's own property. Future cases will need to carefully distinguish between true property rights and regulatory interests when prosecuting under these statutes, pushing Congress to enact specific criminal laws if it intends to protect such regulatory interests from fraudulent schemes.
