Second Time Aground

United States v. Castello, No. 09-2784-cr (2d Cir. July 7, 2010) (Jacobs, Winter, McLaughlin, CJJ)

Joseph Castello was convicted of failing to file CTRs in connection with his check cashing business. When last we heard from him, see Cashed and Burned, posted 2/6/2009, the circuit vacated a 12 million dollar-plus forfeiture order and remanded for more complete findings under United States v. Bajakajian, 524 U.S. 321, 337-39 (1998), and its Eighth Amendment-derived excessive fines test. On remand, the district court made findings on the four factors set out in Bajakajian, and reduced the amount of the forfeiture to zero. On this, the government’s appeal, the circuit vacated the zero and ordered reimposition of the original forfeiture amount.

Reviewing the district court’s findings de novo, the circuit found fault with all of them. The first Bajakajian factor requires consideration of “the essence of the crime of the defendant and its relation to other criminal activity.” Here, while Castello was convicted only of failing to file CTRs and nothing else, his conduct was still very serious because it conduct permitted thousands of his check-cashing customers to commit fraud.

The second Bajakajian factor considers “whether the defendant fit[s] into the class of persons for whom the statute was principally designed.” The circuit concluded that this factor weighed in favor of full forfeiture. While Castello himself was not a money launder, drug trafficker or tax evader, the main targets of the statute of conviction, his conduct facilitated such conduct "in just the way the statute was designed to frustrate."

Third, Bajakajian considers “the maximum sentence and fine that could have been imposed.” For this factor, the court concluded that the Guidelines are a “more indicative” measure of offense severity than the statutory maximum penalties. Castello received the statutory maximum sentence - five years’ imprisonment and a $250,000 fine. But the Guideline range based on his actual conduct was far greater than five years, even though the court could not impose it because of the statutory maximum. Accordingly, this factor weighed in favor of full forfeiture.

Finally, Bajakajian invites an analysis of “the nature of the harm caused by” the offense conduct. Castello cashed thousands of checks in excess of $10,000, totaling over $200 million, without filing the required CTRs, and he did so knowingly and willfully. This helped his customers evade taxes, cash fictitious checks, and commit securities fraud. The victims included private parties as well as the federal government. Accordingly, this final factor also weighed in favor of full forfeiture.

Cashed and Burned

United States v. Varrone, No. 07-4533-cr (2d Cir. January 30, 2009) (Calabresi, Sotomayor, Parker, CJJ)

Joseph A. Castello ran a check cashing business. He cashed more than $200 million in checks that exceeded $10,000 - charging a four percent check-cashing fee - for which he was obligated to file currency transaction reports (CTR’s). He did not, however, and was convicted by a jury of violating 31 U.S.C. §§ 5313 and 5322(a). On appeal, he challenged a restitution order, and claimed that the forfeiture order violated the Excessive Fines Clause of the Eighth Amendment. The circuit vacated.

The Restitution Order

The restitution order involved a fraud victim, who was induced to send a $300,00 check to a bogus financial firm. This had nothing at all to do with Castello, except that the firm cashed the check at his establishment. When the victim contacted Castello, he falsely represented that he was an “honest man,” who always paid his taxes. The district court ordered, as a condition of Castello’s supervised release, that he repay the $300,000.

Addressing a question of first impression in this circuit, the court reversed. Under 18 U.S.C. §§ 3583(d) and 3653(b)(2), a district court can order a defendant to “make restitution to a victim of the offense” as a condition of supervised release. However, it has long been clear that, under the restitution statutes, restitution can be ordered only for the “losses caused by the specific conduct that is the basis for the offense of conviction.” Here, the court agreed that this is also true for the restitution provisions of the supervised release statute. “[R]estitution can be ordered as a condition of supervised release ... only to compensate for losses caused by the specific conduct that is the basis for the offense of conviction.” Since the loss here was caused by an unrelated fraud scheme, and not Castello’s failure to file CTR’s, the restitution order was not authorized.

The Forfeiture

In the district court, the government sought, and obtained, a forfeiture order that included: a money judgment of more than $9 million, which represented four percent of the value of the checks exceeding $10,000 that Castello cashed without filing CRT’s; Castello’s interest in real property that he purchased with tainted funds; and about $2.7 million in funds that went through a Citibank account that Castello used to conduct his check cashing business.

On appeal, he challenged the forfeiture under the Excessive Fines Clause of the Eighth Amendment. A forfeiture is excessive if it is “grossly disproportional to the gravity of a defendant’s offense.” In United States v. Bajakajian, 524 U.S. 321, 337-39 (1998), the Court identified four considerations for determining whether a forfeiture is excessive: the “essence of the [defendant’s] crime” and its relation to other criminal activity; whether the defendant “fit into the class of persons for whom the statute was principally designed; the maximum authorized sentence and fine; and the nature of the harm caused by the offense.

Here, the district court neither evaluated the Bajakajian factors nor made factual findings regarding them. The circuit noted that the forfeiture order against Castello was more than forty times the maximum permissible fine, thus it was not presumptively permissible under the Eighth Amendment. It also noted that this - the third Bajakajian factor - was the only one conclusively established by the record, and it weighed against the constitutionality of the forfeiture. The other three factors were “not clearly established by the record.” In the absence of “factual development by the district court regarding” the three other Bajakajian factors, the court concluded that the record was insufficient to evaluate the Eighth Amendment claim, and remanded the case for further proceedings.