Friday, January 4, 2013
Panel Upholds RICO Conviction of Chinese Nationals
By JACKIE FUCHS, Staff Writer
The Ninth U.S. District Court of Appeals yesterday upheld the conviction of four Chinese nationals for conspiring to steal funds from the Bank of China.
The defendants were properly charged under the Racketeer Influenced and Corrupt Organizations Act, more commonly known as RICO, because an essential part of their alleged scheme involved escaping prosecution by fleeing to the United States with fraudulently obtained passports and visas, a unanimous panel said,.
District Judge Philip M. Pro of the District of Nevada erred, however, by applying the wrong section of the Sentencing Guidelines, and awarding $482 million in restitution without an adequate basis, the court said.
Defendants Xu Guojun and Yu Ying Yi were legally married in China in 1985. Defendants Xu Chaofan and Kuang Wan Fang were legally married there in 1992.
Both Xu Guojun and Xu Chaofan were at one time employed in management positions at the Kaiping sub-branch of the Bank of China, a state-owned bank headquartered in Beijing.
During their management of the Kaiping sub-branch, Xu Guojun and Xu Chaofan allegedly cost the bank hundreds of millions of dollars through three types of fraud—foreign exchange speculation, off-the-books loans; and false loans that were entered into the bank’s accounts with the proceeds diverted into a Hong Kong conduit company named Ever Joint.
To avoid discovery of their actions, the two managers allegedly directed Kaiping sub-branch employees to falsify bank records, and along with their spouses entered into fraudulent marriages in the United States in order to gain residency status to avoid Chinese Law enforcement, if needed. The United States does not have an extradition treaty with China.
Trip to Las Vegas
During the time period set forth in the indictment, the defendants used the visas and passports they had obtained to travel to Las Vegas, where they spent substantial sums playing baccarat. Their gambling money was arranged through intermediaries who used cashier’s checks and wire transfers drawn from Ever Joint accounts to set up millions of dollars of credit lines at the casinos.
Eventually the Bank of China discovered the missing funds, and the defendants used their United States passports and visas to fly to Las Vegas via Vancouver.
They were apprehended and charged with conspiracy to violate the RICO Act and the money laundering statute and to transport stolen money, and 10 counts of passport and visa fraud.
After a 38-day trial, a jury convicted the defendants on all counts. Pro sentenced Xu Chaofan to 25 years in prison, Xu Guojun to 22 years, and Yu Ying Yi and Kuang Wang fan to eight years each.
He also sentenced each defendant to three years of supervised release, and ordered restitution totaling $482 million. All four defendants timely appealed and their appeals were consolidated.
They argued, among other things, that application of RICO to extraterritorial conduct which occurred in China was improper, as were various of Pro’s rulings on evidence and sentencing.
Senior Judge Alfred T. Goodwin, writing for the panel, said that in determining whether the defendants’ actions took place in the United States for purposes of RICO, it was more appropriate to focus on the pattern of defendants’ racketeering activity taken as a whole, rather than the so-called “nerve center test” adopted by some courts.
The panel found that although defendants’ racketeering activity may have been conceived and planned overseas, it was executed and perpetuated in the United States with the implicit goal of breaching United States immigration law in furtherance of the overall goal of the enterprise. As a result, such activity fell within the ambit of RICO.
Conviction on the count of money laundering conspiracy was also proper, even though the government could not trace the money used by the defendants in the United States to any money obtained fraudulently from the Bank of China. Conspiracy does not require completion of the object offense, only intent, which a rational juror could infer from the defendants’ actions.
The panel dismissed a host of procedural claims by the defendants, including that use an edited version of the videotaped depositions of witnesses in China violated their Sixth Amendment rights; that limits on the testimony of defense expert witnesses were improper; and that Pro should not have allowed various jury instructions, including one on Chinese law.
That instruction was permissible, Goodwin said, in that it incorporated Chinese law only as a predicate to enforcement of the money laundering statute, rather than to enforce Chinese law itself.
The panel also found that the district court did not violate the Ex Post Facto Clause by applying the 2007 version of the guidelines, both because the conspiracy did not end until the defendants’ 2004 arrests, and because the sections relevant to the RICO convictions were identical in the 2004 and 2007 editions.
The panel agreed with the defendants, however, that the district court erred in applying guidelines Sec. 2S1.1(a)(1), which provides that a defendant must have “committed the underlying offense” or would be accountable for it under a relevant conduct analysis. The first option clearly did not apply, because defendants were convicted of conspiracy, an inchoate crime.
But the panel, adopting Second Circuit precedent, held that applying the relevant conduct analysis to defendants’ foreign conduct was not permissible either, because the connection between defendants’ bank fraud and the United States was too attenuated to be considered when calculating a base offense level.
Pro should have applied Sec. 2S1.1(a)(2), the judge said.
The panel confirmed the convictions, but sent the case back to the district court for resentencing.
Judges Stephen Reinhardt and Mary H. Murguia concurred in the opinion.
The case is United States v. Xu, 09-10189.
Copyright 2013, Metropolitan News Company