UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

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UNITED STATES OF AMERICA,

v. Indictment No. 98 Cr. 965 (SS)

GALO R. VELASTEGUI and

GMJ TRAVEL and SHIPPING CORP.,

Defendants.

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This memorandum of law is submitted by the above captioned Defendants in support of their motion to dismiss the indictment, to suppress statements, and related relief.

Many of the salient facts in this case are not disputed; an adumbration of the pertinent facts follows:

GMJ Travel and Shipping Corp. ("GMJ") is an entity engaged, among other things, in the business of transmitting monies on behalf of its clients to beneficiaries or designees in foreign countries, including Mexico. Galo Velastegui is the president and shareholder of GMJ (hereinafter "Galo").

The Government has charged in its indictment that GMJ and Galo (the "Defendants") violated Federal and New York State law in two respects, namely; (1) structuring GMJ’s cash deposits with the Ponce de Leon Bank (hereinafter referred to as the "Bank") in amounts less than $10,000 in order to thwart the Bank’s filing of currency transactions reports (CTR’s); and, (2) transmitting monies on behalf of GMJ’s clients directly to beneficiaries in foreign countries.

As reflected in the accompanying Affidavit by the Defendants, the facts are contrary to those as initially alleged by the Government. In the first instance, the Bank in this case in actuality prepared CTR’s for cash deposits that GMJ made and the filing of CTR’s is a complete defense to a charge of structuring. As reflected in the accompanying Affidavit and the Exhibits appended thereto, GMJ made deposits in cash to its two bank accounts at the Bank, which deposits aggregated more than $10,000 in a single day. Indeed, GMJ deposited those monies with the same teller, at the same branch and at the same time, and with the knowledge and expectation that the Bank would prepare and file CTR’s, which the Bank did. Further, during the time frame in issue, GMJ actually made 52 cash deposits into a single account with respect to which the amount deposited exceeded $10,000. None of the foregoing was disclosed by the Government in either its application for arrest or search warrant or in the indictment.

With respect to the unlicensed transmittals, GMJ’s transmittals of its client’s funds directly to beneficiaries in Mexico was not an unlawful violation of the Penal Code. New York State Banking Law expressly provides that agents of licensed money transmitters are not required themselves to be licensed. At all times relevant herein, GMJ was an agent of a licensed money transmitter. That GMJ in some cases forwarded its clients’ monies directly to beneficiaries in Mexico contrary to the terms of its agency agreement with its principal/licensee or to the New York State Banking Rules and Regulations, does not render the transaction criminal. And under New York State Banking Department policy and practice, an agent remains an agent until the principal formally terminates the principal-agency relationship. As reflected in the accompanying Affidavit and Exhibits thereto, the practice and policy of the New York State Banking Department was to report violations by agents to the licensee, and then to take enforcement or corrective action if necessary against the licensee. In general, those measures consisted of notifying the licensee of violations and fining the licensee $2,500 for violations such as the one at issue in this case. The licensee was then free to educate its agent or to terminate in writing its principal-agency relationship with the offending agent.

As again reflected in all of the literature and legislative comments concerning the enactment of the statutes at issue in this case, the purpose of the licensing requirements, the posting of the substantial $500,000 bond by a licensee, and the State’s inspection and enforcement role, was to detect and prosecute money launderers. Again, as reflected in the Affidavit accompanying this memorandum of law, GMJ’s clients were not money launderers but were "little people", sending their earnings to relatives and friends in their home countries. This is reflected by the copies of the transmittal forms that GMJ prepared and the identification cards that the beneficiaries in the foreign country (i.e. Mexico in this case) submitted when they collected the transmitted funds in Mexico. Indeed, it was GMJ’s policy not to accept cash of more than $2,000 from a single client. To highlight this as GMJ’s policy, upon information and belief, Government agents attempted to inveigle GMJ’s employees into accepting larger sums of cash for transmittals and in hiding that fact from the reporting agency. GMJ flatly refused to be enticed into an improper arrangement, which refusal was consistent with GMJ’s longstanding policy. Further in this regard, the Government through subpoena and execution of a search warrant obtained all of GMJ’s records of its transmittals and those records indicate unambiguously that GMJ’s generally transmitted monies in the range of from $100 to $300.

As will be discussed below in the legal argument, the Government could not establish that the Defendants structured deposits or that the Defendant GMJ violated the Penal Code when it transmitted monies directly to beneficiaries in foreign countries while an agent of a duly money transmitter.

Finally, the Affidavit by GALO indicates he invoked his right to counsel before making statements to the agents in this case and, notwithstanding his request for counsel, the agents persisted in interrogating him and obtaining coerced statements from him. Those statements should be suppressed.

1. The business may be conducted through or by means of such agents and subagents as the licensee may from time to time designate or appoint.
2. No license under this article shall be required of any agent or subagent of a licensee except as provided in the following section.
3. An agent or subagent, other than a person expressly accepted from the application of this article, who sells or delivers the licensee checks over-the-counter should not exempt from licensing under this article if such agent or subagent in the ordinary conduct of such business receives or at any time as access to (1) the licensee’s checks which having been paid, are returned through banking channels for otherwise for verification or for reconciliation or accounting with respect thereto or (2) bank statements relating to checks are returned. No license under this article shall be required of any agent, including a general or managing agent of a licensee who does not directly sell or deliver the licensee over the counter to the public.

As is expressly stated in the foregoing, agents of licensees are exempted from the requirement of being themselves licensed by the New York State Banking Department for the conduct of the money transmittal business. In the case at bar, at all times relevant herein, GMJ was an agent of authorized licensee and as such, it was exempted from any requirement of being licensed. It is clear that so long as the agent’s principal itself is licensed, the agent’s authority is covered under the umbrella of his principal’s license. And the licensee’s authority continues even if the licensee violated rules or regulations of the Banking Department and until such time as the Banking Department after a hearing, should revoke or suspend the licensee’s license. See, New York State Banking Law Section 642 (5).

As indicted above, the licensee’s obligation vis-a-vis the New State Banking Department and its agents is simply to notify the Banking Department of the name and address of the agent, and of the procedures that agents and subagents shall follow relating to record keeping and the like. See Chapter III, Superintendents Regulations, Part 406.4.

If the agent or subagent should violate Banking Department rules or regulations, the banking regulations provide that the State may sanction the licensee.

It is clear then, that an agent who acts outside the perameters of the banking rules or agency contract with its principal is not automatically acting illegally. Rather, that authority ceases only after an administrative hearing, which might or might not result in the agency relationship being terminated. Until then, the agent’s actions are legal and lawful and remain so until such time as the agent’s status as agent for the licensee is terminated.

In the case at bar, GMJ was at all relevant times agent of duly authorized money transmitters. At all times relevant herein, GMJ kept books and records and in other ways complied with the agency agreement and banking regulations except that it forwarded monies directly to beneficiaries abroad. Such transmittals, although not authorized by the Banking regulations or the agency contract, where nevertheless lawful until GMJ’s status as agent was terminated.

The memorandum accompanying the statute found in Chapter 543 of the New York Statutes (copy of which is appended hereto) states in relevant part as follows:

Memorandum of State Executive Department

Purpose of the bill:

In the case at bar, the GMJ’s licensee and the New York State Banking Department at all times maintained the authority and supervision over GMJ as an agent of a licensee. GMJ maintained records of all its transactions which where always open to inspection by the licensee and the Banking Department. The purpose of the statutes at issue in this case, concern the detection and prosecution of persons engaged in generally drug related money laundering activities. That is not the issue in this case. GMJ was not involved in money launderering (and it appears that the Government has acknowledged that fact). This point is highlighted further in the legislative history to the NYS statute, which states in relevant part at p. 2456 as follows:

Again, the foregoing highlights the intent and purpose of the statute namely, to ferret out money launderers and to prevent people from wrongfully transmitting large sums of ill gotten money out of the country. As the annexed Affidavit reflects, GMJ catered to "little people" who sent their meager savings and pay to their relatives, families and friends in their home country. GMJ had a policy not to accept more than $2,000 from any client and the usual client sent between $100 and $300 to his designee/beneficiary.

Further, the intent of the State’s licensing transmitters and requiring them to post a $500,000 bond, is to protect the consumer and to insure that the consumers are not being cheated. None of those circumstances exist in this case. None of GMJ’s consumers have claimed that they were defrauded and, it is clear that GMJ is not charged with, nor has it laundered money.

Similarly, the Honorable Henry B. Gonzalez, the ranking minority leader on the House Judiciary Committee discussed the legislative intent in enacting the various money laundering statutes and specifically, those involving the money transmittal business. He stated unambiguously the intent of such laws:

In respect to the structuring allegations, as clearly stated in the Executive Memorandum respecting Sec. 650, supra, "the filing of a currency transaction report for every transaction involving case . . . of more than $10,000 would be an affirmative defense". As reflected in the accompanying Affidavit and Exhibits thereto, the Bank filed CTR’s with respect to GMJ’s deposits. Consequently, GMJ could not have structured its deposits and the count of the indictment alleging it did so must be dismissed.

Two Supreme Court decisions have established that a defendant charged with structuring and similar violations of criminal statutes must have the intent to violate the criminal statute, regardless of the motives for the conduct. Ratzlaf v. U.S., 510 U.S. 135, 114 S.Ct. 655 (1994); Cheek v. U.S., 498 U.S. 192, 111 S. Ct. 604 (1991). See also, Lefcourt v. U.S., 125 F.3d 79 (2d Cir. 1997).

In Ratzlaf, supra, the Court held squarely that in structuring cases the government must prove that the defendant acted with the specific knowledge that the structuring that the defendant undertook was unlawful, and not simply that the defendant’s purpose was to circumvent the bank’s reporting obligation. In Ratzlaf, the defendant ran up a debt of $160,000 to a gambling casino. On the due date, Ratzlaf returned to the casino with $100,000 in cash, and the casino advised him that it reported all transactions involving more than $10,000 in cash to the state and federal authorities. Ratzlaf then went to the bank to obtain a cashier’s check, but the bank informed him that it, too, would report the transaction to the authorities since it involved more than $10,000. Ratzlaf then went to several banks and obtained cashiers checks in amounts less than $10,000.

In reversing Ratzlaf’s conviction the Supreme Court determined a number of issues which are pertinent to those extant in the case at bar.

1. The Court determined that the bank and not the customer must file CTR’s. (which the instructions on the CTR form itself states) 31 U.S.C. (a); 31 C.F.R. 103.22(a) (1993); Ratzlaf, at 138.
2. Structuring bank deposits is not inherently nefarious and a depositor’s motives other than to violate the statute, are irrelevant. For example, a depositor’s motive in structuring deposits to avoid being brought to the intention of the I.R.S., and being audited, is not illegal. Ratzlaf, at 143, 145.
3. Underlying the structuring statutes is Congress’ purpose to detect and prosecute launderers of drug money or tax evaders (which are not at issue in the case at bar). Ratzlaf, at 143.
4. Although generally ignorance of he law is no defense, in structuring cases the rule is otherwise, and the government must prove the defendants’ willful intent to violate the structuring statute. Ratzlaf, at p. 149.
5. Any doubt in finding "willfulness" should be resolved in favor of the defendant. Ratzlaf, at 145.

In Cheek v. U.S., supra, the Supreme Court held that the defendant’s good faith subjective belief is a defense to criminal conduct, even if that belief was objectively unreasonable. In Cheek, the defendant was charged with tax evasion. The defendant

Argued that he refused to file tax returns or to pay his taxes because he believed the tax laws were being unconstitutionally enforced and that the tax system was unconstitutional. The Court held that his subjective beliefs and claimed misunderstandings about the tax law, even if objectively unreasonable, were a bar to conviction if accepted by the trier of fact. Cheek, at 201.

In the case at bar, GMJ did not violate N.Y.S. Banking Law §650 or 18 U.S.C. 1960 which incorporates § 650 by reference because:

1. GMJ acted as an agent for a licensed money transmitter and under law, GMJ was exempt from any licensing requirement.
2. GMJ’s was not a money launderer and therefore, the conduct does not fall within the of the statutes it is alleged to have violated.
3. GMJ did not "willfully" violate the structuring statutes because

1. the Bank in fact filed CTR’s for all deposits where the amounts of single, or multiple deposits in a single day, exceeded $10,000.
2. GMJ believed that the Bank would file CTR’s when it made deposits in amounts greater than $10,000, whether single deposits, or multiple deposits in a single day.
3. GMJ believed that as an agent for a licensed money transmittal, it did not violate the federal or state statute regarding "transmitting without a license".

The Government has not established as a matter of fact or law that the Defendants violated the relevant federal and state laws by transmitting monies to a foreign country "without a license" or by structuring deposits with the Bank and, to the contrary, the facts indicate that the Defendants have not violated those statutes. Accordingly, the indictment herein should be dismissed. And, as it appears that the agents improperly and coercively obtained a statement from GALO, that statement must be suppressed.

Dated: New York, New York

February 21, 1999

Respectfully submitted,

______________________________

Raymond J. Aab

Attorney for Defendants

233 Broadway, 18^th Floor

New York, New York 10279

(212) 406-1700