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United States v. Manafort

United States District Court, E.D. Virginia, Alexandria Division

June 26, 2018

UNITED STATES OF AMERICA,
v.
PAUL J. MANAFORT, Defendant.

          MEMORANDUM OPINION

          T.S. ELLIS, III UNITED STATES DISTORT JUDGE

         This multi-count indictment charging defendant with various bank fraud and tax charges was brought by a Special Counsel appointed by the Acting Attorney General to investigate collusion between President Trump's campaign for the presidency and the Russian government in connection with the 2016 Presidential election. At issue is defendant's threshold challenge to the authority of the Special Counsel to pursue the charges in the Superseding Indictment which, on their face, appear unrelated to the 2016 Presidential election.

         I.

         A.

         As a preface to the analysis of defendant's contentions attacking the Superseding Indictment, it is useful to begin with a brief recitation of the recent history of special prosecutors, and then to describe the current provisions governing the appointment of special prosecutors and their investigations. Special prosecutors are not an unfamiliar feature of the American legal landscape; indeed special prosecutors were ubiquitous in the 1980s and 1990s, albeit under a different statutory regime. In the wake of Watergate and the so-called Saturday Night Massacre, Congress enacted the first iteration of the independent counsel statute, the Ethics in Government Act of 1978, Pub. L. No. 95-521, 92 Stat. 1824 (codified at 28 U.S.C. §§ 591-598) (the 1978 Act). The intended purpose of the 1978 Act was to create a mechanism for the investigation and prosecution of high-ranking government officials. Although originally enacted with a five-year sunset provision, Congress revised and reauthorized the 1978 Act in 1983 and again in 1987. In 1988, the Supreme Court upheld the constitutionality of the 1978 Act despite substantial separation-of-powers challenges. See Morrison v. Olson, 487 U.S. 654 (1988).[1]

         Congress reauthorized the 1978 Act for the final time in 1994. See Independent Counsel Reauthorization Act of 1994, Pub. L. No. 103-270, 108 Stat. 732 (codified in 28 U.S.C. §§ 591-599) (the 1994 Reauthorization Act). By its terms, the 1994 Reauthorization Act required the Attorney General to conduct a “preliminary investigation” to determine whether appointment of an independent counsel was necessary if the Attorney General received “information sufficient to constitute grounds to investigate whether” a covered person[2] has violated federal criminal law. Id. § 591. Once a preliminary investigation was initiated, the statute required the Attorney General to decide within ninety days whether “there are reasonable grounds to believe that further investigation is warranted.” Id. §§ 592(c)(1), (a)(1). Finally, in the event the Attorney General concluded that “there are reasonable grounds to believe that further investigation is warranted, ” then the Attorney General was required by the 1994 Reauthorization Act to apply to the D.C. Circuit for the appointment of an independent counsel. Id. § 592(c)(1). Once that court appointed an independent counsel, the independent counsel would have “full power and independent authority to exercise all investigative and prosecutorial functions and powers of the Department of Justice, the Attorney General, and any other officer or employee of the Department of Justice.” Id. § 594(a). After appointment, the independent counsel could be removed by the Attorney General “only for good cause, physical or mental disability, or any other condition that substantially impairs the performance” of his or her duties. Id. § 596(a)(1).

         In 1999, through a bipartisan consensus, Congress agreed to allow the 1994 Reauthorization Act to expire. The lawmakers at that time concluded that the 1994 Reauthorization Act was seriously flawed in several important respects as experience had shown. Indeed, in her testimony before the Senate Committee on Governmental Affairs, then-Attorney General Janet Reno testified that the statute was “structurally flawed” because the independent counsel was unaccountable, “not . . . confirmed by the Senate, and . . . not typically subject to the same sort of oversight or budget constraints that the Department [of Justice (DOJ)] faces[.]” The Future of the Independent Counsel Act: Hearings Before the S. Comm. on Gov't Affairs, 106th Cong. 249 (1999) (statement of Janet Reno, Attorney General). Significantly, former independent counsel Kenneth Starr expressed a similar view, stating that the statute was both “structurally unsound” and “constitutionally dubious.” Id. at 425, 433 (statement of Kenneth Starr, former independent counsel). Both Republicans and Democrats had come to the conclusion that in practice the 1994 Reauthorization Act and its predecessors had become more often a political weapon to be unleashed in the ongoing, indeed escalating culture wars, than a tool for ferreting out and prosecuting crimes ostensibly committed by high-ranking government officials.

         B.

         But the expiration of the 1978 Act did not end the appointment of “independent” counsel to investigate and prosecute crimes allegedly committed by high-level members of the Executive Branch. Later in 1999, the DOJ, acting pursuant to distinct statutory authority, [3] promulgated regulations “to replace the procedures set out in the Independent Counsel Reauthorization Act of 1994.” Office of Special Counsel, 64 Fed. Reg. 37038, 37038 (July 9, 1999). These regulations were an effort to address criticisms of the 1978 Act by “strik[ing] a balance between independence and accountability” and empowering the Special Counsel to “structure the investigation as he or she wishes and to exercise independent prosecutorial discretion” while maintaining “ultimate responsibility for the matter and how it is handled . . . with the Attorney General.” Id.

         These regulations begin by outlining the grounds for appointing a Special Counsel. Specifically, 28 C.F.R. § 600.1 provides that the Attorney General, or where the Attorney General is recused, the Acting Attorney General, may appoint a Special Counsel when he or she determines (i) that “criminal investigation of a person or matter is warranted”, (ii) that investigation of that person or matter by existing DOJ components “would present a conflict of interest, ” and (iii) that it would be “in the public interest to appoint an outside Special Counsel to assume responsibility for the matter.” 28 C.F.R. § 600.1. The regulations further require the Attorney General to establish the jurisdiction of the Special Counsel. See Id. § 600.4(a). In this regard, the Attorney General must provide the Special Counsel “with a specific factual statement of the matter to be investigated.” Id. In addition to this specific factual statement of the matter to be investigated, the regulations make clear that the Special Counsel's jurisdiction also automatically encompasses “the authority to investigate and prosecute federal crimes committed in the course of, and with intent to interfere with, the Special Counsel's investigation” as well as “appeals arising out of the matter being investigated and/or prosecuted.” Id.

         The regulations also establish a mechanism by which a Special Counsel can acquire additional jurisdiction beyond the jurisdiction originally conferred by the Attorney General in the factual statement. Specifically, a Special Counsel in the current scheme can consult with the Attorney General in the event the Special Counsel believes that additional jurisdiction is necessary to investigate fully the matters assigned in the original factual statement or to investigate new matters that come to light. In this event, the Attorney General must then determine whether to include the additional matters within the Special Counsel's jurisdiction. See Id. § 600.4(b).

         Once the Attorney General appoints a Special Counsel, the regulations provide that “the Special Counsel shall exercise, within the scope of his or her jurisdiction, the full power and independent authority to exercise all investigative and prosecutorial functions of any United States Attorney.” Id. § 600.6. At the same time, however, the regulations require the Special Counsel to “comply with rules, regulations, procedures, practices, and policies of the [DOJ].” Id. And although it does not appear that the Special Counsel is subject to day-to-day supervision by the Attorney General, the regulations do provide that the Special Counsel is obligated to “notify the Attorney General of events in the course of his or her investigation in conformity with the Departmental guidelines with respect to Urgent Reports, ” id. § 600.8(b), and the Attorney General “may request that the Special Counsel provide an explanation for any investigative or prosecutorial step, ” id. § 600.7(b). If the Attorney General concludes that any action the Special Counsel has taken is “inappropriate or unwarranted under established Departmental practices, ” the Attorney General can conclude that the action “should not be pursued[.]” Id. § 600.7(b). And in the event of the Special Counsel's “misconduct, dereliction of duty, incapacity, conflict of interest, or for other good cause, including violation of Departmental policies[, ]” the Attorney General may remove the Special Counsel. Id. § 600.7(d). Finally, the regulations specify that “[t]he regulations . . . are not intended to, do not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law or equity, by any person or entity, in any matter, civil, criminal, or administrative.” Id. § 600.10.

         Some of the criticisms leveled at the provisions of the 1978 Act seem equally applicable to the current Special Counsel scheme.[4] To be sure, the separation of powers concerns that plagued the 1978 Act and provoked Justice Scalia's now-famous dissent in Morrison v. Olson are largely cured by the present appointment structure.[5] But the regulations do not require the Special Counsel's investigation to be limited as to time[6] or budget. Thus, to provide a Special Counsel with a large budget and to tell him or her to find crimes allows a Special Counsel to pursue his or her targets without the usual time and budget constraints facing ordinary prosecutors, encouraging substantial elements of the public to conclude that the Special Counsel is being deployed as a political weapon.[7] Furthermore, although the regulations require the Attorney General to provide a Special Counsel with a factual statement of the matters to be investigated, notably missing from the regulation is any requirement that the Attorney General specify any particular crime or statutes that are believed to have been violated. The failure to specify to the Special Counsel the types of crimes and statutes involved contributes to the public perception that appointment of a Special Counsel is wielded as a political weapon, not as a tool for prosecuting specific crimes believed to have been committed by high-ranking officials as to which the DOJ has a conflict.

         Furthermore, the Special Counsel regulations' failure to require identification of specific crimes creates strong incentives for Special Counsel to allege that those individuals have committed criminal acts, even if the criminal acts the Special Counsel ultimately prosecutes are unrelated to the original reasons for appointing the Special Counsel.[8] If a Special Counsel discovers no criminal activity then the investigation is likely to be perceived as a waste of time and resources, and thus a Special Counsel has a strong incentive to find criminality and to prosecute criminal conduct by the people he has been charged with investigating - here persons connected with the Trump campaign. See Cass R. Sunstein, Bad Incentives and Bad Institutions, 86 Geo. L.J. 2267, 2279-80 (1998).[9]

         The current Special Counsel is also in some ways less accountable than the independent counsel of the past. The 1994 Reauthorization Act included a number of provisions requiring progress reports to Congress, [10] and requiring that the independent counsel adhere to DOJ policies.[11] None of these statutory limitations or oversight mechanisms exists for the current Special Counsel regime.

         In sum, there appears to be little operational difference between the current Special Counsel appointment scheme and the scheme found wanting under the 1978 Act and its reauthorizations. Both schemes are subject to many of the same objections. Like the independent counsel under the 1978 Act, the current Special Counsel has broad authority to investigate and prosecute crimes unburdened by traditional limits placed on an ordinary prosecutor. Many of the same problems that plagued investigations pursued under the 1978 Act - from Kenneth Starr's investigation of Whitewater to Lawrence Walsh's investigation of Iran-Contra - seem equally applicable to the current process.[12] In the end, Congress and members of both political parties reached the sound conclusion that the 1978 Act and its reauthorizations should be allowed to expire, as the Act had come to be a tool for pursuing partisan agendas rather than a means of assuring accountability in government by prosecuting crimes committed by high-ranking government officials. That lesson, it seems, has been forgotten.

         C.

         The facts surrounding the appointment of the Special Counsel in this case are widely known, but bear repetition in some detail here. On March 20, 2017, then-Federal Bureau of Investigation (“FBI”) Director James Comey disclosed that the FBI was in the process of investigating Russian interference in the 2016 Presidential election and any potential links or coordination between the Russian government and President Trump's campaign organization. See Statement of FBI Director James B. Comey, House Permanent Select Committee on Intelligence, Hearing on Russian Active Measures Investigation (Mar. 20, 2017), https://www.fbi.gov/news. Shortly thereafter, on May 17, 2017, Acting Attorney General Rod J. Rosenstein (Rosenstein)[13] appointed Robert S. Mueller, III (Mueller) as Special Counsel pursuant to 28 U.S.C. §§ 509, 510, and 515 and authorized Mueller to “conduct the investigation confirmed by then-FBI Director James B. Comey in testimony before the House Permanent Select Committee on Intelligence on March 20, 2017, ” including as stated in ¶ (b):

(i) any links and/or coordination between the Russian government and individuals associated with the campaign of President Donald Trump; and
(ii) any matters that arose or may arise directly from the investigation; and
(iii) any other matters within the scope of 28 C.F.R. § 600.4(a).

Dep't of Justice, Office of Deputy Attorney General, Order No. 3915-2017, Appointment of Special Counsel To Investigate Russian Interference with the 2016 Presidential Election and Related Matters, ¶ (b) (May 17, 2017) (May 17 Appointment Order). The May 17 Appointment Order further authorized the Special Counsel “to prosecute federal crimes arising from the investigation of these matters” should the Special Counsel believe prosecution necessary and appropriate, and subject to the applicable regulations. Id. ¶ (c). Finally, the Acting Attorney General made “[s]ections 600.4 through 600.10 of Title 28 of the Code of Federal Regulations [] applicable to the Special Counsel” in this matter. Id. ¶ (d). In sum, ¶ (b), including ¶¶ (b)(i), (b)(ii), and (b)(iii), defines the scope of the Special Counsel's investigatory authority, ¶ (c) grants the Special Counsel authority to prosecute federal crimes “arising” from his investigation, and ¶ (d) subjects the Special Counsel to the applicable internal DOJ regulations.

         Subsequently, on August 2, 2017, the Acting Attorney General issued a non-public memorandum concerning “[t]he Scope of Investigation and Definition of Authority” conferred on the Special Counsel. Memorandum from Rod Rosenstein to Robert S. Mueller, III 1 (Aug. 2, 2017) (August 2 Scope Memorandum).[14] The August 2 Scope Memorandum made clear that the May 17 Appointment Order “was worded categorically in order to permit its public release” and that the August 2 Scope Memorandum “provide[d] a more specific description” of the Special Counsel's authority. Id. With respect to the defendant, the August 2 Scope Memorandum identified several allegations, including allegations that the defendant:

[c]ommitted a crime or crimes by colluding with Russian government officials with respect to the Russian government's efforts to interfere with the 2016 election for President of the United States, in violation of United States law;
[c]ommitted a crime or crimes arising out of payments he received from the Ukrainian government before and during the tenure of President Viktor Yanukovych[.]

Id. at 2. The August 2 Scope Memorandum noted that these allegations against the defendant “were within the scope of [the Special Counsel's] investigation at the time of [his] appointment and are within the scope of the [Appointment] Order.” Id. at 1.

         Several months later, on February 22, 2018, the Special Counsel charged defendant[15] with, and a grand jury indicted defendant on (i) five counts of subscribing to false income tax returns, in violation of 26 U.S.C. § 7206(1) (Counts 1-5); (ii) four counts of failing to file reports of foreign bank accounts, in violation of 31 U.S.C. §§ 5314, 5322(a) (Counts 11-14); and (iii) nine counts bank fraud and conspiracy to commit bank fraud, in violation of 18 U.S.C. §§ 1344, 1349 (Counts 24-32).[16] Specifically, the Superseding Indictment[17] alleges that defendant received millions of dollars in payments from his political consulting and lobbying work on behalf of Ukraine, the pro-Russia political party in Ukraine, and then-President Yanukovych and that defendant fraudulently hid those funds from U.S. authorities.

         Defendant has now subsequently moved to dismiss the Superseding Indictment. The questions presented in defendant's motion, and addressed in this memorandum opinion are as follows:

(1) whether ¶ (b)(i) of the May 17 Appointment Order is a valid grant of jurisdiction pursuant to the Special Counsel regulations and whether the Special Counsel's investigation falls within that grant of jurisdiction;
(2) whether ΒΆ (b)(ii) of the May 17 Appointment Order is a valid grant of jurisdiction pursuant to the Special Counsel regulations and whether the Special Counsel's ...

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