United States v. Knox

112 F.3d 802 (1997)

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Nature of the Case

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Facts

Brace (D) was pastor of the Faith Metro Church. The Church was heavily in debt and had to pay over $60,000 per month in debt service and needed to raise $10 million to pay its bondholders and other creditors. D hired a Houston financial consulting firm First Diversified. D met with Mike Clark, the president of First Diversified, and Clark's assistant, 24-year-old Knox (D1). D paid First Diversified $75,000 to prepare a prospectus for a $10.8 million limited private offering by Faith Metro. Faith Metro would have use of $9.375 million for up to five years, accruing $112,500 per month in interest (paid quarterly), with the principal of $10.8 million due for repayment on December 31, 1999. No money was raised through the private offering. D1 met Roy Clarkston who had several clients interested in private placements. D1 gave Clarkston a copy of the Faith Metro prospectus. Clarkston told D1 that he had several potential investors through his business dealings in South and Central America. D was not present at any of these meetings and did not meet Clarkston until March 24, 1995. Undercover federal agents were running an elaborate sting operation designed to catch money launderers. They investigated Clarkston, who they suspected was a money launderer. Clarkston told the undercover agents that he had a 'major big-time guy,' a church group, anxious to do business. The undercover agents explained that they did not want innocent people involved in the business, and asked him if the minister knew they were cocaine traffickers and that the money would be cocaine proceeds. Clarkston replied that Ds knew and did not care. D1 met with Clarkston and the undercover agents. D1 said that he was representing D and that he was there to negotiate a deal. The undercover agents told D1 that the money was from drug proceeds; D1 said that this was not a problem. The undercover agents indicated that they might be able to lend D $3 million. The undercover agents met D for the first time. D1 and Clarkston were present. They told D they would be able to loan him the entire $10 million. The undercover agents told them that they would have a practice transfer of $100,000. The undercover agents then informed D that the money came from the sale of cocaine and that he was being asked to launder it. D stated that he was not troubled by the money's source. D said he was ready to start the test money, but the undercover agents told him to have patience. D and Clarkston met with the undercover agents on April 26. D1 had told the undercover agents that Ds had already 'contrived a system' to quickly deposit and transfer the first $ 100,000. D got an account number for an undercover account in a London bank where D was to wire the $100,000 in the first test. D was given $100,000 in cash, which he wired to the English bank the next week. On May 5, another $100,000 test was performed. To conceal the source of the money, D would carry it on his books as a loan. As he counted the money, D commented, 'I have a feeling that neither one of you, have ever come across a pastor like me.' D1 called one of the undercover agents asking to get a hitman for people who deserved it. On May 12, with Ds and Clarkston present another $150,000 in cash was given for another test. On June 21, the undercover agents met Ds in a San Antonio parking lot and gave them three canvas bags purportedly containing $10 million. Ds were arrested as they left the parking lot. An agent's testimony at trial indicated that it was inefficient to use a church to funnel laundered money, and no real money launderer had done so. But the agent opined that no one would suspect a church of money laundering. Ds were convicted on all counts and sentenced to 175 and 97-month imprisonment, respectively. Both Ds appealed.