determination. Thus, similar challenges to materiality have been rejected. See, e.g., United States v. London, 550 F.2d at 212. Accordingly, the Court finds that the alleged false statements are material as a matter of law.
b. Sufficiency of the "Trick, Scheme or Device" Allegations
Defendants also challenge Counts Six through Nine of the Indictment which charges violations of 18 U.S.C. § 1001 on grounds that these counts do not sufficiently charge concealment by "trick, scheme or device." Under this statute, it is a crime to conceal by any trick, scheme, or device any matter within the jurisdiction of any department or agency of the United States. "The elements of an offense under the concealment portion of the statute are: (1) knowingly and willfully; (2) concealing and covering up by trick, scheme, or device; (3) a material fact; (4) in any matter within the jurisdiction of a department or agency of the United States. United States v. Swaim, 757 F.2d 1530, 1533 (5th Cir.) (citations omitted), cert. denied, 474 U.S. 825, 106 S. Ct. 81 (1985). In the Indictment, the government alleges that ADM, Ashton and Dale "concealed . . . by trick, scheme and device, material facts which [defendants] were under an obligation to disclose . . . said trick, scheme and device being the intentional failure to disclose said facts . . . ."
The precise issue before the Court is whether the indictment charging defendants with concealing or covering up by trick, scheme, or device a material fact is insufficient because it defines the trick, scheme or devise used as the intentional failure to disclose information which defendants were under an obligation to disclose. Defendants contend that the indictment is insufficient because it does not allege an affirmative act by which the facts are concealed as required by United States v. London. In defendants' view, these counts allege "a mere failure to disclose" information and, as such, cannot constitute a "trick, scheme or device." In London, the court stated, "The mere omission of failing truthfully to disclose a material fact, which is simply the negative aspect of the affirmative act of falsely stating the same material fact, does not make out an offense under the conceal or cover up clause of section 1001." Id. at 214 (footnote omitted).
Defendants' argument must be rejected. The government correctly asserts that a person's deliberate failure to disclose to the government material facts, in the face of a duty to disclose such facts, constitutes an "affirmative act" within the contemplation of the statute. For this reason, the government contends, defendants' nondisclosure is distinguishable from a "passive failure to disclose" or "mere silence in the face of an unasked question." The Court agrees. "Generally, a defendant cannot be prosecuted under § 1001 for concealing material facts unless he had a duty to disclose the material facts at the time he was alleged to have concealed them." United States v. Nersesian, 824 F.2d 1294, 1312 (2d Cir. 1987) (citation omitted). See also United States v. Perlmutter, 656 F. Supp. 782, 789 (S.D.N.Y.) ("While the concealment of a fact that no one has a legal duty to disclose may not be a violation of this section, . . . such is not the case where a regulation or form requires disclosure."), aff'd, 853 F.2d 1430 (2d Cir. 1987), cert. denied, 485 U.S. 935, 108 S. Ct. 1110, 99 L. Ed. 2d 271 (1988). The case law is clear that the deliberate failure to disclose material facts in the face of a specific duty to disclose such information constitutes a violation of the concealment provision of § 1001. Since the Indictment in fact alleges that defendants failed to disclose material facts to the Department of Defense which they had an obligation to disclose, the Court concludes that the indictment sufficiently charges concealment by "trick, scheme or device" in violation of § 1001.
Defendants Dale, Ashton and ADM have moved for dismissal of Count Ten of the Indictment on grounds that the statement alleged in Count Ten is not false as a matter of law. Count Ten charges these defendants with falsely answering " no" to the question "Does your organization have interlocking directors with foreign interests?" in a document submitted to the Department of Defense in connection with their application for a security clearance. Relying on United States v. Race, 632 F.2d 1114 (4th Cir. 1980), defendants argue that the statement alleged as false was authorized by a reasonable interpretation of the question posed.
In Race, the court held that a prosecution for making false statements cannot be founded on an ambiguous contract. Race involved a contract between Consolidated Services, Inc. ("CSI") and the Navy to secure the delivery of labor and services. CSI was charged with submitting false and fraudulent invoices under the contract in violation of 18 U.S.C. §§ 2, 371, 1001. The court initially noted that the government is required to prove the falsity of the statement in any prosecution under § 1001. Id. at 1119. Although the court found that the contract clearly authorized CSI's submissions, it further held that even if the contract was ambiguous, that is "susceptible of at least two reasonable constructions," the defendants could not as a matter of law, be found guilty of making a false statement. Id. at 1120. "This is because one cannot be found guilty of a false statement under a contract beyond a reasonable doubt when his statement is within a reasonable construction of the contract." Id. Additionally, the court stated that CSI's good faith was irrelevant in determining falsity. Since "the Government must prove both the falsity of the statement and . . . that the utterer knew the statement was false. . . . [,] it thus makes no difference what the defendants thought if CSI's billings were authorized under a reasonable interpretation of the contract . . ." Id.
Defendants argue that the question "Does your organization have interlocking directors with foreign interests?" could be reasonably interpreted as excluding foreign corporations wholly owned by American citizens. Defendants premise this interpretation on the fact that the purpose of the security clearance is to prevent the leaking of classified information to foreign powers. Moreover, defendants insist that in this context a question regarding "foreign interests" suggests foreign citizens and foreign powers rather than Hong Kong corporations owned entirely by American citizens. Thus, defendants argue that the phrase in the question is so ambiguous on its face, that as a matter of law, their answer to it could not have been false.
In opposition, the government argues that defendants' claim is a factual defense to the charge which must be decided by the jury, not by the court at the motions level. In the government's view, the defendants claim that they did not knowingly make a false statement since they did not understand or were confused by the question. This characterization misconstrues defendants' argument. By this motion, the Court will not be required to rule on the defendants' subjective intent. Rather, the issue is whether the phrase is so ambiguous that, as a matter of law, defendants' answer to the question could not have been false.
While the Court feels that the Race decision may be applicable to Count Ten of the Indictment, the Court feels that it would not be possible to make a determination on this issue at this stage of the proceedings. The Court will follow the approach taken by other Courts which have held that a Race motion should be made at the close of the government's evidence. See, e.g., United States v. General Dynamics Corp., 644 F. Supp. 1497 (C.D.Cal. 1986), rev'd on other grounds, 828 F.2d 1356 (9th Cir. 1987); United States v. Computer Sciences Corp., 511 F. Supp. 1125, 1136 (E.D.Va. 1981), rev'd on other grounds, 689 F.2d 1181 (4th Cir. 1982), cert. denied, 459 U.S. 1105, 103 S. Ct. 729, 74 L. Ed. 2d 953 (1983). At that time defendants may bring the motion under Fed.R.Crim.P. 29. Id. Accordingly, defendants' motion to dismiss Count Ten on grounds that the statement alleged in Count Ten is not false as a matter of law is denied without prejudice.
d. Exculpatory No Doctrine
Defendants argue that the false statement and concealed facts alleged in the Indictment fall within the "exculpatory no" exception to § 1001.
One of the five requirements that defendants must establish to satisfy the doctrine is that the false statement must not impair the basic functions entrusted by law to the federal agency.
Defendants argue that the statements and omissions alleged in the Indictment could not have perverted the normal functioning of the government because they were immaterial to the issue under consideration by the agency; i.e., whether to grant the defendants a security clearance. In Section V(a) of this Memorandum Order, the Court determined that the false statements which are alleged in Counts Six through ten were material to the Department of Defense's inquiry. In light of this decision, defendants have failed to establish that the false statements did not impair the basic functions entrusted to the agency, one of the criteria required under the "exculpatory no" doctrine. Accordingly, defendants' motion to dismiss must be denied on grounds that the "exculpatory no" doctrine is not applicable here.
An appropriate Order was entered prior to trial.
Date: August 14, 1991
JOHN GARRETT PENN
UNITED STATES DISTRICT JUDGE