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Article United States: Appeals Court Upholds Conviction for Misuse of Wires in US as Part of Israeli Wire Fraud Scheme but Holds Restitution to Foreign Victims Improper

On November 3, 2022, the United States Court of Appeals for the Fourth Circuit issued a decision in United States v. Elbaz that affirmed Elbaz’s conviction for a wire fraud scheme devised and carried out in Israel because the scheme involved the use of wires in the United States to defraud American victims. (United States v. Elbaz, No. 20-4019 (4th Cir. 2022).) However, the court vacated and remanded the district court’s imposition of restitution to foreign victims because the U.S. Code criminalizes only domestic wire fraud. (Elbaz at 25.)

Background to the Case

Lee Elbaz and her partners operated a fraud scheme from Israel that targeted victims worldwide, including in the United States. Elbaz worked for Yukom Communications, a company based in Israel. She and others at the company made fraudulent representations to convince investors to deposit money and prevented them from withdrawing their funds. Elbaz caused at least three domestic wire transmissions to occur in Maryland, as evidenced by emails and a phone call made to three Maryland victims. (Elbaz at 4–5.)

Elbaz was indicted for conspiracy to commit wire fraud and on three substantive wire fraud counts. Before trial she sought to dismiss the indictment by arguing that the wire-fraud statute did not apply to her conduct because it occurred outside of the United States. The district court rejected her argument, finding that she committed domestic offenses by using American wires to target American victims. Elbaz was convicted and sentenced to 22 years in prison and required to pay $28 million in restitution. On appeal, Elbaz challenged her conviction and the district court’s sentencing decisions. (Elbaz at 6–7.)

Extraterritoriality and the Wire-Fraud Statute

Elbaz argued that the wire-fraud statute did not apply to her scheme because it was planned and carried out in Israel. There is a presumption that federal statutes are meant to apply only within the territorial jurisdiction of the United States unless Congress indicated a different intent. (Elbaz at 7, citing Morrison v. Nat’l Austrl. Bank Ltd., 561 U.S. 247, 255 (2010) (quoting EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991).) However, this presumption is rebuttable, and courts conduct a two-step inquiry to determine whether the presumption has been overcome. First, when a statute lacks a clear indication of an extraterritorial application, it has none. (Elbaz at 8.) When a statute applies extraterritorially, the court will apply it extraterritorially as far as statutory indication directs. (Elbaz at 8.) Second, if the statute does not apply extraterritorially, the court asks whether the case “involves a domestic application of the statute.” (Elbaz at 8, citing RJR Nabisco, Inc. v. Eur. Cmty., 579 U.S. 325, 337 (2016).) The court must identify the statute’s focus and whether conduct relevant to the focus occurred within the United States.

In undertaking the two-step analysis, the court concluded under the first step that the language of the wire fraud statute does not clearly indicate that it applies to foreign conduct. (Elbaz at 8.) In the second step, the court identified the statute’s focus by looking at the elements of the wire-fraud statute. The two substantive elements of 18 U.S.C. § 1343 are “(1) the defendant devised, or intended to devise, a scheme or artifice to defraud; and (2) the defendant used a wire to transmit any signal to execute the scheme or artifice.” (Elbaz at 10, citing United States v. Taylor, 942 F.3d 205, 213–14 (4th Cir. 2019).) The court held that “the statute’s text and our precedent reveal that the focus of the wire-fraud statute is the use of a wire, not the scheme to defraud,” because the use of the wire is “the actus reus that is punishable by federal law.” (Elbaz at 11, citing United States v. Jefferson, 674 F.3d 332, 367 (4th Cir. 2012); see also United States v. Ramirez, 420 F.3d 134, 144–145 (2d Cir. 2005).) The court highlighted that the statute criminalizes each wire transmission as a separate offense, rather than punishing each scheme as a separate offense. Further, the method for determining venue is based on the location where the wire transmission was sent and received and not where the scheme was devised. (Elbaz at 11.) Therefore, the Fourth Circuit held that the focus of the wire fraud statute is the domestic use of a wire to execute a scheme, which Elbaz did when victims in Maryland received wire transmissions using wires in Maryland. (Elbaz at 12.) The court’s analysis under the two-step inquiry led it to conclude that the presumption that the wire fraud statute did not apply extraterritorially was overcome, and that the district court properly concluded the statute applied to Elbaz’s offenses planned and carried out in Israel.

Sentencing and Restitution

Elbaz also argued that the trial court erred in considering her foreign conduct during sentencing. The Fourth Circuit held that while the district court was allowed to take foreign conduct into account in sentencing, it erred in considering foreign victims in the calculation of restitution. Under the Mandatory Victims Restitution Act of 1996, 18 U.S.C. § 3663A, Elbaz must pay restitution to victims of her offenses. (Elbaz at 22.) The Fourth Circuit concluded that the wire fraud offenses involved only domestic victims. Further, the conspiracy offense did not justify including foreign victims in the calculation of restitution because conspiracy to commit wire fraud against foreign victims with no domestic nexus is not a crime under the U.S. Code. (Elbaz at 25.) Accordingly, “the inclusion of those foreign victims with no nexus to criminal conduct in the United States in the restitution calculation was an error.” (Elbaz at 24.)

Conclusion and Other Matters

Elbaz raised additional challenges to the district judge’s denial of immunity to witnesses and refusal to grant a mistrial, which were rejected by the Fourth Circuit. The court therefore affirmed the conviction and sentence, and remanded the case to the district court only to recalculate restitution.

Prepared by Sarah Friedman, Law Library Presidential Management Fellow, under the supervision of Elizabeth Osborne, Chief, Public Services Division

Law Library of Congress, January 5, 2023

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Chicago citation style:

Osborne, Elizabeth. United States: Appeals Court Upholds Conviction for Misuse of Wires in US as Part of Israeli Wire Fraud Scheme but Holds Restitution to Foreign Victims Improper. 2023. Web Page. https://www.loc.gov/item/global-legal-monitor/2023-01-04/united-states-appeals-court-upholds-conviction-for-misuse-of-wires-in-us-as-part-of-israeli-wire-fraud-scheme-but-holds-restitution-to-foreign-victims-improper/.

APA citation style:

Osborne, E. (2023) United States: Appeals Court Upholds Conviction for Misuse of Wires in US as Part of Israeli Wire Fraud Scheme but Holds Restitution to Foreign Victims Improper. [Web Page] Retrieved from the Library of Congress, https://www.loc.gov/item/global-legal-monitor/2023-01-04/united-states-appeals-court-upholds-conviction-for-misuse-of-wires-in-us-as-part-of-israeli-wire-fraud-scheme-but-holds-restitution-to-foreign-victims-improper/.

MLA citation style:

Osborne, Elizabeth. United States: Appeals Court Upholds Conviction for Misuse of Wires in US as Part of Israeli Wire Fraud Scheme but Holds Restitution to Foreign Victims Improper. 2023. Web Page. Retrieved from the Library of Congress, <www.loc.gov/item/global-legal-monitor/2023-01-04/united-states-appeals-court-upholds-conviction-for-misuse-of-wires-in-us-as-part-of-israeli-wire-fraud-scheme-but-holds-restitution-to-foreign-victims-improper/>.