United States v. Hasan, No. 12-4442

Decided:  May 29, 2013

The Fourth Circuit affirmed the judgment of the U.S. District Court for the Eastern District of Virginia and rejected Hasan’s challenges to his conviction of various offenses related to the trafficking of contraband cigarettes.

Hasan was involved in the trafficking and distribution of contraband black market cigarettes across interstate lines in violation of the federal Contraband Cigarette Trafficking Act (“CCTA”), which prohibits the trafficking of tobacco products to avoid payment of state taxes.  Hasan was caught up in an undercover investigation led by agents with the Federal Bureau of Alcohol, Tobacco, and Firearms (“ATF”).  The ATF alleged that Hasan was involved in a conspiracy that resulted in the purchase of nearly 40,000 cartons of untaxed cigarettes from undercover agents over a period of approximately two years.  In 2011, Hasan was indicted on six separate counts.  Prior to his trial, Hasan filed a motion to dismiss the indictment or, in the alternative, to exclude evidence collected against him on the basis that the undercover sales “constituted government conduct so outrageous as to violate his due process rights.”  The district court denied the motion.  Hasan then proceeded to agree to a bench trial, preserving his due process challenge, and was found guilty of the offenses charged, sentenced to twenty-four months of incarceration, and adopted the government’s proposed civil forfeiture order in the amount of $604,220.  Hasan appealed both the denial of his due process challenge and the court’s civil forfeiture order, asserting that the court miscalculated the amount.

The Fourth Circuit first took up Hasan’s challenge to his conviction that the undercover agents’ conduct was so outrageous that it violated fundamental notions of fairness.  The Fourth Circuit articulated the “outrageous conduct” doctrine, as set forth by the U.S. Supreme Court,  requires that in order to find a due process violation, the government conduct as issue must be ‘outrageous, not merely offensive.’  However, the Court held that this doctrine is “highly circumscribed” and the Court has never held in a specific case that the government violated the defendant’s due process rights only through outrageous conduct.  To satisfy this high standard, the court adopted the Osborne test from the Ninth Circuit which established that in order for the government conduct to be so outrageous as to offend due process it must be ‘shocking,’ or ‘offensive to traditional notions of fundamental fairness.’  The Fourth Circuit then rejected Hasan’s first contention that the multiple sales of cigarettes to him by the ATF, anticipating he would then later sell them without payment of state taxes is outrageous, per se, because ATF agents were basically distributing “contraband cigarettes.”  The court found support for its decision in both the CCTA and in Congress’ general authorization to federal law enforcement to engage in commercial endeavors in the context of undercover investigations and then use the proceeds to offset the cost of these undercover operations.  The court also summarily rejected Hasan’s claim that the ATF agents were engaged in behavior that was ‘offensive to traditional notions of fundamental fairness.’

The court next took up Hasan’s challenge to the civil forfeiture amount arguing that the court miscalculated by calculating the sum based on gross proceeds, rather than by profits realized from the scheme.  The court again rejected Hasan’s argument that the “contraband cigarettes” were a good or service that is not inherently illegal, but is sold or provided in an illegal manner and, thus, the defendant is only required to forfeit the profit gained.  The court held, for the first time to its knowledge, that “contraband cigarettes” do constitute “illegal goods” under the federal forfeiture statue 18 U.S.C. § 981, and thus triggers § 981(a)(2)(A) definition of proceeds meaning “property of any kind obtained directly or indirectly, as a result of the commission of the offense giving rise to forfeiture . . . and is not limited to the net gain or profit realized from the offense.”

Full opinion

John G. Tamasitis

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