USA v. Sterling Islands Inc et al

1:18-cr-04176-JB

2020 | Cited 0 times | D. New Mexico | August 18, 2020

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW MEXICO UNITED STATES OF AMERICA, Plaintiff, vs. No. CR 18-4176 JB STERLING ISLANDS, INC.; AL-ZUNI GLOBAL JEWELRY, INC.; ; NADER KHALAF; ;

Defendants.

MEMORANDUM OPINION AND ORDER THIS MATTER comes before the Court on: (i) the Objections to the Presentence Report [Doc. 125] on Behalf of and (ii) the

. The primary issue is whether Defendant Nashat relevant offense conduct -- selling Southwestern-style art that he falsely conveyed was American Indian-made -- resulted in a loss amount of $543,747.00 under , as the United States Probation Of USPO contends, or if he is responsible for a loss amount less than $6,500.00, as the United States and Nashat Khalaf agree. The Court concludes that the preponderance of the evidence shows that Nashat of less than $6,500.00, and that the USPO draws impermissible inferences from unrelated conduct.

Accordingly, the Court sustains N. Khalaf Objections N. Khalaf Objections.

FACTUAL BACKGROUND On December 19, 2018, a federal Grand Jury issued a five-count Indictment against Defendants Sterling Islands, Inc., Al-Zuni Global Jewelry, Jawad Khalaf, Nader Khalaf, Nashat , filed December 19, 2018 (Doc. 2). The Indictment charges that, between 2009 and 2015, the Defendants conspired to import from the Republic of Philippines counterfeit American Indian-style art and jewelry that they then sold in New Mexico and Arizona, passing the art and jewelry off as genuinely Native American. See Indictment ¶¶ 5-9, at 2-8. Sterling Islands is a corporation registered in the Commonwealth of Virginia, with its primary business office in Albuquerque, New Mexico. See Indictment ¶ 1, at 1. Sterling Islands imports Native American-style jewelry, arts, and crafts, from a factory in the Philippines -- -- into the United States, and sells the imported merchandise to wholesale and retail

businesses in the State of New Mexico and elsewhere. Indictment ¶ 1, at 1. J. Khalaf is Sterling Islands owner and president, and Nader Khalaf is a manager. See Indictment ¶ 1, at 1. Al-Zuni Global is a registered corporation in New Mexico, operating as a wholesale business in Gallup, - Indictment ¶ 2, at 1-2. N. Khalaf is Al-Zuni Globals owner and president, and Mostafa is its vice president. See Indictment ¶ 2, at 2. specializing in the sale of Native American- Indictment ¶ 3, at 2.

The Indictment alleges that the Defendants imported Native American-style jewelry, arts, and crafts without legally required indelible markings and that they sold the imported merchandise to customers, falsely representing that Native Americans made the merchandise. See Indictment

¶ 4, at 2. According to the Indictment, from approximately 2009 to October, 2015, Sterling Islands, Al-Zuni Global, J. Khalaf, Nader Khalaf, Nashat Khalaf, Mostafa, and Shawar

knowingly, unlawfully, and willfully combined, conspired, confederated, agreed, and acted interdependently with one another and with others known and unknown to the Grand Jury to commit the offenses of smuggling goods into the United States, contrary to 18 U.S.C. § 545, and violating the Indian Arts and Crafts Act, contrary to 18 U.S.C. § 1159. Indictment ¶ 5, at 2.

The Indictment states that Sterling Islands purchased Native American-style jewelry, arts, and crafts from Fashion Accessories and imported them into the United States. See Indictment ¶ 6a, at 3. Al-Zuni Global received and distributed wholesale quantities of the imported merchandise. See Indictment ¶ 6b, at 3. The imported merchandise bore no permanent country- of-origin markings, and the Defendants sold the imported merchandise to wholesale and retail Indictment ¶¶ 6c-e, at 3. The Defendants provided

wholesale customers with Native American-style jewelry, arts, and crafts, some of which had and some of which had permanent country-of-origin markings. Indictment ¶¶ 6f-g, at 3. Al-Zuni Global stocked both American Indian-made goods and non-American Indian-made goods, many of which it labeled as imported but, in one instance, it United States N. Khalaf Objections at 3. . . . reveals $6,355.599.89 in payments from Sterling Islands to [Fashion Accessories] from June

Presentence Investigation Report ¶ 17, at 6, filed July 9, 2020 (Doc. N. Khalaf PSR Between 2010 and 2014, Fashion Accessories made 298 shipments

to Sterling Islands, five of which the United States Fish and Wildlife Services intercepted. See N. Khalaf PSR ¶ 22, at 8. g Islands

, however, that Al-Zuni Global and its employees N. Khalaf -American Indian-made goods

has no reliable way to calculate how many such purchasers there were, who they were, or how -4. The United States and the USPO thus agree that J. Khalaf and N. Khalaf engaged in a mix of permissible sales and impermissible, misleadingly labeled sales, although the United States has indicated that it has evidence of only one instance of misleading labeling. See United States J. Khalaf Objections at 3-4.

According to the United States, on or about September 10, 2012, Sterling Islands received a shipment from Fashion Accessories, containing approximately sixty Navajo-style canteens -- ornately decorated and engraved silver in the shape of canteens -- lacking permanent country-of- origin markings. See Indictment ¶ 14, at 5. The United States says that, on or about October 13, 2012, Nader Khalaf emailed Fashion Accessories, attaching photographs pursuant to an email request from J. Khalaf. See Indictment ¶ 15, at 5. According to the United States, Al-Zuni Global displayed the imported miniature, Navajo-style canteens, lacking permanent country-of-origin markings, for sale in its shop in Gallup. See Indictment ¶ 24, at 6. The United States says that, on November 24, 2014, Al-Zuni Global sold four of the canteens to an undercover United States Fish

and Wildlife Service agent without clarifying that they were not Navajo-made. See Indictment ¶ 25, at 6.

In Count 2, the Indictment charges that, from approximately August 30, 2009, until approximately October 28, 2015, Sterling Islands, J. Khalaf, and Nader Khalaf

did willfully, fraudulently, and knowingly import and bring into the United States certain merchandise, that is Native American-style jewelry, arts, and crafts, contrary to law, in that the merchandise was not indelibly marked with the country of origin by cutting, die-sinking, engraving, stamping, and some other permanent method . . . [i]n violation of 18 U.S.C. § 545 and 18 U.S.C. § 2 and 19 C.F.R. § 134.43. Indictment ¶ 32, at 7. In Count 3, the Indictment charges that, from approximately August 3, 2012, until approximately October 28, 2015, Al-Zuni Global, Nashat Khalaf, and Mostafa

did willfully, fraudulently, and knowingly receive, conceal, buy, sell, and facilitate the transportation, concealment, and sale of merchandise imported contrary to law, that is Native American-style jewelry, arts, and crafts, after the importation thereof, the defendants then knowing that said merchandise had been imported and brought into the United States contrary to law, in that the merchandise was not indelibly marked with the country of origin by cutting, die-sinking, engraving, stamping, and some other permanent method . . . [i]n violation of 18 U.S.C. § 545 and 18 U.S.C. § 2 and 19 C.F.R. § 134.43. Indictment ¶ 33, at 7-8. Counts 4 and 5 are levied against all the Defendants with the exception of - Indictment ¶¶ 34-35, at 8-9. Count 4 charges that the Sterling Islands and Al-Zuni Defendants

did knowingly display and offer for sale, and did sell, goods, specifically: Native American-style jewelry, arts, and crafts, in a manner that suggested that the goods were Indian produced, an Indian product, and the product of a particular Indian and Indian tribe, resident within the United States, when in truth and in fact, as defendants there and then well knew and believed, the goods were not Indian produced, an Indian product, and the product of a particular Indian and Indian tribe . . . [i]n violation of 18 U.S.C. § 1159 and 18 U.S.C. § 2. Indictment ¶ 34, at 8. Count 5 charges that the Sterling and Al-Zuni Defendants:

did knowingly display and offer for sale, and did sell for $1000 or more, a good, specifically: Native-American style jewelry, arts, and crafts, in a manner that suggested that the goods were Indian produced, an Indian product, and the product of a particular Indian and Indian tribe, resident within the United States, when in truth and in fact, as defendants there and then well knew and believed, the goods were not Indian produced, an Indian product, and the product of a particular Indian and Indian tribe . . . [i]n violation of 18 U.S.C. § 1159 and 18 U.S.C. § 2. Indictment ¶ 35, at 8-9. The Indictment also includes a forfeiture allegation, pursuant to 18 U.S.C. § 981(a)(1)(c) and 28 U.S.C. § 2461. See Indictment at 9-10.

PROCEDURAL BACKGROUND On April 29, 2020, Nashat Khalaf pled guilty to Count 5. See Plea Agreement ¶ 9, at 5, Nashat Khalaf admits that, on October 28, 2015, in Al-Zuni he offered for sale at a total price of $1,000.00 or more, canteens that were not Indian-produced in

such a manner that the canteens that were not Indian-produced reasonably may have been mistaken as Indian- N. Khalaf Plea Agreement ¶ 10, at 6. The United States and Nashat Khalaf agree that a sentence between 0 and 12 months imprisonment is appropriate. See N. Khalaf Plea Agreement ¶ 12.a, at 7.

The United States and Nashat Khalaf a preponderance of the evidence that the loss amount attributable to the criminal conduct of all

c, at 7. They fu admissions and which might be considered a violation of 18 U.S.C. § 1159 were not within the scope of any jointly undertaken activity and were not reasonably forese N. Khalaf Plea Agreement ¶ 12.d, at 7. Case 1:18-cr-04176-JB Document 152 Filed 08/18/20 Page 6 of 31 the United States seized on or about October 28- collectively provide a total of an additional $300,000 to the Indian Arts and Crafts Board, an agency within the Department of Interior whose mission is to promote the economic development of American Indians and Alaska Natives through the expansion of the Indian arts and crafts Plea Agreement ¶ 6, at 3-4 (internal quotation marks omitted).

The USPO calculates a base offense level of 6 pursuant to § 2B1.1. See N. Khalaf PSR ¶¶ 47-48, at 12. The USPO adds a 12-level enhancement under § 2B1.1(b)(1)(G), however, The United States and Nashat conduct involved no more than $6,500.00 in illicit sales. See United States N. Khalaf Objections

at 2-5; N. Khalaf Objections at 4-6.

LAW REGARDING THE GUIDELINES In United States v. Booker, 543 U.S. 220 (2005), the Supreme Court of the United States of America severed the mandatory provisions from the Sentencing Reform Act, Pub. L. No. 98- 473, 98 Stat. 1976, thus making Guidelines sentencing ranges effectively advisory. In excising the two sections, the Supreme Court left the remainder of the Sentencing Reform Act intact, including 18 U.S.C. § that guide sentencing. Those factors in turn will guide appellate courts, as they have in the past,

in determining whether a sentence is unreasona United States v. Booker, 543 U.S. at 261.

U.S.C. § 3553(a)(2):

(A) to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense;

(B) to afford adequate deterrence to criminal conduct; (C) to protect the public from further crimes of the defendant; and (D) to provide the defendant with needed educational or vocational training, medical care, or other correctional treatment in the most effective manner . . . . 18 U.S.C. § 3553(a)(2)(A)-(D).

[A] defendant who has been found guilty of an offense described in any Federal statute . . . shall be sentenced in accordance with the provisions of this chapter so as to achieve the purposes set forth in subparagraphs (A) through (D) of section 3553(a)(2) to the extent that they are applicable in light of all the circumstances of the case. 18 U.S.C. § 3551. To achieve these purposes, § 3553(a) directs sentencing courts to consider: (i) the Guidelines; (ii) the available sentences; (iv) the policy favoring uniformity in sentences for defendants who commit similar crimes; (v) the need to provide restitution to victims; and (vi) any pertinent United States Sentencing Commission policy statements in effect on the date of sentencing. See 18 U.S.C. § 3553(a)(1), (3)-(7).

Although the Guidelines are no longer mandatory, both the Supreme Court and the United States Court of Appeals for the Tenth Circuit have clarified that the Guidelines are one of several factors which § 3553(a) enumerates and they are entitled to careful consideration. See Rita v. United States Sentencing Commission examined tens of thousands of sentences and worked with the help of many others in the law enforcement community over a long period of time in an effort to fulfill United States v. Cage, 451 F.3d 585, 593 (10th Cir. 2006)(describing

Guidelines are an expression of popular political will about sentencing that is entitled to due

consideration . . . United States v. Cage, 451 F.3d at 593 (internal quotation

marks omitted)(quoting United States v. Terrell, 445 F.3d 1261, 1265 (10th Cir. 2006)). A

with similar records who have been foun 3553(a). See United States v. Booker, 543 U.S. at 261-62.

United States v. Terrell, 445 F.3d

at 1264, overruled on other grounds by Rita v. United States, 551 U.S. 338, 349, (2007), as recognized in United States v. Zamora-Solorzano, 528 F.3d 1247, 1251 n.3 (10th Cir. 2008). This presumption, however, is an appellate presumption, and not one that the trial court can or should apply. See Gall v. United States, 552 U.S. 38, 46-47 (2007); Kimbrough v. United States, 552 U.S. 85, 90-91 (2007); Rita v. United States, 551 U.S. at 351. Instead, the trial court must undertake the § 3553(a) balancing of factors without any presumption in favor of the advisory 1

1 appropriate to say that the resulting Guidelines ranges are advisory. Gall v. United States, 552 United States v. Booker], the Guidelines are now advisory . . . . United States v. Leroy, 298 F. United States v. Sells, 541 imposed by the district court was based on a correctly calculated Guidelines range, a stated consideration of the § 3553(a) factors, The Court must consider the Guidelines, see Gall v. United States, 55 . . . clear that a district judge must give serious consideration to the extent of any departure from the Guidelines . . . calculate the Guidelines range, see Gall v. United States, 55 istrict court should

The Court is not mandated, however, to apply a sentence within the calculated Guidelines range. See United States v. Sierra-Castillo, 405 F - Booker have discretion to assign sentences outside of the Guidelines-authorized range . . . Accord United States v. Chavez-Rodarte, No. CR 08-2499 JB, 2010 WL 3075285, at *2-3 (D.N.M. July 16, 2010)(Browning, J.).

The Court must adhere to the following three-step sequence when sentencing a criminal defendant: first, determining the appropriate sentencing range Guidelines- contemplated departures based on parts 5H and 5K; and, only then, varying from the Guidelines framework on the basis of the § 3553(a) factors taken as a whole. The Court must follow this sequence, because: (i) the Guidelines expressly provide for it, and courts must still consult the Guidelines, even if they will subsequently vary from them in the third step of the sequence; and (ii) adherence to this sequence is the only way to give effect to 18 U.S.C. § 3553(e). . . . .

The Supreme Court held in United States v. Booker while not bound to apply the Guidelines, must consult those Guidelines and take Kimbrough v. United States ry [from the Guidelines ranges] based solely on policy considerations, including disagreements with the marks omitted). In theory, this freedom could mean that a district court may excise individual portions of the Guidelines along the way as it performs an otherwise by- the-book Guidelines analysis, end up with a sentence with built-in variances, and never even know what sentence a true, rigid Guidelines application would yield. In practice, however, appellate courts expect district courts to first obtain the true United States v. Booker-granted authority to post- Irizarry v. United States, 553 U.S. 708, 710-16 (2008). A district court that attempts to vary from U.S.S.G. § See Gall v. United States, 552 U.S. 38, 51 (2007)(holding that a sentence is procedurally district court committed no significant procedural error, such as failing to calculate (or improperly calculating) the Guidelines range, treating the Guidelines as mandatory, failing to consider the § 3553(a) factors, selecting a sentence based on clearly erroneous facts, or failing to adequately explain the

United States v. Nolf, 30 F. Supp. 3d 1200, 1222-24, (D.N.M. June 20, 2014)(Browning, J.)(emphasis in original).

Guidelines sentence. See Rita v. United States, 551 U.S. at 351; Gall v. United States, 552 U.S. at 46-47; Kimbrough v. United States, 552 U.S. at 90-91.

United States v. Booker has given the task remains to accurately and correctly determine the advisory-guideline sentence. Thus, be Booker arguments, the sentencing court must first determine whether the defendant is entitled to downward departures. The sentencing court may, however, also use these same departure factors in the Booker calculus, even if the court does not grant a downward departure. United States v. Apodaca-Leyva, No. CR 07-1479 JB, 2008 WL 2229550, at *6 (D.N.M. Feb. 13, 2008)(Browning, a superior position to find facts and judge their import under § Kimbrough v. United States, 552 U.S. at 89.

LAW REGARDING THE BURDEN OF PROOF REQUIRED FOR ENHANCEMENTS

UNDER THE GUIDELINES In Apprendi v. New Jersey, Apprendi -- taking into consideration various factors relating both to offense and offender -- in imposing judgment that the Constitution of the United States of America limits this discretion and the Sixth

han the fact of a prior conviction, any fact that increases the penalty for a crime beyond the prescribed statutory maximum must be submitted Apprendi, 530 U.S. at 490. In Blakely v. Washington, 542 U.S. 296 (2004), the Supreme Court elaborated on its holding in Apprendi, Apprendi purposes is the maximum sentence a judge

may impose solely on the basis of the facts reflected in the jury verdict or admitted by the de Blakely v. Washington, 542 U.S. at 303 (emphasis and citations omitted). In United States v. Booker, however, the Supreme Court held that, because the sentencing guidelines are no Apprendi does not apply to the present advisory- United States v. Ray, 704 F.3d 1307, 1314 (10th Cir. 2013). See United States v. Booker, 543 U.S. at 259 -- namely, the provision that makes the relevant sentencing rules mandatory and imposes binding requirements on all sentencing judges - - the statute falls outside the scope of Apprendi (alterations and internal quotations marks omitted)). More recently, the Supreme Court held that the requirements in Apprendi v. New Jersey See Alleyne v. United States, 570 U.S. 99, 103 (2013).

In United States v. Magallanez, 408 F.3d 672 (10th Cir. 2005), the Tenth Circuit held that Blakely v. Washington and United States v. Booker enhancement findings analysis. See United States v. Magallanez, 408 F.3d at 684-85. United

States v. Magallanez involved plain-error review of a drug sentence in which a jury found the defendant guilty of conspiracy to possess with intent to distribute, and of distributing, methamphetamine. See 408 F.3d at 676. As part of its verdict, the jury, through a special interrogatory, attributed to the defendant 50-500 grams of methamphetamine; at sentencing, however, the judge -- based on testimony of the various amounts that government witnesses indicated they had sold to the defendant -- attributed 1200 grams of methamphetamine to the defendant and used that amount to increase his sentence under the Guidelines. See 408 F.3d at 682. months to 121 to 151 months. See 408 F.3d at 682-83. On appeal, the Tenth Circuit stated that,

view of the c United States

v. Booker determined through United States v. Magallanez, 408 F.3d at 685 (citation omitted).

dramatic inc

United States v. Olsen, 519 F.3d 1096, 1105 (10th Cir. 2008)(quoting United States v. Washington, 11 F.3d 1510, 1516 (10th Cir. 1993)). 2

. . . does not implicate

2 Although the Tenth Circuit stated in United States v. Washington 11 F.3d at 1516, the Tenth proof by clear and convincing evidence before imposition of a Guidelines enhancement that United States v. Ray, 704 F.3d 1307, 1314 (10th Cir. 2013)(quoting United States v. Olsen, 519 F.3d at 1105). See United States v. Olsen, 519 F.3d at 1105 (affirming the use of the preponderance-of-the-evidence standard for United States v. Washington, 11 F.3d at 1516)). The Tenth Circuit has not y sentence. United States v. Olsen, 519 F.3d at 1105 (explaining that it need not determine whether a higher standard of proof is required to sentence a defendant for committing perjury in relation to a grand jury investigation, because the enhancement did not require the district court to determine that the defendant committed murder, but only that he obstructed a homicide investigation). See United States v. Constantine, 263 F.3d 1122, 1125 n.2 (10th Cir. 2001)(affirming a preponderance- of-the- United States v. Valdez, Case 1:18-cr-04176-JB Document 152 Filed 08/18/20 Page 13 of 31 Apprendi v. New Jersey United States v. Reyes-Vencomo, No. CR 11-2563 JB, 2012 WL 2574810, at *3 (D.N.M. June 26, 2012)(Browning, J.).

The Tenth Circuit applies Apprendi

United States v. Price, 400 F.3d 844, 847 (10th Cir. 2005). Accord United States v. Ray, 704 F.3d at 1314. A defendant may assert an error under Apprendi only where the fact at issue increased his sentence beyond the statutory maximum. See United an, 339 F.3d 1229, 1232 (10th Cir. 2003)(holding that a defendant could not assert an error under Apprendi United States v. Hendrickson, 2014 WL 6679446, at *6 (10th Cir. 2014) 3

(holding that, after

methamphetamine associated with acquitted charges entitled the defendant to a clear-and- United States v. Washington, 11 F.3d at 1516 (finding that a district court need not find by any more than a preponderance of the evidence the amount of twenty years to consecutive forty-year terms).

3 United States v. Hendrickson is an unpublished opinion, but the Court can rely on an unpublished opinion to the extent its reasoned analysis is persuasive in the case before it. See 10th ive

In this circuit, unpublished orders are not binding precedent, . . . [a]nd we have generally determined that citation to unpublished opinions is not favored. However, if an unpublished opinion or order and judgment has persuasive value with respect to a material issue in a case and would assist the court in its disposition, we allow a citation to that decision. United States v. Austin, 426 F.3d 1266, 1274 (10th Cir. 2005). The Court concludes that United States v. Hendrickson and United States v. Leroy, 298 F. persuasive value with respect to a material issue, and will assist the Court in its disposition of this Memorandum Opinion and Order.

Alleyne v. United States, -established that sentencing factors need not be charged in an The Court has noted:

[A]lthough the decision of the Supreme Court of the United States in Alleyne v. United States, . . . 133 S. Ct. 2151 . . . (2013), expands the rule from Apprendi v. New Jersey, 530 U.S. 466 . . . (2000)(holding that facts that increase the maximum sentence a defendant faces must be proven to a jury beyond a reasonable doubt), to cover facts that increase the mandatory minimum sentence, as well as the maximum sentence, it does not prohibit district judges from continuing to find advisory sentencing factors by a preponderance of the evidence. See [United States v. Sangiovanni,] 2014 WL 4347131, at *22-26 [(D.N.M. 2014)(Browning, J.)]. United States v. Cervantes-Chavez, No. CR 14-0259 JB, 2014 WL 6065657, at *14 (D.N.M. Nov. 3, 2014)(Browning, J.).

ANALYSIS The Court concludes that the preponderance of the evidence does not demonstrate that Nashat Khalaf is responsible for the loss amounts that the USPO attributes to him. The USPO confuses Al- conduct that verifiably violates the Indian Arts and Crafts Act. While the Court does not doubt that they each may have caused losses greater than $6,500.00, the Court agrees with the United States and Nashat Khalaf that there is no evidence of any such violation beyond the set of counterfeit Navajo-style canteens that Nashat Khalaf passed off as genuine, Indian-made art. Accordingly, the Court sustains the United States N. Khalaf Objections and the N. Khalaf Objections. I. THE PREPONDERANCE OF THE EVIDENCE DOES NOT DEMONSTRATE

BETWEEN $250,000.00 AND $550,000.00 IN LOSS.

The Court concludes that the USPO mistak transactions with Sterling Islands as illicit conduct. Instead, the Court concludes that the proper

analysis under §§ 1B1.3 and 2B1.1 requires the Court to consider the extent to which Nashat d counterfeit Native American arts and crafts, or the extent to which Nashat Khalaf intended to deceive customers into buying such products. The Court also concludes crafts from the Philippines which lacked indelible country-of-origin markings does not demonstrate that Nashat Khalaf intended to pass each such good off as genuine Native American arts and crafts. Because the United States has not proven by a preponderance of the evidence that Nashat Khalaf intended to cause or did cause loss greater than $6,500.00, the Court sustains the

or display any good, without or without a Government trademark, in a manner that falsely suggests it is Indian produced, an Indian product, or the product of a particular Indian tribe or Indian arts and crafts organization 4

See N. Khalaf Plea Agreement ¶ 9, at 5-6. The

In summary, Nashat Khalaf . . . knowingly displayed and offered for sale, and did sell $1000 and more of goods, specifically [N]ative American jewelry, arts and crafts, in [a] manner that suggested that the goods were Indian produced, or an Indian product. Further, Nashat Khalaf[] can be directly attributed to $543,747.00 from 2009 to 2015 in purchases from Sterling Islands and [Fashion Accessories].

4 Section 1159 is an infrequently prosecuted statute, with only eight such cases listed in Westlaw, one of which involved prosecution against a Native American who sold his own arts and crafts, but who was not a member of a federally recognized tribe; although his art, in literal terms, was Native American-made, it was not Native American- . See United States v. Natchez No. CR 15-2843-MCA, 2016 WL 9777188, at *10 (D.N.M. June 21, 2016)(Armijo, C.J.).

N. Khalaf PSR ¶ 42, at 11. The USPO apparently arrives at this figure by totaling all checks that

October, 2015. N. Khalaf PSR ¶ 38, at 10. The USPO also makes much of the fact that most of the products that Nashat Khalaf purchased from Sterling Islands lacked indelible markings showing that the products were made in the Philippines, but instead had removable stickers, in violation of 19 U.S.C. § 1304 and 19 C.F.R. § 134.43. See N. Khalaf PSR ¶ 19, at 7. The USPO avers that, because these products were not indelibly marked as originating from the Philippines, they were prone to being passed off as genuinely American Indian-made. See N. Khalaf PSR ¶ 19, at 7. conviction here is the display for sale of one single box of silver canteens that [he] knew reasonably may have been mistaken for Native American- made arts and crafts Service] narrative of Sterling Islands operating as the hub of an organized crime ring, which the

-3. He further asserts that Al- ll of the imported jewelry on display as Non- Nashat Khalaf also argues off counterfeit arts and crafts. N. Khalaf Objections at 4. The United States agrees that the

American-style good that were offered or displayed at Al-

States says th N. Khalaf Objections at 3. The United States notes, however, that Nashat Case 1:18-cr-04176-JB Document 152 Filed 08/18/20 Page 17 of 31 ed States - they were purchasing genuine, American Indian-made arts and crafts. United States N. Khalaf Objections at 3-4. of relevant conduct is a factual finding subject to a United States v. Schmidt, 353 F. Appx at 135 (citing United States v. Zapata, 546 F.3d 1179, 1192 (10th Cir. 2008)). Section 2B1.1 provides a sliding- § 2B1.1(b)(1). U.S.S.G. § 2B1.1, Application

Note 3(A). rm that resulted from the U.S.SG. § 2B1.1, Application Note 3(A)(i). . . means the pecuniary U.S.S.G. § 2B1.1, Application Note 3(A)(ii). conduct, as determined by § 1B1.3. See United States v. Holbert, 285 F.3d 1257, 1261, 1261 n.3

fense on intends to limit the applicability

of a victim- , U.S.S.G. § 1B1.1, Application Note 1(H)); Robert W. Haines, Jr., Frank O. Bowman III, &

Jennifer C. Woll, Federal Sentencing Guidelines Handbook § 2B1.1, § 5, at 335 (2012-13 Guidelines Handbook United States Sentencing Commission intended

and that the omission of a cross-reference to § 1B1.3 in the application notes to § 2B1.1 is of no

-reference to § 1B1.3 was unnecessary because the relevant conduct rules apply to all offens ). Additionally, Guidelines Handbook § 5, at 334 (emphasis in

. been a cause-in-

When the loss amount is disputed, the United States bears the burden of establishing its estimation of loss by a preponderance of the evidence. See Guidelines Handbook § 14, at 353. The Tenth Circuit has, accordingly, ruled that a district court cannot include losses in its calculation . . prove[s] by a preponderance of the evidence that . . and (2) constituted a criminal offe United States v. Kieffer, 681 F.3d 1143, 1168 (10th Cir. 2012). reasonable estimate thereof) associated with that conduct by a preponderance of the eviden

United States v. Kieffer, 681 F.3d at 1168 (citing United States v. Peterson, 312 F.3d 1300, 1302 (10th Cir. 2002)). For example, in United States v. Chapman, No. CR 11-0904 JB, 2012 WL 2574814 (D.N.M. June 22, 2012)(Browning, J.), the Court determined that an enhancement pursuant to § 2B1.1(b)(1) was unwarranted, because, although the United States contended that a New Mexico Corrections Department facilities manager awarded four million dollars worth of

state government contracts to a developer in exchange for bribes, the United States submitted no evidence regarding the profit, if any, the developer received from the contracts. See 2012 WL 2574814, at *1, 9-10. Moya received under these government contracts, the United States cannot establish by a preponderance of the evidence that an . . 2012 WL 2574814, at *10. on two assumptions. First, the USPO tends to construe as criminal conduct -style jewelry that was not in fact American Indian-made. Second, the USPO assumes that, because most of the ed indelible country-of-origin markings, it can be inferred that the Defendants intended to pass these products off as American Indian-made. It is not a crime to sell Native American-style jewelry, however, if the seller does not falsely represent the jewelry as American Indian-made. See -Indian can make and sell products in the style of Indian art or craft products only if the non-Indian or other seller does not falsely suggest to Because it is not a crime, in and of itself, for non-Native Americans to sell Southwestern-style jewelry, for sentencing purposes the United States must prove specific criminal conduct -- instances in which Nashat Khalaf falsely suggested to customers that his products were genuinely Indian-made. Section 1B1.3 provides reasonably foreseeable acts and omissions . . . in furtherance of the jointly undertaken criminal

activity, that occurred during the commission of the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that of Case 1:18-cr-04176-JB Document 152 Filed 08/18/20 Page 20 of 31 U.S.S.G. § 1B1.3(a)(1)(B). Courts typically may consider only criminal conduct under § 1B1.3, see, e.g., United States v. Dove, 247 F.3d 152, 155 (4th Cir. 2001), so, in calculating Nashat the sum total of Al- with Sterling Islands with the loss for which Nashat Khalaf is responsible.

ted States N. Khalaf Objections at 4, and this

see United States v. Kieffer, 681 F.3d at 1168. Also, the Court need not merely resolve this uncertainty record transactions with criminal conduct. For example, Mostafa repeatedly told Fish and Wildlife

- Canteen Undercover Purchase Transcript at 2, filed July 31, 2020 (Doc. 133- American Indian-made products would cost over ten times what Al-Zuni was charging for

Philippines-made products, see Mostafa Tr. at 15. Further, there were signs throughout Al-Zuni Global that identified items that were not Indian-made. See - Khalaf Objections at 5 (Figures 1 and 2).

Figure 1

Figure 2

Similarly, at a trade show in Tucson, Arizona, Al- Fish and Wildlife Service agent which products were Indian-made and which products were

imported. See Report of Investigation No. 015 at 3, filed July 31, 2020 (Doc. 133-22) No. 15 while at the [trade] show. . The same happened at another Tucson trade show the following year; items he asked [Mostafa] for the identity of the artist who made the items. [Mostafa] told [the agent] that the items were Report of Investigation No. 009 at 1, filed July 31, 2020 (Doc. 134-

The record contains proof of only one instance in which Nashat Khalaf falsely conveyed that products were Indian-made. On October 28, 2015, Al-Zuni placed a box of twelve Navajo- style canteens on a table with American Indian-made jewelry without identifying that the canteens were imported from the Philippines. See N. Khalaf PSR ¶ 33, at 10. The canteens also lacked identifying markers or labels indicating their imported status. See N. Khalaf PSR ¶ 33, at 15. The canteens were listed at $85.00 each. See Photograph of Canteens at 1, filed July 31, 2020 (Doc. 133-17)(Figure 3).

Figure 3 With the canteens valued at $85.00 each, this incident demonstrates, at most, a loss amount of $1,020.00. The record contains no other instances in which Nashat Khalaf sold imported Southwestern-style jewelry or crafts that he fraudulently passed off as American Indian-made. - Islands should be tallied as loss attributable to Nashat Khalaf is thus not reasonable. Accordingly, there i level within § 2B1.1(b)(1)(A), which provides no increase in his base offense level. This

conclusion is consistent with non-Native Americans selling counterfeit products, siphoning revenue from those artists. See,

e.g., William J. Hapiuk, Jr., Of Kitsch and Kachinas: A Critical Analysis of the Indian Arts and Crafts Act of 1990, 53 Stan. L. Rev. 1009 (2001). The only instance of such siphoning in the record is the sale of the $1,020.00 in Navajo-style canteens.

Section 2B1.1, however, also measure See U.S.S.G. § 2B1.1, Application Note 3(A)(ii). . . means the pecuniary harm that was U.S.S.G. § 2B1.1, Application Note 3(A)(ii). On this point, ark imported jewelry with indelible country-of-origin labels means that the Defendants intended to pass off the jewelry as genuinely Indian-made. See can be readily separated . . . to make it impossible for an unsuspecting consumer to determine the

country-of-origin markings does not necessarily entail a crime. Section 1304 of Title 19 of the

States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit § 1304(a). Section 1304 allows for fines of not more than $250,000.00 and/or imprisonment for less than one year. See 19 U.S.C. § 1304(l). Treasury Regulation 19 C.F.R. § 134.43 provides in relevant part:

(c) Native American-style jewelry --

(1) Definition. For the purposes of this provision, Native American- style jewelry is jewelry which incorporates traditional Native American design motifs, materials and/or construction and therefore looks like, and could possibly be mistaken for, jewelry made by Native Americans.

(2) Method of marking. Except as provided in 19 U.S.C. 1304(a)(3) and in paragraph (c)(3) of this section, Native American-style jewelry must be indelibly marked with the country of origin by cutting, die-sinking, engraving, stamping, or some other permanent method. The indelible marking must appear legibly on the clasp or in some other conspicuous location, or alternatively, on a metal or plastic tag indelibly marked with the country of origin and permanently attached to the article.

(3) Exception. If it is technically or commercially infeasibly to mark in the manner specified in paragraph (c)(2) of this section, or in the case of a good of a [North American Free Trade Association] country, the article may be marked by means of a string tag or adhesive label securely affixed, or some other similar method. 19 C.F.R. § 134.43(c). The Court previously has concluded that § 134.43 constitutes a law for 18 See United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1041 (D.N.M. 2019)(Browning, J.). Nonetheless, while § 134.43(c)(1) requires that jewelry be indelibly

lation defines this phrase. Most importantly, the regulation technically or commercially The United States makes no argument that it was commercially feasible to mark indelibly all the

jewelry which adhesive country-of-origin labeling does not necessarily amount to a crime. The USPO thus

stretches to conclude that the lack of indelible markings necessarily implies criminal conduct and

Also relevant is the fact that the United States did not charge Nashat Khalaf with violating 19 U.S.C. § 1304, which the N. Khalaf PSR indelible markings is indicative of criminal conduct and thus relevant under § 1B1.3. See

N. Khalaf PSR ¶ 19, at 7. Section 1304 provides that shall be marked in a conspicuous place as legibly, indelibly, and

permanently as the nature of the article (or container) will permit. Nashat Khalaf contends that, because he was not charged with violating § 1304, the Court may not

consider conduct violative of § 1304 under § 1B1.3. See N. Khalaf Objections at 9. This assertion is not entirely accurate, because the Court may consider, as relevant conduct, actions that have not resulted in a conviction. See, e.g., United States v. Archuleta, No. CR 14-0922 JB, 2017 WL 2297129, at *10 (D.N.M. April 24, 2017)(Browning, J.). Nonetheless, relevant conduct under § 1B1.3 must be See, e.g., Witte v. United States, 515 U.S. at 403 (noting that sentencing enhancements do not punish a defendant for uncharged offenses; rather, they reflect Congress offense should receive a more serious sentence within the authorized range if it was either accompanied by or preceded by . Moreover, the Tenth Circuit has ruled that a district court cannot include losses in its calculation . . prove[s] by a preponderance of the evidence that the conduct giving rise to those losses (1) was a part of . . . and (2) constituted a criminal offense under a federal or state statute United States v. Kieffer, 681 F.3d 1143, 1168 (10th Cir. 2012)(emphases added). As the Court has concluded, the lack of indelible markings is not necessarily a crime. To be relevant under § 1B1.3, therefore, the United States must tie the lack of indelible markings to Nashat -style canteens as American Indian-made, such that the lack was . See United States v. Kieffer, 681 F.3d at 1168.

The United States has not proven that Al-Zuni Global imported goods without indelible markings with the intent to pass them off fraudulently as genuinely American Indian-made. Instead, while many of the imported goods lacked indelible country-of-origin markings, the United estigation revealed only one instance in which Nashat Khalaf or other Al-Zuni Global

employees did not convey -- either through adhesive labeling, signage, or verbal representation -- that the goods were imported rather than American Indian-made. The lack of indelible country- of-origin markings, therefore, cannot, by itself, demonstrate an intent to defraud that equals the value of the sum total of adhesive-labeled, imported goods. Because there is no evidence of actual or intended loss greater than $1,020.00 -- -- the Court , and declines to apply the § 2B1.1 4. See U.S.S.G. § 2B1.1(b)(1)(A). The Court notes, however, that, while the lack of indelible

markings does not justify a § 2B1.1(b)(1) enhancement, the Court may consider this information ue the importance of the lack of indelible markings See 18 U.S.C. § 3661 ( shall be placed on the information concerning the background, character, and conduct of a person

convicted of an offense which a court of the United States may receive and consider for the purpose . Similarly, the Court is not convinced that the loss inherent to importing goods without indelible country-of-origin markings is e notes, if Nashat Khalaf were convicted of smuggling counterfeit goods, the Court would likely

measure the loss amount based on the tax loss that the United States suffered, rather than the price of the goods themselves. See at 5.

addressing COVID-19, and [his] risk factors for COVID- -three years

old. N. Khalaf Objections at 12. The United States does not respon The USPO says

Addendum to the Presentence Report at 4, filed August 10, N. Khalaf Add Although Nashat Khalaf does not expressly invoke his COVID-19 risk factors to seek a variance but rather asserts that his risk of contracting and perhaps dying from COVID-19 in prison is relevant to his sentence on N. Khalaf Objections at 12 (quoting N. Khalaf PSR ¶ 100, at 20). Rule 32 of the Federal Rules of

Criminal Procedure provides that basis for departing from the

The Court sees no reason to amend the PSR as Nashat Khalaf requests. His age is readily apparent from the PSR, and the Court is well-aware of the COVID-19 pandemic, and its presence in the federal prison and corrections system. Instead of amending the PSR, the Court invites Nashat Khalaf to argue that his age places him outside the heartland of cases that his total offense level and criminal history category represents. See [C]onsiderations base on age, individually or in combination with other offender characteristics, are present to an unusual degree and distinguish the case from the typical cases covered by the guidelines

In sum, the Court declines to apply a 12-level enhancement under U.S.S.G. § . See U.S.S.G. § 2B1.1(a)(2). With

a criminal history category of I, imprisonment. See U.S.S.G. § Sentencing Table.

IT IS ORDERED that the (i) Objections to the Presentence Report [Doc. 125] on Behalf of Nashat Khalaf, filed July 31, 2020 (Doc. 134), is sustained with regard to filed July 31, 2020 (Doc. 137), is sustained.

_______________________________ UNITED STATES DISTRICT JUDGE

Counsel: John C. Anderson United States Attorney Jonathan M. Gerson Kristopher N. Houghton Sean J. Sullivan Assistant United States Attorneys Albuquerque, New Mexico Attorneys for the Plaintiff

Mark T. Baker Matthew M. Beck Peifer, Hanson & Mullins and Baker, P.A. Albuquerque, New Mexico --and--

Carter B. Harrison, IV Harrison & Hart Albuquerque, New Mexico Attorneys for Defendants Sterling Islands, Inc.,

Jawad Khalaf, and Zaher Mostafa Hope Eckert Albuquerque, New Mexico Attorney for Defendant Al Zuni Global Jewelry, Inc. Ahmad Assed Richard J. Moran Law Office of Ahmad Assed Albuquerque, New Mexico Attorneys for Defendant Nader Khalaf John W. Boyd Nancy Hollander Karen Grohman Freedman Boyd Hollander Goldberg Urias & Ward, P.A. Albuquerque, New Mexico Attorneys for Defendant Nashat Khalaf

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW MEXICO UNITED STATES OF AMERICA, Plaintiff, vs. No. CR 18-4176 JB STERLING ISLANDS, INC.; AL-ZUNI GLOBAL JEWELRY, INC.; ; NADER KHALAF; ;

Defendants.

MEMORANDUM OPINION AND ORDER THIS MATTER comes before the Court on: (i) the Objections to the Presentence Report [Doc. 125] on Behalf of and (ii) the

. The primary issue is whether Defendant Nashat relevant offense conduct -- selling Southwestern-style art that he falsely conveyed was American Indian-made -- resulted in a loss amount of $543,747.00 under , as the United States Probation Of USPO contends, or if he is responsible for a loss amount less than $6,500.00, as the United States and Nashat Khalaf agree. The Court concludes that the preponderance of the evidence shows that Nashat of less than $6,500.00, and that the USPO draws impermissible inferences from unrelated conduct.

Accordingly, the Court sustains N. Khalaf Objections N. Khalaf Objections.

FACTUAL BACKGROUND On December 19, 2018, a federal Grand Jury issued a five-count Indictment against Defendants Sterling Islands, Inc., Al-Zuni Global Jewelry, Jawad Khalaf, Nader Khalaf, Nashat , filed December 19, 2018 (Doc. 2). The Indictment charges that, between 2009 and 2015, the Defendants conspired to import from the Republic of Philippines counterfeit American Indian-style art and jewelry that they then sold in New Mexico and Arizona, passing the art and jewelry off as genuinely Native American. See Indictment ¶¶ 5-9, at 2-8. Sterling Islands is a corporation registered in the Commonwealth of Virginia, with its primary business office in Albuquerque, New Mexico. See Indictment ¶ 1, at 1. Sterling Islands imports Native American-style jewelry, arts, and crafts, from a factory in the Philippines -- -- into the United States, and sells the imported merchandise to wholesale and retail

businesses in the State of New Mexico and elsewhere. Indictment ¶ 1, at 1. J. Khalaf is Sterling Islands owner and president, and Nader Khalaf is a manager. See Indictment ¶ 1, at 1. Al-Zuni Global is a registered corporation in New Mexico, operating as a wholesale business in Gallup, - Indictment ¶ 2, at 1-2. N. Khalaf is Al-Zuni Globals owner and president, and Mostafa is its vice president. See Indictment ¶ 2, at 2. specializing in the sale of Native American- Indictment ¶ 3, at 2.

The Indictment alleges that the Defendants imported Native American-style jewelry, arts, and crafts without legally required indelible markings and that they sold the imported merchandise to customers, falsely representing that Native Americans made the merchandise. See Indictment

¶ 4, at 2. According to the Indictment, from approximately 2009 to October, 2015, Sterling Islands, Al-Zuni Global, J. Khalaf, Nader Khalaf, Nashat Khalaf, Mostafa, and Shawar

knowingly, unlawfully, and willfully combined, conspired, confederated, agreed, and acted interdependently with one another and with others known and unknown to the Grand Jury to commit the offenses of smuggling goods into the United States, contrary to 18 U.S.C. § 545, and violating the Indian Arts and Crafts Act, contrary to 18 U.S.C. § 1159. Indictment ¶ 5, at 2.

The Indictment states that Sterling Islands purchased Native American-style jewelry, arts, and crafts from Fashion Accessories and imported them into the United States. See Indictment ¶ 6a, at 3. Al-Zuni Global received and distributed wholesale quantities of the imported merchandise. See Indictment ¶ 6b, at 3. The imported merchandise bore no permanent country- of-origin markings, and the Defendants sold the imported merchandise to wholesale and retail Indictment ¶¶ 6c-e, at 3. The Defendants provided

wholesale customers with Native American-style jewelry, arts, and crafts, some of which had and some of which had permanent country-of-origin markings. Indictment ¶¶ 6f-g, at 3. Al-Zuni Global stocked both American Indian-made goods and non-American Indian-made goods, many of which it labeled as imported but, in one instance, it United States N. Khalaf Objections at 3. . . . reveals $6,355.599.89 in payments from Sterling Islands to [Fashion Accessories] from June

Presentence Investigation Report ¶ 17, at 6, filed July 9, 2020 (Doc. N. Khalaf PSR Between 2010 and 2014, Fashion Accessories made 298 shipments

to Sterling Islands, five of which the United States Fish and Wildlife Services intercepted. See N. Khalaf PSR ¶ 22, at 8. g Islands

, however, that Al-Zuni Global and its employees N. Khalaf -American Indian-made goods

has no reliable way to calculate how many such purchasers there were, who they were, or how -4. The United States and the USPO thus agree that J. Khalaf and N. Khalaf engaged in a mix of permissible sales and impermissible, misleadingly labeled sales, although the United States has indicated that it has evidence of only one instance of misleading labeling. See United States J. Khalaf Objections at 3-4.

According to the United States, on or about September 10, 2012, Sterling Islands received a shipment from Fashion Accessories, containing approximately sixty Navajo-style canteens -- ornately decorated and engraved silver in the shape of canteens -- lacking permanent country-of- origin markings. See Indictment ¶ 14, at 5. The United States says that, on or about October 13, 2012, Nader Khalaf emailed Fashion Accessories, attaching photographs pursuant to an email request from J. Khalaf. See Indictment ¶ 15, at 5. According to the United States, Al-Zuni Global displayed the imported miniature, Navajo-style canteens, lacking permanent country-of-origin markings, for sale in its shop in Gallup. See Indictment ¶ 24, at 6. The United States says that, on November 24, 2014, Al-Zuni Global sold four of the canteens to an undercover United States Fish

and Wildlife Service agent without clarifying that they were not Navajo-made. See Indictment ¶ 25, at 6.

In Count 2, the Indictment charges that, from approximately August 30, 2009, until approximately October 28, 2015, Sterling Islands, J. Khalaf, and Nader Khalaf

did willfully, fraudulently, and knowingly import and bring into the United States certain merchandise, that is Native American-style jewelry, arts, and crafts, contrary to law, in that the merchandise was not indelibly marked with the country of origin by cutting, die-sinking, engraving, stamping, and some other permanent method . . . [i]n violation of 18 U.S.C. § 545 and 18 U.S.C. § 2 and 19 C.F.R. § 134.43. Indictment ¶ 32, at 7. In Count 3, the Indictment charges that, from approximately August 3, 2012, until approximately October 28, 2015, Al-Zuni Global, Nashat Khalaf, and Mostafa

did willfully, fraudulently, and knowingly receive, conceal, buy, sell, and facilitate the transportation, concealment, and sale of merchandise imported contrary to law, that is Native American-style jewelry, arts, and crafts, after the importation thereof, the defendants then knowing that said merchandise had been imported and brought into the United States contrary to law, in that the merchandise was not indelibly marked with the country of origin by cutting, die-sinking, engraving, stamping, and some other permanent method . . . [i]n violation of 18 U.S.C. § 545 and 18 U.S.C. § 2 and 19 C.F.R. § 134.43. Indictment ¶ 33, at 7-8. Counts 4 and 5 are levied against all the Defendants with the exception of - Indictment ¶¶ 34-35, at 8-9. Count 4 charges that the Sterling Islands and Al-Zuni Defendants

did knowingly display and offer for sale, and did sell, goods, specifically: Native American-style jewelry, arts, and crafts, in a manner that suggested that the goods were Indian produced, an Indian product, and the product of a particular Indian and Indian tribe, resident within the United States, when in truth and in fact, as defendants there and then well knew and believed, the goods were not Indian produced, an Indian product, and the product of a particular Indian and Indian tribe . . . [i]n violation of 18 U.S.C. § 1159 and 18 U.S.C. § 2. Indictment ¶ 34, at 8. Count 5 charges that the Sterling and Al-Zuni Defendants:

did knowingly display and offer for sale, and did sell for $1000 or more, a good, specifically: Native-American style jewelry, arts, and crafts, in a manner that suggested that the goods were Indian produced, an Indian product, and the product of a particular Indian and Indian tribe, resident within the United States, when in truth and in fact, as defendants there and then well knew and believed, the goods were not Indian produced, an Indian product, and the product of a particular Indian and Indian tribe . . . [i]n violation of 18 U.S.C. § 1159 and 18 U.S.C. § 2. Indictment ¶ 35, at 8-9. The Indictment also includes a forfeiture allegation, pursuant to 18 U.S.C. § 981(a)(1)(c) and 28 U.S.C. § 2461. See Indictment at 9-10.

PROCEDURAL BACKGROUND On April 29, 2020, Nashat Khalaf pled guilty to Count 5. See Plea Agreement ¶ 9, at 5, Nashat Khalaf admits that, on October 28, 2015, in Al-Zuni he offered for sale at a total price of $1,000.00 or more, canteens that were not Indian-produced in

such a manner that the canteens that were not Indian-produced reasonably may have been mistaken as Indian- N. Khalaf Plea Agreement ¶ 10, at 6. The United States and Nashat Khalaf agree that a sentence between 0 and 12 months imprisonment is appropriate. See N. Khalaf Plea Agreement ¶ 12.a, at 7.

The United States and Nashat Khalaf a preponderance of the evidence that the loss amount attributable to the criminal conduct of all

c, at 7. They fu admissions and which might be considered a violation of 18 U.S.C. § 1159 were not within the scope of any jointly undertaken activity and were not reasonably forese N. Khalaf Plea Agreement ¶ 12.d, at 7. Case 1:18-cr-04176-JB Document 152 Filed 08/18/20 Page 6 of 31 the United States seized on or about October 28- collectively provide a total of an additional $300,000 to the Indian Arts and Crafts Board, an agency within the Department of Interior whose mission is to promote the economic development of American Indians and Alaska Natives through the expansion of the Indian arts and crafts Plea Agreement ¶ 6, at 3-4 (internal quotation marks omitted).

The USPO calculates a base offense level of 6 pursuant to § 2B1.1. See N. Khalaf PSR ¶¶ 47-48, at 12. The USPO adds a 12-level enhancement under § 2B1.1(b)(1)(G), however, The United States and Nashat conduct involved no more than $6,500.00 in illicit sales. See United States N. Khalaf Objections

at 2-5; N. Khalaf Objections at 4-6.

LAW REGARDING THE GUIDELINES In United States v. Booker, 543 U.S. 220 (2005), the Supreme Court of the United States of America severed the mandatory provisions from the Sentencing Reform Act, Pub. L. No. 98- 473, 98 Stat. 1976, thus making Guidelines sentencing ranges effectively advisory. In excising the two sections, the Supreme Court left the remainder of the Sentencing Reform Act intact, including 18 U.S.C. § that guide sentencing. Those factors in turn will guide appellate courts, as they have in the past,

in determining whether a sentence is unreasona United States v. Booker, 543 U.S. at 261.

U.S.C. § 3553(a)(2):

(A) to reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense;

(B) to afford adequate deterrence to criminal conduct; (C) to protect the public from further crimes of the defendant; and (D) to provide the defendant with needed educational or vocational training, medical care, or other correctional treatment in the most effective manner . . . . 18 U.S.C. § 3553(a)(2)(A)-(D).

[A] defendant who has been found guilty of an offense described in any Federal statute . . . shall be sentenced in accordance with the provisions of this chapter so as to achieve the purposes set forth in subparagraphs (A) through (D) of section 3553(a)(2) to the extent that they are applicable in light of all the circumstances of the case. 18 U.S.C. § 3551. To achieve these purposes, § 3553(a) directs sentencing courts to consider: (i) the Guidelines; (ii) the available sentences; (iv) the policy favoring uniformity in sentences for defendants who commit similar crimes; (v) the need to provide restitution to victims; and (vi) any pertinent United States Sentencing Commission policy statements in effect on the date of sentencing. See 18 U.S.C. § 3553(a)(1), (3)-(7).

Although the Guidelines are no longer mandatory, both the Supreme Court and the United States Court of Appeals for the Tenth Circuit have clarified that the Guidelines are one of several factors which § 3553(a) enumerates and they are entitled to careful consideration. See Rita v. United States Sentencing Commission examined tens of thousands of sentences and worked with the help of many others in the law enforcement community over a long period of time in an effort to fulfill United States v. Cage, 451 F.3d 585, 593 (10th Cir. 2006)(describing

Guidelines are an expression of popular political will about sentencing that is entitled to due

consideration . . . United States v. Cage, 451 F.3d at 593 (internal quotation

marks omitted)(quoting United States v. Terrell, 445 F.3d 1261, 1265 (10th Cir. 2006)). A

with similar records who have been foun 3553(a). See United States v. Booker, 543 U.S. at 261-62.

United States v. Terrell, 445 F.3d

at 1264, overruled on other grounds by Rita v. United States, 551 U.S. 338, 349, (2007), as recognized in United States v. Zamora-Solorzano, 528 F.3d 1247, 1251 n.3 (10th Cir. 2008). This presumption, however, is an appellate presumption, and not one that the trial court can or should apply. See Gall v. United States, 552 U.S. 38, 46-47 (2007); Kimbrough v. United States, 552 U.S. 85, 90-91 (2007); Rita v. United States, 551 U.S. at 351. Instead, the trial court must undertake the § 3553(a) balancing of factors without any presumption in favor of the advisory 1

1 appropriate to say that the resulting Guidelines ranges are advisory. Gall v. United States, 552 United States v. Booker], the Guidelines are now advisory . . . . United States v. Leroy, 298 F. United States v. Sells, 541 imposed by the district court was based on a correctly calculated Guidelines range, a stated consideration of the § 3553(a) factors, The Court must consider the Guidelines, see Gall v. United States, 55 . . . clear that a district judge must give serious consideration to the extent of any departure from the Guidelines . . . calculate the Guidelines range, see Gall v. United States, 55 istrict court should

The Court is not mandated, however, to apply a sentence within the calculated Guidelines range. See United States v. Sierra-Castillo, 405 F - Booker have discretion to assign sentences outside of the Guidelines-authorized range . . . Accord United States v. Chavez-Rodarte, No. CR 08-2499 JB, 2010 WL 3075285, at *2-3 (D.N.M. July 16, 2010)(Browning, J.).

The Court must adhere to the following three-step sequence when sentencing a criminal defendant: first, determining the appropriate sentencing range Guidelines- contemplated departures based on parts 5H and 5K; and, only then, varying from the Guidelines framework on the basis of the § 3553(a) factors taken as a whole. The Court must follow this sequence, because: (i) the Guidelines expressly provide for it, and courts must still consult the Guidelines, even if they will subsequently vary from them in the third step of the sequence; and (ii) adherence to this sequence is the only way to give effect to 18 U.S.C. § 3553(e). . . . .

The Supreme Court held in United States v. Booker while not bound to apply the Guidelines, must consult those Guidelines and take Kimbrough v. United States ry [from the Guidelines ranges] based solely on policy considerations, including disagreements with the marks omitted). In theory, this freedom could mean that a district court may excise individual portions of the Guidelines along the way as it performs an otherwise by- the-book Guidelines analysis, end up with a sentence with built-in variances, and never even know what sentence a true, rigid Guidelines application would yield. In practice, however, appellate courts expect district courts to first obtain the true United States v. Booker-granted authority to post- Irizarry v. United States, 553 U.S. 708, 710-16 (2008). A district court that attempts to vary from U.S.S.G. § See Gall v. United States, 552 U.S. 38, 51 (2007)(holding that a sentence is procedurally district court committed no significant procedural error, such as failing to calculate (or improperly calculating) the Guidelines range, treating the Guidelines as mandatory, failing to consider the § 3553(a) factors, selecting a sentence based on clearly erroneous facts, or failing to adequately explain the

United States v. Nolf, 30 F. Supp. 3d 1200, 1222-24, (D.N.M. June 20, 2014)(Browning, J.)(emphasis in original).

Guidelines sentence. See Rita v. United States, 551 U.S. at 351; Gall v. United States, 552 U.S. at 46-47; Kimbrough v. United States, 552 U.S. at 90-91.

United States v. Booker has given the task remains to accurately and correctly determine the advisory-guideline sentence. Thus, be Booker arguments, the sentencing court must first determine whether the defendant is entitled to downward departures. The sentencing court may, however, also use these same departure factors in the Booker calculus, even if the court does not grant a downward departure. United States v. Apodaca-Leyva, No. CR 07-1479 JB, 2008 WL 2229550, at *6 (D.N.M. Feb. 13, 2008)(Browning, a superior position to find facts and judge their import under § Kimbrough v. United States, 552 U.S. at 89.

LAW REGARDING THE BURDEN OF PROOF REQUIRED FOR ENHANCEMENTS

UNDER THE GUIDELINES In Apprendi v. New Jersey, Apprendi -- taking into consideration various factors relating both to offense and offender -- in imposing judgment that the Constitution of the United States of America limits this discretion and the Sixth

han the fact of a prior conviction, any fact that increases the penalty for a crime beyond the prescribed statutory maximum must be submitted Apprendi, 530 U.S. at 490. In Blakely v. Washington, 542 U.S. 296 (2004), the Supreme Court elaborated on its holding in Apprendi, Apprendi purposes is the maximum sentence a judge

may impose solely on the basis of the facts reflected in the jury verdict or admitted by the de Blakely v. Washington, 542 U.S. at 303 (emphasis and citations omitted). In United States v. Booker, however, the Supreme Court held that, because the sentencing guidelines are no Apprendi does not apply to the present advisory- United States v. Ray, 704 F.3d 1307, 1314 (10th Cir. 2013). See United States v. Booker, 543 U.S. at 259 -- namely, the provision that makes the relevant sentencing rules mandatory and imposes binding requirements on all sentencing judges - - the statute falls outside the scope of Apprendi (alterations and internal quotations marks omitted)). More recently, the Supreme Court held that the requirements in Apprendi v. New Jersey See Alleyne v. United States, 570 U.S. 99, 103 (2013).

In United States v. Magallanez, 408 F.3d 672 (10th Cir. 2005), the Tenth Circuit held that Blakely v. Washington and United States v. Booker enhancement findings analysis. See United States v. Magallanez, 408 F.3d at 684-85. United

States v. Magallanez involved plain-error review of a drug sentence in which a jury found the defendant guilty of conspiracy to possess with intent to distribute, and of distributing, methamphetamine. See 408 F.3d at 676. As part of its verdict, the jury, through a special interrogatory, attributed to the defendant 50-500 grams of methamphetamine; at sentencing, however, the judge -- based on testimony of the various amounts that government witnesses indicated they had sold to the defendant -- attributed 1200 grams of methamphetamine to the defendant and used that amount to increase his sentence under the Guidelines. See 408 F.3d at 682. months to 121 to 151 months. See 408 F.3d at 682-83. On appeal, the Tenth Circuit stated that,

view of the c United States

v. Booker determined through United States v. Magallanez, 408 F.3d at 685 (citation omitted).

dramatic inc

United States v. Olsen, 519 F.3d 1096, 1105 (10th Cir. 2008)(quoting United States v. Washington, 11 F.3d 1510, 1516 (10th Cir. 1993)). 2

. . . does not implicate

2 Although the Tenth Circuit stated in United States v. Washington 11 F.3d at 1516, the Tenth proof by clear and convincing evidence before imposition of a Guidelines enhancement that United States v. Ray, 704 F.3d 1307, 1314 (10th Cir. 2013)(quoting United States v. Olsen, 519 F.3d at 1105). See United States v. Olsen, 519 F.3d at 1105 (affirming the use of the preponderance-of-the-evidence standard for United States v. Washington, 11 F.3d at 1516)). The Tenth Circuit has not y sentence. United States v. Olsen, 519 F.3d at 1105 (explaining that it need not determine whether a higher standard of proof is required to sentence a defendant for committing perjury in relation to a grand jury investigation, because the enhancement did not require the district court to determine that the defendant committed murder, but only that he obstructed a homicide investigation). See United States v. Constantine, 263 F.3d 1122, 1125 n.2 (10th Cir. 2001)(affirming a preponderance- of-the- United States v. Valdez, Case 1:18-cr-04176-JB Document 152 Filed 08/18/20 Page 13 of 31 Apprendi v. New Jersey United States v. Reyes-Vencomo, No. CR 11-2563 JB, 2012 WL 2574810, at *3 (D.N.M. June 26, 2012)(Browning, J.).

The Tenth Circuit applies Apprendi

United States v. Price, 400 F.3d 844, 847 (10th Cir. 2005). Accord United States v. Ray, 704 F.3d at 1314. A defendant may assert an error under Apprendi only where the fact at issue increased his sentence beyond the statutory maximum. See United an, 339 F.3d 1229, 1232 (10th Cir. 2003)(holding that a defendant could not assert an error under Apprendi United States v. Hendrickson, 2014 WL 6679446, at *6 (10th Cir. 2014) 3

(holding that, after

methamphetamine associated with acquitted charges entitled the defendant to a clear-and- United States v. Washington, 11 F.3d at 1516 (finding that a district court need not find by any more than a preponderance of the evidence the amount of twenty years to consecutive forty-year terms).

3 United States v. Hendrickson is an unpublished opinion, but the Court can rely on an unpublished opinion to the extent its reasoned analysis is persuasive in the case before it. See 10th ive

In this circuit, unpublished orders are not binding precedent, . . . [a]nd we have generally determined that citation to unpublished opinions is not favored. However, if an unpublished opinion or order and judgment has persuasive value with respect to a material issue in a case and would assist the court in its disposition, we allow a citation to that decision. United States v. Austin, 426 F.3d 1266, 1274 (10th Cir. 2005). The Court concludes that United States v. Hendrickson and United States v. Leroy, 298 F. persuasive value with respect to a material issue, and will assist the Court in its disposition of this Memorandum Opinion and Order.

Alleyne v. United States, -established that sentencing factors need not be charged in an The Court has noted:

[A]lthough the decision of the Supreme Court of the United States in Alleyne v. United States, . . . 133 S. Ct. 2151 . . . (2013), expands the rule from Apprendi v. New Jersey, 530 U.S. 466 . . . (2000)(holding that facts that increase the maximum sentence a defendant faces must be proven to a jury beyond a reasonable doubt), to cover facts that increase the mandatory minimum sentence, as well as the maximum sentence, it does not prohibit district judges from continuing to find advisory sentencing factors by a preponderance of the evidence. See [United States v. Sangiovanni,] 2014 WL 4347131, at *22-26 [(D.N.M. 2014)(Browning, J.)]. United States v. Cervantes-Chavez, No. CR 14-0259 JB, 2014 WL 6065657, at *14 (D.N.M. Nov. 3, 2014)(Browning, J.).

ANALYSIS The Court concludes that the preponderance of the evidence does not demonstrate that Nashat Khalaf is responsible for the loss amounts that the USPO attributes to him. The USPO confuses Al- conduct that verifiably violates the Indian Arts and Crafts Act. While the Court does not doubt that they each may have caused losses greater than $6,500.00, the Court agrees with the United States and Nashat Khalaf that there is no evidence of any such violation beyond the set of counterfeit Navajo-style canteens that Nashat Khalaf passed off as genuine, Indian-made art. Accordingly, the Court sustains the United States N. Khalaf Objections and the N. Khalaf Objections. I. THE PREPONDERANCE OF THE EVIDENCE DOES NOT DEMONSTRATE

BETWEEN $250,000.00 AND $550,000.00 IN LOSS.

The Court concludes that the USPO mistak transactions with Sterling Islands as illicit conduct. Instead, the Court concludes that the proper

analysis under §§ 1B1.3 and 2B1.1 requires the Court to consider the extent to which Nashat d counterfeit Native American arts and crafts, or the extent to which Nashat Khalaf intended to deceive customers into buying such products. The Court also concludes crafts from the Philippines which lacked indelible country-of-origin markings does not demonstrate that Nashat Khalaf intended to pass each such good off as genuine Native American arts and crafts. Because the United States has not proven by a preponderance of the evidence that Nashat Khalaf intended to cause or did cause loss greater than $6,500.00, the Court sustains the

or display any good, without or without a Government trademark, in a manner that falsely suggests it is Indian produced, an Indian product, or the product of a particular Indian tribe or Indian arts and crafts organization 4

See N. Khalaf Plea Agreement ¶ 9, at 5-6. The

In summary, Nashat Khalaf . . . knowingly displayed and offered for sale, and did sell $1000 and more of goods, specifically [N]ative American jewelry, arts and crafts, in [a] manner that suggested that the goods were Indian produced, or an Indian product. Further, Nashat Khalaf[] can be directly attributed to $543,747.00 from 2009 to 2015 in purchases from Sterling Islands and [Fashion Accessories].

4 Section 1159 is an infrequently prosecuted statute, with only eight such cases listed in Westlaw, one of which involved prosecution against a Native American who sold his own arts and crafts, but who was not a member of a federally recognized tribe; although his art, in literal terms, was Native American-made, it was not Native American- . See United States v. Natchez No. CR 15-2843-MCA, 2016 WL 9777188, at *10 (D.N.M. June 21, 2016)(Armijo, C.J.).

N. Khalaf PSR ¶ 42, at 11. The USPO apparently arrives at this figure by totaling all checks that

October, 2015. N. Khalaf PSR ¶ 38, at 10. The USPO also makes much of the fact that most of the products that Nashat Khalaf purchased from Sterling Islands lacked indelible markings showing that the products were made in the Philippines, but instead had removable stickers, in violation of 19 U.S.C. § 1304 and 19 C.F.R. § 134.43. See N. Khalaf PSR ¶ 19, at 7. The USPO avers that, because these products were not indelibly marked as originating from the Philippines, they were prone to being passed off as genuinely American Indian-made. See N. Khalaf PSR ¶ 19, at 7. conviction here is the display for sale of one single box of silver canteens that [he] knew reasonably may have been mistaken for Native American- made arts and crafts Service] narrative of Sterling Islands operating as the hub of an organized crime ring, which the

-3. He further asserts that Al- ll of the imported jewelry on display as Non- Nashat Khalaf also argues off counterfeit arts and crafts. N. Khalaf Objections at 4. The United States agrees that the

American-style good that were offered or displayed at Al-

States says th N. Khalaf Objections at 3. The United States notes, however, that Nashat Case 1:18-cr-04176-JB Document 152 Filed 08/18/20 Page 17 of 31 ed States - they were purchasing genuine, American Indian-made arts and crafts. United States N. Khalaf Objections at 3-4. of relevant conduct is a factual finding subject to a United States v. Schmidt, 353 F. Appx at 135 (citing United States v. Zapata, 546 F.3d 1179, 1192 (10th Cir. 2008)). Section 2B1.1 provides a sliding- § 2B1.1(b)(1). U.S.S.G. § 2B1.1, Application

Note 3(A). rm that resulted from the U.S.SG. § 2B1.1, Application Note 3(A)(i). . . means the pecuniary U.S.S.G. § 2B1.1, Application Note 3(A)(ii). conduct, as determined by § 1B1.3. See United States v. Holbert, 285 F.3d 1257, 1261, 1261 n.3

fense on intends to limit the applicability

of a victim- , U.S.S.G. § 1B1.1, Application Note 1(H)); Robert W. Haines, Jr., Frank O. Bowman III, &

Jennifer C. Woll, Federal Sentencing Guidelines Handbook § 2B1.1, § 5, at 335 (2012-13 Guidelines Handbook United States Sentencing Commission intended

and that the omission of a cross-reference to § 1B1.3 in the application notes to § 2B1.1 is of no

-reference to § 1B1.3 was unnecessary because the relevant conduct rules apply to all offens ). Additionally, Guidelines Handbook § 5, at 334 (emphasis in

. been a cause-in-

When the loss amount is disputed, the United States bears the burden of establishing its estimation of loss by a preponderance of the evidence. See Guidelines Handbook § 14, at 353. The Tenth Circuit has, accordingly, ruled that a district court cannot include losses in its calculation . . prove[s] by a preponderance of the evidence that . . and (2) constituted a criminal offe United States v. Kieffer, 681 F.3d 1143, 1168 (10th Cir. 2012). reasonable estimate thereof) associated with that conduct by a preponderance of the eviden

United States v. Kieffer, 681 F.3d at 1168 (citing United States v. Peterson, 312 F.3d 1300, 1302 (10th Cir. 2002)). For example, in United States v. Chapman, No. CR 11-0904 JB, 2012 WL 2574814 (D.N.M. June 22, 2012)(Browning, J.), the Court determined that an enhancement pursuant to § 2B1.1(b)(1) was unwarranted, because, although the United States contended that a New Mexico Corrections Department facilities manager awarded four million dollars worth of

state government contracts to a developer in exchange for bribes, the United States submitted no evidence regarding the profit, if any, the developer received from the contracts. See 2012 WL 2574814, at *1, 9-10. Moya received under these government contracts, the United States cannot establish by a preponderance of the evidence that an . . 2012 WL 2574814, at *10. on two assumptions. First, the USPO tends to construe as criminal conduct -style jewelry that was not in fact American Indian-made. Second, the USPO assumes that, because most of the ed indelible country-of-origin markings, it can be inferred that the Defendants intended to pass these products off as American Indian-made. It is not a crime to sell Native American-style jewelry, however, if the seller does not falsely represent the jewelry as American Indian-made. See -Indian can make and sell products in the style of Indian art or craft products only if the non-Indian or other seller does not falsely suggest to Because it is not a crime, in and of itself, for non-Native Americans to sell Southwestern-style jewelry, for sentencing purposes the United States must prove specific criminal conduct -- instances in which Nashat Khalaf falsely suggested to customers that his products were genuinely Indian-made. Section 1B1.3 provides reasonably foreseeable acts and omissions . . . in furtherance of the jointly undertaken criminal

activity, that occurred during the commission of the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that of Case 1:18-cr-04176-JB Document 152 Filed 08/18/20 Page 20 of 31 U.S.S.G. § 1B1.3(a)(1)(B). Courts typically may consider only criminal conduct under § 1B1.3, see, e.g., United States v. Dove, 247 F.3d 152, 155 (4th Cir. 2001), so, in calculating Nashat the sum total of Al- with Sterling Islands with the loss for which Nashat Khalaf is responsible.

ted States N. Khalaf Objections at 4, and this

see United States v. Kieffer, 681 F.3d at 1168. Also, the Court need not merely resolve this uncertainty record transactions with criminal conduct. For example, Mostafa repeatedly told Fish and Wildlife

- Canteen Undercover Purchase Transcript at 2, filed July 31, 2020 (Doc. 133- American Indian-made products would cost over ten times what Al-Zuni was charging for

Philippines-made products, see Mostafa Tr. at 15. Further, there were signs throughout Al-Zuni Global that identified items that were not Indian-made. See - Khalaf Objections at 5 (Figures 1 and 2).

Figure 1

Figure 2

Similarly, at a trade show in Tucson, Arizona, Al- Fish and Wildlife Service agent which products were Indian-made and which products were

imported. See Report of Investigation No. 015 at 3, filed July 31, 2020 (Doc. 133-22) No. 15 while at the [trade] show. . The same happened at another Tucson trade show the following year; items he asked [Mostafa] for the identity of the artist who made the items. [Mostafa] told [the agent] that the items were Report of Investigation No. 009 at 1, filed July 31, 2020 (Doc. 134-

The record contains proof of only one instance in which Nashat Khalaf falsely conveyed that products were Indian-made. On October 28, 2015, Al-Zuni placed a box of twelve Navajo- style canteens on a table with American Indian-made jewelry without identifying that the canteens were imported from the Philippines. See N. Khalaf PSR ¶ 33, at 10. The canteens also lacked identifying markers or labels indicating their imported status. See N. Khalaf PSR ¶ 33, at 15. The canteens were listed at $85.00 each. See Photograph of Canteens at 1, filed July 31, 2020 (Doc. 133-17)(Figure 3).

Figure 3 With the canteens valued at $85.00 each, this incident demonstrates, at most, a loss amount of $1,020.00. The record contains no other instances in which Nashat Khalaf sold imported Southwestern-style jewelry or crafts that he fraudulently passed off as American Indian-made. - Islands should be tallied as loss attributable to Nashat Khalaf is thus not reasonable. Accordingly, there i level within § 2B1.1(b)(1)(A), which provides no increase in his base offense level. This

conclusion is consistent with non-Native Americans selling counterfeit products, siphoning revenue from those artists. See,

e.g., William J. Hapiuk, Jr., Of Kitsch and Kachinas: A Critical Analysis of the Indian Arts and Crafts Act of 1990, 53 Stan. L. Rev. 1009 (2001). The only instance of such siphoning in the record is the sale of the $1,020.00 in Navajo-style canteens.

Section 2B1.1, however, also measure See U.S.S.G. § 2B1.1, Application Note 3(A)(ii). . . means the pecuniary harm that was U.S.S.G. § 2B1.1, Application Note 3(A)(ii). On this point, ark imported jewelry with indelible country-of-origin labels means that the Defendants intended to pass off the jewelry as genuinely Indian-made. See can be readily separated . . . to make it impossible for an unsuspecting consumer to determine the

country-of-origin markings does not necessarily entail a crime. Section 1304 of Title 19 of the

States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit § 1304(a). Section 1304 allows for fines of not more than $250,000.00 and/or imprisonment for less than one year. See 19 U.S.C. § 1304(l). Treasury Regulation 19 C.F.R. § 134.43 provides in relevant part:

(c) Native American-style jewelry --

(1) Definition. For the purposes of this provision, Native American- style jewelry is jewelry which incorporates traditional Native American design motifs, materials and/or construction and therefore looks like, and could possibly be mistaken for, jewelry made by Native Americans.

(2) Method of marking. Except as provided in 19 U.S.C. 1304(a)(3) and in paragraph (c)(3) of this section, Native American-style jewelry must be indelibly marked with the country of origin by cutting, die-sinking, engraving, stamping, or some other permanent method. The indelible marking must appear legibly on the clasp or in some other conspicuous location, or alternatively, on a metal or plastic tag indelibly marked with the country of origin and permanently attached to the article.

(3) Exception. If it is technically or commercially infeasibly to mark in the manner specified in paragraph (c)(2) of this section, or in the case of a good of a [North American Free Trade Association] country, the article may be marked by means of a string tag or adhesive label securely affixed, or some other similar method. 19 C.F.R. § 134.43(c). The Court previously has concluded that § 134.43 constitutes a law for 18 See United States v. Sterling Islands, Inc., 391 F. Supp. 3d 1027, 1041 (D.N.M. 2019)(Browning, J.). Nonetheless, while § 134.43(c)(1) requires that jewelry be indelibly

lation defines this phrase. Most importantly, the regulation technically or commercially The United States makes no argument that it was commercially feasible to mark indelibly all the

jewelry which adhesive country-of-origin labeling does not necessarily amount to a crime. The USPO thus

stretches to conclude that the lack of indelible markings necessarily implies criminal conduct and

Also relevant is the fact that the United States did not charge Nashat Khalaf with violating 19 U.S.C. § 1304, which the N. Khalaf PSR indelible markings is indicative of criminal conduct and thus relevant under § 1B1.3. See

N. Khalaf PSR ¶ 19, at 7. Section 1304 provides that shall be marked in a conspicuous place as legibly, indelibly, and

permanently as the nature of the article (or container) will permit. Nashat Khalaf contends that, because he was not charged with violating § 1304, the Court may not

consider conduct violative of § 1304 under § 1B1.3. See N. Khalaf Objections at 9. This assertion is not entirely accurate, because the Court may consider, as relevant conduct, actions that have not resulted in a conviction. See, e.g., United States v. Archuleta, No. CR 14-0922 JB, 2017 WL 2297129, at *10 (D.N.M. April 24, 2017)(Browning, J.). Nonetheless, relevant conduct under § 1B1.3 must be See, e.g., Witte v. United States, 515 U.S. at 403 (noting that sentencing enhancements do not punish a defendant for uncharged offenses; rather, they reflect Congress offense should receive a more serious sentence within the authorized range if it was either accompanied by or preceded by . Moreover, the Tenth Circuit has ruled that a district court cannot include losses in its calculation . . prove[s] by a preponderance of the evidence that the conduct giving rise to those losses (1) was a part of . . . and (2) constituted a criminal offense under a federal or state statute United States v. Kieffer, 681 F.3d 1143, 1168 (10th Cir. 2012)(emphases added). As the Court has concluded, the lack of indelible markings is not necessarily a crime. To be relevant under § 1B1.3, therefore, the United States must tie the lack of indelible markings to Nashat -style canteens as American Indian-made, such that the lack was . See United States v. Kieffer, 681 F.3d at 1168.

The United States has not proven that Al-Zuni Global imported goods without indelible markings with the intent to pass them off fraudulently as genuinely American Indian-made. Instead, while many of the imported goods lacked indelible country-of-origin markings, the United estigation revealed only one instance in which Nashat Khalaf or other Al-Zuni Global

employees did not convey -- either through adhesive labeling, signage, or verbal representation -- that the goods were imported rather than American Indian-made. The lack of indelible country- of-origin markings, therefore, cannot, by itself, demonstrate an intent to defraud that equals the value of the sum total of adhesive-labeled, imported goods. Because there is no evidence of actual or intended loss greater than $1,020.00 -- -- the Court , and declines to apply the § 2B1.1 4. See U.S.S.G. § 2B1.1(b)(1)(A). The Court notes, however, that, while the lack of indelible

markings does not justify a § 2B1.1(b)(1) enhancement, the Court may consider this information ue the importance of the lack of indelible markings See 18 U.S.C. § 3661 ( shall be placed on the information concerning the background, character, and conduct of a person

convicted of an offense which a court of the United States may receive and consider for the purpose . Similarly, the Court is not convinced that the loss inherent to importing goods without indelible country-of-origin markings is e notes, if Nashat Khalaf were convicted of smuggling counterfeit goods, the Court would likely

measure the loss amount based on the tax loss that the United States suffered, rather than the price of the goods themselves. See at 5.

addressing COVID-19, and [his] risk factors for COVID- -three years

old. N. Khalaf Objections at 12. The United States does not respon The USPO says

Addendum to the Presentence Report at 4, filed August 10, N. Khalaf Add Although Nashat Khalaf does not expressly invoke his COVID-19 risk factors to seek a variance but rather asserts that his risk of contracting and perhaps dying from COVID-19 in prison is relevant to his sentence on N. Khalaf Objections at 12 (quoting N. Khalaf PSR ¶ 100, at 20). Rule 32 of the Federal Rules of

Criminal Procedure provides that basis for departing from the

The Court sees no reason to amend the PSR as Nashat Khalaf requests. His age is readily apparent from the PSR, and the Court is well-aware of the COVID-19 pandemic, and its presence in the federal prison and corrections system. Instead of amending the PSR, the Court invites Nashat Khalaf to argue that his age places him outside the heartland of cases that his total offense level and criminal history category represents. See [C]onsiderations base on age, individually or in combination with other offender characteristics, are present to an unusual degree and distinguish the case from the typical cases covered by the guidelines

In sum, the Court declines to apply a 12-level enhancement under U.S.S.G. § . See U.S.S.G. § 2B1.1(a)(2). With

a criminal history category of I, imprisonment. See U.S.S.G. § Sentencing Table.

IT IS ORDERED that the (i) Objections to the Presentence Report [Doc. 125] on Behalf of Nashat Khalaf, filed July 31, 2020 (Doc. 134), is sustained with regard to filed July 31, 2020 (Doc. 137), is sustained.

_______________________________ UNITED STATES DISTRICT JUDGE

Counsel: John C. Anderson United States Attorney Jonathan M. Gerson Kristopher N. Houghton Sean J. Sullivan Assistant United States Attorneys Albuquerque, New Mexico Attorneys for the Plaintiff

Mark T. Baker Matthew M. Beck Peifer, Hanson & Mullins and Baker, P.A. Albuquerque, New Mexico --and--

Carter B. Harrison, IV Harrison & Hart Albuquerque, New Mexico Attorneys for Defendants Sterling Islands, Inc.,

Jawad Khalaf, and Zaher Mostafa Hope Eckert Albuquerque, New Mexico Attorney for Defendant Al Zuni Global Jewelry, Inc. Ahmad Assed Richard J. Moran Law Office of Ahmad Assed Albuquerque, New Mexico Attorneys for Defendant Nader Khalaf John W. Boyd Nancy Hollander Karen Grohman Freedman Boyd Hollander Goldberg Urias & Ward, P.A. Albuquerque, New Mexico Attorneys for Defendant Nashat Khalaf

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