SUPREME COURT ISSUES IMPORTANT MONEY LAUNDERING DECISION DEFINING THE TERM "PROCEEDS"
The money laundering statute, which was originally passed with the intent of stopping organized crime and drug dealers from being able to clean their money, that is, legitimize money that was earned in illegal activities, has been greatly expanded by federal prosecutors. Over the years it has come to apply to almost any economic crime. For many years under the sentencing guidelines, the inclusion of a money laundering charge to the underlying offense would usually result in a sentence that was two to three times greater than was provided under the sentencing guidelines for the underlying offense itself.
It is hard to imagine any crime resulting in the receipt of money that would not support the government's charge of money laundering. Its most common use by the government involved attaching a money laundering charge to fraudulent conduct, including mail fraud and wire fraud. The money laundering statute, however, also applies to such things as copyright infringements and counterfeiting goods and services.
In the case of U.S. v. Santos,128 S. Ct. 2020 (2008) the Supreme Court was presented with a case that turned on the definition of the word "proceeds" under the money laundering statute.
This case involved the prosecution of a person running an illegal lottery operation. A jury found Santos guilty of one count of conspiracy to run an illegal gambling business, one count of running an illegal gambling business, one count of conspiracy to launder money, and two counts of money laundering. The court sentenced Santos to five years on the two gambling counts and 17 ½ years on the three money laundering counts.
This is another example of the enhanced punishment that is brought to bear upon almost any economic crime by including a money laundering charge.
The facts of the Santos case that supported the money laundering charges involved Santos's payments to runners and collectors who were involved in his illegal gambling activity, as well as paying off winners.
The opinion of the court was delivered by Justice Scalia and was joined in by three other justices. Justice Stevens joined in the judgment, but wrote a concurring opinion which has a limiting effect on the holding in this case.
The court discusses what Congress meant by the term "proceeds." The government argued that the term "proceeds" in the statute should be interpreted to mean receipts, rather than profits. The government contended that the gross receipts of a crime accurately reflect the scale of the criminal activity because illegal activity generated all of the funds. The Supreme Court analyzed the statute and pointed out that the term "proceeds" is not defined and could be interpreted to mean either receipts or profits. It then applied the rule of lenity and held that proceeds means profits, not receipts.
The court recognized that if the term "proceeds" meant "receipts" the result would be a "merger" of the underlying crime with the money laundering offense. The Supreme Court stated:
Since few lotteries, if any, will not pay their winners, the statute criminalizing illegal lotteries, 18 U.S.C. $ 1955, would "merge" with the money-laundering statute. Congress evidently decided that lottery operators ordinarily deserve up to 5 years of imprisonment, $ 1955(a), but as a result of merger they would face an additional 20 years, $ 1956(a)(1). Prosecutors, of course, would acquire the discretion to charge the lesser lottery offense, the greater money-laundering offense, or both- which would predictably be used to induce a plea bargain to the lesser charge.
Santos at 2026.
This comment by the Supreme Court recognizes what has, in fact, been the practice of the government since the federal sentencing guidelines came into effect. By including money laundering charges, the government forces the defendant to plead guilty to avoid a greatly enhanced sentence if convicted of money laundering. At times, this can work as an injustice since a defendant, even though not guilty, may choose to avoid a trial and a potential catastrophic sentence.
The Supreme Court rejected the government's argument that it would be easier for the government to prove "receipts," rather than "profits." The Supreme Court noted that the government's position puts the long-established constitutional rule of lenity on its head by helping the government convict under an unclear criminal law rather than protecting the citizen.
Justice Scalia also mentions Justice Stevens's concurrent opinion and stare decisiseffect on this case. Justice Scalia wrote:
Since his vote is necessary to our judgment, and since his opinion rests upon the narrower ground, the Court's holding is limited accordingly (citation omitted). But the narrowness of his ground consists of finding that "proceeds" means "profits" when there is no legislative history to the contrary. That is all that our judgment holds. It does not hold that the outcome is different when contrary legislative history does exist.
Santos at 2031.
The Supreme Court opinion limiting the definition of "proceeds" should alleviate some of the abuses seen in the use of the money laundering statute.