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Monday, June 02, 2008

United States v. Santos - Only Profits are Proceeds Under Money Laundering Statute

Santos ran an illegal lottery, from which he paid runners a commission, salary to collectors, and winnings to bettors. He was convicted under the principal federal money laundering statute, 18 U.S.C. §§ 1956(a)(1)(A)(i) and 1956(h), which makes it a crime to engage in a financial transaction using the "proceeds" of certain specified unlawful activities with the intent to promote those activities or to conceal the proceeds. The Seventh Circuit affirmed the conviction in 2000, but the defendant later filed a 2255 petition, relying on an intervening Seventh Circuit decision that held the money laundering statute applies only to criminal profits, not criminal receipts. Applying the intervening decision here, the district court granted 2255 relief. The Seventh Circuit affirmed the 2255 order. In a fragmented 5-4 decision, the Supreme Court held that "proceeds" under the statute means the net receipts, not gross receipts, from the unlawful activities – only the profits, i.e., gross receipts less expenses. Otherwise, every criminal venture that has overhead would necessarily be subject to the heavier sentences allowed by convictions for money laundering. The principal author, Justice Scalia, held that the word "proceeds" lacks a clear definition, especially in light of the lack of legislative history here, so the rule of lenity requires it be interpreted in favor of the defendant: proceeds=profits, not gross receipts. This view garnered only plurality support, getting a majority only with Justice Stevens’ concurrence, which offered a different view on the rule of lenity: Under this statute the rule of lenity means proceeds=profits, but that is not true for all statutes. He would find differently if legislative history supports a different view for another federal law. Justice Scalia concludes that the narrow holding of the case is, therefore, "that ‘proceeds’ means ‘profits’ when there is no legislative history to the contrary. That is all that our judgment holds." He also pointed out that a majority does not join Justice Stevens’ piecemeal view of lenity, so the decision "does not hold that the outcome is different when contrary legislative history does exist." Chief Justice Roberts and Justices Breyer, Kennedy, and Alito dissented, with Justices Alito and Breyer writing dissents: Justice Alito rests on a "fair[] read[ing]" of the money laundering law and Justice Breyer adds that the Sentencing Commission can solve any unfairness arising from the ambiguity under its authority to avoid sentencing disparity.