Harder task to nail money launderers

Two high court rulings on Monday will complicate US efforts to prove certain crimes.

Jason Reed

The Supreme Court has made it more difficult for the government to prove certain money-laundering crimes.

Ruling against federal prosecutors in two cases on Monday, the high court reversed the conviction of a man caught with cash hidden in his car in Texas near the Mexican border, and the court refused to reinstate a money-laundering conviction in a case involving an illegal gambling operation in Indiana.

Both decisions hold potentially important implications for crime fighting. In both cases the justices rejected the Justice Department's expansive reading of the federal money-laundering statutes.

In the hidden cash case, the court ruled 9 to 0 that prosecutors had failed to prove their case when Humberto Fidel Regalado Cuellar was convicted of money laundering after authorities discovered $81,000 in a secret compartment in his car.

An appeals court upheld the conviction, but the Supreme Court on Monday reversed it.

Writing for the court, Justice Clarence Thomas said: "We agree with the petitioner that the government must demonstrate that the defendant did more than merely hide the money during its transport."

At issue in the illegal gambling case was whether Congress used the word "proceeds" in the money-laundering statute to refer to the total amount of money received in a criminal operation or whether lawmakers were referring only to the criminal operation's profits after expenses were paid.

The question arose in a gambling case from East Chicago, Ind.

A federal appeals court ruled in 2006 that the "proceeds" referred to in the statute were merely the resulting profits of the gambling operation, not the larger amount of total receipts from all gamblers. The distinction isn't simply an accounting calculation or mere semantics. It can make the difference between a long prison sentence and an extraordinarily long sentence.

In embracing the narrower reading of the word "proceeds," the majority justices said that in the context of a case involving an illegal lottery, the term "proceeds" in the money-laundering law must be read as "profits."

The charges in the case were based on payments to lottery winners and employees of the lottery operation. "Neither type of transaction can fairly be characterized as involving the lottery's profits," Justice Antonin Scalia wrote. "Indeed, the government did not try to prove ... that they laundered criminal profits."

Justice Scalia said Congress did not clearly define in the statue what it meant by "proceeds," and that it was not the high court's role to "play the part of mind reader."

In rejecting government arguments to adopt the prosecutors' broad reading, Scalia noted: "We interpret ambiguous criminal statutes in favor of defendants, not prosecutors."

Although the question sounds like a routine exercise in statutory interpretation, the high court has been laboring over the answer since oral arguments in the case on Oct. 3, 2007. The issue split the nine-justice high court 4-1-4, with Justice John Paul Stevens in the middle.

Justice Stevens joined the plurality led by Justice Scalia, but the splintered decision means that the holding will apply in illegal gambling cases and will likely not apply in broader organized crime and racketeering cases.

Nonetheless, the decision undercuts what had become one of the government's strongest weapons against criminals. Had the high court accepted the Bush administration's broader reading of "proceeds," it would have strengthened the hand of prosecutors to substantially boost potential penalties by adding money-laundering charges to a criminal case. The greater potential punishment can encourage defendants to seek a plea deal rather than risk a conviction in a jury trial.

But with the plurality justices siding with the defendants in the case, federal prosecutors will now have to prove in illegal gambling cases that alleged criminal dollars were, in fact, profits (total receipts minus operating expenses) from an illegal enterprise rather than simply money received as part of an illegal operation.

The issue arose in the case of Efrain Santos and Benedicto Diaz. From the 1970s through the 1990s, Mr. Santos ran an illegal lottery, or "bolita," in northwest Indiana.

Under the Santos operation, gamblers placed bets with runners who took a commission from the bet money and gave the betting slips and remaining money to collectors. The collectors then took their cut from the funds and delivered the rest of the money to Santos. He then paid the winners from the remaining funds. Mr. Diaz worked as a collector.

Federal agents shut down the gambling ring, and Santos was convicted of gambling and money-laundering offenses. Diaz pled guilty to money-laundering conspiracy.

Santos was sentenced to five years in prison on the gambling charges and 17 years and 6 months for money laundering. Diaz was sentenced to nine years in prison for conspiring to launder money.

On appeal, lawyers for Santos argued that the government's expansive definition of "proceeds" allowed prosecutors to seek more than three times the level of punishment for essentially the same offense. The prosecutors did it by basing Santos's money-laundering sentence on the total receipts of his gambling operation.

The lawyers argued that the prosecutors should have based the money-laundering sentence on the profits of the gambling operation, not the total amount of money that changed hands in the illegal lottery.

The Seventh Circuit Court of Appeals in Chicago agreed with Santos. It ruled that running an illegal gambling operation was not also automatically an illegal money-laundering operation.

In appealing to the US Supreme Court, Justice Department lawyers said that the gross receipts of a crime reflect the magnitude of the criminal activity. All gross receipts can be used to promote further crime, government lawyers said.

In its decision on Monday, the high court refused to embrace that broad approach. "If 'proceeds' meant 'receipts,' nearly every violation of the illegal-lottery statute would also be a violation of the money-laundering statute," Scalia wrote.

"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," Scalia said.

Viewing "proceeds" as "receipts" could convert a broad range of payments into money-laundering crimes, he said. "Few crimes are entirely free of cost, and costs are not always paid in advance," Scalia wrote.

In a dissent, Justice Samuel Alito, a former US Attorney in New Jersey, said a fair reading of the statute would view the word "proceeds" as the "total amount brought in."

"Concluding that 'proceeds' means 'profits,' the plurality opinion's interpretation would frustrate Congress' intent and maim a statute that was enacted as an important defense against organized criminal enterprises," Justice Alito wrote.

Scalia's plurality decision was joined by Justices Thomas, David Souter, and Ruth Bader Ginsburg.

Alito's dissent was joined by Chief Justice John Roberts and Justices Anthony Kennedy and Stephen Breyer.

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