Two U.S. Supreme Court rulings this month (June 2008) on the application and definition of federal money laundering statutes are problematic for federal investigators and prosecutors. The Cuellar v. United States case, a 9-0 decision, was a “no brainer” and addressed the act of concealment to avoid detection. I discussed this decision in my blog of last week.
The second case, Santos v. United States, a 5-4 decision, is more complicated and will prove to be even more frustrating in government efforts to utilize the provisions of the 1986 Money Laundering Control Act to crack down on criminal activity.
The case began with Efrain Santos, who operated an illegal lottery in bars and restaurants in northwestern Indiana from the 1970s until 1994. Santos was arrested and convicted of running an illegal gambling enterprise and money laundering. At issue in the case was a section of the Act defining money laundering as a financial transaction that represents the “proceeds” of some form of unlawful activity. Santos was charged with money laundering based on the payments he made to his runners, collectors and winners. Santos contested the money laundering conviction on the grounds that these payments were made from his receipts, not his profits, so he could not be prosecuted for money laundering. The question posed to the court was whether “proceeds” referred to total receipts of the criminal activity or only the net profits. The Seventh Circuit in Chicago agreed with Santos and overturned the conviction.
By the 5-4 vote, the Supreme Court affirmed that decision. Justice Antonin Scalia wrote the majority opinion and stated that “proceeds” can be interpreted as receipts or profits, but since Congress did not specify what it meant, the statute was ambiguos and needed to be interpreted in the favor of the defendant.
Justice Samuel Alito objected by indicating that defining “proceeds” as profits introduces pointless and difficult problems of proof. Alito, a former U.S. Attorney for the District of New Jersey, further stated that this limited definition of “proceeds” was contrary to Congress’s intent to prevent criminal enterprises from benefitting from the fruits of their illegal activity, regardless of the prosecutor’s ability to prove the criminal activity earned a profit.
The government’s arguments before the Court were right on point and highlighted the problem of distinguishing profits from gross receipts in a criminal enterprise. A criminal organization’s accounting records are hard to obtain, often difficult to interpret and require auditing to authenticate. Criminal organizations go to great lengths to conceal their criminal activities, particularly their financial transactions from scrutiny, tracking and seizure. The government at this point has the difficult task of not only investigating a criminal organization’s money laundering activities but documenting the organization’s profitability.
The last time I checked, profit is what drove these organizations.
Similar to the Cuellar v. U.S. decision, it is anticipated that Congress will address the current deficiency in the 1986 Money Laundering Control Act by legislating the definition of proceeds to include total receipts of criminal activity.