Supreme Court Limits Money Laundering in Two Decisions

In two decisions handed down in June 2008, the U.S. Supreme Court has clarified and limited the government’s use of the money laundering statutes.

In Cuellar v. U.S, the defendant, driving in Texas toward Mexico, was arrested after a search of his car uncovered $81,000 hidden under the floor boards. The defendant was convicted of violating 18 U.S. C. Section 1956(a)(2)(B)(i). The gravamen of the charge was the allegation that the defendant was transporting the money out of the United States in an attempt to “conceal or disguise” the nature, location, source, ownership, or control of the proceeds of unlawful activity. Justice Thomas, writing for a unanimous court said that, although money laundering need not involve an attempt to make funds appear legitimate, the mere hiding of funds during transportation is insufficient to violate the statute. This is so even when an individual makes a substantial effort to conceal the money.

The court opined that “[t]here is a difference between concealing something to transport it, and transporting something to conceal it.” Of significance in the Cuellar case was the latter statement involving the question of why the defendant was transporting the money to Mexico. Justice Thomas said that proof of how the the money was moved – by concealing it – fails to prove why it was moved. Ultimately, the court determined that conviction under the statute required proof that the “petitioner’s transportation was ‘designed in whole or in part . . . to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds.'” The government proved only that Cuellar concealed the money during transport but failed to prove that the transportation itself was designed as concealment. Thus, the Court reversed Cuellar’s conviction.

United States v. Santos addressed the meaning of the term “proceeds” in the context of money laundering.

The defendant operated an illegal lottery in Indiana. Runners collected bets, kept a portion of the amount collected as commissions, and delivered the remainder to Santos. A jury found Santos guilty of among other charges, conspiracy to launder money (Sections 1956(a)(1)(A)(i) and 1956(h)) and money laundering (Section 1956(a)(1)(A)(i)). The issue before the Supreme Court was whether money laundering statutory references to “proceeds” used to promote criminal activity should be interpreted as synonymous with “receipts” or with “profits.”

Writing for a divided Court in Santos, Justice Scalia held that the term “proceeds” as used in the money laundering statutes equated to “profits” not “receipts.” Justice Scaliz analyzed the use of the term ”proceeds” in the statute and concluded that either “profits” or “receipts” appeared to be equally appropriate. Then, applying the “rule of lenity,” which requires that any ambiguity be resolved in favor of the defendant, Justice Scalia determined the the definition of “profits” should apply to “proceeds” in the act. Since the government had predicated the prosecution on the “proceeds” as “receipts” the Court upheld the reversal of convictions by the U.S. Court of Appeals for the Seventh Circuit.

In future money laundering prosecutions dealing with “proceeds” presumably the government will have to offer evidence of the cost of the criminal activity and the amount of money received above the cost amount to determine the “proceeds” of the unlawful activity. It remains to be seen how much more difficult this requirement will make money laundering prosecutions.

These cases may help to dissuade prosecutors from routinely adding money laundering counts to a wide range of substantive offenses.

About Richard Serafini

Welcome to my blog. I am an attorney and practice in the area of corporate trial work. Areas of particular emphasis are white collar defense, securities litigation, health care litigation, internal investigations, RICO, and financial litigation. I will be posting interesting developments in my areas of interest. I hope that you find this blog helpful and informative.