Sunday, June 15, 2008

United States Supreme Court Curtails Federal Money-Laundering Statute

On June 2, 2008 the United States Supreme Court severely limited the reach of the Money-Laundering Control Act (18 U.S.C. § 1956) in two separate decisions. In Cuellar v. United States (2008) 128 S.Ct. 1994, the Court unanimously held that in order to obtain a money-laundering conviction, the prosecution must prove that the defendant specifically intended his actions to conceal or disguise the attributes of the illegally obtained funds.

This interpretation is a sharp deviation from the flexibility that has been attached to the statute since its creation in 1986. A person commits money laundering when he transports illegal funds, “knowing that the transaction is designed…to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity.” 18 U.S.C. § 1956. Courts have, however, traditionally interpreted the word “designed” liberally, allowing for convictions when merely the effect, not the intent, of the transportation was to conceal the nature of the funds. The Cuellar decision prevents this use of the statute. In another case, United States v. Santos (2008) 128 S.Ct. 2020, the Court limited the definition of the word “proceeds” in the statute to signify the net profits of the unlawful activity, not the total receipts.

The decisions come as a heavy blow to prosecutors, who have championed the money- laundering statute as a powerful weapon in the war on drugs and organized crime. A money laundering conviction can result in as high as a 20-year sentence. Many defense attorneys have protested, however, that the government improperly used the statute to pressure defendants to plead guilty to other crimes, such as drug dealing. In 2006, the government obtained nearly 1,000 money laundering convictions.

The Money-Laundering Control Act criminalizes certain transfers of money derived from illegal activities. In Cuellar, Mr. Cuellar was stopped by law enforcement attempting to transport large amounts of cash from Texas to Mexico. Although he made substantial efforts to hide the money by bundling it in plastic bags and covering it with animal fur, the Court held that he could not be convicted under the money-laundering statute. Justice Thomas delivered the opinion of the Court, and the ruling turns on the Legislature’s use of the word “design.” The prosecution must prove, the Court held, that Mr. Cuellar knew that transporting the funds to Mexico was designed to conceal or disguise the nature, location, source, ownership, or control of the money. Merely hiding the funds during transportation was not enough to violate the statute; the purpose of the transportation must be to conceal the money’s illegal aspects. The Court distinguished how one moves money from why one moves money, and stated that evidence of the former did not necessarily prove the latter.

The government did win a small victory when the Court rejected Mr. Cuellar’s position that a money-laundering conviction required a defendant to intend to create the appearance of legitimate wealth. However, this small conquest is overshadowed by the reaching implications of the overall ruling.

The second case, a 5-to-4 decision, involved the proceeds of an illegal lottery in Indiana bars and restaurants. In Santos, Mr. Santos was charged with money laundering for the payments he made to his runners and winners, and the case turned on the definition of “proceeds.” The government argued that “proceeds” should include the total receipts of the activity, while the defense argued that it only included the net profits. Justice Scalia delivered the opinion of the Court holding that, by dictionary definition, “proceeds” can mean either receipts or profits. Accordingly, the statute was determined to be ambiguous. The Court thereby held that because ambiguity is read in favor of the defendant, the definition of proceeds must be limited to mean net profit, not total receipts.

The two decisions raise the bar for prosecutors, who can no longer rely on a money-laundering conviction based solely on concealment of illegal funds.




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