2004 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-23-2004

USA v. Grasso

Precedential or Non-Precedential: Precedential

Docket No. 03-1441

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PRECEDENTIAL

UNITED STATES 

COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

Nos. 03-1441 / 03-1442

 

UNITED STATES OF AMERICA

v.

MICHAEL J. GRASSO, JR., 

Appellant

 

On Appeal from the 

United States District Court

for the Eastern District of Pennsylvania

D.C. Criminal Action Nos. 

00-cr-00051-1/01-cr-00783-1

( Honorable Berle M. Schiller)

 

Argued December 12, 2003

 

Before: AMBRO, FUENTES 

and GARTH, Circuit Judges

(Opinion filed August 23, 2004)

Walter M. Phillips, Jr., Esq. (Argued)

Kevin J. Kotch, Esq.

Hoyle, Fickler, Herschel & Mathes

One South Broad, Suite 1500

Philadelphia, PA 19107

Attorneys for Appellant

Patrick L. Meehan

 United States Attorney

Laurie Magid

 Deputy United States Attorney

 for Policy and Appeals

Robert A. Zauzmer

 Assistant United States Attorney

 Senior Appellate Counsel

Anne Whatley Chain (Argued)

 Assistant United States Attorney

Peter F. Schenck, Esq.

Office of United States Attorney

615 Chestnut Street, Suite 1250

Philadelphia, PA 19106

Attorneys for Appellee

 

OPINION OF THE COURT

 

AMBRO, Circuit Judge

Michael J. Grasso appeals his

conviction and sentence for money

laundering. He argues that the term

“proceeds” in the money laundering

statute, 18 U.S.C. § 1956, encompasses

only the net profits, and not the gross

receipts, of criminal activity. This

proposed statutory construction is

incompatible with the text of the statute as

well as existing case law in our Circuit.

We therefore affirm Grasso’s conviction.

 However, we do remand for the District

Court to reconsider its restitution award. 

I. Factual and Procedural History

Grasso sold various fraudulent

work-at-home schemes from early 1997

until late 1999. The programs, which were

advertised in national magazines,
2

purported to enable purchasers to earn

substantial payments for at-home work,

with profits to be divided between the

participants and Grasso. In reality, the

programs simply instructed purchasers to

solicit new customers who would purchase

the same programs for similar amounts.1

In February 2000, Grasso was

indicted for mail fraud, wire fraud, and

money laundering, in Criminal No. 00-51.

The money laundering counts charged that

he funded his ongoing criminal activity

with the proceeds of his fraudulent

schemes. Grasso allegedly reinvested the

proceeds of his criminal activity to cover

advertising, printing, and mailing

expenses. Nine months later, a

superseding indictment was filed, which

added a count for obstruction of justice

based on Grasso’s attempt to access frozen

funds and slightly modified the money

laundering charges.2 In December 2002,

Grasso was indicted yet again, for forgery

and obstruction of justice, in Criminal No.

01-783.3 In February 2002 the District

Court severed the obstruction of justice

count in the superseding indictment in

Criminal No. 00-51, which involved

Grasso’s first attempt to obtain frozen

funds, and consolidated that count with the

proceeding in Criminal No. 01-783. 

Trial on the superseding indictment

took place in February 2002. At the close

of the Government’s case, Grasso moved

orally for judgment of acquittal on the mail

and wire fraud counts, as well as four of

the money laundering counts. The motion

was denied, and thereafter a jury convicted

Grasso on all charges.

4

 He subsequently

pled guilty to the obstruction of justice

count originally filed in Criminal No. 00-

51, and the cases were consolidated for

sentencing. 

Payment of defense counsel fees

was a recurring issue during the criminal

proceedings. In March 2000, Grasso filed

a motion to release funds from his frozen

accounts to pay defense counsel fees and

expenses, and the motion was denied. The

case was assigned to another judge in

March 2001, and in December 2001 that

judge ordered the release of $200,000

toward these expenses. In March 2002,

defense counsel sought the release of

 

1

In addition to fraudulently promoting

work-at-home employment schemes,

Grasso allegedly sold mailing lists and

engaged in other illegal activity. He

contests many of the representations made

by the Government. Because these factual

matters do not affect our resolution of the

issues on appeal, we do not discuss them.

 

2The original indictment contained 508

counts alleging money laundering,

whereas the superseding indictment

included 482 counts. 

 

3The indictment charged that Grasso

forged the signatures of a district judge

and a deputy clerk in conjunction with

fictitious letters directing various financial

institutions to release his frozen funds.

 

4Two money laundering counts were

dismissed during the course of the trial. 
3

additional funds from frozen accounts for

payment of counsel fees. As a result,

Grasso was orde red to prov ide

documentation related to one of the nonfrozen accounts, and the Probation Office

examined his income and assets. The

subsequent investigation of his accounts

revealed that he had deposited more than

$800,000 into his non-frozen accounts

after the entry of a preliminary injunction

in 1999, which was intended to protect his

assets for distribution to victims. 

Priorto sentencing, Grasso objected

to the Government’s proposed sentencing

order on various grounds. He moved for a

downward departure and submitted a

memorandum in support of a “renewed”

motion for judgment of acquittal on the

money laundering counts, relying on the

Seventh Circuit’srecent decision in United

States v. Scialabba, 282 F.3d 475 (7th

Cir.), cert. denied, 537 U.S. 1071 (2002).

Although Grasso suggested in the

memorandum that he had submitted an

earlier motion for acquittal on all money

laundering counts, that motion challenged

the sufficiency of the evidence as to

Counts 444 through 447 only, and for

factually specific reasons. 

The District Court sentenced

Grasso for the fraud and money laundering

convictions to 97 months incarceration,

three years supervised release, a fine of

$150,000, restitution in the amount of

$761,126.39, and a special assessment of

$49,500. The Court made no findings in

support of its award of restitution. In

addition, for the obstruction of justice plea,

Grasso received 15 months imprisonment

(five months of which would run

consecutively to the first sentence), a fine

of $30,000, and a $300 special assessment.

The restitution, fines, and special

assessments, as well as $100,000 in

counsel fees, were to be paid from the

frozen funds. Grasso appeals.5

II. Discussion

We address two principal issues.

First, did the Government need to establish

that Gra sso’s money launde ring

transactions were conducted with the net

profits, as opposed to gross receipts, of his

illegal activity? Second, did the District

Court err by failing to specify in its order

of restitution the manner and schedule of

payment? 

A. Money Laundering Convictions

and Sentence

Grasso alleges that the Government

transformed a “garden variety fraud case

with no hint of organized crime

involvement into a 482 count money

laundering case.” Grasso’s conviction for

money laundering was based on his

“reinvestment of proceeds” for the

purchase of advertisements, telephone

services, printing, envelopes, and other

materials in furtherance of his fraudulent

activity by means of wire transfer, checks,

and credit cards. Simply put, Grasso paid

 

5The District Court exercised

jurisdiction over this case pursuant to 18

U.S.C. § 3231. We have appellate

jurisdiction under 18 U.S.C. § 3742 and 28

U.S.C. § 1291.
4

for his business expenses with the receipts

from his sales.6 The relevant statute, 18

U.S.C. § 1956, provides:

(a)(1) Whoever, knowing

that the property involved in

a financial transaction

represents the proceeds of

some form of unlawful

ac tivity, conducts or

attempts to conduct such a

financial transaction which

in fact involves the proceeds

of specified unlawful

activity—

(A)(i) with the intent to

promote the carrying on of

specified unlawful activity;

or

(ii) with intent to engage in

conduct constituting a

violation of section 7201 or

7206 of the Internal

Revenue Code of 1986; or

(B) knowing that the

transaction is designed in

whole or in part—

(i) to conceal or disguise the

nature, the location, the

source, the ownership, or

the control of the proceeds

of spec ified unlawful

activity; or

(ii) to avoid a transaction

reporting requirement under

State or Federal law,

[commits a felony].

The statute does not define “proceeds.”

Grasso contends that the term should be

understood—as a matter of textual

interpretation, congressional intent, and

policy—to mean “net profits.” The

Government, by contrast, urges us to adopt

a broader definition encompassing all

gross receipts of illegal activity. 

1. Standard of Review

Grasso has framed the question

presented in his appeal as “[w]hether a

defendant can be convicted of and

sentenced for money laundering under 18

U.S.C. § 1956(a)(1)(A)(i) for reinvesting

the proceeds of specified unlawful activity,

where the government’s proof fails to

show that the money allegedly laundered

represented the proceeds, or net profits,

from the unlawful activity as opposed to

gross receipts or revenue.” At its core,

Grasso’s appeal challenges the sufficiency

of the evidence upon which he was

convicted.7 In other words, “[h]e contends

 

6Grasso argues that the payments were

made for past purchases. The Government

disputes this claim as a factual matter. We

have held, in any case, that it is possible to

“promote” unlawful activity, within the

meaning of the money laundering statute,

even if it has already been completed.

United States v. Paramo, 998 F.2d 1212,

1218 (3d Cir. 1993). 

 

7

It is undisputed that the Government

presented no evidence suggesting that
5

that, as a matter of law, the facts do not

support the conclusion that money

laundering occurred.” United States v.

Morelli, 169 F.3d 798, 802 (3d Cir. 1999)

(classifying as a “sufficiency of the

evidence” argument the defendant’s claim

that his conviction for money laundering

was premised on a faulty statutory

construction). While Grasso urges us to

review the District Court’s judgment de

novo, the Government contends that we

should review it for plain error because he

failed to raise his statutory argument in a

Rule 29 motion for judgment of acquittal

and therefore forfeited it. 

The Federal Rules of Criminal

Procedure dictate when a criminal

defendant may challenge a conviction that

is based on insufficient evidence. Rule 29

provides that a defendant must make an

appropriate motion within seven days after

a guilty verdict is entered, or within an

extended time specified by the Court

during the seven-day period. If a

defendant fails timely to raise an argument

that may establish his or her innocence, the

court is unlikely to find it persuasive at a

later time. See, e.g., United States v.

Powell, 113 F.3d 464, 466–67 (3d Cir.

1997) (“If a defendant fails to file a timely

motion for judgment of acquittal, we

review sufficiency of evidence for plain

error.”). 

The jury convicted Grasso on

February 25, 2002. He did not file a

motion within seven days of the verdict,

nor did the Court extend the applicable

period. On October 9, 2002, however, he

filed a memorandum including an

argument in support of his “renewed

motion for judgment of acquittal on the

money laundering counts.” Although it

was clear that Grasso had failed to file a

timely Rule 29 motion,8 the parties agreed

at oral argument that the District Court

would consider the “renewed” motion “for

the limited purpose of determining

whether Defendant should be sentenced

under the money laundering or fraud

guidelin es.” 9 That motion did

Grasso’s payments and expenditures were

funded with net profits of the fraudulent

scheme rather than gross receipts.

 

8As already noted, at the close of the

Government’s case the defense moved for

judgment of acquittal on four of the money

laundering charges. The motion did not

allege that the Government had failed to

demonstrate the use of net proceeds. 

 

9Grasso has framed his argument as a

challenge to his sentence rather than his

conviction. As a general matter, “[w]e

review the district court’s application of

the sentencing guidelines de novo.” See

United States v. Omoruyi, 260 F.3d 291,

297 n.8 (3d Cir. 2001). We thus may

vacate a sentence if we find that it was

improperly entered. But in this case the

District Court had no choice but to

sentence Grasso for money laundering.

“In cases . . . in which several counts,

including fraud and money laundering,

have been grouped, . . . the count carrying

the highest applicable offense level must

apply to the entire group for sentencing
6

not serve to preserve the statutory

argument for de novo review.

The forfeiture principle may lead to

harsh results. “‘No procedural principle is

more familiar to this Court than that a

constitutional right,’ or a right of any other

sort, ‘may be forfeited in criminal as well

as civil cases by the failure to make timely

assertion of the right before a tribunal

having jurisdiction to determine it.’”

United States v. Olano, 507 U.S. 725, 731

(1993) (citing Yakus v. United States, 321

U.S. 414, 444 (1944)). Its effects are

mitigated, however, by Federal Rule of

Criminal Procedure 52(b), which permits

a court of appeals to consider a “plain

purposes. Under the guidelines as

amended, . . . courts have no discretion to

decide that the money laundering guideline

is inappropriate or not the most applicable

guideline on the facts of a given case.”

United States v. Diaz, 245 F.3d 294, 303

(3d Cir. 2001) (citation omitted). Plenary

review of the sentence alone does Grasso

no good, because we may inquire only

whether, assuming he was lawfully

convicted of money laundering, the

District Court properly calculated his

sentence. Upon the facts presented, there

is no doubt that it did. 

Grasso’s strategy, of course, is

slightly outside the letter of Diaz. He

urged the District Court to sentence him

for fraud rather than money laundering not

because the sentencing guidelines

applicable to the latter more appropriately

reflected the scope of his criminal activity,

but rather because he contended he should

not have been convicted of money

laundering in the first place. Were we to

accept this gambit, we would permit

Grasso to end-run the principle that a court

should not disturb a jury verdict unless the

defendant timely objects. See Carlisle v.

United States, 517 U.S. 416, 433 (1996)

(holding that a district court is without

discretion to grant a defendant’s untimely

motion for judgment of acquittal pursuant

to Rule 29). 

In a similar vein, Grasso relies

heavily on our decision in United States v.

Morelli, 169 F.3d 798, 801 (3d Cir. 1999),

in which we held that the defendant was

not obligated to challenge his money

laundering conviction in a Rule 29 motion.

In Morelli, the jury found that money

laundering was merely one among several

bases for his RICO conspiracy conviction.

Because the conviction rested on

independent predicate acts, any

contemporaneous objection to the money

laundering allegations would have been

futile; even if the court had agreed that the

money laundering statute was inapplicable,

there were adequate alternative bases to

sustain the conviction. Consequently, the

defendant’s interpretation of the money

laundering statute affected only his

sentence, and the District Court’s decision

at sentencing was “not bound up with the

jury’s verdict.” Id. at 803. In our case, by

contrast, the jury specifically found that

Grasso was guilty of money laundering.

The District Court could not have

modified Grasso’s sentence without

disturbing the underlying conviction. 
7

error that affects substantial rights . . .

even though it was not brought to the

court’s attention.”10 

Grasso failed to file a Rule 29

motion within the designated time. His

claim does not fall within any of the

recognized exceptions to the forfeiture

rule. We therefore review his argument

for plain error. We note, however, that the

standard of review is ultimately irrelevant

to our resolution of this case. Because we

conclude that the District Court properly

construed § 1956, we would affirm even

under de novo review.11 

2. Definition of “Proceeds”

Under the plain error standard, the

defendant ordinarily bears the burden of

proving that: (1) the court erred; (2) the

error was “plain” at the time of appellate

consideration; and (3) the error affected

substantial rights, usually meaning that the

error “must have affected the outcome of

the district court proceedings.” Olano,

507 U.S. at 734; see also Johnson v.

United States, 520 U.S. 461, 466–68

(1997). “If all three conditions are met, an

appellate court may then exercise its

discretion to notice a forfeited error, but

only if (4) the error seriously affects the

fairness, integrity, or public reputation of

judicial proceedings.” Johnson, 520 U.S.

at 467 (citation omitted). Grasso cannot

meet the first and most important element

because the District Court did not err.

Thus we need go no further.

We agree with the District Court

that sentencing Grasso for money

laundering was within the scope of the

money laundering statute. Grasso

contends, citing the Seventh Circuit’s

recent decision in United States v.

Scialabba, 282 F.3d 475 (7th Cir.), cert.

denied, 523 U.S. 1071 (2002), that he was

improperly convicted of and sentenced for

 

10“Rule 52(b) leaves the decision to

correct the forfeited error within the sound

discretion of the court of appeals.” Olano,

507 U.S. at 732. Nonetheless, we “should

not exercise that discretion unless the error

seriously affects the fairness, integrity or

public reputation of judicial proceedings.”

Id. (citations omitted). The Supreme Court

has clarified that we may “correct the error

(either vacating for a new trial, or

reversing outright)” only if it is “plain”

and “affects substantial rights.” Id.

(emphasis in original).

 

11Grasso argues that the Court may

exercise plenary review of his claim even

if he forfeited it, because it is based on

statutory interpretation. This proposition

is inconsistent with the Supreme Court’s

decisions in Olano, 507 U.S. 725

(applying plain error review to

interpretation of the Federal Rules of

Criminal Procedure), and Johnson v.

United States, 520 U.S. 461 (1997)

(reviewing for plain error the district

court’s failure to submit to the jury the

question whether a false statement was

material despite intervening Supreme

Court case deciding as a matter of

constitutional law that materiality is a jury

question). 
8

money launderi ng beca use th e

Government failed to establish that the

money allegedly laundered derived from

the net profits of his illegal activity. The

Seventh Circuit held in Scialabba that

when a “crime entails voluntary, businesslike operations, ‘proceeds’ must be net

income; otherwise the predicate crime

merges into money laundering (for no

business can be carried out without

expenses) and the word ‘proceeds’ loses

operational significance.” Id. at 475. 

In Scialabba, the defendants were

convicted of operating an unlawful

gambling business, filing false tax returns,

conspiring to defeat tax collection, and

money laundering. The last charge was

based on the defendants’ use of revenue

from their gambling operations to meet the

expenses of the business. As in our case,

conviction for money laundering

substantially increased the defendants’

prison terms, and they therefore appealed

their convictions under the money

laundering statute, § 1956(a).

The Seventh Circuit rejected the

Government’s argument that use of gross

receipts to fund ongoing criminal activity

constituted money laundering. The Court

explained that acceptingtheGovernment’s

theory would be “equivalent to saying that

every drug dealer commits money

laundering by using the receipts from sales

to purchase more stock in trade, that a

bank robber commitsmoneylaundering by

using part of the loot from one heist to

rent a getaway car for the next, and so on.”

Id. at 476. Transactions of this nature, the

Court explained, do not implicate the

concerns underlying the statute—namely,

they are not “financial transactions to hide

or invest profits in order to evade

detection, the normal understanding of

money laundering.” Id. 

While Judge Easterbrook’s opinion

in Scialabba is well-argued and intuitively

appealing, we believe it reaches an

incorrect result. We consider various

interpretations of proceeds in light of the

conventional understanding of the term,

the text and purpose of § 1956, and

existing case law in our Circuit. In so

doing, we conclude that “proceeds,” as

that term is used in the money laundering

statute, means gross receipts rather than

profits. 

 Section 1956 does not define

proceeds. JudgeEasterbrook assumed that

“most speakers of English would

understand” the term proceeds to reach

only the “profits of the business.”

Scialabba, 282 F.3d at 477. Viewed in a

vacuum, however, we discern no clear

meaning of the term. Congress might

easily have used “gross receipts” if it so

intended. Cf. Scialabba, 282 F.3d at 477

(“It would have been easy enough to write

‘receipts’ in lieu of ‘proceeds’ in

§ 1956(a)(1).”) But it might just as readily

have used the term “profits.”

Secondary sources defining the

word “proceeds” undercut Grasso’s

proposed interpretation based on

Scialabba. For example, the Uniform

Commercial Code defines “proceeds” as

“whatever is acquired upon the sale, lease,

license, exchange, or other disposition of
9

collateral. . . .” U.C.C. § 9-102(64)(A).

Similarly, Black’s Law Dictionary 1222

(7th ed. 1999) defines “proceeds” as “the

amount of money received from a sale”

and lists “net proceeds” as a distinct subentry under “proceeds.” Nonetheless,

dictionary definitions are neither uniform

nor dispositive. Webster’s first definition

of proceeds is “the total amount brought

in,” but the second is “net profit,” and the

third is “the net sum received . . . after

deduction of any discount or charges.”

Webster’s Third New International

Dictionary 1807 (1986). 

Judicial definitions of “proceeds” in

other contexts also vary, though they are

generally more expansive than the

interpretation Grasso urges. In construing

the scope of criminal forfeiture of

“proceeds” under the RacketeerInfluenced

and Corrupt Organizations (“RICO”) Act,

most courts have held that proceeds

involve more than net profits. In fact, the

Seventh Circuit was unique in holding

otherwise. See United States v. Masters,

924 F.2d 1362, 1369–70 (7th Cir. 1991).

The Second Circuit and a District Court in

our Circuit have held that proceeds

represent “gross profits,” meaning total

revenues minus marginal costs, but not

fixed costs. United States v. Lizza Indus.,

Inc., 775 F.2d 492, 497–99 (2d Cir. 1985);

United States v. Milicia, 769 F. Supp. 877,

888 (E.D. Pa. 1991). The First, Fourth,

and Eighth Circuits understand the term to

mean “gross revenues.” United States v.

Hurley, 63 F.3d 1, 21 (1st Cir. 1995);

United States v. McHan, 101 F.3d 1027,

1041–43 (4th Cir. 1996); United States v.

Simmons, 154 F.3d 765, 770–71 (8th Cir.

1998). See generally Anup Malani, The

Scope of Criminal Forfeiture Under

RICO: The Appropriate Definition of

“Proceeds,” 66 U. Chi. L. Rev. 1289

(1999).

Turning to the money laundering

statute, the Seventh Circuit is alone in its

restrictive definition of “proceeds.” The

Sixth Circuit has noted that “proceeds,” as

used in § 1956, is a “commonly

understood word in the English language,”

and includes “what is produced by or

derived from something (as a sale,

investment, levy, business) by way of total

revenue.” United States v. Haun, 90 F.3d

1096, 1101 (6th Cir. 1996) (quoting

Webster’s Third New International

Dictionary 1807 (1971)). Similarly, the

Ninth Circuit has adopted an expansive

definition of “proceeds” as it is used in the

money laundering statute, relying on

dictionary definitions to assign it the

“broad[] meaning of that which is

obtained . . . by any transaction.” United

States v. Akintobi, 159 F.3d 401, 403 (9th

Cir. 1998) (internal citation omitted). 

Only one Circuit has explicitly

considered the Seventh Circuit’s decision

in Sciallaba. In United States v. Iacaboni,

221 F. Supp. 2d 104, 112 (2002), reversed

in part on other grounds by 363 F.3d 1

(1st Cir. 2004), the United States District

Court for the District of Massachusetts

rejected the Seventh Circuit’s conclusion

that proceeds should be interpreted as

profits rather than total revenue. In March

2004, the First Circuit approved the

District Court’s reasoning, noting simply:
10

“We have previously rejected

[Appellant’s] interpretation of the term

‘proceeds’ in the RICO forfeiture context.

[He] has offered no rationale for

abandoning that approach here.” 363 F.3d

at 4 (citation omitted). 

Given the many definitions of

“proceeds” and the uncertain value of

congressional records in choosing among

them,12 the best approach, we believe, is to

examine the statute itself for indications of

the intended scope of the term. The

Seventh Circuit’s opinion reasons that

proceeds must be limited to net profits

because money laundering is about

concealment and only profits need be

concealed. But the wording of the statute

suggests that concealment is only one of

the statute’s two purposes. The “normal

understanding of money laundering” may

entail “hid[ing] or invest[ing] profits in

order to evade detection,” as the Seventh

Circuit posited, Scialabba, 282 F.3d at

476, but the bifurcated text of the statute

strongly suggests that Congress had a

broader definition of money laundering in

mind. 

To be sure, 18 U.S.C. § 1956

criminalizes financial transactions that

satisfy the conventional understanding of

money laundering—namely, transactions

intended “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(a)(1)(B)(i). But it is equally

unlawful under the statute to engage in a

financial transaction, knowing that the

property involved represents the proceeds

of unlawful activity, “with the intent to

promote the carrying on of specified

unlawful activity.” 18 U.S.C.

§ 1956(a)(1)(A)(i). In other words, the

money laundering statute prohibits not

only the concealment of proceeds, but also

the promotion of illegal activity. By

reinvesting the proceeds of his fraudulent

scheme in order to sustain it, Grasso

promoted unlawful activity within the

meaning of the statute—regardless

whether the funds were profits or gross

receipts.13

 

12Grasso presents extensive evidence

that Congress intended the Money

Laundering Control Act of 1986, of which

§ 1956 is part, “to fill the gap in the

criminal law with respect to the post-crime

hiding of ill-gotten gains.”United States v.

Bockius, 228 F.3d 305, 310 (3d Cir. 2000)

(quotingUnited States v. LeBlanc, 24 F.3d

340, 346 (1st Cir. 1994)). “But that was

not the sole purpose of the statute.” Id.

Other rationales undercut this theory. See,

e.g., Iacaboni, 221 F. Supp. 2d at 112 n.2

(“[The Seventh Circuit’s interpretation

would imply that] so long as the illegal

enterprise had no net profit, no money

laundering prosecution would be possible.

BecauseCongress could not have intended

such a result, the court follows the

majority of circuits in holding that

‘proceeds’ should be interpreted as ‘total

revenue’ rather than ‘net profits.’”). 

 

13Because we believe the meaning of

“proceeds” is clear from the text of § 1956,

we need not consider the related policy
11

Finally, we note that we have

explicitly rejected one of the principal

factors cited by the Seventh Circuit in

support of its construction of the statute.

The Court commented in Scialabba: “If

. . . the word ‘proceeds’ is synonymous

with gross income, then we would have to

decide whether, as a matter of statutory

construction (distinct from double

jeopardy), it is appropriate to convict a

person of multiple offenses when the

transactions that violate one statute

necessarily violate another.” Scialabba,

282 F.3d at 477 (internal citations

omitted). Our Court, however, has

concluded that § 1956 may subject an

individual to multiple penalties based on

the same crime without violating either

double jeopardy or the principles

governing statutory interpretation. 

In United States v. Conley, 37 F.3d

970, 978–79 (3d Cir. 1994), we held that

prosecution for both gambling and money

laundering did not implicate double

jeopardy because the statutory elements of

the offenses differ; an individual is guilty

of money laundering only if he or she

intended to conceal or promote unlawful

activity. The Seventh Circuit

distinguished our decision in Conley,

suggesting that if “proceeds” is interpreted

broadly, the similarity between money

laundering and the underlying criminal

activity is problematic as a matter of

statutory construction. But our Court has

resolved the latter issue as well. In United

States v. Omoruyi, 260 F.3d 291, 295 (3d

Cir. 2001), we recognized that “conduct

constituting the underlying offense

conduct may overlap with the conduct

constituting money laundering.” An

individual may be convicted for money

laundering as long as the financial

transactions are conducted with proceeds

of the illegal transaction and with the

intent to promote the underlying offense.

Id. 

We have regularly upheld money

laundering prosecutions based on the

reinvestment (“plowing back”) of

proceeds. See, e.g., United States v. Diaz,

245 F.3d 294, 305 (3d Cir. 2001); United

States v. Cefaratti, 221 F.3d 502, 511 (3d

Cir. 2000); Conley, 37 F.3d at 972. And

we have never suggested that proceeds

must be net. We see no reason to adopt

such a requirement now. We therefore

hold that “proceeds,” as that term is used

in § 1956, means simply gross receipts

from illegal activity. An individual may

engage in money laundering regardless

whether his or her criminal endeavor

ultimately turns a profit. 

arguments. We note, however, that

various factors favor adoption of a broad

definition of the term. For example, it

would be very difficult to prove that

“profits” were used to promote an illegal

venture, since criminals rarely keep

records of the overhead expenses of their

illegal activities. Similarly, in an ongoing

criminal business, it would be difficult to

determine at what point a defendant had

netted out all business expenses. When do

criminal businesses operate by recognized

auditing standards?
12

Thus we conclude that Grasso was

properly convicted and sentenced for

money laundering in violation of § 1956.

In the context of our review standard, he

has failed to establish error of any sort, let

alone plain error.

B. The District Court’s Award of

Restitution

We next address Grasso’s

contention that the District Court erred by

ordering him to pay restitution because it

failed to make factual findings in support

of the award. We remand for clarification.

The context is that at the time of

Grasso’s sentencing, the Court ordered

payment of $49,800 in specia l

assessments, $180,000 in fines, $100,000

in counsel fees, and $761,126.39 in

restitution to victims of Grasso’s crimes.14

According to the pre-sentence report,

Grasso at one time had assets of

$1,127,691.79, of which $900,000 was in

“frozen funds.” But because most of the

frozen funds were in market-sensitive

securities and brokerage funds, they

fluctuated in value. Indeed, from the time

of the pre-sentence report’s calculation to

the date of sentencing the funds’ value had

decreased by more than $200,000,

resulting in an apparent shortfall for the

payment of restitution.

The Mandatory Victims Restitution

A c t (“M V R A ” ), 18 U.S . C .

§§ 3663A–3664, enacted in 1996, requires

a sentencing court to order full restitution

to identified victims of certain crimes and

to specify the manner and order in which

restitution is to be paid. The MVRA

amended the provisions for restitution set

out previously in the Victim and Witness

Protection Act, 18 U.S.C. § 3663 et seq.,

pursuant to which district courts had

discretionary authority to award restitution

and were required to consider such factors

as the defendant’s financial ability to pay.

See United States v. Coates, 178 F.3d 681,

683 n.3 (3d Cir. 1999). 

Under the amended provision, the

discretion of a district court in awarding

restitution is limited. Coates set out two

steps for application of the statute. First,

 

1418 U.S.C. § 3612(c) sets the priority

for payments by defendants ordered at

sentencing: 

Any money received from a

defendant shall be disbursed

so that each of the following

obligations is paid in full in

the following sequence:

(1) A penalty assessment

under section 3013 of title

18, United States Code.

(2) Restitution of all

victims.

(3) All other fines, penalties,

costs, and other payments

required under the sentence.

Id. The District Court’s judgment

provided for the payment of special

assessments, fines, and counsel fees from

the frozen funds, with the restitution

ordered in Criminal No. 00-51 to be paid

out of the balance. On remand, the order

of payment should be reset per § 3612. 
13

the court must order full restitution15

“without consideration of the economic

circumstances of the defendant.” Coates,

178 F.3d at 683 (citing 18 U.S.C. §

3664(f)(1)(A)). Second, “[a]fter ordering

full restitution, the district court ‘shall

specify in the restitution order the manner

in which, and the schedule according to

which, the restitution is to be paid.’ In so

doing, the district court is required to

consider the financial resources, projected

earnings, and financial obligations of the

defendant.” Coates, 178 F.3d at 683

(citation omitted).16 C lea rly i t

makes no sense, when the mandatory

restitution sums will be paid entirely from

frozen funds, to require a district court to

consider the defendant’s financial

resources and responsibilities. While in

Coates we held that such determinations

were necessary to satisfy § 3664’s

mandate, id., the defendant there had no

frozen funds to which the restitution

claimants could look. We now hold that

when frozen funds are adequate to satisfy

restitution, a district court may stop short

of Coates’ second step. Here we have

frozen funds. But we do not know their

precise value, nor the number of claims to

be satisfied. At the sentencing colloquy,

the Government reported that the value of

the frozen funds had decreased to

$693,467.21, and counsel for Grasso

explicitly noted that they would not cover

the ordered expenditures.17 We are

 

15Grasso’s suggestion that a preliminary

determination must be made whether each

individual qualifies for restitution is

plainly incorrect. Each individual who

made a payment was “directly and

proximately harmed as a result of the

commission of the offense” within the

meaning of 18 U.S.C. § 3663A(a)(2) and

is consequently entitled to restitution. 

 

16Thus, while full restitution is

mandatory, “[t]he court may order the

defendant to make a lump-sum payment,

reasonable periodic payments, or, if the

defendant is indigent, nominal periodic

payments.” Id. at 683–84.

 

17The transcript of oral argument

contains the following confusing

exchange:

The Court: All right. Mr.

Phillips, any reason you

know of why this sentence

I’ve just stated should not be

imposed?

Mr. Phillips: Your Honor,

the only question I have had

to do I guess with the items

you listed, fine, restitution,

attorney’s fees, special

assessment. When you add

those numbers up, they’re

more than what is available

of the frozen assets. 

The Court: That’s correct.

The balance goes to

restitution. 

Mr. Phillips: Oh, it was the

balance. 

The Court: Right. 

Mr. Phillips: Oh, okay.

I’m—
14

therefore persuaded that a remand is

necessary.

On remand, if the District Court

should determine that the frozen funds are

adequate to satisfy the full amount of

restitution (after payment of $49,800 in

special assessments), nothing further need

be found to comply with the MVRA

requirements. If, however, the funds are

inadequate, the District Court should

proceed in accordance with 18 U.S.C.

§ 3664(f)(2) to determine the manner in

which, and schedule according to which,

restitution is to be paid.18

The Court: Whatever’s left

after those monies are paid

is for restitution.

Arguably the District Court intended

restitution to be paid only to the extent of

the frozen funds. As § 3664 requires full

restitution, however, thisinterpretation too

would necessitate remand. 

 

18Three additional issues bear

consideration on remand. First, the

Government contends that Grasso failed to

claim that payment of $180,000 in fines

impaired his ability to pay restitution and

that he must therefore pay the fines from

assets outside the frozen funds. In United

States v. Torres, 209 F.3d 308, 312 (3d

Cir. 2000), we noted that “the defendant

has the burden of proving his or her ability

to pay [fines].” Moreover, “[w]here . . . a

defendant did not at sentencing raise the

issue of his or her inability to pay, a

sentencing court’s decision to impose a

fine and the amount of the fine is reviewed

for plain error.” Id. at 313. Nonetheless,

we were careful to note in Torres that the

defendant had not argued that the District

Court failed to consider his overall ability

to pay a fine. Rather, he argued only that

“the record before the District Court did

not establish whether he had the earning

capacity to pay a fine while on supervised

release.” Id. Applied to our case, if on

remand there is determined to be a

shortfall of funds available for fines

(obviously the case if the funds are

insufficient to pay restitution amounts), the

District Court should consider Grasso’s

ability to pay this amount as well. 

Second, it is apparent from the

record that the District Court intended to

order the payment of restitution to the

30,007 victims identified by the

Government. The judgment, however,

states that the restitution shall be paid to

“any payees” identified by the

Government. We presume that these

payees are in fact the identified victims.

Finally, we note a discrepancy

between the District Court’s remarks

during the sentencing colloquy and the

payment terms set forth in the judgment.

We glean from one statement by the Court

at sentencing that it intended Grasso, upon

his release from custody, to pay $100 per

month toward any outstanding financial

obligations. This provision, however, was

not included in the written order. If on

remand there is a shortfall to pay

restitution, the Court should justify the

schedule of payment by reference to

Grasso’s financial resources and
15

III. Conclusion

Reviewing for plain error, we

conclude that the District Court’s

interpretation of “proceeds” in the money

laundering statute was correct, and we

therefore affirm Grasso’s conviction and

sentence. On the issue of restitution, we

vacate the District Court’s order and

remand for reconsideration in light of the

value of the frozen funds. If the Court

determines that those funds are inadequate

to pay restitution in the priority scheme set

by 18 U.S.C. § 3612, it should follow the

requirements of 18 U.S.C. § 3664(f)(2). 

obligations, pursuant to § 3664.