IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________

No. 98-30463

_______________

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

VERSUS

GREGORY DEAN BROWN,

Defendant-Appellant.

* * * * * * * * * * * * * * * * * * * *

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No. 98-30584

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UNITED STATES OF AMERICA,

Plaintiff-Appellee,

VERSUS

LEONARD STEVEN STEVE GRAVES,

Defendant-Appellant.

_________________________

Appeals from the United States District Court

for the Western District of Louisiana

_________________________

August 24, 1999

Before SMITH, WIENER, and 

BARKSDALE, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

In this consolidated appeal, Leonard Graves

appeals his money laundering convictions, a

number of his fraud 

convictions, and hissentence. Gregory Brown

appeals hissentence. We affirm Graves's fraud

convictions, reverse his money laundering

convictions, and vacate and remand his

sentence. We affirm Brown's sentence.

I.

The fraud and money laundering charges of
2

which Graves was convicted, and Brown's

wire fraud conviction, relate to business

dealings conducted at Steve Graves ChevroletPontiac-Cadillac, Inc. (“SGC”), an auto

dealership in Ruston, Louisiana. Graves was

the dealer, president, and 41% owner of SGC,

and Brown managed its body shop.

The 120-count indictment against Graves

alleged six distinct types of fraud,1and for

each fraud allegation there was a

corresponding money laundering charge.

Graves was convicted on counts stemming

from three of the six types of fraud and was

convicted of money laundering the funds

derived from these frauds. Brown pleaded

guilty to a type of fraud of which Graves was

not convicted.

The first type of fraud involved SGC's

charging car buyers more than the amount

authorized by state law for document and

license/title fees. SGC charged purchasers $59

in document fees, which is $9 more than

Louisiana law permits; automobile dealerships

are allowed to charge only $35 for processing

paperwork and $15 for a notary fee. See LA.

R.S. 6:956(E)(1), (2). For the license and title

fees, which varied from vehicle to vehicle,

SGC overcharged an average of $50 per

automobile listed in the indictment.2 The

eighteen instances of overcharging were

charged against Graves asmailfrauds, because

the Louisiana Department of Motor Vehicles

mailed the automobile titles. Graves was also

charged with money laundering the proceeds

of the excessive fees. The jury found Graves

guilty on some of the counts and not guilty on

others.

Graves was convicted of fraud based on

SGC's financing the purchases of used cars

with “cash for gas.” In seven instances, SGC

advanced to the purchaser all or part of the

down payment required by the financing

institutionSSunder the guise of giving the

buyer some “cash for gas”SSand increased the

purchase price of the car by a corresponding

amount. This conduct constituted fraud,

because the lending institution would not have

extended credit to the purchaser absent his

having some genuine equity interest in the

automobile. The counts of which Graves was

convicted were charged as mail frauds,

because SGC mailed loan documentation to

General Motors Acceptance Corporation

(“GMAC”), the financing institution.3 The

jury also found Graves guilty of money

laundering the funds derived from cash for gas

frauds. 

The final form of fraud of which Graves

was convicted also involved the financing of

used cars. For ten cars financed by Union

Federal Credit Union, SGC, on behalf of the

buyer, forwarded to the credit union 25% of

 

1

 In addition to the four types of fraud

discussed below, the indictment alleged that

Graves, through SGC, engaged in “parts-to-labor”

fraud and “scooping rebates” fraud. The former

type of fraud involved SGC's billing automobile

insurance companies for new parts but then

performing repairs using used parts and falsely

charging the price difference as labor. The

“scooping rebates” allegations involved SGC's

fraudulently denying the benefits of rebates to

customers and instead collecting the rebates for the

dealership. Graves was acquitted of all charges

relating to parts-to-labor and scooping rebates

frauds, but the district court found that such frauds

had been established by a preponderance of the

evidence and considered them in sentencing

Graves. 

 

2 The state charged $18.50 for the title,

(continued...)

(...continued)

$5.50 for handling, $5.00 to record a lien or

mortgage, and an amount specifically for the

license that varied, according to a Department of

Motor Vehicles table, with the selling price of the

vehicle. The total was the “license fee.” SGC

typically collected $102 per vehicle as the license

fee. This resulted in an average overcharge of $50

per automobile listed in the indictment. 

 

3 One instance of “cash for gas” was

charged as bank fraud, for the lender in that

instance was a bank. The jury acquitted Graves of

that charge and the corresponding money

laundering count.
3

the sale price, which the credit union

maintained in a savings account in the

purchaser's name until the loan was paid off.

The dealership increased the sale price of the

vehicle by a corresponding amount. As with

“cash for gas,” this scheme had the effect of

fraudulently inducing advances of credit, for

the credit union believed that the 25% down

payment represented genuine purchaser equity

in the purchased automobiles. These counts

were charged as bank frauds, and the jury

returned a guilty verdict. It also found Graves

guilty of money laundering the proceeds

derived fromthe bank frauds. Graves does not

appeal these bank fraud convictions, but he

does appeal the corresponding money

laundering convictions.

The government charged Brown and

Graves with filing fraudulent warranty claims.

The indictment alleged ten instances in which

SGC recovered warrantymoney from General

Motors for repairs to vehicles when, in fact,

the repaired vehicles were not covered by

warranties. The government charged the

fraudulent warranties as wire frauds, because

GeneralMotors credited the cost ofrepairs via

computer. The jury found Graves not guilty of

the wire fraud and corresponding money

laundering charges. Brown, however, pleaded

guilty to one count of wire fraud based on

submission of a fraudulent warranty claim.

In sentencing Graves, the court declined to

group his fraud and money laundering

convictions. Instead, it sentenced him solely

on the basis of his money laundering offenses,

which carry a tougher penalty than do fraud

offenses. Compare U.S.S.G. § 2F1.1

(imposing a base offense level of six for mail

and wire fraud) with U.S.S.G. § 2S1.1

(imposing a base offense level of 23 for money

laundering). With an adjusted offense level of

30 and a criminal history category of I, the

guidelines range was 97 to 121 months. The

court departed downward by only one month,

sentencing Gravesto 96months' incarceration.

The court based the downward departure on

its conclusion that Graves's conduct was

outside the heartland of money laundering.

Based on Brown's plea of guilty to a charge

of wire fraud, he was sentenced to an

eighteen-month term of imprisonment and

restitution of $75,104.18.4 The court

increased Brown's offense level by six to

account for a fraud loss greater than $70,000

but no more than $120,000. See U.S.S.G.

§ 2F1.1(b)(1)(G). After Brown's sentencing,

the court granted the government’s “Motionto

Correct Judgment and Commitment Order”

asking the court to lower Brown's required

restitution to victim insurance companies and

individuals to $67,938.72. Brown contends

that this “lower loss figure” calls for an

increase of his base offense level of only five,

not six, levels and that his sentence is thus

unduly severe. 

 

4

 Brown was also given a three-year term

of supervised release, which is to begin following

his release from prison, and he was ordered to pay

an assessment to the crime victim fund.
4

Graves appeals his convictions on fraud

counts stemming from excessive document and

license/title fees and “cash for gas” frauds. He

also appeals all his money laundering

convictions and his sentence. Brown appeals

only his sentence, asserting that it should be

reduced to reflect an error of fact discovered

subsequent to sentencing.

II.

We first consider Graves's claim that there

was insufficient evidence to support a number

of his convictions. In evaluating a challenge to

the sufficiency of the evidence, we view the

evidence in the light most favorable to the

verdict and uphold the verdict if, but only if, a

rational juror could have found each element

of the offense beyond a reasonable doubt.

United States v. Giraldi, 86 F.3d 1368, 1371

(5th Cir. 1996). Our review is de novo.

United States v. Restrepo, 994 F.2d 173, 182

(5th Cir. 1993). We consider “the

countervailing evidence aswell asthe evidence

that supports the verdict” in assessing

sufficiency of the evidence. Giraldi, 86 F.3d

at 1371. If “the evidence viewed in the light

most favorable to the prosecution gives equal

or nearly equal circumstantial support to a

theory of guilt and a theory of innocence,” a

defendant is entitled to a judgment of acquittal.

United States v. Schuchmann, 84 F.3d 752,

754 (5th Cir. 1996).

The evidence is sufficient to sustain

Graves's convictions of fraud stemming from

excessive fees and “cash for gas.” There is,

however, insufficient evidence to sustain his

money laundering convictions.

A.

The alleged offenses involving Graves's

charging excessive document and license/title

fees were charged as mail fraud, a violation of

18 U.S.C. § 1341. The government must

prove beyond a reasonable doubt “(1) the

existence of a scheme to defraud; (2) the use

of the mailsto execute the scheme; and (3) the

specific intent on the part of the defendant[] to

commit fraud.” United States v. Salvatore,

110 F.3d 1131, 1136 (5th Cir.), cert. denied,

118 S. Ct. 441 (1997). Graves does not

contest the sufficiency of the evidence on the

first two elements but contends that there was

insufficient evidence to support a finding that

he specifically intended to commit fraud.

There was no specific intent, he argues,

because he did not know of the overcharges.

The jury, properly instructed,5concluded

otherwise, and there wassufficient evidence to

support its conclusion.

1.

SGC overcharged $9 per vehicle for

document fees ($59 rather than the maximum

$50). Graves asserts that the government

presented no evidence that he knew of this

overcharge; the evidence showed, he says, that

he corrected the $9 overcharge as soon as he

learned from a Louisiana Automobile Dealers

Associationnewsletterthat the $59 chargewas

too high. 

To maintain his claim of insufficient

evidence, Graves must discount the testimony

of Jim Smith, who had managed SGC's

Finance and Insurance Office for a number of

months during the indictment period. Smith

testified that the document fee was too high

and that he had discussed that fact with Graves

before Graves's discovery of the article

indicating that the fee was too high. Graves

asserts that the jury could not rationally have

credited Smith's testimony over his own.

 

5

In accordance with Fifth Circuit Pattern

Jury Instructions 1.37, the jurors were instructed as

follows:

The word “knowingly,” as that term

has been used from time to time in these

instructions, means that the act was done

voluntarily and intentionally, not because of

mistake or accident.

You may find that a defendant had

knowledge of a fact if you find that the

defendant deliberately closed his eyes to

what would otherwise have been obvious to

him. While knowledge on the part of the

defendant cannot be established merely by

demonstrating that the defendant was negligent,

careless, or foolish, knowledge can be inferred if

the defendant deliberately blinded himself to the

existence of a fact.
5

According to Graves, Smith, who wasfired for

inadequacies in his paperwork, obviously did

not know what he was talking about, because

he testified counterfactuallythat the dealership

charged $80-100 as a document fee. When

the government tried to conformhistestimony

to the uniformly charged $59 fee, the court

sustained Graves's attorney's objection to

“leading.”

Despite Graves's protests, Smith's

testimony provided a sufficient evidentiary

basis for the jury's conclusion that Graves

knew of the document fee overcharge. While

Smith'stestimony may not have been the most

compelling, the jury was not irrational in

crediting it over Graves's. It is certainly

possible that Smith, who wasfinance manager

for only four months, could have forgotten the

exact figure charged as a document fee but

remembered that the fee charged wastoo high

and that he had discussed that fact with

Graves. The jury chose to believe Smith, and

its choice was not irrational.6

2.

Graves contendsthat the evidence does not

support a conclusion beyond a reasonable

doubt that he intended to overcharge license

and title fees. He admits that the evidence

would support a conclusion that he knew as of

July 1994 that such overcharges were

occurring, for there was evidence that Teresa

Shelton, Graves's office manager, told him at

that time that SGC was charging too high a

fee.7 Graves notes, however, that the evidence

shows that he immediately ordered Newton,

hisfinancial and insurancemanager at the time,

to stop the overcharging. There is no

evidence, he asserts, that he knew that Newton

was failing to follow this order.

This assertion is simply incorrect. At least

three pieces of evidence support a conclusion

that Graves knew the overcharges were

continuing. First, Shelton testified that she

told Graves that Newton was continuing to

overcharge. In addition, general manager

Richard Anderson testified that he discussed

the excessive license fees with Graves on

several occasions and that Graves had told him

that sometimes SGC overcharged and

sometimes undercharged, and things would

balance out in the end.8 Finally, Graves admits

that on the occasions Shelton reported

Newton's mistakes to Graves, he did not ask

her to provide refunds to the overcharged

customers.

This evidence, viewed in the light most

favorable to the verdict, adequately supports a

finding that Graves knew ofthe license/title fee

overcharges. The jury thus rationally could

 

6 See United States v. Guerrero, 169 F.3d

933,

939 (5th Cir. 1999) (holding that on review of

sufficiency of evidence to convict, court of appeals

must accept credibility choices that support the

verdict, and court may not reweigh evidence). 

 

7

Indeed, the jury must have determined

that Graves did not know of the overcharges before

July 1994, because it acquitted himof those counts

of mail fraud occurring before that date.

 

8 Graves unsuccessfully attempts to

downplay this testimony. He asserts that

Anderson's testimony is unconvincing because (1)

the government offered no evidence as to the date

of the remark, which might have occurred before

July 1994, when Shelton first found out that

license/title fee overcharges were occurring; (2)

Shelton, who regularly attended the managers'

meetings, never heard such a remark; and (3)

Anderson lost all credibility when he portrayed

NewtonSSthe very person who refused to adhere to

Graves's order to lower the feeSSas complaining to

Graves that the fee was too high.

None of these reasons requires discrediting

Anderson's testimony. First, the jury could

reasonably have concluded that Graves's alleged

remark to Anderson occurred after he learned that

overcharging was occurring, for the very subject

matter of the remark was the dealership's

overcharging. Second, the fact that Shelton did not

hear the remark does not prove that it never

occurred; the remark might have occurred outside

her presence, or she might not have been paying

attention. Finally, the argument about Anderson's

credibility should not persuade us to reverse a

verdict, for credibility determinations are for the

jury. See Guerrero, 169 F.3d at 939. 
6

have concluded that Graves, knowing of the

overcharges and refusing to take effective

steps to stop them or remedy them through

refunds, intended the frauds. Accordingly, we

affirm Graves's fraud convictions stemming

from SGC's overcharges of document and

license/title fees.9

B.

Graves arguesthat the evidence supporting

his “cash for gas” fraud convictions is

insufficient, because there is no evidence that

he continued to approve of cash for gas

financing after he learned that GMAC

disapproved of it. Cash for gas financing, he

asserts, is not obviously fraudulent.

Accordingly, the government could not have

established Graves's criminal liability unless it

proved that he knew he was doing something

wrong by offering cash for gas;such proof was

necessary to establish the third prong of mail

fraudSSi.e., that he specifically intended to

commit fraud. See Salvatore, 110 F.3d at

1136. 

Graves admits that the government did

offer proof that he eventually knew cash for

gas wasimproper. It provided testimony from

Dave Jeffers, a GMAC official who told

Gravesthat “in our [GMAC's] judgment, [cash

for gas] is a misrepresentation ofthe contract.”

Graves further admits that if the government

had proven that cash for gas transactions

occurred with Graves's knowledge after this

notification, then a rational jury could have

found him guilty of fraud. That was, in fact,

the government's theory of fraud; it explained

in summation that “after GMAC said to stop

it,” “to submit the paperwork knowing it was

fraudulent, was fraud.” 

Graves's argument is that there was no

evidence that he approved cash for gas

transactions after he learned that such

financing was unacceptable to GMAC. The

government never proved the date of Jeffers's

admonition about the impropriety of cash for

gas, and the jury, Graves argues, thus could

not have found beyond a reasonable doubt that

any of the transactions occurred after Graves

had knowledge that they were fraudulent.

Despite the absence of evidence that

Jeffers's statement pre-dated the cash for gas

transactions, a rational juror could have

concluded that Graves knew the charged cash

for gas deals i nvolved material

misrepresentations and were thus fraudulent.

A rational jury could assume that any astute

businessman would know that (1) a financing

institution that requires a down payment

before extending credit is attempting to ensure

that the debtor has an equity interest in the

purchased good and will thus be “hurt” in

some way if the good is repossessed, and (2)

the financing institution would be lesslikely to

extend credit if the down payment was really

a “loan” from another entity (in this case, from

the dealership). 

The jury may thus have simply disbelieved

Graves's claim that he did not know cash for

gas was dishonest. Indeed, Graves gave the

jury a reason to doubt his candor toward

GMAC with respect to the cash for gas

transactions; he admits that even after he

learned from Jeffers that cash for gas was

fraudulent, general manager Anderson

 

9 Graves points to one other piece of

evidence that, he says, shows that the verdict is

unsound. He notes that every employee of SGC

who bought a car at the dealershipSSincluding

Shelton, who was the centerpiece of the

government's effort to prove that Graves violated

the law intentionallySSpaid the overcharge well

after Graves ordered Newton to discontinue it.

Graves asserts that Shelton, who, on the

government's evidence, knew better, would not

have allowed herself to be overcharged, and the

fact thatshe did accept an overcharge indicatesthat

she (and thus Graves, as Shelton was allegedly the

source of his knowledge) did not know that the

license fee was still being overcharged. 

This argument is unpersuasive. A rational jury

could have concluded that Shelton allowed herself

to be overcharged so as not to draw attention to the

practice, or perhaps because she had gotten a good

deal from the dealership and did not want to be too

demanding about small fees. Her willingness to

pay the overcharge does not compel the conclusion

that she (and thus Graves) did not know of the

overcharge.
7

continued to conduct such transactions, and

when Graves learned that Anderson had done

so, Graves neither undid the deals nor advised

GMAC of what Anderson had done. Thus,

there was direct evidence that Graves,

knowing a loan had been fraudulently induced,

withheld material information.

Given that (1) any astute businessman

would know cash for gas was wrong, and

(2) the evidence showed Graves's dishonesty

and lack of candor on particular cash-for-gas

transactions that he undoubtedly knew to be

fraudulent, the jury could have rationally

concluded, beyond a reasonable doubt, that

Graves knew cash for gas financing was

generally fraudulent. Hence, we affirm his

fraud convictions on counts stemming from

cash-for-gas financing.

C.

Each money laundering count on which

Graves was indicted was charged under

18 U.S.C. § 1956(a)(1)(A)(i), which reads, in

part:

(A) Whoever, knowing that the

property involved in a financial

transaction represents the proceeds of

some form of unlawful activity,

conducts or attempts to conduct such a

financial transaction which in fact

involves the proceeds of specified

unlawful activity

(i) with the intent to promote

the carrying on of specified

unlawful activity; . . . .10

To obt ain a conviction under

§ 1956(a)(1)(A)(i), the government must

prove beyond a reasonable doubt “[t]hat the

defendant (1) conducted or attempted to

conduct a financial transaction, (2) which the

defendant knew involved the proceeds of

unlawful activity, (3) with the intent to

promote or further unlawful activity.” United

States v. Cavalier, 17 F.3d 90, 92 (5th Cir.

1994) (citations and internal quotations

omitted). Graves asserts that there was

insufficient evidence to establish that the

charged money laundering transactions were

intended to promote any fraud committed at

SGC.11 We agree. 

 

10 Subsequently, the money laundering

statute defines “specified unlawful activity” to

include mail and wire fraud. See 18 U.S.C.

§§ 1956(c)(7)(A), 1961(1).

 

11 The money laundering statute

proscribes, in separate provisions, “promotion” and

“concealment” transactions. All the money

laundering counts against Graves charged himwith

violating § 1956(a)(1)(A)(i), which proscribes the

(continued...)
8

The transactions the indictment charged as

money laundering consisted of expenditures,

paid by checks written by SGC, that allegedly

promoted the fraud.12 Graves contendsthat

there was no evidence that the payment of

those checks was intended to promote any

fraud at SGC; the checks were simply

legitimate business expenses of the dealership.

Indeed, a review of the checks indicates that

they were for “above board” expenses.13

Graves argues that such expenditures are not

the sort of crime-promoting transactions

criminalized by § 1956(a)(1)(A)(i), for the

promotion element requires some identifiable

and affirmative advancement of the specified

criminal activity. In support of this claim, he

points to a number of cases involving

“promotion” money laundering in which the

court highlighted how the expenditures

explicitly furthered specified unlawful

activity.14 He then contrasts those cases to the

case at hand, in which the nexus between the

charged expenditures and any fraud activity is

(...continued)

use of criminally derived funds “with the intent to

promote” specified unlawful

activities. Graves was not charged with

undertaking transactions aimed at “concealing”

criminally derived funds, which is a violation of

§ 1956(a)(1)(B). 

 

12 The government, in selecting financial

transactions to fulfill the actus reus requirement of

the money laundering charges, picked benign

business expendituresSSpurchases of goods and

services

necessary to maintain SGC's legitimate business

operations. It did not have to do so. Courts have

held that a promotion money laundering offense

may occur when a defendant receives and deposits

criminally derived funds, in which case the deposit

of the funds is the transaction intended to promote

the specified unlawful activity. See, e.g., United

States v. Montoya, 945 F.2d 1068, 1076 (9th Cir.

1991). But the government chose not to indict

Graves for depositing the proceeds of fraud.

Instead, it made a strategic decision to focus on

SGC's spending transactions (i.e., the checks the

dealership wrote), not on SGC's depositing of

funds, perhaps because “receipt and deposit”

money laundering prosecutions are disfavored. 

Such prosecutions have been criticized because

the harm of the money laundering transaction (i.e.,

the deposit) is not significantly greater than that of

the underlying offense. See REPORT FOR THE

SENATE AND HOUSE JUDICIARY COMMITTEE ON

THECHARGINGANDPLEAPRACTICES OFFEDERAL

PROSECUTORSWITH RESPECT TO THE OFFENSE OF

MONEY LAUNDERING 8-9 (1996)(report issued by

the Department of Justice pursuant to Pub.

L. 104-38, 109 Stat. 334 (1995)). Indeed, the

Department of Justice issued a Blue Sheet to

chapter 9-105.000 of the U.S. Attorney's Manual

requiring consultation by a U.S. Attorney's Office

with the Department before a receipt and deposit

case may be prosecuted. Id. at 13-14. See also

United States v. Woods, 159 F.3d 1132, 1135 (8th

Cir. 1998) (quoting 1996 DOJ Report to the effect

that money laundering statutes “should not be used

in cases where the money laundering activity is

(continued...)

(...continued)

minimal or incidental to the underlying crime . . .”).

Having chosen to prosecute Graves for spending

(not merely depositing) dirty money, the

government was required to show that the

expenditures were conducted with an “intent to

promote” SGC's fraudulent activity.

 

13 The allegedly laundered funds paid for

(1) parts, paints, and materials; (2) the floor plan,

carsthat had been traded in, floor plan interest, and

a charge back; (3) software support and office

supplies; (4) conversions; (5) used cars;

(6) disposal of waste oil and used oil filters;

(7) t-shirts, caps, coffee mugs; (8) yearbook

advertisements; (9) a computer system lease; (10)

advertising representation; (11) Graves's travel

expenses; (12) extended warranties on used

automobiles; (13) glass replacement; (14)

automobile association membership fees; (15)

photocopier supplies; and (16) a health plan. 

 

14 See, e.g., United States v. Nattier, 127

F.3d 655 (8th Cir. 1997), cert. denied, 523 U.S.

1065 (1998) (checks paid for real estate that

promoted the specified embezzlement scheme);

United States v. Johnson, 971 F.2d 562 (10th Cir.

1992) (checks paid for office where defendant

conducted the fraud and luxury car that defendant

used to impress investors); United States v.

Hildebrand, 152 F.3d 756, 762-63 (8th Cir.) (in

solicitation fraud, checks used to pay solicitors),

cert. denied, 119 S. Ct. 575 (1998).
9

non-existent or weak.

Graves also points to United States v.

Jackson, 935 F.2d 832 (7th Cir. 1991), in

which the defendant, who was both a preacher

and drug dealer, deposited drug proceeds into

his church's checking account. From the

church account, he wrote checks to pay for

beepers, mobile phones, and rent; he also

wrote some checks for cash. See id. at 841.

The defendant's drug runners used the beepers

to communicate with each other, and the court

therefore held that the beeper purchases were

intended to promote the specified unlawful

conduct. Id. The checks for mobile phones,

rent, and cash, however, did not promote the

criminal activity and thus did not constitute

money laundering. Id. The court explained:

The government did not prove that the

cellular phones played the same roleSSor

indeed any roleSSin Davis' drug

operations as the beepers. Likewise the

rental payments and the checks written

to cash; certainly these expenditures

maintained Davis' lifestyle, but more

than this is needed to establish that they

promoted his drug activities.

Id. 

Graves argues that the expenditures

charged in the money laundering counts of the

indictment are analogous to the Jackson

defendant's expenditures onmobilephones and

rent: They were intended to support the

dealership's legitimate business activities and

evince no intent to promote fraud.

The government insists that the

expenditures did promote fraud. Its theory,

which the district court accepted, is that the

transactions charged in the indictment

promoted the ongoing and future criminal

activity at SGC, despite the fact that theywere

expenditures on the basic operations of the car

dealership, because the operation of the

dealership was one grand scheme to defraud.

In other words, any legitimate operating

expense that permitted SGC to stay in business

and maintain or increase its customer base

would also be an expenditure intended to

promote fraud, because it would ensure a

steady supply of potential victims. 

The charged transactions, the government

asserts, are akin to those in United States v.

Coscarelli, 105 F.3d 984 (5th Cir.), vacated,

111 F.3d 376 (5th Cir. 1997), reinstated,

149 F.3d 342 (5th Cir. 1998), a case involving

telemarketing fraud. There, the defendant

used the proceeds of his illegal activity to pay

his co-conspirators and the operating expenses

of their scheme. Id. at 990. The government

maintains that the instant case is similar;

Graves used the funds from the fraud at SGC

to pay SGC's operating expenses, enabling the

dealership to defraud more customers. The

government also relies on United States v.

Leonard, 61 F.3d 1181, 1186 (5th Cir. 1995),

in which the defendant telemarketer used his

ill-gotten gains to pay his callers, purchase

leads, and pay telephone billsso he could scam

more people.15

Despite the government's creative

argument, we agree with Graves that there is

insufficient evidence that the charged

expenditures were financial transactions

conducted “with the intent to promote the

carrying on of specified unlawful activity.”

The problem with the government's position is

that it ignores the intent aspect of the

promotion element. Section 1956(a)(1)(A)(i)

is not satisfied by a showing that a financial

transaction involving the proceeds ofspecified

unlawfulactivitymerelypromoted the carrying

 

15 The government also argues that

Graves's reliance on Jackson is misplaced. It

maintains that Jackson is distinguishable because

the legitimate expenditures found not to have been

conducted with the intent to promote unlawful

activity were personal expenditures. Here, by

contrast, the charged expenditures were not for

personal items. The government's only support for

this “personal versus non-personal” distinction is

the Cavalier court's offhand observation that

Jackson was “a case of a person simply using

illegally obtained funds to purchase personal

items.” See 17 F.3d at 93. The Cavalier court did

not establish a principle that all “non-personal”

expenditures made with dirty money fall within the

ambit of § 1956(a)(1)(A)(i).
10

on of unlawful activity. The provision has a

specific intent element: The government must

show that the “dirty money” transaction was

conducted “with the intent to promote the

carrying on of specified unlawful activity.” 

This element is not satisfied by mere

evidence of promotion, or even knowing

promotion, but requires evidence of

intentional promotion. By contrast, §

1956(a)(1)(B), the money laundering provision

applicable to “concealment” transactions,

requires onlyknowing concealment, indicating

that Congress intended a stringent mens rea

requirement for promotion money laundering.

Thus, absent some evidence that a dirtymoney

transaction that in fact promoted specified

unlawful activity was conducted with the

intent to promote such activity, a defendant

may not be convicted of promotion money

laundering under § 1956(a)(1)(A)(i). 

This does not mean that there must always

be direct evidence, such as a statement by the

defendant, of an intent to promote specified

unlawful activity. In many cases, the intent to

promote criminal activitymay be inferred from

the particular type of transaction. For

example, an intent to promote drug trafficking

activities could be inferred from the Jackson

defendant's purchase of beepers, because

beepers were not necessary to the defendant's

legitimate business operations and played an

important role in his drug trafficking scheme.

In the case at hand, had the government

produced evidence of, say, payments for

postage for mailing fraudulent warranty

claims, such payments might have provided

evidence of an intent to promote fraud. Mere

evidence of legitimate business expenditures

that were necessary to support SGC's nonfraudulent operations, however, was not

enough to establish an intent to promote fraud

at SGC, even though the expenditures may in

fact have promoted SGC'sfraudulent activities

by increasing the number of potential fraud

victims.

We have previouslystressed the importance

of not turning the “money laundering statute

into a 'money spending statute.'” See Leonard,

61 F.3d 1181, 1185 n.2 (quoting United States

v. Sanders, 928 F.2d 940, 946 (10th Cir.

1991)). Strictly adhering to the specific intent

requirement of the promotion element of

§ 1956(a)(1)(A)(i) helps ensure that the money
11

laundering statute will punish conduct that is

really distinct from the underlying specified

unlawful activity and will not simply provide

overzealous prosecutors with a means of

imposing additional criminal liability any time

a defendant makes benign expenditures with

funds derived from unlawful acts. 

In a separate money laundering statute,

18 U.S.C. § 1957(a), Congress did criminalize

the mere spending of “criminally derived

property that is of a value greater than

$10,000” with knowledge of the unlawful

source.16 The fact that Congress established a

$10,000 per transaction threshold for

convictions for simply spending dirty money

further supports our decision to read

§ 1956(a)(1)(A)(i) to require either direct

proof that the charged transaction was

intended to promote specified unlawful activity

or proof of a type of transaction (such as the

Jackson defendant's purchase of beepers) that,

on itsface, indicates an intent to promote such

activity. 

Absent such proof, § 1956(a)(1)(A)(i) does

not permit conviction of a defendant who, like

Graves, deposits proceeds of some relatively

minor fraudulent transactions into the

operating account of an otherwise legitimate

business enterprise and then writes checks out

of that account for general business purposes.

Accordingly, we reverse Graves's money

laundering convictions. 

D.

Because the court determined Graves's

sentence according to the sentencing

guidelines applicable to moneylaundering (not

fraud) offenses, our reversal of his money

laundering convictions requires that he be

resentenced. We therefore vacate his sentence

and remand for resentencing under the

guidelines applicable to fraud offenses. 

III.

Brown pleaded guilty to wire fraud

stemming from a fraudulent warranty claim.

In sentencing Brown, the court increased his

offense level by six, pursuant to U.S.S.G.

§ 2F1.1(b)(1)(C), to account for a fraud loss

greater than $70,000 but less than $120,000;

the court determined that the loss totaled

$75,104.18. Brown was sentenced to eighteen

months' imprisonment and ordered to make

restitution totaling $75,104.18. 

After the sentencing, the government filed

a “Motion to Correct Judgment and

Commitment Order” that advised the court

that the “figure ordered for restitution to the

victiminsurance companies and the individuals

is incorrect. The correct amount is lower,

$67,938.72.” The district court granted the

motion. Brown argues that lowering the

amount of restitution owed the defrauded

insurance companies and individuals moves

him out ofthe $70,000 to $120,000 bracket of

U.S.S.G. § 2F1.1(b)(1) and into the $40,000

to $70,000 bracket, for which only a five level

increase is required.

Brown's argument is meritless. The

$75,104.18 loss the district court found

attributable to his conduct included two

components: loss to insurance companies and

individuals, whichtotaled $69,548.43, and loss

to GeneralMotors Corporation, which totaled

$5,555.75. The amendment to Brown's

judgment affected only the amount he owed in

restitution to “20 victim insurance companies

and 15 individuals.” There was no adjustment

to the amount due General Motors as

restitution. Summing the lower figure,

$67,938.72, and the amount owed General

Motors, $5,555.75, yields a totalrestitution of

$73,494.47SSa sum that still warrants a sixlevel increase under § 2F1.1(b)(1).

Accordingly, the sentence is correct, despite

the amended amount of restitution. 

For the foregoing reasons, Graves's fraud

convictions are AFFIRMED, and his money

laundering convictions are REVERSED.

Graves's sentence is VACATED and

REMANDED for resentencing according to

the sentencing guidelines applicable to fraud

 

16 See D. RandallJohnson, The Criminally

Derived Property Statute: Constitutional and

Interpretive Issues Raised by 18 U.S.C. § 1957,

34 WM. & MARY L. REV. 1291, 1302 (1993)

(discussing Sanders and noting that “[u]nlike

section 1956, section 1957 is indeed a 'money

spending statute' . . . .”).
12

offenses. Brown's sentence is AFFIRMED.