## 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.

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

_______________

No. 98-30584

_______________



### 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

appea ls his money laundering convictions, a

number of his fraud

convictions, and his sentence. Gregory Brown

appeals his sentence. We affirm Graves's fraud

convictions, reve rse his money laundering

convictions, and vacate and remand his sentence. We affirm Brown's sentence.

I.

The fraud and money laundering charges of2

which Graves was convicted, and Brown's

wire fraud conviction, relate t o business

dealings conduct ed 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

allege d six distinct types of fraud, 1 and for

each f raud al l egation there was a

correspo nding money laundering charge.

Graves was convicted on cou nt s stemming

from three o f t he six types of fraud and was

convicted o f 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 am ount

author ized by state law for document and

license/title fees. SGC charged purchasers $59

in document fees, which is $9 m ore than

Louisiana law permits; automobile dealerships

are allowed to charge only $35 for processing

paperwork and $15 for a notary fee. See L A

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

fees, which varied from vehicle to vehicle,

SGC overcharge d an average of $50 per

automobile listed in the indictment. 2 The eighteen instances of overcharging were

charged against Graves as mail frauds, because

the Louisiana Departme nt of Motor Vehicles

mailed the automobile titles. Graves was also

charged with money laundering the proc eeds

of the excessive fees. The jury found Graves

guilty on some of the counts and not guilty on

others.

Graves w as convicted of fraud based on

SG C'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 requi

red by the financing

institution 

### SS

under the guise of giving the

buyer some “cash for gas” 

### SS and 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

h aving some genuine equity interest in t h e

automobile. The counts of which Graves was

convicted we re charged as mail frauds,

because SGC mailed loan documentatio n to

G eneral Motors Acceptance Corporati on (“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 invol ved t he 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 auto mobile

insurance c ompanies for new parts but then

performing repairs using used parts and falsely

charging the price differen ce as labor. The

“scooping reba tes” 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 sc ooping rebates

frauds, but the district court found that such frauds

h ad been established by a preponderance of the

evidence a nd considered them in sentencing

Graves.

2 The state charged $18.50 for the title,

(continued...) (...continued)

$5.50 for handling, $5.00 to re cord a lien or

mortgage, and an amount s p ecifically for the

license that varied, according to a Department of

Motor Vehicles table, with the selling price of the

vehicle. T he total was the “license fee.” SGC

typically collected $102 per vehicle a s the license

fee. This resulted in an average overcharge of $50

per automobile listed in the indictment.

3 One instance of “cash fo r gas” was

char ged as bank fraud, for the lender in that

instance was a bank. The jury acquitted Graves of

that charge and th e corresponding money

laundering count.3

the sale price, which the cr edit uni on

ma i ntained 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 corres p onding amount. As with

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

fraudulently inducing advances of cr edit, f or

the credit union believed that the 25% down

payment represented genuine purchaser equity

in the purc hased 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 from the bank frauds. Graves does not

app eal these bank fraud convictions, but he

does appeal the corre spo nding money

laundering convictions.

The government charged Brown and

Graves with filing fraudulent warranty claims.

The indictment alleged ten instances in which

SGC recovered warranty money from General

Motors for repairs to vehi cles when, in fact,

the repaired vehicles w ere not covered by

warranties. The government charged the

fraudulent warranties as wire frauds, bec ause

General Motors credited the cost of repairs via

computer. The jury found Graves not guilty of

the wire fraud and cor r esponding money laundering charges. Brown, however, pleaded

guilty to one count of wire fraud ba s ed on submission of a fraudulent warranty claim.

In sentencing Graves, the court declined to

group his fraud and money launde ring

convictions. Instead, it sentenced him so lely

on the basis of his money laundering offenses,

which carry a tougher penalty than do fraud

offenses. C

ompare 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, t he

g uidelines range was 97 to 121 months. The

court departed downward by only one month,

sentencing Graves to 96 months' incarceration.

The court based the downward depar ture 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

o f imprisonment and

r estitution 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. S ee U.S.S.G.

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

the court granted the government’s “Motion to

Correct Judgment and Commitment Order”

asking the court to lower Brown's re quired

restitution to victim insurance companies and

individuals to $67,938.72. Brown contends

that this “lower l o ss figure” calls for an

increase of his base offense level of only five,

n o t 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 foll owing

his release from prison, and he was ordered to pay

an assessment to the crime victim fund.4

Graves appea ls his convictions on fraud

counts stemming from excessive document and

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

also appe als all his money laundering

convictions and his sentence. Brown appeals

only his sen t ence, asserting that it should be

reduced to refle ct 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 suffic i ency of the evidence, we view the

evi dence in the light most favorable to the

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

rational juror could have fo und each element

of the off

e nse beyond a reasonable doubt.

United States v. Giraldi

, 86 F.3d 1368, 1371

(5th Cir. 1996). Our review is d e novo

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

(5th Cir. 1993). We co nsider “the

countervailing evidence as well as the evidence

that supports the verdict” in a s sessing

sufficiency of the evidence. G iraldi

, 86 F.3d

at 1371. If “the evidence viewed in the light

most favorable to the prosecution gives equal

or nearl y equal circumstantial support to a

theory of g uilt 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 convi c tions of fraud stemming from

e xcessive fees and “cash for gas.” There is,

howeve r, insufficient evidence to sustain his

money laundering convictions.

A.

The alleged offenses in vo lving 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

p rove beyond a reasonable doubt “(1) the

existe nce o f a scheme to defraud; (2) the use

of the mails to execute the scheme; and (3) the

specific intent on the part of the defendant[] to

commit fraud.” U

nited Sta tes v. Salvatore

, 110 F.3d 1131, 1136 (5th C ir.), c ert. 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 arg ues,

because he did not know of the overcharges.

The jury, properly instructed, 5 concluded

otherwise, and there was sufficient evidence to support its conclusion.

1.

SGC overch arged $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

Association newsletter that the $59 charge was too high.

To maintain his claim o f 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 hi gh

and that he had discussed that fact with Graves

before Graves's discovery of the art icle

indica t ing that the fee was too high. Graves

asserts that the jury could not ra t io nally 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 “k

nowingly,” as that term

has been used

fr om time to time in these

instructi ons, means that the act was done

voluntarily and intentionally, not because of

mistake or accident.

You may find that a defendan t had

knowledge

of a fact if you find that the

d efendant 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 inferr ed if

the defendant deliberately blinded himself to the

existence of a fact.5

According to Graves, Smith, who was fired for

inadequacies in his paperw o rk, obviously did

not know what he was talking about, because

he testified counterfactually that the dealership

charged $80-100 as a document fee. When

the government tried to conform his testimony

to the uniformly charged $59 fee, the court

sustained Graves's a t t orney's objection to

“leading.”

Despite Graves 's protests, Sm ith's

testimony provided a suff icient evidentiary

basis for the jury's conclusion that Graves

knew of the document fee overcharge. While

Smith's testimony may not have been the most

c ompelling, the jury was not irrational in

crediting it over Graves's. It is certainly

possible that Smith, who was finance manager

for only four months, could have forgotten the

exact figure charged as a document fee but

remembered that the fee charged was too high

and th a t he had discussed that fact with

Graves. The jury chose to believe Smith, and

its choice was not irrational. 6

2.

Graves contends that the evidence does not

support a conclusion beyon d a reasonable

doubt that h e 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 overch arges were occurring, for there was evidence that Teresa

Shelton, Graves's office manager, to ld him at

that time that SGC was cha rging too hi gh a

fee. 7 Graves notes, however, that the evidence

shows that he imm

ediately ordered Newton,

his financial and insurance manager 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 testifi e d that he discussed

the excessive license fees with Graves on

several occasions and that Graves had told him

that som

e times SGC overcharged and

sometimes underc harged, 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 of the license/title fee

overcharges. The jury thus rationally could

6 See United States v. Guerrero

, 169 F.3d

933,

939 ( 5 th 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 In deed, the jury must have determined

that Graves did not know of the overcharges before

July 1994, because it acquitted him of those counts of mail fraud occurring before that date. 8 Graves unsuccessfully at tempts to

downplay this testimony. He asserts that

Anderson's testimony is unconvincing because (1)

the government offered no evidence as to the d a te

of the remark, which might hav e occurred before

July 1994, wh en Shelton first found out that

license/title fee overcharges were oc c urring; (2)

Shelton, who regularly attended the managers'

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

Anderson lost all credibi lity when he portrayed

Newton SS

the very person who refused to adhere to

Graves's order to lower the fee SS as complaining to Graves that the fee was too high.

None of these reasons requires discrediting

Anderson's testimony. First, the jury could

reasonably have co ncluded that Graves's alleged

remark to Anderson occurred after he learned that

overcharging was occurring, for the very subject

matter of the r emark 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 presenc e

, 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 an d refusing to take effective

steps to stop them or remedy them through

refunds, intended the frauds. Accordingly, we

affirm Graves's fraud convictions stem ming

from SGC's o vercharges of document and

license/title fees. 9

B.

Graves argues that 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

di sapproved of it. Cash for gas financing, he

asserts, is not obvio usly fraudulent.

Accordingly, the government could not have

established Graves's criminal liabilit y 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

fraud 

### SS i.e.

, that he specifically intended to

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

1136.

Graves admits that the government did offer proof th at he eventually knew cash for

gas was improper. It provided testimony from

Dave Jeffers, a GMAC official who told

Graves that “in our [GMAC's] judgment, [cash

for gas] is a misrepresentation of the contract.”

Graves further admits that if the government

had proven that ca sh for gas transactions

occurred with G raves'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 summati on that “after GMAC said to stop

it,” “to submit the paperwork knowing it was

fraudulent, was fraud.”

Grav es's argument is that there was no

evidence that he approved cash for gas

t r ansactions after he learned that such

financing was unacceptable to GMAC. The

government never proved the date of Jeffers's

ad mo nition about the impropriety of cash for

gas, and t he jury, Graves argues, thus could

not have found beyond a reasonable doubt that

a n y of the transactions occurred after Graves

had knowledge that they were fraudulent.

Despite the absence of evidence that

J effers's statement pre-dated the cash for gas

transaction s, a rational juror could have

concluded that Graves knew the charged cash

for gas deals i nvol ved m aterial

misrepresentations and w e re thus fraudulent.

A rational jury could assume t hat 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 a n equity interest in the

purchased go o d and will thus be “hurt” in

some way if the good i s repossessed, and (2)

the financing institution would be less likely 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 to w ard

GMAC with respect to the cash for gas transactions; he adm

i ts that even after he

learned from Jeffers that cash for gas was fraudulent, general m anager 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 dealership S S including

Shelton, who was the centerpiece of the

government ' s effort to prove that Graves violated

the law i ntentionally SS

paid the overcharge well

after Graves ordered Newton to discontinue it.

Graves asse

rts that Shelton, who, on the

government's evidence, knew better, would not

have allowed herself to be overcharged, and the

fact that she did accept an overcharge indicates that

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

d emanding 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 transact ions, and

when Graves learned that Anderson had done

so, Graves neither undid the deals nor advised

GMAC of what Anderson had done. Thus,

t here 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 ga s was wrong, and

(2) the evidence s ho wed Graves's dishonesty

and lack of cand o r on particular cash-for-gas

transactions that he undoubtedly knew to be

fraudulent, the jury could have rationally

concluded, beyond a reasonable dou bt, that

Graves knew cash f

o r gas financing was

generally fraudul ent . Hence, we affirm his

fraud conv ict ions 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 t hat the

pro pert y involved in a financial

transaction represents the proceeds of

some fo rm of unlawful activity,

conducts or attem pts to conduct such a

financ i al transaction which in fact

involves the proce eds of specified

unlawful activity

(i) with the intent to prom ote

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 d o ubt “[t]hat the

defendant (1) con ducted or attem pted to

conduct a financial transactio n

, (2) which the

defendant knew involved the proceeds of unlawful activity, (3) with the i n tent to

prom ote or further unlawful activity.” U nited

States v. Cavali er , 17 F.3d 90, 92 (5th Ci r. 1994) (citations and inter nal quotations

omitted). Graves asserts that there was

insufficient evidence to establ ish that the

charged money laundering transactions we r e

intend ed t o promote any fraud committed at

SGC. 11 We agree.

1 0 Subsequently, the money laundering

statute defines “specif

ied unlawful activity” to

in clude mail and wire fraud. S ee 18 U.S.C.

§§ 1956(c)(7)(A), 1961(1). 11 The money laundering statute

proscribes, in separ ate provisions, “promotion” and

“concealment” transac t ions. All the money

laundering counts against Graves charged him with

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

(continued...)8

The transactions the indictment charged as

m oney laundering consisted of expenditure s

, paid by checks written by SGC, that allegedly

prom oted the fraud. 12 Graves contendsthat there was no evidence that the payment of

those checks was intended to promote any

fraud at SGC; the chec k s were simply

legitimate business expenses of the dealership.

Indeed, a review of the checks indicates that

they were for “above boar d ” expenses. 13

Graves argues that such expenditures are not

the sort of crime-promoting transact ions

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

promotion element requir es some identifiable

and affirmative advancement of the specified

criminal activity. In support o f this claim, he

points to a number of cases i nvo lving

“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 n exus 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

u n dertaking 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 launde

r ing charges, picked benign

business expenditures SS

purchases 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. S ee

, 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 strat egic decision to focus on

SGC's spending transa ctions ( i .e.

, the checks the

dealership wr ote), 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. S ee R EPORT FOR THE

S ENATE AND H OUSE J UDICIARY C OMMITTEE ON

THE C HARGING AND P LEA P RACTICES OF F EDERAL

P ROSECUTORS WITH R ESPECT TO THE O FFENSE OF

M ONEY L AUNDERING 8-9 (1996) (report issued by

the Department of Justice pursu ant 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 M anual

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. S ee 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 f or spending

(not me r ely depositing) dirty money, the

government wa s 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,

cars that 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 wa ste oil and used oil filters;

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

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

advertising representation; (11) Grav es'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.

19 92) (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 po i nts 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 che cking account. From the

church account, he w rote checks to pay for

beepers, mo b ile 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 prom ote the sp e cified unlawful

conduct. I

d. The checks for mobile phones,

rent, and cash, however, did not prom ote the

criminal activity and thus did not consti t ute money laundering. Id. The court explained:

T he government did not prove tha t the

cellular phones played the same role 

### SS or

indeed any role 

### SS

in Davis' drug

operations as the beepers. Likewise the

rental payments and th e checks written

to cash; certainly these expenditures

maintained Davis' life s tyle, but more

than this is needed to establish that they

promoted his drug activities.

Id.

Graves argues th a t the expenditures

charged in the money laundering counts of the

indictment are analogous to the J ackson

defendant's expenditures on mo bile phones and

rent: T hey were intended to support the

dealership's legitimate business activi t ies and

evince no intent to promote fraud.

The governmen t insists that the

expenditures did prom ote fraud. Its theory

, which the district court accepted, i s that the

t ransactions charged in the indictment

prom oted the ongoing and f u ture criminal

activity at SGC, despite the fact that they were expenditures on the basic operations of the car dealership, beca use the operation of the

dealership was one grand scheme to defraud.

In other words, any legitimate opera ting

expense that permitted SGC to stay in business

and maintain or increase its customer base

would also be an expenditure intended to promot e fraud, because it would ensure a

steady supply of potential victims.

The charged transactions, the govern ment

a sserts, are akin to those in United States v.

C oscarelli , 105 F.3d 984 (5th Cir.), v acated

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

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

telemarketing fraud. There, t he 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

maintai ns t hat 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

governme nt also relies on U nited States v.

Leonard

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

in which the defendant telemarkete r used his

ill-gotten gains to pay hi s callers, purchase

leads, and pay telephone bills so he could scam more people. 15

Despite the governm ent's creati ve

argument, we agree with Gr aves that there is

insufficie nt evidence that the charged

expenditures were financia l transactions

co nduct ed “with the intent to promote the

carryi ng 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 invo lving the proceeds of specified

unlawful activity merely prom oted the carrying

1 5 The government also argue s that

Grave s '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 unla w ful

activ ity were personal expenditures. Here, by

contrast, the ch a r ged expenditures were not for

personal items. The government's only support for

this “personal ver sus non-personal” distinction is

t he C avalier court's offhand observation that

Jac kson was “a case of a person simply using

ill egally obtained funds to purchase personal

items.” S ee 17 F.3d at 93. The C avalier court did

not establish a principle tha t 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 prom ote 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, §

1 956(a)(1)(B), the money laundering provision

applicable to “concealment” transactions,

requires only knowing concealment, indicating

that Congress intended a st ringent m ens rea requirement for promotion money laundering.

Thus, absent some evidence that a dirty money

t ransaction that in fact promoted specified

unlawf u l activity was conducted with the

inte nt t o 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 prom ote speci fied

unlawful activity. In many cases, the intent to

prom ote criminal activity may be inferred from

the particular type of tra n saction. For

example, an intent to prom ote drug trafficking

activi t ies could be inferred from the J ackson

defendant's purc hase 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

pro duced evidence of, say, payments for

postage fo r mailing fraudulent warranty

claims, such payments might have provided

evidence of an intent to prom ote fraud. Mere

evidence of legitimate business expenditures

t hat were necessary to support SGC's nonfraudulent operations, how ever, was not enough to establish an intent to prom ote fraud

at SGC, even though the expenditures may in

fact have prom oted SGC's fraudulent activities

by increasing the number of potential fraud

victims.

We have previously str e ssed the importance

of not turning the “ m oney laundering statute

into a 'money spending statute.'” S ee Leonard

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

v. San d ers

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

1991)). Strictly adhering to the specific intent

requirement o f the promotion element of

§ 1956(a)(1)(A)(i) helps ensure that the money11

laundering statute will punish conduct t hat is

really dist inct from the underlying specified

unlawful activit y and will not simply provide

overze a lous prosecutors with a means of

imposing additional criminal liabilit y any t ime

a de fendant makes benign expenditures with

funds derived from unlawful acts.

In a separate money la undering statute,

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

the mere spendin g o f “criminally derived

property that is of a valu e greater than

$10,000” with knowledge of t he unlawful

source. 16 The fact that Congress established a

$10, 000 per transaction threshold for

conviction s for simply spending dirty money

further supports our decision to read

§ 1956(a)(1)(A)(i) to re quire either direct

proof that the c harged transaction was

intended to prom ote specified unlaw ful act ivit y

or proof of a type of tran saction (such as the

Jackson defendant's purchase of beepers) that,

on its face, indicates an intent to prom ote 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 frau dulent transactions into the

operating ac co unt 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 accordi

ng to the sentencing

guidelines applicable to money laundering (not

fraud) offenses, o ur reversal of his money

laundering convictions r equires that he be

resentenced. We therefore vacate his sentence

and remand for resente ncing under the

guidelines applicable to fraud offenses. III.

Br o wn pleaded guilty to wire fraud

stemming from a fraudu l ent warranty claim.

In sentencing Brown, the court i ncreased 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 total ed

$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 Judgm ent and

Commitment Order” that adv ised the court

that the “figure ordered for restitutio n to the

victim insurance 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 indivi d uals moves

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

U.S.S.G. § 2F1.1(b)(1) and into the $40,0 0 0

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

increase is required.

Brown's argument is meritl ess. The

$75,104.18 loss the district court found

attributable to his conduct included two

components: loss to insurance companies and

individuals, which total ed $69,548.43, a n d loss

to General Motors Corporati on, which total ed

$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,

$67,938.7 2

, and the amount owed General

Motors, $5,555.75, yields a total restitution of

$73,494.47 

### SS

a sum that still warrants a sixl evel increase under § 2F1.1(b)(1).

Accordingly , t he sentence is correct, despite

the amended amount of restitution.

For the f o regoing reasons, Graves's fraud

convictions are AFF IRMED, and his money

laundering convict i ons are REVERSED.

Graves's sentence is VACATED and

REMANDED for resentencing according to

the se nt encing guidelines applicable to fraud 1 6 See D. Randall Johnson, The Criminally

Derived P roperty Statute: Constitutional and

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

, 34 W M

. & M ARY L. R EV

. 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.