Opinion ID: 3011156
Heading Depth: 2
Heading Rank: 2

Heading: Money Laundering -- Facts and Legal Background

Text: Because the facts of this case are somewhat complicated, we will briefly review those revolving around the alleged money laundering. The particular scheme in which the defendants participated was termed the Association. The Association organized a group of companies, all of which it controlled, into a daisy chain, for the purpose of embezzling the excise taxes on the sale of certain kinds of fuel. Typically, the companies would sell oil down the chain in a series of paper transactions, through what was referred to as the burn company. Eventually, the company at the bottom of the chain, the street company, would sell the oil to a legitimate retailer, i.e., a particular gas station, for a price slightly below the tax-included market price. This retailer would pay money to the street company, which would send money back up the chain in a series of wire transfers.7 This scheme was illegal because it was set up as a means to avoid excise taxes. The daisy chain was established so that the burn company was the one legally responsible for collecting the excise taxes on the fuel sales and transmitting them to the government. In the Association's scheme, the burn company would collect the taxes for a time, and then disappear without ever paying the taxes to the government. As a result, the Association could keep the money representing the excise taxes without the government being able to determine where it had gone. The indictment charged, and the jury found, that this conduct constituted both wire fraud and money laundering. It charged the first wire transfer, from the street company to the next company above it in the chain, as wire fraud. It charged the second and subsequent wire transfers as money laundering. _________________________________________________________________ 7. The money was not always wired back up the chain via each individual company. Occasionally, a wire transfer would skip some companies. In addition, the wire transfers apparently almost always skipped the burn company. As the discussion below demonstrates, however, these details need not concern us, because it is sufficient that the money was wired at least once. 9 The money laundering statute, 18 U.S.C. S 1956(a)(1), provides: 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 -- (A)(i) with the intent to promote the carrying on of specified unlawful activity; 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 specified unlawful activity . . . [is guilty of money laundering]. The statute, in pertinent part, sets forth four elements of the crime: (1) an actual or attempted financial transaction (2) involving the proceeds of specified unlawful activity; (3) knowledge that the transaction involves the proceeds of some unlawful activity; and (4) either (a) an intent to promote the carrying on of specified unlawful activity, or (b) knowledge that the transaction is designed to promote the underlying specified unlawful activity or to conceal or disguise the nature [or] the source . . . of the proceeds of specified unlawful activity. 18 U.S.C. S 1956(a)(1). Morelli does not contest the first and third elements. He also does not contest the intent element of money laundering.8 The term specified unlawful activity is defined, in pertinent part, by reference to those acts that constitute racketeering acts under RICO. See 18 U.S.C. S 1956(c)(7)(A) ([T]he term `specified unlawful activity' means any act or activity constituting an offense listed in section 1961(1) of this title . . . .). UnderS 1961(1), wire _________________________________________________________________ 8. He does complain, however, that it is unfair for the government to charge both promotion and concealment with respect to the same transactions. See United States v. Paramo, 998 F.2d 1212, 1218 (3d Cir. 1993) (noting that another court has observed thatconduct punishable [as concealment] typically would not also be punishable [as promotion, and vice versa]). We have noted, however, that these two motivations are not necessarily inconsistent, as a finding of guilt [for concealment] is not a defense to a prosecution [for promotion]. 998 F.2d at 1218 n.3. 10 fraud is a specified unlawful activity, but tax fraud simpliciter is not. See 18 U.S.C. S 1961(1)(B). We have interpreted the money laundering statute several times. See, e.g., United States v. Conley (Conley I), 37 F.3d 970 (3d Cir. 1994); United States v. Paramo, 998 F.2d 1212 (3d Cir. 1993). Paramo focused solely on the fourth element of the statute -- whether the defendant's actions constituted sufficient evidence of the appropriate intent. See 998 F.2d at 1216-18. In Conley I, we focused both on this intent element and on the second element -- whether the funds at issue were the proceeds of a specified unlawful activity. 37 F.3d at 977-81. Whether certain money constitutes proceeds of specified unlawful activity is the sole contested question presented in this case. In Conley I, we held that [a]lthough the money laundering statute does not define when money becomes `proceeds,' it is obvious to us that proceeds are derived from an already completed offense, or a completed phase of an ongoing offense . . . . 37 F.3d at 980. This is true even if the money laundering transaction can also be considered a part of the continuing specified unlawful activity. In Conley I, the defendant was charged with conspiracy to conduct an illegal gambling business and to commit money laundering. The conspiracy revolved around the distribution and use of illegal video poker machines. The money laundering aspect of the scheme derived from the retrieval and distribution of the money deposited in the machines. We concluded that, since the distribution and use of the machines alone constituted an illegal gambling business, the specified unlawful activity had been completed at the time the conspiracy's activities resulted in proceeds. Accordingly, the money retrieved from the machines was proceeds of the illegal gambling business, even though the retrieval of the money was also chargeable as part of the crime of conducting the business. See 37 F.3d at 980. This case forces us to decide the question we partially (and tangentially) addressed in Conley I: whether the funds involved in the alleged money laundering transaction were proceeds of specified unlawful activity. Morelli makes two arguments. First, he contends that the money did not become proceeds until after it passed through the burn 11 company. He alleges that this is significant because the government offered no evidence as to how much money was wired after it passed through the burn company, thus failing to prove that money laundering occurred. In the alternative, he claims that, if the money became proceeds before it passed through the burn company, it did so as soon as it came into the Association's control. Thus, it cannot have been the proceeds of wire fraud, since the wire fraud was predicated on the money being wired after it entered the control of the Association. We address these points in turn.