Opinion ID: 2523830
Heading Depth: 1
Heading Rank: 4

Heading: Santos

Text: ¶ 17 A federal court's construction of a federal statute is not binding on Illinois courts in construing a similar state statute. See Aluma Systems, Inc. v. Frederick Quinn Corp., 206 Ill.App.3d 828, 856, 151 Ill.Dec. 618, 564 N.E.2d 1280 (1990). We will nevertheless consider Santos at length because the plurality and dissenting opinions contain thorough and reasoned arguments for the profits and receipts definitions respectively. ¶ 18 The Supreme Court granted certiorari in Santos to resolve a conflict in the federal circuit courts over how the term proceeds should be defined in the federal money laundering statute (18 U.S.C. § 1956(a)(1) (2006)). In United States v. Scialabba, 282 F.3d 475, 476-78 (7th Cir. 2002), the Seventh Circuit held that proceeds in the federal money laundering statute should be defined as net income rather than gross income. Other circuits had previously used a gross income definition, without wading into the gross income versus net income dispute. See United States v. Silvestri, 409 F.3d 1311, 1332-33 (11th Cir.2005); United States v. Akintobi, 159 F.3d 401, 403-04 (9th Cir. 1998); United States v. Haun, 90 F.3d 1096, 1101 (6th Cir.1996). After Scialabba rejected this approach in favor of a net income approach, the other circuits to consider the question rejected the Scialabba approach. See United States v. Grasso, 381 F.3d 160, 167-69 (3d Cir.2004) (arguing that Scialabba reached an incorrect result and that proceeds means simply gross receipts from illegal activity), vacated on other grounds, 544 U.S. 945, 125 S.Ct. 1696, 161 L.Ed.2d 518 (2005); United States v. Huber, 404 F.3d 1047, 1058 (8th Cir.2005) (following Grasso ); United States v. Iacaboni, 363 F.3d 1, 4 (1st Cir. 2004). In Santos, the Seventh Circuit acknowledged that Scialabba had been rejected by the other circuits to consider the question, but elected to adhere to its position. Santos, 461 F.3d at 891-94. The court invited Congress or the Supreme Court to definitively resolve the debate. Santos, 461 F.3d at 894. ¶ 19 The Supreme Court accepted the invitation, but issued a fractured decision that did not resolve the debate one way or the other. Four justices argued that proceeds should be defined as profits ( Santos, 553 U.S. at 509-24, 128 S.Ct. 2020); four argued that it should be defined as gross receipts ( Id. at 531-49, 128 S.Ct. 2020 (Alito, J., dissenting, joined by Roberts, C.J., Kennedy and Breyer, JJ.)); and one believed that whether it means gross receipts or profits depends on the nature of the underlying offense ( Id. at 524-28, 128 S.Ct. 2020 (Stevens, J., concurring)). ¶ 20 The appellate court based its conclusion that proceeds should be defined as profits on a misreading of Santos. According to the appellate court, the United States Supreme Court held that proceeds in the federal money laundering statute (see 18 U.S.C. § 1956(a)(1) (2006)) should be defined as profits rather than gross receipts because the statute is ambiguous and the profits definition is always more defendant-friendly. Thus, the defendant should prevail under the rule of lenity. 401 Ill.App.3d at 213, 340 Ill.Dec. 342, 928 N.E.2d 61 (citing Santos, 553 U.S. at 514, 128 S.Ct. 2020). ¶ 21 What the appellate court described as a Supreme Court holding, however, is merely the conclusion of a plurality opinion. Justice Stevens provided the fifth vote to apply a profits definition, but he did not believe that proceeds should always be defined as profits. In Santos, the underlying offense was the operation of an illegal lottery, and Justice Stevens believed that applying a gross receipts definition of proceeds on these facts would lead to a perverse result. Santos, 553 U.S. at 528, 128 S.Ct. 2020 (Stevens, J., concurring). Using a gross receipts definition of proceeds with respect to operation of an illegal lottery would lead to a merger problem: the mere payment of the expenses of operating an illegal gambling business would amount to money laundering. Id. at 526-27, 128 S.Ct. 2020. In other words, a transaction that is a normal part of the underlying crime could lead to an additional money laundering charge and allow for a radical increase in the defendant's sentence. Id. at 528, 128 S.Ct. 2020. Thus, although Justice Stevens found Justice Alito's dissent persuasive that the legislative history of the federal money laundering statute indicated a gross receipts definition of proceeds, he believed that a profits definition had to be used if the underlying crime was the operation of an unlicensed gambling business. Id. at 528 n. 7, 128 S.Ct. 2020. On that basis alone, Justice Stevens concurred in the judgment, while explicitly rejecting the view of the plurality that the rule of lenity required that proceeds always be defined as profits. Id. at 524-28, 128 S.Ct. 2020. ¶ 22 When a divided Supreme Court decides a case and no single rationale explaining the result receives the agreement of five justices, `the holding of the Court may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds.' Marks v. United States, 430 U.S. 188, 193, 97 S.Ct. 990, 51 L.Ed.2d 260 (1977) (quoting Gregg v. Georgia, 428 U.S. 153, 169 n. 15, 96 S.Ct. 2909, 49 L.Ed.2d 859 (1976)). This, as we shall see, is often easier said than done. While the actual holding of Santos is less than clear, what is entirely clear is that it is not what the appellate court said that it was: that proceeds should always be defined as profits. Five members of the court clearly and explicitly rejected this proposition. See Santos, 553 U.S. at 526 n. 3, 128 S.Ct. 2020 (Stevens, J., concurring); Id. at 531-49, 128 S.Ct. 2020 (Alito, J., dissenting, joined by Roberts, C.J., Kennedy and Breyer, JJ.). ¶ 23 As the Santos plurality conceded, Justice Stevens's concurrence determines the scope of the court's holding. Santos, 553 U.S. at 523, 128 S.Ct. 2020. However, the members of the Supreme Court cannot agree on how Justice Stevens's concurrence should be read, and the various circuits of the United States Court of Appeals have split on this matter as well. The Santos plurality argued that Justice Stevens's position was that proceeds means profits when there is no legislative history to the contrary. Id. Justice Stevens emphatically rejected this reading of his concurrence, stating that it was not correct and was the `purest of dicta.' Id. at 528 n. 7, 128 S.Ct. 2020 (Stevens, J., concurring). Justice Stevens elaborated on how his concurrence should be read: [M]y conclusion rests on my conviction that Congress could not have intended the perverse result that the dissent's rule would produce if its definition of `proceeds' were applied to the operation of an unlicensed gambling business. In other applications of the statute not involving such a perverse result, I would presume that the legislative history summarized by JUSTICE ALITO reflects the intent of the enacting Congress. Id. ¶ 24 The Third and Seventh Circuits have adopted the Santos plurality's analysis of Justice Stevens's concurrence: that proceeds means profits in any situation in which the legislative history does not indicate to the contrary. See United States v. Lee, 558 F.3d 638, 643 (7th Cir. 2009); United States v. Yusuf, 536 F.3d 178, 186 n. 12 (3d Cir.2008). The Fourth, Eighth, and Eleventh Circuits, by contrast, hold that the Santos rule is that proceeds must be defined as profits only where the underlying criminal activity is the running of an illegal gambling operation. See United States v. Spencer, 592 F.3d 866, 879-80 & n. 4 (8th Cir.2010); United States v. Demarest, 570 F.3d 1232, 1242 (11th Cir.2009); United States v. Howard, 309 Fed.Appx. 760, 771 (4th Cir. 2009) (unpublished). The First and Ninth Circuits read Santos to mean that proceeds means profits only when the merger problem identified in Santos arises from a gross receipts definition. United States v. Bucci, 582 F.3d 108, 123-24 (1st Cir.2009); United States v. Van Alstyne, 584 F.3d 803, 814 (9th Cir.2009). The Sixth Circuit holds that proceeds means profits only when the predicate offense creates a merger problem that leads to a radical increase in the statutory maximum sentence and only when nothing in the legislative history suggests that Congress intended such an increase. United States v. Kratt, 579 F.3d 558, 562 (6th Cir.2009). Finally, the Fifth Circuit holds that Santos requires a bifurcated approach to determine when proceeds should be defined as profits: first, a court determines whether using a gross receipts definition would lead to the merger problem. If so, then a profits definition must be used. If not, then a court looks to the legislative history and uses a gross receipts definition unless the legislative history affirmatively shows that a profits definition was intended. Garland v. Roy, 615 F.3d 391, 401 (5th Cir.2010). ¶ 25 The problem, of course, with all of the above interpretations is that they rest upon the assumption that the definition of a statutory term can change depending upon the facts of the case, and eight members of the Supreme Court soundly reject this proposition. The plurality opinion pointed out that Justice Stevens's position could not be squared with Clark v. Martinez, 543 U.S. 371, 125 S.Ct. 716, 160 L.Ed.2d 734 (2005), which rejected the notion that the same word in the same statutory provision could have different meaning in different factual contexts. The Clark Court explained that this would render every statute a chameleon ( id. at 382, 125 S.Ct. 716) and establish the dangerous principle that judges can give the same statutory text different meanings in different cases ( id. at 386, 125 S.Ct. 716). The four dissenting justices in Santos agreed with the plurality that the meaning of proceeds should not vary depending on the nature of the illegal activity that produced the laundered funds. Santos, 553 U.S. at 532, 548, 128 S.Ct. 2020 (Alito, J., dissenting, joined by Roberts, C.J., Kennedy and Breyer, JJ.). Unlike the federal courts, we are not required to discern the meaning of Justice Stevens's concurrence and attempt to apply it, and we agree with a majority of the Supreme Court that the best approach is to pick either a profits or receipts definition of the word proceeds. We summarize below the arguments of the four-justice plurality and the four-justice dissent in favor of the profits and receipts definitions respectively. ¶ 26 The Santos plurality saw the issue as fairly straightforward. The plurality noted that dictionaries support either a receipts or a profits definition, and that the context of the money laundering statute did not resolve the ambiguity. Id. at 511-12, 128 S.Ct. 2020. Either definition could be plugged into the statute satisfactorily. Id. at 512, 128 S.Ct. 2020. The plurality acknowledged the dissent's list of money laundering laws that contained a receipts definition, but saw no evidence that Congress drafted the federal money laundering statute with those as a backdrop. Indeed, the federal money laundering statute predated most of the laws listed by the dissent. Id. at 512-13, 128 S.Ct. 2020. The plurality stated that, pursuant to the rule of lenity, the tie must go to the defendant. Id. at 514, 128 S.Ct. 2020. Because the profits construction is always more defendant-friendly than the receipts definition, the plurality argued that it must be adopted. Id. ¶ 27 According to the plurality, using a receipts definition would lead to a merger problem, at least in the case before the court: If `proceeds' meant `receipts,' nearly every violation of the illegal-lottery statute would also be a violation of the money-laundering statute, because paying a winning bettor is a transaction involving receipts that the defendant intends to promote the carrying on of the lottery. Since few lotteries, if any, will not pay their winners, the statute criminalizing illegal lotteries, 18 U.S.C. § 1955, would `merge' with the money-laundering statute. Congress evidently decided that lottery operators ordinarily deserve up to 5 years of imprisonment, § 1955(a), but as a result of merger they would face an additional 20 years, § 1956(a)(1). Prosecutors, of course, would acquire the discretion to charge the lesser lottery offense, the greater money-laundering offense, or bothwhich would predictably be used to induce a plea bargain to the lesser charge. Id. at 515-16, 128 S.Ct. 2020. The plurality contended that the merger problem arose not only with respect to illegal gambling operations, but also with respect to a host of predicate crimes. Id. at 516, 128 S.Ct. 2020. The plurality could see no explanation for why Congress would want a transaction that is a normal part of an underlying crime to radically increase the sentence for that crime, and argued that a profits definition would eliminate the merger problem. Id. at 517, 128 S.Ct. 2020. ¶ 28 With respect to the dissent's argument that the profits definition presents too great a problem of proof for prosecutors, the plurality contended that this was turning the rule of lenity upside down and explained that the court interprets ambiguous criminal statutes in favor of defendants, not prosecutors. Id. at 519, 128 S.Ct. 2020. The plurality also believed that the difficulties in proof with a profits definition were overstated. Id. at 519-21, 128 S.Ct. 2020. ¶ 29 Justice Alito dissented, and was joined by Chief Justice Roberts, Justice Kennedy, and Justice Breyer. The dissent argued that the plurality had too quickly declared the term proceeds to be hopelessly ambiguous and contended that its meaning could be determined through traditional methods of statutory interpretation. Id. at 531, 128 S.Ct. 2020 (Alito, J., dissenting, joined by Roberts, C.J., Kennedy and Breyer, JJ.). First, the dissent pointed out that the term proceeds is a staple of money laundering laws, and that in every one that provides a definition, the word means `the total amount brought in.' Id. at 532, 128 S.Ct. 2020. The dissent cited the United Nations Convention Against Transnational Organized Crime, Nov. 15, 2000, 2225 U.N.T.S. 209 (Treaty No. I-39574), which has been adopted by 147 countries, including the United States; the Model Money Laundering Act (President's Commission on Model State Drug Laws, Economic Remedies, § C (1993)); and the 14 states that define the term proceeds in their money laundering statutes. Id. at 532-34, 128 S.Ct. 2020. According to the dissent, this shows that when lawmakers use the term proceeds in a money laundering provision, they intend for it to reach all receipts and not just profits. Id. at 534-35, 128 S.Ct. 2020. ¶ 30 Next, the dissent looked at the two primary objectives of money laundering provisions: (1) providing deterrence by preventing drug traffickers and other criminals who amass large quantities of cash from using these funds `to support a luxurious lifestyle' or otherwise to enjoy the fruits of their crimes; and (2) inhibiting the growth of criminal enterprises by preventing the use of dirty money to promote the enterprise's growth. Id. at 535-36, 128 S.Ct. 2020. The dissent believed that both of these objectives would be frustrated with a profits definition because dirty money may be used to support a luxurious lifestyle or to grow an illegal enterprise even when the unlawful activity that generated the funds was unprofitable. Moreover, the dissent did not believe that Congress could have wanted to immunize successful criminal enterprises during those periods when they are operating temporarily in the red. Id. at 536, 128 S.Ct. 2020. ¶ 31 The dissent further contended that a profits definition would introduce pointless and difficult problems of proof that Congress could not have intended. Id. at 536, 128 S.Ct. 2020. The dissent examined the legislative history and concluded that Congress viewed money laundering as a very serious problem and could not have wanted to place daunting obstacles in the way of prosecutors in these cases. For instance, professional money launderers who are hired to launder the funds of criminal enterprises could be effectively placed beyond the reach of the statute. A professional money launderer is not likely to know (or perhaps even to care) whether the enterprise is operating in the black when the funds in question were acquired. Id. at 537, 128 S.Ct. 2020. The dissent further pointed out that, in drug cases, [t]racing funds back to particular drug sales and proving that these sales were profitable will often prove impossible. Id. at 540, 128 S.Ct. 2020. Morever, special accounting rules would have to be developed because [t]here are no generally accepted accounting principles for determining the net income of illegal enterprises. Id. at 540, 128 S.Ct. 2020. As an example of how difficult it could be to obtain this type of proof, the dissent explained that: If a net income interpretation were taken to its logical conclusion, it presumably would be necessary as well to work out rules for the depreciation of instrumentalities of crime that must occasionally be replaced due to the efforts of law enforcement. But it seems quite implausible that Congress wanted courts or juries in money laundering cases to grapple with questions such as the useful life of, say, a drug processing plant or laboratory or the airplanes and boats that are used to smuggle drugs. And assuming that the accounting issues can ultimately be resolved by the courts, there would remain serious problems of proof. Illegal enterprises generally do not keep books and records like legitimate businesses do. Id. at 541-42, 128 S.Ct. 2020. [2] ¶ 32 The dissent also did not see the merger problem as a reason to adopt a profits interpretation. The dissent viewed the merger problem as fundamentally a sentencing problem and argued that the remedy should lie in a defendant's sentence. Id. at 547, 128 S.Ct. 2020. If a money laundering charge was based on activities that were no more than what is required for a violation of the underlying criminal statute, then the defendant's sentence should be no higher than it would have been without the money laundering charge. Id. The dissent also questioned whether a merger problem even existed in the case before it because it rested on the assumption that a defendant promotes an illegal gambling business simply by doing things that are routine parts of keeping the business running. However, the dissent found that this question was not before the court. Id. at 547-48, 128 S.Ct. 2020. The dissent also noted that, even if there is a merger problem, it arises in only a small subset of cases, and that the meaning of the word proceeds should not be governed by these few cases. Id. at 548, 128 S.Ct. 2020. ¶ 33 Finally, with respect to the rule of lenity, the dissent found it inapplicable. The dissent explained that the rule of lenity is not applied simply because it is possible to articulate a construction more narrow than that advocated for by the government. Rather, when the meaning of a statute becomes clear through normal rules of statutory interpretation, resort to the rule of lenity is not required. The dissent argued that, when viewed in context, the meaning of `proceeds' in the money laundering statute emerges with reasonable clarity    making the rule of lenity inapplicable. Id. at 548-49, 128 S.Ct. 2020. ¶ 34 After Santos was issued, Congress amended the money laundering statute to add a definition of proceeds. Congress adopted the dissent's position, and the federal statute now defines proceeds as any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity. Pub.L. No. 111-21, § 2(f) (adding 18 U.S.C. § 1956(c)(9)). Thus, the federal money laundering statute may now be added to the Santos dissent's list of money laundering laws that use a gross receipts definition.