Opinion ID: 217673
Heading Depth: 2
Heading Rank: 2

Heading: “Proceeds” of Money-Laundering and Santos

Text: The federal money-laundering statute which Mr. Thornburgh conspired to violate prohibits various activities involving criminal “proceeds.” See 18 U.S.C. § 1956(a)(1)(A)(i). 7 Since “proceeds” was undefined, the Supreme Court 7 The relevant money laundering statute, 18 U.S.C. § 1956(a)(1), stated as follows at all times relevant to this case: 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 (continued...) -16- attempted to provide some guidance in United States v. Santos, 553 U.S. 507 (2008), decided prior to Mr. Thornburgh’s trial. The question in Santos was what are “proceeds” in the context of an illegal gambling operation. In a divided 4-1-4 decision, the plurality and concurring opinions collectively held that, at least in the context of an illegal gambling operation, “proceeds” means “profits” rather than “gross receipts” for purposes of the money-laundering statute. See id. at 514 (plurality opinion); id. at 528 & n.7 (Stevens, J. concurring in judgment). Mr. Thornburgh made no argument about Santos in the district court. He also failed to object to the district court’s jury instructions which used the term “proceeds” and then stated that “‘proceeds’ can be any kind of property, not just money.” Jury Instructions at 80. Now, however, in reliance on Santos, he argues that the government was obligated to prove that profits from the mail and wire fraud were laundered, not just receipts or gross receipts. He further argues that 7 (...continued) unlawful activity . . . shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both. The statute has since been amended (in 2009) so that “proceeds” is now defined 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.” 18 U.S.C. § 1956(c)(9). But because all the relevant activities in this case occurred before 2009, we apply the old version of the money laundering statute. -17- proof of profits was neither pled nor proven, and that the district court’s jury instructions were erroneous because they did not require proof of profits. Because Mr. Thornburgh did not challenge the definition of “proceeds” in the district court, we review this issue for plain error only. See United States v. Pablo, 625 F.3d 1285, 1301-02 (10th Cir. 2010), petition for cert. filed, No. 109789 (March 31, 2011); see also Searles, 2011 WL 488750 (Mr. Thornburgh’s codefendant making the identical Santos argument). “Plain error occurs when there is (1) error, (2) that is plain, which (3) affects substantial rights, and which (4) seriously affects the fairness, integrity, or public reputation of judicial proceedings.” United States v. Gonzalez-Huerta, 403 F.3d 727, 732 (10th Cir. 2005) (en banc) (internal quotation marks omitted). An error is “plain” if it is “clear or obvious” under “current, well-settled law.” United States v. Whitney, 229 F.3d 1296, 1308-09 (10th Cir. 2000). “In general, for an error to be contrary to well-settled law, either the Supreme Court or this court must have addressed the issue.” United States v. Ruiz-Gea, 340 F.3d 1181, 1187 (10th Cir. 2003). Santos has caused considerable disagreement and confusion among the circuit courts of appeal. As we observed in Searles, “[t]he only thing that is ‘clear and obvious’ about the 4-1-4 Santos decision is that it ‘raises as many issues as it resolves for the lower courts.’” Searles, 2011 WL 488750, at  (quoting United States v. Brown, 553 F.3d 768, 783 (5th Cir. 2008)). See United States v. Halstead, 634 F.3d 270, 276-77 (4th Cir. 2011) (noting the “division -18- among the courts of appeal” and observing that there “are perhaps three groups into which the courts of appeals’ decisions [interpreting Santos] might be placed”). Some courts have held that the five justices in the Santos majority agreed that the term “proceeds” means “net profits” only in the context of an illegal gambling enterprise. See United States v. Spencer, 592 F.3d 866, 879 (8th Cir. 2010); United States v. Howard, 309 Fed. Appx. 760 (4th Cir.) (unpublished), cert. denied, 130 S. Ct. 62 (2009); see also United States v. Demarest, 570 F.3d 1232, 1241-42 (11th Cir.), cert. denied, 130 S. Ct. 421 (2009) (holding that it was not plain error to limit Santos to illegal gambling cases); United States v. Bueno, 585 F.3d 847, 850 (5th Cir. 2009), cert. denied, 130 S. Ct. 2359 (2010) (same). Another group of courts has noted that both the plurality and Justice Stevens “were concerned that the same underlying transactions could support a violation of both the predicate offense and money laundering, the so-called ‘merger problem.’” Halstead, 634 F.3d at 277. These courts conclude that whenever there is a merger problem, the term “proceeds” should be defined as “net profits,” and when no merger problem is present, the term “proceeds” should be defined as “gross receipts.” See United States v. Van Alstyne, 584 F.3d 803, 814 (9th Cir. 2009); United States v. Bucci, 582 F.3d 108, 123-24 (1st Cir. 2009) (suggesting in dicta that this interpretation is correct). -19- Yet another group of courts acknowledge the merger problem but also note that Justice Stevens relied on the absence of legislative history to conclude that proceeds from an illegal gambling enterprise should mean net profits. Thus, they conclude that proceeds for money laundering purposes means “gross receipts” unless there is either a merger issue or the legislative history of the money laundering statute indicates that the “net profits” definition is the appropriate one for the particular predicate crime. See Garland v. Roy, 615 F.3d 391, 401-02 (5th Cir. 2010) (holding that courts must consider both merger issues and legislative history); United States v. Kratt, 579 F.3d 558, 562 (6th Cir. 2009) (holding that courts must look at both legislative history and the merger issue, including whether the merger issue “leads to a radical increase in the statutory maximum sentence”); see also United States v. Yusuf, 536 F.3d 178, 186 n.12 (3d Cir. 2008) (holding that Justice Stevens’ concurrence rested on the narrow grounds that proceeds means net profits when there is no contrary legislative history); United States v. Lee, 558 F.3d 638, 642-43 (7th Cir. 2009) (same). Halstead, one of the more recent circuit courts to address this question, “read Santos to hold that when a merger problem arises in the context of money laundering and illegal gambling, the required solution is to define the proceeds of the illegal gambling business as its net profits.” Halstead, 634 F.3d at 279. When a merger problem arises in the context of money laundering and any other -20- predicate illegal activity, a case-by-case approach is required, which the court left to another day, but if a merger problem is present, it must be eradicated. Id. Our court has recently been confronted with the application of plain error to a Santos issue. See United States v. Parra, 2011 WL 728088 (10th Cir. March 3, 2011) (unpublished); Searles, 2011 WL 488750. In those cases, we declined to find a plain error, noting that, in view of the “confusion created by Santos, and the lack of guidance from our circuit, the district court did not commit plain error in its disposition of [the defendant’s] case.” Searles, 2011 WL 488750, at ; see also Parra, 2011 WL 728088, at  (“Given the lack of clear authority on the scope of Santos, we cannot say that the district court committed a clear and obvious error by failing to require a showing that the transaction at issue involved profits and not merely gross revenues.”). Against the foregoing background of case law, we can resolve the jury instruction issue presented to us at either of the first two plain error factors. First, as in Fishman, we confine it to its factual setting, and conclude that “proceeds” means “profits” for the purpose of the money laundering statute only where an illegal gambling operation is involved. Second, and alternatively, assuming that Santos dictates that it was error in this case to not require proof of profits, that error cannot be plain, in view of the widely differing interpretations of Santos. See Parra, 2011 WL 728088; Searles, 2011 WL 488750. We therefore conclude that the district court did not err when, in its instructions to the jury, it -21- failed to define “proceeds” as “profits” in connection with the Caribou conspiracy.