Opinion ID: 766484
Heading Depth: 2
Heading Rank: 2

Heading: Income/Expenditure Evidence

Text: 43 The government introduced evidence showing that several of the defendants had been spending money in amounts significantly in excess of earnings reported by them on tax returns and Social Security earnings reports. For example, Social Security records reflect that James and Mary Monaco averaged $3,000 in annual income since 1937. Yet they spent more than $600,000 from 1986 to 1991 and had several hundred thousand more in the bank. They argue that they amassed their funds by thrift; but the jury was permitted to draw the inference that their prosperity was attributable to money laundering. 44 Relying on a rule drawn from tax evasion cases such as Holland v. United States, 348 U.S. 121, 75 S.Ct. 127 (1954), the defendants argue that admission of this evidence was reversible error because the government was required to introduce baseline evidence of the defendants' net worth at the beginning of the relevant time period before introducing evidence of suspiciously large cash expenditures. Such evidence, they contend, was necessary to rule out the possibility that the defendants' high spending could have been funded by liquidation of their preexisting assets. See, e.g., id. at 132, 75 S.Ct. at 134; United States v. Bianco, 534 F.2d 501, 504 (2d Cir. 1976). 45 We find no error here. In United States v. Falley, 489 F.2d 33 (2d Cir. 1973), we made it clear that the rule developed in cases such as Holland was applicable only in a certain type of tax fraud prosecution: 46 [P]roof that a defendant is living far above the means provided by his disclosed income is of great probative value in a case involving a crime where the motive is financial gain. Furthermore, the establishment of a defendant's opening net worth is not necessary to permit admission of such evidence. Lack of proof of prior impecunity is a matter of weight and not a matter of admissibility. 47 Id. at 39 (emphasis added). The Holland rule is needed in net worth fraud cases, in which the government generally relies exclusively on the inference to be drawn from the financial evidence. Id. at 40. Such cases present the danger that a defendant's failure to rebut the expenditure evidence would be completely conclusive on the merits. Id. In non-tax cases, however, the government typically cannot rely solely on such financial data; it therefore introduces a whole range of evidence, making the exceptional safeguards used in the tax context unnecessary. Id.; see also United States v. Hinton, 543 F.2d 1002, 1013 (2d Cir. 1976) (Appellants were free to rebut this evidence with proof that they had sufficient prior net worth to fund the expenditures they had made....). 48 Falley and Hinton were drug smuggling prosecutions, but the defendants here offer no reason why the analysis in those cases should not apply in the context of a money laundering prosecution. Cf. United States v. Webster, 960 F.2d 1301, 1308 (5th Cir. 1992) (Evidence of a differential between legitimate income and cash outflow is sufficient for a money-laundering conviction, even when the defendant claims income from additional sources.).