Opinion ID: 180347
Heading Depth: 3
Heading Rank: 1

Heading: Money Laundering Proceeds

Text: Enacted in 1986, the Money Laundering Control Act added to the Criminal Code two substantive offenses for laundering monetary instruments18 U.S.C. §§ 1956 and 1957. Pub.L. No. 99-570 § 1352(a), 100 Stat. 3207-18, 21 (1986). Both statutes prohibit conducting monetary transactions with the proceeds of criminal activity, albeit in different ways. Section 1956(a)(1) uses proceeds twice in its substantive text, which 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 ... with the intent to promote the carrying on of specified unlawful activity ... [shall be guilty of a crime]. By contrast, Section 1957(a) provides: Whoever, in any of the circumstances set forth in subsection (d), knowingly engages or attempts to engage in a monetary transaction in criminally derived property of a value greater than $10,000 and is derived from specified unlawful activity, shall be [guilty of a crime]. 18 U.S.C. § 1957(a). While proceeds does not appear in Section 1957(a)'s description of the offense, subsection (f)(2) incorporates the term into the statute when it defines criminally derived property to mean any property constituting, or derived from, proceeds obtained from a criminal offense. Id. § 1957(f)(2) (emphasis added). At the time relevant here, Section 1957(f)(3) provided that `specified unlawful activity' has the meaning given that term in section 1956. Id. § 1957(f)(3). [1] The meaning of proceeds in Section 1956 has received significant judicial attention in recent years after the Supreme Court's plurality decision in United States v. Santos, 553 U.S. 507, 128 S.Ct. 2020, 170 L.Ed.2d 912 (2008). Two of our decisions United States v. Van Alstyne, 584 F.3d 803 (9th Cir.2009), and United States v. Moreland, 622 F.3d 1147 (9th Cir. 2010)have wrestled with the meaning of Justice Scalia's four-judge plurality opinion in Santos, as well as Justice Stevens's concurrence. The defendant in Santos was convicted, inter alia, of operating an illegal lottery and Section 1956 money laundering. 553 U.S. at 509-10, 128 S.Ct. 2020. After he received money from gamblers, Santos paid a commission to his employees and then paid lottery winners. Id. Those payments formed the basis of the money-laundering charges. Id. In post-conviction habeas proceedings, Santos challenged the propriety of his money-laundering conviction, claiming his transactions were merely the distribution of receipts from gamblersin the form of payments to runners, winners, and collectorsas opposed to the profits of the illegal lottery. Id. at 510, 128 S.Ct. 2020. The district court and Seventh Circuit agreed and vacated the money-laundering convictions. The Supreme Court affirmed, although no opinion commanded a majority of the Court. In the four Justice plurality opinion, Justice Scalia held that because proceeds, as then defined under Section 1956, [2] could fairly be interpreted to mean either profits or receipts, the rule of lenity meant that the tie [went] to the defendants. Id. at 514-15, 128 S.Ct. 2020. In Santos, accepting the government's proffered interpretation that proceeds meant receipts would yield a peculiar resultevery person who operated an illegal lottery would, by default, simultaneously commit money laundering because paying a winning bettor is a transaction involving receipts. Id. at 515-16, 128 S.Ct. 2020. This created a merger problem. Id. at 516, 128 S.Ct. 2020. The plurality went on to note that this merger problem was not limited to transactions in furtherance of an illegal lottery and noted that [f]or a host of predicate crimes, merger would depend on the manner and timing of payment for the expenses associated with the commission of the crime. Id. Justice Scalia highlighted that [t]he Government suggests no explanation for why Congress would have wanted a transaction that is a normal part of a crime it had duly considered and appropriately punished elsewhere in the Criminal Code to radically increase the sentence for that crime. Id. at 517, 128 S.Ct. 2020. Unwilling to categorically define proceeds to mean profits, Justice Stevens concurred in the judgment and limited his opinion to the illegal gambling context. Id. at 526-28, 128 S.Ct. 2020 (Stevens, J., concurring in the judgment). His concurrence endorsed the plurality's view on merger as applied to illegal gambling prosecutions. Id. at 528, 128 S.Ct. 2020 (quoting plurality opinion). In Van Alstyne, we considered the import of Santos for the first time. See 584 F.3d at 813. There, we overturned two money-laundering convictions committed in furtherance of a Ponzi scheme when the evidence at trial showed the transactions were merely putative dividends paid by the defendant for the purpose of encouraging further principal contributions by investors. Id. at 809-10, 815. We posited that `proceeds' means `profits' where viewing `proceeds' as `receipts' would present a `merger' problem of the kind that troubled the plurality and concurrence in Santos.' Id. at 814. We reasoned that Santos did not examine the money-laundering statute itself but, rather, inquired into the elements and purpose of the predicate offense from which the laundered funds were derived. See id. at 814-15 (considering the elements and purpose of the mail-fraud statute). Because fraud statutes prohibit the broader scheme to defraud as opposed to the completed fraud, id. (citing Neder v. United States, 527 U.S. 1, 25, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999)), the appropriate test was whether the money laundering was a central component of the defendant's criminal scheme. Van Alstyne, 584 F.3d at 815. Because two of Van Alstyne's transactions furthered his fraud by encouraging new investment to the Ponzi scheme, we adhered to Justice Scalia's reasoning that a defendant should not be punished for [t]ransactions that normally occur during the course of running a[n illegal scheme]. Santos, 553 U.S. at 517, 128 S.Ct. 2020. Consistent with this view, we upheld Van Alstyne's third money-laundering conviction because it concerned a transaction to refund an investor's principal outlay and thereby left fewer funds available to lull other investors into maintaining their investment. Van Alstyne, 584 F.3d at 816. More recently, in Moreland, we again applied the central to the scheme to defraud framework where the defendant used a pyramid scheme to obtain in excess of $73 million from investors. Moreland, 622 F.3d at 1153, 1165-66. But cf. United States v. Webster, 623 F.3d 901, 906 (9th Cir.2010) (We ... read Santos as holding that where, as here, a money laundering count is based on transfers among co-conspirators of money from the sale of drugs, `proceeds' includes all `receipts' from such sales.). We reversed two money-laundering convictions that corresponded to wire transfers for the purpose of paying commissions ... central to carrying out the scheme's objective of encouraging further investment. Moreland, 622 F.3d at 1166. On grounds not relevant here, we upheld several other money-laundering counts in Moreland because the jury instructions did not require a specific showing of proceeds, and it was thus irrelevant whether profits of the illegal activity were involved. Id. at 1167.