Court Opinion

ID: 18506
Source: CourtListenerOpinion
Date Created: 2010-04-25 07:16:07+00
Date Added: 2024-06-11T13:30:32.394562
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                      FOR THE FIFTH CIRCUIT
                                        _______________

                                          No. 98-30463
                                        _______________

                            UNITED STATES OF AMERICA,
                                                           Plaintiff-Appellee,
                                            VERSUS

                               GREGORY DEAN BROWN,
                                                           Defendant-Appellant.
                              ********************
                                   _______________

                                          No. 98-30584
                                        _______________

                            UNITED STATES OF AMERICA,
                                                           Plaintiff-Appellee,
                                            VERSUS

                       LEONARD STEVEN STEVE GRAVES,
                                                           Defendant-Appellant.
                                 _________________________

                          Appeals from the United States District Court
                             for the Western District of Louisiana
                                _________________________
                                         August 24, 1999

Before SMITH, WIENER, and
  BARKSDALE, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

   In this consolidated appeal, Leonard Graves
appeals his money laundering convictions, a
number of his fraud
convictions, and his sentence. Gregory Brown        sentence. We affirm Brown's sentence.
appeals his sentence. We affirm Graves's fraud
convictions, reverse his money laundering                               I.
convictions, and vacate and remand his                 The fraud and money laundering charges of
which Graves was convicted, and Brown's                     eighteen instances of overcharging were
wire fraud conviction, relate to business                   charged against Graves as mail frauds, because
dealings conducted at Steve Graves Chevrolet-               the Louisiana Department of Motor Vehicles
Pontiac-Cadillac, Inc. (“SGC”), an auto                     mailed the automobile titles. Graves was also
dealership in Ruston, Louisiana. Graves was                 charged with money laundering the proceeds
the dealer, president, and 41% owner of SGC,                of the excessive fees. The jury found Graves
and Brown managed its body shop.                            guilty on some of the counts and not guilty on
                                                            others.
    The 120-count indictment against Graves
alleged six distinct types of fraud,1 and for                  Graves was convicted of fraud based on
each fraud allegation there was a                           SGC's financing the purchases of used cars
corresponding money laundering charge.                      with “cash for gas.” In seven instances, SGC
Graves was convicted on counts stemming                     advanced to the purchaser all or part of the
from three of the six types of fraud and was                down payment required by the financing
convicted of money laundering the funds                     institutionSSunder the guise of giving the
derived from these frauds. Brown pleaded                    buyer some “cash for gas”SSand increased the
guilty to a type of fraud of which Graves was               purchase price of the car by a corresponding
not convicted.                                              amount. This conduct constituted fraud,
                                                            because the lending institution would not have
    The first type of fraud involved SGC's                  extended credit to the purchaser absent his
charging car buyers more than the amount                    having some genuine equity interest in the
authorized by state law for document and                    automobile. The counts of which Graves was
license/title fees. SGC charged purchasers $59              convicted were charged as mail frauds,
in document fees, which is $9 more than                     because SGC mailed loan documentation to
Louisiana law permits; automobile dealerships               General Motors Acceptance Corporation
are allowed to charge only $35 for processing               (“GMAC”), the financing institution.3 The
paperwork and $15 for a notary fee. See LA.                 jury also found Graves guilty of money
R.S. 6:956(E)(1), (2). For the license and title            laundering the funds derived from cash for gas
fees, which varied from vehicle to vehicle,                 frauds.
SGC overcharged an average of $50 per
automobile listed in the indictment.2 The                      The final form of fraud of which Graves
                                                            was convicted also involved t he financing of
                                                            used cars. For ten cars financed by Union
          1
            In addition to the four types of fraud          Federal Credit Union, SGC, on behalf of the
discussed below, the indictment alleged that                buyer, forwarded to the credit union 25% of
Graves, through SGC, engaged in “parts-to-labor”
fraud and “scooping rebates” fraud. The former
type of fraud involved SGC's billing automobile
insurance companies for new parts but then                  (...continued)
performing repairs using used parts and falsely             $5.50 for handling, $5.00 to record a lien or
charging the price difference as labor. The                 mortgage, and an amount specifically for the
“scooping rebates” allegations involved SGC's               license that varied, according to a Department of
fraudulently denying the benefits of rebates to             Motor Vehicles table, with the selling price of the
customers and instead collecting the rebates for the        vehicle. The total was the “license fee.” SGC
dealership. Graves was acquitted of all charges             typically collected $102 per vehicle as the license
relating to parts-to-labor and scooping rebates             fee. This resulted in an average overcharge of $50
frauds, but the district court found that such frauds       per automobile listed in the indictment.
had been established by a preponderance of the
evidence and considered them in sentencing                            3
                                                                        One instance of “cash for gas” was
Graves.                                                     charged as bank fraud, for the lender in that
         2
                                                            instance was a bank. The jury acquitted Graves of
              The state charged $18.50 for the title,       that charge and the corresponding money
                             (continued...)                 laundering count.

                                                        2
the sale price, which the credit union                of wire fraud, he was sentenced to an
maintained in a savings account in the                eighteen-month term of imprisonment and
purchaser's name until the loan was paid off.         restitution of $75,104.18.4        The court
The dealership increased the sale price of the        increased Brown's offense level by six to
vehicle by a corresponding amount. As with            account for a fraud loss greater than $70,000
“cash for gas,” this scheme had the effect of         but no more than $120,000. See U.S.S.G.
fraudulently inducing advances of credit, for         § 2F1.1(b)(1)(G). After Brown's sentencing,
the credit union believed that the 25% down           the court granted the government’s “Motion to
payment represented genuine purchaser equity          Correct Judgment and Commitment Order”
in the purchased automobiles. These counts            asking the court to lower Brown's required
were charged as bank frauds, and the jury             restitution to victim insurance companies and
returned a guilty verdict. It also found Graves       individuals to $67,938.72. Brown contends
guilty of money laundering the proceeds               that this “lower loss figure” calls for an
derived from the bank frauds. Graves does not         increase of his base offense level of only five,
appeal these bank fraud convictions, but he           not six, levels and that his sentence is thus
does appeal the corresponding money                   unduly severe.
laundering convictions.

   The government charged Brown and
Graves with filing fraudulent warranty claims.
The indictment alleged ten instances in which
SGC recovered warranty money from General
Motors for repairs to vehicles when, in fact,
the repaired vehicles were not covered by
warranties. The government charged the
fraudulent warranties as wire frauds, because
General Motors credited the cost of repairs via
computer. The jury found Graves not guilty of
the wire fraud and corresponding money
laundering charges. Brown, however, pleaded
guilty to one count of wire fraud based on
submission of a fraudulent warranty claim.

   In sentencing Graves, the court declined to
group his fraud and money laundering
convictions. Instead, it sentenced him solely
on the basis of his money laundering offenses,
which carry a tougher penalty than do fraud
offenses.     Compare U.S.S.G. § 2F1.1
(imposing a base offense level of six for mail
and wire fraud) with U.S.S.G. § 2S1.1
(imposing a base offense level of 23 for money
laundering). With an adjusted offense level of
30 and a criminal history category of I, the
guidelines range was 97 to 121 months. The
court departed downward by only one month,
sentencing Graves to 96 months' incarceration.
The court based the downward departure on
its conclusion that Graves's conduct was                      4
                                                                 Brown was also given a three-year term
outside the heartland of money laundering.            of supervised release, which is to begin following
                                                      his release from prison, and he was ordered to pay
   Based on Brown's plea of guilty to a charge        an assessment to the crime victim fund.

                                                  3
    Graves appeals his convictions on fraud             first two elements but contends that there was
counts stemming from excessive document and             insufficient evidence to support a finding that
license/title fees and “cash for gas” frauds. He        he specifically intended to commit fraud.
also appeals all his money laundering                   There was no specific intent, he argues,
convictions and his sentence. Brown appeals             because he did not know of the overcharges.
only his sentence, asserting that it should be          The jury, properly instructed,5 concluded
reduced to reflect an error of fact discovered          otherwise, and there was sufficient evidence to
subsequent to sentencing.                               support its conclusion.

                        II.                                                   1.
    We first consider Graves's claim that there            SGC overcharged $9 per vehicle for
was insufficient evidence to support a number           document fees ($59 rather than the maximum
of his convictions. In evaluating a challenge to        $50). Graves asserts that the government
the sufficiency of the evidence, we view the            presented no evidence that he knew of this
evidence in the light most favorable to the             overcharge; the evidence showed, he says, that
verdict and uphold the verdict if, but only if, a       he corrected the $9 overcharge as soon as he
rational juror could have found each element            learned from a Louisiana Automobile Dealers
of the offense beyond a reasonable doubt.               Association newsletter that the $59 charge was
United States v. Giraldi, 86 F.3d 1368, 1371            too high.
(5th Cir. 1996). Our review is de novo.
United States v. Restrepo, 994 F.2d 173, 182               To maintain his claim of insufficient
(5th Cir. 1993).            We consider “the            evidence, Graves must discount the testimony
countervailing evidence as well as the evidence         of Jim Smith, who had managed SGC's
that supports the verdict” in assessing                 Finance and Insurance Office for a number of
sufficiency of the evidence. Giraldi, 86 F.3d           months during the indictment period. Smith
at 1371. If “the evidence viewed in the light           testified that the document fee was too high
most favorable to the prosecution gives equal           and that he had discussed that fact with Graves
or nearly equal circumstantial support to a             before Graves's discovery of the article
theory of guilt and a theory of innocence,” a           indicating that the fee was too high. Graves
defendant is entitled to a judgment of acquittal.       asserts that the jury could not rationally have
United States v. Schuchmann, 84 F.3d 752,               credited Smith's testimony over his own.
754 (5th Cir. 1996).

   The evidence is sufficient to sustain                        5
                                                                  In accordance with Fifth Circuit Pattern
Graves's convictions of fraud stemming from             Jury Instructions 1.37, the jurors were instructed as
excessive fees and “cash for gas.” There is,            follows:
however, insufficient evidence to sustain his
money laundering convictions.                                   The word “knowingly,” as that term
                                                           has been used from time to time in these
                        A.                                 instructions, means that the act was done
    The alleged offenses involving Graves's                voluntarily and intentionally, not because of
charging excessive document and license/title              mistake or accident.
fees were charged as mail fraud, a violation of
18 U.S.C. § 1341. The government must                            You may find that a defendant had
prove beyond a reasonable doubt “(1) the                   knowledge of a fact if you find that the
existence of a scheme to defraud; (2) the use              defendant deliberately closed his eyes to
                                                           what would otherwise have been obvious to
of the mails to execute the scheme; and (3) the            him. While knowledge on the part of the
specific intent on the part of the defendant[] to          defendant cannot be established merely by
commit fraud.” United States v. Salvatore,              demonstrating that the defendant was negligent,
110 F.3d 1131, 1136 (5th Cir.), cert. denied,           careless, or foolish, knowledge can be inferred if
118 S. Ct. 441 (1997). Graves does not                  the defendant deliberately blinded himself to the
contest the sufficiency of the evidence on the          existence of a fact.

                                                    4
According to Graves, Smith, who was fired for              evidence, he asserts, that he knew that Newton
inadequacies in his paperwork, obviously did               was failing to follow this order.
not know what he was talking about, because
he testified counterfactually that the dealership             This assertion is simply incorrect. At least
charged $80-100 as a document fee. When                    three pieces of evidence support a conclusion
the government tried to conform his testimony              that Graves knew the overcharges were
to the uniformly charged $59 fee, the court                continuing. First, Shelton testified that she
sustained Graves's attorney's objection to                 told Graves that Newton was continuing to
“leading.”                                                 overcharge. In addition, general manager
                                                           Richard Anderson testified that he discussed
    Despite Graves's protests, Sm ith's                    the excessive license fees with Graves on
testimony provided a sufficient evidentiary                several occasions and that Graves had told him
basis for the jury's conclusion that Graves                that sometimes SGC overcharged and
knew of the document fee overcharge. While                 sometimes undercharged, and things would
Smith's testimony may not have been the most               balance out in the end.8 Finally, Graves admits
compelling, the jury was not irrational in                 that on the occasions Shelton reported
crediting it over Graves's. It is certainly                Newton's mistakes to Graves, he did not ask
possible that Smith, who was finance manager               her to provide refunds to the overcharged
for only four months, could have forgotten the             customers.
exact figure charged as a document fee but
remembered that the fee charged was too high                  This evidence, viewed in the light most
and that he had discussed that fact with                   favorable to the verdict, adequately supports a
Graves. The jury chose to believe Smith, and               finding that Graves knew of the license/title fee
its choice was not irrational.6                            overcharges. The jury thus rationally could

                        2.
    Graves contends that the evidence does not                        8
                                                                          Graves unsuccessfully attempts to
support a conclusion beyond a reasonable                   downplay this testimony.         He asserts that
doubt that he intended to overcharge license               Anderson's testimony is unconvincing because (1)
and title fees. He admits that the evidence                the government offered no evidence as to the date
would support a conclusion that he knew as of              of the remark, which might have occurred before
July 1994 that such overcharges were                       July 1994, when Shelton first found out that
occurring, for there was evidence that Teresa              license/title fee overcharges were occurring; (2)
Shelton, Graves's office manager, told him at              Shelton, who regularly attended the managers'
that time that SGC was charging too high a                 meetings, never heard such a remark; and (3)
                                                           Anderson lost all credibility when he portrayed
fee.7 Graves notes, however, that the evidence             NewtonSSthe very person who refused to adhere to
shows that he immediately ordered Newton,                  Graves's order to lower the feeSSas complaining to
his financial and insurance manager at the time,           Graves that the fee was too high.
to stop the overcharging. There is no
                                                               None of these reasons requires discrediting
                                                           Anderson's testimony. First, the jury could
        6
                                                           reasonably have concluded that Graves's alleged
          See United States v. Guerrero, 169 F.3d          remark to Anderson occurred after he learned that
933,                                                       overcharging was occurring, for the very subject
939 (5th Cir. 1999) (holding that on review of             matter of the remark was the dealership's
sufficiency of evidence to convict, court of appeals       overcharging. Second, the fact that Shelton did not
must accept credibility choices that support the           hear the remark does not prove that it never
verdict, and court may not reweigh evidence).              occurred; the remark might have occurred outside
                                                           her presence, or she might not have been paying
         7
           Indeed, the jury must have determined           attention. Finally, the argument about Anderson's
that Graves did not know of the overcharges before         credibility should not persuade us to reverse a
July 1994, because it acquitted him of those counts        verdict, for credibility determinations are for the
of mail fraud occurring before that date.                  jury. See Guerrero, 169 F.3d at 939.

                                                       5
have concluded that Graves, knowing of the                  offer proof that he eventually knew cash for
overcharges and refusing to take effective                  gas was improper. It provided testimony from
steps to stop them or remedy them through                   Dave Jeffers, a GMAC official who told
refunds, intended the frauds. Accordingly, we               Graves that “in our [GMAC's] judgment, [cash
affirm Graves's fraud convictions stemming                  for gas] is a misrepresentation of the contract.”
from SGC's overcharges of document and                      Graves further admits that if the government
license/title fees.9                                        had proven that cash for gas transactions
                                                            occurred with Graves's knowledge after this
                       B.                                   notification, then a rational jury could have
   Graves argues that the evidence supporting               found him guilty of fraud. That was, in fact,
his “cash for gas” fraud convictions is                     the government's theory of fraud; it explained
insufficient, because there is no evidence that             in summation that “after GMAC said to stop
he continued to approve of cash for gas                     it,” “to submit the paperwork knowing it was
financing after he learned that GMAC                        fraudulent, was fraud.”
disapproved of it. Cash for gas financing, he
asserts, is not obviously fraudulent.                          Graves's argument is that there was no
Accordingly, the government could not have                  evidence that he approved cash for gas
established Graves's criminal liability unless it           transactions after he learned that such
proved that he knew he was doing something                  financing was unacceptable to GMAC. The
wrong by offering cash for gas; such proof was              government never proved the date of Jeffers's
necessary to establish the third prong of mail              admonition about the impropriety of cash for
fraudSSi.e., that he specifically intended to               gas, and the jury, Graves argues, thus could
commit fraud. See Salvatore, 110 F.3d at                    not have found beyond a reasonable doubt that
1136.                                                       any of the transactions occurred after Graves
                                                            had knowledge that they were fraudulent.
   Graves admits that the government did
                                                                Despite the absence of evidence that
                                                            Jeffers's statement pre-dated the cash for gas
                                                            transactions, a rational juror could have
          9
              Graves points to one other piece of           concluded that Graves knew the charged cash
evidence that, he says, shows that the verdict is           for gas deals i nvolved material
unsound. He notes that every employee of SGC                misrepresentations and were thus fraudulent.
who bought a car at the dealershipSSincluding               A rational jury could assume that any astute
Shelton, who was the centerpiece of the                     businessman would know that (1) a financing
government's effort to prove that Graves violated           institution that requires a down payment
the law intentionallySSpaid the overcharge well
after Graves ordered Newton to discontinue it.              before extending credit is attempting to ensure
Graves asserts that Shelton, who, on the                    that the debtor has an equity interest in the
government's evidence, knew better, would not               purchased good and will thus be “hurt” in
have allowed herself to be overcharged, and the             some way if the good is repossessed, and (2)
fact that she did accept an overcharge indicates that       the financing institution would be less likely to
she (and thus Graves, as Shelton was allegedly the          extend credit if the down payment was really
source of his knowledge) did not know that the              a “loan” from another entity (in this case, from
license fee was still being overcharged.                    the dealership).
    This argument is unpersuasive. A rational jury             The jury may thus have simply disbelieved
could have concluded that Shelton allowed herself           Graves's claim that he did not know cash for
to be overcharged so as not to draw attention to the
practice, or perhaps because she had gotten a good          gas was dishonest. Indeed, Graves gave the
deal from the dealership and did not want to be too         jury a reason to doubt his candor toward
demanding about small fees. Her willingness to              GMAC with respect to the cash for gas
pay the overcharge does not compel the conclusion           transactions; he admits that even after he
that she (and thus Graves) did not know of the              learned from Jeffers that cash for gas was
overcharge.                                                 fraudulent, general manager Anderson

                                                        6
continued to conduct such transactions, and
when Graves learned that Anderson had done
so, Graves neither undid the deals nor advised
GMAC of what Anderson had done. Thus,
there was direct evidence that Graves,
knowing a loan had been fraudulently induced,
withheld material information.

   Given that (1) any astute businessman
would know cash for gas was wrong, and
(2) the evidence showed Graves's dishonesty
and lack of candor on particular cash-for-gas
transactions that he undoubtedly knew to be
fraudulent, the jury could have rationally
concluded, beyond a reasonable doubt, that
Graves knew cash for gas financing was
generally fraudulent. Hence, we affirm his
fraud convictions on counts stemming from
cash-for-gas financing.

                    C.
   Each money laundering count on which
Graves was indicted was charged under
18 U.S.C. § 1956(a)(1)(A)(i), which reads, in
part:

        (A) Whoever, knowing that the
   propert y 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

                                                       unlawful activity, (3) with the intent to
       (i) with the intent to promote                  promote or further unlawful activity.” United
       the carrying on of specified                    States v. Cavalier, 17 F.3d 90, 92 (5th Cir.
       unlawful activity; . . . .10                    1994) (citations and internal quotations
                                                       omitted). Graves asserts that there was
To obt ain a conviction under                          insufficient evidence to establish that the
§ 1956(a)(1)(A)(i), the government must                charged money laundering transactions were
prove beyond a reasonable doubt “[t]hat the            intended to promote any fraud committed at
defendant (1) conducted or attempted to                SGC.11 We agree.
conduct a financial transaction, (2) which the
defendant knew involved the proceeds of
                                                                    11
                                                                         The money laundering statute
                                                       proscribes, in separate provisions, “promotion” and
         10
             Subsequently, the money laundering        “concealment” transactions.        All the money
statute defines “specified unlawful activity” to       laundering counts against Graves charged him with
include mail and wire fraud. See 18 U.S.C.             violating § 1956(a)(1)(A)(i), which proscribes the
§§ 1956(c)(7)(A), 1961(1).                                                        (continued...)

                                                   7
   The transactions the indictment charged as                there was no evidence that the payment of
money laundering consisted of expenditures,                  those checks was intended to promote any
paid by checks written by SGC, that allegedly                fraud at SGC; the checks were simply
promoted the fraud.12 Graves contendsthat                    legitimate business expenses of the dealership.
                                                             Indeed, a review of the checks indicates that
                                                             they were for “above board” expenses.13
                                                             Graves argues that such expenditures are not
(...continued)                                               the sort of crime-promoting transactions
use of criminally derived funds “with the intent to          criminalized by § 1956(a)(1)(A)(i), for the
promote” specified unlawful
activities.   Graves was not charged with                    promotion element requires some identifiable
undertaking transactions aimed at “concealing”               and affirmative advancement of the specified
criminally derived funds, which is a violation of            criminal activity. In support of this claim, he
§ 1956(a)(1)(B).                                             points to a number of cases involving
                                                             “promotion” money laundering in which the
         12
            The government, in selecting financial           court highlighted how the expenditures
transactions to fulfill the actus reus requirement of        explicitly furthered specified unlawful
the money laundering charges, picked benign                  activity.14 He then contrasts those cases to the
business expendituresSSpurchases of goods and                case at hand, in which the nexus between the
services                                                     charged expenditures and any fraud activity is
necessary to maintain SGC's legitimate business
operations. It did not have to do so. Courts have
held that a promotion money laundering offense
may occur when a defendant receives and deposits             (...continued)
criminally derived funds, in which case the deposit          minimal or incidental to the underlying crime . . .”).
of the funds is the transaction intended to promote          Having chosen to prosecute Graves for spending
the specified unlawful activity. See, e.g., United           (not merely depositing) dirty money, the
States v. Montoya, 945 F.2d 1068, 1076 (9th Cir.             government was required to show that the
1991). But the government chose not to indict                expenditures were conducted with an “intent to
Graves for depositing the proceeds of fraud.                 promote” SGC's fraudulent activity.
Instead, it made a strategic decision to focus on                     13
SGC's spending transactions (i.e., the checks the                        The allegedly laundered funds paid for
dealership wrote), not on SGC's depositing of                (1) parts, paints, and materials; (2) the floor plan,
funds, perhaps because “receipt and deposit”                 cars that had been traded in, floor plan interest, and
money laundering prosecutions are disfavored.                a charge back; (3) software support and office
                                                             supplies; (4) conversions; (5) used cars;
    Such prosecutions have been criticized because           (6) disposal of waste oil and used oil filters;
the harm of the money laundering transaction (i.e.,          (7) t-shirts, caps, coffee mugs; (8) yearbook
the deposit) is not significantly greater than that of       advertisements; (9) a computer system lease; (10)
the underlying offense. See REPORT FOR THE                   advertising representation; (11) Graves's travel
SENATE AND HOUSE JUDICIARY COMMITTEE ON                      expenses; (12) extended warranties on used
THE CHARGING AND PLEA PRACTICES OF FEDERAL                   automobiles; (13) glass replacement; (14)
PROSECUTORS WITH RESPECT TO THE OFFENSE OF                   automobile association membership fees; (15)
MONEY LAUNDERING 8-9 (1996) (report issued by                photocopier supplies; and (16) a health plan.
the Department of Justice pursuant to Pub.
                                                                     14
Lans. Ch. 104-38, 109 Stat. 334 (1995)). Indeed, the                            See, e.g., United States v. Nattier, 127
Department of Justice issued a Blue Sheet to                 F.3d 655 (8th Cir. 1997), cert. denied, 523 U.S.
chapter 9-105.000 of the U.S. Attorney's Manual              1065 (1998) (checks paid for real estate that
requiring consultation by a U.S. Attorney's Office           promoted the specified embezzlement scheme);
with the Department before a receipt and deposit             United States v. Johnson, 971 F.2d 562 (10th Cir.
case may be prosecuted. Id. at 13-14. See also               1992) (checks paid for office where defendant
United States v. Woods, 159 F.3d 1132, 1135 (8th             conducted the fraud and luxury car that defendant
Cir. 1998) (quoting 1996 DOJ Report to the effect            used to impress investors); United States v.
that money laundering statutes “should not be used           Hildebrand, 152 F.3d 756, 762-63 (8th Cir.) (in
in cases where the money laundering activity is              solicitation fraud, checks used to pay solicitors),
                            (continued...)                   cert. denied, 119 S. Ct. 575 (1998).

                                                         8
non-existent or weak.                                  promote fraud, because it would ensure a
                                                       steady supply of potential victims.
   Graves also points to United States v.
Jackson, 935 F.2d 832 (7th Cir. 1991), in                  The charged transactions, the government
which the defendant, who was both a preacher           asserts, are akin to those in United States v.
and drug dealer, deposited drug proceeds into          Coscarelli, 105 F.3d 984 (5th Cir.), vacated,
his church's checking account. From the                111 F.3d 376 (5th Cir. 1997), reinstated,
church account, he wrote checks to pay for             149 F.3d 342 (5th Cir. 1998), a case involving
beepers, mobile phones, and rent; he also              telemarketing fraud. There, the defendant
wrote some checks for cash. See id. at 841.            used the proceeds of his illegal activity to pay
The defendant's drug runners used the beepers          his co-conspirators and the operating expenses
to communicate with each other, and the court          of their scheme. Id. at 990. The government
therefore held that the beeper purchases were          maintains that the instant case is similar;
intended to promote the specified unlawful             Graves used the funds from the fraud at SGC
conduct. Id. The checks for mobile phones,             to pay SGC's operating expenses, enabling the
rent, and cash, however, did not promote the           dealership to defraud more customers. The
criminal activity and thus did not constitute          government also relies on United States v.
money laundering. Id. The court explained:             Leonard, 61 F.3d 1181, 1186 (5th Cir. 1995),
                                                       in which the defendant telemarketer used his
      The government did not prove that the            ill-gotten gains to pay his callers, purchase
      cellular phones played the same roleSSor         leads, and pay telephone bills so he could scam
      indeed any roleSSin Davis' drug                  more people.15
      operations as the beepers. Likewise the
      rental payments and the checks written              Despite the government's creative
      to cash; certainly these expenditures            argument, we agree with Graves that there is
      maintained Davis' lifestyle, but more            insufficient evidence that the charged
      than this is needed to establish that they       expenditures were financial transactions
      promoted his drug activities.                    conducted “with the intent to promote the
                                                       carrying on of specified unlawful activity.”
Id.                                                    The problem with the government's position is
                                                       that it ignores the intent aspect of the
   Graves argues that the expenditures                 promotion element. Section 1956(a)(1)(A)(i)
charged in the money laundering counts of the          is not satisfied by a showing that a financial
indictment are analogous to the Jackson                transaction involving the proceeds of specified
defendant's expenditures on mobile phones and          unlawful activity merely promoted the carrying
rent: They were intended to support the
dealership's legitimate business activities and
evince no intent to promote fraud.                                15
                                                                       The government also argues that
                                                       Graves's reliance on Jackson is misplaced. It
   The government insists that the                     maintains that Jackson is distinguishable because
expenditures did promote fraud. Its theory,            the legitimate expenditures found not to have been
which the district court accepted, is that the         conducted with the intent to promote unlawful
transactions charged in the indictment                 activity were personal expenditures. Here, by
promoted the ongoing and future criminal               contrast, the charged expenditures were not for
activity at SGC, despite the fact that they were       personal items. The government's only support for
expenditures on the basic operations of the car        this “personal versus non-personal” distinction is
                                                       the Cavalier court's offhand observation that
dealership, because the operation of the               Jackson was “a case of a person simply using
dealership was one grand scheme to defraud.            illegally obtained funds to purchase personal
In other words, any legitimate operating               items.” See 17 F.3d at 93. The Cavalier court did
expense that permitted SGC to stay in business         not establish a principle that all “non-personal”
and maintain or increase its customer base             expenditures made with dirty money fall within the
would also be an expenditure intended to               ambit of § 1956(a)(1)(A)(i).

                                                   9
on of unlawful activity. The provision has a
specific intent element: The government must           This element is not satisfied by mere
show that the “dirty money” transaction was         evidence of promotion, or even knowing
conducted “with the intent to promote the           promotion, but requires evidence of
carrying on of specified unlawful activity.”        intentional promotion.      By contrast, §
                                                    1956(a)(1)(B), the money laundering provision
                                                    applicable to “concealment” transactions,
                                                    requires only knowing concealment, indicating
                                                    that Congress intended a stringent mens rea
                                                    requirement for promotion money laundering.
                                                    Thus, absent some evidence that a dirty money
                                                    transaction that in fact promoted specified
                                                    unlawful activity was conducted with the
                                                    intent to promote such activity, a defendant
                                                    may not be convicted of promotion money
                                                    laundering under § 1956(a)(1)(A)(i).

                                                       This does not mean that there must always
                                                    be direct evidence, such as a statement by the
                                                    defendant, of an intent to promote specified
                                                    unlawful activity. In many cases, the intent to
                                                    promote criminal activity may be inferred from
                                                    the particular type of transaction. For
                                                    example, an intent to promote drug trafficking
                                                    activities could be inferred from the Jackson
                                                    defendant's purchase of beepers, because
                                                    beepers were not necessary to the defendant's
                                                    legitimate business operations and played an
                                                    important role in his drug trafficking scheme.

                                                       In the case at hand, had the government
                                                    produced evidence of, say, payments for
                                                    postage for mailing fraudulent warranty
                                                    claims, such payments might have provided
                                                    evidence of an intent to promote fraud. Mere
                                                    evidence of legitimate business expenditures
                                                    that were necessary to support SGC's non-
                                                    fraudulent operations, however, was not
                                                    enough to establish an intent to promote fraud
                                                    at SGC, even though the expenditures may in
                                                    fact have promoted SGC's fraudulent activities
                                                    by increasing the number of potential fraud
                                                    victims.

                                                       We have previously stressed the importance
                                                    of not turning the “money laundering statute
                                                    into a 'money spending statute.'” See Leonard,
                                                    61 F.3d 1181, 1185 n.2 (quoting United States
                                                    v. Sanders, 928 F.2d 940, 946 (10th Cir.
                                                    1991)). Strictly adhering to the specific intent
                                                    requirement of the promotion element of
                                                    § 1956(a)(1)(A)(i) helps ensure that the money

                                               10
laundering statute will punish conduct that is                                III.
really distinct from the underlying specified              Brown pleaded guilty to wire fraud
unlawful activity and will not simply provide           stemming from a fraudulent warranty claim.
overzealous prosecutors with a means of                 In sentencing Brown, the court increased his
imposing additional criminal liability any time         offense level by six, pursuant to U.S.S.G.
a defendant makes benign expenditures with              § 2F1.1(b)(1)(C), to account for a fraud loss
funds derived from unlawful acts.                       greater than $70,000 but less than $120,000;
                                                        the court determined that the loss totaled
    In a separate money laundering statute,             $75,104.18. Brown was sentenced to eighteen
18 U.S.C. § 1957(a), Congress did criminalize           months' imprisonment and ordered to make
the mere spending of “criminally derived                restitution totaling $75,104.18.
property that is of a value greater than
$10,000” with knowledge of the unlawful                     After the sentencing, the government filed
source.16 The fact that Congress established a          a “Motion to Correct Judgment and
$10,000 per transaction threshold for                   Commitment Order” that advised the court
convictions for simply spending dirty money             that the “figure ordered for restitution to the
further supports our decision to read                   victim insurance companies and the individuals
§ 1956(a)(1)(A)(i) to require either direct             is incorrect. The correct amount is lower,
proof that the charged transaction was                  $67,938.72.” The district court granted the
intended to promote specified unlawful activity         motion. Brown argues that lowering the
or proof of a type of transaction (such as the          amount of restitution owed the defrauded
Jackson defendant's purchase of beepers) that,          insurance companies and individuals moves
on its face, indicates an intent to promote such        him out of the $70,000 to $120,000 bracket of
activity.                                               U.S.S.G. § 2F1.1(b)(1) and into the $40,000
    Absent such proof, § 1956(a)(1)(A)(i) does          to $70,000 bracket, for which only a five level
not permit conviction of a defendant who, like          increase is required.
Graves, deposits proceeds of some relatively
minor fraudulent transactions into the                      Brown's argument is meritless.          The
operating account of an otherwise legitimate            $75,104.18 loss the district court found
business enterprise and then writes checks out          attributable to his conduct included two
of that account for general business purposes.          components: loss to insurance companies and
Accordingly, we reverse Graves's money                  individuals, which totaled $69,548.43, and loss
laundering convictions.                                 to General Motors Corporation, which totaled
                                                        $5,555.75. The amendment to Brown's
                       D.                               judgment affected only the amount he owed in
   Because the court determined Graves's                restitution to “20 victim insurance companies
sentence according to the sentencing                    and 15 individuals.” There was no adjustment
guidelines applicable to money laundering (not          to the amount due General Motors as
fraud) offenses, our reversal of his money              restitution.    Summing the lower figure,
laundering convictions requires that he be              $67,938.72, and the amount owed General
resentenced. We therefore vacate his sentence           Motors, $5,555.75, yields a total restitution of
and remand for resentencing under the                   $73,494.47SSa sum that still warrants a six-
guidelines applicable to fraud offenses.                level increase under § 2F1.1(b)(1).
                                                        Accordingly, the sentence is correct, despite
                                                        the amended amount of restitution.
       16
          See D. Randall Johnson, The Criminally
Derived Property Statute: Constitutional and               For the foregoing reasons, Graves's fraud
Interpretive Issues Raised by 18 U.S.C. § 1957,         convictions are AFFIRMED, and his money
34 WM. & MARY L. REV. 1291, 1302 (1993)                 laundering convictions are REVERSED.
(discussing Sanders and noting that “[u]nlike           Graves's sentence is VACATED and
section 1956, section 1957 is indeed a 'money           REMANDED for resentencing according to
spending statute' . . . .”).                            the sentencing guidelines applicable to fraud

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offenses. Brown's sentence is AFFIRMED.

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