Amicus Curiae Brief — United States v. Santos

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No. 06-1005

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IN THE

Supreme Court of the United States

UNITED STATES OF AMERICA

Petitioner,

Vv.

EFRAIN SANTOS AND BENEDICTO DIAZ

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

BRIEF OF THE NATIONAL ASSOCIATION OF

CRIMINAL DEFENSE LAWYERS AS AMICUS

CURIAE IN SUPPORT OF RESPONDENTS

PAMELA HARRIS JEFFREY IT. GREEN*

NAT’L ASS’N OF CRIMINAL KEVIN M. Henry

DEFENSE LAWYERS SIDLEY AUSTIN LLP

1625 Eye Street, N.W. 1501 K Street, N.W.

Washington, DC 20006 Washington, DC 20005

(202) 736-8000

Counsel for Amicus Curiae

August 22, 2007 *Counsel of Record

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 — WasninGTON, D. C. 20002

QUESTION PRESENTED

The principal federal money laundering statute, 18 U.S.C.

1956(a)(1), makes it a crime to engage in financial

transactions using the “proceeds” of specified unlawful

activities with the intent to promote those activities or to

conceal the proceeds. The question presented is whether

“proceeds” means the gross receipts from the unlawful

activities or only the profits, ie., the gross receipts less

expenses.

(1)

TABLE OF CONTENTS

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SUMMARY OF THE ARGUMENT ..............cceceeseeeeeeees

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I. THE MONEY LAUNDERING STATUTE IS

SUBJECT TO EXPANSIVE INTERPRETA-

TIONS THAT INVITE PROSECUTORIAL

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Il. EXPANSIVE INTERPRETATIONS OF § 1956

HAVE SIGNIFICANT NEGATIVE RAMIFICA-

TIONS FOR THE CRIMINAL JUSTICE

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Il. THE SEVENTH CIRCUIT’S INTERPRETA-

TION PROPERLY LIMITS THE SCOPE OF

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Page

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TABLE OF AUTHORITIES

CASES Page

Cuellar v. United States, 478 F.3d 282 (Sth Cir.

2007), petition for cert. filed, No. 06-1456

Gas CEE 2h AINEE TP cccrsecvttnsinsninssiiinsntiaiinianmmmanitiaien l

United States v. Akintobi, 159 F.3d 401 (9th Cir.

Pa ccerccieecincensasietisicineaianionielicuanibaid cieeiaiaiaia indiana 5

United States v. Cabrales, 524 U.S. 1 (1998)......... l

United States v. Dimeck, 24 F.3d 1239 (10th Cir.

Dara ssticcincinsesicitshaesiciiiahiseaniiebivicinteiatiniianamnesiamaanaiaiiaeaiia 6

United States v. Edgmon, 952 F.2d 1206 (10th

eh Uae rises cusciantereiadaenchisniiiaainaleniaualianiandialiates 4

United States v. Estacio, 64 F.3d 477 (9th Cir.

TUTE cosocntnsenmsniscinniienilisegiidiibadeaianinigumiaamaiamaasadiiiaies 5

United States v. Johnson, 971 F.2d 562 (10th Cir.

See iccinsisosescerteintaiieicncttanicininespiesilinieeiaiaiins ianimbaaeaiietiaiaas 4

United States v. Ness, 466 F.3d 79 (2d Cir. 2006),

- petition for cert. filed, No. 06-1604 (U.S. June

hj Ea eaitasowtncnciiectiseininaiiensiinmiodiimiamagianaainaatia 5

United States v. Posters N' Things, Ltd., 969 F.2d

652 (8th Cir. 1992), aff'd on other grounds, 511

Ss Bree ee iksiinscesiscsinstinnncsisdiiaideiiinaedaiemianenianainailda 5

United’ States v. Reed, 77 F.3d 139 (6th Cir.

EET Matter eS RES. 6

United States v. Skinner, 946 F.2d 176 (2d Cir.

Faia nccisdsstnicctinieennitibbitinahideheddinidaainesamamaumaen ai 7

United States v. Stavroulakis, 952 F.2d 686 (2d

Se a icrcencniscesnsnsinssiiseieasiubinceidiniisasibsiiiniaaiiaiaailanma 4

United States v. Sutera, 933 F.2d 641 (8th Cir.

rT rsiocninverisinereniisiniietaiiaiaianincibaiaaiabasdendinanaauaiiiiaalin as 5

United States v. Wydermyer, 51 F.3d 319 (2d Cir.

PT cicuinsetiiiniiiennmcemonisieinianiaiipaienlasiiacmeesitiians 6

ve}

—

—)

TABLE OF AUTHORITIES — continued

STATUTES

LEGISLATIVE HISTORY

132 Cong. Rec. $9626 (daily ed. July 24, 1986).....

132 Cong. Rec. $9938 (daily ed. July 31, 1986)..... 3

SCHOLARLY AUTHORITIES

Mariano-Florentino Cuellar, Tenuous Relation-

ship between the Fight against Money Launder-

ing and the Disruption of Criminal Finance, 93

J. Crim. L. & Criminology 311 (2003)................ 6, 8

Eric J. Gouvin, Are There Any Checks and

Balances on the Government's Power to Check

Our Balances? The Fate of Financial Privacy

in the War on Terrorism, 14 Temp. Pol. & Civ.

TE EE Cee 8

Mary McNamara & Edward W. Swanson, Money

Laundering: How Prosecutors Clean Up under

18 U.S.C. Sections 1956 and 1957, 26 Forum

61 (1999), available at http://www.smhlegal.

con/articles/ money520laund.pdf...................0.. 7

John K. Villa, Banking Crimes (2006) ............c0000+. 6,8

OTHER AUTHORITIES

aes rice cciledadaidanianen 8

STII hssidetiithdddiecnetriateinsenenemnnmmentennnnseecinens 7

INTEREST OF AMICUS CURIAE'

The National Association of Criminal Defense Lawyers

(“NACDL”) is a non-profit organization with direct national

membership of over 10,000 attorneys, in addition to more

than 28,000 affiliate members from all 50 states. Founded in

1958, NACDL is the only professional bar association that

represents public defenders and private criminal defense

lawyers at the national level. The American Bar Association

recognizes NACDL as an affiliated organization with full

representation in the ABA House of Delegates.

NACDL’s mission is to ensure justice and due process for

the accused; to foster the integrity, independence, and

expertise of the criminal defense profession; and to promote

the proper and fair administration of justice. NACDL

routinely files amicus curiae briefs on various issues in this

Court and other courts and has filed amicus curiae briefs in

previous suits related to 18 U.S.C. §1956. See Whitfield v.

United States, 543 U.S. 209, 211 (2005) (“whether conviction

for conspiracy to commit money laundering . . . requires

proof of an overt act in furtherance of the conspiracy”);

, United States v. Cabrales, 524 U.S. 1, 3 (1998) (discussing

the appropriate venue for trial of money-laundering offenses);

see also Cuellar v. United States, 478 F.3d 282 (Sth Cir.

2007), petition for cert. filed, No. 06-1456 (U.S. May 3,

2007).

' Pursuant to this Court’s Rule 37.6, amicus states that no counsel! for

any party authored this brief in whole or in part, and no person or entity

other than amicus made a monetary contribution to the preparation or

submission of the brief. Counsel of record for all parties have consented to

the filing of this brief, and letters of consent have been filed with the

Clerk.

STATEMENT OF THE CASE

Respondents Santos and Diaz were convicted for their roles

in the operation of an illegal lottery in Indiana. The

participants or gamblers in the lottery placed their bets with

“runners” who took a percentage of the money as a

commission and delivered the balance of the money and

betting slips to “collectors.” The collectors in turn provided

the remainder of the money and the betting slips to Santos,

and received a salary or commission for doing so from the

money collected. Respondent Diaz was a collector in the

operation. Pet. App. 2a, 19a.

la addition to being convicted under 18 U.S.C. § 1955 for

his involvement in the illegal gambling operation, and under

18 U.S.C. §371 for conspiracy to violate Section 1955,

Santos also was convicted of money laundering under 18

U.S.C. § 1956(a)(1 (Ai), and conspiracy to commit money

laundering under 18 U.S.C. § 1956(h). Pet. App. 2a-3a. For

his part, Diaz was convicted, after a guilty plea, of conspiracy

to commit money laundering under 18 U.S.C. § 1956(h). /d

at 3a.

Section 1956 of the Act prohibits financial transactions

using the “proceeds” of “specified unlawful activity . . . with

the intent to promote the carrying on of specified unlawful

activity.” 18 U.S.C. § 1956(a)(a)(A)(i). With respect to

Santos, the money laundering convictions were based upon

Santos’ payments to the lottery’s collectors and winners.

Diaz’s conviction was based on his receipt of payment for his

collection services. Pet. App. 6a. Thus, the money

laundering convictions were premised on the theory that

these. payments were made and received with the intent and

design to “promote the carrying on” of the illegal lottery.

As a result of his money laundering conviction, Santos was

sentenced to 210 months in prison — nearly four times longer

than the maximum five year sentence for committing the

underlying gambling offense. Pet App. 18a, 20a. Diaz

received a shorter sentence on the basis of his guilty plea.

SUMMARY OF ARGUMENT

In the decision below, the United States Court of Appeals

for the Seventh Circuit correctly interpreted the term

“proceeds” in 18 U.S.C. § 1956(a)(1)(A)(i) to mean profits.

This interpretation properly limits the scope of § 1956

consistent with Congress’ intent in enacting the Money

Laundering Control Act of 1986 (the “Act”), 18 U.S.C.

§§ 1956-1957. The clear goal of the Act was to criminalize

the process of giving ill-gotten gains the appearance of

legitimacy through financial transactions — classic “money-

laundering” operations — and thus to prevent the concealment

and spread of criminal activity. See 132 Cong. Rec. $9626

(daily ed. July 24, 1986) (statement of Sen. Thurmond)

(“Creation of a money laundering offense is imperative if our

law enforcement agencies are to be effective against the

organized criminal groups which reap profits from unlawful

activity by camouflaging the proceeds through elaborate

laundering schemes.”). Congress did not intend to punish

defendants twice for the same conduct by imposing additional

penalties for the underlying activity that generates the illegal

proceeds. See 132 Cong. Rec. $9938 (daily ed. July 31,

1986) (statement of Sen. D’ Amato) (“we are creating a new

crime of money laundering”). But, that is precisely what

Petitioner’s broad interpretation of the Act would do.

Notwithstanding the limited purpose of the Act, amici’s

experience is that the instant case reflects a typical and

growing use of § 1956 as a vehicle for increasing potential

sentences substantially in excess of what otherwise would be

permissible for the underlying conduct — without any showing

of the aggravated societal harm that the money laundering

statute was designed to redress; that is, the disposition of ill-

gotten gains to expand criminal enterprises or to disguise

those gains by creating the appearance of legitimate wealth.

Because the Seventh Circuit’s holding would prevent this

misuse of § 1956, amici urge the Court to affirm.

ARGUMENT

I. THE MONEY LAUNDERING STATUTE IS

SUBJECT TO EXPANSIVE INTERPRETATIONS

THAT INVITE PROSECUTORIAL MISUSE.

This case highlights the inappropriate and unfair misuse of

the money laundering statute to “tack on” additional charges

and significantly enhanced penalties to punish conduct that is

virtually indistinguishable from the underlying offense. The

basis for the money laundering charges at issue here is the

payment of winnings to the participants in the illegal lottery

and the payment (and receipt) of salaries to the lottery’s

employees. That very same conduct was integral, not

supplemental, to the continuing operation of the illegal

lottery. But as a resuit of the additional money laundering

charges, Respondents faced potential sentences of twenty:

years — four times longer than the five year maximum for the

underlying offense. Indeed, Santos’ actual sentence was close

to that increased maximum. Pet App. 18a, 20a. Such an

application of the Act was not intended by Congress. See

United States v. Stavroulakis, 952 F.2d 686, 691 (2d Cir.

1992) (citing S. Rep. No. 99-433 (1986) and H.R. Rep. No.

99-855 (1986)); United States v. Johnson, 971 F.2d 562, 569

(10th Cir. 1992).

Congress’s intent in enacting the money laundering statutes

in 1986 was to fill a discrete gap in the criminal law by

preventing the hiding and reinvestment of proceeds derived

from criminal activity. See United States v. Edgmon, 952

F.2d 1206, 1213-14 (10th Cir. 1991) (discussing legislative

history). Notwithstanding this clear intent, many courts have

adopted extraordinarily expansive interpretations of the

Statute, applying it in circumstances that unfairly penalize

defendants without doing anything to advance the statutory

purpose.

For instance, the term at issue in this case — “proceeds” —

has been construed in a variety of ways designed to broeden

the statute’s scope. The Government’s theory in this case

illustrates one such expansive reading. In other cases,

contrary to the plain language of the statute, “proceeds” has

been held to include worthless items. See United States v.

Akintobi, 159 F.3d 401, 403-04 (9th Cir. 1998) (holding that,

although the term “may refer to something of value,” it “has

the broader meaning of ‘that which is obtained . . . by any

transaction,’” and therefore included checks that “ultimately

proved worthless because the accounts backing them up were

either empty or closed”) (citation omitted); see also United

States v. Estacio, 64 F.3d 477, 480 (9th Cir. 1995), as

amended on denial of reh'g (noting that courts “define the

term broadly,” and holding that “proceeds” included “{a]

fraudulently obtained line of credit, which results in an

artificially inflated bank balance”).

The expansive interpretations of the term “proceeds” are all

the more troubiing because prosecutors and courts have also

undermined the limiting effect of other essential terms in the

statute, such as the “conceal or disguise” element and the

“transaction” element. For example, the Second Circuit

recently upheld the money laundering conviction of the owner

of an armored-car business for transportation of cash, without

requiring any evidence that the cash transportation was

designed to create the appearance of legitimate wealth.

United States v. Ness, 466 F. 3d 79, 81 (2d Cir. 2006),

petition for cert. filed, No. 06-1604 (U.S. June 1, 2007).

Some courts also have found the “conceal” element

satisfied when the defendant has done no more than

commingle the proceeds of lawful and unlawful activity in a

single bank account. See United States v. Posters ‘N’ Things,

Ltd., 969 F.2d 652, 661 (8th Cir. 1992) (deposit by “head

shop” owner of shop proceeds into business account), aff'd on

other grounds, 511 U.S. 513 (1994); United States v. Sutera,

933 F.2d 641, 648 (8th Cir. 1991) (deposit of gambling

proceeds into family business account bearing defendant’s

name).

Courts have broadly interpreted other provisions of § 1956

as well. To be convicted under § 1956(a)(1), a defendant

must have conducted a “financial transaction,” which

§ 1956(c)(4) defines as “a transaction which in any way or

degree affects interstate or foreign commerce” involving,

inter alia, “the movement of funds by wire or other means.”

Some courts have construed the phrase “or other means” to be

virtually unlimited. See, e.y., United States v. Reed, 77 F.3d

139, 143 (6th Cir. 1996) (delivery of money by courier

“involved the movement of funds by wire or other means”)

(internal quotations omitted); United States v. Wydermyer, 51

F.3d 319, 326-27 (2d Cir. 1995) (“physical transportation of

money out of the United States by hand” is a financia!

transaction by “other means”); United States v. Dimeck, 24

F.3d 1239, 1246 (10th Cir. 1994) (noting that physical

delivery of cash is “movement of funds by wire or by other

means”). According to one commentator, such interpretations

have “the potential to extend the reach of the money

laundering statute to any movement of property and greatly

expand its scope.” John K. Villa, Banking Crimes § 8:10

(2006). Another commentator expressed a similar concern:

The continuing trend toward widening what is meant by

financial transaction gives prosecutors ever more leeway

in deciding when to use [section] 1956, because the

occurrence of some kind of financial transaction is what

triggers liability under the statute. In short, the pattern is

that interpretations have become more draconian over

time.

Mariano-Florentino Cuellar, Tenuous Relationship between

the Fight against Money Laundering and the Disruption of

Criminal Finance, 93 J. Crim. L. & Criminology 311, 348

(2003).

As a result of such expansive interpretations of these terms,

many courts now punish as “money laundering” conduct that

bears virtually no relation to the concept as it is commonly

understood. See United States v. Skinner, 946 F.2d 176 (2d

Cir. 1991) (sale of cocaine sufficient for conviction under the

money laundering statute). “[T]Jhe fluidity of the judicial

understanding of these concepts means that defenses based on

grammar and logic seem doomed to failure.” Mary

McNamara & Edward W. Swanson, Money Laundering: How

Prosecutors Clean Up under 18 U.S.C. Sections 1956 and

1957, 26 Forum = 61 (1999), available _— at

http://www.smhlegal.com/articles/money520laund.pdf (last

visited Aug. 21, 2007). These interpretations raise serious

concerns that the power of prosecutors to bring a defendant’s

conduct within the statute has been unfairly and improperly

expanded. “Distinctions in the details of [sections] 1956 and

1957 [a companion money laundering statute] should not

obscure the prevailing pattern in the way courts parse the

statutes’ abstruse terms: with just occasional exceptions, over

time the statutes’ interpretation har tended to favor

prosecutors.” Cuellar, 93 J. Crim. |. & Criminology at 343.

Il. EXPANSIVE INTERPRETATIONS OF § 1956

HAVE SIGNIFICANT NEGATIVE RAMIFICA-

TIONS FOR THE CRIMINAL JUSTICE SYSTEM.

As this case demonstrates, an overbroad reading of the

principal money iaundering statute will have severe

consequences for the many criminal defendants accused of

violating it, and for the criminal justice system as a whole.

Section 1956 imposes harsh penalties: a statutory maximum

of up to twenty years’ imprisonment and a fine of either

$500,000 or twice the value of the property involved in the

transaction, whichever is greater. Additionally, although the

Sentencing Guidelines were amended in 2001 in an effort to

“tie[] offense levels for money laundering more closely to the

underlying conduct,” U.S. Sentencing Guidelines Manual

app. C, amend. 634 (2001), reason for amend. (2006), money

laundering charges can, as in this case, result in a sentence far

greater than that for the predicate offense alone when the

offerse is not a drug trafficking crime. Villa, § 11:30 (Supp.

2006); see also Cuellar, supra, at 348-49 (2001 Sentencing

Guidelines amendments left sentences for money laundering

“severe enough that prosecutors and investigators could use

money laundering charges as substitutes for underlying

predicate offense charges that might be more difficult to

prove against particular defendants”). Conviction under

§ 1956 automatically adds two offense levels to the base level

offense applicable to the underlying offense, even if no other

sentencing enhancements apply. USSG § 2S1.1(b)(2)(B).

The prospect of a higher sentence allows prosecutors to

extract plea bargains and forfeitures that might not otherwise

be obtained and that may not be in the interest of justice. See

Eric J. Gouvin, Are There Any Checks and Balances on the

Government's Power to Check Our Balances? The Fate of

Financial Privacy in the War on Terrorism, 14 Temp. Pol. &

Civ. Rts. L. Rev. 517, 534-35 (2005) (noting, in the context of

anti-money laundering provisions in the USA PATRIOT Act,

that “prosecutors have used money laundering violations as a

device to leverage up the criminal consequences for regulated

behavior, creating incentives for the accused to plea

bargain”). Because an indictment with a § 1956 charge risks

heavier sentence than does an indictment (for the same

conduct) without such a charge, prosecutors have a great

incentive to threaten such a charge to enhance their

bargaining leverage. The mere threat of a money laundering

charge thus can be a powerful weapon in the prosecutor’s

negotiating arsenal.

This vast increase in potential punishment is entirely

unjustifiable if it is not accompanied by greater culpability on

the part of the accused — and, specifically, by the culpability

that Congress meant to punish when it enacted the statute in

the first place. Instead, prosecutors and courts have

interpreted § 1956 to apply to the myriad crimes where funds

are merely an aspect of the enterprise at issue and therefore to

embrace conduct that comes nowhere close to presenting the

dangers to society that the money laundering statute was

designed to address. Defendants, including Respondents

here, should not face enhanced potential sentences for

conduct not meaningfully more blameworthy than the

underlying predicate offenses.

Ill. THE SEVENTH CIRCUIT’S INTERPRETATION

PROPERLY LIMITS THE SCOPE OF THE ACT.

The Seventh Circuit’s interpretation of the term “proceeds”

as limited to profits is consistent with congressional intent

and necessary to prevent defendants from inappropriately

being punished twice (and more severely) for the same

conduct. Petitioner's argument to the contrary is

unpersuasive, and actually demonstrates that Respondents’

underlying conduct is indistinguishable from that which

forms the basis of the money laundering charge.

Petitioner argues that the money laundering offense is

separate and distinct from the gambling offense because

“{p]roof that payments were made to employees or to winners

is not required to establish a violation” of the underlying

gambling statute, 18 U.S.C. § 1955(b)(1). Br. for U.S. at 41.

But such an “identity of the elements” test does not answer

the question presented here as to exactly what the elements of

a money-laundering charge are. Petitioner’s argument also

fails in its additional effort to diminish concern about unfair

multiplicity of charges. Even Petitioner admits that a charge

under § 1955, which prohibits “illegal gambling businesses,”

requires a showing that the operation “must remain in

continuous operation for more than 30 days or have gross

revenue of at least $2,000 in any given day.” /d. (emphasis

added). Accordingly, the elements and purpose of § 1955

expressly contemplate the operation of a business, which

itself implies the payment of expenses (and thus, “promotion”

in Petitioner’s view as well, see infra), along with the receipt

of revenues — precisely the same requirements for application

of the money-laundering statute under Petitioner’s expansive

‘interpretation. There is thus every reason for concern that

follow-on § 1956 charges may be purely “make weight” and

open to arbitrary and capricious application.

Petitioner also contends that the payments made to

employees or to winners make it possible for the operation to

continue and thus amounts to “promotion” under the money

laundering statute. See id. at 23. Thus, at least in those

instances in which the basis for the § 1955 violation is the

continuing operation of the scheme, Petitioner apparently

would concede that the conduct which amounts to

“promotion” is indistinguishable from the conduct supporting

the § 1955 charge.

Interpreting “proceeds” to mean only profits avoids the

problem of unfair multiplicity by ensuring that a money

laundering charge is based on what Congress intended — the

re-investment of illegal profits to expand unlawful activities.

CONCLUSION

For the foregoing reasons, as well as those stated in

Respondents’ Briefs, the judgment of the Seventh Circuit

should be affirmed.

Respectfully submitted,

PAMELA HARRIS JEFFREY T. GREEN*

NAT’L ASS’N OF CRIMINAL KEVIN M. HENRY