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SCOTUS defines money-laundering 'proceeds'

Michael W. Hoskins
January 1, 2008
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The Supreme Court of the United States has defined money laundering and tossed out the convictions of an East Chicago man in a split decision today.

The high court ruled on U.S. v. Efrain Santos, et al., No. 06-1005, which involved a money-laundering ring in East Chicago. This was one of two money-laundering cases decided by the court today; the other came in Cuellar v. U.S., No. 06-1456, which held that mere concealment of money during a transport is not enough to support a conviction for money laundering.

In Santos, a majority of justices held that "proceeds" according to the federal money-laundering statute applies only to transactions involving criminal profits, not the total amount of money.

Justices applied a narrow interpretation that authoring Justice Antonin Scalia said will not unduly burden the federal government and law enforcement agencies, who must show only that a single instance of unlawful activity was profitable.

The court applied the rule of lenity that favors defendants, not prosecutors, as it pondered the statute and reflected on the word "proceeds."

"Under either of the word's ordinary definitions, all provisions of the federal money-laundering statute are coherent; no provisions are redundant and the statute is not rendered utterly absurd," the opinion states. "From the face of the statute, there is no more reason to think that 'proceeds' means 'receipts' than there is to think that 'proceeds' means 'profits.' Under a long line of our decisions, the tie must go to the defendants. Because the 'profits' definition of 'proceeds' is always more defendant-friendly than the (other) definition, the rule of lenity dictates that it should be adopted."

But in a dissenting opinion - with which Chief Justice John Roberts and Justices Anthony Kennedy and Steven Breyer concurred - Justice Samuel Alito wrote, "Concluding that 'proceeds' means 'profits,' the plurality opinion's interpretation would frustrate Congress' intent and maim a statute that was enacted as an important defense against criminal enterprises."

Specifically, the Santos case involves the federal prosecution of a tavern lottery raid where Santos - known as "Puerto Rican Frankie" - was arrested for running the illegal operation throughout the region from the 1970s to 1994. He was sentenced to 17 years in prison in 1998, but was released after the 7th Circuit issued rulings that changed the interpretation of money laundering. Following those decisions, U.S. District Judge James Moody in Hammond ruled that Santos' actions were no longer considered money laundering because of an interpretation of "net proceeds" and "gross proceeds" in federal laws.

Indianapolis lawyer Todd Vare with Barnes & Thornburg argued before the high court Oct. 3, 2007, making Santos the oldest case on its docket this term. This was the Hoosier attorney's first appearance before the SCOTUS and now represents a victory in a case that he took pro bono.

"My client is very pleased that he's properly being kept a free men," said Vare, indicating he spoke with his client within minutes of hearing about the ruling this morning. "Legally, I'm very pleased because it reflects the arguments we made about this ambiguous statute and, what's most interesting, is the division of justices on either side shows how difficult it was interpreting this statute and applying interpretations to the facts here."
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