Friday, March 18, 2011

One More Post: Money Laundering

(Tried to find a "laundering" pic.)

United States v. Crosgrove, No. 08–4650 (6th Cir. Mar. 18, 2011) (to be published). Panel of Judges Merritt, Rogers, and White.

After a trial, D convicted of conspiring to commit mail fraud (violation of 18 U.S.C. § 371) and conspiring to launder money (violation of 18 U.S.C. § 1956(h)). Appellate court found that "the Government did not produce sufficient evidence at trial to support the conspiracy to commit money laundering charge, and the judgment of conviction for that count has to be vacated." The "Government failed to show that the money involved in the alleged transactions represented the profits of unlawful activity, as required under United States v. Santos, 553 U.S. 507, 514 (2008), and United States v. Kratt, 579 F.3d 558, 561–62 (6th Cir. 2009)."

Indictment alleged that defendant conspired to participate in "promotion" money laundering, violating 18 U.S.C. § 1956(a)(1)(A)(i). "Promotion" money laundering involves reinvestment of proceeds of unlawful activity into the illegal scheme from which those proceeds were derived. The government must prove that a defendant conspired to conduct a financial transaction involving the proceeds of unlawful activity, with knowledge that the money was the proceeds of the unlawful activity, and with the intent to promote such underlying criminal activity.

The government must identify transactions (or planned transactions for a conspiracy charge) that represent the proceeds of the underlying illegal activity. Prosecutor here stated at oral argument that the only transactions on which the conviction could be upheld were the defendant’s deposits of checks that were issued to him from a certain "member fees" account.

These checks were monthly checks for pre-established, fixed amounts and could be characterized as salary payments. The jury found the defendant guilty on June 3, 2008, one day after the Supreme Court issued its decision in Santos. So while it is understandable that the impact of the Santos decision was not considered at trial, that decision’s interpretation of the "promotion money laundering" statute, as understood in the Sixth Circuit, still controls this case.

And because the defendant’s money laundering and mail fraud charges merge, and the money laundering charge carries a substantially higher statutory max than the mail/wire fraud charge, the government had to show that the proceeds involved in the charged transaction represented scheme profits—not just gross receipts.

Prior to Santos, the Sixth Circuit interpreted "proceeds" to mean gross receipts. But post-Santos, the circuit has "concluded that proceeds means profits for cases that fall within a certain framework, but continues to mean receipts for all other cases. ‘‘Proceeds’. . . means profits only when the § 1956 predicate offense creates a merger problem that leads to a radical increase in the statutory maximum sentence and only when nothing in the legislative history suggests that Congress intended such an increase.’" Court found that this case falls within this framework.

Because the money laundering conspiracy charge significantly increased the defendant’s potential sentence, it was necessary to determine whether the predicate offense and the money laundering charge merged. But it was "not necessary to decide in this case whether the merger analysis requires a case-by-case or categorical approach . . . because the crimes as charged obviously merge."

Charges merged, and the money laundering charge carried a far heavier statutory max than the mail/wire fraud charge. Nothing in the legislative history indicates that Congress intended this result for the predicate crime of mail/wire fraud unrelated to narcotics trafficking. So the profits definition of "proceeds" had to apply to this case.

While there may be an argument that someone in the defendant’s position could receive such a high fixed payment, even one characterized as a "salary," because it represented profits of the enterprise, no such evidence was presented. And the monthly payments the defendant received ($2,500, $3,000, and $3,500) did not appear exceptional and could not be construed as anything more than payments for services rendered.

Appellate Advocacy Issue:

Defendant raised a claim of insufficient evidence in his initial brief, but he based that claim on a mens rea argument. Mentioned Santos only in his reply brief, and only in the context of the knowledge claim.

Reply brief did not discuss the receipts/profits distinction or the merger issue. At oral argument, the prosecutor contended that the Santos argument should have been deemed forfeited. But court finds that defendant did make an insufficiency-of-the-evidence claim before the trial court and in his initial brief, so the prosecutor was aware of the claim.

And while the defendant’s initial brief emphasized the government’s failure to prove knowledge, it also asserted that the defendant was just an employee of the scheme, and argued that the government had failed to prove the defendant knew the property represented proceeds of unlawful activity, and that he had the intent to promote the carrying on of the activity. So the defendant "may have, albeit inartfully, put all aspects of the money laundering charge into issue in his initial brief."

And even if the defendant did fail to raise a Santos claim, the court noted that it "may nonetheless reverse the conviction in the interest of justice." Such reversal requires satisfying the plain-error standard. Such was the case here. The error need only be plain under current law.

District court’s evidentiary rulings upheld. Sundry sentencing decisions affirmed.

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