On October 3, 2007, the Court will hear oral arguments in US v. Santos.

From the 1970′s through the 1990′s, Efrain Santos operated an illegal lottery in north-west Indiana. He was convicted of running an illegal gambling ring and laundering that money through his payment of runners and money collectors who were involved in his scheme. Santos revolves around interpretation of the word ‘proceeds’ in federal money laundering statutes that criminalize financial transactions that are designed to hide the true source of a certain sum of money. Here is the statute in question (18 U.S.C. 1956 (a)):

(1) 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—

    (A)

      (i) with the intent to promote the carrying on of specified unlawful activity; or
      (ii) with intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986; or
    (B) knowing that the transaction is designed in whole or in part—

      (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or
      (ii) to avoid a transaction reporting requirement under State or Federal law,
      shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both.

The Court is asked to decide whether the word ‘proceeds’ means the ‘gross recipts” obtained from illegal sources or the ‘net profits’ or ‘profits’. Defendant Santos argued in lower courts that the money he paid to his runners and collectors were procedural transactions that were necessary to the running of his gambling ring. The US government argued that they were used to promote and enhance his ring (which activated the laundering charge.) Santos argued that money laundering statues only criminalize “the practice of reinvesting the proceeds of an already completed unlawful activity to promote the expansion of that unlawful activity.”

The Seventh Circuit rejected the government’s logic on appeal. The government had asked the Seventh Circuit to overrule their own precedent that was set in US v. Scialabba that held that operating expenses that came out of gross income did not constitute the promotion of illegal activities that a money laundering conviction required. The Seventh Circuit reasoned in Scialabba that ‘proceeds’ must mean net profits because nearly every crime could be considered laundering otherwise. Any ring that has expenses would instantly be considered a laundering scheme if the government’s logic were adopted.

You can always find more information about upcoming cases before the court at our 2007 Term Case Index.


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