Wednesday, May 27, 2009

Fraud Enforcement Recovery Act of 2009 - The Money Laundering Provisions

In recent years, some white collar cases have had money laundering charges included in the Indictment.  Some may believe that the addition of money laundering counts is used as leverage to secure a plea from the accused. The Fraud Enforcement Recovery Act of 2009 includes changes to both sections 1956 and 1957 of title 18, the money laundering statutes. The changes are as follows:

SPECIFIED UNLAWFUL ACTIVITY.—

(1) MONEY LAUNDERING.—Section 1956(c) of title 18, United States Code, is amended—

(A) in paragraph (8), by striking the period and inserting ‘‘; and’’; and

(B) by inserting at the end the following:

‘‘(9) the term ‘proceeds’ means any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity.’’.

(2) MONETARY TRANSACTIONS.—Section 1957(f) of title 18, United States Code, is amended by striking paragraph (3) and inserting the following:

‘‘(3) the terms ‘specified unlawful activity’ and ‘proceeds’ shall have the meaning given those terms in section 1956 of this title.’’

It is obvious in reading the language that Congress was reacting to the Supreme Court decision in United States v. Santos, where a plurality (Scalia, Souter, Ginsberg, and Thomas) found that the rule of lenity applied because of a failure to define the term "proceeds" in the statute.  Justice Stevens went with these four justices, but limited his decision, saying he would not have ruled this way if the case involved contraband or organized crime.  The Court, therefore, held that "proceeds referred to "profits" and not "receipts."  A four person dissent (Breyer, Alito, Roberts, and Kennedy) believed that proceeds should include the total amount brought in.  This Congressional amendment to the statute endorses the position taken by the dissent and provides a definition of what is meant by the term "proceeds."  

But there are several points to note here.  Even though the new legislation clarifies the statute, thus voiding any need to resort to the Rule of Lenity in defining "proceeds" and also resolves future cases on which crimes are covered by the Santos decision (an issue that several district and circuit courts have had to contend with), it may still allow defense counsel to make merger arguments.  As stated by Justice Stevens in his concurring opinion in Santos

"Allowing the Government to treat the mere payment of the expense of operating an illegal gambling business as a separate offense is in practical effect tantamount to double jeopardy, which is particularly unfair in this case because the penalties for money laundering are substantially more sever than those for the underlying offense of operating a gambling business."

 It also leaves open the issue of how this statute applies to mail fraud when the crime is not complete and whether a sentence can be enhanced when the predicate offense and the money laundering merge.  Congress was clearly concerned about the merger issue as the amendment includes a specific statement "Sense of the Congress and Report Concerning Required Approval for Merger Cases" that states:  

(1) Sense of Congress - It is the sense of the Congress that no prosecution of an offense under section 1956 or 1957 of title 18, United States Code, should be undertaken in combination with the prosecution of any other offense, without prior approval of the Attorney General, the Deputy Attorney General, the Assistant Attorney General in charge of the Criminal Division, a Deputy Assistant Attorney General in the Criminal Division, or the relevant United States Attorney, if the conduct to be charged as ‘‘specified unlawful activity’’ in connection with the offense under section 1956 or 1957 is so closely connected with the conduct to be charged as the other offense that there is no clear delineation between the two offenses.

(2) REPORT.—One year after the date of the enactment of this Act, and at the end of each of the four succeeding one-year periods, the Attorney General shall report to the House and Senate Committees on the Judiciary on efforts undertaken by the Department of Justice to ensure that the review and approval described in paragraph (1) takes place in all appropriate cases. The report shall include the following:

(A) The number of prosecutions described in paragraph (1) that were undertaken during the previous one-year period after prior approval by an official described in paragraph (1), classified by type of offense and by the approving official.

(B) The number of prosecutions described in paragraph (1) that were undertaken during the previous one-year period without such prior approval, classified by type of offense, and the reasons why such prior approval was not obtained.

(C) The number of times during the previous year in which an approval described in paragraph (1) was denied.

(esp)

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Comments

The amendment to the money laundering statute defining "proceeds" -- however unfortunate -- strengthens the argument that "proceeds" means only net profits and not gross receipts as used in the criminal forfeiture statutes, since Congress in FERA could have, but apparently chose not to, make the new definition apply in the analogous forfeiture setting.

Note also that a provision of FERA that initially passed the Senate, but then failed in the House, was omitted from the final bill: a provision adding a purpose of tax evasion to the list of prohibited specific intents for international money laundering. This conscious omission strengthens the argument against stretching to apply the international ML provision in tax evasion cases by treating funds saved in unpaid taxes as "proceeds" that are "laundered" simply by transporting or transferring them to another country.

Posted by: Peter G | May 28, 2009 7:41:56 PM

I was also wondering about the mail fraud issue. I hope they will look into it ASAP. Please let us know as soon anything come up regarding this issue. Thanks

Posted by: AML | Oct 22, 2010 9:39:37 AM

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