White Collar Crime Prof Blog

Tom Delay: Political Prisoner (Part 2)

In commenting here Wednesday about former Travis County District Attorney Ronnie Earle's shameful money laundering prosecution of Tom DeLay, I noted that:

"The election code conspiracy charge [against DeLay] was almost immediately thrown out because there was no such crime in existence in Texas, as Earle should have known, and as the state’s highest criminal court later confirmed."

R. K. Weaver sent in a comment disagreeing with my analysis. According to Weaver:

"While it is true that there is no express 'conspiracy' provision in the Election Code, there is a general 'conspiracy' provision in the Penal Code which, on its face, and historically was considered to apply to all crimes in Texas. The Texas Court of Criminal Appeals, an elected body that is entirely occupied by Republicans, held for the first time in the history of Texas law, and contrary to abundant precedent, that this provision was limited to Penal Code crimes and was not applicable to the thousands of crimes that exist outside the Penal Code. That decision is generally considered by Texas lawyers to be absurd on its face and blatantly political. Unfortunately, it is also not terribly uncommon. There is a good reason that this court is referred to as 'the clowns on the Colorado.'" [emphasis added].

"When Earle indicted DeLay for conspiracy to violate the criminal provisions of the Election Code he was acting on established and well known Texas legal principals. DeLay's victory before the Court of Criminal Appeals was more about the political landscape in Texas than about the state of the law. I anticipate that when the current case gets before that court they will once again carve a 'DeLay exception 'to the law." [emphasis added].

Weaver is mistaken.

Title 4, Section 15.02 of the Texas Penal Code is the general criminal conspiracy statute. In 1977, long before Tom DeLay's rise to prominence, the Texas Court of Criminal Appeals, the highest court in Texas authorized to rule on criminal cases, held in Baker v. State, 547 S.W.2d 627 (Tex.Cr.App.1977), that Section 15.02 (the general conspiracy statute) could not be applied to a criminal offense defined by another law (that is, defined by a law located outside of the Penal Code) unless the other law explicitly referenced the Penal Code. The non-Penal Code offense at issue in Baker was the Texas Controlled Substances Act. Baker followed a similar holding in Moore v. State, 540 S.W.2d 140 (Tex.Cr.App. 1977), which had found Section 15.01 of the Penal Code, the general attempt statute, inapplicable to the Controlled Substances Act. Both rulings were based on a strict reading of Penal Code Section 1.03(b) which stated in part that “[t]he provisions of Titles 1, 2 and 3 of this code apply to offenses defined by other laws, unless the statute defining the offense provides otherwise.” Since the conspiracy and attempt statutes were contained in Title 4, they could not apply to the Controlled Substances Act, the Court of Criminal Appeals reasoned, unless the Controlled Substances Act provided otherwise. The Controlled Substances Act did not provide otherwise, and did not contain its own attempt or conspiracy provisions. (The Texas Legislature later amended the Controlled Substances Act and it now expressly references Title 4 Penal Code offenses.) Both Baker and Moore were written by Tom G. Davis, a widely respected mainstream jurist. Judge Davis was a Democrat, as were all of the judges on the Court of Criminal Appeals at the time. In reversing Baker’s conviction and ordering the prosecution dismissed, Davis ruled that “[t]he complaint and information in the instant case do not allege an offense against the laws of this state."

Baker was still the law in Texas in 2005, when Earle brought his indictment against DeLay, and had been the law for 28 years. The pertinent portions of the conspiracy statute (Section 15.02) and of Section 1.03(b) remained the same. Earle’s original indictment of Tom DeLay charged that DeLay conspired in October of 2002 to violate the Texas Election Code. The Election Code is not a part of the Penal Code. In 2002, the Election Code did not contain a conspiracy provision or reference or incorporate Section 15.02. In other words, under authority of Baker and Moore, one could not conspire to violate the Election Code. The Election Code was amended, effective September 1, 2003, to permit application of Title 4 offenses, including the Section 15.02 conspiracy statute. But the amended version could not be applied to DeLay’s alleged conduct without violating Ex Post Facto principles. Ergo, Earle’s original indictment of DeLay did not, in the words of Tom G. Davis, “allege an offense against the laws of this state.”

According to a story in the Washington Post, Earle did not learn that there might be a problem with the original charge until his assistants told him about it, shortly after the indictment was returned. How sad. The Penal Code went into effect in 1973. The Election Code was enacted in 1975. Earle was elected Travis County District Attorney in 1976. Baker was decided in 1977. DeLay was indicted in 2005. When Earle found out about his mistake, he did not drop the Election Code conspiracy charge, which would have been the right thing to do. He re-indicted DeLay, using a new grand jury under dubious circumstances, but kept the Election Code conspiracy charge in the indictment. The trial court properly threw it out. The Court of Criminal Appeals affirmed in a 5-4 opinion. 

(wisenberg)

 

Tom DeLay: Political Prisoner

The Washington Post reports here on the three year prison sentence handed down Monday to former House Majority Leader Tom DeLay by Texas state judge Pat Priest. DeLay was found guilty last November by an Austin jury of money laundering and conspiracy to commit money laundering under Texas criminal statutes.

The prosecution of DeLay by Travis County District Attorney Ronnie Earle and his successor has been nothing less than a travesty of justice. This is really not about Tom Delay. You can love him or you can hate him. It is instead about our collective glee whenever a person of an opposing ideology gets indicted.

Earle originally indicted DeLay for conspiracy to commit money laundering and conspiracy to violate the state election code. The election code conspiracy charge was almost immediately thrown out because there was no such crime in existence in Texas, as Earle should have known, and as the state’s highest criminal court later confirmed. The money laundering charge, and the conspiracy charge on which it is bottomed, should have never been brought either. Here’s why.

Delay's alleged laundering activity was accomplished through the writing of checks. DeLay was accused and convicted of knowingly conducting, supervising, and facilitating a transaction involving the "proceeds" of criminal activity in violation of the state money laundering statute, Texas Penal Code Section 34.02. In 2002, the year of the alleged offense, Section 34.01 of the Penal Code provided that "‘Proceeds’ meant "funds acquired or derived directly or indirectly from, produced through, or realized through an act." Section 34.01 defined "funds" as follows.

"‘Funds" includes:

(A) coin or paper money of the United States or any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issue;

(B) United States silver certificates, United States Treasury notes, and Federal Reserve System notes; and

(C) official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country and foreign bank drafts."

So, in 2002 the "proceeds" of criminal activity meant "funds" acquired, derived, produced or realized through an act. "Funds" in turn included: coin or paper money designated as legal tender, circulating, and used as a medium of exchange; United States silver certificates, United States Treasury notes, and Federal Reserve System notes; and, official foreign bank notes used and accepted as a medium of exchange in a foreign country, and foreign bank drafts. Most conspicuously, "funds" did not include checks. This was no accident. The final version of the 1993 money laundering statute was far narrower than the draft first introduced in the Texas House of Representatives. The initial draft prohibited the knowing facilitation of a transaction involving "property" that was the "proceeds" of criminal activity. Property was defined broadly to cover tangible or intangible personal property as well as "a document, including money, that represents or embodies anything of value."

I am aware of no reported cases under the original Texas money laundering statute, prior to DeLay’s indictment, in which the proceeds of criminal activity were identified as checks. In the vast majority of the cases, the laundered proceeds consisted of currency. There were no reported cases even discussing whether a check could constitute laundered funds. The reason for this is obvious. Virtually no prosecutor in Texas thought that checks were "funds" under the old money laundering statute. 

In 2005, the Texas Legislature amended the money laundering statute and broadened the definition of "funds" to include "currency or its equivalent including an electronic fund, personal check, bank check, traveler’s check, money order, bearer negotiable instrument, bearer investment security, bearer security, or certificate of stock in a form that allows title to pass on delivery." The House Research Organization’s analysis of the amendment stated that it would "broaden the definition of ‘funds’ to include money other than cash." The analysis also notes, in the "Supporters Say" section, that "[u]nder current law, prosecutors may not prosecute offenders for money-laundering if the offender received a form of money other than cash, such as checks or money orders. This is inadequate as it prevents prosecution under this statute in an array of cases." The new bill "would fix this problem by covering money received in a variety of forms other than cash." It gets even worse. Members of Travis County District Attorney Ronnie Earle’s own staff helped in the drafting of the 2005 amendment!

Of course DeLay could not be prosecuted under the 2005 version of the statute, for conduct that allegedly occurred in 2002, without violating the Constitution’s ex post facto clause. But that sort of problem did not bother Earle. He simply used the 2002 version, even though nobody thought back then that "laundering" via checks constituted laundering under Section 34.02.

The case is now headed for the higher courts. Here’s hoping that one of them does the right thing.

(wisenberg)

An Overlooked Key to Combating Overcriminalization: Reflecting on a Decade of Supreme Court Decisions Disfavoring Overly-Expansive Interpretations of Criminal Statutes

Guest Blogger - Dane C. Ball - Gerger & Clarke

Federal courts often make an understandable mistake when faced with issues of statutory interpretation in criminal cases, focusing only on precedent that is directly on point.  As a result, courts sometimes miss important trends that are broader than a specific statute or case.  The fight against overcriminalization—which in part stems from overly-expansive readings of criminal statutes—is one such trend.  By reflecting on a decade of Supreme Court decisions invalidating overly-expansive readings of criminal statutes, lower courts might notice the trend and avoid repeating previous mistakes that led to overcriminalization. 

Since 1999, and in the midst of stiff opposition from prosecutors and lower courts, the Supreme Court has spend much of its effort curtailing the seemingly-limitless reach of various federal criminal statutes. 

1. Mail and Wire Fraud:  In Neder, the Supreme Court rejected the argument that the federal fraud statutes contain no “materiality” requirement in relation to misrepresentations or omissions.  In Cleveland, the Court rejected the position that a State’s “right” to truthful information in a license application is “property” protected by the fraud statutes.  And most recently, in Skilling, the Court limited the honest-services fraud statute to “bribe and kickback” schemes, rejecting a more expansive interpretation extending the statute to undisclosed “conflicts of interest” and “self dealing.”
2. Money Laundering:  In Cuellar, the Supreme Court disagreed that the federal money laundering statutes criminalize the act of concealing money merely to transport it, rather than transporting  money to conceal it.  And in Santos, the Court held that the term “proceeds”—at least when applied to illegal gambling—means “profits,” not “gross receipts.” 
3. Bribery:  In Sun-Diamond Growers of California, the Supreme Court determined that, contrary to the government’s position, bribery under 18 U.S.C. § 201 requires a quid pro quo—i.e., a link between a “thing of value” and a specific “official act.”

 Read in isolation, each decision addresses a specific statute and utilizes—in addition to common canons of statutory interpretation—specific principles to narrow the statute (e.g., fair notice or federalism).  But when courts read these cases in isolation, they inevitably end up watering down their true meaning and intended effect.  For example, after Neder, courts so broadly interpreted the “materiality” element that misrepresentations and omissions rarely are deemed immaterial; after Santos, lower courts overwhelmingly refused to apply the decision’s definition of “proceeds” outside the gambling context (and Congress later amended the definition to expressly include “gross receipts” in all cases); after Sun Diamond, most courts have refused to require a specific quid pro quo under bribery statutes similar to section 201, such as section 666; and after Skilling, at least one court (the Northern District of New York, in a case called Queri) has allowed the government to repackage invalidated honest-services theories as “intangible property” theories.

If the Supreme Court cases are read together, on the other hand, they show a decade-long trend disfavoring overly-expansive readings of criminal statutes, which contribute to overcriminalization.  Equally important, when read together the cases provide all the tools needed to avoid expansive interpretations and overcriminalization, rather than one tool discussed in one case addressing one statute.  Lower court’s should keep this Supreme Court trend in mind in future cases. 

Dane C. Ball is a Houston-based criminal defense attorney with Gerger & Clarke.

(DCB)

New Books, Articles, and Other Materials

Sara Sun Beale, (forthcoming Ohio St J of Criminal Law), An Honest Services Debate 

Alexander Bunin (Federal Public Defender Northern District of NY), Federal Convictions Reversed  (a wonderful compilation of federal cases  from the United States Courts of Appeal and the United States Supreme Court. The opinions contain at least one point favorable to criminal defendants), Download Federal Convictions Reversed 08.2010

Money Laundering Counts Reversed in Two Sixth Circuit Cases

Two former officers and directors of the National Century Financial Enterprises had been convicted on multiple counts. The Sixth Circuit reversed the money laundering counts.

In the first case, United States v. Ayers, the court examined a conviction of conspiracy to commit money laundering and held that based upon Cuellar v. United States, 128 S.Ct. 1994 (2008), the conviction could not be upheld. The court stated:

"The government is correct that the Receivables Purchase Reports involved concealment: They falsely represented that investors’ funds were being legitimately used, and thereby induced the Trustees to wire the funds to providers. But that explains only how, and not why, the money was moved. The proposition that Ayers authorized the advances for the purpose of submitting phony Reports is simply implausible on this record. The government proved only that the Reports facilitated the advances; it did not prove that the Reports, or concealment generally, were the transactions’ purpose."

In Faulkenberry v. United States, the court stated in part:

"All of this reasoning, in our view, applies to the meaning of "designed" as used in § 1956(a)(1)(B)(i). To prove a violation of that subsection, therefore, it is not enough for the government to prove merely that a transaction had a concealing effect. Nor is it enough that the transaction was structured to conceal the nature of illicit funds. Concealment—even deliberate concealment—as mere facilitation of some other purpose, is not enough to convict. . . What is required, rather, is that concealment be an animating purpose of the transaction." (citations omitted)

"Money in motion does not necessarily equal money laundering."

Ayers was represented by Brian Dickersonand Faulkenberry was represented by Martin Weinberg.

Ayers -Download Ayers Opinion

Faulkenberry -Download Faulkenberry 1

(esp)(w/ a hat tip to Regina Ashmon and Monica Smith)

Breaking News: William Jefferson Sentenced to 13 Years

Guest Blogger:  Tiffany M. Joslyn, National Association of Criminal Defense Lawyers (NACDL)

U.S. District Judge T.S. Ellis III has sentenced ex-congressman William Jefferson to 13 years in prison for his conviction on 11 counts of public corruption. See breaking news coverage below:

Bruce Alpert, Times-Picayune, William Jefferson sentenced to 13 years in prison

Matthew Barakat, The Washington Post (AP), Ex-congressman gets 13 years in freezer cash case

John Bresnahan, Politico, William Jefferson gets 13 years in prison

(tmj)

NACDL's 5th Annual Defending the White Collar Case Seminar - "Getting Paid, Not Charged--Avoiding Indictment by Collecting Fees Ethically," Friday, October 2, 2009

Guest Blogger:  Jon May, Chair, White Collar Crime Section, National Association of Criminal Defense Lawyers

Panelists:  Jane Moscowitz, Martin Pinales

Over the last ten years, and particularly as a result of the indictment of prominent Miami Attorney Ben Kuehne, criminal defense counsel have had cause to be concerned that they could be the subject of prosecution solely for taking a legitimate legal fee. In this morning’s presentation by Jane Moscowitz and Martine Pinales, lawyers found reasons to be hopeful that such fears may be overblown, at least as to potential prosecution. Forfeiture of fees, on the other hand, remain a significant concern.

The Kuehne prosecution is an instance of ideology trumping common sense. Benedict P. Kuehne is the most unlikely of government targets. As Jane Moscowitz, who is one of his attorneys observed, Ben is the best of all of us. He is not just a leader of the bar—having been the President of the Miami-Dade County Bar Association and a member of the Board of Governors of the Florida Bar—he has devoted countless hours to pro bono activities on behalf of organizations representing the interests of African-Americans, Hispanics, Gays and others. He was also one of Al Gore’s principal attorneys during the Florida recount. Not surprisingly, he was Roy Black’s choice for counsel when Roy Black needed an attorney to vet the legal fees he was to be paid to represent notorious Colombian cartel leader Fabio Ochoa.

Roy Black was ultimately paid $5 million for his representation of Ochoa. Ben Kuehne earned approximately $175,000 for vetting this fee. Ben was indicted for conspiracy to launder, what the government recognized, and the indictment stated, was a bona fide legal fee.  This is despite the fact that the money laundering statute 18 U.S.C. Sec. 1957 contains a specific exemption for the receipt of funds necessary to preserve the Sixth Amendment. It was the government’s position before the District Court and just recently before the Eleventh Circuit in their appeal from the dismissal of this count, that the decision of the Supreme Court in Caplin and Drysdale nullified this exemption. The district court, however, was persuaded that it was the intent of Congress to protect counsel from prosecution, even if attorney’s fees could be forfeited. It appears from the tenor of the oral argument, which I was present to see, that the government’s theory is being met with the same level of skepticism that it received by Judge Cooke.

Martin Pinales discussed his experience dealing with government efforts to seize legal fees. Even in instances where the AUSA states that she has no intent to seize fees, counsel can be faced with a post trial effort by the government’s money laundering/forfeiture counsel to claw back those fees. Strategies were discussed for dealing with that problem. One way is to be paid by a third party from monies totally unconnected to any alleged criminal activity. Where money is obtained from the defendant, it is important to insure that the money did not come from any source named in a forfeiture count. And counsel should do due diligence even as to assets that could be later characterized as a substitute asset. It was also important to have your retainer agreement tie fees received to services provided. Where the funds are clearly substitute assets, counsel who takes these steps will have a better chance of demonstrating that they are bona fide purchasers for value in later forfeiture proceedings.

During the seminar, other important issues were raised. In many districts, counsel do not have to worry about their fees if their clients cooperate. Doesn’t that create a conflict of interest? You can charge a flat fee so long as you can demonstrate that it was earned. But don’t call it non-refundable (unless you practice in Florida, but it still has to be reasonable). The final irony, and outrage, discussed was the fact that the indictment against Ben also includes forfeiture count. The government is seeking to forfeit from Ben,  the $5 million that Roy Black received. 

(jm)

Could there be corruption in New Jersey?

See CNN, Mayors, rabbis arrested in corruption probe

NYTimes (AP), 2 Mayors Arrested in Broad N.J. Corruption Sweep

In this same US Attorney's Office, just a couple of days ago, an assemblyman and former mayor had a new charge added to his Indictment alleging that "he participated in a scheme with his former key political advisor to circumvent the contribution limitation and reporting requirements of the Federal Election Campaign Act." (see here).

(esp)

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)

Wire Fraud is Not Limitless - It Requires "in Furtherance"

The Ninth Circuit Court of Appeals in U.S. v. Lazarenko tells the story of an international money laundering, wire and mail fraud, and transportation of stolen property case that is much reduced from the original charges/convictions brought by the government.  It started as a 53-count indictment, but after the government dismissal of some, and the court dismissal of others, what remained was 14 counts.  This decision brings it even lower.

The facts of this case present a unique international flavor, in that Ukrainian law is the specified unlawful activity for the money laundering charges. The breadth of the money laundering statute is clearly reaching international levels when a US jury is being asked to determine whether there has been a violation of another countries laws. Although the Ninth Circuit upholds the money laundering convictions, the court does reverse the interstate transportation of stolen property count. 

But the more fascinating part of this decision relates to the wire fraud counts.  In reversing the convictions here, the court focuses on the "in furtherance" element of wire fraud. The court states:

"If the government's theory were correct, then it would be possible for an ordinary fraud to be converted into wire fraud simply by the perpetrator picking up the telephone three years later and asking a friend if he can store some fraudulently obtained property in his garage before the police execute a search warrant or later taking the proceeds of fraud and transferring them to another bank. The government's theory extends an already broad statute too far."

It is good to see a court requiring strict adherence to the "in furtherance" element.

(esp) (w/ a hat tip to Evan Jenness)

Upcoming Conferences

The American Bar Association/American Bankers Association - Money Laundering Enforcement Conference - October 19-21, 2008 D. C. here

ABA - National Institute on Criminal Enforcement of Intellectual Property Rights - Septebmer 26, 2008, San Francisco here

ABA - The Foreign Corrupt Practices Act: Current SEC and DOJ Enforcement Initiatives - September 11, 2008 - Teleconference and Live Audio Webcast here

ABA - National Institute on Securities Fraud - October 2-3, 2008, Arlington, Virginia here

Supreme Court Rules Against the Government in Two Money Laundering Cases

One would not normally think of money laundering in the same sentence as white collar crime, since one usually considers the money laundering statutes in the context of drugs or gambling.  But the reality is that "[t]here are more than 250 predicate offenses for the money-laundering statute," (J. Scalia, Santos) and often one sees money laundering added in white collar cases. (see here)  It is a crime facing Attorney Ben Kuehne of Miami (see here). Thus, the Supreme Court decisions against the government in money laundering cases are important to the white collar area.

In Cuellar v. United States, the Court reversed a Fifth Circuit decision.  The Court held -

"The provision of the money laundering statute under which petitioner was convicted requires proof that the transportation was "designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership, or the control" of the funds. §1956(a)(2)(B)(i). Although this element does not require proof that the defendant attempted to create the appearance of legitimate wealth, neither can it be satisfied solely by evidence that a defendant concealed the funds during their transport. In this case, the only evidence introduced to prove this element showed that petitioner engaged in extensive efforts to conceal the funds en route to Mexico, and thus his conviction cannot stand."

In United States v. Santos, the Court affirmed a Seventh Circuit decision.  The Court held -

"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 defendant. The rule of lenity requires ambiguous criminal laws to be interpreted in favor of the defendants subjected to them. See United States v. Gradwell, 243 U. S. 476, 485 (1917); McBoyle v. United States, 283 U. S. 25, 27 (1931); United States v. Bass, 404 U. S. 336, 347– 349 (1971). This venerable rule not only vindicates the fundamental principle that no citizen should be held accountable for a violation of a statute whose commands are uncertain, or subjected to punishment that is not clearly prescribed. It also places the weight of inertia upon the party that can best induce Congress to speak more clearly and keeps courts from making criminal law in Congress’s stead. Because the "profits" definition of"proceeds" is always more defendant-friendly than the"receipts" definition, the rule of lenity dictates that it should be adopted."

(esp)

Spitzer Quits -- Will Charges Follow?

Eliot Spitzer resigned as Governor of New York, issuing a statement (here) declaring that "I have begun to atone for my private failings with my wife, Silda, my children, and my entire family. The remorse I feel will always be with me."  The resignation came only two days after the public revelation of his philandering, and whether he will face any federal charges for his conduct remains to be seen.  As discussed in earlier posts (here and here), the U.S. Attorney's Office for the Southern District of New York could conceivably pursue potential violations of the Mann Act or the anti-structuring statute.  An interesting question is whether prosecutors might have sought Spitzer's resignation as a condition for not filing charges, or as part of an as-yet undisclosed plea agreement. 

Federal prosecutors seeking the resignation of an elected state official, or conditioning charges on such a decision, could raise significant federalism concerns.  Moreover, the political overtones of a Republican-selected U.S. Attorney seeking (or demanding) the resignation of a Democrat from elected office in an election year would only add to the concerns.  The U.S. Attorney's Manual in Sec. 9-16.110 addresses the issue of seeking the voluntary resignation of a non-federal elected official (here):

GENERAL RULE: Resignation from office, withdrawal from candidacy for elective office, and forbearance from seeking or holding future public offices, remain appropriate and desirable objectives in plea negotiations with public officials who are charged with federal offenses that focus on abuse of the office(s) involved. Where the office involved is not one within the Legislative or Judicial Branches of the federal government, such negotiated terms may be also be enforced involuntarily against the will of the defendant by a sentencing judge pursuant to the Federal Probation Act.

While not stated explicitly in the USAM, resignation does not seem to be an "appropriate or desirable objective" when the charges are unrelated to the official's exercise of authority.  To this point, Spitzer's tryst with the prostitute "Kristen" seems to be an entirely personal act, and the funds involved apparently came from personal accounts.  Thus, it would seem that the resignation should not connected to any charging decision, at least if the U.S. Attorney's Office acts in accordance with Department policy.  Should the use of government funds for the assignations have occurred, then Spitzer's resignation could be tied to a charging decision.  Of course, a decision to abjure filing charges is not subject to any outside scrutiny, so we would never know -- at least not officially -- whether his decision was in response to a request from the federal prosecutors.  (ph)

                                                                                                   

UPDATE: The U.S. Attorney's Office for the Southern District of New York issued a press release after Spitzer's resignation that states in its entirety: "In response to press speculation, MICHAEL J. GARCIA,the United States Attorney for the Southern District of New York,said: 'There is no agreement between this Office and GovernorEliot Spitzer, relating to his resignation or any other matter.' "  (ph)

Spitzer and the Southern District of New York

The fact that federal prosecutors from the U.S. Attorney's Office for the Southern District of New York pursued the investigation of New York Governor Eliot Spitzer's use of large amounts of cash for transactions that turned out to involve the services of one or more prostitutes means he could be looking at federal charges for his conduct.  Blog co-editor Ellen Podgor has already discussed (here) the possible application of the Mann Act to Spitzer's involvement in the interstate transportation of a person for prostitution, which in fact is among the charges against the leaders of the Emperors Club service Spitzer used (criminal complaint and affidavit below -- the juicy "Client 9" material begins in paragraph 73 for those with their minds in the gutter).  The investigation began because of Suspicious Activity Reports filed by banks because Spitzer purportedly made large cash withdrawals, and while the initial focus was for possible public corruption, the case turned out to involve a more mundane, albeit considerably salacious, prostitution ring.

While Mann Act charges against Spitzer certainly would be quaint, a criminal structuring charge may be more likely.  The applicable statute is 31 U.S.C. Sec. 5324(a), which provides:

No person shall, for the purpose of evading the reporting requirements of section 5313(a) or 5325 or any regulation prescribed under any such section, the reporting or recordkeeping requirements imposed by any order issued under section 5326, or the recordkeeping requirements imposed by any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508—

cause or attempt to cause a domestic financial institution to fail to file a report required under section 5313(a) or 5325 or any regulation prescribed under any such section, to file a report or to maintain a record required by an order issued under section 5326, or to maintain a record required pursuant to any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508 . . . .

If Spitzer split deposits or withdrawals in his accounts to stay below the $10,000 threshold for filing a Currency Transaction Report by the bank, then he could be guilty of structuring.  The predecessor to this provision was the subject of the Supreme Court's decision in Ratzlaf v. United States, 510 U.S. 135 (1994), in which the court interpreted the "willfully" element to require proof that the defendant knew there was a legal duty to report the transactions and sought to have the bank violate the law by structuring his transactions.  As the Court explained, "Undoubtedly there are bad men who attempt to elude official reporting requirements in order to hide from Government inspectors such criminal activity as laundering drug money or tax evasion.  But currency structuring is not inevitably nefarious." (Italics added)  In response, Congress sought to overturn Ratzlaf by removing "willfully" as an element of the crime.  Thus, all the government must prove is that the person intended to structure the transactions, not that the person intended to commit a crime by violating the provision.  So while structuring is not always nefarious, it is a crime regardless of the desire to violate the law.

The Second Circuit rejected a fall-back argument that the statute requires that the money that is the subject of the structuring must be tainted and not just funds properly controlled by the defendant.  In United States v. MacPherson, 424 F.3d 183 (2d Cir. 2005), the court stated, "The anti-structuring law may well have been intended to prevent criminals from concealing their illicit profits, but that is not the limit of its reach. Section 5324 makes no reference to the source of the monies at issue or to the reason why a person seeks to avoid CTR filing. Its singular focus is on the method employed to evade that filing requirement, i.e., structuring."  (Italics in original) Spitzer could not avoid a structuring charge by arguing that the money was his, or at least he had lawful access to it, so he could do with it as he wanted.  Moreover, an ignorance defense would be difficult to offer for a former state Attorney General who fancied himself the Sheriff of Wall Street.  The structuring provision is different from the money laundering statute, which reaches the proceeds of "specified unlawful activity," even though it reaches similar activity and often involves conduct by people who are trying to hide criminal activity.

An interesting question is whether any other federal criminal charges could come out of the cash transactions.  The old adage is to "follow the money," and here it may be to trace the dollars backward to find out where they came from and how they traveled, and not so much where they ended up.  Spitzer is a fairly wealthy man, so he probably has access to a sizable pool of money.  Yet, according to the criminal complaint, he did not want to make a wire transfer, even though Emperor's Club employed a shell corporation that could be used to hide the true nature of the payments.  If Spitzer was trying to hide what he was doing from his family, then large cash withdrawals might have raised just as many questions as wire transfers.  It would not surprise me that federal investigators were looking into whether any campaign money was involved in the transactions, or at least campaign bank accounts, that could be used so that it was not as apparent when slugs of cash were used for personal purposes.  Whether that violates any federal laws is an open question, but I suspect the U.S. Attorney's Office is going to take a very close look at the flow of the money to see what roads it traversed. (ph)

Download us_v_brener_criminal_complaint_spitzer_march_2008.pdf

Sex or Crime, Spitzer Has Been Punished?

Four individuals had a criminal complaint filed against them.  Two were charged with a conspiracy to violate federal laws related to prostitution.  The other two face charges of prostitution and money laundering. (See NYTImes here) Enter client 9 - an individual unnamed in the charges. The details of the D.C. meeting involving client 9, and how the woman meeting him was to arrive are outlined in the NYTimes here.  Some of the questions that are likely to be explored in the upcoming days are:

• Did Spitzer violate the Mann Act?  The Mann Act, 18 U.S.C. Sec. 2421, provides: "[w]hoever knowingly transports any individual in interstate or foreign commerce, or in any Territory or Possession of the United States, with intent that such individual engage in prostitution, or in any sexual activity for which any person can be charged with a criminal offense, or attempts to do so, shall be fined under this title or imprisoned..." Even if this did amount to a technical violation, one has to seriously question whether consensual acts warrant prosecution.
• Will Spitzer need to be a witness in the case against the four individuals charged with conspiracy, prostitution, and money laundering?  Will he be given immunity?  In the federal system this would be "use" immunity as opposed to "transactional immunity,"  which means that anything he said or derived from what he said could not be used against him. 
• Was it really necessary to include all of these acts in the charging instrument? Prosecutors, obviously, knew who they were dealing with in this case.  But, on the other hand, did fairness require this to happen - should any one person be protected here more than others?

From a purely punishment perspective, and irrespective of Spitzer having any criminal culpability, it seems obvious that a "shaming" has occurred here.  Even if there was some criminal culpability, should taxpayer's dollars be spent on investigating and prosecuting this man. The higher the office holder, the longer the fall from power, and in this case it is pretty hard ground that Spitzer is landing upon.

(esp)

Addendum - Check out Brian Baxter's piece at The American Lawyer here. Some thoughtful quotes from Associate Dean Patricia Salkin are in this article. 

Analyzing Rep. Renzi's Indictment

The indictment of Rep. Richard G. Renzi is 26 pages in length and has 35 counts.  There are two co-defendants also charged, although these two do not face all the charges levied against Renzi.

The opening passages of the Indictment are descriptive and include items such as the location of his law degree, something his law school may not be too happy about. This is interesting in itself as it shows that he graduated in 2001 and was elected to the house in November 2002, although he has an extensive background in Renzi Investments, since 1995, something that is also discussed in this charging document.

Count One charges conspiracy, with the substantive acts of Hobbs and mail and wire fraud being the essence of the illegal agreement. The government, despite recent losses in the honest services realm, uses section 1346 as an unlawful act which formed the conspiracy. There are 28 overt acts specifically outlined in the indictment.  Although the overt acts appear to be many, they could easily be collapsed into relatively few items as they include separate counts for when a check is written and when it is deposited.

Counts Two - Ten charge honest services wire fraud. They are the substantive acts and are very much repetitive of what was described in the conspiracy count.  Thus, the fax of July 6th appears in both places. This is not unusual as the federal system allows the government to charge both the conspiracy and substantive act for the same conduct.

Count Eleven charges conspiracy to commit money laundering with count twelve being the concealment of money laundering, and counts thirteen to twenty-five being transactions in criminally derived funds.

Counts Twenty-Six and Twenty-Seven present Hobbs Act charges.

Counts Twenty-Eight, yet another conspiracy count, presents a conspiracy to commit insurance fraud.

Counts Twenty-Nine through Thirty-Two are the substantive charges of insurance fraud.

Count Thirty-Three through Thirty-Five pertain to false statements to influence insurance regulatory investigations.

The Indictment then presents a claim for forfeiture.

This indictment, like so many, is a classic example of the discretion afforded the government in charging in that many different statutes will often fit the conduct alleged to have been committed. As one finds in many cases, the government uses a good number of the tools in its box when presenting the charges. This is contrasted against cases where there has been an agreement already reached and the government may use an Information to charge one or just a few counts.

(esp)

Indicted for Writing Opinion Letters

Would the government actually indict an attorney premised upon allegations that the attorney wrote several opinion letters for another lawyer?  As surprising as it might seem, the answer is "yes." The government has indicted Attorney Ben Kuehne for his alleged writing of six opinion letters based upon his investigation of whether funds being paid to an attorney were proceeds of criminal conduct.

Several observations and comments on the Indictment and the accompanying Motion to Seal:

• The indictment is preceded by a page titled - "Motion to Seal."  It is signed by a "trial attorney - DOJ." It requests the indictment be sealed "for the reason that the named defendants may flee and the integrity of the ongoing investigation may be compromised." - Did the government really believe that Attorney Ben Kuehne would flee?  A later sentence states that"many of the named defendants are foreign nationals." But the government fails to limit the language used in the prior sentence that explicitly states "that the named defendants may flee" to only those who might be foreign nationals.  That is a powerful statement to claim that a prominent Miami attorney might flee.  If they didn't mean to apply this statement to him, is it prosecutorial over-reaching, an attempt to taint the accused, or just sloppy drafting? 
• The indictment alleges that Kuehne's opinion letters were inaccurate in stating that some of the moneys had come from an individual/company that "his investigation" "had determined.... were reputable and well-established, without any connection to illegal activities."  The indictment claims that some of these opinions were untrue because moneys had in fact come from "undercover law enforcement operations."  ----  Isn't the very purpose of an undercover operation to make it seem like things are real?  Is this a situation of accusing someone of issuing incorrect opinion letters because the government did a good job of misleading him?
• Count Six of the Indictment charges Obstruction of Justice. The charge is expressed in a total of 2 sentences. It states: 

"From on or about January 23, 2003, continuing to the date of this indictment, the defendants, .......did corruptly endeavor to influence, obstruct and impede the due administration of justice; that is investigations by the grand jury; to wit, endeavoring to influence, obstruct, and impede a federal investigation, as set forth above.  In violation of Title 18, United States Code, s 1503."  (names omitted)

A charge without any facts?  Did the government actually put a mere restatement of section 1503 as the basis of a criminal charge against an attorney? Co-blogger Peter Henning called the Indictment of Ben Kuehne a "head-scratcher," but that was prior to receiving the document. But after reading it, I'd go a step further - they have actually indicted an attorney for obstruction of justice and alleged no facts in this count to support the charge.  It almost sounds like a case the 11th Circuit reversed, U.S. v. Thomas, 916 F.2d 547 (11th Cir. 1990).

Perhaps the most troubling aspect of this indictment is that it represents yet another instance of the government interfering in the payment of attorney fees for the criminally accused.  As opposed to going to court and asking for the fees to be returned as improper, they have opted to proceed with criminal charges that in some cases carry up to 20 years.

Indictment - Download us_v_kuehne_indictment_oct_2007.pdf

(esp)

Respected Miami Attorney Charged with Money Laundering

A highly-regarded Miami attorney, Ben Kuehne, was charged with money laundering for his role in approving payments to well-known defense lawyer Roy Black that allegedly were funds from a drug smuggling operation of the Medellín cocaine cartel.  According to a story in the Miami Herald (here), Kuehne was retained by Black in connection with his representation of the head of the Medellín cartel to ensure that the funds were not tainted.  According to the article, "Kuehne's research gave Black the confidence -- in the form of legal opinion letters -- to accept payments totaling $3.7 million in fees and $1.3 million in expenses from Ochoa, according to several sources. Kuehne earned a portion of the expense payments -- $220,000 to $260,000 -- from Black for vetting Ochoa's payments."  Kuehne is a past president of the Dade County Bar Association and one of the fifty-two members of the Florida Bar Board of Governors, elected from the Eleventh Circuit.  The Board of Governors "has exclusive authority to formulate and adopt matters of policy concerning the activities of the Bar," according to the Bar website (here).

Kuehne and his two co-defendants maintain their innocence, and it is not immediately apparent what the government's theory is in the case.  The amount he received for his work may well be on the high side, at least if he were charging an hourly rate for his work on Black's behalf, which could have triggered the government's interest.  If he received a percentage of Black's fee, then that could call into question the objectivity of his legal opinion.  But when an attorney is asked to opine on the legality of funds to pay for the defense of a drug lord, it seems counterintuitive to say the least that he would give his imprimatur knowing that the funds were in fact the proceeds of narcotics transactions that the government was likely to scrutinize carefully.  Given Kuehne's pristine reputation, it is hard to believe he would risk his entire legal career for an amount that, while significant, is hardly worth the loss of prestige and income he would suffer from a money laundering conviction.  Would you sell your law license and career for a quarter of a million dollars?  The documents in the case are not yet available, so I can't say at this point what approach the government plans to take or the evidence it is like to put on.  It is certainly a head-scratcher at this point. (ph)

Supremes Take Money Laundering Case

The United States Supreme Court accepted certiorari on a money laundering case.  (Cuellar v. United States) The question the petitioner raises is "[w]hether merely hiding funds with no design to create the appearance of legitimate wealth is sufficient to support a money laundering conviction." (See Scotus Blog here)  The Brief of the National Association of Criminal Defense Lawyers here explains that "[t]he expansive and unwarranted interpretation adopted by the Courts of Appeals for the Second, Third, Fifth, and Eleventh Circuits improperly expands the scope of an already broad statute far beyond its intended reach."   

Although the case accepted by the court is not a white collar crime case, the Court's decision here could make a difference in the white collar world.  One finds money laundering charges in white collar crime cases as charges that are "tacked" onto the substantive offenses. (See Teresa E. Adams, Tacking on Money Laundering Charges to White Collar Crimes: What Did Congress Intend, and What Are the Courts Doing?, 17 Ga. St. L.Rev. 531 (2000)) (see also here)  Applying a strict interpretation to the statute and reading the legislative intent narrowly could assist in keeping money laundering as the crime it should be, as opposed to one that can be used as a bargaining chip to secure a plea agreement in a white collar case.

(esp)

ABA/ABA Money Laundering Conference

The American Bar Association and the American Banker's Association have a upcoming Money Laundering Enforcement conference.  The keynote speech will be given by Robert Mueller, the Director of the FBI. For details see here.

(esp)