Academic journal article Washington and Lee Law Review

Grouping Fraud and Money Laundering under the Federal Sentencing Guidelines: The Need for Uniformity and Proportionality

Academic journal article Washington and Lee Law Review

Grouping Fraud and Money Laundering under the Federal Sentencing Guidelines: The Need for Uniformity and Proportionality

Article excerpt

I. Introduction

This Note considers the sentencing of two imaginary defendants, Jeff Smith and Patty Brown, to illustrate the developing circuit split on the issue of grouping fraud and money laundering counts. Prior to their arrest, both individuals were misguided entrepreneurs who were using a get-rich-quick scheme devised by a mutual friend. Although the get-rich-quick scheme promised a large return, it required a healthy amount of deceitful marketing and mail fraud to separate the potential investors from their hard earned cash. The scheme involved placing advertisements in newspapers that promised investors a large return for a $10,000 investment in a growing internet company. In reality, there was no investment; it was merely a ponzi scheme.1 Despite the criminal nature of the scheme, Smith and Brown decided to take their chances and participate. Smith went to New York to implement his scheme. Brown started her scheme in Virginia.

Although both Smith and Brown found many willing investors, their individual successes were short-lived. Police arrested the defendants, but only after each had defrauded fifty victims of $10,000 a piece. Federal district courts in different jurisdictions convicted Smith and Brown for their respective fraudulent schemes under 18 U.S.C. (Sec) 1341.2 Additionally, the courts convicted the defendants of money laundering under 18 U.S.C. (Sec) 1956(a)(1)(B).3 At sentencing, both courts calculated the amount of money fraudulently obtained and the amount of money laundered as $500,000.

Though their circumstances were identical, there was one critical difference - the location of their sentencing. The Federal District Court in Albany, New York sentenced defendant Smith; the Federal District Court in Richmond, Virginia sentenced defendant Brown. Because Smith and Brown were convicted and sentenced in different locations, they received different sentences for committing identical crimes.

Initially, Smith's and Brown's sentencing calculations looked identical, and both courts used the same initial guidelines calculations. First, the courts determined the offense level for the mail fraud count under U.S. Sentencing Guidelines Manual (Sec) 2F1.1 (USSG (Sec) 2F1.1 or 2F1.1).4 The base offense

level was 6.5 The specific offense characteristic of $500,000 increased the offense level by 10 to 16.6 Because both Smith's and Brown's schemes involved multiple victims and mass marketing,(Sec) 2F1. 1(b)(2)-(3) increased the offense level by 4.7 The resulting final offense level for the mail fraud count was 20.

Similarly, the courts determined that the base offense level for the money laundering acts was 20 under (Sec) 2S1.1.8 The specific offense characteristic of $500,000 increased the offense level by 3.9 The resulting final offense level for the money laundering count was 23.

At this point, the courts looked to the grouping rules of (Sec) 3D to determine the final combined offense level of the counts.10 First, the courts turned to (Sec) 3D1.1, which sets out the procedures to follow when a court has convicted a defendant of more than one criminal count.11 The courts grouped closely related counts by applying (Sec) 3D1.2.12 The courts then determined the offense level applicable to each Group by applying (Sec) 3D1.3.13 Finally, the courts turned to (Sec) 3D1.4 to compute the final combined offense level.14 The final combined offense level, along with the defendant's criminal history category, determines the guideline sentencing range.15 At this critical juncture, the two courts proceeded differently.

In Smith's case, the district court in New York followed Second Circuit precedent16 and sentenced Smith accordingly. Second Circuit courts do not

group together fraud counts and money laundering counts17 but instead consider the mail fraud count and the money laundering count as two distinct Groups.18 Consequently, the court that sentenced Smith applied (Sec) 3D1. …

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