Does "Proceeds" Really Mean "Net Profits"? the Supreme Court's Efforts to Diminish the Utility of the Federal Money Laundering Statute

By Gurule, Jimmy | Ave Maria Law Review, Spring 2009 | Go to article overview

Does "Proceeds" Really Mean "Net Profits"? the Supreme Court's Efforts to Diminish the Utility of the Federal Money Laundering Statute


Gurule, Jimmy, Ave Maria Law Review


INTRODUCTION

Drug traffickers, mobsters, white collar criminals, and terrorist financiers must be breathing a huge sigh of relief. In United States v. Santos, a deeply divided Supreme Court held that the undefined term "proceeds" in the federal money laundering statute, 18 U.S.C. [section] 1956(a)(1), is limited to the net profits, not gross receipts, of unlawful activity. (1) The Supreme Court's ruling restricts the scope of the money laundering statute. After Santos, the statute only punishes "financial transactions" (2) with illicit profits derived from "specified unlawful activity," (3) not any funds derived from or obtained, directly or indirectly, through the commission of such criminal activity. (4) The legal implications of the Supreme Court's decision are far reaching and directly benefit defendants involved in criminal enterprises. Restricting the money laundering statute to "financial transactions" involving illicit "profits" derived from specified predicate offenses imposes significant obstacles to successful prosecution under the statute. Prosecutors must trace the tainted funds and prove that they constitute the net profits, not merely the gross receipts, of criminal activity. To prove net profits, prosecutors will be required to prove what the defendants' overhead expenses were. For example, the costs for purchasing, transporting, storing, and distributing illicit drugs would have to be deducted from the gross receipts. Further, in a securities fraud case involving insider trading, a defendant could argue that only the profits of the securities fraud (excluding the funds used to purchase the securities) would be the subject of a money laundering charge.

The potential scope of the Supreme Court's holding in Santos also raises other serious concerns. While the Santos case involved a prosecution under the "promotion theory" of money laundering, 18 U.S.C. [section] 1956(a)(1)(A)(i), the Court's holding applies to other subsections of the federal money laundering statute that require proof of "proceeds," including the concealment provision of money laundering. (5) Unless the term "proceeds" is interpreted to mean one thing under [section] 1956(a)(1)(A)(i), the promotion provision, and something different under the concealment provision, [section]1956(a)(1)(B)(i), the government must prove that the property involved in the financial transaction constitutes the "net profits" of specified criminal activity. The Santos decision further restricts the reach of [section] 1956(a)(2)(B)(i), the international money laundering provision, which criminalizes the transportation, transmission, or transfer of a monetary instrument or funds into or out of the United States with knowledge that the property involved represents the "proceeds" of some form of unlawful activity, and with the intent to conceal or disguise the nature, location, source, ownership, or control of the "proceeds" of specified unlawful activity. (6) After Santos, the government must prove that the monetary instruments or funds involved in the transportation, transmission, or transfer represent the "net profits" of specified unlawful activity. Further, the Supreme Court's narrow construction of the term "proceeds" appears to limit the application of [section] 1957(a), which punishes "[w]hoever ... knowingly engages or attempts to engage in a monetary transaction in criminally derived property of a value greater than $10,000." (7) After Santos, [section] 1957 is seemingly limited to criminalizing only monetary transactions with illegal profits.

The Supreme Court's ruling also has clear implications for the application of the federal forfeiture statutes. The criminal and civil forfeiture statutes authorize the forfeiture of "proceeds." (8) If the term "proceeds" is interpreted consistent with the Supreme Court's decision in Santos, federal prosecutors would have to trace the funds to net criminal profits, excluding the defendant's overhead expenses from forfeiture. …

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