Some Notable Applications of the Supreme Court’s Money Laundering Decisions in Santos and Cuellar
Two landmark rulings from the Supreme Court earlier this year, Cuellar v. United States, 128 S.Ct. 1994 (2008) and United States v. Santos, 128 S.Ct. 2020 (2008), have spawned some notable decisions in this circuit recently (not to mention, the role they presumably played in yesterday’s announcement that Eliot Spitzer would not face federal prosecution for something he engaged in with consenting adults using his own money). In Cuellar, the Court held that concealment of ill-gotten gains alone is insufficient to sustain a money laundering conviction in the absence of a “purpose – not merely [an] effect” to conceal an attribute of the tainted funds. In Santos, the Court held that under the rule of lenity, the word “proceeds” in the money laundering statute referred to “profits” not “gross receipts,” at least in the context of an illegal gambling operation, and thus the mere payment of an operating expense of the crime is not money laundering.
At the heart of the two decisions, implicitly in Cuellar and explicitly in Santos, is disquiet with the “merger problem,” that is, where the underlying illegal activity merges with money laundering by virtue of concealment or expenditure of the money generated. As all Justices recognized in Santos, it is the rare crime that doesn’t involve some payment of expenses associated with the commission of the crime. And the same can be said about concealment. While the Court rejected the narrow definition of money laundering advocated by the defense in Cuellar – that it should be limited to those classic money laundering situations where illegal proceeds are given the appearance of legitimate wealth – the Court expressed concern in Santos that an expansive definition of money laundering gives extraordinary power to prosecutors to induce plea bargains. As Justice Scalia comments in his majority opinion (and is no surprise to defense lawyers in New York’s district courts): “Prosecutors . . . would acquire discretion to charge the lesser offense, the greater money-laundering offense, or both – which would predictably be used to induce a plea bargain to the lesser charge.”
Catapano
The merger problem is explored in United States v. Catapano, 05 CR 229 (SJG), 2008 WL 4107177 (E.D.N.Y. August 12, 2008), where the defendants were charged with two frauds, one involving bribes to representatives of public utility companies and another involving false statements to procure New York City construction contracts. The defendants moved to dismiss the money laundering charges they faced under Santos, claiming that the money laundering charges alleged transactions based on mere receipts not profits. The court denied the motion, holding that even if Santos’s proceeds/profits analysis applied beyond the gambling context (an issue that is by no means certain), the indictment here was facially valid and therefore could not be challenged based on the quality or adequacy of the evidence. (This is of course totally accurate, but how cost- and time-effective it would be to root out weak cases through some kind of judicial review of the grand jury process, as happens in the state system, but that’s another blog piece . . . ).
The court nonetheless went on to address the merits of the argument, since the government had provided a summary of the evidence it planned to present at trial – essentially that the defendants used the proceeds of the corruptly or fraudulently obtained contracts to perpetrate more crimes through the payment of additional bribes. In other words, “the defendants conspired to conduct transactions with the profits derived from completed crimes in order to commit new ones.” Unlike an ongoing gambling operation, the bribery scheme involved several discrete acts of wrongdoing. Accepting the government’s proffer as true, the court found that the “merger problem” identified in Santos does not arise here.
Lawyers: Michael Rosen (Law Office of Michael Rosen), Diarmuid White (White & White), Peter J. Driscoll (Driscoll & Redlich), Jason W. Kreiss, Melvyn K. Roth, for Defendants. AUSA Charles Kleinberg
Diaz
In United States v. Diaz, 04 Cr. 1353 (KMW), 2008 WL 4387209 (S.D.N.Y. September 12, 2008), in the context of a motion for a judgment of acquittal, the defendant argued that there was insufficient evidence to satisfy the concealment purpose of the statute, where the defendant established a bank account called “Fine Quality Shipping,” into which money was deposited and then transferred to the Dominican Republic. Judge Wood held, however, that concluding concealment was a purpose of these bank records was not unreasonable: here, “a reasonable jury could find a sophisticated and complex financial scheme intended to do more than simply send money from New York City to the Dominican Republic undetected by law enforcement authorities.”
Ness
In United States v. Ness, 01 Cr. 699 (AKH), 2008 WL 3842961 (S.D.N.Y. August 15, 2008), in the context of a motion for bail pending appeal, the court addressed whether evidence presented at the defendant’s money laundering trial was sufficient to establish the concealment element in light of Cuellar. Ness had run an armored carrier business that transported valuables internationally, along with millions of dollars in narcotics proceeds, commingled with jewelry and other packages of valuables. Finding no “close question” likely to result in reversal or a new trial, the court noted that the transportation was designed to conceal or disguise three aspects of the funds at issue: the “nature” of that which was being transported, its “location” among the valuables that Ness was allowed to transport and move from one airplane to another at JFK airport, and the fact that its “source” was ecstasy distributions.
Mercedes
In a summary order in United States v. Mercedes, 283 Fed.Appx. 862 (2d Cir. 2008), the Court indicated that Cuellar did not disturb its previous circular holding (delivered, coincidentally, in a prior ruling in the highly litigated Ness case) that if transactions were part of a “highly complex and surreptitious” process, one can infer that they “had been designed in a way that would conceal the source of the moneys.” In Mercedes the “highly complex and surreptitious” process consisted of a “highly secretive” process of transferring money, and the storage of narcotics proceeds in saran-wrap in an apartment, along with “money laundering ledgers, a money-counting machine, and a record detailing the amounts of the narcotics proceeds.” Other than the “money laundering ledgers,” whatever they are, this doesn’t sound that different from the highly surreptitious method of concealment at issue in Cuellar: a hidden compartment in a vehicle, surrounded by animal hair. But the paucity of facts here make this an unhelpful indicator of where the Second Circuit will go in interpreting Cuellar.
Lawyers: Mary Anne Wirth (Bleakley Platt & Schmidt, LLP) for appellant. AUSAs Amy Lester, Assistant, Celeste L. Koeleveld.
At the heart of the two decisions, implicitly in Cuellar and explicitly in Santos, is disquiet with the “merger problem,” that is, where the underlying illegal activity merges with money laundering by virtue of concealment or expenditure of the money generated. As all Justices recognized in Santos, it is the rare crime that doesn’t involve some payment of expenses associated with the commission of the crime. And the same can be said about concealment. While the Court rejected the narrow definition of money laundering advocated by the defense in Cuellar – that it should be limited to those classic money laundering situations where illegal proceeds are given the appearance of legitimate wealth – the Court expressed concern in Santos that an expansive definition of money laundering gives extraordinary power to prosecutors to induce plea bargains. As Justice Scalia comments in his majority opinion (and is no surprise to defense lawyers in New York’s district courts): “Prosecutors . . . would acquire discretion to charge the lesser offense, the greater money-laundering offense, or both – which would predictably be used to induce a plea bargain to the lesser charge.”
Catapano
The merger problem is explored in United States v. Catapano, 05 CR 229 (SJG), 2008 WL 4107177 (E.D.N.Y. August 12, 2008), where the defendants were charged with two frauds, one involving bribes to representatives of public utility companies and another involving false statements to procure New York City construction contracts. The defendants moved to dismiss the money laundering charges they faced under Santos, claiming that the money laundering charges alleged transactions based on mere receipts not profits. The court denied the motion, holding that even if Santos’s proceeds/profits analysis applied beyond the gambling context (an issue that is by no means certain), the indictment here was facially valid and therefore could not be challenged based on the quality or adequacy of the evidence. (This is of course totally accurate, but how cost- and time-effective it would be to root out weak cases through some kind of judicial review of the grand jury process, as happens in the state system, but that’s another blog piece . . . ).
The court nonetheless went on to address the merits of the argument, since the government had provided a summary of the evidence it planned to present at trial – essentially that the defendants used the proceeds of the corruptly or fraudulently obtained contracts to perpetrate more crimes through the payment of additional bribes. In other words, “the defendants conspired to conduct transactions with the profits derived from completed crimes in order to commit new ones.” Unlike an ongoing gambling operation, the bribery scheme involved several discrete acts of wrongdoing. Accepting the government’s proffer as true, the court found that the “merger problem” identified in Santos does not arise here.
Lawyers: Michael Rosen (Law Office of Michael Rosen), Diarmuid White (White & White), Peter J. Driscoll (Driscoll & Redlich), Jason W. Kreiss, Melvyn K. Roth, for Defendants. AUSA Charles Kleinberg
Diaz
In United States v. Diaz, 04 Cr. 1353 (KMW), 2008 WL 4387209 (S.D.N.Y. September 12, 2008), in the context of a motion for a judgment of acquittal, the defendant argued that there was insufficient evidence to satisfy the concealment purpose of the statute, where the defendant established a bank account called “Fine Quality Shipping,” into which money was deposited and then transferred to the Dominican Republic. Judge Wood held, however, that concluding concealment was a purpose of these bank records was not unreasonable: here, “a reasonable jury could find a sophisticated and complex financial scheme intended to do more than simply send money from New York City to the Dominican Republic undetected by law enforcement authorities.”
Ness
In United States v. Ness, 01 Cr. 699 (AKH), 2008 WL 3842961 (S.D.N.Y. August 15, 2008), in the context of a motion for bail pending appeal, the court addressed whether evidence presented at the defendant’s money laundering trial was sufficient to establish the concealment element in light of Cuellar. Ness had run an armored carrier business that transported valuables internationally, along with millions of dollars in narcotics proceeds, commingled with jewelry and other packages of valuables. Finding no “close question” likely to result in reversal or a new trial, the court noted that the transportation was designed to conceal or disguise three aspects of the funds at issue: the “nature” of that which was being transported, its “location” among the valuables that Ness was allowed to transport and move from one airplane to another at JFK airport, and the fact that its “source” was ecstasy distributions.
Mercedes
In a summary order in United States v. Mercedes, 283 Fed.Appx. 862 (2d Cir. 2008), the Court indicated that Cuellar did not disturb its previous circular holding (delivered, coincidentally, in a prior ruling in the highly litigated Ness case) that if transactions were part of a “highly complex and surreptitious” process, one can infer that they “had been designed in a way that would conceal the source of the moneys.” In Mercedes the “highly complex and surreptitious” process consisted of a “highly secretive” process of transferring money, and the storage of narcotics proceeds in saran-wrap in an apartment, along with “money laundering ledgers, a money-counting machine, and a record detailing the amounts of the narcotics proceeds.” Other than the “money laundering ledgers,” whatever they are, this doesn’t sound that different from the highly surreptitious method of concealment at issue in Cuellar: a hidden compartment in a vehicle, surrounded by animal hair. But the paucity of facts here make this an unhelpful indicator of where the Second Circuit will go in interpreting Cuellar.
Lawyers: Mary Anne Wirth (Bleakley Platt & Schmidt, LLP) for appellant. AUSAs Amy Lester, Assistant, Celeste L. Koeleveld.
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