United States v. Santos

PETITIONER: United States
RESPONDENT: Efrain Santos and Benedicto Diaz
LOCATION: U.S. Naval Base at Guantanamo Bay

DOCKET NO.: 06-1005
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 553 US 507 (2008)
GRANTED: Apr 23, 2007
ARGUED: Oct 03, 2007
DECIDED: Jun 02, 2008

ADVOCATES:
Matthew D. Roberts - on behalf of the Petitioner
Todd G. Vare - on behalf of Respondents

Facts of the case

For his role in running an illegal lottery or "bolita," Efrain Santos was convicted on charges of illegal gambling and money laundering. Santos had used income from the lottery to pay both the winners and the couriers and collectors who worked for the gambling operation. The money laundering charges were based on 18 U.S.C. 1956(a)(1), which criminalizes the use of the "proceeds" of an illegal activity to promote or conceal that activity. However, federal courts disagreed on the meaning of "proceeds." The U.S. Court of Appeals for the Third Circuit had ruled that the proceeds used in money laundering can be any of the gross income obtained from the illegal activity, but the U.S. Court of Appeals for the Seventh Circuit, which had jurisdiction over Santos's case, had recently ruled that only net income (gross revenues minus expenses) used to promote or conceal illegal activities can be the basis of a money laundering conviction. Because Santos had only used gross revenues to promote his lottery, the District Court reversed the convictions.

The government argued on appeal that the Seventh Circuit's interpretation would put too great a burden on prosecutions, because the bookkeeping of criminal operations is often purposefully incomplete or misleading in order to obscure the distinction between gross and net income. The narrow interpretation would also restrict money laundering prosecutions to criminal enterprises that are actually profitable. Santos countered that the government's broad interpretation would result in overlapping convictions for a wide variety of offenders charged with both money laundering and the underlying crime. He argued that the government's interpretation strayed too far from the traditional understanding of money laundering, which focuses on the subsequent disguising of profits obtained from a criminal venture. The Seventh Circuit ruled for Santos and affirmed its original ruling.

Question

In the federal money laundering statute 18 U.S.C. 1956(a)(1), which makes it a crime to use the proceeds of an illegal activity to promote the activity or conceal the proceeds, does the word "proceeds" refer to the gross income received from the illegal activity or to the net income (profits, or gross income minus expenses)?

Media for United States v. Santos

Audio Transcription for Oral Argument - October 03, 2007 in United States v. Santos

Audio Transcription for Opinion Announcement - June 02, 2008 in United States v. Santos

Antonin Scalia:

This is another money laundering case.

It comes to us on writ of certiorari to the United States Court of Appeals for the Seventh Circuit.

From the 1970's until 1994, respondent Efrain Santos operated an illegal lottery in Indiana.

At bars and restaurants, Santos' runners gathered bets from gamblers, keeping a portion as their commissions and delivering the rest to Santos' collectors.

Collectors, one of whom was respondent Benedicto Diaz, then delivered the money to Santos, who used some of it to pay the salaries of the collectors and some of it to pay the winners.

These payments formed the basis of federal charges brought against respondents -- against both respondents.

Diaz pleaded guilty to one money – money laundering count and the jury found Santos guilty of two illegal gambling counts and three money laundering counts.

In post conviction proceedings, respondents challenged their money laundering convictions.

The money laundering statute prohibits knowingly engaging in transactions that involve proceeds, proceeds is the critical word, of specified criminal activities, including the running of an illegal gambling business.

The defendants maintained that proceeds means profits and that Santos' payments to runners, collectors and winners and Diaz's receipt of payments for collection services were transactions involving receipts rather than profits.

The District Court agreed and vacated the money laundering convictions.

The Seventh Circuit affirmed and so do we.

In the plurality opinion, joined in full by Justice Souter and Justice Ginsburg and in part by Justice Thomas, “We hold that the word proceeds in the federal money laundering statute means profits and not receipts."

When as here, a statute does not define a term, we give it its ordinary meaning.

Narrowly, however, the noun “proceeds” can mean either receipts or profits, think of a fundraiser that promises to give its proceeds to charity.

The Government argues that the primary meaning of proceeds is receipts, but we think that some dictionaries' preference for that definition is too slight for us to agree.“

Proceeds” moreover, has no uniform meaning in the United States Code and it is not a money laundering term of art, meaning receipts.

Under either of the words statutes -- ordinary definitions under either of them, all provisions of the federal money laundering statutes are coherent, no provisions are redundant and the statute is not rendered utterly absurd.

According to 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.

It's not only vindicates the fundamental principle that no citizen should be held accountable for 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 keep courts from making criminal law in Congress' stead.

Because the profit's definition of proceeds is always more defendant-friendly than the receipt's definition, the rule of lenity dictates that it should be adopted.

The Government contends that we should reject the profit's interpretation because it fails to give the federal money laundering statute its proper scope.

That of course begs the question.

Our interpretation does not give the statute its proper scope if proceeds means receipts and it does, given its proper scope, if proceeds means profits.

If we accepted the Government's invitation to speculate about congressional purpose, we would have to confront and explain the strange consequence of the receipt's interpretation which respondents have labeled a merger problem.

A merger problem consists of the fact that many crimes already punished by other laws are routinely accompanied by financial transactions which, if the receipt's interpretation is adopted, violate the money laundering statute and thus, expose defendants to much more severe penalties.

To take the present cases and example, under the receipt's interpretation, paying off the winning betters from the receipts of an illegal gambling operation, constitutes money laundering, thus adding to the penalty of a maximum of five years for running an illegal gambling operation, an additional penalty of a maximum of 20 years for money laundering.

This obviously makes no sense since gambling operations routinely payoff the winners.

If Congress wanted a 25-year penalty for gambling, it would have prescribed a 25-year penalty for gambling.