United States v. Santos and "Proceeds" of Illegal Activities

I was scratching my head when I first reviewed this case, a bit nonplussed by why the Court would have taken a case the only purpose of which was to determine if the word "proceeds" in a federal money-laundering criminal law meant "gross receipts" or "net receipts" (i.e. "profits") of an operation. After looking at the diverse opinions that came down, where the Court affirmed the 7th Circuit and decided that "net receipts" or "profits" was what "proceeds" meant," I am scratching my head still more. Why? For two reasons. First, because this ended up being a 5-4 decision, and thus not a very valuable precedent; and, second, on the crucial point on how to define proceeds, Justice John Paul Stevens, the senior Justice on the Court, broke away from four of his other majority colleagues. So, the decision of the Court was that in this case and under this law the word "proceeds" meant "profits." But only four Justices would have agreed that it always means "profits" in other similar federal laws. And, only three Justices agreed that Justice Stevens' position, which the Court dealt with at some length, actually contradicted the Courts' precedents. Thus, there is a little for everyone here, but very little. Let me summarize the facts of the case, and the Court's opinion, as presented in the Syllabus of the decision.

Facts and Lower Court Decisions

"In an illegal lottery run by respondent Santos, runners took commissions from the bets they gathered, and some of the rest of the money was paid as salary to respondent Diaz and other collectors and to the winning gamblers. Based on these payments to runners, collectors, and winners, Santos was convicted of, inter alia, violating the federal money-laundering statute, 18 U.S.C. § 1956, which prohibits the use of the “proceeds” of criminal activities for various purposes, including engaging in, and conspiring to engage in, transactions intended to promote the carrying on of unlawful activity, § 1956(a)(1)(A)(i) and § 1956(h). Based on his receipt of salary, Diaz pleaded guilty to conspiracy to launder money. The Seventh Circuit affirmed the convictions. On collateral review, the District Court ruled that, under intervening Circuit precedent interpreting the word “proceeds” in the federal money-laundering statute, § 1956(a)(1)(A)(i) applies only to transactions involving criminal profits, not criminal receipts. Finding no evidence that the transactions on which respondents' money-laundering convictions were based involved lottery profits, the court vacated those convictions. The Seventh Circuit affirmed."

Supreme Court Decision

So the case was presented to the Court. The Court's decision was based on two factors: (1) the "rule of lenity" in criminal cases; and (2) the meaning of the term "proceeds." As I mentioned above, only four Justices agreed on (2), while five, which makes a majority, concurred on (1).

"(a) The rule of lenity dictates adoption of the “profits” reading. The statute nowhere defines “proceeds.” An undefined term is generally given its ordinary meaning. Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 187, 115 S.Ct. 788, 130 L.Ed.2d 682. However, dictionaries and the Federal Criminal Code sometimes define “proceeds” to mean “receipts” and sometimes “profits.” Moreover, the many provisions in the federal money-laundering statute that use the word “proceeds” make sense under either definition. The rule of lenity therefore requires the statute to be interpreted in favor of defendants, and the “profits” definition of “proceeds” is always more defendant-friendly than the “receipts” definition."

Then, the Court rebutted the Government's argument:

"(b) The Government's contention that the “profits” interpretation fails to give the money-laundering statute its intended scope begs the question; the Government's contention that the “profits” interpretation hinders effective enforcement of the law is exaggerated. Neither suffices to overcome the rule of lenity."

Then, three of the Justices (Scalia, Souter, Ginsburg--probably the first time that these three Justices had agreed with themselves against the rest of the Court) concluded:

"that Justice STEVENS' position that “proceeds” should be interpreted to mean profits for some predicate crimes, “receipts” for others, is contrary to this Court's precedents holding that judges cannot give the same statutory text different meanings in different cases, see Clark v. Martinez, 543 U.S. 371, 125 S.Ct. 716, 160 L.Ed.2d 734."

Justice Steven's Approach

Known as one of the brightest and more creative thinkers on the Court, Justice Stevens decided to branch out on his own and argue that the word "proceeds" sometimes means different things in different federal statutes. Clearly this caused his majority colleagues some distress. Here is how he argued:

"Justice STEVENS concluded that revenue a gambling business uses to pay essential operating expenses is not “proceeds” under 18 U.S.C. § 1956. When, as here, Congress fails to define potentially ambiguous statutory terms, it effectively delegates the task to federal judges. See Commissioner v. Fink, 483 U.S. 89, 104, 107 S.Ct. 2729, 97 L.Ed.2d 74. Because Congress could have required that “proceeds” have one meaning when referring to some of the specified unlawful activities listed in § 1956(c)(7) and a different meaning when referring to others, judges filling statutory gaps may also do so, as long as they are conscientiously endeavoring to carry out Congress' intent. Section 1956's legislative history makes clear that “proceeds” includes gross revenues from the sale of contraband and the operation of organized crime syndicates involving such sales, but sheds no light on how to identify the proceeds of an unlicensed stand-alone gambling venture. Furthermore, the consequences of applying a “gross receipts” definition of “proceeds” to respondents are so perverse that Congress could not have contemplated them: Allowing the Government to treat the mere payment of an illegal gambling business' operating expenses 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 severe than those for the underlying offense of operating a gambling business. Accordingly, the rule of lenity may weigh in the determination, and in that respect the plurality's opinion is persuasive."

There you have it--I am sure the case didn't make national headlines--and now you know why...

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