CASE UNDERCUTS FEDS IN MONEY LAUNDERING PROSECUTIONS GOES TO SUP. CT.

By Pete Yost   ASSOCIATED PRESS   April 23, 2007
WASHINGTON – The Supreme Court agreed Monday to review a case that could undercut the federal money-laundering law, an enforcement weapon the government considers vital in going after outlaw gamblers and drug traffickers.
The Justice Department wants the court to overturn a standard set by a federal appeals court that complicates the task of prosecutors in securing money-laundering convictions.
The law makes it a crime to conceal proceeds from illegal activity or to use them to promote the activity. The 7th U.S. Circuit Court of Appeals in Chicago says that in order to convict, the proceeds must be profits rather than gross receipts.
How, the government asked in court papers, is it supposed to find hard evidence of profits when criminals rarely keep accounting records, much less accurate ones?
“I dealt with these issues head on as a federal prosecutor, and IRS and FBI agents will tell you that proving the money was earned illegally is very difficult under many circumstances,? said St. Louis attorney Scott Golde, who now specializes in white-collar criminal defense.
“Taking it a step farther and then attempting to specifically identify the net income will often be impossible,? Golde said after the Supreme Court agreed to take the case.
Efrain Santos and Benedicto Diaz successfully challenged their money-laundering convictions involving a gambling ring, arguing that the payments Santos made to couriers were gross proceeds rather than profits. According to prosecutors, Santos operated an illegal lottery, known as a bolita, in northwest Indiana from the 1970s through the 1990s. Diaz, according to the government, was a collector who delivered the gamblers’ wagers to Santos.
The 7th U.S. Circuit Court of Appeals in Chicago is removing “a large class of routinely prosecuted money-laundering cases from the reach of the statute,? the Justice Department’s solicitor general said in a brief asking the justices to take the case.
The appeals court ruling “enmeshes the courts in intractable disputes over the accounting principles that should govern illegal enterprises,? the government said.
“Sorting out an illicit business’s net income … can complicate the government’s task,? acknowledged the federal appeals court, which suggested Congress was the place to go to straighten out the problem. The decision on Santos and Diaz was based on a 2002 ruling by the same appeals court. In that case, defendants reimbursed retail outlets for payments to winning customers in a video poker and slot machine operation.
In the 2002 case, the appeals court suggested the money-laundering law had been stretched too far.
Prosecutors are saying that “every drug dealer commits money laundering by using the receipts from sales to purchase more stock in trade, that a bank robber commits money laundering by using part of the loot from one heist to rent a getaway car for the next,? the appeals court said in the 2002 case. “An embezzler who spent part of the take on food and rent, in order to stay alive to cook the books again, would be a money launderer too.
“Yet none of these transactions entails financial transactions to hide or invest profits in order to evade detection, the normal understanding of money laundering,? the appeals court said.
Golde, the former federal prosecutor, said that “money laundering means more than just attempting to hide the money. The bank robber or drug dealer can be convicted of money laundering even when they don’t try to hide the money. That is the way Congress wanted it.?
The case is U.S. v. Santos and Diaz, 06-1005.

 

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