Money, it’s a crime.— Pink Floyd1

For some time, prosecutors and money launderingcharges have had a romantic relationship. For manyyears, the breadth of the statute was matched only

by its draconian sentencing guideline ranges. In 2001,the Sentencing Commission amended U.S.S.G. § 2S1.1to tie offense levels for money laundering more closely tothe underlying conduct that was the source of the crim-inally derived funds.2 Many expected that this amend-ment would eviscerate the plea bargaining leverage thatprosecutors obtained when they included such chargesin an indictment, and as a result, there would be a pre-cipitous decrease in the number ofmoney laundering cases brought.But, for reasons that are unclear,prosecutors continued to chargemoney laundering even in “mine-run” cases.3 Fortunately, recentdevelopments, including most sig-nificantly the Supreme Courtmoney laundering decisions dur-ing its 2007-08 term, may signal asea change in how courts interpretthe statute and, therefore, howprosecutors charge it.

In this article, we address two issues that defenseattorneys should be aware of in any money launderingcase. The first issue, as a result of the Supreme Court’sdecision in United States v. Santos,4 is that the financialtransaction that allegedly constitutes the “laundering”must involve the profits, not merely the receipts, of a crim-inal operation.5 From a defense perspective, the primarysignificance of this holding is that it bolsters the argumentthat financial transactions that are part and parcel of theunderlying criminal activity cannot likely serve as thebasis for a separate money laundering conviction. Thesecond issue, which is derived from the Supreme Court’sholding in United States v. Regalado Cuellar,6 applies tocases brought under 18 U.S.C. § 1956(a)(1)(B)(i) (involv-ing intent to conceal). Specifically, to be guilty of conceal-ment money laundering, the defendant’s purpose inengaging in a financial transaction or transporting moneyabroad must be to “conceal or disguise” the nature, loca-tion, source, ownership or control of those funds.7 Theholding in Regalado Cuellar means that the inevitableeffort to conceal every crime from law enforcement doesnot transform every financial transaction or transporta-

tion involving criminally derivedfunds into money laundering.

While the Court’s decisionsare heavily grounded in statutoryconstruction, the holdings alsoreflect a concern, long held bydefense attorneys, that the moneylaundering statute is being usedabusively by prosecutors. Thesedevelopments will provide substan-tial defense ammunition at the pre-trial, Rule 29, and jury instructionstages of a money laundering case.

B Y B A R R Y B O S S , J O N M AY, A N D M AT T S W E R D L I N

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Money Laundering Defense After SantosAnd Regalado Cuellar

©Nicholas Monu | iStockphoto

I. The Distinction, or LackThereof, Between theUnderlying Crime and theFinancial Transaction

Prior to the Court’s decision in Santos,the threshold issue for defense attorneys toconsider in any money laundering casewas whether there was a sufficient distinc-tion between the underlying conduct thatallegedly generated the proceeds used inthe financial transaction and the financialtransaction itself. In Santos, the Court didan end-run on the substantial body of lawdiscussing this distinction, and held thatwhat it called the “merger problem”8

would be largely avoided if the definitionof “proceeds” in the money launderingstatute is limited to illegal “profits” from,and not merely receipts of, a criminaloperation. In so doing, the Court did notreject the pre-existing law requiring thatthe charged financial transaction not bemerely incidental to the underlying crim-inal activity, but it did change the land-scape for defendants and defense attor-neys seeking to challenge a broad applica-tion of the money laundering statute.

A. The Statutes The Money Laundering Control Act

of 19869 allows the government to reachfinancial transactions and profits fromspecified unlawful activities.10 The legisla-tion was designed to penalize financialtransactions connected to organized crimeand narcotics trafficking,11 and targetedthe means by which proceeds of illicitactivities were cleansed and changed into a“useable form.”12 Despite these lofty objec-tives, in practice, prosecutors have reliedon the Act to charge individuals who havecommitted crimes generating financialproceeds and then engaged in the mostpedestrian of financial transactions.13

The government must prove fourelements to convict a person of moneylaundering under § 1956.14 First, the per-son must conduct or attempt to conducta financial transaction.15 Second, thetransaction must in fact involve the pro-ceeds of specified unlawful activity.16 Theoffenses constituting “specified unlawfulactivity” extend well beyond organizedcrime and narcotics trafficking to includefraud,17 bribery,18 gambling, counterfeitmerchandise, and copyright infringe-ment.19 Third, the person must haveknowledge that the proceeds resultedfrom some form of unlawful activity.20

Fourth, the person must act:

(A)(i) with the intent to pro-mote the carrying on of specifiedunlawful activity; or

(ii) with intent to engage in con-duct constituting a violation of sec-tion 7201 or 7206 of the InternalRevenue Code of 1986; or

(B) knowing that the transactionis designed in whole or in part —

(i) to conceal or disguise thenature, the location, the source,the ownership, or the control ofthe proceeds of specified unlawfulactivity; or

(ii) to avoid a transactionreporting requirement under state orfederal law.21

While § 1956 requires one of theenumerated intents to be convicted (e.g.,intent to promote certain criminalactivity or intent to conceal the pro-ceeds), § 1957 includes no such specificintent. Rather, in essence, § 1957 crimi-nalizes any “monetary transaction”involving the “proceeds” of specifiedunlawful activity, assuming that the per-son engaging in the transaction knowsthat the proceeds are from some form ofcriminal activity and the amount of thetransaction exceeds $10,000.22

B. The Decision in SantosIn United States v. Santos, the Court’s

fractured decision held that the term“proceeds” in 18 U.S.C. § 1956(a)(1)(i)(promotional money laundering) referredto the profits from criminal activities andnot merely the receipts.23 There, theunderlying criminal activity was gam-bling. The defendant ran a lottery opera-tion where money was taken from gam-blers and a certain portion of those fundswas kept by employees of the operation(e.g., runners) or paid to winners.24 Thequestion before the Court was whetherthese payments to employees and to thewinners constituted criminally derived“proceeds” under the money launderingstatute. Justice Antonin Scalia, writing forthe Court, held that the term “proceeds”as used in § 1956 could mean either grossrevenues (i.e., receipts) or profits. Basedon the rule of lenity, the tie went to thedefendant and, therefore, the “profits”def-inition was adopted.25 Since the paymentsto the employees and winners could notbe fairly characterized as involving thegambling operation’s profits, the moneylaundering convictions were reversed.26

It appears that a driving force behindthe Court’s decision was the dispropor-tionate penalty imposed for the moneylaundering convictions. Although thepayments that served as the basis for themoney laundering charges were clearlyinextricably linked to, and indistinguish-able from, the gambling operation itself,27

Santos received a 60-month sentence forthe gambling charges, 18 U.S.C. § 1955,but a 210-month sentence for the moneylaundering charges.28 The majority opin-ion recognized that the “receipts” theoryof money laundering would turn everyviolation of a gambling statute into amoney laundering case because paying awinning bettor is a transaction involving“receipts” from the criminal operation.29

This problem is far from unique to gam-bling cases because “few crimes are entire-ly free of cost and costs are not always paidin advance.”30 Justice Scalia saw this morerestrictive definition of “proceeds” as away of eliminating this “merger problem”:

The government suggests noexplanation for why Congresswould have wanted a transac-tion that is a normal part of acrime it had duly considered andappropriately punished else-where in the Criminal Code toradically increase the sentencefor that crime. Interpreting“proceeds” to mean “profits”eliminates the merger problem.31

While the Court was quite fracturedin its ruling and the case produced oneconcurrence and two dissents, none of thejustices defended the rationality of suchdisproportionate punishment.32

Santos will have a radical impact onhow money laundering cases are prose-cuted. Transactions that “normallyoccur” during the course of committinga particular crime are likely “not identi-fiable uses of profits and thus do notviolate the money laundering statute.”33

“[P]aying the expenses of [ ] illegalactivity cannot possibly violate themoney laundering statute, because bydefinition profits consist of whatremains after expenses are paid.Defraying an activity’s costs with itsreceipts simply will not be covered.”34

Based on this reasoning, Santos wouldseem to stand for the remarkable propo-sition that distributions to co-conspira-tors are outside the money launderingstatute and that only financial transac-tions involving an individual’s or entity’stake home profit from criminal activities(after paying all expenses) can qualify asmoney laundering.

While the plurality opinion attemptsto provide guidance as to how “profits”canbe determined,35 it is clear from JusticeAlito’s dissent that in many cases this bur-den will be extremely difficult for the gov-ernment to meet.36 Indeed, Justice Alitoprovides a roadmap to defense attorneysof all of the problems that the government

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will now face in trying to establish that afinancial transaction involved “proceeds.”37

These proof problems are alreadybeginning to play out. For example, in oneof the first district court opinions apply-ing Santos, the court vacated a moneylaundering conviction of a doctor accusedof defrauding Medicaid based on his pay-ment of business expenses for buildingand equipment rent and dental suppliesbecause these payments were not from“proceeds.”38 Similarly, in a case involvingthe alleged theft of government funds, thedefendant shortly after the issuance ofSantos filed a pretrial motion to dismissthe money laundering charge. The courtnoted that dismissal was premature but atthe time of trial, the government will haveto prove “whether all or some part of themonies (the ‘proceeds’) paid to [thedefendant] were profits.”39

In invoking Santos, the defense attor-ney must be mindful of Justice Stevens’concurring opinion and the limitednature of the holding. While JusticeStevens agreed that with regard to thegambling statute at issue in that case,“proceeds” could only mean “profits,” henoted that “it seems clear that Congresscould have provided that the term ‘pro-ceeds’ shall have one meaning when refer-ring to some specified unlawful activitiesand a different meaning when referring toothers.”40 Thus, the government will likelyargue that while “proceeds” means “prof-its” when gambling is the specified unlaw-ful activity, it means “receipts” with regardto other specified unlawful activities.41

Justice Scalia, writing for the threeremaining justices from the plurality(Justice Thomas not having joinedSection IV of the opinion), strongly sug-gested that the statute could not be parsedin this manner,42 but recognized thatJustice Stevens’ concurrence limited theCourt’s holding.43 Still, Justice Scaliaemphatically contended that JusticeStevens’ “speculations” constitute “thepurest of dicta, and form no part oftoday’s holding.”44 Justice Scalia furthercautioned that while counsel are free toargue Justice Stevens’ view, “not only dothe justices joining this opinion reject thatview, but so also (apparently) do the jus-tices joining” Justice Alito’s dissent.45 Asnoted in the preceding paragraph, districtcourts thus far have not limited the Santosholding to gambling cases.46

C.Traditional Challenges to‘Incidental’ Money LaunderingCharges After Santos

While it is clear in gambling casesthat “proceeds” only means profits, inlight of Justice Stevens’ concurrence,

there remains some ambiguity about thedefinition of “proceeds” when the chargesinvolve other specified unlawful activity.As noted in the preceding section, there iscertainly strong language in the portionof the opinion (Section IV) suggestingthat “proceeds” should be uniformlydefined throughout the money launder-ing statute, but there is also recognitionthat this section of the opinion does notconstitute binding precedent because it isonly joined by three of the justices.47

Given this somewhat limited holding inSantos, counsel must be prepared toargue alternatively that financial transac-tions that are merely incidental to theunderlying specified unlawful activitycannot serve as the basis for separatemoney laundering charges. In otherwords, the “merger problem” can, andshould, serve as an independent basis tochallenge money laundering chargesregardless of the particular definition of“proceeds” employed by the court.

In dissent, Justice Breyer noted thatthe “merger problem” could be solved byholding that the money laundering offenseand the underlying offense “must be dis-tinct in order to be separately punished.”48

The majority rejected this approach, not-ing in dicta that “the insuperable difficultywith this solution is that it has no basiswhatever in the words of the statute.”49 But,in fact, there is support in the statutorytext, the legislative history, and due processprinciples to find that there must be a suf-ficient distinction between the underlyingcriminal activity and the financial transac-tion serving as the basis for the moneylaundering charge.50

The statutory language in § 1956and § 1957 recognizes a distinctionbetween the “laundering transaction”and the crime that generated the pro-ceeds used in that transaction. Bothstatutes require that the financial trans-action involve the proceeds of specifiedunlawful activity. In other words, tocommit a violation of either statute, thecriminally derived proceeds must havebeen obtained before the commence-ment of the financial transaction and thefinancial transaction must not merely beincidental to that underlying crime.

Further, the legislative history makesclear that Congress “intended the moneylaundering statute to be a separate crimedistinct from the underlying offense thatgenerated the money to be laundered.”51

Specifically, the Senate report on the billreflects that the statute was designed to fillin the “gap in the criminal law with respectto the post-crime hiding of ill-gottengains.”52 The statute was designed to pun-ish conduct not already covered by the

criminal statutes; namely, “conduct thatfollows in time the underlying crime ratherthan to afford an alternative means ofpunishing the prior ‘specified unlawfulactivity.’”53 But, it is not just this temporaldistinction that is important because“Congress intended to prevent an ill otherthan those already prohibited by otherlaws.”54 For example, “the statute shouldnot be interpreted to make any drug trans-action a money laundering crime” becausea financial transaction is invariably relatedto the underlying act of distribution.55

Moreover, where the line is blurredand the financial transaction and predi-cate act are based on the same transaction,double jeopardy concerns are implicat-ed.56 This is what the Santos court refers toas the “merger problem.” Thus, courtshave reversed convictions under both §§1956 and 1957 where the underlyingcrime and the financial transaction con-verge or substantially overlap. However,before one aggressively pursues this argu-ment, it is important to recognize the exis-tence of a line of cases where this distinc-tion is largely ignored.

For example, in United States v.Paramo, the Third Circuit affirmed thedefendant’s § 1956 conviction eventhough he was promoting “an alreadycompleted unlawful activity.”57 There,the defendant perpetrated a mail fraudscheme that resulted in his receipt of IRStax refund checks payable to a fictitiousindividual that were deposited in thebank.58 None of the roughly $204,000 inproceeds were used to perpetrate furtherfraud, but rather were used to help paybills and personal expenses.59 The ThirdCircuit concluded that Paramo promot-ed the previously completed mail fraudbecause he “[created] value out of anotherwise unremunerative enterprise.”60

In other words, by depositing the pro-ceeds from the fraud and spending thatmoney, he “promoted” the already com-pleted mail fraud.

Paramo also illustrates the limita-tions of Santos. Even if the “profits” analy-sis applies where the specified unlawfulactivity is mail fraud, this would not seemto change the outcome in Paramo. Thus,contrary to the Court’s suggestion inSantos,61 the adoption of the “profit” defi-nition of proceeds does not by itself solvethe “merger problem.”

The Third Circuit in Paramo reliedheavily on the prior Ninth Circuit deci-sion in United States v. Montoya. In thatcase, the Ninth Circuit concluded thatstate legislator Joseph Montoya promoteda $3,000 bribery payment by simplydepositing the check into his personalbank account.62 Furthermore, depositing

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the check allowed Montoya to classify thefunds as a legitimate honorarium.63

According to the court, Montoya “pro-moted” the bribe because he could nothave used the money without depositingthe check, even though the bribe hadalready been completed when he receivedit.64 Again, it is unclear how Santos wouldhave impacted the holding in Montoyagiven that the check constituting the bribewould likely be considered the legislator’scriminal “profit.”

Other courts have disagreed with thisbroad reading and taken a more defen-dant-friendly view of the distinctionbetween the underlying crime and thefinancial transaction. For example, theFourth Circuit asserted in United States v.Heaps that simply receiving “a moneytransfer and the subsequent placement ofcash in a box” cannot promote an unlaw-ful activity under § 1956.65 There, thedefendant’s wife cashed a $2,000 wiretransfer made payable to her as paymentfor drugs the defendant previously sold;she put the cash in a money box.66 TheFourth Circuit concluded that the onlycrime Heaps committed was sellingdrugs.67 Because “Congress intended toprevent an ill other than those already pro-hibited by other laws,” the court expresslyrejected the proposition that every timedrugs are distributed the financial transac-tion that invariably accompanies or fol-lows that distribution “promotes” theunderlying crime of drug distribution.68

While the Fourth Circuit’s analysis inHeaps is straightforward and easy toapply, Santos introduces another factorinto the equation. The $2,000 received bythe wife might be the gross revenue fromthe sale, but it also presumably includedsome degree of profit. It remains unclearafter Santos whether the mere act of pay-ing for the drugs or a subsequent financialtransaction with the $2,000 would consti-tute money laundering, at least to theextent of the profit obtained from thatparticular transaction.

Similarly, the Eleventh Circuit heldthat that in bank fraud cases, “the under-lying criminal activity must be completebefore money laundering can occur.”69 InChristo, a check kiting case, the defendantwrote checks from a business account(which did not have sufficient funds tocover the $25,000 checks) at Bay Bank tomake loan payments at SouthTrustBank.70 As with the mail and wire fraudstatutes, the bank fraud statute prohibits a“scheme or artifice to defraud.”71 TheEleventh Circuit held that the crime ofbank fraud is not completed until there isan “‘execution’” of the plan to deceive, andthis execution does not occur until the

money is moved.72 Thus, in Christo, thebank fraud was not complete until BayBank paid $25,000 to SouthTrust Bank.73

Accordingly, the court held that the with-drawal of funds to execute the uncomplet-ed bank fraud could not promote theunderlying crime because they were “oneand the same.”74 Again, it is unclear howSantos improves this situation for thedefendant. Although there may be someincidental expenses, it would seem thatthe check kiting scheme involves mostly“profits” and not receipts.

The decision in Christo has broadapplicability where mail, wire, or bankfraud charges serve as the specified unlaw-ful activity in a money laundering case. Itwill often be the case that the financialtransaction is part and parcel of thescheme itself, rather than something thatfollows completion of the scheme.

The Seventh Circuit analyzed thisspecific issue somewhat differently inMankarious where the defendants’ moneylaundering convictions were based onmail fraud.75 The court adopted the analy-sis of the Eleventh Circuit in Christo, butnoted that unlike bank and wire fraud,mail fraud often involves a mailing longafter the proceeds from the fraud are gen-erated, and that in these anomalous cir-cumstances, the proceeds from the fraudcan serve as the basis for a money laun-dering charge even if the financial trans-action occurs before any mailing.76 Thecourt also characterized the relevant issueas when the proceeds were generated, notwhen the scheme was completed.77 Fromthis perspective, because “the defendants’schemes generated proceeds and then [thedefendants] committed separate acts tolaunder those proceeds[,] … it does notmatter when all the acts constituting thepredicate offense take place. It mattersonly that the predicate offense has pro-duced proceeds in transactions distinctfrom those transactions allegedly consti-tuting money laundering.”78

It is difficult to fully reconcile theMankarious holding with the one inChristo, and difficult to comprehend howmail fraud can serve as a predicate offensefor money laundering when, by thecourt’s own analysis, the mail fraud crimehas not been completed before the finan-cial transaction. Still, the holding inMankarious seems limited to the some-what unusual situation of a mail fraudthat generates proceeds before any mail-ing occurs.79 Indeed, the Seventh Circuitnoted that its decision was not inconsis-tent with the Tenth Circuit’s in Kennedybecause the mailing in that case occurredbefore the financial transaction that con-stituted money laundering.80 While it is

convenient for future defendants that theSeventh Circuit took such pains to limitits holding to the particular facts of thatcase, it should be noted that the underly-ing holding in Mankarious is, in fact, atodds with the one in Kennedy. There, theTenth Circuit held: “All that is required toviolate § 1956 is a transaction meeting thestatutory criteria that takes place after theunderlying crime has been completed.”81

Finally, even in the cases sustainingconvictions, courts often at least pay lipservice to the well-established propositionthat there must be a sufficient distinctionbetween the underlying crime generatingthe proceeds and the financial transactionconstituting money laundering.82 In thesecases, the courts creatively analyze thefacts to demonstrate that there was someseparation between the underlying crimeand the financial transaction.83

While Santos will certainly helpmany defendants, it is clear that merelyinterpreting proceeds to mean profits willnot solve the merger problem that was soprominently featured in each of theCourt’s four opinions. Defense counselwill want to rely on the strong language inSantos expressing condemnation ofenhanced punishment for individualswho do nothing more than commit the

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underlying crime. That criticism not onlyanimates the Court’s holding regardingthe definition of proceeds, but also rein-forces the proposition that there must bea sufficient distinction between theunderlying crime and the financial trans-action. Santos, thus, provides additionalfodder for defense attorneys, particularlywhere mail, wire, or bank fraud chargesserve as the basis for a money launderingcharge, or where the financial transac-tion, like a wire transfer, is part of theunderlying crime.

II. Concealment Requires‘Something More’

Money laundering concealmentcases often involve allegations that some-one is trying to conceal his or her con-nection to illegally obtained proceeds.84

From the defense perspective, these casesoften turn on one of two main issues: (1)whether there is sufficient separationbetween the underlying criminal con-duct and the financial transaction, and(2) whether there is sufficient evidence ofintent to conceal.85 Recently the SupremeCourt was asked whether any effort toconceal proceeds of unlawful activity sat-isfied the concealment element orwhether something more was required.The Supreme Court answered that muchmore was required.

In United States v. Regalado Cuellar,86petitioner was arrested following the dis-covery of $81,000 in cash under the floor-board of the car he was driving. He wasstopped while heading toward Mexicoand, along with other suspicious circum-stances, a drug detection dog alerted tocash from his shirt pocket and the rear ofthe car, where the $81,000 was later foundhidden. Regalado Cuellar was chargedwith attempting to transport the proceedsof unlawful activity, knowing that thetransportation was designed “to concealor disguise the nature, the location, thesource, the ownership, or the control” ofthe money in violation of 18 U.S.C.§1956(a)(2)(B)(i). Following a two-daytrial, Regalado Cuellar was convicted.

On appeal, a divided panel of theFifth Circuit held that the governmentmust show more than Regalado Cuellar’sconcealment of the money because “thatstatute required that the purpose of thetransportation itself must be to concealor disguise the unlawful proceeds.”87

Explained another way, the venture mustbe undertaken intending to create theappearance of legitimate wealth.88 Onrehearing en banc, the Fifth Circuitvacated the panel’s opinion and reinstat-ed Regalado Cuellar’s conviction. The

court did not require an attempt to cre-ate the appearance of legitimate wealthand held that the statute was satisfied bythe extensive efforts made to prevent thedetection of the funds.89

Justice Thomas, writing for a unani-mous court, rejected the argument thatthe statute requires an attempt to createthe appearance of legitimate wealth.While recognizing that this is a commonmeaning of the term “money launder-ing,” the statue criminalizes a broaderrange of conduct than only efforts to dis-guise the nature or source of illegalfunds. It also reaches transportationdesigned to conceal or disguise the loca-tion, ownership, or control of illegalmoney.90 As an illustration of this point,Justice Thomas provided the followingexample: “[A] defendant who smugglescash into Mexico with the intent of hid-ing it from authorities by burying it inthe desert may have engaged in trans-portation designed to conceal the loca-tion of the funds, but his conduct wouldnot necessarily have the effect of makingthe funds appear legitimate.”91

Having explained what the statutedoes not require, the Court turned towhat the statute does. The Court rejectedthe government’s argument that thestatute only requires evidence of substan-tial efforts at concealment.92 Instead, itfocused on the word “designed” in thelanguage of the statute, which requiresthat the accused know the transportationis “designed” to “conceal or disguise thenature, the location, the source, the own-ership, or the control of the proceeds” ofspecified unlawful activity.93 The Courtrecognized that there were two senses inwhich “designed” could be used. The firstmeans a plan or a scheme. The secondmeans a structure or arrangement. TheFifth Circuit employed the second mean-ing when it cited to the packaging of themoney, its placement in a hidden com-partment, and the efforts taken to maskits scent “‘as aspects of the transporta-tion’ that ‘were designed to conceal ordisguise’ the nature and location of thecash.”94 The Court found it implausiblethat Congress would intend this meaningfor “design.” The Court did not believethe statute was intended to apply to “[a]petty thief who hides money in his shoeand then walks across the border tospend the money in local bars,”95 or to aperson who “structured transportationin a secretive way but lacked any criminalintent. …”96 For the Court, the purpose ofthe transportation is critical, not themanner of the transportation.

The fact that Regalado Cuellar soughtto prevent the authorities from finding the

money he was transporting to Mexicodoes not mean the purpose of taking themoney to Mexico was to conceal it. Therewas no evidence that the purpose of takingthe money to Mexico was to hide it there.In fact, the evidence presented at trial wasjust the opposite; the purpose of the trans-portation was to compensate the leaders ofa drug smuggling operation. “The evi-dence suggest[s] that the secretive aspectsof the transportation were employed tofacilitate the transportation … but notnecessarily that secrecy was the purpose ofthe transportation.”97 The Court conclud-ed: “Although [the concealment] elementdoes not require proof that the defendantattempted to create the appearance oflegitimate wealth, neither can it be satisfiedsolely by evidence that a defendant con-cealed the funds during transport.”98

Regalado Cuellar reflects an entirelynew way of looking at money launder-ing prosecutions. Previously, in deter-mining whether the statute had beenviolated, courts focused on the effortsthat went into concealing or disguising atransaction. The more extensive thoseefforts or the more complex the transac-tion, the greater the likelihood that thecourt would find an intent to conceal.Thus, courts have upheld money laun-dering convictions involving complexand elaborate schemes,99 but reversedconvictions where the financial transac-tions are unsophisticated or easilytraced by government investigators.100

The Seventh Circuit has been hometo many of these concealment moneylaundering cases. That court affirmed nofewer than nine cases under §1956(a)(1)(B)(i) between 1991 and 2000before overturning its first conviction.Three cases involved the use of multiplebank accounts.101 Straw people made pur-chases with illegally obtained money infour cases.102 Records were falsified in twocases.103 One case even involved a simple,easy-to-follow money trail, but the con-viction was still upheld due to the court’sbelief that the defendant tried to hide thefunds’ origins.104

To understand how the analysis ofthese cases would be different underRegalado Cuellar, consider the decision ofthe Seventh Circuit in United States v.Esterman.105 There, the defendant openeda bank account in Illinois for use infinancing a business venture in Russia.106

He received large amounts of cash thatwere transferred into the Illinois account,but diverted those funds from the busi-ness to himself by sending money to twoseparate banks through no less than 33separate wire transfers.107 He disposed ofthat money by withdrawing cash and

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writing checks to at least three separatepeople; one was made payable to a pawnbroker in the amount of $36,620.108 Thedefendant’s claim was that there wasinsufficient evidence of intent to concealbecause he merely transferred the funds to“a separate account and then spent themin an ‘open and notorious’ way.”109

The Seventh Circuit first reviewedprior cases in which it had found suffi-cient evidence of intent to conceal. Thecourt noted that in each of these priorcases, there had been a specific effort toconceal funds.110 For example, in UnitedStates v. Reynolds, the president of a unionsiphoned off dues by diverting funds to apersonal account and altering the union’sdues records to understate the amount ofdues collected.111 In finding intent to con-ceal, the court noted that it did not rely onthe alteration of the union records butrather “on the fact that the defendant‘used the [personal] account to conceal ordisguise the proceeds.’”112 In Hollenback v.United States, the court found sufficientintent to conceal where the defendantcrafted an “elaborate mortgage scheme”that included “multiple irregular transferscalculated to avoid reporting require-ments, in an attempt to conceal the drug-related origin of the funds.”113

In contrast, although the defendantused multiple accounts in different states,the court noted that Esterman “made noeffort to disguise or conceal” the with-drawals from the business account or theultimate destination of the funds.114

Contrasting the facts to those inHollenback, the court noted that “therewas nothing complicated about his dispo-sition of the funds: to the contrary, hesimply made deposits into other bankaccounts that were correctly identifiedand he engaged in some retail transac-tions.”115 In buttressing its conclusion thatthe transactions lacked the requisite intentto conceal, the court noted that “the pros-ecutors easily traced Esterman’s transfersfrom one account to the other.”116

The Seventh Circuit attempted to rec-oncile its prior cases and Esterman by pro-viding some basic criteria for evaluatingwhether or not a case involves sufficientintent to conceal. It noted such intent canbe found where there is “more than onetransaction, coupled with either direct evi-dence of intent to conceal or sufficientlycomplex transactions that such an intentcould be inferred.”117 However, such intentis lacking where, as in Esterman, there are“simple transactions that can be followedwith relative ease, or transactions thatinvolve nothing but the initial crime.”118

Under Regalado Cuellar, the Courtwould not have had to engage in such an

extensive analysis of how the transactionwas structured. This is because it nolonger matters whether the mechanismsemployed are complex or simple. If thetransaction was not intended to concealthe true nature, ownership, or locationof the funds, it is not money laundering.Conversely, no matter how easy it is forthe authorities to discover the truenature, ownership, or location of thefunds, if the purpose of the endeavorwas to conceal this information, it ismoney laundering.

This is not to say that how a transac-tion is structured is irrelevant to the ques-tion of the defendant’s intent. Considerthe District of Columbia Circuit decisionin Adefehinti.119 The defendants, using fakeidentities, flipped cheap properties in theDistrict of Columbia by purchasing themat low prices and selling them to eachother at artificially high prices after secur-ing bank loans to fund the purchases.120

Upon receiving bank loan checks, the“straw buyers” would split the profits andlet the banks foreclose on the mortgagesthey did not pay.121 A check from the “sale”of one property formed the basis of theinitial money laundering convictions.122

The check was made payable to a fictionalbuyer and endorsed in his name to a busi-ness account.123 The business accountname was likewise fabricated, but theaccount number matched one defendant’sactual business account.124 Upon cashingthe $41,010 check, $7,000 was withdrawnas cash and the balance was deposited intoaccounts held in two defendants’ names.125

One defendant then wrote checks out ofhis business account to another.126

Based on evidence presented at trial,and notwithstanding the use of a fictionalbuyer, a fabricated business name, cashproceeds, and layered transactions, thecourt concluded that there was no indica-tion that the defendants intended to con-ceal the financial transactions or their per-sonal involvement in moving the money.127

The court noted that the defendants divid-ed the proceeds by distributing cash ordepositing them directly into accountsheld under their legal names.128 This is asfar at the Court needed to go underRegalado Cuellar. The remainder of thecourt’s analysis, which addressed the easeby which law enforcement could followthe money trail, is no longer necessary.129

An earlier case from the District ofColumbia Circuit illustrates how evensimple transactions can constitute moneylaundering. In United States v. Rouse,defendant Donna Rouse knowinglyreceived from a co-conspirator checksfrom the George Washington UniversityHealth Plan to which she knew she was

not entitled. Rouse then accepted,endorsed, and deposited these checks intoher account, but would later use the fundsfor another co-conspirator’s, RichardGartmon’s, benefit.130 Rouse would buygoods and services for Gartmon, eventhough none of the checks boreGartmon’s name.131 The court concludedthat there was sufficient evidence of intentto conceal because Rouse knew that themoney she was spending for Gartmonwas illegally obtained and she did not ref-erence the true purpose of the checks onthe memo line (which was contrary to herusual practice).132 Thus, notwithstandingrelatively simple and straightforwardfinancial transactions that were in all like-lihood easily traced to Gartmon, the courtfound that the defendant possessed therequisite intent to conceal.

III. Sentencing in MoneyLaundering Cases

It would also appear that defendantsin money laundering cases may be able toobtain additional relief at sentencing.Counsel should be aware of a recentSeventh Circuit case, United States v.Carter, affirming a § 3553(a) variance (nota departure) from the guideline range thatwas justified because, among other rea-sons, the case did not involve “heartland”money laundering (i.e., organized crimeor drug trafficking).133 Although there wasa sizeable body of case law prior to theamendment of the guidelines in 2001regarding downward departures for thistype of non-heartland money launder-ing,134 this doctrine had been rarelyinvoked in recent years. In Carter, theanalysis is resurrected, but as support for avariance rather than a guideline departure.Thus, to the extent that prosecutors willcontinue to successfully bring moneylaundering cases after Santos and RegaladoCuellar, defense counsel — relying onCarter, Kimbrough,135 the SentencingCommission’s 1997 report on moneylaundering cases,136 and the plethora ofcases discussing the intended heartland formoney laundering cases137 — should arguein non-racketeering and non-drug traf-ficking cases that defendants should besentenced below the otherwise applicableguideline range.

Conclusion

For many years, it has seemed as ifthe scope of the money laundering statutewas virtually limitless. Every financialtransaction that followed a crime thatreaped an economic benefit seemed toprovide prosecutors with ammunition to

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threaten money laundering and, in sodoing, leverage plea agreements. Untilrecently, where defendants were chargedand convicted of money laundering, veryfew convictions were reversed for insuffi-cient evidence. While it is too soon todeclare that the tide has turned, there iscertainly a basis for reinvigorated repre-sentation in these kinds of cases, particu-larly where there is an insufficient distinc-tion between the underlying crime andthe financial transaction, where the finan-cial transaction does not involve “profit,”or where the “concealment” is not the ulti-mate intent of the transaction.

Notes1. Pink Floyd, Money on The Dark Side of

the Moon (EMI UK 1973).2. U.S.S.G. app. C, amend. 634 (2001).3. See, e.g., United States Sentencing

Commission, Table 3 Guideline Offenders inEach Primary Offense Category, 1999Sourcebook of Federal Sentencing Statistics,12, available at http:// www.ussc.gov/ANNRPT/1999/table3.pdf (last visited Apr. 9,2008); United States Sentencing Commission,Table 3 Guideline Offenders in Each PrimaryOffense Category, 2000 Sourcebook ofFederal Sentencing Statistics, 12, available athttp://www.ussc.gov/ANNRPT/2000/table3.pdf (last visited Apr. 9, 2008); United StatesSentencing Commission, Table 3 GuidelineOffenders in Each Primary OffenseCategory, 2006 Sourcebook of FederalSentencing Statistics, 12, available athttp://www.ussc.gov/ANNRPT/2006/table3.pdf (last visited Apr. 9, 2008).

4. United States v. Santos, 128 S. Ct. 2020(2008).

5. Id. at 2025.6.United States v.Regalado Cuellar,128 S.

Ct. 1994 (2008).7. Id. at 2003.8. Santos, 128 S. Ct. at 2026.9. 18 U.S.C. §§ 1956, 1957 (2000).10. Id. at § 1956(a)(1).11. Michael McGuinn, Money

Laundering,43 AM.CRIM.L.REV. 739,741 (2006).12. United States v. Esterman, 324 F.3d

565, 570 (7th Cir. 2003) (citation omitted).13. See, e.g., United States v. Paramo, 998

F.2d 1212, 1218 (3d Cir. 1993) (convertingembezzled checks into cash at a bankaccount promoted the prior crime of mailfraud); United States v. Montoya, 945 F.2d1068, 1076 (9th Cir.1991) (depositing a checkreceived as a bribe payment was separatefrom, and promoted, the actual bribe).

14. § 1956(a)(1).15. Id.16. United States v. Adefehinti, 510 F.3d

319, 322 (D.C. Cir. 2008) (citing §1956(a)(1)(B)(i)).

17. See, e.g., United States v. Prince, 214

F.3d 740, 747 (6th Cir. 2000).18. Montoya, 945 F.2d at 1076.19. § 1956(c)(7); 1961(1).20. Adefehinti, 510 F.3d at 322 (citing §

1956(a)(1)(B)(i)).21. § 1956(a)(1).22. § 1957(a),(f )(2).23. Santos, 128 S. Ct. at 2025.24. Id. at 2023.25. Id. at 2025.26. Id. at 2031.27. See id. at 2026 (noting that if “pro-

ceeds” meant “receipts,” then every violationof an illegal lottery statute would also be aviolation of the money laundering statute).

28. Id. at 2023.The Court referred to thisas the “merger problem.” Id. at 2026.

29. Id. at 2026.30. Id.31. Id. at 2027.32. See, e.g., id. at 2034-35 (Breyer, J., dis-

senting) (noting the “merger problem” butsuggesting that there are other mechanismsto address it); id. at 2044 (Alito, J., dissenting)(agreeing that there is a merger problemwhere a defendant receives a higher moneylaundering sentence merely for doing nomore than is required for a violation of thegambling statute,but this does not justify themajority’s interpretation of “proceeds”).

33. Id. at 2027.34. Id.35. See id. at 2028-29 (noting for exam-

ple that the proceeds of specified unlawfulactivity are “the proceeds from the conductsufficient to prove one predicate offense”)(emphasis in original).

36. See id. at 2039-44.37. See id.38. United States v. Shelburne, __ F. Supp.

3d __, 2008 WL 2588057, *4-5 (W.D. Va. Jul. 1,2008).

39. United States v. Thompson, 2008 WL2514090, *2 (E.D.Tenn. Jun. 19, 2008).

40. Id. at 2031 (Stevens, J., concurring).41. See, e.g., Shelburne, 2008 WL

2588057 at 4 (government relied on the con-currence by Justice Stevens to argue thatbusiness expenses in health care fraud casecould constitute “proceeds”).

42. See Santos, 128 S. Ct. at 2030-31.43. Id. at 2031.44. Id.45. Id. Justice Alito’s dissent was joined

by Chief Justice Roberts and JusticesKennedy and Breyer.

46.See,e.g.,Shelburne,2008 WL 2588057,*5 (disagreeing with the government’s nar-row construction of Santos).

47. Id. at 2030-31.48. Id. at 2035 (Breyer, J., dissenting).49. Id. at 2028.50. See, e.g., United States v. Awada, 425

F.3d 522, 524 (8th Cir. 2005) (“the underly-ing activity must be separate from the actu-

al laundering”); United States v. Mankarious,151 F.3d 694, 705 (7th Cir. 1998) (“moneylaundering criminalizes a transaction inproceeds, not the transaction that createsthe proceeds”).

51. United States v. Edgmon, 952 F.2d1206, 1213 (10th Cir. 1991).

52. Id. (emphasis added,citation omitted).53. Id. at 1214 (emphasis added).54. United States v. Heaps, 39 F.3d 479,

486 (4th Cir. 1994).55. Id.56. Awada, 425 F.3d at 524.57. 998 F.2d at 1218.58. Id. at 1215.59. Id. at 1217.60. Id. at 1218.61. Santos, 128 S. Ct. at 2028 (suggesting

that the Court’s interpretation of “proceeds”resolves the merger problem).

62. Montoya, 945 F.2d at 1076.63. Id.64. Id.65. 39 F.3d at 486.66. Id. at 482.67. Id. at 485.68. Id. at 486 (emphasis added).69. United States v. Christo, 129 F.3d 578,

580 (11th Cir. 1997) (emphasis in original).70. Id.71. 18 U.S.C. § 1344.72. Christo, 129 F.3d at 580 (citations

omitted).73. Id.74. Id.75. Mankarious, 151 F.3d at 705.76. Id.77. Id.78. Id. at 706.79. See id. at 705-06.80. Id. (citing United States v. Kennedy, 64

F.3d 1465, 1477 (10th Cir. 1995)).81. Kennedy, 64 F.3d at 1477 (emphasis

added).82. See, e.g., Mankarious, 151 F.3d at 705-

06.83. Mankarious, 151 F.3d at 705.84. Adefehinti, 510 F.3d at 322.85. See Esterman, 324 F.3d at 570.86. 128 S. Ct. 1994.87. Id. at 1998 (quoting United States v.

Regalado Cuellar, 441 F.3d 329, 333-334(2006)).

88. Id. at 1999.89. Id.90. Id. at 2000.91. Id.92. Id. at 2003 (emphasis in original).93. Id. at 2006.94. Id. at 2003.95. Id. at 2004.96. Id.97. Id. at 2005 (emphasis in original).98. Id. at 2006.99. See, e.g., United States v. Thayer, 204

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F.3d 1352, 1354-55 (11th Cir. 2000) (using dif-ferent accounts to funnel unlawful pro-ceeds); United States v. Majors, 196 F.3d 1206,1212-13 (11th Cir. 1999) (transferring moneybetween companies using different partici-pants’ names, which amounted to a “shellgame”); United States v. Campbell, 977 F.2d854, 858 n.4 (4th Cir. 1992) (reducing houseprice for under-the-table payments).

100. See, e.g., United States v. Olaniyi-Oke,199 F.3d 767, 770-71 (5th Cir. 1999).

101. See United States v. Trost, 152 F.3d715, 720 (7th Cir. 1998) (establishing phonyaccount for county funds and transferringmoney from that account to defendant’s per-sonal account); United States v. Reynolds, 64F.3d 292, 297 (7th Cir. 1995) (diverting uniondues to another person’s account and alter-ing union records); United States v. Jackson,935 F.2d 832, 841-42 (7th Cir. 1991) (deposit-ing defendant’s illegally obtained funds inchurch bank account but using those fundspersonally satisfies concealment).

102. See United States v. Smith, 223 F.3d554, 577 (7th Cir. 2000) (purchasing defen-dant’s van in brother-in-law’s name andobtaining fraudulent bank loan); UnitedStates v. Holland, 160 F.3d 377, 380 (7th Cir.1998) (having an out-of-state banker paydefendant’s expenses while defendantclaimed to be bankrupt); United States v.Santos, 20 F.3d 280, 284 (7th Cir. 1994)(placing defendant’s name on his friend’scar’s certificate of title because the friendcould not explain that he partially paid forthe car with marijuana); United States v.Antzoulatos, 962 F.2d 720, 727 (7th Cir.1992) (allowing drug dealers to use defen-dant’s business checks to buy cars andaccepting small cash repayments to avoidcurrency transaction requirements).

103. See Smith, 223 F.3d at 577 (obtain-ing fraudulent bank loan); Reynolds, 64 F.3dat 297 (altering union books that recordeddues collected).

104. Jackson, 935 F.2d at 841-42.105. Esterman, 324 F.3d at 571.106. Id. at 566.107. Id. at 568.108. Id.109. Id. at 569.110. Id. at 570-71.111. Id. at 571.112. Id.113. Id.114. Id.115. Id.116. Id. at 572.117. Id. at 572 (citations omitted).118. Id. (citations omitted).119. Adefehinti, 510 F.3d at 319.120. Id. at 321 (noting the defendants

had “appraisers lie about the properties’value”).

121. Id.

122. Id. at 324.123. Id. at 322.124. Id.125. Id.126. Id.127 Id. at 323.128. Id.129. Id.130. Id.131. Id. at 1374.132. Id.133. United States v. Carter, __F.3d__ ,

2008 WL 3844058 (7th Cir. Aug. 19, 2008).134.See Barry Boss & Louis Feuchtbaum,

Downward Departures in Money LaunderingCases: The Punishment Should Fit the RealCrime, THE CHAMPION, Sept./Oct. 1998, at 45.

135.Kimbrough v.United States,128 S.Ct.558 (2007).

136. U.S. SENTENCING COMM’N, SentencingPolicy for Money Laundering Offenses (Sept.18, 1997), available at http://www.ussc.gov/r_congress/LAUNDER.PDF.

137. See, e.g., United States v. Walter, 87F.3d 663, 672 (5th Cir. 1996).

© Barry Boss, Jon May, and MattSwerdlin, 2008. All rights reserved. n

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About the AuthorsBarry Boss is the managing partner of

Cozen O’Connor’sWashington, D.C.,office and a mem-ber of the firm’sWhite Collar &Complex CriminalDefense PracticeGroup. A formerassistant federal

public defender, Boss co-authors Feder-al Criminal Practice (James Publishing)and teaches at The George WashingtonUniversity Law School.

Barry BossCozen O’Connor1627 I Street, NW, Ste. 1100Washington, DC 20006202-912-4818Fax 866-413-0172

bboss@cozen.com

Jon May is a partner in the firm of May &Cohen P.A. His prac-tice concentrates onwhite collar crime,organized crimeprosecutions, andmoney laundering.He began his careeras a public defenderin Palm Beach and

then was an assistant U.S. attorney in Miami. Since 1986, he has practiced lawwith his wife, Carol Cohen.

Jon May1001 Brickell Bay Dr., Suite 2206Miami, FL 33131305-373-3740Fax 786-228-0246

crimlawfed@bellsouth.net

Matt Swerdlin is a student at The GeorgeWashington Univer-sity Law School,class of 2009, and alaw clerk at CozenO’Conner. He cur-rently serves as a stu-dent attorney withD.C. Law Students inCourt, representing

indigent clients in misdemeanor cases.

Matt Swerdlinmswerdlin@cozen.comE-MAIL

E-MAIL

E-MAIL

5. United States v. Ickes, 393 F.3d 501 (4thCir.2005);United States v.Arnold, 523 F.3d 941,amended and reh’g & reh’g en banc denied,533 F.3d 1003 (9th Cir. 2008).

6.“In the course of a border search, andabsent individualized suspicion, officers canreview and analyze the information trans-ported by any individual attempting to enter,re-enter,depart,pass through or reside in theUnited States. …”Policy, Para. B.

7. Policy, Para. E (3).8. “If an officer suspects that the con-

tents of such a document may constitute evi-dence of a crime or otherwise pertain to adetermination within the jurisdiction of CBP,the officer must seek advice from the associ-ate/assistant chief counsel or the appropri-ate U.S.Attorney’s Office before conducting asearch of the document.”Policy, Para. E (3).

9. Bob Aaron, New U.S. Policy a Matter ofConsiderable Concern, LAW TIMES, Aug. 18, 2008.

10. William H. McMichael, Rule MayEndanger Attorney-Client Privilege, AIR FORCETIMES, June 3, 2008; Policy on Use ofDepartment of Defense (DoD) InformationSystems — Standard Consent Banner andUser Agreement, Department of Defense,May 9, 2008. A copy is available athttp://www.nacdl.org/public.nsf/whitecol-lar/waiver_attachments/$FILE/DoD.pdf.n

INSIDE NACDLContinued from page 8