Money Laundering Laws: The Practical versus the Technical

By Dennis Lormel

On June 2, 2008, the U.S. Supreme Court (Court) narrowed the focus of federal money laundering laws by ruling against the government in two money laundering cases. In pursuing these and most cases, law enforcement and prosecutors regularly employ a broad and practical interpretation of the money laundering laws. In its rulings, the Court adopted a narrow and technical interpretation of the money laundering laws. The question at hand is what was the intent when Congress passed money laundering legislation, the practical or technical application of the laws?

Individuals or groups involved in criminal activity, gangs, drug trafficking organizations, ethnic organized crime groups and terrorists or terrorist groups rely on the proceeds of illicit activities to succeed. One commonality each of these groups shares is that money laundering is an essential element of their ability to operate and thrive. According to the 2007 National Money Laundering Strategy “money laundering, in its own right, is a serious threat to our national and economic security.”

There are no quantifiable statistics to measure the true scope of money laundering. In 1996, the International Monetary Fund (IMF) estimated that the aggregate size of money laundering in the world could be somewhere between two and five percent of the world’s gross national product. According to the Financial Action Task Force (FATF), using the IMF statistics today would indicate that money laundering ranged between U.S. Dollar (USD) $590 billion and USD $1.5 trillion.

Based on the fact that criminals and terrorists must launder funds to succeed, coupled with the staggering scope of the problem as estimated by the IMF and FATF, there is a compelling argument that if the intent of Congress in enacting money laundering legislation was not the practical interpretation of the law, it should well have been. The immediate problem we face is that both decisions favor money launderers. Congress must carefully review these decisions and take steps to amend existing laws and specifically articulate their intent supporting the practical application of the money laundering statutes. In one case this should be relatively easy to accomplish. The other case will prove to be more challenging.

In the case U.S. v. Efrain Santos and Benedicto Diaz, Santos was convicted for running an illegal lottery/gambling operation and money laundering. Diaz plead guilty to conspiracy to launder money. He worked as a collector for Santos. The money laundering charges in this case were based on Santos using receipts from gambling activity to pay winning bets and couriers who worked for him. In prosecuting the case, the government applied the practical application of the law and considered the “proceeds” of the operation to be “gross receipts.” The government’s position was reasonable since criminals should not be entitled to use illicit receipts to fund their operations and thereby benefit from them.

However, in a 5 - 4 decision, the Court took a technical application and interpretation. It ruled that “proceeds” under the federal money laundering statute meant “profit” and “not gross receipts or expenses.” The court opined that Congress did not specify the meaning of “proceeds” thus the statute was ambiguous and could be interpreted as either “receipts” or “profits.” Justice Antonin Scalia wrote the main opinion. He stated that as a matter of dictionary definition “proceeds” could mean either “receipts” or “profits.” He stated “We interpret ambiguous criminal statutes in favor of defendants, not prosecutors.”

It is not practical or reasonable to expect law enforcement and prosecutors to identify profits above receipts in establishing money laundering charges. Receipts from specified unlawful activities should be the standard. In this case, it should be relatively easy for Congress to amend the money laundering statute to specifically state that “proceeds” are “gross receipts.”

In the case Cuellar v. U.S., Humberto Fidel Regaldo Cuellar was stopped for driving suspiciously slow near the U.S. Mexican border. His mannerisms continued to arouse suspicion. Police searched Cuellar’s car and found a concealed compartment containing $83,000. It was wrapped in Wal Mart sacks. The money smelled like marijuana. Police determined that Cuellar used a few common ruses to attempt to conceal the secreted funds. Cuellar was convicted of “attempting to transport the proceeds of unlawful activity across the border, knowing that the transportation was designed to conceal or disguise the nature, the location, the source, the ownership or the control of the money.”

The police in the Cuellar case acted reasonably. The prosecutors applied a broad and practical interpretation to the money laundering statutes in charging Cuellar only with “concealment” of funds and not going beyond that threshold. The fact that Cuellar concealed illicit funds in a hidden compartment of a car, that smelled like marijuana and was being transported to Mexico should have been a reasonable standard to sustain a money laundering conviction.

However, by unanimous decision, the Court applied the technical interpretation of the money laundering statute and found that the government’s position was too broad. Justice Clarence Thomas wrote the Court’s decision. He stated that Cuellar’s conviction had to be overturned because the applicable section of the 1986 law required that Cuellar knew that the purpose - not merely the effect - of his transporting the money was to conceal or disguise its illicit nature. In essence, proving concealment by itself was not enough. The Court appeared to voice concern that the government applied the practical interpretation too broadly.

Based on the Court’s tone in the Cuellar case, it is not as likely that Congress will amend the money laundering statutes to support the government’s position and interpretation that concealment by itself should be the standard in this type of case. In light of the overwhelming flow of illicit bulk cash out of the U.S. through Mexico, especially by drug trafficking organizations, the intent of Congress regarding the money laundering laws should be to disrupt money laundering by means of bulk cash shipment. Congress should closely assess the Cuellar ruling and determine if they can craft language to amend the money laundering statutes that will satisfy both practical and technical considerations in this type of situation.

As previously noted, the 2007 National Money Laundering Strategy stated, “money laundering, in its own right, is a serious threat to our national and economic security.” Congress must empower law enforcement to take a broad and practical approach in interpreting and applying the money laundering laws. This is the best mechanism for the government in attempting to address the myriad of challenges presented by money laundering operations. When the government succeeds at disrupting the flow of illicit funds, it does so at the expense of criminal and terrorist organizations.

TrackBack