As defined here by the US Financial Crimes Enforcement Network, money laundering involves “disguising financial assets so they can be used without detection of the illegal activity that produced them.” Through various methods, money and profits received from criminal activity is transformed into money or assets that appear to have a legal source. The stated targets of anti-money laundering criminal statutes are drug dealers, terrorists, arms dealers, and other criminals.

A fictionalized example can be seen in the popular show “Breaking Bad.” The main character in the show is a meth manufacturer and supplier. As the show progresses, the main character begins to have his fictional wife launder the drug profits through a car washing business. In the show, profits from the drug business are deposited into the bank accounts of the car wash business as though the money was received from customers who had their cars washed. The wife, of course, must engage in accounting fraud and must also prepare and file false business tax returns (both state and federal) and false reports and returns at the state level for sales tax and other business reporting. Thus, money laundering will generally involve violating many criminal laws.

The main federal statute that criminalizes money laundering is the Money Laundering Control Act (“MLCA”), 18 U.S.C. §§ 1956 et seq. The MLCA has been amended and broadened several times since its enactment. Violations of the MLCA carry heavy fines and long prison terms.

What Must the Government Prove to Obtain a Conviction?

To obtain a conviction for money laundering, the government must prove beyond a reasonable doubt, the following three elements:

• Use of funds that are proceeds of unlawful activity — generally, the unlawful activity must be a felony crime such as drug trafficking or wire fraud
• Knowledge by the criminally-accused that the funds are proceeds of unlawful activity and
• The conduct of a financial transaction (or attempt), knowing that the transaction is designed in whole or in part to disguise the nature, location, source, ownership or control of the proceeds — such as depositing funds into or withdrawing funds from a financial account or transferring the funds via other methods like a sale or purchase

Note the word “proceeds” in the first element.

One method of defending against charges of money laundering is to argue that the financial transaction at issue did not involve “proceeds” as defined by the MLCA and federal court decisions. In particular, the US Supreme Court has held that the word “proceeds” in the MLCA means “profits.” See United States v. Santos, 553 U.S. 507 (2008). In that case, the defendant Santos was convicted of running an illegal lottery in Indiana. Among other charges, he was convicted on two counts of money laundering. As the court reported, at bars and restaurants, Santos employed two levels of “employees” to help him run the illegal lottery. Santos used “runners” who gathered bets from gamblers and the next level up were the “collectors.” The runners kept a portion of the bets (between 15% and 25%) as their commissions and delivered the rest to Santos’s collectors. The collectors then delivered the money to Santos, who used some of it to pay the salaries of collectors and to pay the winners. The government obtained the money laundering convictions based, in part, on Santos paying commissions and salaries to his runners and collectors.

However, he successfully challenged his money-laundering conviction by arguing that the transactions did not involve profits from the illegal lottery. Rather, the salary and commissions were paid on the receipts of the lottery. This argument was based on the holding of United States v. Scialabba, 282 F.3d 475 (US Fed Court of Appeals, 7th Cir. 2002) which held that the MLCA applies only to transactions involving criminal profits, not criminal receipts. In the Santos case, the US Supreme Court agreed. “Proceeds,” as used in the MLCA, means profits from criminal activity, not receipts.

Aside from providing a basis for defending against charges of money laundering, the Santos case provides yet another example of the importance of definitions in criminal defense law.

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