Two United States Supreme Court rulings could make it trickier for prosecutors to prove money laundering.
The first ruling, Cuellar v. United States, No. 06-1456, involved Regaldo Cuellar, who, en route to Mexico, was stopped by police in Texas in 2004 for driving erratically.
Mr. Cuellar was found with $81,000 in cash and ultimately convicted in Federal District Court -- subsequently, the United States Court of Appeals -- of "attempting to transport the proceeds of unlawful activity across the border."
The Supreme Court ruled unanimously on June 2, 2008, however, that the convictions could not be upheld because the evidence "did not prove that the defendant knew that the purpose of his transporting the money was to conceal or disguise its illicit nature."
The second case, United States v. Santos, No. 06-1005, interpreted the difference between "profits" and "receipts" in relation to an illegal lottery business.
In a 5-4 decision, the court ruled June 2, 2008, that money laundering refers to the criminal profits of an illegal operation, not its receipts.
The Internet gambling industry is waiting to see how the federal case against 12 defendants related to BetonSports -- particularly Gary S. Kaplan and David Carruthers -- will unfold.
The 21-count indictment, served almost two years ago, charges the defendants with crimes relating to operating illegal online gambling in the United States. Included in the charges are elements of money laundering.
So, Interactive Gaming News asked: With two Supreme Court decisions narrowing the scope of the federal money laundering statute, what impact could the decisions have on the BetonSports case?
Patrick T. O'Brien: Since the enactment of the Money Laundering Control Act in 1986, the Department of Justice has continuously expanded the scope and reach of United States money-laundering laws but occasionally the courts have pushed back. The two money-laundering decisions the Supreme Court handed down Monday are examples of judicial push back.
In United States v. Santos, the court held that the term "proceeds" in the federal money laundering statute means the criminal profits and not the criminal receipts. The case involved an illegal lottery where the government contended that all money paid by customers buying lottery tickets was subject to the money laundering statute, and the defendant contended that only the profits from the illegal activity were subject to the statute. The court reasoned that the intent of Congress was unclear from the wording of the statute as well as the legislative history, and in case of such a tie, the "rule of lenity" required the courts to give the benefit of the doubt to the defendants. So, it held that the statute only applied to the profits and not the gross receipts.
The primary impact of this decision will be seen in sentencing, forfeitures and plea bargaining. The sentence imposed for money-laundering offenses is based on the amount of money laundered and can range up to 20 years. Since profits are generally less than 10 percent of receipts, the decision reduces the amount of money laundered by 90 percent or more and will significantly reduce sentences imposed. In addition, criminal proceeds are subject to forfeiture, so the decision will reduce the amount of money which the government can attempt to seize and forfeit in connection with criminal money laundering charges. This can be especially meaningful to a party negotiating the settlement of a case because it will reduce the amount the government claims as "criminal proceeds" by more than 90 percent.
In Cuellar v. United States, the defendant was convicted of money laundering charges when apprehended driving toward the Mexican border with criminal proceeds concealed in a secret compartment of his car. The court reversed the money laundering conviction, holding that the government not only had to prove the defendant concealed the criminal proceeds, but also that he did so in an attempt to disguise the nature, location, source, ownership, or control of the funds. This will make prosecutions of such cases more difficult for the government because it will have to prove the intent of the person transporting the funds and evidence of such intent is usually not available. Nonetheless, persons apprehended crossing the border with concealed funds can still be readily prosecuted for failing to report the currency, although violations of that statute carry a maximum penalty of five years as compared to 20 years under the money-laundering statute.
This decision will have little, if any, impact on online gaming operators, as can be seen by the BetOnSports indictment. Although the BetonSports defendants are not charged with money laundering, the RICO charge filed against the defendants requires a pattern of racketeering activity and money laundering is one of the activities alleged. It is in this respect that BetonSports could be expected to benefit from yesterday's decisions involving the definition of "illegal proceeds" and the defendant's intent to conceal or disguise the nature, location, source, ownership, or control of the funds.
However, although most money-laundering offenses involve these issues, the money-laundering allegations in the BetonSports indictment do not. Rather, they involve what is commonly termed "international money laundering." The international money laundering provision prohibits the movement of funds into or out of the United States with the intent to promote a specified illegal activity, such as illegal gambling. It does not require the funds to be illegal proceeds and does not require an intent to conceal, but only an intent to promote. The BetonSports indictment alleges that the deposit and withdrawal transactions with players, as well as funds sent into the country for marketing purposes, all promoted the carrying on of the business. The BetonSports defense will try to establish that such transactions did not promote the business within the meaning of the statute but were merely part of the underlying offense.
Mr. O'Brien spent 25 years as a special agent with the United States Customs Service, where he occupied numerous positions before joining Greenberg Traurig, an international law firm. Mr. O’Brien has expertise in offshore banking, Internet gaming, money laundering detection and prevention, international trade, trade embargoes, international trade protection, white collar crime, smuggling, fraud, the Foreign Corrupt Practices Act, and loss of goods in transit. He has represented offshore gaming operators and offshore banks in relation to foreign and United States compliance issues and the detection and prevention of money laundering. From 1997 through 1999, Mr. O’Brien assisted the government of Antigua and Barbuda in drafting offshore banking, money laundering, and offshore gaming legislation while supervising the nation's offshore financial industry.