United States v. Santos
553 U.S. 507, 2008 U.S. LEXIS 4699, 170 L. Ed. 2d 912 (2008)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
When a term in a federal criminal statute is ambiguous, the rule of lenity requires the court to adopt the more defendant-friendly interpretation; therefore, the term 'proceeds' in the money laundering statute, 18 U.S.C. § 1956(a)(1), means 'profits' (net income), not 'receipts' (gross income).
Facts:
- From the 1970s until 1994, Efrain Santos operated an illegal lottery in Indiana.
- Santos employed runners to solicit and collect bets from gamblers at various locations.
- These runners retained a commission of between 15% and 25% of the bets they collected.
- The runners then delivered the remaining money to Santos's collectors.
- Teodoro Diaz was one of the collectors who delivered the betting money to Santos.
- Santos used the money he received to pay the salaries of his collectors, including Diaz, and to pay the winnings to the lottery winners.
Procedural Posture:
- The United States indicted Efrain Santos and Teodoro Diaz in the U.S. District Court for the Northern District of Indiana.
- A jury convicted Santos of multiple counts, including money laundering and conspiracy to launder money; Diaz pleaded guilty to conspiracy to launder money.
- The District Court sentenced Santos and Diaz to lengthy prison terms for the money laundering offenses.
- On direct appeal, the U.S. Court of Appeals for the Seventh Circuit affirmed the convictions and sentences.
- The U.S. Supreme Court denied their initial petition for certiorari.
- Santos and Diaz later filed motions under 28 U.S.C. § 2255 to collaterally attack their convictions.
- Relying on an intervening Seventh Circuit decision (United States v. Scialabba), the District Court vacated their money-laundering convictions, finding 'proceeds' meant 'profits,' which the government had not proven.
- The United States (appellant) appealed to the U.S. Court of Appeals for the Seventh Circuit, which affirmed the District Court's vacatur.
- The U.S. Supreme Court granted certiorari to resolve a circuit split on the meaning of 'proceeds'.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the term 'proceeds' in the federal money laundering statute, 18 U.S.C. § 1956(a)(1), refer to the gross 'receipts' of a criminal enterprise or the net 'profits'?
Opinions:
Majority - Justice Scalia
The term 'proceeds' in the federal money laundering statute refers to 'profits,' not 'receipts.' The term is ambiguous, as it has no statutory definition and can mean either receipts or profits in ordinary usage. Because the statutory context does not resolve this ambiguity, the rule of lenity dictates that the term must be interpreted in favor of the defendant. Furthermore, defining 'proceeds' as 'receipts' would create a 'merger problem' where nearly every act of running an illegal lottery, such as paying winners or employees, would also constitute the more serious offense of money laundering. This would improperly merge the underlying offense with the money laundering charge and grant prosecutors excessive charging discretion, a result Congress is unlikely to have intended. Adopting the 'profits' definition avoids this merger, as routine payments of operating expenses are not transactions involving profits.
Concurring - Justice Stevens
In this case, the term 'proceeds' must be interpreted as 'profits,' not 'receipts.' The meaning of an undefined statutory term like 'proceeds' can vary depending on the specific underlying criminal activity. For crimes like selling contraband, legislative history suggests 'proceeds' means gross revenues. However, for a stand-alone gambling business, applying a 'gross receipts' definition leads to the perverse result of merging the underlying offense with the more severe money laundering offense. Treating the payment of essential business expenses as a separate crime is fundamentally unfair and radically increases the penalty beyond what Congress prescribed for illegal gambling. In the absence of legislative history for this specific application, and to avoid an absurd outcome, the rule of lenity requires interpreting 'proceeds' as 'profits'.
Dissenting - Justice Alito
The term 'proceeds' in the federal money laundering statute refers to 'receipts,' not 'profits.' The ordinary meaning of the term, and its consistent definition in other state, federal, and international money laundering laws, is gross receipts. A 'profits' interpretation frustrates Congress's intent to prevent criminals from using their illicit funds to support their lifestyles or expand their operations, as even an unprofitable enterprise can use its cash flow for these purposes. This interpretation also creates severe and pointless problems of proof, requiring prosecutors to conduct complex accounting for illegal enterprises that do not keep records. The 'merger problem' is a sentencing issue that can be addressed by judges or the Sentencing Commission, not a reason to adopt an unworkable interpretation that maims a critical statute designed to fight organized crime.
Analysis:
This decision significantly narrowed the application of the federal money laundering statute by defining 'proceeds' as net profits, making prosecutions more difficult for the government. The fractured 4-1-4 ruling, with Justice Stevens' concurrence as the narrowest ground, created uncertainty about whether the 'profits' definition applied to all predicate offenses or just those, like gambling, with a clear 'merger' problem and no contrary legislative history. This holding put the Court at odds with the common understanding of 'proceeds' in anti-money laundering enforcement. In response to this decision and the legal uncertainty it created, Congress amended the statute in 2009 to explicitly define 'proceeds' as 'any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity,' effectively overturning Santos for future cases.
Unlock the full brief for United States v. Santos