United States v. Santos: "Proceeds" in Federal Criminal Money Laundering Statute, 18 U.S.C. Section 1956, Means "Profits," Not "Gross Receipts"
United States v. Santos: “Proceeds” in
Federal Criminal Money Laundering Statute,
18 U.S.C. Section 1956, Means “Profits,”
Not “Gross Receipts”
M. Maureen Murphy
Legislative Attorney
American Law Division
Summary
On June 2, 2008, the U. S. Supreme Court, in United States v. Santos (No. 96-
1005), vacated convictions of the operator of an illegal lottery and one of his runners
who had been charged with conducting financial transactions involving the “proceeds”
of an illegal gaming business in violation of 18 U.S.C. § 1956. The ruling is that
“proceeds, ” as used in this money laundering statute, means “profits” rather than “gross
receipts” of the underlying unlawful activity. The decision combines a plurality opinion
interpreting the word “proceeds” in the statute to mean “profits” and a concurring
opinion, necessary for a majority ruling, that leaves room for interpreting “proceeds” as
“gross receipts” in other circumstances. A strong dissenting opinion emphasized the
constraints the ruling will place on prosecutors. The interpretation rests on two
principles of statutory construction: the rule of lenity and the merger doctrine. Under
the rule of lenity, ambiguities in criminal statutes are construed in favor of the
defendant. Application of the merger doctrine avoids the prospect that a defendant
would receive two punishments under different statutes for what is essentially a single
offense. Because the decision is likely to hamper money laundering prosecutions, it is
likely that the Department of Justice will pursue a legislative remedy to the ambiguity
found in the statute. This report will be updated should there be legislative activity.
Background of the Case. United States v. Santos1 involved a challenge to the
conviction of the operator of an illegal lottery and one of his collectors for violating a
1 (No. 06-1005), 553 U. S ___, 76 U.S.L.W. 4341 (2008), affirming 461 F. 3d 886 (7th Cir.
provision of 18 U.S.C. § 1956, a key federal criminal anti-money laundering statute.2 The
defendants were charged with using the “proceeds” of unlawful activity to conduct a
financial transaction with intent to promote the illegal gambling business.3 For a
conviction under this particular subsection of the statute, which covers a form of money
laundering, referred to as “promotional money laundering,” the prosecution must prove:
(1) that the defendant engaged in a financial transaction involving the “proceeds” of an
unlawful activity; (2) that the unlawful activity had been designated by the statute as a
“specified unlawful activity”; (3) that defendant knew that the property involved in the
transaction “represents the proceeds of some form of unlawful activity”; and (4) the
defendant had the “intent to promote the carrying on of specified unlawful activity.”4
At their trial, the defendants were convicted of operating an illegal gambling
business in violation of 18 U.S.C. § 1955. Under 18 U.S.C. § 1955, anyone convicted of
conducting or owning an illegal gambling business is subject to a criminal fine and
imprisonment for up to five years. Proof of “illegal gambling business” requires a
showing that the gambling business violates state law; involves five or more persons; and
has been in operation for more than thirty days or has a gross revenue of $2,000 a day5
The evidence showed that gambling receipts were used to pay the expenses of the
operation–payouts to winners, salaries to employees, costs of betting slips, etc–as well as
to realize profits. The promotional money laundering charge was based on payments to
winners and to employees–runners–of the gambling business. These payments were part
of the underlying charge of operating an illegal gambling business.6 The defendant
convicted of operating the gambling business received a 60-month sentence for the illegal
gambling conviction and 210 months for the money laundering.
2 See CRS Report RL33315, Money Laundering: An Overview of 18 U.S.C. 1956 and Related
Federal Criminal Law, by Charles Doyle, and CRS Report RS22401, Money Laundering: An
Abridged Overview of 18U.S.C. 1956 and Related Federal Criminal Law, by Charles Doyle.
3 This was the “specified unlawful activity” which formed the predicate for the money
laundering charge. “Specified unlawful activity” is defined in 18 U.S.C. § 1956(c)(7)(A) to
include racketeering crimes enumerated in 18 U.S.C. § 1961(1), which includes running an illegal
gambling business in violation of 18 U.S.C. § 1955.
4 18 U.S.C. § 1956(a)(1)(emphasis added). The statute, in pertinent part, provides:
(a)(1)Whoever, knowing that the property involved in a financial transaction
represents the proceeds of some form of unlawful activity, conducts or attempts to
conduct such a financial transaction which in fact involves the proceeds of specified
unlawful activity–
(A)(i) with the intent to promote the carrying on of specified
unlawful activity; or ...
(B) knowing that the transaction is designed in whole or in part–
(I) to conceal or disguise the nature, the location, the
source, the ownership, or the control of the proceeds of
specified unlawful activity ....
5 18 U.S.C. § 1955(b)(1).
6 Establishing gross revenue of $2,000 is a necessary element of an offense under 18 U.S.C. §
1955. United States v. Reitano, 862 F. 2d 982 (2nd Cir. 1988). Monetary volume constitutes
evidence of gross wagering activity, and evidence that a defendant shared in the profits of an
illegal gambling business may be used as evidence of conducting the business. United States v.
Balistrieri, 577 F. Supp. 1532 (E. D. Wis. 1984).
Supreme Court Decision. The issue presented to the Court was a
straightforward question of statutory interpretation: as used in 18 U.S.C. § 1956, does
“proceeds” mean “profits” or “gross receipts?” For Santos and his co-conspirators, the
answer the Court provided is “profits.” For others, however, the answer is not clear
because there is no majority opinion in the case; there is an opinion for a plurality of four
justices which is joined by a concurring opinion by a fifth justice, Justice Stevens, that
limits the reach of the holding to a narrower ground. This means that the case may be
cited as authority only for the narrow ground. Complicating this, however, are two
factors: (1) the plurality opinion includes language seeking to confine the meaning of
Justice Stevens’ opinion; and (2) all of the other justices disavowed the approach taken
by Justice Stevens.
Justice Scalia, in the plurality opinion, writing for himself and Justices Souter,
Ginsburg, and Thomas, found no way to decipher what Congress intended in using the
word “proceeds” in 18 U.S.C. § 1956. He found that (1) there is no definition of
“proceeds” in 18 U.S.C. § 1956; (2) the federal criminal code does not provide a
consistent definition or use for the term; (3) either “profits” or “gross receipts” would fit
everywhere “proceeds’ is used in the statute; and (3) dictionaries revealed no
overwhelming preference for a primary ordinary meaning of the term. Declaring himself
unable to resolve the ambiguity, Justice Scalia resorted to the rule of lenity7 which89
requires clarity in criminal statutes and ambiguities resolved in favor of defendants. He
reasoned that, because “profits” is harder to prove10 than “gross receipts,” defining
“proceeds” as “profits” is more lenient towards defendants, and, therefore, it is the
required interpretation in the statute. This means that, under this statute, prosecutors must
prove, in addition to the other elements of the offense, that the defendant knew that the
property involved in the transaction is “profits” of “some form of unlawful activity” and11
that the transaction involves “profits” of “specified unlawful activity.”
In the opinion, Justice Scalia seeks to dispel arguments raised by the Solicitor
General that defining “proceeds” as “profits” undermines the purpose of the money
laundering statute–punishing concealment and promotion of illegal activities–because it
does not capture all the funds generated by the illegal activity. He first asserts that the
purpose of the money laundering laws might well have been eliminating the harm caused
7 To invoke the rule of lenity, a court must find that the statute is grievously ambiguous. See
Muscarello v. United States, 524 U.S. 125, 138-139 (1998); Staples v. United States, 511 U.S.
8 “[B]efore a man can be punished as a criminal ... his case must be plainly and unmistakably
within the provisions of some statute.” United States v. Gradwell, 243 U.S. 476, 485 (1917).
9 “[W]here text, structure, and [legislative] history fail to establish that the Government’s position
is unambiguously correct ... we apply the rule of lenity and resolve the ambiguity in [the
defendant’s] favor.” United States v. Granderson, 511, U.S. 39, 54 (1994). See also Hughey v.
United States, 495 U.S. 411 (1990); United States v. Granderson, 511 U.S. 39 (1994).
10 In dissent, Justice Alito illustrated some of the problems inherent in requiring prosecutors to
prove beyond a reasonable doubt that illegal enterprises have produced “profits” and that those
conducting financial transactions for them know that the funds they are using represent the
“profits” from some unlawful activity.
11 18 U.S.C. § 1956(a)(1).
by pouring criminal profits into expanded criminal activity, i.e., “leveraging” profits.12
He, then, notes that the “profits” interpretation avoids the merger13 problem that would
occur in many of the predicate offenses named in 18 U.S.C. 1956, including operating
an illegal gambling business in violation of 18 U.S.C. § 1955. This is because, if
“proceeds” were interpreted to mean “gross receipts,” every separate expense of the
underlying crime paid after its commission would be subject to prosecution both as the
substantive crime and as the money laundering offense. This would raise the double-
jeopardy-like situation14 that the merger doctrine seeks to prevent.15
In a concurring opinion, Justice Stevens essentially limits the reach of the plurality
opinion. He did not focus on the rule of lenity although his rationale is consistent with
it to the extent that he would interpret “proceeds” to mean “profits” in the case before the
Court. He begins with a premise which no other justice embraces–that courts may choose
different interpretations of ambiguous terms in statutes depending on the factual
circumstances.16 He draws a parallel between the scope of judicial interpretation of
statutes and the power of Congress to flesh out terms in statutes. He concludes that
because Congress could specify separate meanings for a term in a statute, courts having
to fill in statutory gaps occasioned by ambiguous language do not have to decide on one
meaning for all circumstances. To him, the logic is: if Congress may apply different
definitions drafting legislation, courts may also do so.17 From this premise, he seems to
have concluded that Congress intended different meanings for “proceeds” in § 1956.
12 “A rational Congress could surely have decided that the risk of leveraging one criminal
activity into the next poses a greater threat to society than the mere payment of crime-related
expenses and justifies the money-laundering statute’s harsh penalties.” Santos, Scalia, J., plurality
op. (slip op. 7-8).
13 For a merger, “[t]he applicable rule is that where the same act or transaction constitutes a
violation of two distinct statutory provisions, the test to be applied to determine whether there
are two offenses or only one, is whether each provision requires proof of a fact which the other
does not.” Blockberger v. United States, 284 U.S. 299, 303 (1932).
14 Justice Stevens raises this issue: “Allowing the Government to treat the mere payment of the
expense of operating an illegal gambling business as a separate offense is in practical effect
tantamount to double jeopardy, which is particularly unfair in this case because the penalties for
money laundering are substantially more severe than those for the underlying offense....” Santos,
Stevens, J., concurring op. (slip op. 4).
15 Justice Scalia disputes the effectiveness of the solution to the merger problem suggested by
Justice Alito in dissent–limiting “promote” in the statute to exclude expenses of running the
criminal activity–both by noting that many of the predicate offenses are not ongoing violations
and distinguishing between the kind of evidence that might satisfy the statutory requirement of
“intent to promote,” from the activity of promoting.
16 Justice Scalia characterized this approach as unique to Justice Stevens and contrary to
precedent, saying that Justice Stevens “relies on the proposition that one undefined word,
repeated in different statutory provisions, can have different meanings in each provision ....
[which] is worlds apart from giving the same word, in the same statutory provision, different
meanings in different factual contexts.” Santos, Scalia, J., plurality op. (slip op. 15) (emphasis
in the original).
17 Justice Scalia finds this approach inconsistent with Clark v. Martinez, 543 U.S. 371 (2005)
(term in immigration law interpreted to apply in one manner to one class of aliens which it covers
may not be interpreted in a different manner for other classes of aliens covered). Id.
Following this conclusion, Justice Stevens finds that “proceeds” is intended to mean
“profits” where, as with the predicate offense of conducting an illegal gambling business,
there is no legislative history of congressional intent to the contrary.18 On the other hand,
the opinion seems to assert that legislative history of congressional intent is necessary
before courts may extend the meaning of “proceeds” to gross receipts. The opinion also
contains language indicating that there is the possibility that there is legislative history to
substantiate congressional intent to authorize money laundering prosecutions based on
gross receipts transactions for certain offenses.19
Potential Impact. Although Justice Stevens alludes to the possibility that
legislative history supports interpreting “proceeds” as “gross receipts” for some types of
prosecutions, it is significant that the plurality opinion disputes this and characterizes it20
as dicta. This may raise uncertainty as to the sustainability of convictions involving the
contraband and organized crime offenses of the kind Justice Stevens cited as having
legislative history supporting a “gross receipts” definition of “proceeds.” Because many
of the money laundering cases that have been brought under the subsection of 18 U.S.C.21
§ 1956 at issue have involved payment of expenses of the underlying crime, the Justice
Department’s ability to shut off the funding of criminal activities may be severely
inhibited. An added problem will be the difficulty of sustaining the burden of proof that
will be required to show “profits” of criminal activities. In its merits brief, the Solicitor22
General argued that this burden would be substantial and perhaps unsurmountable.
In a dissenting opinion, written by Justice Alito, joined by Chief Justice Roberts, and
Justices Kennedy and Breyer, there is a further indication of the difficulties that the
18 Justice Stevens reinforces the conclusion with respect to requiring “profits” for any money
laundering prosecution predicated on operating an illegal gambling business operation. He
opines that the result of a prosecution for money laundering (a 20-year felony) based on the kind
of business expenses involved in paying winners and employees in connection with an illegal
gambling business (a 5-year felony) would be “so perverse” that he could not conceive of
Congress intending such a result. Santos, Stevens, J., concurring, (slip op. 3).
19 “As JUSTICE ALITO rightly argues, the legislative history of § 1956 makes it clear that
Congress intended the term ‘proceeds’ to include gross revenues from the sale of contraband and
the operation of organized crime syndicates involving such sales.” Santos, (Stevens, J.,
concurring, slip op. 2-3.). He further adds, “[t]hus, I cannot agree with the plurality that the rule
of lenity must apply to the definition of ‘proceeds’ for these types of unlawful activities.” Id. 3,
n. 3.
20 Santos, Scalia, J., concurring opinion (slip op. 16), notes that no other justice adheres to
Justice Stevens’ view that one word in one statute may be interpreted different ways in different
case: “... the narrowness of his ground consists of finding that ‘proceeds’ means ‘profits’ when
there is no legislative history to the contrary.. That is all that our judgment holds. It does not
hold that the outcome is different when contrary legislative history does exist.”
21 Brief for the United States, United States v. Santos (No. 06-1005) 3, n. 3 (citing 16 appellate
court cases in which money laundering prosecutions were predicated on expense payments rather
than profits).
22 Id. 28. Among the factors cited by the government are: poor record keeping on the part of
criminals; incentive to falsify records to show losses if money laundering prosecution hinges on
profitability of the criminal activity; and, problems that courts will face confronting in devising
rules for determining profits and expenses in illegal activities as contrasted with the precise
accounting rules for legitimate businesses.
“profits’ definition will present to prosecutors: (1) one of the main purposes of enacting
the money laundering laws was to target professional money launderers who are unlikely
to know or care whether the property they are dealing with is “profits” or “gross receipts”;
(2) a “profits” interpretation would require courts to determine the ordinary expenditures
of criminal activities to distinguish them from “profits”; and (3) under the plurality
opinion, if the government charges a continuing offense over period of years–as in the
case before the Court–the government would have to show that the operation yielded a
profit over the course of time charged.
Another dissenting opinion, written by Justice Breyer, who also joined Justice
Alito’s dissent, alludes to possible solutions to what he, agreeing with the Justices Scalia
and Stevens, sees as a merger problem–that prosecutors are able to transform one crime
into two and add the money laundering punishments for “financial transactions that
constitute an essential part of” the predicate offense.23 One approach he mentions is
requiring that the money laundering transaction be “distinct” from the underlying
offense.24 He also suggests that the merger problem could be corrected by relying on the
U.S. Sentencing Commission to use its authority to address the unfairness resulting from
using the money laundering statute to under 28 U.S.C. § 991(b)(1)(B).25 Justice Scalia
takes issue with each of these suggestions: the first because “it has no basis whatever in
the words of the statute”26; the second because it lacks certainty.27
It is, thus, not unlikely that the Department of Justice will seek legislation to solve
the problems identified in this decision. A direct approach would clarify the ambiguity
found by the Court by making it clear that “proceeds” means “gross receipts” at least with
respect to certain kinds of offenses. Other possibilities include modifying other portions
of the money laundering statute, such as defining “promote,” or specifying how “distinct”
the predicate crime and money laundering offense must be.
23 Santos, Breyer, J., concurring op. (slip. op. 1).
24 As authority for this approach Justice Breyer cites United Sates v. Edgmon, 952 F. 2d 1206
(10th Cir. 1991), cert. denied, 505 U.S. 1223 (1992). That case was predicated on conversion of
property secured by a Farmers’ Home Administration loan in violation of 18 U.S.C. § 658. The
money laundering charge was based on the concealment prong of the statute, which requires
proof that the defendant knew that the financial transaction was designed to conceal “the nature,
the location, the source, the ownership, or the control of the proceeds of the specified unlawful
activity.” 18 U.S.C. § 1956(a)(1)(B)(i). The facts showed that the defendant conspired with his
son and sold, as if it were his own, the collateral on which his son had obtained a secured loan.
He, then, used the proceeds of the conversion to buy other property on which he obtained a loan
and turned those proceeds over to his son. Justice Breyer also appears to suggest that if there was
a time difference between the offense and the money laundering that would show that the two are
distinct. Santos, Breyer, J., concurring op. (slip. op. 1-2).
25 This section sets forth the purposes of the U.S. Sentencing Commission, one of which is to
“provide certainty and fairness in meeting the purposes of sentencing, avoiding unwarranted
sentencing disparities among defendants with similar records who have been found guilty of
similar criminal conduct....” 28 U.S.C. § 991(b)(1)(B). Another section, 28 U.S.C. § 994(f)
requires the Commission, in promulgating guidelines to cover the purposes set forth in 28 U.S.C.
§ 994(b)(1) particularly.
26 Santos, Scalia J., concurring op. 11.
27 Id.