United States v. Santos

• Decision Date: 02 June 2008
• Docket Number: No. 06–1005.,06–1005.
• Citation: 76 USLW 4341,2008 Daily Journal D.A.R. 7967,128 S.Ct. 2020,170 L.Ed.2d 912,22 Fla. L. Weekly Fed. S 284,553 U.S. 507,08 Cal. Daily Op. Serv. 6607
• Court: U.S. Supreme Court
• Parties: UNITED STATES, Petitioner, v. Efrain SANTOS and Benedicto Diaz.

08 Cal. Daily Op. Serv. 6607

128 S.Ct. 2020

170 L.Ed.2d 912

2008 Daily Journal D.A.R. 7967

22 Fla. L. Weekly Fed. S 284

553 U.S. 507

76 USLW 4341

UNITED STATES, Petitioner,

v.Efrain SANTOS and Benedicto Diaz.

No. 06–1005.

Supreme Court of the United States

Argued Oct. 3, 2007.Decided June 2, 2008.

Syllabus ^*

In an illegal lottery run by respondent Santos, runners took commissions from the bets they gathered, and some of the rest of the money was paid as salary to respondent Diaz and other collectors and to the winning gamblers. Based on these payments to runners, collectors, and winners, Santos was convicted of, inter alia, violating the federal money-laundering statute, 18 U.S.C. § 1956, which prohibits the use of the “proceeds” of criminal activities for various purposes, including engaging in, and conspiring to engage in, transactions intended to promote the carrying on of unlawful activity, § 1956(a)(1)(A)(i) and § 1956(h). Based on his receipt of salary, Diaz pleaded guilty to conspiracy to launder money. The Seventh Circuit affirmed the convictions. On collateral review, the District Court ruled that, under intervening Circuit precedent interpreting the word “proceeds” in the federal money-laundering statute, § 1956(a)(1)(A)(i) applies only to transactions involving criminal profits, not criminal receipts. Finding no evidence that the transactions on which respondents' money-laundering convictions were based involved lottery profits, the court vacated those convictions. The Seventh Circuit affirmed.

Held: The judgment is affirmed.

461 F.3d 886, affirmed.

Justice SCALIA, joined by Justice SOUTER, Justice THOMAS, and Justice GINSBURG, concluded in Parts I–III and V that the term “proceeds” in § 1956(a)(1) means “profits,” not “receipts.” Pp. 2023 – 2030, 2030 – 2031.

(a) The rule of lenity dictates adoption of the “profits” reading. The statute nowhere defines “proceeds.” An undefined term is generally given its ordinary meaning. Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 187, 115 S.Ct. 788, 130 L.Ed.2d 682. However, dictionaries and the Federal Criminal Code sometimes define “proceeds” to mean “receipts” and sometimes “profits.” Moreover, the many provisions in the federal money-laundering statute that use the word “proceeds” make sense under either definition. The rule of lenity therefore requires the statute to be interpreted in favor of defendants, and the “profits” definition of “proceeds” is always more defendant-friendly than the “receipts” definition. Pp. 2023 – 2025.

(b) The Government's contention that the “profits” interpretation fails to give the money-laundering statute its intended scope begs the question; the Government's contention that the “profits” interpretation hinders effective enforcement of the law is exaggerated. Neither suffices to overcome the rule of lenity. Pp. 2025 – 2030.

(c) None of the transactions on which respondents' money-laundering convictions were based can fairly be characterized as involving the lottery's profits. Pp. 2030 – 2031.

Justice SCALIA, joined by Justice SOUTER and Justice GINSBURG, concluded in Part IV that Justice STEVENS' position that “proceeds” should be interpreted to mean profits for some predicate crimes, “receipts” for others, is contrary to this Court's precedents holding that judges cannot give the same statutory text different meanings in different cases, see Clark v. Martinez, 543 U.S. 371, 125 S.Ct. 716, 160 L.Ed.2d 734. Pp. 2029 – 2031.

Justice STEVENS concluded that revenue a gambling business uses to pay essential operating expenses is not “proceeds” under 18 U.S.C. § 1956. When, as here, Congress fails to define potentially ambiguous statutory terms, it effectively delegates the task to federal judges. See Commissioner v. Fink, 483 U.S. 89, 104, 107 S.Ct. 2729, 97 L.Ed.2d 74. Because Congress could have required that “proceeds” have one meaning when referring to some of the specified unlawful activities listed in § 1956(c)(7) and a different meaning when referring to others, judges filling statutory gaps may also do so, as long as they are conscientiously endeavoring to carry out Congress' intent. Section 1956's legislative history makes clear that “proceeds” includes gross revenues from the sale of contraband and the operation of organized crime syndicates involving such sales, but sheds no light on how to identify the proceeds of an unlicensed stand-alone gambling venture. Furthermore, the consequences of applying a “gross receipts” definition of “proceeds” to respondents are so perverse that Congress could not have contemplated them: Allowing the Government to treat the mere payment of an illegal gambling business' operating expenses 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 of operating a gambling business. Accordingly, the rule of lenity may weigh in the determination, and in that respect the plurality's opinion is persuasive. Pp. 2022 – 2025.

SCALIA, J., announced the judgment of the Court and delivered an opinion, in which SOUTER and GINSBURG, JJ., joined, and in which THOMAS, J., joined as to all but Part IV. STEVENS, J., filed an opinion concurring in the judgment. BREYER, J., filed a dissenting opinion. ALITO, J., filed a dissenting opinion, in which ROBERTS, C.J., and KENNEDY and BREYER, JJ., joined.

Matthew D. Roberts, Washington, D.C., for petitioner.

Todd G. Vare, Indianapolis, IN, for respondents.

Paul D. Clement, Solicitor General, Counsel of Record, Department of Justice, Washington, D.C., Alice S. Fisher, Assistant Attorney General, Michael R. Dreeben, Deputy Solicitor General, Matthew D. Roberts, Assistant to the Solicitor General, Joel M. Gershowitz, Attorney, Department of Justice, Washington, D.C., for petitioner.Todd Vare, Counsel of Record, Paul L. Jefferson, Barnes & Thornburg LLP, Indianapolis, IN, for Respondent Efrain Santos.Stuart Altschuler, Counsel of Record, Brian D. Werner, Michael D. Bess, Marlen Cortez Winston & Strawn LLP, Chicago, Illinois, for Respondent Benedicto Diaz.Justice SCALIA announced the judgment of the Court and delivered an opinion, in which Justice SOUTER and Justice GINSBURG join, and in which Justice THOMAS joins as to all but Part IV.

We consider whether the term “proceeds” in the federal money-laundering statute, 18 U.S.C. § 1956(a)(1), means “receipts” or “profits.”

I

From the 1970's until 1994, respondent Santos operated a lottery in Indiana that was illegal under state law. See Ind.Code § 35–45–5–3 (West 2004). Santos employed a number of helpers to run the lottery. At bars and restaurants, Santos's runners gathered bets from gamblers, kept a portion of the bets (between 15% and 25%) as their commissions, and delivered the rest to Santos's collectors. Collectors, one of whom was respondent Diaz, then delivered the money to Santos, who used some of it to pay the salaries of collectors (including Diaz) and to pay the winners.

These payments to runners, collectors, and winners formed the basis of a 10–count indictment filed in the United States District Court for the Northern District of Indiana, naming Santos, Diaz, and 11 others. A jury found Santos guilty of one count of conspiracy to run an illegal gambling business (18 U.S.C. § 371), one count of running an illegal gambling business (§ 1955), one count of conspiracy to launder money (§ 1956(a)(1)(A)(i) and § 1956(h)), and two counts of money laundering (§ 1956(a)(1)(A)(i)). The court sentenced Santos to 60 months of imprisonment on the two gambling counts and to 210 months of imprisonment on the three money-laundering counts. Diaz pleaded guilty to conspiracy to launder money, and the District Court sentenced him to 108 months of imprisonment. The Court of Appeals affirmed the convictions and sentences. United States v. Febus, 218 F.3d 784 (C.A.7 2000). We declined to review the case. 531 U.S. 1021, 121 S.Ct. 587, 148 L.Ed.2d 503 (2000).

Thereafter, respondents filed motions under 28 U.S.C. § 2255, collaterally attacking their convictions and sentences. The District Court rejected all of their claims but one, a challenge to their money-laundering convictions based on the Seventh Circuit's subsequent decision in United States v. Scialabba, 282 F.3d 475 (2002), which held that the federal money-laundering statute's prohibition of transactions involving criminal “proceeds” applies only to transactions involving criminal profits, not criminal receipts. Id., at 478. Applying that holding to respondents' cases, the District Court found no evidence that the transactions on which the money-laundering convictions were based (Santos's payments to runners, winners, and collectors and Diaz's receipt of payment for his collection services) involved profits, as opposed to receipts, of the illegal lottery, and accordingly vacated the money-laundering convictions. The Court of Appeals affirmed, rejecting the Government's contention that Scialabba was wrong and should be overruled. 461 F.3d 886 (C.A.7 2006). We granted certiorari. 550 U.S. 902, 127 S.Ct. 2098, 167 L.Ed.2d 812 (2007).

II

The federal money-laundering statute prohibits a number of activities involving criminal “proceeds.” Most relevant to this case is 18 U.S.C. § 1956(a)(1)(A)(i), which criminalizes transactions to promote criminal activity. ¹ This provision uses the term “proceeds” in describing two elements of the offense: The Government must prove that a charged transaction “in fact involve[d] the proceeds of specified unlawful activity” (the proceeds element), and it also must prove that a defendant knew “that the property involved in” the charged transaction “represent[ed] the proceeds of some form of unlawful activity” (the knowledge element). § 1956(a)(1).

The federal money-laundering statute does not define “proceeds.” When a term is undefined, we give it its ordinary...