Santos v. United States, No. 04-4221.

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Writing for the CourtManion
Citation461 F.3d 886
Docket NumberNo. 05-2316.,No. 04-4221.
Decision Date25 August 2006
PartiesEfrain SANTOS and Benedicto Diaz, Petitioners-Appellees, v. UNITED STATES of America, Respondent-Appellant.
461 F.3d 886
Efrain SANTOS and Benedicto Diaz, Petitioners-Appellees,
v.
UNITED STATES of America, Respondent-Appellant.
No. 04-4221.
No. 05-2316.
United States Court of Appeals, Seventh Circuit.
Argued May 12, 2006.
Decided August 25, 2006.

Page 887

Todd G. Vare, Paul L. Jefferson (argued), Barnes & Thornburg, Indianapolis, IN, for Petitioner-Appellee Santos.

Stuart Altschuler, Brian D. Werner (argued), Winston & Strawn, Chicago, IL, for Petitioner-Appellee Diaz.

Philip Benson (argued), David E. Hollar, Office of the United States Attorney, Hammond, IN, for Respondent-Appellant.

Before MANION, KANNE, and ROVNER, Circuit Judges.

MANION, Circuit Judge.


Efrain Santos and Benedicto Diaz ran an illicit lottery, which landed them in federal prison on money laundering charges. Their money laundering convictions were premised upon the word "proceeds" in 18 U.S.C. § 1956(a)(1) meaning gross income of unlawful activity. This court affirmed the judgments against them in United States v. Febus, 218 F.3d 784 (7th Cir.2000). However, in later proceedings under 28 U.S.C. § 2255, the district court vacated their money laundering convictions on the basis of our decision in United States v. Scialabba, 282 F.3d 475 (7th Cir.2002), which defined "proceeds" to

Page 888

mean net income, as opposed to gross income.1 The government appeals, asking us to overturn Scialabba and interpret the pivotal term "proceeds" to mean gross income. In the interest of stability in the law, we decline to do so and thus affirm the district court's judgments in favor of Santos and Diaz.

I.

The underlying facts of this case are not in dispute. Efrain Santos operated an illegal lottery, known as a "bolita," in Northwest Indiana from the 1970s until the 1990s. It worked by gamblers placing their bets with the bolita's runners, primarily at local restaurants and taverns. The runners then turned the wagers over to the bolita's collectors, who, in turn, gave the money to Santos. One collector in Santos's employ was Benedicto Diaz. Santos paid, either directly or indirectly, the runners, the collectors, and, of course, the bolita's winners out of the total amount collected. Additional background on Santos, Diaz, and the bolita is detailed in our prior opinion on this matter, see Febus, 218 F.3d at 788-91.

A grand jury indicted Santos, Diaz, and eleven others in a ten-count indictment. It named Santos in all ten counts, and Diaz in counts one through four. Count 1 alleged a conspiracy to conduct an illegal gambling business, 18 U.S.C. § 371. Count 2 charged the defendants with conducting an illegal gambling business, 18 U.S.C. § 1955. Count 3 alleged a conspiracy to use the proceeds of an illegal gambling business to promote the carrying on of the business, i.e., a conspiracy to launder money, 18 U.S.C. §§ 1956(a)(1)(A)(i) & (h). Count 4 charged the defendants with money laundering by completing a financial transaction with the proceeds of the illegal gambling business with the intent to promote the carrying on of the business, 18 U.S.C. § 1956(a)(1)(A)(i). Counts 5 to 10 were similar money laundering charges under § 1956(a)(1)(A)(i).

A jury convicted Santos on the first five counts and acquitted him of the remainder. The district court sentenced him to 60 months of imprisonment on illegal gambling counts (1-2) and 210 months on the money laundering counts (3-5), all to run concurrently. For his part, Diaz pleaded guilty to count 3, conspiracy to launder money, and the other counts against him were dismissed. The district court sentenced him to 108 months of imprisonment. Thereafter, this court rejected Santos's and Diaz's direct appeals. See Febus, 218 F.3d at 789-91.

The two then initiated collateral proceedings with respective motions under 28 U.S.C. § 2255, each raising a number of issues. The district court rejected all but one issue in each case. The district court granted Santos and Diaz relief under § 2255 because—based upon our decision in Scialabba, which held that § 1956(a)(1)'s term "proceeds" meant net income, see 282 F.3d at 476-78—the district court held that Santos and Diaz were actually innocent of the crime of promotional money laundering and/or conspiracy to commit the same.

When the district court reached that conclusion, and thus vacated Santos's money laundering convictions (counts 3-5), Santos had already completed his concurrent 60-month sentences for his illegal

Page 889

gambling convictions (counts 1-2). Therefore, since the district court invalidated the only convictions keeping Santos in prison, the district court ordered his release upon his posting of a $20,000 unsecured bond. As for Diaz, the district court's § 2255 decision vacated his only count of conviction (count 3), and the district court likewise ordered his release with a $20,000 unsecured bond. The government appeals the grant of the two § 2255 motions.

II.

In challenging the district court's respective decisions to vacate Santos's and Diaz's money laundering convictions, the government raises one argument. It contends that the word "proceeds" in § 1956(a)(1) should be interpreted to mean gross income, not net income. The government's appeal here is thus nothing less than a frontal assault on Scialabba. In seeking to revive the vacated convictions, the government does not attempt to outflank or distinguish Scialabba in any way. Rather, it frankly concedes that, if the interpretation in Scialabba stands, there is insufficient evidence to support Santos's and Diaz's money laundering convictions and, as a result, the district court correctly vacated them. We first review the pertinent statutory section, as well as the holdings in Febus, and Scialabba, and how they impact the appeal before us.

Section 1956(a)(1)(A)(i) provides as follows:

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 . . . shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both. For purposes of this paragraph, a financial transaction shall be considered to be one involving the proceeds of specified unlawful activity if it is part of a set of parallel or dependent transactions, any one of which involves the proceeds of specified unlawful activity, and all of which are part of a single plan or arrangement.

The unlawful activity here was an illegal gambling business, specifically, the bolita. Thus, to convict Santos of money laundering, the government had to prove that he knowingly conducted or attempted to conduct a financial transaction; that the property involved in the financial transaction in fact involved the proceeds of his bolita; that he knew that the property involved in the financial transaction represented illegal proceeds; and that he engaged in the financial transaction with the intent to promote the carrying on of the bolita. See United States v. Emerson, 128 F.3d 557, 561 (7th Cir.1997); Seventh Circuit Pattern Criminal Jury Instructions 18 U.S.C. § 1956(a)(1)(A)(i) (1999). Such elements were also necessary to support Santos's and Diaz's related conspiracy convictions under § 1956(h). See United States v. Turner, 400 F.3d 491, 496 (7th Cir.2005).

The financial transactions at issue in Santos's case were payments to the bolita's collectors and winners. With respect to Diaz, his conspiracy conviction was based upon the receipt of payment for his collection services. When the case arrived here on direct appeal, Santos acknowledged that he used the bolita's proceeds to pay its collectors' salaries and its winners' winnings. See Febus, 218 F.3d at 789. The focus in Febus was on § 1956(a)(1)(A)(i)'s promotion element: Santos argued that paying salaries and winnings did not promote the carrying on of the bolita. See id.

Page 890

at 789-90. As to the important issue in the present appeal, there was no dispute in Febus about the meaning of the word proceeds. In contrast to the current situation, Santos—by acknowledging that the salaries and winnings (i.e., operating expenses) came out of its "proceeds"—assumed that the term meant gross income, and Febus proceeded accordingly.

In addressing whether the government's case had met the promotion element, Febus determined that promotion under § 1956(a)(1)(A)(i) included "transactions that promote the continued prosperity of the underlying offense." Id. at 790 (citing United States v. Conley, 37 F.3d 970, 979 n. 12 (3d Cir.1994)); see also 218 F.3d at 789 (discussing United States v. Jackson, 935 F.2d 832, 841-42 (7th Cir.1991)). Consequently, Febus concluded that Santos's payments of proceeds to the collectors, including Diaz, fell into this category because those transactions "compensated them for collecting the [bolita's] increased revenues and transferring those funds back to [Santos]." 218 F.3d at 790. Febus further reasoned that winning payouts from the bolita's proceeds sufficiently promoted the carrying on of the unlawful activity in that the transactions "promoted the bolita's continuing prosperity by maintaining and increasing the players' patronage." Id. (citing United States v. Cole, 988 F.2d 681, 684 (7th Cir.1993)).

The gross-versus-net-income dispute then arose in Scialabba, which, while not mentioning Febus by name, distinguished Febus and its default treatment of the term proceeds as gross income by stating "[n]either the Supreme Court nor this circuit has defined the word `proceeds' [in § 1956(a)(1)], and there is no definition in the statute itself." Scialabba, 282 F.3d at 475. The underlying offense in Scialabba was also illegal gambling. See id. at 475-76. The defendants...

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57 practice notes
  • United States v. Santos, No. 06–1005.
    • United States
    • United States Supreme Court
    • June 2, 2008
    ...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 “proce......
  • U.S. v. Aslan, Nos. 08–1486
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • May 12, 2011
    ...income of an unlawful venture.” Scialabba, 282 F.3d at 478. The government asked us to reconsider that holding in Santos v. United States, 461 F.3d 886 (7th Cir.2006) (hereafter “ Santos I ”). Santos and his co-defendant Diaz ran an illegal lottery and, like the Scialabba defendants, were c......
  • Zamora-Mallari v. Mukasey, No. 06-3717.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • January 24, 2008
    ...and we need a compelling reason to overturn circuit precedent, such as a Supreme Court mandate or a new statute. Santos v. United States, 461 F.3d 886, 891 (7th The petitioners initially contend that Valere is not controlling because the petitioner in that case did "not directly challenge t......
  • Meier v. Musburger, No. 08 C 216.
    • United States
    • United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
    • December 8, 2008
    ...theory, which underlies Counts I and II. (Count I, ¶ 135; Count II, which incorporates by reference ¶ 135). See Santos v. United States, 461 F.3d 886, 889 (7th Cir.2006)(elements of money laundering are knowingly conducting or attempting to conduct a financial transaction involving the proc......
  • Request a trial to view additional results
56 cases
  • United States v. Santos, No. 06–1005.
    • United States
    • United States Supreme Court
    • June 2, 2008
    ...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 “proce......
  • U.S. v. Aslan, Nos. 08–1486
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • May 12, 2011
    ...income of an unlawful venture.” Scialabba, 282 F.3d at 478. The government asked us to reconsider that holding in Santos v. United States, 461 F.3d 886 (7th Cir.2006) (hereafter “ Santos I ”). Santos and his co-defendant Diaz ran an illegal lottery and, like the Scialabba defendants, were c......
  • Zamora-Mallari v. Mukasey, No. 06-3717.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • January 24, 2008
    ...and we need a compelling reason to overturn circuit precedent, such as a Supreme Court mandate or a new statute. Santos v. United States, 461 F.3d 886, 891 (7th The petitioners initially contend that Valere is not controlling because the petitioner in that case did "not directly challenge t......
  • Meier v. Musburger, No. 08 C 216.
    • United States
    • United States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
    • December 8, 2008
    ...theory, which underlies Counts I and II. (Count I, ¶ 135; Count II, which incorporates by reference ¶ 135). See Santos v. United States, 461 F.3d 886, 889 (7th Cir.2006)(elements of money laundering are knowingly conducting or attempting to conduct a financial transaction involving the proc......
  • Request a trial to view additional results
1 books & journal articles
  • MONEY LAUNDERING
    • United States
    • American Criminal Law Review Nbr. 58-3, July 2021
    • July 1, 2021
    ...and, consequently, applying the rule of lenity in its decision), superseded by statute, 18 U.S.C. § 1956(c)(9); Santos v. United States, 461 F.3d 886, 890–92 (7th Cir. 2006) (outlining case law regarding whether “proceeds” means net income), superseded by statute, 18 U.S.C. § 1956(c)(9). 12......

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