Case o' The Week: The Webster Definition - Money Laundering Proceeds in US v. Webster

Q: What is the most frustrating thing about the "rule of lenity," where a defendant catches a rare break thanks to an ambiguous term in a statute?

A: The courts' and Congress' eagerness to limit and clean up the ambiguity as quickly as humanly possible (in ways that never help the defense).

This week's decision is a case study for this phenomenon. In United States v. Webster, the Ninth Circuit further whittles down a righteous application of the rule of lenity by the Supreme Court in Santos -- and notes that Congress has done the same. United States v. Webster, 2010 WL 3784829 (9th Cir. Sept. 30, 2010), decision available here.

Players: Decision by Judge Thompson.

Facts: [On June 2, 2008, the United States Supreme Court decided United States v. Santos, 553 U.S. 507 (2008). The plurality decision in Santos required that the term, “proceeds” in money laundering jury instructions refer only to “profits,” and not to all gross receipts (at least in some cases).]

Six months later, Lamar Webster went to trial in Montana. 2010 WL 3784829, *1. Four cooperators testified against Lamar Webster on federal meth and money laundering charges. Id. at *1. The jury instructions for the money laundering counts referred to “proceeds,” but did not further define that term. Id. The jury returned guilty verdicts on all counts. Id.

Issue(s): “In instructing the jury on the money laundering counts, the district court did not define ‘proceeds’ as ‘profits,’ a failing which Webster now challenges for the first time. Because Webster did not raise a timely objection to the instructions, we review for plain error. . . . . Webster contends our decision in Moreland compels the conclusion that the district court's failure to define ‘proceeds’ as ‘profits’ in the jury instructions constitutes plain error. See Moreland, slip op. at 14319-320 (discussing and applying United States v. Santos, 553 U.S. 507, 128 S.Ct. 2020 (2008)).” Id. at *3 (some internal quotations and citations omitted).

Held: “We disagree.” Id. “We . . . read Santos as holding that where, as here, a money laundering count is based on transfers among co-conspirators of money from the sale of drugs, ‘proceeds’ includes all ‘receipts’ from such sales. . . . Because the broad ‘receipts’ definition of ‘proceeds’ was permissible, the district court did not err in its jury instructions by failing to define ‘proceeds’ narrowly to mean ‘profits.’” Id. (internal quotations and citations omitted).

Of Note: Santos was the great 2008 Supreme Court victory, which reigned in the money laundering statute by refusing to allow all receipts of a crime to be deemed “proceeds” and subject to laundering prosecution. That victory was immediately whittled down – first, because it was only a plurality of the Supreme Court that arrived at that a narrow decision.

Then, in the 2009 Van Alstyne case, the Ninth Circuit held that this plurality opinion was limited to money laundering from offenses presenting the danger of “merger” between the laundering and the substantive crime (like pyramid schemes, where there was the “merger” danger that every fraud crime creating income would automatically become money laundering if “receipts” weren’t distinguished from “profits). See blog here.

To make matters worse, on May 20, 2009 Congress amended 18 USC § 1956 (the money laundering statute) by gutting Santos with a new definition of “proceeds.” The new definition is terrifically broad: “the term ‘proceeds’ means any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity.” PL 111-21, May 20, 2009, 123 Stat 1617.

In sum, Santos had a short run.

How to Use: There are probably ex post facto problems with applying the new § 1956 definition of “proceeds” to fraud cases with conduct before May 20, 2009 (the effective date of the statute). For these pipeline cases with money laundering charges and “merger” problems, Santos should still control and modified jury instructions are in order.

For Further Reading: For a thoughtful and concise summary of the very confusing Santos tangle, the new definition of “proceeds” in the money laundering statute, and ideas how to use all of this wonderful mess to defend criminal and forfeiture charges, see Carlos F. Gonzalez and Regan Kruse, U.S. Anti-Money Laundering Laws in the Wake of U.S. v. Santos, Nov. 6, 2009, .pdf available here.



Money laundering image from http://www.tesionline.com/intl/img/focus/money-laundering.jpg

Steven Kalar, Senior Litigator N.D. Cal. FPD. Website at www.ndcalfpd.org


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