Oral argument: Feb. 25, 2008
Appealed from: U. S. Court of Appeals, Fifth Circuit (Feb. 2, 2007)
MONEY LAUNDERING, FEDERAL MONEY LAUNDERING STATUTE, SENTENCING, CRIMINAL FINANCE, DRUG TRAFFICKING, PATRIOT ACT
Humberto Cuellar was convicted of international money laundering after officers found large sums of illegal money hidden in a vehicle Cuellar intended to drive across the U.S. border into Mexico. A jury found Cuellar guilty under 18 U.S.C. � 1956(a)(2)(B)(i), which makes money laundering a federal crime. An en banc panel of the U.S. Court of Appeals, Fifth Circuit, affirmed Cuellar's conviction and Cuellar appealed. In this case, U.S. Supreme Court will determine whether an attempt to create the appearance of legitimate wealth is necessary to support a money laundering conviction. Cuellar argues that his conviction cannot stand because he did not attempt to create the appearance of legitimate funds. The United States argues that a money laundering conviction is appropriate if a criminal defendant physically concealed illegal funds during cross-border transportation. The Court's decision will resolve the current circuit split and clarify the scope of the federal money laundering statute.
Whether merely hiding funds with no design to create the appearance of legitimate wealth is sufficient to support a money laundering conviction.
Does the federal money laundering statute contain a requirement that a defendant intend to make illegally-obtained funds appear legitimate through financial transactions or otherwise?
On July 14, 2004, Humerto Fidel Regalado Cuellar was driving south along Texas State Highway 77 towards the Mexican border when he was stopped by Deputy Kevin Herbert from the Schleicher County Sheriff's office for suspected intoxication. Cuellar v. United States, 478 F.3d 282, 284 (5th Cir. 2007). Realizing Cuellar did not speak English, Deputy Herbert called for a bilingual state trooper. Id. Upon arrival, Trooper Danny Nu�ez questioned Cuellar. Id. at 285.Nu�ez became suspicious when Cuellar began acting nervous and responded inconsistently to subsequent questions about his course of travel. Id.
Nu�ez then noticed a lump in Cuellar's pocket and asked Cuellar to remove his pocket contents. Cuellar, 478 F.3dat 285. Cuellar withdraw a roll of money that smelled like marijuana. Id. During a consensual search of the car, the officers further noted signs of a possible drug courier operation: drill marks, evidence of tampering with the gas tank, fresh paint, new paint, seemingly purposefully-splashed mud around the trunk, and a suspicious amount of animal hair spread only in the back seat area. Id. A dog trained to detect narcotics alerted on the car's rear floorboard area, where officers found $83,000 in cash wrapped in plastic bags, labeled with the amount, and then bundled with duct tape. Id.
A jury found Cuellar guilty of international money laundering under 18 U.S.C. � 1956(a)(2)(B)(i), but a panel of the Fifth Circuit reversed. Cuellar v. United States, 441 F.3d 329 (5th Cir. 2006). Under the section 1956, money laundering is the transfer to or from the United States of illegal funds, where the transfer is designed to conceal the nature, location, source, ownership, or control of the funds. See 18 U.S.C. � 1956(a)(2)(B)(i) (2000). The Fifth Circuit panel held that the Government failed to show that Cuellar's transportation satisfied the Statute's concealment requirement. Cuellar, 441 F.3d at 334. According to the panel, the Government had failed to demonstrate that Cuellar intended to "create the appearance of legitimate wealth," an essential element of laundering under United States v. Garcia-Emanuel, 14 F.3d 1469 (10th Cir. 1994). Id.
Upon rehearing enbanc, the Fifth Circuit reversed the panel, concluding that the Government had adequately established the concealment prong. Cuellar, 478 F.3d at 289. The Fifth Circuit reasoned that Cuellar's very identity as a third-party transporter demonstrated his design to conceal the ownership or control of the cash. Id. at 289-93. The en banc panel likewise determined that the Statute does not require an intent to create the appearance of legitimate wealth, citing United States v. Ness, 466 F.3d 79 (2d Cir. 2006). Id.
On October 15, 2007, the U.S. Supreme Court granted certiorari to clarify whether a design to create the appearance of legitimate wealth is a necessary element of money laundering under 18 U.S.C. � 1956(a)(2). Brief for Petitioner at 1.
The Money Laundering Control Act's Expansive Scope
A money laundering charge is a death knell to a criminal defendant-approximately nine in ten defendants charged with money laundering are convicted. See Mark Motivans, Bureau of Justice Statistics, U.S. Dep't of Justice, Money Laundering Offenders, 1994-2001 (2003) ("BJS Report"). Three out of four convicted defendants go to prison and the average sentence is over four years. See id. A broad reading of the Money Laundering Control Act of 1986, combined with prosecutorial discretion in bringing charges, mean that these statutes sweep widely. See 18 U.S.C. �� 1956-1957. The available 20-year prison sentence under section 1956 means that a conviction cuts deeply. The outcome of this case has broad ramifications for the scope of money laundering prosecutions, the availability of a 20 year sentence as a prosecutorial bargaining chip, and the perceived role of money laundering charges in fighting drug crime.
Implications for Prosecution under the Money Laundering Control Act
The U.S. Supreme Court will necessarily resolve a split in the U.S. Courts of Appeals concerning whether the money laundering statute requires a design to create "the appearance of legitimate wealth." A decision for Cuellar will narrow the statute and limit prosecutions, while a decision for the government will countenance the "prosecution run amok" tolerated under the Fifth Circuit's interpretation of the statute. United States v. Cuellar, 478 F.3d 282, 299 (Smith, J. dissenting).
A decision either way will predict the future of aggressive government efforts to extract guilty pleas from defendants. According to the National Association of Criminal Defense Lawyers ("NACDL"), prosecutors abuse the money laundering statute, forcing defendants to weigh a potential 20-year sentence in deciding whether to plead guilty to a lesser charge. See Brief of the NACDL in Support of Petitioner ("NACDL Brief") at 3. Ninety-one percent of defendants convicted of money laundering pled guilty. BJS Report at 7.
According to the FBI, however, aggressive use of the statute renders crime less profitable by reducing the flow of criminal assets through the country and increasing the cost of criminal activity. See Federal Bureau of Investigation Strategic Plan 2004-2009 ("FBI Plan") at IIH.4. However, certain experts argue that the relationship between prosecutions under the statute and effective combat against criminal finance is attenuated. See Mariano-Florentino Cu�llar, Criminal Law: The Tenuous Relationship between the Fight against Money Laundering and the Disruption of Criminal Finance, 93 J. of Crim. L. & Criminology 311 (2003).
A decision for the government will validate the traditional government rhetoric that fighting criminal finance requires intervention at every stage of the laundering chain. See Cu�llar at 398. A decision for Cuellar would, per the government, frustrate law enforcement efforts to identify international laundering networks working with the domestic criminals. Brief for Respondent at 21. This decision would allow money that would, if intercepted, betray the criminal nature of the enterprise, to go undetected. See id. at 31.�
By comparison, a decision for Cuellar may re-focus government efforts on the prosecution of higher-level criminals whose contributions to illegal drug trafficking are significant. Currently, only 16 percent of money laundering prosecutions rest on underlying drug trafficking crimes. BJS Report at 2. This undermines the argument that tough money laundering prosecutions effectively chip away at criminal finance channels that permit drug trafficking organizations to thrive. Furthermore, 84 percent of defendants received no upward adjustment as permitted by the U.S. Sentencing Guidelines in cases where the defendant organized, managed or led the money laundering. BJS Report at 11. This supports the conclusion that high-level crime bosses are not caught and prosecuted under the statute.
Implications for Criminal Justice Trends and Business
The ramifications of this decision transcend the world of drug crimes and reach corporate corridors, as a decision either way will significantly impact convictions outside of drug trafficking crimes, including the increasing incidence of white-collar crimes. In many recent financial scandals, top executives have been charged with money laundering in addition to the underlying fraud or corruption violations. See FBIPlan. Counter to drug courier profiles, defendants sentenced for money laundering were predominantly white American males. See BJSReport at 8.
A decision for the government would reinforce prosecutors' use of the maximum 20-year sentence to deter defendants from committing underlying crimes.� Prosecutors will often "tack on" money laundering charges to underlying crimes such as drug-trafficking or health-care fraud, generating more severe penalties. See Cu�llar at 347. An outcome for the government would quadruple the maximum punishment for an act, bulk cash smuggling, already punishable under a provision of the USA PATRIOT Act. See 31 U.S.C. � 5332(b)(1); Brief for Petitioner at 37. A full 951 of the 1,243 convictions including a money laundering charge in 2001 were sentenced under the money laundering section the U.S. Sentencing Guidelines. BJSReport at 7, 10.
Cuellar counters that if the Court affirms the Fifth Circuit's en banc decision, the "overly broad" proposals rejected by Congress during hearings on the statute would be resurrected, expanding its accepted reach. See Brief for Petitioner at 31, 44. Far from the original goal of cutting off the life-blood of organized crime, this would allow prosecution for money laundering of any illicit funds crossing the border, without an intent to conceal the illegal nature of the funds. See id.
A decision for Cuellar would also limit prosecutions according to the NACDL, which is a desirable result because it would allow corporations to remain undeterred from engaging in legitimate transactions due to perceived threats of prosecution. See NACDL Brief at 6. Under a result either way, financial institutions should pay close attention to their compliance with money laundering laws, as the government is "remarkably engaged with pursing private industry" for noncompliance. See Robert M. Axelrod, New Scrutiny on Money Laundering, Executive Counsel, May/June 2006 Volume 3, Number 3.
Under the Money Laundering Control Act of 1986 ("MLCA"), codified at 18 U.S.C. � 1965(a)-1957, a person has committed money laundering if that person has either conducted a transaction or transported or attempted to transport funds outside the United States, knowing that the funds represent proceeds of illegal activity. See � 1956(a). The person must know that such transaction or transport is intended to "conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds . . . " � 1956(a)(2). A person found guilty under section 1956(a) may be sentenced to a maximum of 20 years' imprisonment, ordered to pay a minimum fine of $500,000, or both. � 1956(a)(2)(B)(ii).
Congress also enacted 31 U.S.C. � 5332, originally part of the USA PATRIOT Act, to address the specific action of smuggling large quantities of cash, regardless of source, across U.S. borders. � 5332. Under section 5332(b), transporting $10,000 in money or instruments without reporting to the U.S. Treasury Secretary constitutes currency smuggling and is punishable by five years' maximum imprisonment, forfeiture of the property, and possible personal money judgment against the defendant. � 5332(b).
Is the Creation of the Appearance of Legitimate Wealth an Element of 18 U.S.C. � 1956(a)?
Cuellar argues that the money laundering statute's objective is to prevent criminals from using illegitimate funds to transact and expand criminal activity. Brief for Petitioner at 19 (citing Money Laundering Legislation: Hearing Before the S. Comm. on the Judiciary, 99th Cong. 1 (1985)).Cuellarargues that the title of section 1956(a), "Laundering of monetary instruments,"� plainly indicates Congress's intent to limit the scope of the statute to classic money laundering-attempts to cleanse illegitimate proceeds and generate the appearance of legitimate wealth. Id. at 14-15. Cuellar states that U.S. law enforcement community members have historically understood money laundering to include an element of "cleansing" dirty funds. Id. at 16.
The United States responds that making proceeds appear legitimate is one of many ways criminals may "conceal" illegal proceeds under section 1956(a). Brief for Respondentat 14-15. Cross-border transportation is another, independent method to "conceal" illegal money, the argument goes. Id. at 16. The United States points out that the Senate Judiciary Committee panel that reviewed the final version of the MLCA expressly indicated that the term "laundering" encompassed mere cross-border transportation-a defendant did not intend to create the appearance of legitimate wealth. Id. at 29 (quoting S. Rep No. 33, 99th Cong., 2d. Sess. 11 (1986)).
What is the proper interpretations of the "conceal or disguise" prong?
Cuellar argues that section 1956(a) implicitly contains an "appearance of legitimate wealth" requirement. Brief for Petitioner at 20-21. Merely physically hiding money or instruments does not violate section 1956(a), the argument goes. Id. Rather, money laundering defendants must intend to disguise intangible attributes-nature, location, source, ownership, and control-which reveal the money's origin in illicit activity. Id. That is, Cuellar argues, persons violate section 1956(a) only if they intend to obstruct tracing of illegal proceeds. Id.�
Cuellar further contends this requirement permits a uniform reading of the money laundering statute. Brief for Petitioner at 20-21. Cuellar points out that section 1956(a) punishes defendants who "conceal or disguise" funds through financial transactions. See 18 U.S.C. � 1956(a)(1). Expanding the term "conceal" to include physical hiding renders this provision meaningless because transactions are not concrete things behind which money can be physically cached. Id. at 21. Cuellar concedes that section 1956(a) defendants may "conceal" funds through international transportation. Id. at 21-22.� However, according to Cuellar, the statute's scope is limited to cross-border transfers that are part of a broader international money laundering scheme. Id. Cuellar claims further that this reading is supported by substantial case law.� See id. at 27-28 (quoting United States v. Dimeck, 24 F.3d 1239 (10th Cir. 1994)).
The government points out that section 1956(a) prohibits concealing or disguising illegal money. Brief for Respondentat 16. The classic money laundering scheme, the argument goes, includes "disguising"-hiding something's true nature. Id. By using disjunctive language, then, Congress intended that section 1956(a) apply expansively-not just to cleansing but also to simple movement of money across borders, as in Cuellar's case. Id.
Are Cuellar's Actions Covered by the Bulk Cash Smuggling Statute?
Cuellar urges that the act of concealing large quantities of money during transport without attempting to create the appearance of legitimate wealth is an offense punishable under the bulk cash smuggling statute, 31 U.S.C. � 5332. Brief for Petitionerat 32. Cuellar argues that Congress enacted section 5332 specifically to address the crime of attempting to transport large quantities of money across U.S. borders without reporting. Id. at 34-35.� According to Cuellar, bulk cash smuggling characterizes his actions better than money laundering. Id.
The United States responds that the bulk cash smuggling statute does not apply to Cuellar. Brief for Respondent at 36. The United States defends that it would be difficult to prove that Cuellar was aware of section 5332's currency reporting requirement. Id. The United States maintains that the bulk cash smuggling statute is too lenient because Cuellar� knew that the funds he was transporting were obtained from illegal activity. Id. at 37.
Does the Lenity Rule apply?
Cuellar finally argues that if the Court finds that the meaning section 1956(a) is ambiguous regarding the cleansing requirement, the Court must apply the rule of lenity-a tool of statutory interpretation that requires courts to read ambiguous phrases to favor defendants. Brief for the Petitioner at 37 (quoting Hughey v. United States, 495 U.S. 411, 422 (1990)). In response, the United States maintains that the rule of lenity does not apply because the plain text of the money laundering statute is not ambiguous. Brief for Respondent at 39.
The Supreme Court's decision in Cuellar v. United States will clarify whether the federal money laundering statute 18 U.S.C. � 1965(a) applies to individuals who, without any design to create the appearance of legitimate funds, attempt to covertly transport illegal funds across U.S. borders. The outcome of the Cuellar case will impact criminal activity like drug trafficking that potentially constitutemoney laundering. The resolution will also affect U.S. businesses, criminal plea bargains, and prosecutorial strategies.
Edited by: Ferve Ozturk
- United States Department of the Treasury: Money Laundering Strategy
- Federal Bureau of Investigation: Strategic Plan 2004-2009
- Department of Justice: National Drug Threat Assessment 2008
- Peter Reuter and Edwin M. Truman, Combating Predicate Crimes Involving Money Laundering, Chasing Dirty Money: The Fight Against Money Laundering, The Peter G. Peterson Institute for International Economics (2004).