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Money Laundering, Lenity, GAAP, and the Narrowest Grounds

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Understatement of the day award goes to Justice Samuel Alito: "There are no generally accepted accounting principles for determining the net income of illegal enterprises...." United States v. Santos, No. 06-1005 (today) (dissent). The splintered opinion involves more interesting issues than I had thought, and we now have an idea why it took a rare nine months from oral argument to opinion. We have the meaning of an ambiguous word in a statute, the rule of lenity, interpretation of splintered opinions, and the practical realities of organized crime prosecution.

In 18 U.S.C. §1956, Congress made it a crime to do a variety of things with the "proceeds" of a variety of crimes. Is that gross or net? Is it "receipts" or "profits"? Congress did not say in the statute, nor is there a clue in the legislative history, for those who consider that non-bunk. After all, there are pork barrels to roll out, and Congress can't be bothered to precisely define a law combating organized crime when urgent matters like funding the Slobodian Cultural Center of Upper Sasquatch need attention.

So, Santos and Diaz were convicted of violations regarding receipts of an illegal lottery with no showing that these are profits. They sought collateral relief under 28 U.S.C. § 2255 based on a subsequent Seventh Circuit decision limiting the statute to profits.They got it, and the government petitioned for certiorari.

There is no majority opinion. Four of the five parts of Justice Scalia's lead opinion are joined by Justices Souter, Thomas, and Ginsburg. Thomas does not join Part IV on the effect of splintered opinions, but he does not say why. Justice Alito wrote the principal dissent, joined by the Chief and Justices Kennedy and Breyer. Analysts who insist on viewing everything on simplistic liberal-conservative terms are foiled again.

Justice Scalia says that there is no reason in either the plain meaning of the word or its context in the statute to prefer one definition over the other. He also notes that there is no help in the legislative history, "putting aside the question whether" history is bunk. Therefore the Court must adopt the more "defendant-friendly" definition. Yes, he really says that. The defense bar can now drop the stilted old language of "lenity" and ask expressly for "defendant-friendly" rulings. "Proceeds" means "profits" across the board for this statute.

Justice Stevens does not join this opinion. He maintains that because Congress could have defined "proceeds" to mean net in some contexts and gross in others, and probably would have if they had thought it through, judges can do the same when performing their fill-in-the-gaps lawmaking function. In this view (the Federal Criminal Appellate Bar Full Employment Act), the question presented in this case must be litigated anew for each context.

So which opinion is the law? "When a fragmented Court decides a case and no single rationale explaining the result enjoys the assent of five Justices, 'the holding of the Court may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds. . . .' Gregg v. Georgia, 428 U.S. 153, 169, n. 15 (1976) (opinion of Stewart, Powell, and Stevens, JJ.)." Marks v. United States, 430 U.S. 188, 193 (1977). Simple, right? Um, no. "This test is more easily stated than applied" in some cases. Nichols v. United States, 511 U.S. 738, 745 (1994). In the last paragraph of Part IV, Justice Scalia seems to imply that neither opinion is narrower in the Marks sense and that there simply is no binding precedent for cases where his opinion and Justice Stevens' would point to different answers. I think he is right, for reasons I will explain further in a forthcoming law review article.

Justice Alito is horrified by the procedural and evidentiary complexity of proving what the net profit of a criminal enterprise is. After all, profit is hard enough to define for legitimate businesses. That is, in large part, why publications on income tax law fill entire bookcases.

Unless the money laundering statute is going to be rendered toothless, this problem requires the prompt attention of Congress. If they can take their eyes off the pork for a minute or two.

P.S.: Marty Lederman at SCOTUSblog notes that Justice Scalia's authorship of this opinion is contrary to the prediction based on the SCOTUS Sudoku hypothesis. Generally, a justice is not assigned a second opinion for an argument session when any of the other justices have not written any. Justices Breyer and Alito had not written opinions from the October session. This leads to speculation that Justice Alito was originally writing a majority opinion but "lost" it when Justice Stevens switched his vote to reversal. That would be consistent with the extended time for this opinion to come out. Marty's post also has additional quotes related to the Marks problem.

1 Comment

"Proceeds" seems to be a gross concept, not a net concept. If a business sells real property upon which a bank has a lien, the bank will want more than the gain (i.e., profit) on the property. Now of course, that's in the context of a sale, but so what? It's very awkward to talk about "proceeds" of a business, but that's the word Congress chose, and when people use it, they don't typically import a net concept.

Plus, Scalia's agnosticism doesn't make sense in the real world either. A criminal enterprise can generate cash without immediate profit, which is probably why Congress chose a very broad word, "proceeds". Does the legislative dog have to bark in order for a term that has a broad meaning not to be given a broad effect? Plus, what kind of rational system punishes criminals for "profits" that they pull out of a criminal enterprise but not return of capital. Scalia seems to have a bit of monomania here--we don't lightly presume that Congress would have intended to create such an irrational system.

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