IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 98-30463
_______________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
VERSUS
GREGORY DEAN BROWN,
Defendant-Appellant.
********************
_______________
No. 98-30584
_______________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
VERSUS
LEONARD STEVEN STEVE GRAVES,
Defendant-Appellant.
_________________________
Appeals from the United States District Court
for the Western District of Louisiana
_________________________
August 24, 1999
Before SMITH, WIENER, and
BARKSDALE, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
In this consolidated appeal, Leonard Graves
appeals his money laundering convictions, a
number of his fraud
convictions, and his sentence. Gregory Brown sentence. We affirm Brown's sentence.
appeals his sentence. We affirm Graves's fraud
convictions, reverse his money laundering I.
convictions, and vacate and remand his The fraud and money laundering charges of
which Graves was convicted, and Brown's eighteen instances of overcharging were
wire fraud conviction, relate to business charged against Graves as mail frauds, because
dealings conducted at Steve Graves Chevrolet- the Louisiana Department of Motor Vehicles
Pontiac-Cadillac, Inc. (“SGC”), an auto mailed the automobile titles. Graves was also
dealership in Ruston, Louisiana. Graves was charged with money laundering the proceeds
the dealer, president, and 41% owner of SGC, of the excessive fees. The jury found Graves
and Brown managed its body shop. guilty on some of the counts and not guilty on
others.
The 120-count indictment against Graves
alleged six distinct types of fraud,1 and for Graves was convicted of fraud based on
each fraud allegation there was a SGC's financing the purchases of used cars
corresponding money laundering charge. with “cash for gas.” In seven instances, SGC
Graves was convicted on counts stemming advanced to the purchaser all or part of the
from three of the six types of fraud and was down payment required by the financing
convicted of money laundering the funds institutionSSunder the guise of giving the
derived from these frauds. Brown pleaded buyer some “cash for gas”SSand increased the
guilty to a type of fraud of which Graves was purchase price of the car by a corresponding
not convicted. amount. This conduct constituted fraud,
because the lending institution would not have
The first type of fraud involved SGC's extended credit to the purchaser absent his
charging car buyers more than the amount having some genuine equity interest in the
authorized by state law for document and automobile. The counts of which Graves was
license/title fees. SGC charged purchasers $59 convicted were charged as mail frauds,
in document fees, which is $9 more than because SGC mailed loan documentation to
Louisiana law permits; automobile dealerships General Motors Acceptance Corporation
are allowed to charge only $35 for processing (“GMAC”), the financing institution.3 The
paperwork and $15 for a notary fee. See LA. jury also found Graves guilty of money
R.S. 6:956(E)(1), (2). For the license and title laundering the funds derived from cash for gas
fees, which varied from vehicle to vehicle, frauds.
SGC overcharged an average of $50 per
automobile listed in the indictment.2 The The final form of fraud of which Graves
was convicted also involved t he financing of
used cars. For ten cars financed by Union
1
In addition to the four types of fraud Federal Credit Union, SGC, on behalf of the
discussed below, the indictment alleged that buyer, forwarded to the credit union 25% of
Graves, through SGC, engaged in “parts-to-labor”
fraud and “scooping rebates” fraud. The former
type of fraud involved SGC's billing automobile
insurance companies for new parts but then (...continued)
performing repairs using used parts and falsely $5.50 for handling, $5.00 to record a lien or
charging the price difference as labor. The mortgage, and an amount specifically for the
“scooping rebates” allegations involved SGC's license that varied, according to a Department of
fraudulently denying the benefits of rebates to Motor Vehicles table, with the selling price of the
customers and instead collecting the rebates for the vehicle. The total was the “license fee.” SGC
dealership. Graves was acquitted of all charges typically collected $102 per vehicle as the license
relating to parts-to-labor and scooping rebates fee. This resulted in an average overcharge of $50
frauds, but the district court found that such frauds per automobile listed in the indictment.
had been established by a preponderance of the
evidence and considered them in sentencing 3
One instance of “cash for gas” was
Graves. charged as bank fraud, for the lender in that
2
instance was a bank. The jury acquitted Graves of
The state charged $18.50 for the title, that charge and the corresponding money
(continued...) laundering count.
2
the sale price, which the credit union of wire fraud, he was sentenced to an
maintained in a savings account in the eighteen-month term of imprisonment and
purchaser's name until the loan was paid off. restitution of $75,104.18.4 The court
The dealership increased the sale price of the increased Brown's offense level by six to
vehicle by a corresponding amount. As with account for a fraud loss greater than $70,000
“cash for gas,” this scheme had the effect of but no more than $120,000. See U.S.S.G.
fraudulently inducing advances of credit, for § 2F1.1(b)(1)(G). After Brown's sentencing,
the credit union believed that the 25% down the court granted the government’s “Motion to
payment represented genuine purchaser equity Correct Judgment and Commitment Order”
in the purchased automobiles. These counts asking the court to lower Brown's required
were charged as bank frauds, and the jury restitution to victim insurance companies and
returned a guilty verdict. It also found Graves individuals to $67,938.72. Brown contends
guilty of money laundering the proceeds that this “lower loss figure” calls for an
derived from the bank frauds. Graves does not increase of his base offense level of only five,
appeal these bank fraud convictions, but he not six, levels and that his sentence is thus
does appeal the corresponding money unduly severe.
laundering convictions.
The government charged Brown and
Graves with filing fraudulent warranty claims.
The indictment alleged ten instances in which
SGC recovered warranty money from General
Motors for repairs to vehicles when, in fact,
the repaired vehicles were not covered by
warranties. The government charged the
fraudulent warranties as wire frauds, because
General Motors credited the cost of repairs via
computer. The jury found Graves not guilty of
the wire fraud and corresponding money
laundering charges. Brown, however, pleaded
guilty to one count of wire fraud based on
submission of a fraudulent warranty claim.
In sentencing Graves, the court declined to
group his fraud and money laundering
convictions. Instead, it sentenced him solely
on the basis of his money laundering offenses,
which carry a tougher penalty than do fraud
offenses. Compare U.S.S.G. § 2F1.1
(imposing a base offense level of six for mail
and wire fraud) with U.S.S.G. § 2S1.1
(imposing a base offense level of 23 for money
laundering). With an adjusted offense level of
30 and a criminal history category of I, the
guidelines range was 97 to 121 months. The
court departed downward by only one month,
sentencing Graves to 96 months' incarceration.
The court based the downward departure on
its conclusion that Graves's conduct was 4
Brown was also given a three-year term
outside the heartland of money laundering. of supervised release, which is to begin following
his release from prison, and he was ordered to pay
Based on Brown's plea of guilty to a charge an assessment to the crime victim fund.
3
Graves appeals his convictions on fraud first two elements but contends that there was
counts stemming from excessive document and insufficient evidence to support a finding that
license/title fees and “cash for gas” frauds. He he specifically intended to commit fraud.
also appeals all his money laundering There was no specific intent, he argues,
convictions and his sentence. Brown appeals because he did not know of the overcharges.
only his sentence, asserting that it should be The jury, properly instructed,5 concluded
reduced to reflect an error of fact discovered otherwise, and there was sufficient evidence to
subsequent to sentencing. support its conclusion.
II. 1.
We first consider Graves's claim that there SGC overcharged $9 per vehicle for
was insufficient evidence to support a number document fees ($59 rather than the maximum
of his convictions. In evaluating a challenge to $50). Graves asserts that the government
the sufficiency of the evidence, we view the presented no evidence that he knew of this
evidence in the light most favorable to the overcharge; the evidence showed, he says, that
verdict and uphold the verdict if, but only if, a he corrected the $9 overcharge as soon as he
rational juror could have found each element learned from a Louisiana Automobile Dealers
of the offense beyond a reasonable doubt. Association newsletter that the $59 charge was
United States v. Giraldi, 86 F.3d 1368, 1371 too high.
(5th Cir. 1996). Our review is de novo.
United States v. Restrepo, 994 F.2d 173, 182 To maintain his claim of insufficient
(5th Cir. 1993). We consider “the evidence, Graves must discount the testimony
countervailing evidence as well as the evidence of Jim Smith, who had managed SGC's
that supports the verdict” in assessing Finance and Insurance Office for a number of
sufficiency of the evidence. Giraldi, 86 F.3d months during the indictment period. Smith
at 1371. If “the evidence viewed in the light testified that the document fee was too high
most favorable to the prosecution gives equal and that he had discussed that fact with Graves
or nearly equal circumstantial support to a before Graves's discovery of the article
theory of guilt and a theory of innocence,” a indicating that the fee was too high. Graves
defendant is entitled to a judgment of acquittal. asserts that the jury could not rationally have
United States v. Schuchmann, 84 F.3d 752, credited Smith's testimony over his own.
754 (5th Cir. 1996).
The evidence is sufficient to sustain 5
In accordance with Fifth Circuit Pattern
Graves's convictions of fraud stemming from Jury Instructions 1.37, the jurors were instructed as
excessive fees and “cash for gas.” There is, follows:
however, insufficient evidence to sustain his
money laundering convictions. The word “knowingly,” as that term
has been used from time to time in these
A. instructions, means that the act was done
The alleged offenses involving Graves's voluntarily and intentionally, not because of
charging excessive document and license/title mistake or accident.
fees were charged as mail fraud, a violation of
18 U.S.C. § 1341. The government must You may find that a defendant had
prove beyond a reasonable doubt “(1) the knowledge of a fact if you find that the
existence of a scheme to defraud; (2) the use defendant deliberately closed his eyes to
what would otherwise have been obvious to
of the mails to execute the scheme; and (3) the him. While knowledge on the part of the
specific intent on the part of the defendant[] to defendant cannot be established merely by
commit fraud.” United States v. Salvatore, demonstrating that the defendant was negligent,
110 F.3d 1131, 1136 (5th Cir.), cert. denied, careless, or foolish, knowledge can be inferred if
118 S. Ct. 441 (1997). Graves does not the defendant deliberately blinded himself to the
contest the sufficiency of the evidence on the existence of a fact.
4
According to Graves, Smith, who was fired for evidence, he asserts, that he knew that Newton
inadequacies in his paperwork, obviously did was failing to follow this order.
not know what he was talking about, because
he testified counterfactually that the dealership This assertion is simply incorrect. At least
charged $80-100 as a document fee. When three pieces of evidence support a conclusion
the government tried to conform his testimony that Graves knew the overcharges were
to the uniformly charged $59 fee, the court continuing. First, Shelton testified that she
sustained Graves's attorney's objection to told Graves that Newton was continuing to
“leading.” overcharge. In addition, general manager
Richard Anderson testified that he discussed
Despite Graves's protests, Sm ith's the excessive license fees with Graves on
testimony provided a sufficient evidentiary several occasions and that Graves had told him
basis for the jury's conclusion that Graves that sometimes SGC overcharged and
knew of the document fee overcharge. While sometimes undercharged, and things would
Smith's testimony may not have been the most balance out in the end.8 Finally, Graves admits
compelling, the jury was not irrational in that on the occasions Shelton reported
crediting it over Graves's. It is certainly Newton's mistakes to Graves, he did not ask
possible that Smith, who was finance manager her to provide refunds to the overcharged
for only four months, could have forgotten the customers.
exact figure charged as a document fee but
remembered that the fee charged was too high This evidence, viewed in the light most
and that he had discussed that fact with favorable to the verdict, adequately supports a
Graves. The jury chose to believe Smith, and finding that Graves knew of the license/title fee
its choice was not irrational.6 overcharges. The jury thus rationally could
2.
Graves contends that the evidence does not 8
Graves unsuccessfully attempts to
support a conclusion beyond a reasonable downplay this testimony. He asserts that
doubt that he intended to overcharge license Anderson's testimony is unconvincing because (1)
and title fees. He admits that the evidence the government offered no evidence as to the date
would support a conclusion that he knew as of of the remark, which might have occurred before
July 1994 that such overcharges were July 1994, when Shelton first found out that
occurring, for there was evidence that Teresa license/title fee overcharges were occurring; (2)
Shelton, Graves's office manager, told him at Shelton, who regularly attended the managers'
that time that SGC was charging too high a meetings, never heard such a remark; and (3)
Anderson lost all credibility when he portrayed
fee.7 Graves notes, however, that the evidence NewtonSSthe very person who refused to adhere to
shows that he immediately ordered Newton, Graves's order to lower the feeSSas complaining to
his financial and insurance manager at the time, Graves that the fee was too high.
to stop the overcharging. There is no
None of these reasons requires discrediting
Anderson's testimony. First, the jury could
6
reasonably have concluded that Graves's alleged
See United States v. Guerrero, 169 F.3d remark to Anderson occurred after he learned that
933, overcharging was occurring, for the very subject
939 (5th Cir. 1999) (holding that on review of matter of the remark was the dealership's
sufficiency of evidence to convict, court of appeals overcharging. Second, the fact that Shelton did not
must accept credibility choices that support the hear the remark does not prove that it never
verdict, and court may not reweigh evidence). occurred; the remark might have occurred outside
her presence, or she might not have been paying
7
Indeed, the jury must have determined attention. Finally, the argument about Anderson's
that Graves did not know of the overcharges before credibility should not persuade us to reverse a
July 1994, because it acquitted him of those counts verdict, for credibility determinations are for the
of mail fraud occurring before that date. jury. See Guerrero, 169 F.3d at 939.
5
have concluded that Graves, knowing of the offer proof that he eventually knew cash for
overcharges and refusing to take effective gas was improper. It provided testimony from
steps to stop them or remedy them through Dave Jeffers, a GMAC official who told
refunds, intended the frauds. Accordingly, we Graves that “in our [GMAC's] judgment, [cash
affirm Graves's fraud convictions stemming for gas] is a misrepresentation of the contract.”
from SGC's overcharges of document and Graves further admits that if the government
license/title fees.9 had proven that cash for gas transactions
occurred with Graves's knowledge after this
B. notification, then a rational jury could have
Graves argues that the evidence supporting found him guilty of fraud. That was, in fact,
his “cash for gas” fraud convictions is the government's theory of fraud; it explained
insufficient, because there is no evidence that in summation that “after GMAC said to stop
he continued to approve of cash for gas it,” “to submit the paperwork knowing it was
financing after he learned that GMAC fraudulent, was fraud.”
disapproved of it. Cash for gas financing, he
asserts, is not obviously fraudulent. Graves's argument is that there was no
Accordingly, the government could not have evidence that he approved cash for gas
established Graves's criminal liability unless it transactions after he learned that such
proved that he knew he was doing something financing was unacceptable to GMAC. The
wrong by offering cash for gas; such proof was government never proved the date of Jeffers's
necessary to establish the third prong of mail admonition about the impropriety of cash for
fraudSSi.e., that he specifically intended to gas, and the jury, Graves argues, thus could
commit fraud. See Salvatore, 110 F.3d at not have found beyond a reasonable doubt that
1136. any of the transactions occurred after Graves
had knowledge that they were fraudulent.
Graves admits that the government did
Despite the absence of evidence that
Jeffers's statement pre-dated the cash for gas
transactions, a rational juror could have
9
Graves points to one other piece of concluded that Graves knew the charged cash
evidence that, he says, shows that the verdict is for gas deals i nvolved material
unsound. He notes that every employee of SGC misrepresentations and were thus fraudulent.
who bought a car at the dealershipSSincluding A rational jury could assume that any astute
Shelton, who was the centerpiece of the businessman would know that (1) a financing
government's effort to prove that Graves violated institution that requires a down payment
the law intentionallySSpaid the overcharge well
after Graves ordered Newton to discontinue it. before extending credit is attempting to ensure
Graves asserts that Shelton, who, on the that the debtor has an equity interest in the
government's evidence, knew better, would not purchased good and will thus be “hurt” in
have allowed herself to be overcharged, and the some way if the good is repossessed, and (2)
fact that she did accept an overcharge indicates that the financing institution would be less likely to
she (and thus Graves, as Shelton was allegedly the extend credit if the down payment was really
source of his knowledge) did not know that the a “loan” from another entity (in this case, from
license fee was still being overcharged. the dealership).
This argument is unpersuasive. A rational jury The jury may thus have simply disbelieved
could have concluded that Shelton allowed herself Graves's claim that he did not know cash for
to be overcharged so as not to draw attention to the
practice, or perhaps because she had gotten a good gas was dishonest. Indeed, Graves gave the
deal from the dealership and did not want to be too jury a reason to doubt his candor toward
demanding about small fees. Her willingness to GMAC with respect to the cash for gas
pay the overcharge does not compel the conclusion transactions; he admits that even after he
that she (and thus Graves) did not know of the learned from Jeffers that cash for gas was
overcharge. fraudulent, general manager Anderson
6
continued to conduct such transactions, and
when Graves learned that Anderson had done (i) with the intent to promote
so, Graves neither undid the deals nor advised the carrying on of specified
GMAC of what Anderson had done. Thus, unlawful activity; . . . .10
there was direct evidence that Graves,
knowing a loan had been fraudulently induced, To obt ain a conviction under
withheld material information. § 1956(a)(1)(A)(i), the government must
prove beyond a reasonable doubt “[t]hat the
Given that (1) any astute businessman defendant (1) conducted or attempted to
would know cash for gas was wrong, and conduct a financial transaction, (2) which the
(2) the evidence showed Graves's dishonesty defendant knew involved the proceeds of
and lack of candor on particular cash-for-gas unlawful activity, (3) with the intent to
transactions that he undoubtedly knew to be promote or further unlawful activity.” United
fraudulent, the jury could have rationally States v. Cavalier, 17 F.3d 90, 92 (5th Cir.
concluded, beyond a reasonable doubt, that 1994) (citations and internal quotations
Graves knew cash for gas financing was omitted). Graves asserts that there was
generally fraudulent. Hence, we affirm his insufficient evidence to establish that the
fraud convictions on counts stemming from charged money laundering transactions were
cash-for-gas financing. intended to promote any fraud committed at
SGC.11 We agree.
C.
Each money laundering count on which The transactions the indictment charged as
Graves was indicted was charged under money laundering consisted of expenditures,
18 U.S.C. § 1956(a)(1)(A)(i), which reads, in paid by checks written by SGC, that allegedly
part: promoted the fraud.12 Graves contendsthat
(A) Whoever, knowing that the
propert y involved in a financial 10
transaction represents the proceeds of Subsequently, the money laundering
some form of unlawful activity, statute defines “specified unlawful activity” to
include mail and wire fraud. See 18 U.S.C.
conducts or attempts to conduct such a §§ 1956(c)(7)(A), 1961(1).
financial transaction which in fact
involves the proceeds of specified 11
The money laundering statute
unlawful activity proscribes, in separate provisions, “promotion” and
“concealment” transactions. All the money
laundering counts against Graves charged him with
violating § 1956(a)(1)(A)(i), which proscribes the
use of criminally derived funds “with the intent to
promote” specified unlawful
activities. Graves was not charged with
undertaking transactions aimed at “concealing”
criminally derived funds, which is a violation of
§ 1956(a)(1)(B).
12
The government, in selecting financial
transactions to fulfill the actus reus requirement of
the money laundering charges, picked benign
business expendituresSSpurchases of goods and
services
necessary to maintain SGC's legitimate business
operations. It did not have to do so. Courts have
held that a promotion money laundering offense
(continued...)
7
there was no evidence that the payment of Graves argues that such expenditures are not
those checks was intended to promote any the sort of crime-promoting transactions
fraud at SGC; the checks were simply criminalized by § 1956(a)(1)(A)(i), for the
legitimate business expenses of the dealership. promotion element requires some identifiable
Indeed, a review of the checks indicates that and affirmative advancement of the specified
they were for “above board” expenses.13 criminal activity. In support of this claim, he
points to a number of cases involving
“promotion” money laundering in which the
(...continued) court highlighted how the expenditures
may occur when a defendant receives and deposits explicitly furthered specified unlawful
criminally derived funds, in which case the deposit activity.14 He then contrasts those cases to the
of the funds is the transaction intended to promote case at hand, in which the nexus between the
the specified unlawful activity. See, e.g., United charged expenditures and any fraud activity is
States v. Montoya, 945 F.2d 1068, 1076 (9th Cir. non-existent or weak.
1991). But the government chose not to indict
Graves for depositing the proceeds of fraud. Graves also points to United States v.
Instead, it made a strategic decision to focus on Jackson, 935 F.2d 832 (7th Cir. 1991), in
SGC's spending transactions (i.e., the checks the which the defendant, who was both a preacher
dealership wrote), not on SGC's depositing of and drug dealer, deposited drug proceeds into
funds, perhaps because “receipt and deposit” his church's checking account. From the
money laundering prosecutions are disfavored.
church account, he wrote checks to pay for
Such prosecutions have been criticized because beepers, mobile phones, and rent; he also
the harm of the money laundering transaction (i.e., wrote some checks for cash. See id. at 841.
the deposit) is not significantly greater than that of The defendant's drug runners used the beepers
the underlying offense. See REPORT FOR THE to communicate with each other, and the court
SENATE AND HOUSE JUDICIARY COMMITTEE ON therefore held that the beeper purchases were
THE CHARGING AND PLEA PRACTICES OF FEDERAL intended to promote the specified unlawful
PROSECUTORS WITH RESPECT TO THE OFFENSE OF conduct. Id. The checks for mobile phones,
MONEY LAUNDERING 8-9 (1996) (report issued by rent, and cash, however, did not promote the
the Department of Justice pursuant to Pub. criminal activity and thus did not constitute
L. 104-38, 109 Stat. 334 (1995)). Indeed, the money laundering. Id. The court explained:
Department of Justice issued a Blue Sheet to
chapter 9-105.000 of the U.S. Attorney's Manual
requiring consultation by a U.S. Attorney's Office
with the Department before a receipt and deposit (...continued)
case may be prosecuted. Id. at 13-14. See also (7) t-shirts, caps, coffee mugs; (8) yearbook
United States v. Woods, 159 F.3d 1132, 1135 (8th advertisements; (9) a computer system lease; (10)
Cir. 1998) (quoting 1996 DOJ Report to the effect advertising representation; (11) Graves's travel
that money laundering statutes “should not be used expenses; (12) extended warranties on used
in cases where the money laundering activity is automobiles; (13) glass replacement; (14)
minimal or incidental to the underlying crime . . .”). automobile association membership fees; (15)
Having chosen to prosecute Graves for spending photocopier supplies; and (16) a health plan.
(not merely depositing) dirty money, the
government was required to show that the 14
See, e.g., United States v. Nattier, 127
expenditures were conducted with an “intent to F.3d 655 (8th Cir. 1997), cert. denied, 523 U.S.
promote” SGC's fraudulent activity. 1065 (1998) (checks paid for real estate that
13
promoted the specified embezzlement scheme);
The allegedly laundered funds paid for United States v. Johnson, 971 F.2d 562 (10th Cir.
(1) parts, paints, and materials; (2) the floor plan, 1992) (checks paid for office where defendant
cars that had been traded in, floor plan interest, and conducted the fraud and luxury car that defendant
a charge back; (3) software support and office used to impress investors); United States v.
supplies; (4) conversions; (5) used cars; Hildebrand, 152 F.3d 756, 762-63 (8th Cir.) (in
(6) disposal of waste oil and used oil filters; solicitation fraud, checks used to pay solicitors),
(continued...) cert. denied, 119 S. Ct. 575 (1998).
8
The government did not prove that the ill-gotten gains to pay his callers, purchase
cellular phones played the same roleSSor leads, and pay telephone bills so he could scam
indeed any roleSSin Davis' drug more people.15
operations as the beepers. Likewise the
rental payments and the checks written Despite the government's creative
to cash; certainly these expenditures argument, we agree with Graves that there is
maintained Davis' lifestyle, but more insufficient evidence that the charged
than this is needed to establish that they expenditures were financial transactions
promoted his drug activities. conducted “with the intent to promote the
carrying on of specified unlawful activity.”
Id. The problem with the government's position is
that it ignores the intent aspect of the
Graves argues that the expenditures promotion element. Section 1956(a)(1)(A)(i)
charged in the money laundering counts of the is not satisfied by a showing that a financial
indictment are analogous to the Jackson transaction involving the proceeds of specified
defendant's expenditures on mobile phones and unlawful activity merely promoted the carrying
rent: They were intended to support the on of unlawful activity. The provision has a
dealership's legitimate business activities and specific intent element: The government must
evince no intent to promote fraud. show that the “dirty money” transaction was
conducted “with the intent to promote the
The government insists that the carrying on of specified unlawful activity.”
expenditures did promote fraud. Its theory,
which the district court accepted, is that the This element is not satisfied by mere
transactions charged in the indictment evidence of promotion, or even knowing
promoted the ongoing and future criminal promotion, but requires evidence of
activity at SGC, despite the fact that they were intentional promotion. By contrast, §
expenditures on the basic operations of the car 1956(a)(1)(B), the moneylaundering provision
dealership, because the operation of the applicable to “concealment” transactions,
dealership was one grand scheme to defraud. requires only knowing concealment, indicating
In other words, any legitimate operating that Congress intended a stringent mens rea
expense that permitted SGC to stay in business requirement for promotion money laundering.
and maintain or increase its customer base Thus, absent some evidence that a dirty money
would also be an expenditure intended to transaction that in fact promoted specified
promote fraud, because it would ensure a unlawful activity was conducted with the
steady supply of potential victims. intent to promote such activity, a defendant
The charged transactions, the government
asserts, are akin to those in United States v. 15
The government also argues that
Coscarelli, 105 F.3d 984 (5th Cir.), vacated, Graves's reliance on Jackson is misplaced. It
111 F.3d 376 (5th Cir. 1997), reinstated, maintains that Jackson is distinguishable because
149 F.3d 342 (5th Cir. 1998), a case involving the legitimate expenditures found not to have been
telemarketing fraud. There, the defendant conducted with the intent to promote unlawful
used the proceeds of his illegal activity to pay activity were personal expenditures. Here, by
his co-conspirators and the operating expenses contrast, the charged expenditures were not for
of their scheme. Id. at 990. The government personal items. The government's only support for
maintains that the instant case is similar; this “personal versus non-personal” distinction is
the Cavalier court's offhand observation that
Graves used the funds from the fraud at SGC Jackson was “a case of a person simply using
to pay SGC's operating expenses, enabling the illegally obtained funds to purchase personal
dealership to defraud more customers. The items.” See 17 F.3d at 93. The Cavalier court did
government also relies on United States v. not establish a principle that all “non-personal”
Leonard, 61 F.3d 1181, 1186 (5th Cir. 1995), expenditures made with dirty money fall within the
in which the defendant telemarketer used his ambit of § 1956(a)(1)(A)(i).
9
may not be convicted of promotion money source.16 The fact that Congress established a
laundering under § 1956(a)(1)(A)(i). $10,000 per transaction threshold for
convictions for simply spending dirty money
This does not mean that there must always further supports our decision to read
be direct evidence, such as a statement by the § 1956(a)(1)(A)(i) to require either direct
defendant, of an intent to promote specified proof that the charged transaction was
unlawful activity. In many cases, the intent to intended to promote specified unlawful activity
promote criminal activity may be inferred from or proof of a type of transaction (such as the
the particular type of transaction. For Jackson defendant's purchase of beepers) that,
example, an intent to promote drug trafficking on its face, indicates an intent to promote such
activities could be inferred from the Jackson activity.
defendant's purchase of beepers, because Absent such proof, § 1956(a)(1)(A)(i) does
beepers were not necessary to the defendant's not permit conviction of a defendant who, like
legitimate business operations and played an Graves, deposits proceeds of some relatively
important role in his drug trafficking scheme. minor fraudulent transactions into the
operating account of an otherwise legitimate
In the case at hand, had the government business enterprise and then writes checks out
produced evidence of, say, payments for of that account for general business purposes.
postage for mailing fraudulent warranty Accordingly, we reverse Graves's money
claims, such payments might have provided laundering convictions.
evidence of an intent to promote fraud. Mere
evidence of legitimate business expenditures D.
that were necessary to support SGC's non- Because the court determined Graves's
fraudulent operations, however, was not sentence according to the sentencing
enough to establish an intent to promote fraud guidelines applicable to money laundering (not
at SGC, even though the expenditures may in fraud) offenses, our reversal of his money
fact have promoted SGC's fraudulent activities laundering convictions requires that he be
by increasing the number of potential fraud resentenced. We therefore vacate his sentence
victims. and remand for resentencing under the
guidelines applicable to fraud offenses.
We have previously stressed the importance
of not turning the “money laundering statute III.
into a 'money spending statute.'” See Leonard, Brown pleaded guilty to wire fraud
61 F.3d 1181, 1185 n.2 (quoting United States stemming from a fraudulent warranty claim.
v. Sanders, 928 F.2d 940, 946 (10th Cir. In sentencing Brown, the court increased his
1991)). Strictly adhering to the specific intent offense level by six, pursuant to U.S.S.G.
requirement of the promotion element of § 2F1.1(b)(1)(C), to account for a fraud loss
§ 1956(a)(1)(A)(i) helps ensure that the money greater than $70,000 but less than $120,000;
laundering statute will punish conduct that is the court determined that the loss totaled
really distinct from the underlying specified $75,104.18. Brown was sentenced to eighteen
unlawful activity and will not simply provide months' imprisonment and ordered to make
overzealous prosecutors with a means of restitution totaling $75,104.18.
imposing additional criminal liability any time
a defendant makes benign expenditures with
funds derived from unlawful acts.
16
See D. Randall Johnson, The Criminally
In a separate money laundering statute, Derived Property Statute: Constitutional and
18 U.S.C. § 1957(a), Congress did criminalize Interpretive Issues Raised by 18 U.S.C. § 1957,
the mere spending of “criminally derived 34 WM. & MARY L. REV. 1291, 1302 (1993)
property that is of a value greater than (discussing Sanders and noting that “[u]nlike
$10,000” with knowledge of the unlawful section 1956, section 1957 is indeed a 'money
spending statute' . . . .”).
10
After the sentencing, the government filed
a “Motion to Correct Judgment and
Commitment Order” that advised the court
that the “figure ordered for restitution to the
victim insurance companies and the individuals
is incorrect. The correct amount is lower,
$67,938.72.” The district court granted the
motion. Brown argues that lowering the
amount of restitution owed the defrauded
insurance companies and individuals moves
him out of the $70,000 to $120,000 bracket of
U.S.S.G. § 2F1.1(b)(1) and into the $40,000
to $70,000 bracket, for which only a five level
increase is required.
Brown's argument is meritless. The
$75,104.18 loss the district court found
attributable to his conduct included two
components: loss to insurance companies and
individuals, which totaled $69,548.43, and loss
to General Motors Corporation, which totaled
$5,555.75. The amendment to Brown's
judgment affected only the amount he owed in
restitution to “20 victim insurance companies
and 15 individuals.” There was no adjustment
to the amount due General Motors as
restitution. Summing the lower figure,
$67,938.72, and the amount owed General
Motors, $5,555.75, yields a total restitution of
$73,494.47SSa sum that still warrants a six-
level increase under § 2F1.1(b)(1).
Accordingly, the sentence is correct, despite
the amended amount of restitution.
For the foregoing reasons, Graves's fraud
convictions are AFFIRMED, and his money
laundering convictions are REVERSED.
Graves's sentence is VACATED and
REMANDED for resentencing according to
the sentencing guidelines applicable to fraud
offenses. Brown's sentence is AFFIRMED.
11