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
so, Graves neither undid the deals nor advised
GMAC of what Anderson had done. Thus,
there was direct evidence that Graves,
knowing a loan had been fraudulently induced,
withheld material information.
Given that (1) any astute businessman
would know cash for gas was wrong, and
(2) the evidence showed Graves's dishonesty
and lack of candor on particular cash-for-gas
transactions that he undoubtedly knew to be
fraudulent, the jury could have rationally
concluded, beyond a reasonable doubt, that
Graves knew cash for gas financing was
generally fraudulent. Hence, we affirm his
fraud convictions on counts stemming from
cash-for-gas financing.
C.
Each money laundering count on which
Graves was indicted was charged under
18 U.S.C. § 1956(a)(1)(A)(i), which reads, in
part:
(A) Whoever, knowing that the
propert y 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
unlawful activity, (3) with the intent to
(i) with the intent to promote promote or further unlawful activity.” United
the carrying on of specified States v. Cavalier, 17 F.3d 90, 92 (5th Cir.
unlawful activity; . . . .10 1994) (citations and internal quotations
omitted). Graves asserts that there was
To obt ain a conviction under insufficient evidence to establish that the
§ 1956(a)(1)(A)(i), the government must charged money laundering transactions were
prove beyond a reasonable doubt “[t]hat the intended to promote any fraud committed at
defendant (1) conducted or attempted to SGC.11 We agree.
conduct a financial transaction, (2) which the
defendant knew involved the proceeds of
11
The money laundering statute
proscribes, in separate provisions, “promotion” and
10
Subsequently, the money laundering “concealment” transactions. All the money
statute defines “specified unlawful activity” to laundering counts against Graves charged him with
include mail and wire fraud. See 18 U.S.C. violating § 1956(a)(1)(A)(i), which proscribes the
§§ 1956(c)(7)(A), 1961(1). (continued...)
7
The transactions the indictment charged as there was no evidence that the payment of
money laundering consisted of expenditures, those checks was intended to promote any
paid by checks written by SGC, that allegedly fraud at SGC; the checks were simply
promoted the fraud.12 Graves contendsthat legitimate business expenses of the dealership.
Indeed, a review of the checks indicates that
they were for “above board” expenses.13
Graves argues that such expenditures are not
(...continued) the sort of crime-promoting transactions
use of criminally derived funds “with the intent to criminalized by § 1956(a)(1)(A)(i), for the
promote” specified unlawful
activities. Graves was not charged with promotion element requires some identifiable
undertaking transactions aimed at “concealing” and affirmative advancement of the specified
criminally derived funds, which is a violation of criminal activity. In support of this claim, he
§ 1956(a)(1)(B). points to a number of cases involving
“promotion” money laundering in which the
12
The government, in selecting financial court highlighted how the expenditures
transactions to fulfill the actus reus requirement of explicitly furthered specified unlawful
the money laundering charges, picked benign activity.14 He then contrasts those cases to the
business expendituresSSpurchases of goods and case at hand, in which the nexus between the
services charged expenditures and any fraud activity is
necessary to maintain SGC's legitimate business
operations. It did not have to do so. Courts have
held that a promotion money laundering offense
may occur when a defendant receives and deposits (...continued)
criminally derived funds, in which case the deposit minimal or incidental to the underlying crime . . .”).
of the funds is the transaction intended to promote Having chosen to prosecute Graves for spending
the specified unlawful activity. See, e.g., United (not merely depositing) dirty money, the
States v. Montoya, 945 F.2d 1068, 1076 (9th Cir. government was required to show that the
1991). But the government chose not to indict expenditures were conducted with an “intent to
Graves for depositing the proceeds of fraud. promote” SGC's fraudulent activity.
Instead, it made a strategic decision to focus on 13
SGC's spending transactions (i.e., the checks the The allegedly laundered funds paid for
dealership wrote), not on SGC's depositing of (1) parts, paints, and materials; (2) the floor plan,
funds, perhaps because “receipt and deposit” cars that had been traded in, floor plan interest, and
money laundering prosecutions are disfavored. a charge back; (3) software support and office
supplies; (4) conversions; (5) used cars;
Such prosecutions have been criticized because (6) disposal of waste oil and used oil filters;
the harm of the money laundering transaction (i.e., (7) t-shirts, caps, coffee mugs; (8) yearbook
the deposit) is not significantly greater than that of advertisements; (9) a computer system lease; (10)
the underlying offense. See REPORT FOR THE advertising representation; (11) Graves's travel
SENATE AND HOUSE JUDICIARY COMMITTEE ON expenses; (12) extended warranties on used
THE CHARGING AND PLEA PRACTICES OF FEDERAL automobiles; (13) glass replacement; (14)
PROSECUTORS WITH RESPECT TO THE OFFENSE OF automobile association membership fees; (15)
MONEY LAUNDERING 8-9 (1996) (report issued by photocopier supplies; and (16) a health plan.
the Department of Justice pursuant to Pub.
14
L. 104-38, 109 Stat. 334 (1995)). Indeed, the See, e.g., United States v. Nattier, 127
Department of Justice issued a Blue Sheet to F.3d 655 (8th Cir. 1997), cert. denied, 523 U.S.
chapter 9-105.000 of the U.S. Attorney's Manual 1065 (1998) (checks paid for real estate that
requiring consultation by a U.S. Attorney's Office promoted the specified embezzlement scheme);
with the Department before a receipt and deposit United States v. Johnson, 971 F.2d 562 (10th Cir.
case may be prosecuted. Id. at 13-14. See also 1992) (checks paid for office where defendant
United States v. Woods, 159 F.3d 1132, 1135 (8th conducted the fraud and luxury car that defendant
Cir. 1998) (quoting 1996 DOJ Report to the effect used to impress investors); United States v.
that money laundering statutes “should not be used Hildebrand, 152 F.3d 756, 762-63 (8th Cir.) (in
in cases where the money laundering activity is solicitation fraud, checks used to pay solicitors),
(continued...) cert. denied, 119 S. Ct. 575 (1998).
8
non-existent or weak. promote fraud, because it would ensure a
steady supply of potential victims.
Graves also points to United States v.
Jackson, 935 F.2d 832 (7th Cir. 1991), in The charged transactions, the government
which the defendant, who was both a preacher asserts, are akin to those in United States v.
and drug dealer, deposited drug proceeds into Coscarelli, 105 F.3d 984 (5th Cir.), vacated,
his church's checking account. From the 111 F.3d 376 (5th Cir. 1997), reinstated,
church account, he wrote checks to pay for 149 F.3d 342 (5th Cir. 1998), a case involving
beepers, mobile phones, and rent; he also telemarketing fraud. There, the defendant
wrote some checks for cash. See id. at 841. used the proceeds of his illegal activity to pay
The defendant's drug runners used the beepers his co-conspirators and the operating expenses
to communicate with each other, and the court of their scheme. Id. at 990. The government
therefore held that the beeper purchases were maintains that the instant case is similar;
intended to promote the specified unlawful Graves used the funds from the fraud at SGC
conduct. Id. The checks for mobile phones, to pay SGC's operating expenses, enabling the
rent, and cash, however, did not promote the dealership to defraud more customers. The
criminal activity and thus did not constitute government also relies on United States v.
money laundering. Id. The court explained: Leonard, 61 F.3d 1181, 1186 (5th Cir. 1995),
in which the defendant telemarketer used his
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
dealership's legitimate business activities and
evince no intent to promote fraud. 15
The government also argues that
Graves's reliance on Jackson is misplaced. It
The government insists that the maintains that Jackson is distinguishable because
expenditures did promote fraud. Its theory, the legitimate expenditures found not to have been
which the district court accepted, is that the conducted with the intent to promote unlawful
transactions charged in the indictment activity were personal expenditures. Here, by
promoted the ongoing and future criminal contrast, the charged expenditures were not for
activity at SGC, despite the fact that they were personal items. The government's only support for
expenditures on the basic operations of the car this “personal versus non-personal” distinction is
the Cavalier court's offhand observation that
dealership, because the operation of the Jackson was “a case of a person simply using
dealership was one grand scheme to defraud. illegally obtained funds to purchase personal
In other words, any legitimate operating items.” See 17 F.3d at 93. The Cavalier court did
expense that permitted SGC to stay in business not establish a principle that all “non-personal”
and maintain or increase its customer base expenditures made with dirty money fall within the
would also be an expenditure intended to ambit of § 1956(a)(1)(A)(i).
9
on of unlawful activity. The provision has a
specific intent element: The government must This element is not satisfied by mere
show that the “dirty money” transaction was evidence of promotion, or even knowing
conducted “with the intent to promote the promotion, but requires evidence of
carrying on of specified unlawful activity.” intentional promotion. By contrast, §
1956(a)(1)(B), the money laundering provision
applicable to “concealment” transactions,
requires only knowing concealment, indicating
that Congress intended a stringent mens rea
requirement for promotion money laundering.
Thus, absent some evidence that a dirty money
transaction that in fact promoted specified
unlawful activity was conducted with the
intent to promote such activity, a defendant
may not be convicted of promotion money
laundering under § 1956(a)(1)(A)(i).
This does not mean that there must always
be direct evidence, such as a statement by the
defendant, of an intent to promote specified
unlawful activity. In many cases, the intent to
promote criminal activity may be inferred from
the particular type of transaction. For
example, an intent to promote drug trafficking
activities could be inferred from the Jackson
defendant's purchase of beepers, because
beepers were not necessary to the defendant's
legitimate business operations and played an
important role in his drug trafficking scheme.
In the case at hand, had the government
produced evidence of, say, payments for
postage for mailing fraudulent warranty
claims, such payments might have provided
evidence of an intent to promote fraud. Mere
evidence of legitimate business expenditures
that were necessary to support SGC's non-
fraudulent operations, however, was not
enough to establish an intent to promote fraud
at SGC, even though the expenditures may in
fact have promoted SGC's fraudulent activities
by increasing the number of potential fraud
victims.
We have previously stressed the importance
of not turning the “money laundering statute
into a 'money spending statute.'” See Leonard,
61 F.3d 1181, 1185 n.2 (quoting United States
v. Sanders, 928 F.2d 940, 946 (10th Cir.
1991)). Strictly adhering to the specific intent
requirement of the promotion element of
§ 1956(a)(1)(A)(i) helps ensure that the money
10
laundering statute will punish conduct that is III.
really distinct from the underlying specified Brown pleaded guilty to wire fraud
unlawful activity and will not simply provide stemming from a fraudulent warranty claim.
overzealous prosecutors with a means of In sentencing Brown, the court increased his
imposing additional criminal liability any time offense level by six, pursuant to U.S.S.G.
a defendant makes benign expenditures with § 2F1.1(b)(1)(C), to account for a fraud loss
funds derived from unlawful acts. greater than $70,000 but less than $120,000;
the court determined that the loss totaled
In a separate money laundering statute, $75,104.18. Brown was sentenced to eighteen
18 U.S.C. § 1957(a), Congress did criminalize months' imprisonment and ordered to make
the mere spending of “criminally derived restitution totaling $75,104.18.
property that is of a value greater than
$10,000” with knowledge of the unlawful After the sentencing, the government filed
source.16 The fact that Congress established a a “Motion to Correct Judgment and
$10,000 per transaction threshold for Commitment Order” that advised the court
convictions for simply spending dirty money that the “figure ordered for restitution to the
further supports our decision to read victim insurance companies and the individuals
§ 1956(a)(1)(A)(i) to require either direct is incorrect. The correct amount is lower,
proof that the charged transaction was $67,938.72.” The district court granted the
intended to promote specified unlawful activity motion. Brown argues that lowering the
or proof of a type of transaction (such as the amount of restitution owed the defrauded
Jackson defendant's purchase of beepers) that, insurance companies and individuals moves
on its face, indicates an intent to promote such him out of the $70,000 to $120,000 bracket of
activity. U.S.S.G. § 2F1.1(b)(1) and into the $40,000
Absent such proof, § 1956(a)(1)(A)(i) does to $70,000 bracket, for which only a five level
not permit conviction of a defendant who, like increase is required.
Graves, deposits proceeds of some relatively
minor fraudulent transactions into the Brown's argument is meritless. The
operating account of an otherwise legitimate $75,104.18 loss the district court found
business enterprise and then writes checks out attributable to his conduct included two
of that account for general business purposes. components: loss to insurance companies and
Accordingly, we reverse Graves's money individuals, which totaled $69,548.43, and loss
laundering convictions. to General Motors Corporation, which totaled
$5,555.75. The amendment to Brown's
D. judgment affected only the amount he owed in
Because the court determined Graves's restitution to “20 victim insurance companies
sentence according to the sentencing and 15 individuals.” There was no adjustment
guidelines applicable to money laundering (not to the amount due General Motors as
fraud) offenses, our reversal of his money restitution. Summing the lower figure,
laundering convictions requires that he be $67,938.72, and the amount owed General
resentenced. We therefore vacate his sentence Motors, $5,555.75, yields a total restitution of
and remand for resentencing under the $73,494.47SSa sum that still warrants a six-
guidelines applicable to fraud offenses. level increase under § 2F1.1(b)(1).
Accordingly, the sentence is correct, despite
the amended amount of restitution.
16
See D. Randall Johnson, The Criminally
Derived Property Statute: Constitutional and For the foregoing reasons, Graves's fraud
Interpretive Issues Raised by 18 U.S.C. § 1957, convictions are AFFIRMED, and his money
34 WM. & MARY L. REV. 1291, 1302 (1993) laundering convictions are REVERSED.
(discussing Sanders and noting that “[u]nlike Graves's sentence is VACATED and
section 1956, section 1957 is indeed a 'money REMANDED for resentencing according to
spending statute' . . . .”). the sentencing guidelines applicable to fraud
11
offenses. Brown's sentence is AFFIRMED.
12