I’m a criminal, but you can’t prove I made a profit

Can you be convicted of money laundering if the government can’t prove you made a profit? That’s the question the Supreme Court faces in United States v. Santos (pdf) when it comes into session in October.

Efrain Santos was convicted of running an illegal gambling operation and money laundering. He was sentenced to 60 months in prison on the gambling charges and 210 months for money laundering.

The money laundering charges stem from Santos’ use of the money from the gambling operations to pay the people who helped run it, including Benedicto Diaz (who is also a party to the case).

The central question in the case is what the word “proceeds” means. Is it the gross revenue (all the money taken in by the gambling operation) or the net income (all the money taken in minus expenses)? The district court decided that given the statute’s ambiguity, it should be interpreted as net income and vacated the money laundering convictions.

Proving profits could be challenging for prosecutors. From the decision of the appeals court of the Seventh Circuit (pdf), which upheld the district court decision:

The government contends that serious evidentiary problems result from interpreting proceeds to mean net income. Sure enough, criminals do not always keep ready records of their dealings, and, when they do, the line between the payment of expenses and reinvestment of net income is, generally speaking, murky, especially given the likely absence of accounting standards.

If the Supreme Court upholds the Seventh Circuit decision, maybe some of the accountants from Arthur Andersen can help develop the accounting standards for crooks.

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About Rakesh Agrawal

Rakesh Agrawal is CEO of redesign | mobile. Previously, he launched local and mobile products for Microsoft and AOL. His personal blog is at http://blog.agrawals.org and tweets at @rakeshlobster.
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