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 _______________
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.