Court Rules Against DOJ on Money Laundering

[The Judge]

By DAVID STOUT
Published: June 2, 2008

WASHINGTON — Humberto Fidel Regalado Cuellar may have been up to no good when he was pulled over in South Texas for driving erratically on July 14, 2004, but he was not guilty of “money-laundering,” the Supreme Court said on Monday in a ruling that could hamper federal prosecutors in illicit-money cases.

The court unanimously overturned the conviction of Mr. Cuellar, who was sentenced to six and a half years in prison after being found guilty under the 1986 federal Money Laundering Control Act. The Cuellar case was one of two Supreme Court rulings involving money-laundering that went against the government on Monday. The other, a 5-to-4 decision involving an illegal lottery, said that money-laundering refers to profits of an illicit operation, not the operation’s gross receipts.

Writing for the court, Justice Clarence Thomas said Mr. Cuellar’s conviction had to be overturned because the applicable section of the 1986 law required that Mr. Cuellar knew that the purpose — not merely the effect — of his transporting the money was to conceal or disguise its illicit nature.

Although Justice Thomas did not explicitly say so, the circumstances of Mr. Cuellar’s arrest suggest that he may not have been capable of contemplating the finer points of intent, cause and effect.

The defendant was pulled over near Eldorado for driving conspicuously below the speed limit. He avoided eye contact with troopers and even though he claimed to be on a three-day business trip, he was carrying no luggage, testimony revealed. The troopers’ suspicions were further aroused when one of them observed Mr. Cuellar “standing on the side of the road making the sign of the cross, which he interpreted to mean that petitioner knew he was in trouble,” Justice Thomas recounted.

Indeed, Mr. Cuellar was in trouble, because a wad of cash in his shirt pocket smelled of marijuana. Nor was that all. A drug-sniffing dog was attracted by something at the rear of Mr. Cuellar’s car. “Further scrutiny uncovered a secret compartment under the rear floorboard, and inside the compartment the officers found approximately $81,000 in cash,” Justice Thomas wrote. “The money was bundled in plastic bags and duct tape, and animal hair was spread in the rear of the vehicle.”

Seeking to explain away the animal hair, Mr. Cuellar said it must have been left there when some goats were transported not long before. But the troopers were suspicious of the goat-hauling story (Mr. Cuellar was driving a Volkswagen Beetle, after all) and figured that the hair had been put there to mask the smell of marijuana.

After telling various conflicting stories, Mr. Cuellar remarked that he was supposed to have the car in Mexico by midnight, or his family would be “floating down the river.”

Mr. Cuellar was convicted in Federal District Court of “attempting to transport the proceeds of unlawful activity across the border, knowing that the transportation was designed ‘to conceal or disguise the nature, the location, the source, the ownership, or the control’ of the money.” The United States Court of Appeals for the Fifth Circuit, in New Orleans, upheld the conviction.

But in ruling that the conviction could not stand, the Supreme Court said on Monday: “Although the evidence showed intent to avoid detection while driving the funds to Mexico, it did not show that petitioner intended to create the appearance of legitimate wealth, and accordingly no rational trier of fact could have found petitioner guilty.”

Although the justices did not agree with every point raised by Mr. Cuellar’s lawyers, the ruling was a defeat for the government, which has interpreted the 1986 law broadly and used it to gain nearly 1,000 convictions in 2006.

In the other money-laundering case decided on Monday, involving the illegal lottery, the court’s ruling that “money-laundering” refers to the “criminal profits” of an illegal operation, not its receipts, was good news for Efrain Santos and Benedicto Diaz, whose convictions had been overturned by a federal appeals court in Chicago in a judgment the high court affirmed.

Monday’s decisions “significantly raise the bar for prosecutors to prove money-laundering charges, since mere concealment of funds is not sufficient proof of money-laundering and prosecutors can no longer exploit ambiguities in the statute to charge that any use of unlawful ‘proceeds’ constitutes a crime,” said Jeffrey T. Green, a Washington lawyer who specializes in white-collar crime.

Government lawyers were doubtless disappointed by Monday’s rulings, but they were probably not completely surprised, since several justices were skeptical of the government’s broad definition of “money-laundering” when the Cuellar case was argued on Feb. 25.

For instance, Justice Ruth Bader Ginsburg observed, “On the government’s theory, anyone who transports hidden money to get it out of the country, who drives the car, just the driver, is a money- launderer.”

And when a government lawyer said that putting money in a suitcase in a car’s trunk might be evidence of a “design to conceal,” Chief Justice John G. Roberts Jr. said, “When I use a suitcase, I’m using it to carry my clothes, not to conceal them.”