United States v. Rivera-Izquierdo: money laundering and the $10,000 requirement
25 Apr 2017

Stefan Cassella of Asset Forfeiture Law, LLC comments on US v. Rivera-Izquierdo, which affirms that proceeds remain proceeds as they change form; when fraud proceeds are used to gamble, the gambling winnings become “proceeds” for purposes of money laundering under Section 1957. Where the defendant is not the person who committed the underlying fraud, his knowledge that the money he used to conduct a financial transaction was criminal proceeds may be established by circumstantial evidence.


[United States v. Rivera-Izquierdo, ___ F.3d ___, 2017 WL 876258 (1st Cir. Mar. 6, 2017).]


Defendant’s step-daughter ran a $2.5 million fraud scheme, used the money to feed her gambling habit, and gave some of her gambling winnings to Defendant, who used the money to buy two cars. Defendant was convicted of two counts of money laundering under 18 U.S.C. § 1957 and appealed.

Defendant challenged his conviction on several grounds. First, he argued that he did not violate Section 1957 because the 11 money that he used to buy the cars was his step-daughter’s gambling winnings, not the proceeds of her fraud. But the court held that the Government did not need to prove that Defendant’s transaction involved the actual fraud proceeds; rather, it was sufficient to show that the money Defendant used to buy the cars was “derived from” the fraud proceeds. Because the evidence was overwhelming that the step-daughter generated her gambling winnings exclusively from the funds that she took by fraud, the Government met its burden.

Defendant also argued that the district court gave the jury the wrong instruction when it defined “proceeds” to mean “gross receipts,” not net profits. The instruction tracked the definition of “proceeds” in Section 1956(c)(9), but as Defendant pointed out, his offense occurred prior to the enactment of that statute in May 2009. Thus, in Defendant’s view, the court should have defined “proceeds” as net profits in accordance with the Supreme Court’s decision in Santos.

The panel held, however, that even if Defendant was correct that Santos applied in this case, it would have made no difference. Because the underlying fraud scheme had few expenses, the court said, virtually all of the money the step-daughter obtained from the scheme would have been net profits. Thus, the court’s error in giving the wrong jury instruction did not affect the outcome of the case.

Finally, Defendant argued that even if the evidence was sufficient to show that the money involved in his financial transactions was fraud proceeds, there was no evidence that he knew it. To the contrary, he said, the evidence was only that he knew the money came from this step-daughter’s gambling habit. But the court did not agree.

Knowledge of the illegal source of the money involved in a money laundering transaction may be shown by circumstantial evidence. Here, there was evidence that Defendant knew that his step-daughter had no source of income aside from the fraud offense that she could have used to fund her gambling venture. Among other things, that evidence included the family relationship between Defendant and his stepdaughter, and his participation in her scheme in that he recruited new victims, pressured them to engage in the fraudulent transactions, and threatened those who complained.

So the court affirmed the convictions on both money laundering counts.


Comment: The principal holding in this case is straightforward and unremarkable: proceeds remain proceeds even as they change form; so the conversion of fraud proceeds to gambling winnings did not break the link between the fraud offense, which was the “specified unlawful activity,” and the Section 1957 violation. Other cases holding the same thing are collected in Section VIII.G of the Money Laundering Case Outline.

Of course, the case could have been more complicated (and hence more interesting) if there had been evidence that the stepdaughter had commingled funds from an unknown source with her fraud proceeds when she gambled. If that had been the case, the court would have had to address the conflicting case law regarding the tracing rules that apply when the Government has to show that at least $10,000 in SUA proceeds were involved in the alleged § 1957 transaction.

The parties evidently did brief that issue, because the court cited several of the cases 12 holding that strict tracing is not required as well as the Ninth Circuit’s contrary decision giving the defendant the benefit of the doubt when the transaction involves at least $10,000 in commingled untainted funds. Compare, United States v. Rutgard, 116 F.3d 1270, 1292 (9th Cir. 1997) with United States v. Johnson, 971 F.2d 562, 570 (10th Cir. 1992), United States v. Sokolow, 91 F.3d 396, 409 (3d Cir. 1996) and United States v. Moore, 27 F.3d 969, 976-77 (4th Cir. 1994).

The court did not feel it necessary to take sides on that issue, however, because in its view, there was no evidence that any untainted funds had been commingled at any stage in the process. All of the cases on both sides of the issue are collected in Section XVI.E of the Money Laundering Case Outline.

Stefan Cassella, Asset Forfeiture Law, LLC 


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