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4th Cir.: Commission payments essential to illegal activity is not money laundering

May 20, 2013 4th Cir.: Commission payments essential to illegal activity is not money laundering

When commission payments are essential expenses of illegal activity, the payments of such commissions does not constitute money laundering. U.S. v. Abdulwahab, ___ F.3d ___ (4th Cir., April 29, 2013), slip op. at 17.

The main reasoning of Abdulwahab follows:

Abdulwahab’s case creates a merger problem very similar to that present in Cloud. The money laundering counts at issue concerned commission payments to HIC sales agent Tim Bromseth. These payments, like those in Cloud, were for services that played a critical role in the underlying fraud scheme in that it was the promise of payment for services rendered that enticed HIC and Bromseth to obtain investors for A&O. As such, Abdulwahab was no different than “the felonwho uses the stolen money to pay for the rented getaway car or “the initial recipient of the wealth” in “any wealth-acquiring crime with multiple participants . . . [who] gives his confederates their shares.” Id. at 404 (quoting Santos, 553 U.S. at 516). Unlike the transactions in Halstead, the commission payments were essential expenses of the illegal activity. Thus, the merger problem we identified in Cloud arises in this case as well, and, following Cloud, we correct it by defining “proceeds” as “net profits.” See id.at 409. Under this definition, while payment of the commissions may have constituted evidence of the fraud underlying the money laundering charges, the payments did not constitute money laundering. We therefore hold that the district court erred in rejecting Abdulwahab’s contrary argument and denying his motion for judgment of acquittal as to those counts.8

Abdulwahab, slip op. at 17.

The above-referenced footnote 8 in Abdulwahab’s says:

After the Supreme Court decided Santos, Congress amended the money-laundering statute to specifically define “proceeds” as “any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity.” Fraud Enforcement and Regulatory Act of 2009, Pub. L. No. 111—21, § 2(f)(1), 123 Stat. 1617, 1618 (2009) (codified at 18 U.S.C. § 1956(c)(9)). With “proceeds” now specifically defined, the issue we address today should not recur in many future cases. See Cloud, 680 F.3d at 409 n.6.

Abdulwahab, slip op. at 17, n.8.

ADDENDUM: The closest I ever came to being a cop was my year before law school as a financial auditor at a large Wall Street commercial bank. Early on, among our duties, we were taught to monitor for violations of the money laundering laws, by verifying that IRS Form 8300 had been properly filed for cash transactions over $10,000, and that multiple deposits by the same customer were not being used to circumvent the money laundering laws. Later on, one of my department’s vice presidents, a very colorful man, did a training presentation on money laundering, and spoke of the law’s focus on drugs, which I felt was a waste of time and resources for the criminal law to focus on. It was 1985, in the midst of Nancy Reagan’s oversimplified “Just Say No to Drugs” campaign (easier for many to say about cocaine and heroin, but how about valuum and percodan?).

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