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No. 08-981

 

In the Supreme Court of the United States

FATHI Y.M. YUSUF, ET AL., PETITIONERS

v.

UNITED STATES OF AMERICA, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

BRIEF FOR THE UNITED STATES AND THE
GOVERNMENT OF THE VIRGIN ISLANDS
IN OPPOSITION
ELENA KAGAN
Solicitor General
Counsel of Record
JOHN DICICCO
Acting Assistant Attorney
General
ALAN HECHTKOPF
KAREN QUESNEL
S. ROBERT LYONS
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217

QUESTION PRESENTED

Whether a mail fraud scheme to defraud the United States Virgin Islands of taxes due on gross receipts, in violation of 18 U.S.C. 1341, generates "proceeds" within the meaning of 18 U.S.C. 1956(a)(2)(B)(i), the interna tional money laundering statute.

In the Supreme Court of the United States

No. 08-981

FATHI Y.M. YUSUF, ET AL., PETITIONERS

v.

UNITED STATES OF AMERICA, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

BRIEF FOR THE UNITED STATES AND THE
GOVERNMENT OF THE VIRGIN ISLANDS
IN OPPOSITION

 

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1-26) is reported at 536 F.3d 178. The opinion of the district court (Pet. App. 27-47) is unreported.

JURISDICTION

The judgment of the court of appeals was entered on June 17, 2008. A petition for rehearing was denied on September 2, 2008 (Pet. App. 52-53). On November 25, 2008, Justice Souter extended the time within which to file a petition for a writ of certiorari to and including January 30, 2009, and the petition was filed on that date. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).

STATEMENT

Petitioners, a corporation and five individuals, are charged with mail fraud, in violation of 18 U.S.C. 1341; money laundering involving the proceeds of the mail fraud, in violation of 18 U.S.C. 1956(a)(2)(B)(i); and vari ous other criminal offenses under the laws of the United States and the United States Virgin Islands (USVI). The district court entered a pre-trial order dismissing the money laundering charges. Pet. App. 27-47. The court of appeals vacated the district court order and remanded for further proceedings. Id. at 1-26.

1. Because the district court dismissed the indict ment before trial, the following facts are drawn from the allegations of the indictment. Petitioner United Corpo ration (United) is a family-owned business that operates Plaza Extra Supermarkets, a chain of three stores lo cated on St. Thomas and St. Croix in the USVI. Peti tioner Fathi Yusuf is United's primary owner. Peti tioner Maher "Mike" Yusuf, one of Fathi's sons, is a part-owner of United and manages one of the Plaza Ex tra stores. Petitioners Waheed "Willie" Hamed and Wa leed "Wally" Hamed are Fathi's nephews and manage the other two Plaza Extra stores. Petitioner Nejeh Fa thi Yusuf is a relative and also participates in the man agement of the stores. Defendant Isam "Sam" Yousuf is a fugitive and is not a party to the petition. Pet. App. 3; Pet. ii.

Because United conducts business in the USVI, it is obligated to pay to the USVI a four percent tax on its gross receipts. In particular, V.I. Code Ann. tit. 33, § 43(a) (1994) provides, in pertinent part, that "[e]very individual and every firm, corporation, and other asso ciation doing business in the [USVI] shall report their gross receipts and pay a tax of four percent (4%) on the gross receipts of such business." The Virgin Islands Code further provides that a business subject to the payment of gross receipts taxes shall file a return each month and that "[t]he returns and payments required by this subsection shall be due within 30 calendar days fol lowing the last day of the calendar month concerned." V.I. Code Ann. tit. 33, § 44(c) (Supp. 2008).

In July, 2001, the Federal Bureau of Investigation (FBI) received a suspicious activity report (SAR) from the Bank of Nova Scotia in St. Thomas reporting suspi cious financial transactions involving United. The SAR stated that, during the four-day period from April 16, 2001, through April 19, 2001, $1,920,000 in currency, in denominations of $50 and $100 bills, was deposited into United's account at the bank. The FBI commenced an investigation, which revealed that petitioners had con spired to avoid reporting $60 million of the supermar kets' gross receipts on United's monthly USVI gross receipts tax returns and had failed to pay to the Govern ment of the Virgin Islands the tax owed on the unre ported gross receipts. The investigation further re vealed that petitioners had engaged in various efforts to disguise and to conceal their illegal scheme and its pro ceeds. Pet. App. 4-5.

In September 2004, a grand jury in the USVI re turned a third superseding indictment (Indictment) charging petitioners with criminal offenses arising out of the scheme. The Indictment charges that, after the supermarkets' receipts were collected each day, the funds typically were transferred to a room called the "cash room," to which only certain individuals, including petitioners, were permitted access. In the cash room, supermarket employees counted the receipts and pre pared bank deposit slips. At petitioners' directions, em ployees withheld from deposit substantial amounts of cash received from sales, typically in denominations of $100, $50, and $20. That cash was instead delivered to one of the individual petitioners or placed in a desig nated safe in the cash room. From 1996 through 2001, tens of millions of dollars in cash was withheld from de posit in this manner and was not reported as gross re ceipts on tax returns filed by United using the United States mail. Pet. App. 4 n.2, 5, 7; Indictment para. 12.

The Indictment further alleges that petitioners en gaged in various efforts to disguise and to conceal the illegal scheme and its proceeds. For example, petition ers purchased, and directed the supermarkets' employ ees and others to purchase, cashier's checks, traveler's checks, and money orders with unreported cash, typi cally from different bank branches and made payable to individuals and entities other than petitioners, in order to disguise the cash as legitimate financial instruments. Petitioners structured the amounts of the checks and money orders to evade the legal requirement that banks keep records and file reports of cash transactions with the United States Department of the Treasury. Peti tioners then caused the checks and money orders to be deposited into foreign bank accounts controlled by the individual petitioners. Pet. App. 5 & n.3, 6 & n.6, 7-8; Indictment paras. 15-22, 35, 37.

The Indictment charges petitioners with conspiracy to commit mail fraud and to structure financial transac tions in order to evade reporting requirements, in viola tion of 18 U.S.C. 371; conspiracy to commit money laun dering, in violation of 18 U.S.C. 1956(h); mail fraud, in violation of 18 U.S.C. 1341; international money launder ing, in violation of 18 U.S.C. 1956(a)(2)(B)(i)); structur ing financial transactions to evade reporting require ments, in violation of 31 U.S.C. 5324(a)(3) and (d)(2); causing the filing of false tax returns, in violation of 26 U.S.C. 7206(2); obstruction of justice, in violation of 18 U.S.C. 1503; and various offenses in violation of USVI law. The indictment also contains an asset forfeiture allegation, pursuant to 18 U.S.C. 982, and an asset for feiture allegation pursuant to USVI law. Pet. App. 5 & n.5.

As relevant here, Counts 44 through 52 of the Indict ment allege substantive international money laundering offenses, in violation of 18 U.S.C. 1956(a)(2)(B)(i). That provision criminalizes the transportation of "a monetary instrument or funds from a place in the United States to or through a place outside the United States * * * knowing that the monetary instrument or funds involved in the transportation * * * represent the proceeds of some form of unlawful activity and knowing that such transportation * * * is designed in whole or in part * * * to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity." Ibid.1

The Indictment alleges that petitioners violated Sec tion 1956(a)(2)(B)(i) by transporting funds from the USVI to Amman, Jordan, knowing that the funds in volved the proceeds of the specified unlawful activity of mail fraud. Indictment para. 33; see 18 U.S.C. 1956(c)(7)(A) (defining "specified unlawful activity" to include offenses listed in 18 U.S.C. 1961(1)); 18 U.S.C. 1961(1) (listing the offense of mail fraud, in violation of 18 U.S.C. 1341). The indictment alleges that petitioners committed mail fraud by defrauding the USVI of gross receipts tax revenue belonging to the USVI through the mailing of false USVI tax returns that understated the amount of United's gross receipts. Indictment paras. 30-31.

2. Petitioners filed a pre-trial motion to dismiss the money laundering charges, contending that "tax sav ings" resulting from filing false returns do not "repre sent the proceeds of some form of unlawful activity" within the meaning of the money laundering statute. Pet. App. 8. The district court granted the motion. Id. at 32-34, 43. The court reasoned that the "'[p]roceeds' are something which is obtained in exchange for the sale of something else as in, most typically, when one sells a good in exchange for money." Id. at 33 (quoting United States v. Maali, 358 F. Supp. 2d 1154, 1158 (M.D. Fla. 2005), aff'd sub nom. United States v. Khanani, 502 F.3d 1281 (11th Cir. 2007)). Under that definition, the court concluded, "it is clear that the term does not con template profits or revenue indirectly derived . . . from the failure to remit taxes." Ibid. (quoting Maali, 358 F. Supp. 2d at 1160).2

The government filed a motion for reconsideration, pointing out that, even assuming the district court was correct that "tax savings" fraudulently retained by a taxpayer do not constitute "proceeds" for purposes of the money laundering statute, the indictment charges that the tax revenue at issue was deposited into non-cor porate financial accounts controlled by the individual petitioners, in whose hands, the government argued, the funds were neither "retained" nor "tax savings." See Pet. App. 49-50. The district court denied the govern ment's motion, reiterating the court's view that "[s]aving legitimately-earned money by mailing a false individual tax return does not change the nature of the money re tained to money illegally obtained for the purpose of the money laundering statute." Id. at 49.

3. The court of appeals vacated the district court's orders and remanded for further proceedings. Pet. App. 1-26. The court of appeals first observed that no one disputed that the indictment sufficiently alleges mail fraud based on the mailing of false gross receipts tax returns. Id. at 11; see Pasquantino v. United States, 544 U.S. 349, 356 (2005) (upholding wire fraud charges based on scheme to deprive Canada of its entitlement to excise taxes on imported liquor because that deprivation inflicted "an economic injury no less than had [the de fendants] embezzled the funds from the Canadian trea sury"). The court also noted that no one disputed that mail fraud may be a predicate offense for a charge of international money laundering. Pet. App. 11. "The narrow issue," the court stated, "is whether unpaid taxes unlawfully disguised and retained by means of the filing of false tax returns through the U.S. mail are 'proceeds' of mail fraud for purposes of sufficiently stating an of fense for money laundering." Id. at 12.

The court of appeals rejected the district court's view "that to qualify as 'proceeds' under the federal money laundering statute, funds must have been directly pro duced by or through a specified unlawful activity." Pet. App. 14. Instead, the court of appeals held "that funds retained as a result of the unlawful activity can be treat ed as the 'proceeds' of such crime." Ibid. The court ex plained that, although the money laundering statute does not define what constitute "proceeds" of specified unlawful activity, the statute identifies a broad array of offenses that constitute "specified unlawful activity," and those offenses include crimes that produce "pro ceeds" only if that term encompasses property that is unlawfully retained. Id. at 13. "For example," the court noted, "the fraudulent concealment of a bankruptcy es tate's assets is categorized as a "specified unlawful activ ity." Ibid. (citing 18 U.S. 152(1)). Under Section 152(1), the court stated, "property which is required to be in cluded in a bankruptcy debtor's estate but is instead undeclared, and thus retained, is 'proceeds' of a bank ruptcy fraud offense." Ibid.

Applying that understanding of the term "proceeds" to petitioners' offenses, the court of appeals held that "unpaid taxes, which are unlawfully disguised and re tained by means of the filing of false tax returns through the U.S. mail, constitute 'proceeds' of mail fraud for the purposes of supporting a charge of federal money laun dering." Pet. App. 23. The court explained that peti tioners' "fraudulent scheme was that of concealing cer tain gross receipts from the Virgin Islands government through the mailing of fraudulent tax returns in order to defraud, cheat, and deprive the government of the 4% gross receipts taxes it was owed, thus enabling [petition ers] to unlawfully retain such government property and profit from their scheme." Ibid. In the court's view, "the unpaid taxes, unlawfully disguised and retained through the mailing of the tax forms, were 'proceeds' of [petitioners'] overall scheme to defraud the govern ment." Id. at 25.

The court of appeals stressed that its conclusion was consistent with United States v. Santos, 128 S. Ct. 2020 (2008), which ruled that, in a prosecution under 18 U.S.C. 1956(a)(1)(A)(i) for laundering the "proceeds" of an illegal gambling business in violation of 18 U.S.C. 1955, "proceeds" means the profits, rather than the gross receipts, of the criminal enterprise. See Santos, 128 S. Ct. at 2026 (plurality opinion); id. at 2033 (Ste vens, J., concurring in the judgment). The court ob served that, "[b]y intentionally misrepresenting the to tal amount of Plaza Extra Supermarkets' gross receipts through the mailing of fraudulent tax returns, [petition ers] were able to secretly 'pocket' the 4% gross receipts taxes on the unreported amounts which were the prop erty of the [USVI]." Pet. App. 25. "Other than some small expenses incurred in perpetuating the mail fraud," the court explained, "the unpaid taxes retained by [peti tioners] amount to profits" of the fraud, which petition ers subsequently laundered when they sent the money abroad. Id. at 25-26.

ARGUMENT

Petitioners contend (Pet. 10-24) that their alleged mail fraud scheme to deprive the USVI of gross receipts taxes to which it was entitled did not generate "pro ceeds" that petitioners could launder in violation of 18 U.S.C. 1956(a)(2)(B)(i). That issue does not warrant this Court's review at this time.

1. The court of appeals vacated the district court's dismissal of the money laundering charges against peti tioners and remanded the case to the district court for a trial on those and other pending charges. Pet. App. 26. The court of appeals' decision is therefore interlocutory, a posture that "of itself alone furnishe[s] a sufficient ground" for the denial of certiorari. Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S. 251, 259 (1916); accord Brotherhood of Locomotive Firemen v. Bangor & Aroostook R.R., 389 U.S. 327, 328 (1967) (per curiam); American Constr. Co. v. Jacksonville, Tampa & Key W. Ry., 148 U.S. 372, 384 (1893); see also VMI v. United States, 508 U.S. 946 (1993) (opinion of Scalia, J., respect ing the denial of certiorari).

The interlocutory character of the court of appeals' decision provides a particularly sound reason for deny ing review under the circumstances of this case. Peti tioners have yet to be tried on the money laundering charges. If petitioners are ultimately acquitted follow ing a trial on the merits, the claim that they raise in their petition will be moot. Because it may prove unnec essary for this Court to address petitioners' claim, it would be premature for the Court to grant the petition.

2. Review by this Court would be premature at this time for an additional reason. Congress is currently giving serious consideration to legislation that, if en acted, would remove any possible doubt that fraudu lently retained tax revenues constitute "proceeds" under the money laundering statute. On February 5, 2009, Senator Leahy and others introduced the Fraud En forcement and Recovery Act of 2009, S. 386, 111th Cong., 1st Sess. (S. 386). See 155 Cong. Rec. S1681-S1684 (daily ed.). That bill would, among other things, define the term "proceeds" for purposes of 18 U.S.C. 1956 to mean "any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity." S. 386, § 2(f)(1)(B), at 5 (as passed by the Sen ate) (emphasis added). The bill would also expand the prohibition of the international money laundering stat ute expressly to cover transactions made "with the in tent to engage in conduct constituting a violation of sec tion 7201 or 7206 of the Internal Revenue Code of 1986," which prohibits tax evasion of the type that petitioners allegedly committed in this case. Id. § 2(g)(2), at 6.

On March 23, 2009, the Senate Judiciary Committee favorably reported the legislation. S. Rep. No. 10, 111th Cong., 1st Sess. (2009). And, on April 28, 2009, the bill was approved by the full Senate. See 155 Cong. Rec. at S4777 (daily ed.). If the legislation ultimately becomes law, any decision that this Court might render on the issue raised by petitioners would be of no continuing importance.

3. Petitioners' claim does not warrant this Court's review in any event. The court of appeals held that a mail fraud scheme that defrauds the government of tax revenue produces "proceeds" within the meaning of the international money laundering statute, 18 U.S.C. 1956(a)(2)(B)(i). As the court explained, "[p]roceeds" of mail fraud include "funds retained as a result of the un lawful activity" that the perpetrators would otherwise have paid to those entitled to the funds. Pet. App. 14.

The various opinions in United States v. Santos, 128 S. Ct. 2020 (2008), all recognized that, in ordinary usage, the word "proceeds" has two accepted definitions- (1) the total amount produced by an activity and (2) the net amount produced after the deduction of associated expenses. See id. at 2024 (plurality opinion); id. at 2031- 2032 (Stevens, J., concurring in the judgment); id. at 2036 (Alito, J., dissenting, joined by the Chief Justice and Justices Kennedy and Breyer). Under either of those definitions, "proceeds" includes money unlawfully retained as a result of a crime, as well as money unlaw fully generated by the crime. See, e.g., 12 The Oxford English Dictionary 544 (2d ed. 1989) (defining "pro ceeds" as "[t]hat which proceeds, is derived, or results from something," as well as "profit"); The Random House Dictionary of the English Language 1542 (2d ed. 1987) (defining "proceeds" as "the total amount derived from a sale or other transaction," as well as "profits or returns"); Webster's Third New International Dictio nary of the English Language 1807 (1993) (defining "proceeds" as "what is produced by or derived from something," as well as "the net profit made on some thing").

The view that "proceeds" excludes funds retained by fraud cannot be reconciled with the list of offenses des ignated as "specified unlawful activity" by the money laundering statute. 18 U.S.C. 1956(c)(7). Several of the listed offenses produce "proceeds" only if that term en compasses property that is unlawfully retained. For example, one listed "specified unlawful activity" is the fraudulent concealment of property during or in contem plation of bankruptcy. 18 U.S.C. 152. The "proceeds" of that offense are the property that the debtor unlawfully retains by hiding it from the bankruptcy court. See Pet. App. 13-14 (citing United States v. Brennan, 326 F.3d 176, 190 (3d Cir.), cert. denied, 540 U.S. 898 (2003); United States v. Ladum, 141 F.3d 1328, 1340 (9th Cir.), cert. denied, 525 U.S. 898, and 525 U.S. 1021 (1998); and United States v. Levine, 970 F.2d 681, 686 (10th Cir.), cert. denied, 506 U.S. 901 (1992)).

Petitioners argue that "[t]he property involved in bankruptcy fraud is not 'retained' by the perpetrator in the same way that most unpaid taxes are," because "[a]ll of a debtor's property belongs to the estate once the debtor files for bankruptcy, and by concealing an asset from the trustee and the court the debtor is embezzling it from the bankruptcy estate." Pet. 20. Section 152, however, expressly makes it unlawful for a debtor, "in contemplation of" filing for bankruptcy, to conceal "any of his property." 18 U.S.C. 152(7). A debtor violates that provision by unlawfully concealing and retaining his own property before it becomes property of the estate. Moreover, numerous other offenses listed as "specified unlawful activity" produce proceeds when the perpetra tor retains property (including import duties) that he technically owns but is under a legal obligation to turn over to the government. See, e.g., 18 U.S.C. 541 (effect ing the entry of goods into the United States "by the payment of less than the amount of duty legally due"); 18 U.S.C. 542 (entry of goods by false statements); 18 U.S.C. 545 (smuggling goods into the United States). Similarly, courts have recognized that mail fraud, the "specified unlawful activity" charged in this case, can generate "proceeds" by enabling the perpetrator to re tain funds that he owes to the victim of the fraud. See, e.g., United States v. Frank, 354 F.3d 910, 916-918 (8th Cir. 2004) (upholding money laundering conviction based on transactions with the proceeds of a mail fraud in which the defendant unlawfully retained a car by failing to disclose it as an asset available to satisfy a restitution order).3

The conclusion that unlawfully retained tax revenues can constitute the "proceeds" of mail fraud is also sup ported by Pasquantino v. United States, 544 U.S. 349 (2005). In Pasquantino, this Court upheld the defen dants' convictions for wire fraud based on a scheme to evade Canadian liquor importation taxes, holding that "Canada's right to uncollected excise taxes on the liquor [the defendants] imported into Canada [was] 'property' in its hands" within the meaning of the wire fraud stat ute. Id. at 355. Although the Court had no occasion to address whether the unlawfully retained taxes were "proceeds" within the meaning of the money laundering statute, the Court's reasoning supports that conclusion. The Court noted "the economic equivalence between money in hand and money legally due," id. at 356, and stated that the defendants' offense was no different than if "they used interstate wires to defraud Canada not of taxes due, but of money from the Canadian treasury," id. at 358. See id. at 356 (The defendants' "tax evasion deprived Canada of [taxes they were legally obligated to pay], inflicting an economic injury no less than had they embezzled funds from the Canadian treasury."). Indeed, Justice Ginsburg, in dissent, noted that the Court's hold ing would expose defendants who engaged in prohibited transactions with unlawfully retained taxes to penalties under the money laundering statute. Id. at 383.

4. Contrary to petitioners' contention (Pet. 10-15), the decision below is not inconsistent with this Court's decision in Santos. The issue in Santos was whether the term "proceeds" in 18 U.S.C. 1956(a)(1)(A)(i) means the gross proceeds from the underlying unlawful activity or only the profits. A majority of the Court was unable to agree on a definition of "proceeds" for general applica tion. Instead, the Court held only that, in order to es tablish a violation of 18 U.S.C. 1956(a)(1)(A)(i) based on laundering the "proceeds" of an illegal gambling busi ness in violation of 18 U.S.C. 1955, the government must establish that the alleged laundering transactions in volved the profits, rather than the gross proceeds, of the business. See Santos, 128 S. Ct. at 2026 (plurality opin ion); id. at 2033 (Stevens, J., concurring in the judg ment).

Because no opinion in Santos spoke for the majority of the Court, and none of the various opinions is a "logi cal subset of other, broader opinions," United States v. Alcan Aluminum Corp., 315 F.3d 179, 189 (2d Cir. 2003) (citation omitted), cert. denied, 540 U.S. 1103 (2004), "the only binding aspect of [the] splintered decision is its specific result," Anker Energy Corp. v. Consolidated Coal Co., 177 F.3d 161, 170 (3d Cir.), cert. denied, 528 U.S. 1003 (1999). See Nichols v. United States, 511 U.S. 738, 745-746 (1994) (noting that, in some cases, there may be "no lowest common denominator or 'narrowest grounds' that represents the Court's holding" under the analysis of Marks v. United States, 430 U.S. 188 (1977)); United States v. Brown, 553 F.3d 768, 783 (5th Cir. 2008) ("The precedential value of Santos is unclear out side of the narrow factual setting of that case."). Thus, because the charges against petitioners rest on a differ ent predicate "specified unlawful activity" (mail fraud rather than operating an illegal gambling business), Santos does not resolve the meaning of "proceeds" in this case.

Even assuming that Santos establishes that "pro ceeds" means "profits" for purposes of the money laun dering charges against petitioners, their scheme to de fraud the USVI of gross receipts taxes produced "prof its." As the court of appeals explained, "[o]ther than some small expenses incurred in perpetuating the mail fraud-i.e., the postage stamp affixed to their monthly tax return or any other preparation fees relating to the return-the unpaid taxes retained by [petitioners] amounted to profits." Pet. App. 25.

Petitioners argue (Pet. 12-13) that cases like this one present the same "merger problem" that troubled sev eral Justices in Santos-the conduct that establishes the predicate "specified unlawful activity" will virtually al ways also result in liability for money laundering. See Pet. 19-20 (arguing that the decision below "exposes any taxpayer who knowingly underreports a tax liability on a mailed or e-filed federal income tax return to potential prosecution for * * * money laundering"). That is in correct. As petitioners themselves concede, a scheme to underpay taxes "does not always require that the tax evader engage in[] transactions resembling money laun dering to complete the commission of the offense and achieve its goals." Pet. 12. Although everyone who un lawfully defrauds the government of tax revenue is likely to engage in subsequent transactions with those proceeds, those transactions will result in money laun dering in violation of 18 U.S.C. 1956 only if they are made with the intent to promote specified unlawful ac tivity or for the purpose of concealing the unlawful pro ceeds or avoiding a transaction reporting requirement. To avoid money laundering liability, therefore, all a fraud defendant must do is refrain from engaging in transactions with those purposes.

The money laundering charges against petitioners arise from actions that are entirely distinct from the conduct that constitutes the proceeds-generating of fenses of mail fraud. The mail fraud offenses are based on petitioners' mailing false tax returns to the USVI Bureau of Revenue. The money laundering charges, in contrast, are based on petitioners' transferring funds constituting unpaid tax revenue from the USVI to Jor dan for the purpose of concealing the nature, location, source, ownership, or control of the proceeds. The inter national transfers were neither part of the mail fraud scheme nor necessary for its commission.

Petitioners also err in arguing that "[t]his case pro vides a suitable opportunity for the Court to resolve at least some of the uncertainty and confusion engendered by" Santos. Pet. 10. The uncertainty created by Santos concerns when "proceeds" means the total amount pro duced by a crime and when it means the amount pro duced less expenses. This case does not present that question. Nor does it present an opportunity to shed any light on the answer to that question because, as dis cussed above, under either definition, "proceeds" in cludes money unlawfully retained, as well as money un lawfully generated, as the result of a crime. In any event, it would be premature for the Court to revisit the issue in Santos at this time because that issue would, like the issue actually presented in this case, be resolved if Congress enacts the pending legislation that ad dresses that issue.

5. Petitioners also contend (Pet. 15-23) that the Court should grant review to resolve a conflict between the decision below and United States v. Khanani, 502 F.3d 1281 (11th Cir. 2007). Although there is a narrow conflict between the two cases, this Court's resolution of the conflict is not warranted at this time.4

In Khanani, the defendants, who ran clothing busi nesses, employed aliens who were not authorized to work in the United States, paid the aliens with un declared sales revenue, failed to pay them overtime wages, and failed to pay employment taxes to the gov ernment. 502 F.3d at 1296. The defendants were charged with, inter alia, encouraging and inducing unauthorized aliens to reside in the United States and conspiracy to conceal, harbor, and shield those aliens (8 U.S.C. 1324(a)(1)(A)(iii) and (iv)); mail and wire fraud based upon the mailing and wiring of false tax returns (18 U.S.C. 1341 and 1343); and conspiracy to launder the proceeds of the immigration and the mail and wire fraud offenses (18 U.S.C. 1956(h)). Khanani, 502 F.3d at 1286. The laundered "proceeds" were identified as both the "tax" savings derived from the mail and wire fraud and the "labor cost savings" derived from the immigration offenses. Id. at 1296. The district court granted a post- verdict judgment of acquittal on the money laundering charge, and the court of appeals affirmed, relying largely on the district court's reasoning.

The court of appeals agreed "with the district court that 'it is clear that the term ["proceeds"] does not con template profits or revenue indirectly derived from labor or from the failure to remit taxes.'" Khanani, 502 F.3d at 1296 (quoting United States v. Maali, 358 F. Supp. 2d 1154, 1160 (M.D. Fla. 2005), aff'd sub nom. United States v. Khanani, 502 F.3d 1281 (11th Cir. 2007)) (brackets in original). The court of appeals, con tinuing to quote the district court, explained that, "[w]hile it is natural and clearly correct to say that the Defendants received 'proceeds' from the sale of jeans, it is, by contrast, both causally tenuous and decidedly un natural to say that the moneys one has received from the sale of a good are, not the 'proceeds' from the sale of a good, but 'proceeds' of the labor used to produce the good." Ibid. (quoting Maali, 358 F. Supp. 2d at 1160).

Khanani and the decision below are in conflict on the question whether tax revenues unlawfully retained as the result of a mail fraud scheme qualify as "proceeds" under the money laundering statute. Nonetheless, as the quoted excerpts from the Khanani opinion reveal, that issue was not the principal focus of the Eleventh Circuit's analysis in Khanani. Rather, its principal fo cus was whether "cost savings" derived from paying unauthorized aliens less than authorized workers qualify as "proceeds," particularly in light of the attenuated causal connection between the violation and the mone tary gain. Because the jury's general verdict finding the defendants guilty of conspiracy to commit money laun dering could have rested either on the "cost savings" theory or the unlawfully-retained-taxes theory, reversal would have been required even if the tax theory were valid, unless the error was harmless beyond a reason able doubt. See Yates v. United States, 354 U.S. 298, 312 (1957); Hedgepeth v. Pulido, 129 S. Ct. 530 (2008) (per curiam). It is thus unclear how closely the court of appeals focused on the validity of the unlawfully- retained-taxes theory.

Moreover, the Eleventh Circuit in Khanani did not conduct its own analysis of the money laundering stat ute, and thus did not consider how its result could be reconciled with the statute's list of "specified unlawful activit[ies]," but instead relied almost exclusively on the reasoning of the district court. Nor did the court of ap peals consider the impact of Pasquantino or have the benefit of the well-reasoned decision of the Third Circuit in this case. Because the Eleventh Circuit may there fore be willing to reconsider the retained-taxes compo nent of its holding in Khanani, and because only two courts of appeals have squarely addressed the issue, this Court's resolution of the issue is not warranted at this time. Review at this time is particularly unwarranted because the narrow disagreement among the circuits may be deprived of any ongoing significance by the leg islation pending in Congress.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

ELENA KAGAN
Solicitor General
JOHN DICICCO
Acting Assistant Attorney
General
ALAN HECHTKOPF
KAREN QUESNEL
S. ROBERT LYONS
Attorneys

MAY 2009

1 Count 2 of the Indictment alleges a conspiracy to commit the of fenses charged in Counts 44-52, in violation of 18 U.S.C. 1956(h), which criminalizes conspiring to commit any substantive offense defined in Section 1956. Indictment para. 28. Paragraphs 66 through 71 of the In dictment allege that proceeds of the money laundering offenses should be forfeited to the United States under 18 U.S.C. 982. Because both the district court and the court of appeals determined that the validity of those charges depends on the validity of the substantive money laun dering charges, Pet. App. 8, 34, 41, the government does not discuss the money laundering conspiracy and forfeiture charges independently in this brief.

2 For the same reason, the district court also dismissed the charge of conspiracy to commit money laundering, struck from two structuring counts the sentence-enhancing allegations grounded upon money laun dering, and dismissed the paragraphs of a criminal forfeiture allegation which were grounded upon money laundering. Pet. App. 33, 41, 43. As discussed in note 1, supra, because the lower courts viewed those charges as dependent on the validity of the substantive money laun dering charges, this brief does not independently address their validity.

3 Even if there were merit to petitioners' argument that unlawfully retained property can constitute proceeds only if it belongs to someone other than the defendant, the argument would not assist the individual petitioners. As the Indictment alleges, the proceeds here are corporate funds constituting unpaid corporate gross receipts taxes, which funds were transferred from the corporation into financial accounts con trolled, in various combinations, by the individual petitioners.

4 Petitioners also assert (Pet. 10, 17-18) that the decision below is in consistent with the position taken by the government more than 15 years ago in United States v. Smith, No. 92-1612, 1993 WL 346875 (5th Cir. Aug. 11, 1993) (3 F.3d 436 (Table)). In Smith, the United States conceded that a mail and wire fraud scheme to deprive the federal gov ernment of income taxes did not generate clearly identifiable "pro ceeds" within the meaning of the money laundering statute. Gov't Br. at 27, Smith, supra (No. 92-1612). Nevertheless, the government has pursued prosecutions under the theory endorsed by the court below since at least 1997. See, e.g., United States v. Fountain, 357 F.3d 250 (2d Cir. 2004), cert. denied, 544 U.S. 1017 (2005); United States v. Tra pilo, 130 F.3d 547, 553 (2d Cir. 1997), cert. denied, 525 U.S. 812 (1998); United States v. Miller, 26 F. Supp. 2d 415, 429 (N.D.N.Y. 1998). The government's policy on the appropriateness of basing mail and wire fraud charges on tax evasion schemes, and of bringing money launder ing charges based on transactions involving the proceeds of such fraud, has changed since the government filed its brief in Smith. Compare, e.g., United States Attorneys' Manual § 6-4.210 (Sept. 2007) with United States Attorneys' Manual § 6-4.211(1) (July 1, 1992). And this Court's decision in Pasquantino confirms the validity of the theory of prosecution in this case. See Pasquantino, 544 U.S. at 354-358 (citing Trapilo).