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The Fourth Circuit Holds That Money Laundering Only Applies To The Profits Of A Crime, Not The Expenses

William Cloud believed in the American dream of home ownership. He worked to make buying a home easy for people in his community.

He wanted to make buying a house easy, even if it would be the second or third house that a person would own.

1389529_house.jpgTo make sure the houses he was helping people buy were up to snuff, he’d buy them first and do some work on them. He’d then sell them – or, using the government’s language – he’d “flip” them to the people he was helping to become real estate investors.

He made money on each sale, because, of course, a man has to eat. And he didn’t disclose these payments to himself because it didn’t want to cloud his good works with the ugly taint of money.

Also, he knew that people could buy more houses if their credit was good. So, he’d work with people to purchase a number of houses quickly, so that they only had to use the one credit report for the series of mortgages. That way, the first house wouldn’t show up on the credit report for the second or third house.

Unfortunately, like so many of us in this modern life, Mr. Cloud spread himself too thin. He was available to help folks get into the houses, but wasn’t able to make the time to help his neighbors pay their mortgages.

Many of the homes were foreclosed on.

The government, immune to the pull of Mr. Cloud’s good works, indicted him for mortgage fraud and money laundering.

Mortgage fraud, because Mr. Cloud told a number of people to make false statements on mortgage applications and also, uh, helped them make those false statements.

Money laundering because Mr. Cloud paid a number of people to help him with this home ownership vision – he paid people to find others to buy houses and facilitate real estate closings.

A jury convicted Mr. Cloud.

In United States v. Cloud, the Fourth Circuit reversed his money laundering conviction.

Money laundering is, generally, when a person take the profits from a crime and cleans them up by transferring the money.

However, the money has be profits from a crime. As the Supreme Court explained in United States v. Santos [FN1]:

Few crimes are entirely free of cost, and costs are not always paid in advance. Anyone who pays for the costs of a crime with its proceeds–for example, the felon who uses the stolen money to pay for the rented getaway car–would violate the money laundering statute. And any wealth-acquiring crime with multiple participants would become money laundering when the initial recipient of the wealth gives his confederates their shares. Generally speaking, any specified unlawful activity, an episode of which includes transactions which are not elements of the offense and in which a participant passes receipts on to someone else, would merge with money laundering.

And, of course, if money laundering merges with the underlying crime a person can’t be convicted of both offenses without violating double jeopardy.

So – if a person is prosecuted for a substantive offense, that person can’t be charged with money laundering for transferring expenses associated with that offense.

Or, as the Fourth Circuit explained,

Cloud’s money laundering convictions are based on payments to recruiters, buyers, and other coconspirators for the role each person played in the mortgage fraud scheme. Cloud’s mortgage fraud depended on the help of others, and their help, in turn, depended on payments from Cloud. Such payments are no different than “the felon who 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.” Santos, 553 U.S. at 516 (plurality opinion). Because Cloud’s money laundering convictions on Counts 28-33 were based on paying the “essential expenses” of his underlying fraud, we find a merger problem.

Mr. Cloud’s money laundering convictions were then vacated.

The Fourth Circuit also reversed an order that Mr. Cloud had to pay the costs of his court-appointed attorney’s time.

The case was sent back for resentencing.

[FN1] – Strictly speaking this was just Justice Scalia writing for a plurality. But it’s really good language.

See also:

Paying For Drugs Is Not Money Laundering