Justices Rule for Defendants In Money-Laundering, Internet Credit Card Cases

[R.A. Hettinga]

<http://online.wsj.com/article_print/SB121241156893137637.html>


June 2, 2008 11:38 a.m. EDT


The Wall Street Journal

Justices Rule for Defendants
In Money-Laundering Cases
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP

June 2, 2008 11:38 a.m.

The Supreme Court on Monday ruled against the government in two money- 
laundering cases, making it more difficult for prosecutors to use an  
important weapon in the war on drugs and organized crime.
In a unanimous decision, Justice Clarence Thomas said that a money  
laundering case cannot be proven merely by showing that funds were  
concealed while being transported.

In a separate 5-4 decision, the court said that money laundering  
refers to profits of an illegal operation, not gross receipts. The  
court's interpretation is a narrow one opposed by law enforcement  
agencies.
Justice Antonin Scalia said the narrow definition will not unduly  
burden authorities, who must show only that a single instance of  
unlawful activity was profitable.

Providing the crucial tie-breaking vote, Justice John Paul Stevens  
refused to go as far as Justice Scalia, saying Congress favored a  
broader interpretation of the law in cases involving the operation of  
organized crime syndicates.

In the cases of Efrain Santos and Benedicto Diaz, a federal judge and  
the 7th U.S. Circuit Court of Appeals in Chicago said that paying off  
gambling winners and compensating employees who collect the bets don't  
qualify as money laundering. Those are expenses, and prosecutors must  
show that profits were used to promote the illegal activity, the  
appeals court ruled in a decision affirmed by the Supreme Court.

In dissent, Justice Samuel Alito said that the court's ruling would  
frustrate congressional intent and "maim" a law that was enacted as an  
important defense against organized criminal enterprises.

The other case did not go as far in favor of defendants as defense  
lawyers had hoped.

In his unanimous ruling, Justice Thomas said that the government isn't  
required to prove that a defendant attempted to create the appearance  
that laundered money was legitimate.

But the court said that prosecutors must show that the purpose of  
transporting funds in a money laundering case was to conceal its  
ownership, source or control.

Justice Thomas and the court ruled in favor of Humberto Cuellar, who  
was headed for Mexico with over $80,000 stashed in a secret  
compartment of a car when he was arrested in Schleicher County, Texas.

The 5th U.S. Circuit Court of Appeals in New Orleans had upheld Mr.  
Cuellar's money-laundering conviction.
Money laundering carries a maximum penalty of 20 years in prison and  
prosecutors often use it in drug and gambling cases.

Congress enacted the anti-money laundering law in 1986 after the  
President's Commission on Organized Crime highlighted the growing  
problem of "washing" criminal proceeds through overseas bank accounts  
and legitimate businesses.

The cases are U.S. v. Santos, 06-1005, and Cuellar v. U.S., 06-1456.

Publisher's Suit Against Visa, MasterCard Fails

The court turned away the latest appeal from Perfect 10 Inc., which  
sued Visa Inc. and MasterCard International Inc. for allegedly  
allowing their transaction networks to be used by Web sites that  
pirate images of nude models.

Perfect 10, an adult online magazine, has sued several financial  
services companies, alleging they aided in copyright and trademark  
violations. A similar appeal involving CCBill Inc. was rejected by the  
high court last year. The company also has sued Google Inc.

"The Internet makes possible copyright infringement on a mind-boggling  
scale," Perfect 10 said in the appeal, adding that it believes an  
appeals court ruling in the case "is bound to wreak disproportionate  
havoc on federal copyright law."

Perfect 10 sued the two companies, which dominate the credit-card  
industry, in an effort to stop Web sites that pirate erotic photos  
from using Visa and MasterCard to process payment transactions.

A federal trial judge threw the lawsuit out. Last year, the 9th U.S.  
Circuit Court of Appeals in San Francisco agreed that Perfect 10  
didn't have a case under federal copyright law against the credit-card  
companies for what is known as secondary copyright liability.

In a friend-of-the-court brief, the Motion Picture Association,  
Recording Industry Association of America and other entertainment  
groups urged the Supreme Court to hear Perfect 10's appeal. "The  
decision is particularly harmful to copyright owners' ability to  
combat piracy that is perpetrated from foreign locations" the groups  
said.

Visa and MasterCard, in a reply brief, said Perfect 10 and the  
entertainment industry are wrongly trying to forge a "new legal  
obligation to deny payment network access to third parties' based on  
copyright violation allegations.

The case is Perfect 10 v. Visa International Service Association.


Hyperlinks in this Article:
(1) http://online.wsj.com/public/resources/documents/scotus-op-santos06022008.pdf
(2) http://online.wsj.com/public/resources/documents/scotus-op-cuellar06022008.pdf
(3) http://online.wsj.com/public/resources/documents/info-scotusdiary-071002.html
(4) http://online.wsj.com/article/SB121189746412322783.html
(5) http://online.wsj.com/article/SB121120201571003423.html
(6) http://online.wsj.com/article/SB121060066203485187.html
(7) http://online.wsj.com/article/SB120939053697249475.html