Top court rules against government on money laundering

By James Vicini

WASHINGTON (Reuters) - The U.S. Supreme Court handed the federal government a defeat on Monday in a pair of cases that will make it harder for prosecutors to obtain convictions under a money laundering law.

In one case, the high court ruled unanimously that merely hiding money generated by an illegal activity, such as a drug transaction, while transporting it from one location to another would not be enough to support a money laundering conviction.

Justice Clarence Thomas said for the court the provision of the Money Laundering Control Act at issue required proof the purpose of transporting the money was to conceal or disguise its nature, location, source, ownership or control.

The 1986 law carries a maximum penalty of 20 years in prison and a fine of $500,000 or twice the value of the transaction, whichever is greater.

The law recently has accounted for about 1,000 convictions a year. Money laundering typically involves making it appear that money from an illegal activity is legitimate.

The high court overturned the money laundering conviction of Humberto Cuellar, who was arrested in 2004 in Texas while traveling toward Mexico with $83,000 in cash hidden beneath the floor of his car. Police suspected the money came from drug trafficking.

Thomas said the fact that Cuellar concealed the money was not enough to sustain his conviction.

"The government failed to introduce any evidence that the reason drug smugglers move money to Mexico is to conceal or disguise a listed attribute of the funds," Thomas said.

In the other case, the high court by a 5-4 vote also rejected the government's interpretation of another provision of the law.

It upheld a U.S. appeals court ruling that increased the burden of proof for convictions by requiring that prosecutors show that profits, not gross proceeds, had been used to promote or conceal the illegal activity.

The Supreme Court's ruling was a victory for Efrain Santos, who ran an illegal lottery in northwest Indiana, and for Benedicto Diaz, who collected the money and delivered it to Santos.

Santos had been convicted of money laundering based on the payments he made to winners of the lottery and his employees. The court said that was not enough to sustain a conviction and prosecutors had to show the two had laundered money they themselves made from the criminal business.

Santos had been sentenced to 60 months in prison for running an illegal gambling business and 210 months in prison for money laundering, with the terms to run concurrently. Only his money laundering conviction was at issue before the Supreme Court.

The money laundering conviction of Diaz, who was sentenced to 108 months in prison, was based on his collection of money from people playing the lottery.

In the court's main opinion, Justice Antonin Scalia overturned their money laundering convictions. "The government did not try to prove and respondents have not admitted, that they laundered criminal profits," he said.

(Editing by David Alexander and Eric Beech)