government established that the $904,733 used to construct the complex
was financed by the massage parlor proceeds which, in part, had been
deposited into the two Magna accounts. Although advised by his accountant
to separate his businesses in order to partition the "legitimate" parts
of the real estate, e.g. the topless nightclubs, the adult bookstore and
the adult video store, from the massage parlor, the defendant did not do
so. Moreover, he routinely commingled the profits from the nightclub and
the video and book stores with the massage parlor profits. The businesses
owned by the defendant were essentially operated as one intertwined
enterprise where the defendant commingled the proceeds from all three
portions of the business into the same Magna Bank accounts, held staff
meetings for the masseuses in all three locations, and had massage parlor
receipts delivered to his office in the nightclub, and to the bookstore.
Money from the Magna Bank accounts was used to pay both personal and
business related expenses.
Between January 1990, and December 1995, the massage parlor accepted
credit cards in payment for prostitution services. In May of 1995, the
defendant, keeping up with modern times, and for the convenience of the
customers, installed an ATM machine in the Fantasyland massage parlor and
adjacent topless nightclub. In January of 1996, the defendant stopped
accepting credit cards at the massage parlor, and in January of 1997,
moved the ATM machine from the massage parlor to the "legitimate" side of
the Fantasyland complex. At that time, if a customer of the massage
parlor did not have sufficient cash to pay for the desired sexual
services, he would be directed by the masseuses and shift managers to the
Fantasy Land Night Club or the Fantasyland Theater and Arcade to use the
ATM machines. After using these machines, the customers would then return
to the massage parlor with the cash they had just obtained from the ATM
machine, pay for the room, massage, and sex service. It was clear from
the evidence that the room rental rate (usually hourly) was at a higher
than normal rate given the location of the room and the short "rental"
In January of 1997, the government executed search warrants at the
defendant's businesses and seized voluminous documents and items.
Anticipating the forthcoming indictment, the defendant transferred
management of Fantasy Massage Parlor in April 1997 to his son and
co-defendant Edward Everette Johnson, doing business as Gateway Metro,
Ink. Johnson continued the prostitution business, under the guidance and
direction of his father, until September of 1997, when the first
indictment was returned.
As part of the operation of the prostitution business from 1990 to
1995, the defendant, or his employees or agents, used the wires in
interstate commerce to obtain credit approval from a credit card clearing
house for customers who used their credit cards to obtain prostitution
services. In addition to depositing checks and credit card transaction
receipts into the Magna bank accounts, the defendant then issued checks
on those accounts to pay bills, including payments to Aviston Lumber in
the amount of $15,000, Rodgers Heating and Cooling in the amount of
$7,700, Crane Agency Company in the amounts of $2,760 and $4,685, and
Banking Equipment Service, Inc in the amount of $2,008.12. In addition,
funds were drawn from these accounts, inter alia, to make payroll on
various occasions, to make payments on a $201,855 commercial loan to the
DuQuoin State Bank, and an automobile loan on defendant's Series 600
Mercedes Benz automobile. The defendant also used this same Mercedes Benz
automobile to pick up the receipts from the massage parlors and from the
Fantasyland Theater and Arcade during the period from January 1996
through April 1997. During the period covered by the indictment, the
total amount deposited into the business bank accounts was
$9,339,094.99, less transfers to other accounts, plus deposits into a
related business account, for a total of $9,248,793.71. The defendant
filed tax returns for the period in question, indicating a total net
income during this period of $1,323,678.
In short the defendant created a large and profitable prostitution
business in the Brooklyn, Illinois area. All of the defendant's
businesses were dependent upon the success of the massage parlors. The
defendant successfully, until his conviction, laundered large sums of
illegally obtained funds through his legitimate businesses and bank
The defendant has been convicted of fifteen counts of money
laundering, one count of conspiracy to commit money laundering and six
counts of engaging in a monetary transaction in property derived from a
specified unlawful activity.
To sustain the charge of money laundering under 18 U.S.C. § 1956,
"the government needed to show that [the defendant] conducted a financial
transaction affecting interstate commerce with property representing the
proceeds from some illegal activity, that he knew that the property
represented illegal proceeds, and that he conducted the transaction with
the intent of promoting the unlawful activity." United States v.
Emerson, 128 F.3d 557, 561 (7th Cir. 1997); 18 U.S.C. § 1956.
To sustain the charge of engaging in a monetary transaction in property
derived from specified unlawful activity, the government had to prove
that the defendant knowingly engaged in or attempted to engage in a
monetary transaction; that the monetary transaction involved criminally
derived property of a value greater than $10,000; and that the criminally
derived property was derived from specified unlawful activity.
18 U.S.C. § 1957.
To sustain the offense of conspiracy to commit money laundering, the
government was required to prove that the alleged conspiracy to commit
money laundering existed; that an overt act was committed in furtherance
of the conspiracy to commit money laundering; and that the defendant
knowingly and intentionally became a member of the conspiracy to commit
money laundering. Emerson, 128 F.3d at 561; United States v. Rodriguez,
53 F.3d 1439, 1444 (7th Cir. 1995).
The forfeiture statute in question, 18 U.S.C. § 982(a)(1),
provides, in pertinent part: "The Court, in imposing sentence on a person
convicted of an offense in violation of section . . . 1956[or]
1957 . . . of this title, shall order that the person forfeit to
the United States any property, real or personal, involved in such
offense, or any property traceable to such property." (Emphasis added.)
Once a defendant has been convicted, the burden of proof for criminal
forfeiture is only a preponderance of the evidence. United States v.
Herrero, 893 F.2d 1512, 1541 (7th Cir. 1990).
The defendant asserts that the forfeiture sought in this case is an
effort by an overzealous government to obtain enormous amounts in federal
forfeiture for what are purely state crimes of prostitution. In support
of this, the defendant cites language in United States v. Montague,
29 F.3d 317, 318 (7th Cir. 1994), and United States v. Griffith,
85 F.3d 284, 287-88 (7th Cir.), cert. denied, 519 U.S. 909, 117 S.Ct.
272, 136 L.Ed.2d 195 (1996). In both of these cases, the Seventh circuit
recognized that this type of case "demonstrates how an aggressive United
States Attorney can use the money laundering statute as a means to take
over from state prosecutors the prosecution of long-established state
crimes and, in the process, secure more draconian sentences and increase
the population of the already overcrowded federal prisons." Montague, 29
F.3d at 318, quoted in Griffith, 85 F.3d at 287.
However, the defendant fails to quote the following language in
Griffith recognizing the validity of the money laundering statute:
But, it is not our function to critique statutes
— either alone or in combination.
Congress, which, of course, is the statutory font,
recently rejected an attempt by the Sentencing
Commission to tie sentences for money laundering to
sentences for the underlying criminal conduct. This
approach would have reduced the sentences imposed in
cases like this one. This refusal by Congress to adopt
an ameliorative measure indicates an intent to impose
strict punishment for money laundering, even when it
is associated with relatively minor underlying
85 F.3d at 288. Clearly, although the underlying crime of prostitution is
a state offense, the federal money laundering statute is valid and
applicable in this case, and forfeiture is proper under § 982, and
does not amount to an excessive fine.
A. Forfeiture Issues
The defendant would have the Court find that because the charges in
Counts 1-15 involve allegations that the defendant knowingly conducted a
financial transaction, that it is the credit card approval for customer
purchases of prostitution services that constitutes the "specified
unlawful activity." He argues that any forfeitable amount would be
limited to the amount involved in the interstate credit card clearing
procedures. He claims that to be forfeitable, the "unlawful activity" must
involve federal law, not state law, and the only federal connection is
the use of credit cards. The defendant then asserts that the amount of
the clearing procedures proven, and thus subject to forfeiture, is
$2,590, which is the total of the amounts alleged in the substantive
money laundering counts.
1. Specified Unlawful Activity
The Court cannot, however, under the applicable statute, find that the
government is limited to forfeiture of only those specific transactions
which involved a credit card clearing house, particularly because the
defendant was not simply charged with money laundering, he was also
charged with conspiracy to commit money laundering. The defendant's
interpretation of the term "specified unlawful activity" is simply too
narrow a reading of the applicable statutes, which would render the
provisions of § 982 a nullity. United States v. Kirschenbaum,
156 F.3d 784, 790 (7th Cir. 1998).
In order to determine the proper reading of the term "specified
unlawful activity," under both the money laundering and financial
transactions provisions, the Court must look to the other statutory
provisions which are included within § 1956 and § 1957. Section
1956 provides that "specified unlawful activity" includes "any act or
activity constituting an offense listed in section 1961(1). . . ."
Included in the listed offenses of § 1961(1) is the offense of
racketeering under § 1952. Section 1952(b) provides, in pertinent
part: "As used in this section (i) `unlawful activity' means (1) . . .
prostitution offenses in violation of the laws of the State in which they
are committed or of the United States. . . ." Section 1957(f)(3)
provides: "the term `specified unlawful activity' has the meaning given
that term in section 1956 of this title." In Montague, 29 F.3d at 322,
the court held that "the Missouri prostitution statute forms the basis
for a violation of § 1952, which is a type of racketeering activity
listed in § 1961, and is a specified unlawful activity designated in
the money laundering statute — § 1956." Therefore, the
"specified unlawful activity" which underlies the money laundering
charges in this case is the prostitution-related activities in violation
of Illinois state law, not merely the credit card transactions which paid
for the prostitution services.
2. The Bank Account Amounts
Applying the plain language of theses statutes, it is clear that the
defendant is subject to forfeiture of that property "involved in" or
"traceable to" the prostitution activities which underlie the charges in
the indictment, and not merely to the amounts of the credit card
transactions which were alleged in Counts 1-10 to
have passed through a credit card clearing house. As the court stated in
United States v. Trost, 152 F.3d 715, 721 (7th Cir. 1998) cert. denied,
525 U.S. 1070, 119 S.Ct. 802, 142 L.Ed.2d 663 (1999):
The statute allows forfeiture of amounts which are
involved in money laundering. Interpreting § 981,
the civil forfeiture statute, we have affirmed
forfeitures even as we were cautioning that involved
in has limits; illegal funds are not like "a drop of
ink falling into a glass of water," thus discoloring
an entire bank account.
Id. at 721, quoting United States v. $448,342.85,