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Baker v. United States

September 29, 2006


The opinion of the court was delivered by: Stiehl, District Judge


This matter is before the Court on defendant's habeas petition and for determination of whether the ruling in United States v. Scialabba, 282 F.3d 475 (7th Cir. 2002) should apply to the petitioner's convictions for money laundering.

Petitioner was tried by jury and convicted of several counts of money laundering, engaging in monetary transactions exceeding $10,000 in criminally derived property and one count of criminal forfeiture. Specifically, in Counts 1-10, petitioner was convicted of laundering Travel Act funds in violation of 18 U.S.C. § 1956(a)(1), which consisted of transfers of funds from one Magna Bank account to another. In Counts 11-15, petitioner was convicted of money laundering Travel Act funds in violation of §1956(a)(1), which consisted of check payments to other businesses. In Counts 16-20, petitioner was convicted of engaging in monetary transactions exceeding $10,000 in criminally derived property. He was also convicted in Count 21 of conspiracy to commit money laundering from 1990-1997, and in Count 22 of engaging in a monetary transaction in criminally derived property when he withdrew $20,000 to post bond for Byran Parker. Petitioner agreed to have the Court determine the forfeiture count, Count 23, see United States v. Baker, 82 F. Supp.2d 936, 944 (S.D. Ill. 1999). Petitioner was sentenced to a term of imprisonment of 180 months, 3 years of supervised release, a $1,200 special assessment, and the Court ordered forfeiture in the amount of $4,407,592.

A. Petitioner's Habeas Actions

Petitioner, who is proceeding pro se, filed his initial motion claiming six grounds of relief. The Court dismissed those claims which were precluded by the ruling of the Seventh Circuit on direct appeal,*fn1 leaving his claims of ineffective assistance of counsel on appeal (Claim 3); ineffective assistance of trial counsel for failing to prepare petitioner to testify which resulted in his not testifying (Claim 5); and ineffective assistance of counsel at trial due to counsel's inability to concentrate on the proceedings (Claim 6). The government filed its response (Doc. 8). Petitioner then sought to amend his petition to raise three grounds challenging his money laundering convictions based on the Seventh Circuit ruling in United States v. Scialabba, 282 F.3d 475 (7th Cir. 2002). The Court at first denied him leave to file these claims (See. Doc. 22), but then undertook sua sponte review and directed the parties to file briefs as to the retroactivity of Scialabba. (Doc. 41). Those briefs have been filed and petitioner has, with leave of Court, filed a second amended habeas petition seeking to apply the holding of Scialabba to his convictions under 18 U.S.C. §§ 1956(h) and 1957.

1. Retroactivity of Scialabba

The first issue which the Court must address is whether the holding in Scialabba is applicable to the habeas petitions. As this Court previously stated (Doc. 22), if Scialabba is a procedural rule, then the provisions of Teague v. Lane, 489 U.S. 288 (1989) would act to bar the petitioner's claim. If, however, the holding in Scialabba is substantive, then Teague would not act as a bar to a habeas action. Muth v. Frank, 412 F.3d 808. 816-17 (7th Cir. 2005). The Seventh Circuit noted in Muth that there are "two 'exceptions' to [the Teague] doctrine of non-retroactivity: 1) the rule 'places a class of private conduct beyond the power of the State to proscribe,' [489 U.S. ] at 311, or; 2) the rule is a 'watershed rule' that implicates the fundamental fairness and accuracy of the criminal proceeding." 412 F.3d at 816 (citations omitted). The Muth court stated "[i]f it would be unconstitutional to punish a person for an act that cannot be subject to criminal penalties it is no less unconstitutional to keep a person in prison for committing the same act." Id. at 817 (citation omitted).

The government urges this Court to find that Scialabba was both wrongfully decided and is factually distinguishable from this case, asserting that no other circuit has held that money laundering must be based on net rather than gross proceeds, and on the basis that Scialabba involved money laundering of gambling proceeds whereas Baker's case involved money laundering of Travel Act proceeds under 18 U.S.C. § 1952.

The Court is persuaded that Scialabba establishes a substantive, rather than a procedural ruling. Under Scialabba, a financial transaction involving the "proceeds" of a crime for purposes of § 1956(a)(1), when the "crime entails voluntary, business-like operations, . . . must be net income." 282 F.3d at 475. Therefore, as a substantive ruling, petitioner's claims are not necessarily barred under Teague.

The Court notes that the Seventh Circuit re-visited the issues determined in Scialabba in its recent ruling in Santos v. United States, 2006 WL 2456817 (7th Cir. August 25, 2006), where it re-affirmed the application of Scialabba, Id. at * 7. In Santos, the Seventh Circuit stated that "Scialabba . . . ruled that such transactions, which constituted the payments of the enterprise's operating expenses out of its gross income, could not support the defendants' money laundering convictions." Id. at * 4. This makes it clear that for money laundering claims brought under §1956(a)(1), the government must prove that the defendant's activities involved net, not gross proceeds.

Scialabba involved the provisions of §1956(a)(1), the key language of which is "Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such financial transaction which in fact involves the proceeds of specified unlawful activity . . . . " The government asserts that because the transactions charged as substantive money laundering counts arose from illegal proceeds, there is no Scialabba issue in this case. The government further claims that under the Seventh Circuit's ruling in Baker the Travel Act aspect of the money laundering charge differentiates this conviction from that in Scialabba. In Baker, the Seventh Circuit held:

To establish a Travel Act violation, it is not necessary for the government to prove that an act of prostitution under Illinois law followed each credit card transaction. See United States v. Campione, 942 F.2d 429, 434 (7th Cir. 1991). Section "1952 refers to state law only to identify the defendant's unlawful activity [;] the federal crime to be proved in § 1952 is the use of interstate facilities in furtherance of the unlawful activity, not the violation of the law; therefore, § 1952 does not incorporate state law as part of the federal offense, violation of the Act does not require proof of a violation of state law. 227 F.3d at 961. The government's position is that the evidence established that in this case the funds involved in the money laundering became illegal proceeds upon deposit and that each charged transaction was a transaction in illegal funds; that petitioner used separate accounts for his other businesses; and the government presented evidence of the net criminal activity (the 4.4 Million compared to the 9 Million in gross proceeds of illegal and legal activities); and that the prostitution proceeds were separately banked and the substantive counts involved only funds from those accounts.

This Court is not persuaded by the government's position that Scialabba and Santos are limited to gambling enterprises only. Like gambling, prostitution is an unlawful business in Illinois. See, Scialabba 282 F.2d at 475; Baker, 227 F.3d at 961. The Scialabba court found that "the word 'proceeds' in § 1956 denotes net rather than gross income of an unlawful venture." 282 F.3d at 478. This language is quite plain. For purposes of the offense of money laundering under §1956(a)(1), the Scialabba opinion did not specifically limit its holding to gambling offenses under that statute -- and this Court is persuaded that it must apply the term "proceeds" in the same manner to the convictions here, i.e. that the proceeds involved in the money laundering counts under § 956(a)(1) must have been "net" not "gross" proceeds.

Anticipating that concern, the government notes that in sentencing the petitioner, and in calculating forfeiture amounts, this Court assessed only massage parlor proceeds for the period of January 1990, through November 1997. Baker, 82 F. Supp 2d at 943. That is not, however, the way that the money laundering counts were charged or presented for the jury's determination on the money laundering counts. Moreover, as this Court noted in its order on the forfeiture count, the evidence at trial was that defendant's related businesses were all combined for financial purposes. The Court stated: "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." 82 F. Supp. 2d at 939 (emphasis added). Further, the Court found that 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 . . ...

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