## Facts

- Efrain Santos operated an illegal lottery (“bolita”) in Indiana using runners and collectors; some funds were paid as commissions, salaries (including to Benedicto Diaz), and winnings to gamblers.
- The United States charged Santos with illegal gambling and multiple counts of money laundering under 18 U.S.C. § 1956(a)(1)(A)(i) and conspiracy under § 1956(h), treating payments to runners, collectors, and winners as laundering transactions.
- Diaz, paid a salary from the lottery, pleaded guilty to conspiracy to launder money under § 1956(h).
- Section 1956 did not define the term “proceeds,” and courts had disagreed whether it meant gross receipts or net profits.
- After the Seventh Circuit adopted a “profits” interpretation, Santos and Diaz sought relief under 28 U.S.C. § 2255; the district court vacated the money-laundering convictions for lack of proof the transactions involved profits, and the Seventh Circuit affirmed.

## Issues

1. Whether “proceeds” in 18 U.S.C. § 1956(a)(1) means gross receipts or net profits of the underlying unlawful activity.
2. Whether payments integral to operating an illegal gambling business (commissions, salaries, and winnings) can support money-laundering convictions absent proof those payments were made from profits.
3. Whether ambiguity in “proceeds,” combined with concerns that a receipts definition would collapse the predicate offense into money laundering, requires application of the rule of lenity.

## Decision

- The Supreme Court affirmed, leaving the vacatur of Santos’s and Diaz’s money-laundering convictions in place.
- A majority agreed that, in the context of the illegal-gambling predicate offense, “proceeds” in § 1956(a)(1) must be read to mean “profits,” not “receipts.”
- Because the government did not show that the charged transactions involved profits rather than gross receipts, the money-laundering convictions could not stand.
- No single opinion commanded a majority; the judgment rested on a plurality opinion and a narrower concurrence.

## Legal Principles

- When an undefined term in a criminal statute has two plausible meanings and the statute does not resolve the choice, the rule of lenity may require adopting the more defendant-favorable meaning.
- For § 1956(a)(1) prosecutions predicated on operating an illegal gambling business, “proceeds” refers to profits, so the government must prove the laundered funds were net profits, not merely funds received and used to pay expenses.
- Interpreting “proceeds” as gross receipts in this setting risks a “merger” problem by converting routine expense payments necessary to commit the predicate offense into separate money-laundering crimes with substantially higher penalties.
- Under the controlling rationale, the profits limitation is at least required where the merger risk is substantial and statutory ambiguity remains.

## Conclusion

The Court held that, for money-laundering charges tied to an illegal gambling operation, § 1956’s reference to “proceeds” requires proof of profits rather than gross receipts, and the absence of such proof requires vacatur of laundering convictions based on ordinary operating payments.


United States v. Santos, 553 U.S. 507 (2008)