In United States v. Fallon, No. 19-2775 (3rd Cir. 2022), the Third Circuit reversed a money laundering conviction and a forfeiture award of over $100 million. This significant decision will undoubtedly limit the Government’s ability to pursue expansive money laundering prosecutions going forward.
Guaranteed Returns was a “reverse distributor,” paid by healthcare providers to return unused or expired pharmaceutical drugs to drug manufacturers for refunds due to the healthcare providers. Guaranteed Returns deposited the refunds to their general operating account, and would then issue refund checks to the healthcare providers, less a service fee. The Government’s investigation into Guaranteed Returns uncovered a series of schemes that the company used to defraud its clients. As a result, several charges, including money laundering were brought against the company, its CEO, and CFO. Following a jury trial, all three were convicted of multiple counts of wire fraud, mail fraud, conspiracy to launder money, and theft a government property.
The Third Circuit reversed the money laundering convictions, finding that there was insufficient evidence for a reasonable jury to find that Appellants conspired to engage in financial transactions designed to conceal the nature or source of the proceeds from the fraud schemes. The Court noted that “money from unlawful activity does not become “proceeds” until it is “derived from an already completed offense, or a completed phase of an ongoing offense.” This means that a money-laundering transaction can only occur after funds obtained from unlawful activity are delivered into the defendant’s possession.” Here, there was no evidence of Appellants’ intent to conceal illicit proceeds separate from their intent to commit the underlying fraud scheme. Therefore, the Third Circuit vacated the money laundering convictions, as well as the forfeiture award since the forfeiture award was based on Appellants’ convictions for conspiracy to launder money.