Columbus, GA, Attorney Acquitted; Middle District of Georgia Instruction on Money Laundering of Fees Paid for Legal Representation

Mark Shelnutt, a distinguished attorney and member of the Columbus, Georgia, community, was found not guilty by a jury in the United States District Court for the Middle District of Georgia, the Honorable Clay D. Land, United States District Judge, presiding, on 36 counts brought by the government, including conspiracy, aiding and abetting a conspiracy to distribute cocaine, concealment money laundering, false statements and attempted bribery. Mr. Shelnutt was represented in the trial by attorneys Thomas Withers and Craig Gillen and the firm of Gillen Withers & Lake LLC. The Government was represented by attorneys Charles Bourne, David Stewart and Joe Newman of the United States Attorneys Office for the Southern District of Georgia.

The 6 day trial saw testimony by convicted drug dealers, federal agents and attorneys, as well as numerous supporters of Mr. Shelnutt, including several ministers with the United Methodist Church, which included the late Reverend Joseph Roberson, head of the South Columbus United Methodist Church and Cabinet member of the South Georgia United Methodist Conference, who died in an auto collision near Statesboro, Georgia, on Saturday. This blog has been on a hiatus for the trial, and we would like to thank all those who supported Mr. Shelnutt throughout the trial, as well as to send our condolences to Reverend Roberson's family and congregation.

The allegations arose from Mr. Shelnutt's representation of Torrance Hill, a convicted drug trafficker. The central allegation was that Mr. Shelnutt laundered money which Hill paid him as legal fees.

Mr. Shelnutt was charged under the concealment money laundering provision, 18 U.S.C. s 1956(a)(1)(B). The companion federal money laundering statute, 18 U.S.C. s 1957, contains an express exemption for "transaction necessary to preserve a person’s right to representation as guaranteed by the sixth amendment to the Constitution…" 18 U.S.C. s 1957(f)(1). However, no such exemption for legal fees exists in s 1956. Two weeks before Mr. Shelnutt's trial began, the Eleventh Circuit Court of Appeals issued an opinion in United States v. Velez, No. 09-10199, 2009 WL 3416116 (11th Cir., October 26, 2009), in which it reaffirmed s 1957(f)(1)'s exemption of payment of fees for legal representation from transactions which can constitute money laundering.

The parties and the Court agreed that mere payment of attorney's fees, even from drug proceeds, was lawful. Mr. Withers and Mr. Gillen argued to the Court that if legal fees were lawful in an attorney's hands, the fees could not be "magically transformed" into unlawful fees no matter what the attorney might do with them afterwards. After considering these issues, Judge Land crafted an instruction to the jury on s 1956(a)(1)(b), which read as follows:


             I am first going to explain the law to you regarding the substantive offense of money laundering. I will then explain to you the separate charge of conspiracy to commit money laundering. I will then explain the other offenses alleged in the Indictment.

             Counts Five through Thirty-Five of the Indictment allege that Defendant engaged in money laundering. Title 18, United States Code, Section 1956(a)(1)(B), makes it a Federal crime or offense for anyone to knowingly engage in certain kinds of financial transactions commonly known as money laundering. The Government alleges that the Defendant committed this crime on thirty-one separate occasions. You must consider each separate alleged count and determine whether the Government proved beyond a reasonable doubt the essential elements for each separate count.

             The Defendant can be found guilty of the offense of money laundering only if all of the following facts are proved beyond a reasonable doubt:

First: That the Defendant knowingly conducted, or attempted to conduct, a “financial transaction;”

Second: That the Defendant knew that the funds or property involved in the financial transaction represented the proceeds of some form of unlawful activity;

Third:    That the funds or property involved in the financial transaction did in fact represent the proceeds of “specified unlawful activity” - - in this case the proceeds of the distribution of controlled substances, also known as illegal drugs; and

Fourth:            That the Defendant engaged in the financial transaction knowing that the transaction was designed in whole or in part to conceal or disguise the nature, location, source, ownership or the control of the proceeds of the distribution of a controlled substance.

             The term “conducts” means initiating, concluding, or participating in initiating or concluding a transaction. “Knowingly conducted” means that conduct was done voluntarily and intentionally and not because of accident or mistake.

             The term “transaction” means a purchase, sale, loan, pledge, gift, transfer, delivery or other disposition of funds or property; and, with respect to a financial institution, includes a deposit, withdrawal, transfer between accoiints, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, or use of a safe deposit box.

             The term “financial transaction” means a transaction which in any way or degree affects interstate or foreign commerce involving one or more “monetary instruments” which includes coin or currency of any country, travelers or personal checks, bank checks or money orders, or investment securities or negotiable instruments in such form that title thereto passes upon delivery. The term “financial transaction” also means a transaction involving the use of a “financial institution” which is engaged in, or the activities of which affect, interstate or foreign commerce in anyway or degree. The term “financial institution” includes a bank.

             The term “interstate or foreign commerce” includes any commercial activity that involves transportation or communication between places in two or more states or between some place in the United States and some place outside the United States.

             The term “proceeds of some form of unlawful activity” means profits of some form of unlawful activity and not simply gross receipts.

             The term “knowing that the funds or property involved in the financial transaction represented the proceeds of some form of unlawful activity” means that the Defendant knew that such funds or property involved in the transaction represented proceeds from some form, though not necessarily which form, of activity that constitutes a felony offense under state or Federal or foreign law.

             The term “specified unlawful activity means distribution of a controlled substance. “Controlled substances” means illegal drugs.

             In this case, the Government alleges that the Defendant committed the crime of money laundering for each of the separate amounts listed in Counts Five through Thirty-Five of the Indictment by doing the following:

1)       Knowingly receiving the money as alleged from Torrance Hill;

2)       That the money Defendant received from Torrance Hill which he is accused of laundering actually came from illegal drug proceeds;

3)       That Defendant knew that the money he received from Torrance Hill came from illegal drug proceeds; and

4)       That the Defendant received the money and deposited it for the purpose of concealing or disguising the nature, location, source, ownership, or control of the proceeds from the distribution of illegal drugs.

In order for you to find the Defendant guilty as to these money laundering counts, you must find beyond a reasonable doubt the existence of all of these elements.

             I instruct you that it is not illegal for an attorney who represents a defendant accused of a crime to accept payment of his attorney fees in cash. It is also not illegal for an attorney to receive attorney’s fees from someone accused of a crime who pays those attorney’s fees from money that the person got from illegal activities. In other words, if you found here that Torrance Hill paid the Defendant attorney’s fees and that the source of those fees was Hill’s illegal drug activities, then the Defendant’s receipt of those attorney’s fees, without proof of concealment as described previously, is not money laundering or a federal crime.

              Just as it is not a federal crime for a Defendant to receive an attorney’s fee from illegal drug activities, it is not a federal crime to conceal a legitimate attorney’s fee, even if the fee comes from illegal proceeds. To be money laundering, the concealment must be concealment of illegal proceeds other than those that are paid for legitimate attorney’s fees.

The Shelnutt prosecution raised serious issues and concerns for criminal defense attorneys who represent clients charged with drug offenses, or in other contexts, where there is a high likelihood that any legal fees paid to counsel may be derived from unlawful activity. The defense argued that the prosecution of Mr. Shelnutt for money laundering could set a frightening precedent whereby the government could choose to prosecute any criminal defense attorney or money laundering for accepting payment for legal fees which was also proceeds of unlawful activity. The Court acknowledged these concerns and addressed them in the instruction it crafted for the jury. Fortunately, there have to date been very few prosecutions of attorneys under s 1956 for receiving attorney's fees, however the Shelnutt prosecution and the Court's instruction illustrate the need for either an amendment to s 1956 to contain an exemption for payment of legal fees similar to s 1957, or for the courts to make clear, as the Court's instruction did in this case, that (1) it is not illegal for an attorney to receive attorney's fees from money a person got from illegal activity and (2) it is not illegal to conceal monies received as legitimate attorney's fees.

Will Castroneves Jury Return Verdict on Tax Day

The jury in Indy race car driver, Helio Castroneves trial, deliberated for a third day yesterday and return today for a fourth day of deliberation. We're taking bets (not really) that this jury will, in a cruel irony either for the government, or for Castroneves, return a verdict today – tax day – April 15.

Historically, the IRS tries to get the most bang for its buck, and it will try to schedule as many guilty pleas as possible around tax day. It will be either a huge victory for the government on tax day, or a huge defeat. The tincture of time will tell.

Castroneves filed yesterday a Motion for Mistrial that outlines the difficult legal questions the jury has been struggling with the last three days.

On Friday, April 10, the jury submitted this question:

“Better define: when does 'unconditional vested right to income' occur.”

On Monday, April 13, the jury requested that it be supplied a copy of the transcripts of the testimony of tax attorneys Fred Feingold and Mark Berg.

And, yesterday, April 14, the jury submitted the following questions:

  • 1.“Legally define: 'beneficial owner' how it pertains to a corporate entity.”
  • 2. “Legal define: 'deferral of income' specifically are there requirements and/or limitations to make a 'stop payment' a 'deferral of income.' "
  • 3. “Does asking someone with whom you’ve entered into a contract with to 'stop payment' before contract commences count as a 'deferral of income.'”

Following the supplemental jury instruction given yesterday in response to those last three questions, Castroneves filed the Motion for Mistrial objecting to the judge's answers to the second and third questions, which stated that Penske was the employer. Quite frankly, my reading of the judge’s jury instruction yesterday is that it was pretty defense favorable. I’m thinking we’ll have a verdict today.