Existing law makes it a felony or a misdemeanor to engage in money laundering, defined as conducting a transaction involving a monetary instrument of specified value through a financial institution with the specific intent to promote or facilitate criminal activity. Existing law defines criminal activity for these purposes as any criminal offense punishable as a felony.

This bill would expand the definition of criminal activity for purposes of money laundering to include various offenses punishable as misdemeanors that are related to illegal lotteries and gaming. By expanding the definition of a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law makes it a felony or a misdemeanor to engage in money laundering, defined as conducting a transaction involving a monetary instrument of specified value through a financial institution with the specific intent to promote or facilitate criminal activity. Existing law defines criminal activity for these purposes as any criminal offense punishable as a felony.

This bill would expand the definition of criminal activity for purposes of money laundering to include various offenses punishable as infractions and misdemeanors that are related to illegal lotteries and gaming. By expanding the definition of a crime, this the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law generally regulates false advertising and specifically prohibits certain unfair acts or practices undertaken by, or omissions of, a person in the operation of a contest or sweepstakes, including, among others, misrepresenting the number of participants in a contest or sweepstakes or representing, directly or by implication, that any tie breaker puzzle may be entered upon the payment of money qualifying the contestant for an extra cash or any other type prize or prizes except as specified.

This bill would make nonsubstantive changes to these provisions.

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 1395 (Salas) - Money laundering: criminal activity: lotteries and gaming

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

AB 1395 would add specified misdemeanor gambling (lottery and gaming) offenses within the money laundering statutes, thus making the offenses punishable as felonies.

Fiscal Impact:

• State prisons: Potentially significant increase in state costs (General Fund) to the extent expanding the definition of “criminal activity” to include misdemeanor gambling offenses results in additional commitments to state prison for money laundering that otherwise would have been subject to misdemeanor charges. For every 10 percent increase in annual commitments to state prison under the money laundering statutes (5 commitments), annual costs would increase by $145,000, based on the estimated contract bed rate of $29,000 per inmate per year.
• County jails: Potentially significant to major increase in local incarceration costs (Local Funds or General Fund*), offset to a degree by fine revenue, for additional felony commitments to county jail, as well as longer lengths of stay for defendants who otherwise would have served shorter sentences in county jail under misdemeanor charges. While the number of new felony charges resulting from this measure is unknown, for context, for every 25 additional convictions impacted by this measure, costs to extend jail sentences for an average of six months could increase costs by $570,000 annually. To the extent the applicable jail terms imposed are longer and/or the number of persons impacted is greater, costs could increase substantially.

*Proposition 30 (2012) provides that legislation enacted after September 30, 2012, that has an overall effect of increasing the costs already borne by a local agency, as specified, apply to local agencies only to the extent the State provides annual funding for the cost increase. Although legislation creating a new crime or revising the definition of an existing crime is exempt from Proposition 30 state funding requirements, legislation that changes the penalty for an existing crime is not similarly specifically exempt. The misdemeanor gambling offenses specified in this measure are existing crimes. To the extent the greater penalties imposed due to the expanded definition of “criminal activity” is determined to change the penalty for these crimes, any increase in costs to local agencies attributable to the provisions of this legislation could potentially require annual funding from the State.

Background:

Existing law provides that any person who conducts or attempts to conduct a transaction within a seven-day period involving a monetary instrument or instruments of a total value exceeding $5,000, or a total value exceeding $25,000 within a 30-day period, through one or more financial institutions with the specific intent to promote, manage, establish, carry on, or to facilitate such conduct, or who knows that the monetary instrument represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity, as defined, is guilty of the crime of money laundering. (Penal Code (PC) § 186.10 (a).)

Existing law provides that a conviction for money laundering may be punishable as a misdemeanor subject to imprisonment in county jail for up to one year, or by a felony pursuant to PC § 1170(h) subject to imprisonment in county jail or state prison for 16 months, two or three years, by a fine of not more than $250,000 or twice the value of the property transacted, whichever is greater, or by both the imprisonment and fine. For a second or subsequent conviction, the maximum fine that may be imposed is $500,000 or five times the value of the property transacted, whichever is greater. (PC § 186.10 (a).)

Further, existing law enhances the penalty for money laundering convictions, as follows:

• A mandatory additional term of one year to be served consecutive to the punishment if the value of the transaction(s) exceeds $50,000 but is less than $150,000;
• A mandatory additional term of two years to be served consecutive to the punishment if the value of the transaction(s) exceeds $150,000 but is less than $1 million;
• A mandatory additional term of three years to be served consecutive to the punishment if the value of the transaction(s) exceeds $1million but is less than $2.5 million; or
• A mandatory additional term of four years to be served consecutive to the punishment if the value of the transaction(s) exceeds $2.5 million. (PC § 186.10 (c)(1).)

Proposed Law:

This bill would expand the definition of “criminal activity” under the money laundering statutes to include the following misdemeanor gambling (lottery and gaming) offenses:

• PC § 320 - contriving, preparing, setting up, proposing, or drawing any lottery.
• PC § 321 - selling, giving, furnishing or transferring to or for any other person any ticket, chance, share, or interest, or any paper, certificate, or instrument purporting or understood to be or to represent any ticket, chance, share, or interest in, or depending upon the event of any lottery.
• PC § 322 - aiding or assisting, either by printing, writing, advertising, publishing, or otherwise in setting up, managing, or drawing any lottery, or in selling or disposing of any ticket, chance, or share.
• PC § 323 - opening, setting up, or keeping, by himself, herself, or by any other person, any office or other place for the sale of, or for registering the number of any ticket in any lottery, or who, by printing, writing, or otherwise, advertises or publishes the setting up, opening, or using of any such office.
• PC § 326 - letting or permitting to be used, any building or vessel, or any portion thereof, knowing that it is to be used for setting up, managing, or drawing any lottery, or for the purpose of selling or disposing of lottery tickets.
• PC § 330a - every person, who has in his or her possession or under his or her control, either as owner, lessee, agent, employee, mortgagee, or otherwise, or who permits to be placed, maintained, or kept in any room, space, enclosure, or building owned, leased, or occupied by him or her, or under his or her management or control, any slot or card machine, contrivance, appliance or mechanical device, upon the result of action of which money or other valuable thing is staked or hazarded, and which is operated, or played, by placing or depositing therein any coins, checks, slugs, balls, or other articles or device, or in any other manner and by means whereof, or as a result of the operation of which any merchandise, money, representative or articles of value, checks, or tokens, redeemable in or exchangeable for money or any other thing of value, is won or lost, or taken from or obtained from the machine, when the result of action or operation of the machine, contrivance, appliance, or mechanical device is dependent upon hazard or chance.
• PC § 330b – to manufacture, repair, own, store, possess, sell, rent, lease, let on shares, lend or give away, transport, or expose for sale or lease, or to offer to repair, sell, rent, lease, let on shares, lend or give away, or permit the operation, placement, maintenance, or keeping of, in any place, room, space, or building owned, leased, or occupied, managed, or controlled by that person, any slot machine or device, as defined.
• PC § 330c – to manufacture, repair, own, store, possess, sell, rent, lease, lend, offer for sale of a punchboard which is a slot machine. For the purposes of this section, a punchboard is any card, board or other device which may be played or operated by pulling, pressing, punching out or otherwise removing any slip, tab, paper or other substance therefrom to disclose any concealed number, name or symbol.
• PC § 330.1 – to manufacture, own, store, keep, possess, sell, rent, lease, let on shares, lend or give away, transport, or expose for sale or lease, or offer to sell, rent, lease, let on shares, lend or give away or who permits the operation of or permits to be placed, maintained, used, or kept in any room, space, or building owned, leased, or occupied by him or her or under his or her management or control, any slot machine or device as specified.
• PC § 330.4 – mere possession or control, either as owner, lessee, agent, employee, mortgagor, or otherwise of any slot machine or device, or permitting to be placed, maintaining or keeping in any room, space, enclosure, or building owned, leased or occupied by him/her, or under his/her management or control, whether for use or operation or for storage, bailment, safekeeping or deposit only, any slot machine or device. 

This bill specifies that the provisions do not apply to any controlled game within the scope of Section 19943.5 of the Business and Professions Code that is approved by the Department of Justice.

Related Legislation:

AB 1439 (Salas) Chapter 592/2014 prohibits any person, when conducting a contest or sweepstakes, from using an electronic video monitor to simulate gambling or play gambling-themed games that offers the opportunity to win sweepstakes cash, cash equivalent prizes, or other prizes of value.

Staff Comments:

By expanding the definition of “criminal activity” to include specified misdemeanor gaming and lottery offenses, the provisions of this bill could result in additional felony charges and subsequent convictions for money laundering, thereby potentially increasing state and local costs for incarceration.

Statistics from the Department of Justice (DOJ) indicate over 100 arrests annually for each of the past three years for only a subset of the misdemeanor gambling offenses specified in this measure. However, to the extent internet cafes engaging in illegal internet gaming or that possess “slot machines” as broadly defined under existing law qualify under the provisions of this bill, the scope of potential new felony arrests and convictions could be significant.

CDCR data indicates an average of 45 commitments in each of the past two years for money laundering (PC § 186.10). The number of additional commitments to state prison and the associated lengths of stay cannot be estimated with certainty given the numerous factors involved in charging and sentencing, including but not limited to judicial and prosecutorial discretion, the prior criminal history of the defendant, and the elements specific to each case. However, for every 10 percent increase in commitments to state prison (5 commitments) resulting from the provisions of this bill, state incarceration costs would increase by $145,000 (General Fund) based on the contract bed rate of $29,000 per inmate per year.

Staff notes that the gambling offenses specified in this measure are crimes under existing law. Pursuant to Proposition 30 (2012), legislation enacted after September 30, 2012, that has an overall effect of increasing the costs already borne by a local agency for programs or levels of service mandated by the 2011 Realignment Legislation apply to local agencies only to the extent that the state provides annual funding for the cost increase. Although Proposition 30 specifies that legislation defining a new crime or changing the definition of an existing crime is not subject to this provision, changing the penalty for a crime is not specifically exempted and could potentially require a subvention of funds from the state. To the extent increasing the penalty for violations of the misdemeanor gambling offenses is determined to change the penalty for these existing crimes, any increase in costs to local agencies for county jail incarceration attributable to provisions of this legislation could potentially require annual funding from the State.

The Three-Judge Court has ordered the State to reduce its prison population to 137.5 percent of the prison system’s design capacity by February 28, 2016. Pursuant to its February 10, 2014 order, the Court has ordered the CDCR to implement several population reduction measures, prohibited an increase in the population of inmates housed in out-of-state facilities, and indicated the Court will maintain jurisdiction over the State for as long as necessary to ensure that the State’s compliance with the 137.5 percent final benchmark is durable, and that such durability is firmly established. Any future increases to the State's prison population challenge the ability of the State to reach and maintain such a “durable solution,” and could require the State to pursue one of several options, including contracting-out for additional bed space or releasing current inmates earlier onto parole.

-- END --

SENATE COMMITTEE ON PUBLIC SAFETY

Senator Loni Hancock, Chair

2015 - 2016 Regular

Bill No: AB 1395 Hearing Date: June 14, 2016

Subject: Money Laundering: Criminal Activity: Lotteries and Gaming

HISTORY

Source: Kern County District Attorney

Prior Legislation: AB 1439 (Salas), Chapter 592, Statutes of 2014

Support: California District Attorneys Association; California Police Chiefs Association; California State Sheriffs’ Association; City of Oakland; San Diego District Attorney

Opposition: Legal Services for Prisoners with Children

Assembly Floor Vote: 69 - 2

PURPOSE

The purpose of this bill is to include misdemeanor and infraction gambling offenses within the money-laundering statutes, thus making the offenses punishable as felonies.

Existing law states that any person who conducts or attempts to conduct a transaction within a seven-day period involving a monetary instrument or instruments of a total value exceeding $5,000, or a total value exceeding $25,000 within a 30-day period, through one or more financial institutions with the specific intent to promote, manage, establish, carry on, or to facilitate such conduct, or who knows that the monetary instrument represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity, as defined, is guilty of the crime of money laundering. (Pen. Code, § 186.10, subd. (a).)

Existing law defines "criminal activity" for purposes of money laundering to mean a felony. (Pen. Code, § 186.9, subd. (e).)

Existing law provides that a person convicted of money laundering may be punished by imprisonment in county jail for either a misdemeanor with a maximum of one year or by a felony sentence imposed pursuant to Penal Code § 1170, subdivision (h), by a fine of not more than $250,000 or twice the value of the property transacted, whichever is greater. On a second or subsequent conviction, the maximum fine that may be imposed is $500,000 or five times the value of the property transacted, whichever is greater. (Pen. Code, § 186.10, subd. (a).)

Existing law enhances the penalty of a person convicted of money laundering as follows:

a) A mandatory additional term of one year to be served consecutive to the punishment if the value of the transaction or transactions exceeds $50,000 but is less than $150,000;

b) A mandatory additional term of two years to be served consecutive to the punishment if the value of the transaction or transactions exceeds $150,000 but is less than $1,000,000;

c) A mandatory additional term of three years to be served consecutive to the punishment if the value of the transaction or transactions exceeds $1,000,000 but is less than $2,500,000; or

d) A mandatory additional term of four years to be served consecutive to the punishment if the value of the transaction or transactions exceeds $2,500,000. (Pen. Code, § 186.10, subd. (c)(1).)

Existing law provides that if sentence for a felony is imposed pursuant to Penal Code Section 1170, subdivision (h), the defendant shall serve his sentence in a county jail unless he or she has been convicted of a prior or current serious felony or a sex offense for which registration is required. (Pen. Code § 1170, subd. (h).)

Existing law prohibits lotteries, with exceptions for the California State Lottery, bingo for charitable purposes, and charitable raffles conducted by a non-profit, tax-exempt organization, and makes the violation of those crimes punishable as a misdemeanor. (Pen. Code, §§ 319-329.)

Existing law defines a "lottery" as any scheme for the disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property or a portion of it, or for any share or any interest in such property, upon agreement, understanding or expectation that it is to be distributed or disposed of by lot or chance whether called a lottery, raffle, or gift enterprise, or by whatever name the same may be known. (Pen. Code, § 319.)

Existing law states that every person who deals, plays, or carries on, opens, or causes to be opened, or who conducts either as owner or employee, whether for hire or not, any game of faro, monte, roulette, lansquenet, rouge et noire, rondo, tan, fan-tan, seven-and-a-half, twenty-one, hokey-pokey, or any banking or percentage game played with cards, dice, or any device, for money, checks, credit, or other representative of value, and every person who plays or bets at or against any of those prohibited games is guilty of a misdemeanor punishable by a fine not less than $1,000 or by imprisonment in the county jail not exceeding 6 months, or by both the fine and imprisonment. (Pen. Code, § 330.)

Existing law prohibits any person from using or offering for use any method intended to be used by a person interacting with an electronic video monitor to simulate gambling or play gambling-themed games in a business establishment that (A) directly or indirectly implements the predetermination of sweepstakes cash, cash-equivalent prizes, or other prizes of value, or (B) otherwise connects a sweepstakes player or participant with sweepstakes cash, cash-equivalent prizes, or other prizes of value, except as specified. (Bus. & Prof. Code, § 17539.1, subd. (a)(12).)

This bill expands the definition of "criminal activity" to include misdemeanor and infraction gambling violations for purposes of money laundering.

RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION

For the past several years this Committee has scrutinized legislation referred to its jurisdiction for any potential impact on prison overcrowding. Mindful of the United States Supreme Court ruling and federal court orders relating to the state’s ability to provide a constitutional level of health care to its inmate population and the related issue of prison overcrowding, this Committee has applied its “ROCA” policy as a content-neutral, provisional measure necessary to ensure that the Legislature does not erode progress in reducing prison overcrowding.

On February 10, 2014, the federal court ordered California to reduce its in-state adult institution population to 137.5% of design capacity by February 28, 2016, as follows:

• 143% of design bed capacity by June 30, 2014;
• 141.5% of design bed capacity by February 28, 2015; and,
• 137.5% of design bed capacity by February 28, 2016.

In December of 2015 the administration reported that as “of December 9, 2015, 112,510 inmates were housed in the State’s 34 adult institutions, which amounts to 136.0% of design bed capacity, and 5,264 inmates were housed in out-of-state facilities. The current population is 1,212 inmates below the final court-ordered population benchmark of 137.5% of design bed capacity, and has been under that benchmark since February 2015.” (Defendants’ December 2015 Status Report in Response to February 10, 2014 Order, 2:90-cv-00520 KJM DAD PC, 3-Judge Court, Coleman v. Brown, Plata v. Brown (fn. omitted).) One year ago, 115,826 inmates were housed in the State’s 34 adult institutions, which amounted to 140.0% of design bed capacity, and 8,864 inmates were housed in out-of-state facilities. (Defendants’ December 2014 Status Report in Response to February 10, 2014 Order, 2:90-cv-00520 KJM DAD PC, 3-Judge Court, Coleman v. Brown, Plata v. Brown (fn. omitted).)

While significant gains have been made in reducing the prison population, the state must stabilize these advances and demonstrate to the federal court that California has in place the “durable solution” to prison overcrowding “consistently demanded” by the court. (Opinion Re: Order Granting in Part and Denying in Part Defendants’ Request For Extension of December 31, 2013 Deadline, NO. 2:90-cv-0520 LKK DAD (PC), 3-Judge Court, Coleman v. Brown, Plata v. Brown (2-10-14). The Committee’s consideration of bills that may impact the prison population therefore will be informed by the following questions:

• Whether a proposal erodes a measure which has contributed to reducing the prison population;
• Whether a proposal addresses a major area of public safety or criminal activity for which there is no other reasonable, appropriate remedy;
• Whether a proposal addresses a crime which is directly dangerous to the physical safety of others for which there is no other reasonably appropriate sanction;
• Whether a proposal corrects a constitutional problem or legislative drafting error; and
• Whether a proposal proposes penalties which are proportionate, and cannot be achieved through any other reasonably appropriate remedy.

COMMENTS

1. Need For This Bill

According to the author and the sponsor:

In 2014, I authored Assembly Bill (AB) 1439 to clarify that gambling at sweepstakes cafes is illegal. The bill made internet gambling sweepstakes at these cafes an unfair business practice and gave the Attorney General, district attorneys, and city attorneys the authority to bring civil suit to subject operators and civil penalties for violations.

On June 25, 2015 the California Supreme Court ruled in People ex rel. v. Grewal 61 Cal.4^th 544, that computerized sweepstakes found at internet cafes are illegal under state gambling laws. In a unanimous ruling, the court rejected arguments that the sweepstakes are different from slot machines because they have predetermined outcomes.

Despite AB 1439 and the Grewal decision, new examples of illegal gambling establishments have emerged. These operators claim they are not offering gambling or sweepstakes, but rather “social gaming and mining.” While the business model may have changed, the underlying nature of the games these cafes are offering has not.

Although the law enforcement community intends to continue pursing these gambling promoters, current California law offers prosecutors very limited tools with which to fight this battle. Specifically, all violations of the Penal Code provisions regarding slot machines and lotteries are misdemeanors.

AB 1395 would provide law enforcement with the ability to use criminal remedies when combatting egregious cases of organized, illegal gambling. Specifically, the bill incorporates violations of the gambling laws into organized crime and money laundering statutes. This approach has been used successfully in other states and will give law enforcement the right tools to go after illegal gambling. We believe that without this proposed legislative change, the industry responsible for developing and promoting this form of gambling may very well continue to move forward with their operations with the understanding that it is worth the risk.

1. Penalties for Money Laundering

Under current law, money laundering is punishable as a "wobbler," meaning that it may be charged and punished as a misdemeanor or a felony. The crime of money laundering requires the defendant to conduct a transaction with money or funds knowing that the money or funds, rather than the transaction, represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity. The money or funds must be composed of at least $ 5,000 of proceeds from criminal activity. In order to be guilty of money laundering, the defendant must either (1) have the specific intent to promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on of any criminal activity, or (2) know the monetary instrument represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity. (People v. Mays (2007) 148 Cal. App. 4th 13; Pen. Code, § 186.10, subd. (a).)

The penalties may be enhanced with additional jail or prison time for felony money laundering if the transaction amount exceeds $50,000. (Pen. Code, § 186.10, subd. (c).) The defendant may also be fined up to $250,000 or two times the value of the property transacted, or on a second or subsequent offense, $500,000 or five times the value of the property transacted, whichever is greater. (Pen. Code, § 186.10, subd. (a).)

This bill would authorize the use of the money laundering penalty scheme for unlawful gambling and lotteries, which are mostly misdemeanor offenses, but appear to include some infractions. Currently, only felonies may be prosecuted under money laundering. In order to receive the enhanced penalty for money laundering, the defendant must have committed the underlying offense, here unlawful gambling or lotteries, and in addition the elements of money laundering must be proven.

3. This Bill would apply to a Wide Range of Low-Level Gambling, such as Raffles or Lotteries not Conducted by Specified Tax-Exempt Organizations

Existing law applies money laundering to any felony, although as a practical matter only crimes producing profits or income to the perpetrator are covered by the law. This bill applies money laundering laws to every gambling-related offense in two chapters of the Penal Code, from Section 319 through 337z. These sections make criminal virtually every form of lottery, raffle or bingo game not conducted by a registered charitable organization, regardless that a lottery or raffle could have the same purpose as a game conducted by an exempt charity or other entity licensed to do so. These sections also cover any kind of betting on sports or other contests. Applied strictly, it appears that NCAA basketball tournament bracket office pools constitute illegal gambling.

Most of the offenses are misdemeanors, although it appears that the chapters include two infractions. One infraction (Pen. Code § 336.9) applies to participants in a betting pool, such as an office NCAA tournament or Super Bowl pool. The other infraction (Pen. Code § 337k) is a first time offense of “advertis[ing], or facilitate[ing] the advertisement of, nonparimutuel ^[1]wagering on horse races.” A second or subsequent offense is a misdemeanor.

It appears that the purpose of the bill is to stop ongoing commercial gambling operations in Internet cafes and the like. The author explains the reason for the bill: “[O]rganized criminal enterprises engaged in operating illegal slot machines or lotteries can only be charged under the gambling statutes with misdemeanors. …We strongly support the passage of AB 1395 because it would enable prosecutors to pursue money laundering violations in limited, severe cases of illegal gambling when the proceeds of the gambling operations exceed $5000.00 within a seven-day period or $25,000.00 within a thirty-day period.”

The bill includes activity that goes beyond “limited severe cases of illegal gambling.” Members may wish to consider whether the bill could be drafted so as to apply to those targeted by the sponsor.

1. Prior Legislation

AB 1439 (Salas), Chapter 592, Statutes of 2014, prohibited any person, when conducting a contest or sweepstakes, from using an electronic video monitor to simulate gambling or play gambling-themed games that offers the opportunity to win sweepstakes cash, cash equivalent prizes, or other prizes of value.

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1. In parimutuel betting, all bets are combined and the odds calculated, the house takes a percentage and the proceeds are distributed to the winners. ↑

ASSEMBLY THIRD READING

ATR Bill Id:AB 1395

Author:(Salas)

As Amended Ver:January 4, 2016

Majority vote

SUMMARY: Adds to the list of crimes for which a person can be prosecuted for money laundering. Specifically, this bill expands the definition of "criminal activity" to include misdemeanor gambling violations for purposes of money laundering.

EXISTING LAW:

1. States that any person who conducts or attempts to conduct a transaction within a seven-day period involving a monetary instrument or instruments of a total value exceeding $5,000, or a total value exceeding $25,000 within a 30-day period, through one or more financial institutions with the specific intent to promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on of any criminal activity, or knowing that the monetary instrument represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity, as defined, is guilty of the crime of money laundering.
2. Defines "criminal activity" for purposes of money laundering to mean a criminal offense punishable under the laws of this state by death, imprisonment in the state prison, or imprisonment in a county-jail-eligible felony or from a criminal offense committed in another jurisdiction punishable under the laws of that jurisdiction by death or imprisonment for a term exceeding one year.
3. Provides that a person convicted of money laundering may be punished by imprisonment in county jail for either a misdemeanor with a maximum of one year or a felony and by a fine of not more than $250,000 or twice the value of the property transacted, whichever is greater. On a second or subsequent conviction, the maximum fine that may be imposed is $500,000 or five times the value of the property transacted, whichever is greater.
4. Enhances the penalty of a person convicted of money laundering as follows:
   1. A mandatory additional term of one year to be served consecutive to the punishment if the value of the transaction or transactions exceeds $50,000 but is less than $150,000;
   2. A mandatory additional term of two years to be served consecutive to the punishment if the value of the transaction or transactions exceeds $150,000 but is less than $1,000,000;
   3. A mandatory additional term of three years to be served consecutive to the punishment if the value of the transaction or transactions exceeds $1,000,000 but is less than $2,500,000; or
   4. A mandatory additional term of four years to be served consecutive to the punishment if the value of the transaction or transactions exceeds $2,500,000.
5. Prohibits lotteries, with exceptions for the California State Lottery, bingo for charitable purposes, and charitable raffles conducted by a non-profit, tax-exempt organization, and makes the violation of those crimes punishable as a misdemeanor.
6. Defines a "lottery" as any scheme for the disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property or a portion of it, or for any share or any interest in such property, upon agreement, understanding or expectation that it is to be distributed or disposed of by lot or chance whether called a lottery, raffle, or gift enterprise, or by whatever name the same may be known.
7. States that every person who deals, plays, or carries on, opens, or causes to be opened, or who conducts either as owner or employee, whether for hire or not, any game of faro, monte, roulette, lansquenet, rouge et noire, rondo, tan, fan-tan, seven-and-a-half, twenty-one, hokey-pokey, or any banking or percentage game played with cards, dice, or any device, for money, checks, credit, or other representative of value, and every person who plays or bets at or against any of those prohibited games is guilty of a misdemeanor punishable by a fine not less than $1,000 or by imprisonment in the county jail not exceeding six months, or by both the fine and imprisonment.

FISCAL EFFECT: According to the Assembly Appropriations Committee, moderate costs to the California Department of Corrections and Rehabilitation (CDCR) of less than $150,000 (General Fund), if less than five persons are sentenced to prison per a year, instead of county jail. According to CDCR, the annual contracted bed rate is $27,000 per inmate.

Moderate nonreimbursable local costs for incarceration, offset to a degree by fee revenue.

COMMENTS: According to the author, "In 2014, I authored Assembly Bill (AB) 1439 [Chapter 592] to clarify that gambling at sweepstakes cafes is illegal. Specifically, the bill made internet gambling sweepstakes at these cafes an unfair business practice and gave the Attorney General, district attorneys, and city attorneys the authority to bring civil suit to subject operators to civil penalties for violations.

"On June 25, 2015 the California Supreme Court ruled in People ex rel. v. Grewal that computerized sweepstakes found at internet cafes are illegal under state gambling laws. In a unanimous ruling, the court rejected arguments that the sweepstakes are different from slot machines because they have predetermined outcomes.

"Despite AB 1439 and the Grewal decision, new examples of illegal gambling establishments have emerged. These operators claim they are not offering gambling or sweepstakes, but rather 'social gaming and mining.' While the business model may have changed, the underlying nature of the games these cafes are offering has not.

"AB 1395 would provide law enforcement with the ability to use criminal remedies when combatting egregious cases of organized, illegal gambling. Specifically, the bill incorporates violations of the gambling laws into organized crime and money laundering statutes. This approach has been used successfully in other states and will give law enforcement the right tools to go after illegal gambling."

Analysis Prepared by: Stella Choe / PUB. S. / (916) 319-3744 FN: 0002576

Date of Hearing: January 21, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

ABPCA Bill Id:AB 1395

Author:(Salas) – As Amended Ver:January 4, 2016

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill adds misdemeanor gambling to the list of crimes for which a person can be prosecuted for money laundering.

FISCAL EFFECT:

Moderate costs to the California Department of Corrections and Rehabilitation (CDCR) of less than $150,000 (GF), if less than 5 persons are sentenced to prison per a year, instead of county jail. According to CDCR, the annual contracted bed rate is $27,000 per inmate.

Moderate nonreimbursable local costs for incarceration, offset to a degree by fee revenue.

COMMENTS:

1. Background. Under current law, a person convicted of money laundering may be punished by imprisonment in county jail for either a misdemeanor with a maximum of one year or a felony and by a fine of not more than $250,000 or twice the value of the property transacted, whichever is greater. Current law also provides various penalty enhancements for subsequent convictions or if the dollar amount is greater.

Current law defines "criminal activity" for purposes of money laundering to mean a criminal offense punishable under the laws of this state by death, imprisonment in the state prison, or imprisonment for a county-jail eligible felony or from a criminal offense committed in another jurisdiction punishable under the laws of that jurisdiction by death or imprisonment for a term exceeding one year.

Current law prohibits lotteries, with the exception of the California State Lottery and bingo or raffles by qualified charitable organizations, and violation of this crime is punishable as misdemeanor. Current law also prohibits any person from using or offering for use any method intended to be used by a person interacting with an electronic video monitor to simulate gambling or play gambling-themed games in a business establishment that (a) directly or indirectly implements the predetermination of sweepstakes cash, cash-equivalent prizes, or other prizes of value, or (b) otherwise connects a sweepstakes player or participant with sweepstakes cash, cash-equivalent prizes, or other prizes of value, except as specified.

1. Purpose. According to the author, "In 2014, I authored Assembly Bill (AB) 1439 to clarify that gambling at sweepstakes cafes is illegal. Specifically, the bill made internet gambling sweepstakes at these cafes an unfair business practice and gave the Attorney General, district attorneys, and city attorneys the authority to bring civil suit to subject operators to civil penalties for violations.

"On June 25, 2015 the California Supreme Court ruled in People ex rel. v. Grewal that computerized sweepstakes found at internet cafes are illegal under state gambling laws. In a unanimous ruling, the court rejected arguments that the sweepstakes are different from slot machines because they have predetermined outcomes.

"Despite AB 1439 and the Grewal decision, new examples of illegal gambling establishments have emerged. These operators claim they are not offering gambling or sweepstakes, but rather 'social gaming and mining.' While the business model may have changed, the underlying nature of the games these cafes are offering has not.

"AB 1395 would provide law enforcement with the ability to use criminal remedies when combatting egregious cases of organized, illegal gambling. Specifically, the bill incorporates violations of the gambling laws into organized crime and money laundering statutes. This approach has been used successfully in other states and will give law enforcement the right tools to go after illegal gambling."

If the District Attorney prosecutes the “criminal activity wobbler” as a felony, and prevails, and the individual convicted is subject to state prison due to a prior qualifying violent felony conviction, the incarceration will be served in state prison instead of the county jail.

1. Argument in Support. According to the sponsor, the Kern County District Attorney's Office, "As it stands now, a large, organized criminal enterprise engaged in operating illegal slots machines or lotteries can only be charged under the gambling statutes with misdemeanors. We strongly support the passage of AB 1395 because it would enable prosecutors to pursue money laundering violations in limited, severe cases of illegal gambling when the proceeds of the gambling operations exceed $5,000 within a seven-day period or $25,000 within a thirty-day period. We believe that without this proposed legislative change, the industry responsible for developing and promoting this form of gambling may very well continue to move forward with their operations with the understanding that it is 'worth the risk.'
2. Prior Legislation: AB 1439 (Salas), Chapter 592, Statutes of 2014, prohibited any person, when conducting a contest or sweepstakes, from using an electronic video monitor to simulate gambling or play gambling-themed games that offers the opportunity to win sweepstakes cash, cash equivalent prizes, or other prizes of value

Analysis Prepared by: Pedro R. Reyes / APPR. / (916) 319-2081

Date of Hearing: January 12, 2016

Counsel: Stella Choe

ASSEMBLY COMMITTEE ON

, Chair

ABPCA Bill Id:

Author:() – As Ver:January 4, 2016

SUMMARY: Adds to the list of crimes for which a person can be prosecuted for money laundering. Specifically, this bill expands the definition of "criminal activity" to include misdemeanor gambling violations for purposes of money laundering.

EXISTING LAW:

1. States that any person who conducts or attempts to conduct a transaction within a seven-day period involving a monetary instrument or instruments of a total value exceeding $5,000, or a total value exceeding $25,000 within a 30-day period, through one or more financial institutions with the specific intent to promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on of any criminal activity, or knowing that the monetary instrument represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity, as defined, is guilty of the crime of money laundering. (Pen. Code, § 186.10, subd. (a).)
2. Defines "criminal activity" for purposes of money laundering to mean a criminal offense punishable under the laws of this state by death, imprisonment in the state prison, or imprisonment in a county-jail-eligible felony or from a criminal offense committed in another jurisdiction punishable under the laws of that jurisdiction by death or imprisonment for a term exceeding one year. (Pen. Code, § 186.9, subd. (e).)
3. Provides that a person convicted of money laundering may be punished by imprisonment in county jail for either a misdemeanor with a maximum of one year or a felony and by a fine of not more than $250,000 or twice the value of the property transacted, whichever is greater. On a second or subsequent conviction, the maximum fine that may be imposed is $500,000 or five times the value of the property transacted, whichever is greater. (Pen. Code, § 186.10, subd. (a).)
4. Enhances the penalty of a person convicted of money laundering as follows:
   1. A mandatory additional term of one year to be served consecutive to the punishment if the value of the transaction or transactions exceeds $50,000 but is less than $150,000;
   2. A mandatory additional term of two years to be served consecutive to the punishment if the value of the transaction or transactions exceeds $150,000 but is less than $1,000,000;
   3. A mandatory additional term of three years to be served consecutive to the punishment if the value of the transaction or transactions exceeds $1,000,000 but is less than $2,500,000; or
   4. A mandatory additional term of four years to be served consecutive to the punishment if the value of the transaction or transactions exceeds $2,500,000. (Pen. Code, § 186.10, subd. (c)(1).)
5. Prohibits lotteries, with exceptions for the California State Lottery, bingo for charitable purposes, and charitable raffles conducted by a non-profit, tax-exempt organization, and makes the violation of those crimes punishable as a misdemeanor. (Pen. Code, §§ 319-329.)
6. Defines a "lottery" as any scheme for the disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property or a portion of it, or for any share or any interest in such property, upon agreement, understanding or expectation that it is to be distributed or disposed of by lot or chance whether called a lottery, raffle, or gift enterprise, or by whatever name the same may be known. (Pen. Code, § 319.)
7. States that every person who deals, plays, or carries on, opens, or causes to be opened, or who conducts either as owner or employee, whether for hire or not, any game of faro, monte, roulette, lansquenet, rouge et noire, rondo, tan, fan-tan, seven-and-a-half, twenty-one, hokey-pokey, or any banking or percentage game played with cards, dice, or any device, for money, checks, credit, or other representative of value, and every person who plays or bets at or against any of those prohibited games is guilty of a misdemeanor punishable by a fine not less than $1,000 or by imprisonment in the county jail not exceeding 6 months, or by both the fine and imprisonment. (Pen. Code, § 330.)
8. Prohibits any person from using or offering for use any method intended to be used by a person interacting with an electronic video monitor to simulate gambling or play gambling-themed games in a business establishment that (A) directly or indirectly implements the predetermination of sweepstakes cash, cash-equivalent prizes, or other prizes of value, or (B) otherwise connects a sweepstakes player or participant with sweepstakes cash, cash-equivalent prizes, or other prizes of value, except as specified. (Bus. & Prof. Code, § 17539.1, subd. (a)(12).)

FISCAL EFFECT: Unknown.

COMMENTS:

1. Author's Statement: According to the author, "In 2014, I authored Assembly Bill (AB) 1439 to clarify that gambling at sweepstakes cafes is illegal. Specifically, the bill made internet gambling sweepstakes at these cafes an unfair business practice and gave the Attorney General, district attorneys, and city attorneys the authority to bring civil suit to subject operators to civil penalties for violations.

"On June 25, 2015 the California Supreme Court ruled in People ex rel. v. Grewal that computerized sweepstakes found at internet cafes are illegal under state gambling laws. In a unanimous ruling, the court rejected arguments that the sweepstakes are different from slot machines because they have predetermined outcomes.

"Despite AB 1439 and the Grewal decision, new examples of illegal gambling establishments have emerged. These operators claim they are not offering gambling or sweepstakes, but rather 'social gaming and mining.' While the business model may have changed, the underlying nature of the games these cafes are offering has not.

"AB 1395 would provide law enforcement with the ability to use criminal remedies when combatting egregious cases of organized, illegal gambling. Specifically, the bill incorporates violations of the gambling laws into organized crime and money laundering statutes. This approach has been used successfully in other states and will give law enforcement the right tools to go after illegal gambling."

1. Penalties for Money Laundering: Under current law, money laundering is punishable as a "wobbler," meaning that it may be punished as a misdemeanor or a felony. The crime of money laundering requires the defendant to conduct a transaction with money or funds knowing that the money or funds, rather than the transaction, represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity. The money or funds must be composed of at least $ 5,000 of proceeds from criminal activity. In order to be guilty of money laundering, the defendant must either (1) have the specific intent to promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on of any criminal activity, or (2) know the monetary instrument represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity. (See People v. Mays (2007) 148 Cal. App. 4th 13; Pen. Code, § 186.10, subd. (a).)

The penalties may be enhanced with additional jail time for felony money laundering if the transaction amount exceeds $50,000. (Pen. Code, § 186.10, subd. (c).) The defendant may also be fined up to $250,000 or two times the value of the property transacted, or on a second or subsequent offense, $500,000 or five times the value of the property transacted, whichever is greater. (Pen. Code, § 186.10, subd. (a).)

This bill would authorize the use of the money laundering penalty scheme for unlawful gambling and lotteries, which are misdemeanor offenses. Currently, only felonies may be prosecuted under money laundering. In order to receive the enhanced penalty for money laundering, the defendant must have committed the underlying offense, here unlawful gambling or lotteries, and in addition the elements of money laundering must be proven.

1. Argument in Support: According to the Kern County District Attorney's Office, the sponsor of this bill, "Based on the new sweepstakes law and the Grewal decision, one might think that the industry responsible for developing and promoting this form of gambling would abdicate. Unfortunately, however, they have not been dissuaded. To the contrary, the industry continues to slightly modify their business model in an effort to avoid the new sweepstakes law and the Grewal decision. The current models they are using were designed to give the appearance that the games involve 'social gaming and mining' or 'games of skill.'
   
   "Although the law enforcement community intends to continue pursing these gambling promoters, current California law offers prosecutors very limited tools with which to fight this battle. Specifically, all violations of the Penal Code provisions regarding slot machines and lotteries are misdemeanors, and misdemeanors only. As it stands now, a large, organized criminal enterprise engaged in operating illegal slot machines or lotteries can only be charged under the gambling statutes with misdemeanors. Although the operators could be charged for violations related to unfair business practices, the prospect of paying civil penalties does not seem particularly appropriate for egregious criminal conduct and this far has only been partially effective. We strongly support the passage of AB 1395 because it would enable prosecutors to pursue money laundering violations in limited, severe cases of illegal gambling when the proceeds of the gambling operations exceed $5000.00 within a seven-day period or $25,000.00 within a thirty-day period. We believe that without this proposed legislative change, the industry responsible for developing and promoting this form of gambling may very well continue to move forward with their operations with the understanding that it is 'worth the risk.'"
2. Argument in Opposition: None.
3. Prior Legislation: AB 1439 (Salas), Chapter 592, Statutes of 2014, prohibited any person, when conducting a contest or sweepstakes, from using an electronic video monitor to simulate gambling or play gambling-themed games that offers the opportunity to win sweepstakes cash, cash equivalent prizes, or other prizes of value.

REGISTERED SUPPORT / OPPOSITION:

Support

Kern County District Attorney's Office (Sponsor)

California District Attorneys Association

San Diego District Attorney's Office

Opposition

None

Analysis Prepared by: