Existing law, the California Control of Profits of Organized Crime Act, provides the procedure for the forfeiture of property and proceeds acquired through a pattern of criminal profiteering activity, as specified. Under existing law, criminal profiteering activity is defined as certain acts or threats made for financial gain or advantage that may be charged as specified crimes, including, among others, gambling.

This bill would include specified crimes within the definition of gambling for the purposes of these provisions. By increasing the burdens on local prosecuting agencies, this 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.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1294

Author:(Salas)

As Amended Ver:August 12, 2019

Majority vote

SUMMARY:

Expands the list of specified crimes that fall within the definition of gambling for purposes of providing a procedure for the forfeiture of property and proceeds acquired through a pattern of criminal profiteering activity.

The Senate Amendments:

1. Delete the exception from criminal liability for operating or playing a controlled game that has been approved by the Department of Justice.
2. Make technical, non-substantive changes.

COMMENTS:

According to the Author:

"Like many criminal enterprises, gambling has evolved in recent years as technology progresses. In some of our most vulnerable communities, law enforcement is facing an illegal gambling epidemic with enterprises opening up faster than the police can shut them down. Many of these gambling operations include sweepstakes cafes and arcade-style gambling machines. Police have noted that these gambling businesses have been linked to drugs, property crimes, robberies, and even shootings. In addition, these gambling enterprises are known to have strong connections to organized crime. Currently, law enforcement does not possess the tools to effectively shutter enough gambling locations. Convicted operators are usually fined a few thousand dollars and continue to open up new illicit businesses.

"AB 1294 would expand the definition of 'criminal profiteering activity' in Penal Code section 186.2, subdivision (a)(8) to include various gambling device statutes. This would allow law enforcement to more effectively impact the industry of illicit gambling. Instead of relying on small fines and equipment seizures, this bill would enable law enforcement to target the bank accounts that contain the illicit profits of operators who are running illegal gambling enterprises operating sweepstake cafes and arcade-style gambling machines, some of which may be linked to organized crime."

Arguments in Support:

According to the Kern County District Attorney's Office, "This would allow law enforcement to more effectively deal with the industry of illicit gambling. Instead of relying on small fines and equipment seizures, this bill would enable law enforcement to target bank accounts containing the illicit profits of operators who are running illegal gambling enterprises, operating sweepstakes cafes and arcade-style gambling machines, some of which may be linked to organized crime.

"AB 1294 will go a long way in helping law enforcement shut down these illegal operations. Operators of these gambling locations are not licensed, regulated, or subject to criminal background checks. Currently, law enforcement does not possess the tools to effectively close enough of these nefarious locations. Most offenses are simple misdemeanors and convicted operators continue to open new illicit businesses."

Arguments in Opposition:

None.

FISCAL COMMENTS:

According to Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.

VOTES:

ASM PUBLIC SAFETY: 8-0-0

YES: Jones-Sawyer, Lackey, Bauer-Kahan, Diep, Kamlager-Dove, Quirk, Santiago, Wicks

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Gabriel, Jones-Sawyer, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

ASSEMBLY FLOOR: 76-0-4

YES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, O'Donnell, Obernolte, Patterson, Petrie‑Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Arambula, Grayson, Mullin, Quirk

SENATE FLOOR: 40-0-0

YES: Allen, Archuleta, Atkins, Bates, Beall, Borgeas, Bradford, Caballero, Chang, Dahle, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Grove, Hertzberg, Hill, Hueso, Hurtado, Jackson, Jones, Leyva, McGuire, Mitchell, Monning, Moorlach, Morrell, Nielsen, Pan, Portantino, Roth, Rubio, Skinner, Stern, Stone, Umberg, Wieckowski, Wiener, Wilk

UPDATED:

VERSION: August 12, 2019

CONSULTANT: Nikki Moore (Counsel) / PUB. S. / (916) 319-3744 FN: 0001427

 THIRD READING  

Bill No: AB 1294

Author: Salas (D), et al.

Amended: 8/12/19 in Senate

Vote: 21

SENATE PUBLIC SAFETY COMMITTEE: 7-0, 6/25/19

AYES: Skinner, Moorlach, Bradford, Jackson, Mitchell, Morrell, Wiener

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 76-0, 5/2/19 (Consent) - See last page for vote

SUBJECT: Criminal profiteering

SOURCE: Author

DIGEST:

This bill adds specified gambling crimes to the crimes included in “criminal profiteering activity,” including crimes connected to operating a lottery or any slot or card machine, contrivance, appliance or mechanical device.

Senate Floor Amendments of 8/12/19 add Senator Umberg as a coauthor.

ANALYSIS:

Existing law:

1. Establishes the “California Control Profits of Organized Crime Act” which provides the procedure for the forfeiture of property and proceeds acquired through a “pattern of criminal profiteering activity”, as specified. (Pen. Code, § 186 et seq.)
2. Declares that the Legislature finds and declares that an effective means of punishing and deterring criminal activities of organized crime is through the forfeiture of profits acquired and accumulated as a result of such criminal activities. It is the intent of the Legislature that the “California Control of Profits of Organized Crime Act” be used by prosecutors to punish and deter only such activities. (Pen. Code, § 186.1.)
3. Defines “criminal profiteering activity” as “any act committed or attempted or any threat made for financial gain or advantage, which act or threat may be charged as a crime for gambling, among other offenses.” (Pen. Code, § 186.2, subd. (a).)
4. Defines “pattern of criminal profiteering activity” to mean engaging in at least two incidents of criminal profiteering, as defined by this chapter, that meet the following requirements:
   1. Have the same or a similar purpose, result, principals, victims, or methods of commission, or are otherwise interrelated by distinguishing characteristics;
   2. Are not isolated events; and/or
   3. Were committed as a criminal activity of organized crime. (Pen. Code, § 186.2, subd. (b)(1).)
      
5. Defines “organized crime” as “a crime that is of a conspiratorial nature and that is either of an organized nature and seeks to supply illegal goods and services such as gambling, among other offenses, or that, through planning and coordination of individual efforts, seeks to conduct the illegal activities of arson for profit, hijacking, insurance fraud, smuggling, operating vehicle theft rings, fraud against the beverage container recycling program, or systematically encumbering the assets of a business for the purpose of defrauding creditors.” “Organized crime” also means “a crime committed by a criminal street gang,” as defined. “Organized crime” also means “false or fraudulent activities, schemes, or artifices, as defined, and the theft of personal identifying information,” as defined. (Pen. Code, § 186.2, subd. (d).)
6. States that the following assets of any person who is convicted of a specified underlying offense and of engaging in a pattern of criminal profiteering activity are subject to forfeiture:
7. Any property interest whether tangible or intangible, acquired through a pattern of criminal profiteering activity; and,
8. All proceeds of a pattern of criminal profiteering activity, which property shall include all things of value that may have been received in exchange for the proceeds immediately derived from the pattern of criminal profiteering activity. (Pen. Code, § 186.3)
9. States that, notwithstanding that no response or claim has been filed, in all cases where property is forfeited, as specified, and, if necessary, sold by the Department of General Services (DGS) or local governmental entity, the money forfeited or the proceeds of sale shall be distributed by the state or local governmental entity as follows:
10. To the bona fide or innocent purchaser, conditional sales vendor, or holder of a valid lien, mortgage, or security interest, if any, up to the amount of his or her interest in the property or proceeds, when the court declaring the forfeiture orders a distribution to that person. The court shall endeavor to discover all those lien holders and protect their interests and may, at its discretion, order the proceeds placed in escrow for up to an additional 60 days to ensure that all valid claims are received and processed;
11. To DGS or local governmental entity for all expenditures made or incurred by it in connection with the sale of the property, including expenditures for any necessary repairs, storage, or transportation of any property seized, as specified; and,
12. To the State's General Fund or local governmental entity, whichever prosecutes. (Pen. Code, § 186.8)
13. 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.)
14. Specifies the following offenses related to gambling:
15. It is a misdemeanor for a person to contrive, prepare, set up, propose, or draw any lottery. (Pen. Code, § 320.)
16. It is a misdemeanor for a person to sell, give, or in any manner whatever, furnish or transfer 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. (Pen. Code, § 321.)
17. It is a misdemeanor for a person to aid or assist in, 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 therein. (Pen. Code, § 322.)
18. It is a misdemeanor for a person to open, set up, or keep, by himself 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, advertise or publish the setting up, opening, or using of any such office. (Pen. Code, § 323.)
19. It is a misdemeanor for a person to let, or permit 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. (Pen. Code, § 326.)
20. It is a misdemeanor for a person who has in his or her possession as specified 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. (Pen. Code, § 330a.)
21. It is a misdemeanor for a person 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. (Pen. Code, § 330b.)
22. It is a misdemeanor for a person for any person to make or to permit the making of an agreement with another person regarding any slot machine or device, by which the user of the slot machine or device, as a result of the element of hazard or chance or other unpredictable outcome, may become entitled to receive money, credit, allowance, or other thing of value or additional chance or right to use the slot machine or device, or to receive any check, slug, token, or memorandum entitling the holder to receive money, credit, allowance, or other thing of value. (Pen. Code, § 330b.)
23. Declares “punchboards” as defined to be an illegal slot machine or device and thus punishable as a misdemeanor. (Pen. Code, § 330c.)
24. It is a misdemeanor for a person to control, as specified, any slot machine or device, and every person who makes or permits to be made with any person any agreement with reference to any slot machine or device, pursuant to which agreement the user thereof, as a result of any element of hazard or chance, may become entitled to receive anything of value or additional chance or right to use that slot machine or device, or to receive any check, slug, token, or memorandum, whether of value or otherwise, entitling the holder to receive anything of value. (Pen. Code, § 330.1.)
25. Declares that the mere possession or control, either as owner, lessee, agent, employee, mortgagor, or otherwise of any slot machine or device is prohibited and penalized as a misdemeanor. Declares that every person who permits to be placed, maintained or kept in any room, space, enclosure, or building owned, leased or occupied by him, or under his management or control, whether for use or operation or for storage, bailment, safekeeping or deposit only, any slot machine or device is guilty of a misdemeanor. Further declares that any slot machine or device as defined is subject to confiscation. (Pen. Code, § 330.4.)

This bill adds the gambling related offenses described above within the definition of “gambling” for the purposes of the California Control of Profits of Organized Crime Act.

Background

The operation of a slot machine is illegal. (Pen. Code, § 330b.) “For purposes of this section, ‘slot machine or device’ means a machine, apparatus, or device that is adapted, or may readily be converted, for use in a way that, as a result of the insertion of any piece of money or coin or other object, or by any other means, the machine or device is caused to operate or may be operated, and by reason of any element of hazard or chance or of other outcome of operation unpredictable by him or her, the user may receive or become entitled to receive any piece of money, credit, allowance, or thing of value, or additional chance or right to use the slot machine or device, or any check, slug, token, or memorandum, whether of value or otherwise, which may be exchanged for any money, credit, allowance, or thing of value, or which may be given in trade, irrespective of whether it may, apart from any element of hazard or chance or unpredictable outcome of operation, also sell, deliver, or present some merchandise, indication of weight, entertainment, or other thing of value.” (Pen. Code, § 330b, sub. (d).)

In recent years, new types of gambling devices that offer computerized sweepstakes games started popping up in Internet cafes. “The cafes advertise and sell a product — usually Internet time or long-distance telephone minutes — that the gambler does not actually want. Along with that unwanted product, the customer receives a supposed bonus of “entries” in the Internet sweepstakes. With those entries, the customer can participate in Internet-based games at the cafe’s specially-programmed personal computers. Based on a random allocation of winning and losing entries, the customer may or may not win cash prizes through those games.” (American Gaming Association, Internet Sweepstakes Cafes: Unregulated Storefront Gambling in the Neighborhood (2014), p. 1.)

These Internet cafe owners argued that these games were not illegal slot machines subject to Penal Code Section 330b because (1) no coin or similar object was inserted into a slot by customers, and (2) the element of chance is not present because the results were predetermined by computer software, not by the machines themselves. (People ex rel. Green v. Grewal (2015) 61 Cal. 4th 544.) The California Supreme Court disagreed and held that these computerized games fall under the definition of slot machine and are thus illegal. The Court found that the insertion of a PIN or account number or the swiping of a magnetic card at the computer terminal in order to activate or access the sweepstakes games and thereby use points received upon paying money at the register comes within the broad scope of the statute. (Id. at 559.) As for the element of chance, the court held that since customers could not exert any influence over the outcome of their sweepstakes entries, these systems are indeed based on chance or luck. (Id. at 560.)

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT: (Verified 8/9/19)

Attorney General Xavier Becerra

Avenal Police Department

California District Attorneys Association

California Police Chiefs Association

California State Sheriffs’ Association

Corcoran Police Department

Kern County Board of Supervisors

Kings County Sheriff’s Office

Lemoore Police Department

Peace Officers Research Association of California

Selma Police Department

OPPOSITION: (Verified 8/9/19)

None received

ASSEMBLY FLOOR: 76-0, 5/2/19

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Grayson, Mullin, Quirk

Prepared by: Stella Choe / PUB. S. /

8/14/19 15:33:10

**** END ****

 THIRD READING  

Bill No: AB 1294

Author: Salas (D)

Amended: 5/28/19 in Senate

Vote: 21

SENATE PUBLIC SAFETY COMMITTEE: 7-0, 6/25/19

AYES: Skinner, Moorlach, Bradford, Jackson, Mitchell, Morrell, Wiener

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 76-0, 5/2/19 (Consent) - See last page for vote

SUBJECT: Criminal profiteering

SOURCE: Author

DIGEST:

This bill adds specified gambling crimes to the crimes included in “criminal profiteering activity,” including crimes connected to operating a lottery or any slot or card machine, contrivance, appliance or mechanical device.

ANALYSIS:

Existing law:

1. Establishes the “California Control Profits of Organized Crime Act” which provides the procedure for the forfeiture of property and proceeds acquired through a “pattern of criminal profiteering activity”, as specified. (Pen. Code § 186 et seq.)
2. Declares that the Legislature finds and declares that an effective means of punishing and deterring criminal activities of organized crime is through the forfeiture of profits acquired and accumulated as a result of such criminal activities. It is the intent of the Legislature that the “California Control of Profits of Organized Crime Act” be used by prosecutors to punish and deter only such activities. (Pen. Code § 186.1.)
3. Defines “criminal profiteering activity” as “any act committed or attempted or any threat made for financial gain or advantage, which act or threat may be charged as a crime for gambling, among other offenses.” (Pen. Code § 186.2, subd. (a).)
4. Defines “pattern of criminal profiteering activity” to mean engaging in at least two incidents of criminal profiteering, as defined by this chapter, that meet the following requirements:
   1. Have the same or a similar purpose, result, principals, victims, or methods of commission, or are otherwise interrelated by distinguishing characteristics;
   2. Are not isolated events; and/or
   3. Were committed as a criminal activity of organized crime. (Pen. Code § 186.2, subd. (b)(1).)
      
5. Defines “organized crime” as “a crime that is of a conspiratorial nature and that is either of an organized nature and seeks to supply illegal goods and services such as gambling, among other offenses, or that, through planning and coordination of individual efforts, seeks to conduct the illegal activities of arson for profit, hijacking, insurance fraud, smuggling, operating vehicle theft rings, fraud against the beverage container recycling program, or systematically encumbering the assets of a business for the purpose of defrauding creditors.” “Organized crime” also means “a crime committed by a criminal street gang,” as defined. “Organized crime” also means “false or fraudulent activities, schemes, or artifices, as defined, and the theft of personal identifying information,” as defined. (Pen. Code § 186.2, subd. (d).)
6. States that the following assets of any person who is convicted of a specified underlying offense and of engaging in a pattern of criminal profiteering activity are subject to forfeiture:
7. Any property interest whether tangible or intangible, acquired through a pattern of criminal profiteering activity; and,
8. All proceeds of a pattern of criminal profiteering activity, which property shall include all things of value that may have been received in exchange for the proceeds immediately derived from the pattern of criminal profiteering activity. (Pen. Code § 186.3)
9. States that, notwithstanding that no response or claim has been filed, in all cases where property is forfeited, as specified, and, if necessary, sold by the Department of General Services (DGS) or local governmental entity, the money forfeited or the proceeds of sale shall be distributed by the state or local governmental entity as follows:
10. To the bona fide or innocent purchaser, conditional sales vendor, or holder of a valid lien, mortgage, or security interest, if any, up to the amount of his or her interest in the property or proceeds, when the court declaring the forfeiture orders a distribution to that person. The court shall endeavor to discover all those lien holders and protect their interests and may, at its discretion, order the proceeds placed in escrow for up to an additional 60 days to ensure that all valid claims are received and processed;
11. To DGS or local governmental entity for all expenditures made or incurred by it in connection with the sale of the property, including expenditures for any necessary repairs, storage, or transportation of any property seized, as specified; and,
12. To the State's General Fund or local governmental entity, whichever prosecutes. (Pen. Code § 186.8)
13. 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.)
14. Specifies the following offenses related to gambling:
15. It is a misdemeanor for a person to contrive, prepare, set up, propose, or draw any lottery. (Pen. Code § 320.)
16. It is a misdemeanor for a person to sell, give, or in any manner whatever, furnish or transfer 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. (Pen. Code § 321.)
17. It is a misdemeanor for a person to aid or assist in, 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 therein. (Pen. Code § 322.)
18. It is a misdemeanor for a person to open, set up, or keep, by himself 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, advertise or publish the setting up, opening, or using of any such office. (Pen. Code § 323.)
19. It is a misdemeanor for a person to let, or permit 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. (Pen. Code § 326.)
20. It is a misdemeanor for a person who has in his or her possession as specified 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. (Pen. Code § 330a.)
21. It is a misdemeanor for a person 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. (Pen. Code § 330b.)
22. It is a misdemeanor for a person for any person to make or to permit the making of an agreement with another person regarding any slot machine or device, by which the user of the slot machine or device, as a result of the element of hazard or chance or other unpredictable outcome, may become entitled to receive money, credit, allowance, or other thing of value or additional chance or right to use the slot machine or device, or to receive any check, slug, token, or memorandum entitling the holder to receive money, credit, allowance, or other thing of value. (Pen. Code § 330b.)
23. Declares “punchboards” as defined to be an illegal slot machine or device and thus punishable as a misdemeanor. (Pen. Code § 330c.)
24. It is a misdemeanor for a person to control, as specified, any slot machine or device, and every person who makes or permits to be made with any person any agreement with reference to any slot machine or device, pursuant to which agreement the user thereof, as a result of any element of hazard or chance, may become entitled to receive anything of value or additional chance or right to use that slot machine or device, or to receive any check, slug, token, or memorandum, whether of value or otherwise, entitling the holder to receive anything of value. (Pen. Code § 330.1.)
25. Declares that the mere possession or control, either as owner, lessee, agent, employee, mortgagor, or otherwise of any slot machine or device is prohibited and penalized as a misdemeanor. Declares that every person who permits to be placed, maintained or kept in any room, space, enclosure, or building owned, leased or occupied by him, or under his management or control, whether for use or operation or for storage, bailment, safekeeping or deposit only, any slot machine or device is guilty of a misdemeanor. Further declares that any slot machine or device as defined is subject to confiscation. (Pen. Code § 330.4.)

This bill adds the gambling related offenses described above within the definition of “gambling” for the purposes of the California Control of Profits of Organized Crime Act.

Background

The operation of a slot machine is illegal. (Pen. Code § 330b.) “For purposes of this section, ‘slot machine or device’ means a machine, apparatus, or device that is adapted, or may readily be converted, for use in a way that, as a result of the insertion of any piece of money or coin or other object, or by any other means, the machine or device is caused to operate or may be operated, and by reason of any element of hazard or chance or of other outcome of operation unpredictable by him or her, the user may receive or become entitled to receive any piece of money, credit, allowance, or thing of value, or additional chance or right to use the slot machine or device, or any check, slug, token, or memorandum, whether of value or otherwise, which may be exchanged for any money, credit, allowance, or thing of value, or which may be given in trade, irrespective of whether it may, apart from any element of hazard or chance or unpredictable outcome of operation, also sell, deliver, or present some merchandise, indication of weight, entertainment, or other thing of value.” (Pen. Code § 330b, sub. (d).)

In recent years, new types of gambling devices that offer computerized sweepstakes games started popping up in Internet cafes. “The cafes advertise and sell a product — usually Internet time or long-distance telephone minutes — that the gambler does not actually want. Along with that unwanted product, the customer receives a supposed bonus of “entries” in the Internet sweepstakes. With those entries, the customer can participate in Internet-based games at the cafe’s specially-programmed personal computers. Based on a random allocation of winning and losing entries, the customer may or may not win cash prizes through those games.” (American Gaming Association, Internet Sweepstakes Cafes: Unregulated Storefront Gambling in the Neighborhood (2014), p. 1.)

These Internet cafe owners argued that these games were not illegal slot machines subject to Penal Code Section 330b because (1) no coin or similar object was inserted into a slot by customers, and (2) the element of chance is not present because the results were predetermined by computer software, not by the machines themselves. (People ex rel. Green v. Grewal (2015) 61 Cal. 4th 544.) The California Supreme Court disagreed and held that these computerized games fall under the definition of slot machine and are thus illegal. The Court found that the insertion of a PIN or account number or the swiping of a magnetic card at the computer terminal in order to activate or access the sweepstakes games and thereby use points received upon paying money at the register comes within the broad scope of the statute. (Id. at 559.) As for the element of chance, the court held that since customers could not exert any influence over the outcome of their sweepstakes entries, these systems are indeed based on chance or luck. (Id. at 560.)

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT: (Verified 7/8/19)

Attorney General Xavier Becerra

Avenal Police Department

California District Attorneys Association

California Police Chiefs Association

California State Sheriffs’ Association

Corcoran Police Department

Kern County Board of Supervisors

Kings County Sheriff’s Office

Lemoore Police Department

Peace Officers Research Association of California

Selma Police Department

OPPOSITION: (Verified 7/8/19)

None received

ASSEMBLY FLOOR: 76-0, 5/2/19

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Grayson, Mullin, Quirk

Prepared by: Mary Kennedy/ PUB. S. /

7/10/19 15:59:19

**** END ****

SENATE COMMITTEE ON PUBLIC SAFETY

Senator Nancy Skinner, Chair

2019 - 2020 Regular

Bill No: AB 1294 Hearing Date: June 25, 2019

Subject: Criminal Profiteering

HISTORY

Source: Author

Prior Legislation: AB 1395 (Salas), 2016, held on Senate Appropriations Suspense File

AB 160 (Dababneh), Ch. 427, Stats. 2015

AB 443 (Alejo), 2015, held on Senate Appropriations Suspense File

AB 1439 (Salas), Ch. 592, Stats. 2014

Support: Attorney General Xavier Becerra; Avenal Police Department; California District Attorneys Association; California Police Chiefs Association; California State Sheriffs’ Association; Corcoran Police Department; Kern County Board of Supervisors; Kings County Sheriff’s Office; Lemoore Police Department; Selma Police Department

Opposition: None known

Assembly Floor Vote: 76 - 0

PURPOSE

The purpose of this bill is add specified gambling crimes to the crimes included in “criminal profiteering activity,” including crimes connected to operating a lottery or any slot or card machine, contrivance, appliance or mechanical device.

Existing law establishes the “California Control Profits of Organized Crime Act” which provides the procedure for the forfeiture of property and proceeds acquired through a “pattern of criminal profiteering activity”, as specified. (Pen. Code, § 186 et seq.)

Existing law declares that the Legislature finds and declares that an effective means of punishing and deterring criminal activities of organized crime is through the forfeiture of profits acquired and accumulated as a result of such criminal activities. It is the intent of the Legislature that the “California Control of Profits of Organized Crime Act” be used by prosecutors to punish and deter only such activities. (Pen. Code, § 186.1.)

Existing law defines “criminal profiteering activity” as “any act committed or attempted or any threat made for financial gain or advantage, which act or threat may be charged as a crime for gambling, among other offenses.” (Pen. Code, § 186.2, subd. (a).)

Existing law defines “pattern of criminal profiteering activity” to mean engaging in at least two incidents of criminal profiteering, as defined by this chapter, that meet the following requirements:

• 1. Have the same or a similar purpose, result, principals, victims, or methods of commission, or are otherwise interrelated by distinguishing characteristics;
     
  2. Are not isolated events; and/or
     
  3. Were committed as a criminal activity of organized crime. (Pen. Code, § 186.2, subd. (b)(1).)
     

Existing law defines “organized crime” as “a crime that is of a conspiratorial nature and that is either of an organized nature and seeks to supply illegal goods and services such as gambling, among other offenses, or that, through planning and coordination of individual efforts, seeks to conduct the illegal activities of arson for profit, hijacking, insurance fraud, smuggling, operating vehicle theft rings, fraud against the beverage container recycling program, or systematically encumbering the assets of a business for the purpose of defrauding creditors.” “Organized crime” also means “a crime committed by a criminal street gang,” as defined. “Organized crime” also means “false or fraudulent activities, schemes, or artifices, as defined, and the theft of personal identifying information,” as defined. (Pen. Code, § 186.2, subd. (d).)

Existing law states that the following assets of any person who is convicted a specified underlying offense and of engaging in a pattern of criminal profiteering activity are subject to forfeiture:

1. Any property interest whether tangible or intangible, acquired through a pattern of criminal profiteering activity; and,
2. All proceeds of a pattern of criminal profiteering activity, which property shall include all things of value that may have been received in exchange for the proceeds immediately derived from the pattern of criminal profiteering activity. (Pen. Code, § 186.3)

Existing law states that, notwithstanding that no response or claim has been filed, in all cases where property is forfeited, as specified, and, if necessary, sold by the Department of General Services (DGS) or local governmental entity, the money forfeited or the proceeds of sale shall be distributed by the state or local governmental entity as follows:

1. To the bona fide or innocent purchaser, conditional sales vendor, or holder of a valid lien, mortgage, or security interest, if any, up to the amount of his or her interest in the property or proceeds, when the court declaring the forfeiture orders a distribution to that person. The court shall endeavor to discover all those lien holders and protect their interests and may, at its discretion, order the proceeds placed in escrow for up to an additional 60 days to ensure that all valid claims are received and processed;
2. To DGS or local governmental entity for all expenditures made or incurred by it in connection with the sale of the property, including expenditures for any necessary repairs, storage, or transportation of any property seized, as specified; and,
3. To the State's General Fund or local governmental entity, whichever prosecutes. (Pen. Code, § 186.8)

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 specifies the following offenses related to gambling:

• It is a misdemeanor for a person to contrive, prepare, set up, propose, or draw any lottery. (Pen. Code, § 320.)
• It is a misdemeanor for a person to sell, give, or in any manner whatever, furnish or transfer 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. (Pen. Code, § 321.)
• It is a misdemeanor for a person to aid or assist in, 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 therein. (Pen. Code, § 322.)
• It is a misdemeanor for a person to open, set up, or keep, by himself 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, advertise or publish the setting up, opening, or using of any such office. (Pen. Code, § 323.)
• It is a misdemeanor for a person to let, or permit 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. (Pen. Code, § 326.)
• It is a misdemeanor for a person who has in his or her possession as specified 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. (Pen. Code, § 330a.)
• It is a misdemeanor for a person 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. (Pen. Code, § 330b.)
• It is a misdemeanor for a person for any person to make or to permit the making of an agreement with another person regarding any slot machine or device, by which the user of the slot machine or device, as a result of the element of hazard or chance or other unpredictable outcome, may become entitled to receive money, credit, allowance, or other thing of value or additional chance or right to use the slot machine or device, or to receive any check, slug, token, or memorandum entitling the holder to receive money, credit, allowance, or other thing of value. (Pen. Code, § 330b.)
• Declares “punchboards” as defined to be an illegal slot machine or device and thus punishable as a misdemeanor. (Pen. Code, § 330c.)
• It is a misdemeanor for a person to control, as specified, any slot machine or device, and every person who makes or permits to be made with any person any agreement with reference to any slot machine or device, pursuant to which agreement the user thereof, as a result of any element of hazard or chance, may become entitled to receive anything of value or additional chance or right to use that slot machine or device, or to receive any check, slug, token, or memorandum, whether of value or otherwise, entitling the holder to receive anything of value. (Pen. Code, § 330.1.)
• Declares that the mere possession or control, either as owner, lessee, agent, employee, mortgagor, or otherwise of any slot machine or device is prohibited and penalized as a misdemeanor. Declares that every person who permits to be placed, maintained or kept in any room, space, enclosure, or building owned, leased or occupied by him, or under his management or control, whether for use or operation or for storage, bailment, safekeeping or deposit only, any slot machine or device is guilty of a misdemeanor. Further declares that any slot machine or device as defined is subject to confiscation. (Pen. Code, § 330.4.)

This bill adds the gambling related offenses described above within the definition of “gambling” for the purposes of the California Control of Profits of Organized Crime Act.

COMMENTS

1. Need for This Bill

According to the author of this bill:

Law enforcement is facing an epidemic of illicit gambling operations that are hosting a variety of unapproved electronic games such as sweepstakes cafes and arcade-style machines. These operations pose a serious danger to the community as they have been linked to increases in violent crime, vehicle theft, and property crimes. The operators who run these illegal businesses are not licensed, regulated, or subject to criminal background checks. In addition, these operations siphon revenue from state-licensed gambling businesses which reduces the funds that go to public education, health, and social programs. It is estimated that illegal sweepstakes café gambling collects more than $10 billion dollars a year in illegal proceeds. Currently, law enforcement does not possess the tools to effectively shutter illegal gambling locations. Police departments have reported that they are unable to shut these operations down fast enough with new locations popping up every day. AB 1294 would provide the tools for law enforcement to more effectively close these illegal operations by allowing them to seize the assets of convicted operators.

This bill is an expansion on previous legislation, AB 1439 (Salas, 2014), which made sweepstakes cafes illegal in California. However, this legislation did not completely solve the issue. Currently, law enforcement relies on small fines and equipment seizures which operators merely treat as a cost of doing business. In Bakersfield alone, local police made 51 arrests in one month at illegal internet casinos and other businesses with unapproved electronic gambling games. AB 1294 would remedy this situation by allowing law enforcement to target the bank accounts that contain the illicit profits of operators who are running illegal gambling enterprises using electronic-style machines.

From the outset, this bill has been and continues to be meant solely to target illicit gambling operations, not state-regulated and controlled entities, games or gaming activity licensed or approved through the California Gambling Control Commission or the Bureau of Gambling Control or authorized through the Compacts with the state. This bill would shutter more illegal sweepstakes cafes and would improve public safety for residents in California.

1. Background

The operation of a slot machine is illegal. (Pen. Code, § 330b.) “For purposes of this section, ‘slot machine or device’ means a machine, apparatus, or device that is adapted, or may readily be converted, for use in a way that, as a result of the insertion of any piece of money or coin or other object, or by any other means, the machine or device is caused to operate or may be operated, and by reason of any element of hazard or chance or of other outcome of operation unpredictable by him or her, the user may receive or become entitled to receive any piece of money, credit, allowance, or thing of value, or additional chance or right to use the slot machine or device, or any check, slug, token, or memorandum, whether of value or otherwise, which may be exchanged for any money, credit, allowance, or thing of value, or which may be given in trade, irrespective of whether it may, apart from any element of hazard or chance or unpredictable outcome of operation, also sell, deliver, or present some merchandise, indication of weight, entertainment, or other thing of value.” (Pen. Code, § 330b, sub. (d).)

In recent years, new types of gambling devices that offer computerized sweepstakes games started popping up in internet cafes. “The cafes advertise and sell a product — usually Internet time or long-distance telephone minutes — that the gambler does not actually want. Along with that unwanted product, the customer receives a supposed bonus of “entries” in the Internet sweepstakes. With those entries, the customer can participate in Internet-based games at the cafe’s specially-programmed personal computers. Based on a random allocation of winning and losing entries, the customer may or may not win cash prizes through those games.” (American Gaming Association, Internet Sweepstakes Cafes: Unregulated Storefront Gambling in the Neighborhood (2014), p. 1.)

These internet café owners argued that these games were not illegal slot machines subject to Penal Code section 330b because (1) no coin or similar object was inserted into a slot by customers, and (2) the element of chance is not present because the results were predetermined by computer software, not by the machines themselves. (People ex rel. Green v. Grewal (2015) 61 Cal. 4th 544.) The California Supreme Court disagreed and held that these computerized

games fall under the definition of slot machine and are thus illegal. The Court found that the insertion of a PIN or account number or the swiping of a magnetic card at the computer terminal in order to activate or access the sweepstakes games and thereby use points received upon paying money at the register comes within the broad scope of the statute. (Id. at 559.) As for the element of chance, the court held that since customers could not exert any influence over the outcome of their sweepstakes entries, these systems are indeed based on chance or luck. (Id. at 560.)

1. Criminal Profiteering Asset Forfeiture Generally

Asset forfeiture provisions apply to assets acquired through a pattern of criminal profiteering activity. This requires a conviction for a “pattern of criminal profiteering activity” which means engaging in at least two incidents of the specific offenses listed in the definition of criminal profiteering that meet the following requirements: (a) Have the same or a similar purpose, result, principals, victims, or methods of commission, or are otherwise interrelated by distinguishing characteristics; (b) Are not isolated events; and/or (c) Were committed as a criminal activity of organized crime. (Penal Code, § 186.2, sub. (b).) Criminal profiteering activity means any act committed or attempted or any threat made for financial gain or advantage, which act or threat may be charged as a crime under various criminal statutes. (Pen. Code, § 186.2, subd. (a).)

The act allows for forfeiture by petition of either a prosecuting district attorney or the state attorney general where certain prerequisites are met. The prosecuting agency must notify all third-parties who may have an interest in the property to be forfeited. The third-party may then file a verified claim of interest in the property with the superior court hearing the underlying criminal action. The court will then hold a forfeiture proceeding if the defendant is convicted of the underlying criminal charge. At the forfeiture hearing, the People have the burden of establishing beyond a reasonable doubt that the Defendant was engaged in a pattern of criminal profiteering activity and that the property acquired meets the requirements of section 186.3.

Penal Code section 186.3 subdivision (c) defines property subject to forfeiture as “[a]ll proceeds of a pattern of criminal profiteering activity, which property shall include all things of value that may have been received in exchange for the proceeds immediately derived from the pattern of criminal profiteering activity.” “Criminal profiteering activity,” in turn, is defined as “any act committed or attempted or any threat made for financial gain or advantage, which act or threat may be charged as a crime under any of the following sections” of an enumerated list including “gambling as defined in sections 337a through 337f, inclusive, and 337i . . .”.

(Corsiglia and Trager, Money for Nothing: California’s Outdated Illegal Gambling Forfeiture Laws Provide Criminals Low Risk and High Rewards (2018) 58 Santa Clara L.Rev. 213, 236-237.) This bill adds specified gambling provisions to Penal Code section 186.2 authorizing the use of asset forfeiture to seize the proceeds of these crimes when they meet the definition of
“criminal profiteering activity”.

1. Argument in Support

Kern County Board of Supervisors write in support of this bill:

Currently, law enforcement does not possess adequate support under the law to effectively shutter gambling locations. In fact, most offenses are only classified as misdemeanors and convicted operators are usually fined a few thousand dollars and continue to open up new illicit businesses throughout the state.

Existing law allows for forfeiture actions against the proceeds of “criminal profiteering activity” as defined in Penal Code section 186.2. The definition of “criminal profiteering activity” contained in section 186.2, subdivision (a)(8) includes “[g]ambling as defined in Sections 337a to 337f, inclusive, and section 337i . . .”. However, these statutes relate only to bookmaking crimes and do not extend to illegal slot machine or gambling device violations under Penal Code sections 330.1, 330a, and 330b (gambling device statutes).

Instead of relying on small fines and equipment seizures, AB 1294 would expand the definition of “criminal profiteering activity” in Penal Code section 186.2, subdivision (a)(8) to include various gambling device statutes. These changes will allow law enforcement to more effectively impact the industry of illicit gambling by enabling authorities to target the bank accounts that contain the illicit profits of operators who are running the illegal gambling enterprises, operating sweepstake cafes, and arcade-style gambling machines.

-- END –

SENATE COMMITTEE ON PUBLIC SAFETY

Senator Nancy Skinner, Chair

2019 - 2020 Regular

Bill No: AB 1294 Hearing Date: June 4, 2019

Subject: Criminal Profiteering

HISTORY

Source: Author

Prior Legislation: AB 1395 (Salas), 2016, held on Senate Appropriations Suspense File

AB 160 (Dababneh), Ch. 427, Stats. 2015

AB 443 (Alejo), 2015, held on Senate Appropriations Suspense File

AB 1439 (Salas), Ch. 592, Stats. 2014

Support: Attorney General Xavier Becerra; Avenal Police Department; California District Attorneys Association; California State Sheriffs’ Association; Corcoran Police Department; Kern County Board of Supervisors; Kings County Sheriff’s Office; Lemoore Police Department; Selma Police Department

Opposition: None known

Assembly Floor Vote: 76 - 0

PURPOSE

The purpose of this bill is add specified gambling crimes to the crimes included in “criminal profiteering activity,” including crimes connected to operating a lottery or any slot or card machine, contrivance, appliance or mechanical device.

Existing law establishes the “California Control Profits of Organized Crime Act” which provides the procedure for the forfeiture of property and proceeds acquired through a “pattern of criminal profiteering activity”, as specified. (Pen. Code, § 186 et seq.)

Existing law declares that the Legislature finds and declares that an effective means of punishing and deterring criminal activities of organized crime is through the forfeiture of profits acquired and accumulated as a result of such criminal activities. It is the intent of the Legislature that the “California Control of Profits of Organized Crime Act” be used by prosecutors to punish and deter only such activities. (Pen. Code, § 186.1.)

Existing law defines “criminal profiteering activity” as “any act committed or attempted or any threat made for financial gain or advantage, which act or threat may be charged as a crime for gambling, among other offenses.” (Pen. Code, § 186.2, subd. (a).)

Existing law defines “pattern of criminal profiteering activity” to mean engaging in at least two incidents of criminal profiteering, as defined by this chapter, that meet the following requirements:

• 1. Have the same or a similar purpose, result, principals, victims, or methods of commission, or are otherwise interrelated by distinguishing characteristics;
     
  2. Are not isolated events; and/or
     
  3. Were committed as a criminal activity of organized crime. (Pen. Code, § 186.2, subd. (b)(1).)
     

Existing law defines “organized crime” as “a crime that is of a conspiratorial nature and that is either of an organized nature and seeks to supply illegal goods and services such as gambling, among other offenses, or that, through planning and coordination of individual efforts, seeks to conduct the illegal activities of arson for profit, hijacking, insurance fraud, smuggling, operating vehicle theft rings, fraud against the beverage container recycling program, or systematically encumbering the assets of a business for the purpose of defrauding creditors.” “Organized crime” also means “a crime committed by a criminal street gang,” as defined. “Organized crime” also means “false or fraudulent activities, schemes, or artifices, as defined, and the theft of personal identifying information,” as defined. (Pen. Code, § 186.2, subd. (d).)

Existing law states that the following assets of any person who is convicted a specified underlying offense and of engaging in a pattern of criminal profiteering activity are subject to forfeiture:

1. Any property interest whether tangible or intangible, acquired through a pattern of criminal profiteering activity; and,
2. All proceeds of a pattern of criminal profiteering activity, which property shall include all things of value that may have been received in exchange for the proceeds immediately derived from the pattern of criminal profiteering activity. (Pen. Code, § 186.3)

Existing law states that, notwithstanding that no response or claim has been filed, in all cases where property is forfeited, as specified, and, if necessary, sold by the Department of General Services (DGS) or local governmental entity, the money forfeited or the proceeds of sale shall be distributed by the state or local governmental entity as follows:

1. To the bona fide or innocent purchaser, conditional sales vendor, or holder of a valid lien, mortgage, or security interest, if any, up to the amount of his or her interest in the property or proceeds, when the court declaring the forfeiture orders a distribution to that person. The court shall endeavor to discover all those lien holders and protect their interests and may, at its discretion, order the proceeds placed in escrow for up to an additional 60 days to ensure that all valid claims are received and processed;
2. To DGS or local governmental entity for all expenditures made or incurred by it in connection with the sale of the property, including expenditures for any necessary repairs, storage, or transportation of any property seized, as specified; and,
3. To the State's General Fund or local governmental entity, whichever prosecutes. (Pen. Code, § 186.8)

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 specifies the following offenses related to gambling:

• It is a misdemeanor for a person to contrive, prepare, set up, propose, or draw any lottery. (Pen. Code, § 320.)
• It is a misdemeanor for a person to sell, give, or in any manner whatever, furnish or transfer 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. (Pen. Code, § 321.)
• It is a misdemeanor for a person to aid or assist in, 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 therein. (Pen. Code, § 322.)
• It is a misdemeanor for a person to open, set up, or keep, by himself 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, advertise or publish the setting up, opening, or using of any such office. (Pen. Code, § 323.)
• It is a misdemeanor for a person to let, or permit 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. (Pen. Code, § 326.)
• It is a misdemeanor for a person who has in his or her possession as specified 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. (Pen. Code, § 330a.)
• It is a misdemeanor for a person 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. (Pen. Code, § 330b.)
• It is a misdemeanor for a person for any person to make or to permit the making of an agreement with another person regarding any slot machine or device, by which the user of the slot machine or device, as a result of the element of hazard or chance or other unpredictable outcome, may become entitled to receive money, credit, allowance, or other thing of value or additional chance or right to use the slot machine or device, or to receive any check, slug, token, or memorandum entitling the holder to receive money, credit, allowance, or other thing of value. (Pen. Code, § 330b.)
• Declares “punchboards” as defined to be an illegal slot machine or device and thus punishable as a misdemeanor. (Pen. Code, § 330c.)
• It is a misdemeanor for a person to control, as specified, any slot machine or device, and every person who makes or permits to be made with any person any agreement with reference to any slot machine or device, pursuant to which agreement the user thereof, as a result of any element of hazard or chance, may become entitled to receive anything of value or additional chance or right to use that slot machine or device, or to receive any check, slug, token, or memorandum, whether of value or otherwise, entitling the holder to receive anything of value. (Pen. Code, § 330.1.)
• Declares that the mere possession or control, either as owner, lessee, agent, employee, mortgagor, or otherwise of any slot machine or device is prohibited and penalized as a misdemeanor. Declares that every person who permits to be placed, maintained or kept in any room, space, enclosure, or building owned, leased or occupied by him, or under his management or control, whether for use or operation or for storage, bailment, safekeeping or deposit only, any slot machine or device is guilty of a misdemeanor. Further declares that any slot machine or device as defined is subject to confiscation. (Pen. Code, § 330.4.)

This bill adds the gambling related offenses described above within the definition of “gambling” for the purposes of the California Control of Profits of Organized Crime Act.

COMMENTS

1. Need for This Bill

According to the author of this bill:

Like many criminal enterprises, gambling has evolved in recent years as technology progresses. In some of our most vulnerable communities, law enforcement is facing an illegal gambling epidemic with enterprises opening up faster than the police can shut them down. Many of these gambling operations include sweepstakes cafes and arcade-style gambling machines. Police have noted that these gambling businesses have been linked to drugs, property crimes, robberies, and even shootings. In addition, these gambling enterprises are known to have strong connections to organized crime. Currently, law enforcement does not possess the tools to effectively shutter enough gambling locations. Convicted operators are usually fined a few thousand dollars and continue to open up new illicit businesses.

AB 1294 would expand the definition of “criminal profiteering activity” in Penal Code section 186.2, subdivision (a)(8) to include various gambling device statutes. This would allow law enforcement to more effectively impact the industry of illicit gambling. Instead of relying on small fines and equipment seizures, this bill would enable law enforcement to target the bank accounts that contain the illicit profits of operators who are running illegal gambling enterprises operating sweepstake cafes and arcade-style gambling machines, some of which may be linked to organized crime.

1. Background

The operation of a slot machine is illegal. (Pen. Code, § 330b.) “For purposes of this section, ‘slot machine or device’ means a machine, apparatus, or device that is adapted, or may readily be converted, for use in a way that, as a result of the insertion of any piece of money or coin or other object, or by any other means, the machine or device is caused to operate or may be operated, and by reason of any element of hazard or chance or of other outcome of operation unpredictable by him or her, the user may receive or become entitled to receive any piece of money, credit, allowance, or thing of value, or additional chance or right to use the slot machine or device, or any check, slug, token, or memorandum, whether of value or otherwise, which may be exchanged for any money, credit, allowance, or thing of value, or which may be given in trade, irrespective of whether it may, apart from any element of hazard or chance or unpredictable outcome of operation, also sell, deliver, or present some merchandise, indication of weight, entertainment, or other thing of value.” (Pen. Code, § 330b, sub. (d).)

In recent years, new types of gambling devices that offer computerized sweepstakes games started popping up in internet cafes. “The cafes advertise and sell a product — usually Internet time or long-distance telephone minutes — that the gambler does not actually want. Along with that unwanted product, the customer receives a supposed bonus of “entries” in the Internet sweepstakes. With those entries, the customer can participate in Internet-based games at the cafe’s specially-programmed personal computers. Based on a random allocation of winning and losing entries, the customer may or may not win cash prizes through those games.” (American Gaming Association, Internet Sweepstakes Cafes: Unregulated Storefront Gambling in the Neighborhood (2014), p. 1.)

These internet café owners argued that these games were not illegal slot machines subject to Penal Code section 330b because (1) no coin or similar object was inserted into a slot by customers, and (2) the element of chance is not present because the results were predetermined by computer software, not by the machines themselves. (People ex rel. Green v. Grewal (2015) 61 Cal. 4th 544.) The California Supreme Court disagreed and held that these computerized games fall under the definition of slot machine and are thus illegal. The Court found that the insertion of a PIN or account number or the swiping of a magnetic card at the computer terminal in order to activate or access the sweepstakes games and thereby use points received upon paying money at the register comes within the broad scope of the statute. (Id. at 559.) As for the element of chance, the court held that since customers could not exert any influence over the outcome of their sweepstakes entries, these systems are indeed based on chance or luck. (Id. at 560.)

1. Criminal Profiteering Asset Forfeiture Generally

Asset forfeiture provisions apply to assets acquired through a pattern of criminal profiteering activity. This requires a conviction for a “pattern of criminal profiteering activity” which means engaging in at least two incidents of the specific offenses listed in the definition of criminal profiteering that meet the following requirements: (a) Have the same or a similar purpose, result, principals, victims, or methods of commission, or are otherwise interrelated by distinguishing characteristics; (b) Are not isolated events; and/or (c) Were committed as a criminal activity of organized crime. (Penal Code, § 186.2, sub. (b).) Criminal profiteering activity means any act committed or attempted or any threat made for financial gain or advantage, which act or threat may be charged as a crime under various criminal statutes. (Pen. Code, § 186.2, subd. (a).)

The act allows for forfeiture by petition of either a prosecuting district attorney or the state attorney general where certain prerequisites are met. The prosecuting agency must notify all third-parties who may have an interest in the property to be forfeited. The third-party may then file a verified claim of interest in the property with the superior court hearing the underlying criminal action. The court will then hold a forfeiture proceeding if the defendant is convicted of the underlying criminal charge. At the forfeiture hearing, the People have the burden of establishing beyond a reasonable doubt that the Defendant was engaged in a pattern of criminal profiteering activity and that the property acquired meets the requirements of section 186.3.

Penal Code section 186.3 subdivision (c) defines property subject to forfeiture as “[a]ll proceeds of a pattern of criminal profiteering activity, which property shall include all things of value that may have been received in exchange for the proceeds immediately derived from the pattern of criminal profiteering activity.” “Criminal profiteering activity,” in turn, is defined as “any act committed or attempted or any threat made for financial gain or advantage, which act or threat may be charged as a crime under any of the following sections” of an enumerated list including “gambling as defined in sections 337a through 337f, inclusive, and 337i . . .”.

(Corsiglia and Trager, Money for Nothing: California’s Outdated Illegal Gambling Forfeiture Laws Provide Criminals Low Risk and High Rewards (2018) 58 Santa Clara L.Rev. 213, 236-237.) This bill adds specified gambling provisions to Penal Code section 186.2 authorizing the use of asset forfeiture to seize the proceeds of these crimes when they meet the definition of
“criminal profiteering activity”.

1. Argument in Support

Kern County Board of Supervisors write in support of this bill:

Currently, law enforcement does not possess adequate support under the law to effectively shutter gambling locations. In fact, most offenses are only classified as misdemeanors and convicted operators are usually fined a few thousand dollars and continue to open up new illicit businesses throughout the state.

Existing law allows for forfeiture actions against the proceeds of “criminal profiteering activity” as defined in Penal Code section 186.2. The definition of “criminal profiteering activity” contained in section 186.2, subdivision (a)(8) includes “[g]ambling as defined in Sections 337a to 337f, inclusive, and section 337i . . .”. However, these statutes relate only to bookmaking crimes and do not extend to illegal slot machine or gambling device violations under Penal Code sections 330.1, 330a, and 330b (gambling device statutes).

Instead of relying on small fines and equipment seizures, AB 1294 would expand the definition of “criminal profiteering activity” in Penal Code section 186.2, subdivision (a)(8) to include various gambling device statutes. These changes will allow law enforcement to more effectively impact the industry of illicit gambling by enabling authorities to target the bank accounts that contain the illicit profits of operators who are running the illegal gambling enterprises, operating sweepstake cafes, and arcade-style gambling machines.

-- END –

Date of Hearing: April 24, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 1294

Author:(Salas) – As Amended Ver:March 18, 2019

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

SUMMARY:

This bill expands the list of specified crimes that fall within the definition of gambling, including operating a lottery or any slot or card machine, contrivance, appliance or mechanical device for purposes of providing a procedure for forfeiture of property and proceeds acquired through a pattern of criminal profiteering activity.

FISCAL EFFECT:

Minor and absorbable costs to state and local law enforcement to process possible forfeiture for specified gambling crimes.

COMMENTS:

1. Purpose. According to the author:

AB 1294 would expand the definition of ‘criminal profiteering activity’ … to include various gambling device statutes. This would allow law enforcement to more effectively impact the industry of illicit gambling. Instead of relying on small fines and equipment seizures, this bill would enable law enforcement to target the bank accounts that contain the illicit profits of operators who are running illegal gambling enterprises operating sweepstake cafes and arcade-style gambling machines, some of which may be linked to organized crime.

1. Background. Criminal profiteering asset forfeiture is a criminal proceeding held in conjunction with the trial of the underlying criminal offense. Criminal profiteering activity means any act committed or attempted or any threat made for financial gain or advantage, which act or threat may be charged as a crime. Gambling has long been included as a qualifying offense for asset forfeiture. Despite the Legislature’s work to update the law relating to the crimes of gambling through different technology, the asset forfeiture provision regarding gambling has remained static. This bill modernizes the law by adding the new, similar gambling misdemeanor crimes to the list of gambling crimes that already permit asset forfeiture.
2. Prior Legislation.
   1. AB 443 (Alejo), of the 2015-2016 Legislative Session, would have permitted prosecutors to seize assets and property of individuals associated with transnational criminal organizations up to 60 days prior to the filing of criminal charges pursuant to criminal profiteering forfeiture proceedings. AB 443 was held on the Senate Appropriations Suspense File.
   2. AB 160 (Dababneh), Chapter 427, Statutes of 2015, added piracy of musical or audiovisual works and unemployment insurance fraud to the list of crimes for which criminal asset forfeiture is authorized.

Analysis Prepared by: Kimberly Horiuchi / APPR. / (916) 319-2081

Date of Hearing: April 9, 2019

Counsel: Nikki Moore

ASSEMBLY COMMITTEE ON PUBLIC SAFETY

Reginald Byron Jones-Sawyer, Sr., Chair

ABPCA Bill Id:AB 1294

Author:(Salas) – As Amended Ver:March 18, 2019

SUMMARY:

Expands the list of specified crimes that fall within the definition of gambling for purposes of providing a procedure for the forfeiture of property and proceeds acquired through a pattern of criminal profiteering activity. Specifically, this bill: adds numerous gambling crimes to the crimes included in “criminal profiteering activity,” including crimes connected to operating a lottery or any slot or card machine, contrivance, appliance or mechanical device.

EXISTING LAW:

1. Establishes the “California Control Profits of Organized Crime Act.” (Pen. Code, § 186.)
   
2. Declares that the Legislature finds and declares that an effective means of punishing and deterring criminal activities of organized crime is through the forfeiture of profits acquired and accumulated as a result of such criminal activities. It is the intent of the Legislature that the “California Control of Profits of Organized Crime Act” be used by prosecutors to punish and deter only such activities. (Pen. Code, § 186.1.)
3. Defines “criminal profiteering activity” as “any act committed or attempted or any threat made for financial gain or advantage, which act or threat may be charged as a crime for gambling, among other offenses.” (Pen. Code, § 186.2, subd. (a).)
   
4. Defines “pattern of criminal profiteering activity” to mean engaging in at least two incidents of criminal profiteering, as defined by this chapter, that meet the following requirements: (Pen. Code, § 186.2, subd. (b)(1).)
   
   1. Have the same or a similar purpose, result, principals, victims, or methods of commission, or are otherwise interrelated by distinguishing characteristics;
      
   2. Are not isolated events; and/or
      
   3. Were committed as a criminal activity of organized crime.
      
5. Defines “organized crime” as “a crime that is of a conspiratorial nature and that is either of an organized nature and seeks to supply illegal goods and services such as gambling, among other offenses, or that, through planning and coordination of individual efforts, seeks to conduct the illegal activities of arson for profit, hijacking, insurance fraud, smuggling, operating vehicle theft rings, fraud against the beverage container recycling program, or systematically encumbering the assets of a business for the purpose of defrauding creditors.” “Organized crime” also means “a crime committed by a criminal street gang,” as defined. “Organized crime” also means “false or fraudulent activities, schemes, or artifices, as defined, and the theft of personal identifying information,” as defined. (Pen. Code, § 186.2, subd. (d).)
6. States that the following assets of any person who is convicted a specified underlying offense and of engaging in a pattern of criminal profiteering activity are subject to forfeiture (Pen. Code, § 186.3):
   
   1. Any property interest whether tangible or intangible, acquired through a pattern of criminal profiteering activity; and,
      
   2. All proceeds of a pattern of criminal profiteering activity, which property shall include all things of value that may have been received in exchange for the proceeds immediately derived from the pattern of criminal profiteering activity.
      
7. States that, notwithstanding that no response or claim has been filed, in all cases where property is forfeited, as specified, and, if necessary, sold by the Department of General Services (DGS) or local governmental entity, the money forfeited or the proceeds of sale shall be distributed by the state or local governmental entity as follows (Pen. Code, § 186.8):
   
   1. To the bona fide or innocent purchaser, conditional sales vendor, or holder of a valid lien, mortgage, or security interest, if any, up to the amount of his or her interest in the property or proceeds, when the court declaring the forfeiture orders a distribution to that person. The court shall endeavor to discover all those lien holders and protect their interests and may, at its discretion, order the proceeds placed in escrow for up to an additional 60 days to ensure that all valid claims are received and processed;
      
   2. To DGS or local governmental entity for all expenditures made or incurred by it in connection with the sale of the property, including expenditures for any necessary repairs, storage, or transportation of any property seized, as specified; and,
      
   3. To the State's General Fund or local governmental entity, whichever prosecutes.
      
8. 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.)
9. Makes it a misdemeanor for a person to contrive, prepare, set up, propose, or draw any lottery. (Pen. Code, § 320.)
   
10. Makes it a misdemeanor for a person to sell, give, or in any manner whatever, furnish or transfer 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. (Pen. Code, § 321.)
    
11. Makes it a misdemeanor for a person to aid or assist in, 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 therein. (Pen. Code, § 322.)
    
12. Makes it a misdemeanor for a person to open, set up, or keep, by himself 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, advertise or publish the setting up, opening, or using of any such office. (Pen. Code, § 323.)
    
13. Makes it a misdemeanor for a person to let, or permit 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. (Pen. Code, § 326.)
    
14. Makes it a misdemeanor for a person who has in his or her possession as specified 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. (Pen. Code, § 330a.)
    
15. Makes it a misdemeanor for a person to maintain under his or her management or control, any card dice, or any dice having more than six faces or bases each, upon the result of action of which any money or other valuable thing is staked or hazarded, or as a result of the operation of which any merchandise, money, representative or article of value, check or token, redeemable in or exchangeable for money or any other thing of value, is won or lost or taken, when the result of action or operation of the dice is dependent upon hazard or chance. (Pen. Code, § 330a.)
    
16. Makes it a misdemeanor for a person 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. (Pen. Code, § 330b.)
    
17. Makes it a misdemeanor for a person for any person to make or to permit the making of an agreement with another person regarding any slot machine or device, by which the user of the slot machine or device, as a result of the element of hazard or chance or other unpredictable outcome, may become entitled to receive money, credit, allowance, or other thing of value or additional chance or right to use the slot machine or device, or to receive any check, slug, token, or memorandum entitling the holder to receive money, credit, allowance, or other thing of value. (Pen. Code, § 330b.)
    
18. Defines a “punchboard” to be “a slot machine or device subject to misdemeanor liability for possessing or otherwise controlling a slot machine.” Defines punchboard to mean “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.” (Pen. Code, § 330c.)
    
19. Makes it a misdemeanor for a person to control, as specified, any slot machine or device, and every person who makes or permits to be made with any person any agreement with reference to any slot machine or device, pursuant to which agreement the user thereof, as a result of any element of hazard or chance, may become entitled to receive anything of value or additional chance or right to use that slot machine or device, or to receive any check, slug, token, or memorandum, whether of value or otherwise, entitling the holder to receive anything of value. (Pen. Code, § 330.1.)
    
20. Declares that the mere possession or control, either as owner, lessee, agent, employee, mortgagor, or otherwise of any slot machine or device is prohibited and penalized as a misdemeanor. Declares that every person who permits to be placed, maintained or kept in any room, space, enclosure, or building owned, leased or occupied by him, or under his management or control, whether for use or operation or for storage, bailment, safekeeping or deposit only, any slot machine or device is guilty of a misdemeanor. Further declares that any slot machine or device as defined is subject to confiscation. (Pen. Code, § 330.4.)
    
21. Provides that if a gambling enterprise conducts play of a controlled game that has been approved by the Department of Justice, and the controlled game is subsequently found to be unlawful, so long as the game was played in the manner approved, the approval by the department shall be an absolute defense to any criminal, administrative, or civil action that may be brought, provided that the game is played during the time for which it was approved by the department and the gambling enterprise ceases play upon notice that the game has been found unlawful. In any enforcement action, the gambling enterprise shall have the burden of proving the department approved the controlled game and that the game was played in the manner approved. (Bus. & Prof. Code, § 19943.5.)
    
22. 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, “Like many criminal enterprises, gambling has evolved in recent years as technology progresses. In some of our most vulnerable communities, law enforcement is facing an illegal gambling epidemic with enterprises opening up faster than the police can shut them down. Many of these gambling operations include sweepstakes cafes and arcade-style gambling machines. Police have noted that these gambling businesses have been linked to drugs, property crimes, robberies, and even shootings. In addition, these gambling enterprises are known to have strong connections to organized crime. Currently, law enforcement does not possess the tools to effectively shutter enough gambling locations. Convicted operators are usually fined a few thousand dollars and continue to open up new illicit businesses.

“AB 1294 would expand the definition of ‘criminal profiteering activity’ in Penal Code section 186.2, subdivision (a)(8) to include various gambling device statutes. This would allow law enforcement to more effectively impact the industry of illicit gambling. Instead of relying on small fines and equipment seizures, this bill would enable law enforcement to target the bank accounts that contain the illicit profits of operators who are running illegal gambling enterprises operating sweepstake cafes and arcade-style gambling machines, some of which may be linked to organized crime.”

1. Need for this Bill: According to the author, existing asset forfeiture law relating to gambling is outdated and primarily applies to bookmaking crimes, and does not extend to illegal slot machines or newer forms of gambling devices such as electronic games. “While these forms of gambling are illegal under current law, most offenses are only classified as misdemeanors. Consequently, law enforcement are unable to properly shutter gambling locations with operators continuing to reap massive profits and open up new enterprises throughout the state.” By expanding the definition of “criminal profiteering activity” to include various gambling devices and statutes, the author says this bill would allow law enforcement to “more effectively impact the industry of illicit gambling by enabling officers to target the bank accounts of operators that contain the illicit profits of operators who are running illegal gambling enterprises, many which may be tied to organized crime.”
   
   There are reports of illegal gambling operations from Westminster and Santa Ana, and more recently Bakersfield. These “gambling dens” offer casino machine and arcade entertainment devices that appear to be games but are functionally slot machines—no skill is involved. The subsequent exchange for money based on the games is what makes the games illegal. (See Rath, Robert, “Why Cops Are Raiding Arcades Over a Fishing Game,” Waypoint, July 22, 2015, Available at: https://waypoint.vice.com/en_us/article/znm8zx/why-cops-are-raiding-arcade-over-a-fishing-game.)
   
2. Criminal Profiteering Asset Forfeiture Generally:  Criminal profiteering asset forfeiture is a criminal proceeding held in conjunction with the trial of the underlying criminal offense. Criminal profiteering activity means any act committed or attempted or any threat made for financial gain or advantage, which act or threat may be charged as a crime [under various criminal statutes]. Gambling has long been included as a qualifying offense for asset forfeiture. Despite the Legislature’s work to update the law relating to the crimes of gambling through different technology, the asset forfeiture provision regarding gambling has remained static. This bill “modernizes” the law by adding the new, similar gambling misdemeanor crimes to the list of gambling crimes that already permit asset forfeiture.
   
   Current law requires a criminal conviction in most forfeiture cases, to protect the rights of the innocent without jeopardizing public safety. This bill does not touch this issue, but deals with asset forfeiture in an ongoing criminal case—the section of law being amended by this bill would only permit the forfeiture of assets when there is a conviction for the underlying crime. Asset forfeiture in this context is distinct from state civil asset forfeiture generally, which was largely eliminated by the Legislature in 2016 when it passed SB 443 (Mitchell) which provides individuals with stronger property rights protections by requiring a conviction in most state civil asset forfeiture cases.

A proceeding to determine whether assets should be forfeited is often reviewed by the same jury that heard the underlying criminal charges against a defendant, which is in the position to determine whether the assets were the product of ill-gotten gains of criminal profiteering. As a practical matter, the prosecution must assemble its evidence for the forfeiture matter simultaneously with the evidence of the crime. Under Penal Code Section 186.2, asset forfeiture for is still allowed upon conviction of more than thirty crimes—including gambling—under specified circumstances. 

1. Criminal Profiteering Proceeds:  Under Penal Code section 186.8, forfeited assets are distributed as follows:
   
   1. To the bona fide or innocent purchaser, conditional sales vendor, or holder of a valid lien, mortgage, or security interest, if any, up to the amount of his or her interest in the property or proceeds, when the court declaring the forfeiture orders a distribution to that person. The court shall endeavor to discover all those lien holders and protect their interests and may, at its discretion, order the proceeds placed in escrow for up to an additional 60 days to ensure that all valid claims are received and processed.
      
   2. To the Department of General Services or local governmental entity for all expenditures made or incurred by it in connection with the sale of the property, including expenditures for any necessary repairs, storage, or transportation of any property seized, as specified.
      
   3. To the State's General Fund or local governmental entity, whichever prosecutes.

Under existing law, the forfeited proceeds of criminal profiteering are placed in the county general fund with no directions for use. There is an exception for forfeiture in child pornography cases. In such cases, the money is deposited in the county or State Children's Trust Fund for child abuse and neglect prevention and intervention.  (Pen. Code, § 186.8 and Welf. & Inst. Code, § 18966 and 18969.) In California drug asset forfeiture, law enforcement receives 65% of forfeiture proceeds. (Health and Safety Code Sections 11469 et seq.)  Of this amount, 15% must be placed in a special county or city fund used “to combat drug abuse and divert gang activity.” Under federal forfeiture law allowing “adoption” of state seizures of drug proceeds, the agency seizing that property may receive as much as 80% of these proceeds.  This money must be used according to guidelines set by the United States Department of Justice and require that the money be used largely for law enforcement.

It is possible that asset forfeiture under the criminal profiteering law may still be problematic, in light of the defendant’s ability to pay and the proportion of the forfeiture to the crime. For example, Timbs was a case dealing with asset forfeiture, not specifically fines. (Timbs v. Indiana (2019) 586 U.S. __ [203 L.Ed.2d 11].) Timbs was charged with three felonies stemming from the transportation of heroin. He pleaded guilty to two of the charges. The court sentenced Timbs to six years and ordered him pay fees and costs totaling approximately $1,200. Additionally, the prosecutor sought to forfeit Timbs’ Land Rover, which was purchased for $42,000. Timbs argued that the seizure was an excessive fine, because it was more than four times the $10,000 maximum fine which could be imposed for his conviction under state law. (Timbs, supra, 230 L.Ed.2d at p. 15.) The Supreme Court agreed and unanimously ruled that the Eighth Amendment’s prohibition against excessive fines applies to the states under the Due Process clause of the Fourteenth Amendment. (Id. at p. 17.) The Court noted that the Excessive Fines clause, which “limits the government’s power to extract payments, whether in cash or in kind, as punishment for some offense” is “deeply rooted in this Nation’s history and tradition.” (Id. at pp. 17, 19, citations omitted.) The opinion also recognized that “fines may be employed ‘in a measure out of accord with the penal goals of retribution and deterrence,’ for ‘fines are a source of revenue,’ while other forms of punishment ‘cost a State money.’” (Id. at p. 18, quoting Harmelin v. Michigan (1991) 501 U.S. 957, 979, fn. 9.)

This bill is consistent with these constitutional protections; the money seized under this bill is directly tied to the collection of ill-gotten gains from a defendant convicted of a specified crime.

1. Elements of the Offense:  Proceeds can be forfeited if the proceeds were gained through a pattern of criminal activity and were gained through involvement in organized crime.  “Pattern of criminal profiteering activity” means engaging in at least two incidents of criminal profiteering (listed above), that meet the following requirements
   
   1. Have the same or a similar purpose, result, principals, victims, or methods of commission, or are otherwise interrelated by distinguishing characteristics;
      
   2. Are not isolated events; and/or
      
   3. Were committed as a criminal activity of organized crime. (Penal Code, § 186.2(b).)
      
2. Argument in Support: According to the Kern County District Attorney's Office, “This would allow law enforcement to more effectively deal with the industry of illicit gambling. Instead of relying on small fines and equipment seizures, this bill would enable law enforcement to target bank accounts containing the illicit profits of operators who are running illegal gambling enterprises, operating sweepstakes cafes and arcade-style gambling machines, some of which may be linked to organized crime.

“AB 1294 will go a long way in helping law enforcement shut down these illegal operations. Operators of these gambling locations are not licensed, regulated, or subject to criminal background checks. Currently, law enforcement does not possess the tools to effectively close enough of these nefarious locations. Most offenses are simple misdemeanors and convicted operators continue to open new illicit businesses.”

1. Prior Legislation:
   1. AB 443 (Alejo), of the 2015-2016 Legislative Session, would have permitted prosecutors to seize assets and property of individuals associated with transnational criminal organizations up to 60 days prior to the filing of criminal charges pursuant to criminal profiteering forfeiture proceedings. AB 443 was held on the Senate Appropriations Suspense File.
   2. AB 160 (Dababneh), Chapter 427, Statutes of 2015, added piracy of musical or audiovisual works, and unemployment insurance fraud to the list of crimes for which criminal asset forfeiture is authorized.
   3. AB 1395 (Salas), of the 2015-2016 Legislative Session, would have expanded the definition of criminal activity for purposes of money laundering to include various misdemeanors that are related to illegal lotteries and gaming. AB 1395 was held on the Senate Appropriations Suspense File.
   4. SB 298 (Block), of the 2015-2016 Legislative Session, would have added to the list of crimes for which a wiretap may be sought for money laundering for the benefit of or in association with an ongoing organization that has engaged in criminal profiteering and if the values of the transactions exceed $50,000. SB 298 was held on the Senate Appropriations Suspense File.
   5. 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

Attorney General of California 
Avenal Police Department
California District Attorneys Association
California State Sheriffs' Association
Corcoran Police Department
Kings County Sheriff's Office
Lemoore Police Department
Selma Police Department

Opposition

None

Analysis Prepared by:

Nikki Moore / PUB. S. / (916) 319-3744