BILL ANALYSIS Ó AB 1395 Page 1 Date of Hearing: January 12, 2016 Counsel: Stella Choe ASSEMBLY COMMITTEE ON PUBLIC SAFETY Bill Quirk, Chair AB 1395 (Salas) - As Amended January 4, 2016 SUMMARY: Adds to the list of crimes for which a person can be prosecuted for money laundering. Specifically, this bill expands the definition of "criminal activity" to include misdemeanor gambling violations for purposes of money laundering. EXISTING LAW: 1)States that any person who conducts or attempts to conduct a transaction within a seven-day period involving a monetary instrument or instruments of a total value exceeding $5,000, or a total value exceeding $25,000 within a 30-day period, through one or more financial institutions with the specific intent to promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on of any criminal activity, or knowing that the monetary instrument represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity, as defined, is guilty of the crime of money laundering. (Pen. Code, § 186.10, subd. (a).) AB 1395 Page 2 2)Defines "criminal activity" for purposes of money laundering to mean a criminal offense punishable under the laws of this state by death, imprisonment in the state prison, or imprisonment in a county-jail-eligible felony or from a criminal offense committed in another jurisdiction punishable under the laws of that jurisdiction by death or imprisonment for a term exceeding one year. (Pen. Code, § 186.9, subd. (e).) 3)Provides that a person convicted of money laundering may be punished by imprisonment in county jail for either a misdemeanor with a maximum of one year or a felony and by a fine of not more than $250,000 or twice the value of the property transacted, whichever is greater. On a second or subsequent conviction, the maximum fine that may be imposed is $500,000 or five times the value of the property transacted, whichever is greater. (Pen. Code, § 186.10, subd. (a).) 4)Enhances the penalty of a person convicted of money laundering as follows: a) A mandatory additional term of one year to be served consecutive to the punishment if the value of the transaction or transactions exceeds $50,000 but is less than $150,000; b) A mandatory additional term of two years to be served consecutive to the punishment if the value of the transaction or transactions exceeds $150,000 but is less than $1,000,000; c) A mandatory additional term of three years to be served consecutive to the punishment if the value of the transaction or transactions exceeds $1,000,000 but is less than $2,500,000; or AB 1395 Page 3 d) A mandatory additional term of four years to be served consecutive to the punishment if the value of the transaction or transactions exceeds $2,500,000. (Pen. Code, § 186.10, subd. (c)(1).) 5)Prohibits lotteries, with exceptions for the California State Lottery, bingo for charitable purposes, and charitable raffles conducted by a non-profit, tax-exempt organization, and makes the violation of those crimes punishable as a misdemeanor. (Pen. Code, §§ 319-329.) 6)Defines a "lottery" as any scheme for the disposal or distribution of property by chance, among persons who have paid or promised to pay any valuable consideration for the chance of obtaining such property or a portion of it, or for any share or any interest in such property, upon agreement, understanding or expectation that it is to be distributed or disposed of by lot or chance whether called a lottery, raffle, or gift enterprise, or by whatever name the same may be known. (Pen. Code, § 319.) 7)States that every person who deals, plays, or carries on, opens, or causes to be opened, or who conducts either as owner or employee, whether for hire or not, any game of faro, monte, roulette, lansquenet, rouge et noire, rondo, tan, fan-tan, seven-and-a-half, twenty-one, hokey-pokey, or any banking or percentage game played with cards, dice, or any device, for money, checks, credit, or other representative of value, and every person who plays or bets at or against any of those prohibited games is guilty of a misdemeanor punishable by a fine not less than $1,000 or by imprisonment in the county jail not exceeding 6 months, or by both the fine and imprisonment. (Pen. Code, § 330.) 8)Prohibits any person from using or offering for use any method intended to be used by a person interacting with an electronic video monitor to simulate gambling or play gambling-themed games in a business establishment that (A) directly or AB 1395 Page 4 indirectly implements the predetermination of sweepstakes cash, cash-equivalent prizes, or other prizes of value, or (B) otherwise connects a sweepstakes player or participant with sweepstakes cash, cash-equivalent prizes, or other prizes of value, except as specified. (Bus. & Prof. Code, § 17539.1, subd. (a)(12).) FISCAL EFFECT: Unknown. COMMENTS: 1)Author's Statement: According to the author, "In 2014, I authored Assembly Bill (AB) 1439 to clarify that gambling at sweepstakes cafes is illegal. Specifically, the bill made internet gambling sweepstakes at these cafes an unfair business practice and gave the Attorney General, district attorneys, and city attorneys the authority to bring civil suit to subject operators to civil penalties for violations. "On June 25, 2015 the California Supreme Court ruled in People ex rel. v. Grewal that computerized sweepstakes found at internet cafes are illegal under state gambling laws. In a unanimous ruling, the court rejected arguments that the sweepstakes are different from slot machines because they have predetermined outcomes. "Despite AB 1439 and the Grewal decision, new examples of illegal gambling establishments have emerged. These operators claim they are not offering gambling or sweepstakes, but rather 'social gaming and mining.' While the business model may have changed, the underlying nature of the games these cafes are offering has not. AB 1395 Page 5 "AB 1395 would provide law enforcement with the ability to use criminal remedies when combatting egregious cases of organized, illegal gambling. Specifically, the bill incorporates violations of the gambling laws into organized crime and money laundering statutes. This approach has been used successfully in other states and will give law enforcement the right tools to go after illegal gambling." 2)Penalties for Money Laundering: Under current law, money laundering is punishable as a "wobbler," meaning that it may be punished as a misdemeanor or a felony. The crime of money laundering requires the defendant to conduct a transaction with money or funds knowing that the money or funds, rather than the transaction, represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity. The money or funds must be composed of at least $ 5,000 of proceeds from criminal activity. In order to be guilty of money laundering, the defendant must either (1) have the specific intent to promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on of any criminal activity, or (2) know the monetary instrument represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity. (See People v. Mays (2007) 148 Cal. App. 4th 13; Pen. Code, § 186.10, subd. (a).) The penalties may be enhanced with additional jail time for felony money laundering if the transaction amount exceeds $50,000. (Pen. Code, § 186.10, subd. (c).) The defendant may also be fined up to $250,000 or two times the value of the property transacted, or on a second or subsequent offense, $500,000 or five times the value of the property transacted, whichever is greater. (Pen. Code, § 186.10, subd. (a).) This bill would authorize the use of the money laundering AB 1395 Page 6 penalty scheme for unlawful gambling and lotteries, which are misdemeanor offenses. Currently, only felonies may be prosecuted under money laundering. In order to receive the enhanced penalty for money laundering, the defendant must have committed the underlying offense, here unlawful gambling or lotteries, and in addition the elements of money laundering must be proven. 3)Argument in Support: According to the Kern County District Attorney's Office, the sponsor of this bill, "Based on the new sweepstakes law and the Grewal decision, one might think that the industry responsible for developing and promoting this form of gambling would abdicate. Unfortunately, however, they have not been dissuaded. To the contrary, the industry continues to slightly modify their business model in an effort to avoid the new sweepstakes law and the Grewal decision. The current models they are using were designed to give the appearance that the games involve 'social gaming and mining' or 'games of skill.' "Although the law enforcement community intends to continue pursing these gambling promoters, current California law offers prosecutors very limited tools with which to fight this battle. Specifically, all violations of the Penal Code provisions regarding slot machines and lotteries are misdemeanors, and misdemeanors only. As it stands now, a large, organized criminal enterprise engaged in operating illegal slot machines or lotteries can only be charged under the gambling statutes with misdemeanors. Although the operators could be charged for violations related to unfair business practices, the prospect of paying civil penalties does not seem particularly appropriate for egregious criminal conduct and this far has only been partially effective. We strongly support the passage of AB 1395 because it would enable prosecutors to pursue money laundering violations in limited, severe cases of illegal gambling when the proceeds of the gambling operations exceed $5000.00 within a seven-day period or $25,000.00 within a thirty-day period. We believe that without this proposed legislative change, the industry AB 1395 Page 7 responsible for developing and promoting this form of gambling may very well continue to move forward with their operations with the understanding that it is 'worth the risk.'" 4)Argument in Opposition: None. 5)Prior Legislation: AB 1439 (Salas), Chapter 592, Statutes of 2014, prohibited any person, when conducting a contest or sweepstakes, from using an electronic video monitor to simulate gambling or play gambling-themed games that offers the opportunity to win sweepstakes cash, cash equivalent prizes, or other prizes of value. REGISTERED SUPPORT / OPPOSITION: Support Kern County District Attorney's Office (Sponsor) California District Attorneys Association San Diego District Attorney's Office Opposition None AB 1395 Page 8 Analysis Prepared by: Stella Choe / PUB. S. / (916) 319-3744