BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON PUBLIC SAFETY
                             Senator Loni Hancock, Chair
                                2015 - 2016  Regular 

          Bill No:    AB 1395       Hearing Date:    June 14, 2016    
          
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          |Author:    |Salas                                                |
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          |Version:   |January 4, 2016                                      |
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          |Urgency:   |No                     |Fiscal:    |Yes              |
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          |Consultant:|JM                                                   |
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           Subject:  Money Laundering:  Criminal Activity:  Lotteries and  
 
                                       Gaming



          HISTORY

          Source:   Kern County District Attorney

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

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

          Opposition:Legal Services for Prisoners with Children

          Assembly Floor Vote:                 69 - 2


          PURPOSE

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

          Existing law states that any person who conducts or attempts to  








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

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

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



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

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

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

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










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

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

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

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

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

          Existing law prohibits any person from using or offering for use  
          any method intended to be used by a person interacting with an  
          electronic video monitor to simulate gambling or play  









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          gambling-themed games in a business establishment that (A)  
          directly or indirectly implements the predetermination of  
          sweepstakes cash, cash-equivalent prizes, or other prizes of  
          value, or (B) otherwise connects a sweepstakes player or  
          participant with sweepstakes cash, cash-equivalent prizes, or  
          other prizes of value, except as specified.  (Bus. & Prof. Code,  
           17539.1, subd. (a)(12).)

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

                    RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION

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

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

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

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









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          institutions, which amounted to 140.0% of design bed capacity,  
          and 8,864 inmates were housed in out-of-state facilities.   
          (Defendants' December 2014 Status Report in Response to February  
          10, 2014 Order, 2:90-cv-00520 KJM DAD PC, 3-Judge Court, Coleman  
          v. Brown, Plata v. Brown (fn. omitted).)  
           
          While significant gains have been made in reducing the prison  
          population, the state must stabilize these advances and  
          demonstrate to the federal court that California has in place  
          the "durable solution" to prison overcrowding "consistently  
          demanded" by the court.  (Opinion Re: Order Granting in Part and  
          Denying in Part Defendants' Request For Extension of December  
          31, 2013 Deadline, NO. 2:90-cv-0520 LKK DAD (PC), 3-Judge Court,  
          Coleman v. Brown, Plata v. Brown (2-10-14).  The Committee's  
          consideration of bills that may impact the prison population  
          therefore will be informed by the following questions:

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



          COMMENTS

          1.Need For This Bill

          According to the author and the sponsor:

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









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               authority to bring civil suit to subject operators and  
               civil penalties for violations.

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

               Despite AB 1439 and the Grewal decision, new examples  
               of illegal gambling establishments have emerged. These  
               operators claim they are not offering gambling or  
               sweepstakes, but rather "social gaming and mining."  
               While the business model may have changed, the  
               underlying nature of the games these cafes are  
               offering has not. 
                               
               Although the law enforcement community intends to  
               continue pursing these gambling promoters, current  
               California law offers prosecutors very limited tools  
               with which to fight this battle.  Specifically, all  
               violations of the Penal Code provisions regarding slot  
               machines and lotteries are misdemeanors.  

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

          2.Penalties for Money Laundering

          Under current law, money laundering is punishable as a  
          "wobbler," meaning that it may be charged and punished as a  









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

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

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

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

          Existing law applies money laundering to any felony, although as  
          a practical matter only crimes producing profits or income to  
          the perpetrator are covered by the law. This bill applies money  
          laundering laws to every gambling-related offense in two  
          chapters of the Penal Code, from Section 319 through 337z.   
          These sections make criminal virtually every form of lottery,  
          raffle or bingo game not conducted by a registered charitable  









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          organization, regardless that a lottery or raffle could have the  
          same purpose as a game conducted by an exempt charity or other  
          entity licensed to do so.  These sections also cover any kind of  
          betting on sports or other contests.  Applied strictly, it  
          appears that NCAA basketball tournament bracket office pools  
          constitute illegal gambling.

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

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

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

          4.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.
          ---------------------------

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








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