BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 1395 (Salas) - Money laundering:  criminal activity:   
          lotteries and gaming
          
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          |Version: August 1, 2016         |Policy Vote: PUB. S. 7 - 0      |
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          |Urgency: No                     |Mandate: Yes                    |
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          |Hearing Date: August 1, 2016    |Consultant: Jolie Onodera       |
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          This bill meets the criteria for referral to the Suspense File. 

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


          Fiscal  
          Impact:  
            State prisons  :  Potentially significant increase in state  
            costs (General Fund) to the extent expanding the definition of  
            "criminal activity" to include misdemeanor gambling offenses  
            results in additional commitments to state prison for money  
            laundering that otherwise would have been subject to  
            misdemeanor charges. For every 10 percent increase in annual  
            commitments to state prison under the money laundering  
            statutes (5 commitments), annual costs would increase by  
            $145,000, based on the estimated contract bed rate of $29,000  
            per inmate per year.
            County jails  :  Potentially significant to major increase in  
            local incarceration costs (Local Funds or General Fund*),  
            offset to a degree by fine revenue, for additional felony  







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            commitments to county jail, as well as longer lengths of stay  
            for defendants who otherwise would have served shorter  
            sentences in county jail under misdemeanor charges. While the  
            number of new felony charges resulting from this measure is  
            unknown, for context, for every 25 additional convictions  
            impacted by this measure, costs to extend jail sentences for  
            an average of six months could increase costs by $570,000  
            annually. To the extent the applicable jail terms imposed are  
            longer and/or the number of persons impacted is greater, costs  
            could increase substantially. 

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


          Background:  Existing law provides that any person who conducts or attempts  
          to conduct a transaction within a seven-day period involving a  
          monetary instrument or instruments of a total value exceeding  
          $5,000, or a total value exceeding $25,000 within a 30-day  
          period, through one or more financial institutions with the  
          specific intent to promote, manage, establish, carry on, or to  
          facilitate such conduct, or who knows that the monetary  
          instrument represents the proceeds of, or is derived directly or  
          indirectly from the proceeds of, criminal activity, as defined,  
          is guilty of the crime of money laundering. (Penal Code (PC)   
          186.10 (a).)
          Existing law provides that a conviction for money laundering may  
          be punishable as a misdemeanor subject to imprisonment in county  
          jail for up to one year, or by a felony pursuant to PC  1170(h)  
          subject to imprisonment in county jail or state prison for 16  
          months, two or three years, by a fine of not more than $250,000  








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          or twice the value of the property transacted, whichever is  
          greater, or by both the imprisonment and fine. For a second or  
          subsequent conviction, the maximum fine that may be imposed is  
          $500,000 or five times the value of the property transacted,  
          whichever is greater. (PC  186.10 (a).)  


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


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


          Proposed Law:  
           This bill would expand the definition of "criminal activity"  
          under the money laundering statutes to include the following  
          misdemeanor gambling (lottery and gaming) offenses:
                 PC  320 - contriving, preparing, setting up, proposing,  
               or drawing any lottery.
                 PC  321 - selling, giving, furnishing or transferring  
               to or for any other person any ticket, chance, share, or  
               interest, or any paper, certificate, or instrument  
               purporting or understood to be or to represent any ticket,  
               chance, share, or interest in, or depending upon the event  
               of any lottery.
                 PC   322 - aiding or assisting, either by printing,  
               writing, advertising, publishing, or otherwise in setting  
               up, managing, or drawing any lottery, or in selling or  
               disposing of any ticket, chance, or share.
                 PC  323 - opening, setting up, or keeping, by himself,  








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








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                 PC  330.1 - to manufacture, own, store, keep, possess,  
               sell, rent, lease, let on shares, lend or give away,  
               transport, or expose for sale or lease, or offer to sell,  
               rent, lease, let on shares, lend or give away or who  
               permits the operation of or permits to be placed,  
               maintained, used, or kept in any room, space, or building  
               owned, leased, or occupied by him or her or under his or  
               her management or control, any slot machine or device as  
               specified.
                 PC  330.4 - mere possession or control, either as  
               owner, lessee, agent, employee, mortgagor, or otherwise of  
               any slot machine or device, or permitting to be placed,  
               maintaining or keeping in any room, space, enclosure, or  
               building owned, leased or occupied by him/her, or under  
               his/her management or control, whether for use or operation  
               or for storage, bailment, safekeeping or deposit only, any  
               slot machine or device. 

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


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


          Staff  
          Comments:  By expanding the definition of "criminal activity" to  
          include specified misdemeanor gaming and lottery offenses, the  
          provisions of this bill could result in additional felony  
          charges and subsequent convictions for money laundering, thereby  
          potentially increasing state and local costs for incarceration. 
          Statistics from the Department of Justice (DOJ) indicate over  
          100 arrests annually for each of the past three years for only a  
          subset of the misdemeanor gambling offenses specified in this  
          measure. However, to the extent internet cafes engaging in  
          illegal internet gaming or that possess "slot machines" as  








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          broadly defined under existing law qualify under the provisions  
          of this bill, the scope of potential new felony arrests and  
          convictions could be significant. 

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

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

          The Three-Judge Court has ordered the State to reduce its prison  
          population to 137.5 percent of the prison system's design  
          capacity by February 28, 2016. Pursuant to its February 10, 2014  
          order, the Court has ordered the CDCR to implement several  
          population reduction measures, prohibited an increase in the  
          population of inmates housed in out-of-state facilities, and  
          indicated the Court will maintain jurisdiction over the State  
          for as long as necessary to ensure that the State's compliance  








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          with the 137.5 percent final benchmark is durable, and that such  
          durability is firmly established. Any future increases to the  
          State's prison population challenge the ability of the State to  
          reach and maintain such a "durable solution," and could require  
          the State to pursue one of several options, including  
          contracting-out for additional bed space or releasing current  
          inmates earlier onto parole.

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