Money Laundering:
You Can Get Trapped a lot Easier Than You Think!
The concept of running money through a business or bank in order to blind authorities to its true origin is as old as crime itself. However, under the post 9/11 draconian world of over enforcement, “money laundering” has taken on a whole new importance. So, I thought I should compose a “reality check” for those who believe they should hide money from a spouse or the IRS/Franchise Tax Board or even the FDIC or FTC. Here is a short and limited review of the Federal law on the subject.
1. The Money Laundering Control Act (18 U.S.C. Sections 1956 and 1957) was enacted in 1986 as part of the Anti-Drug Abuse Act of 1986 as a means to prosecute drug traffickers. It was broadened in 1988 to also cover financial related crimes. It was further expanded in 1989 and again in 1990 when the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and the Crime Control Act of 1990 (S. 3266, passed by Senate on October 27, 1990 and signed by President Bush on November 29, 1990) expanded bank fraud and similar provisions already covered under the Act. More recently, it was further broadened by the Comprehensive Anti-Terrorism Act of 1995, Public Law 104-132.
2. There are two main sections of the law which deal with different things. First, Section 1956(a)(1) provides that whoever, knowing that the funds involved in a financial transaction represent the proceeds of some form of unlawful activity, which funds in fact involve the proceeds of a "specified unlawful activity," conducts or attempts to conduct the financial transaction:
a. With the intent to promote the specified unlawful activity or to evade the payment of federal income taxes; or
b. Knowing that the transaction is designed in whole or in part to conceal the nature, source, ownership, or control of the proceeds or to avoid federal currency reporting requirements, shall be subject to a fine of up to $500,000 or twice the value of the funds involved in the transaction, whichever is greater, or (if you cannot come up with the cash to pay the fine) imprisoned for up to 20 years, or both.
3. Subsections (a)(2) and (a)(3) of Section 1956 make it unlawful to move funds in or out of the country in such situations and to intentionally engage in such transactions when one has been informed by a federal enforcement officer (as defined) that the funds are proceeds of a specified unlawful activity or were used to facilitate or conduct such an activity.
4. Section 1956(b) authorizes imposition of a civil penalty against any person who conducts or attempts to conduct a transaction described in 1956(a)(1). The penalty for each violation is $10,000. The standard of proof of a civil violation is a "preponderance of the evidence" rather than "beyond a reasonable doubt."
5. Secondly, Section 1957 makes it unlawful to knowingly engage in a "monetary transaction" involving criminally derived proceeds in excess of $10,000, including the provision of goods and services (including legal services), when such proceeds are in fact derived from a "specified unlawful activity." Penalties for violations of this provision are fines of up to $250,000 or twice the amount of the funds involved in the transaction, whichever is greater, up to 10 years imprisonment, or both.
6. "Specified unlawful activities" under the Act include:
a. Drug trafficking offenses such as the manufacture, importation, sale, or distribution of controlled substances;
b. Environmental offenses such as violations of the Federal Water Pollution Control Act, the Ocean Dumping Act, the Safe Water Drinking Act, and similar federal statutes;
c. Terrorist activities such as aircraft destruction, violence at international airports, murder on a federal facility, use of certain weapons, and willfully destroying governmental property.
d. Financial misconduct such a concealment of assets from a receiver, custodian, trustee, marshal or other officer of the court or from creditors in a bankruptcy proceeding, the making of a fraudulent conveyance in contemplation of a bankruptcy proceeding or with the intent to "defeat the bankruptcy law," or the giving of false oaths or claims in relation to a bankruptcy proceeding (18 U.S.C. Section 152) (this includes signing a petition for bankruptcy which has on it incorrect information); bank bribery (18 U.S.C. Section 215); theft, embezzlement, or misapplication of bank funds or funds of other lending, credit, or insurance institutions (18 U.S.C. Sections 656 and 657); the making of fraudulent bank or credit institution entries or loan or credit applications (18 U.S.C. Sections 1005, 1006, 1007 and 1014) (this includes home loan applications which do not make a full disclosure); concealment of assets from agents of the FDIC, RTC, or similar agents or persons (18 U.S.C. Section 1032); and mail, wire or bank fraud or postal robbery or theft (18 U.S.C. Sections 1341, 1343, 1344, 2113 and 2114); and
e. Miscellaneous offenses include counterfeiting, espionage, kidnapping, or hostage taking, copyright infringement, smuggling goods into the United States, and illegally exporting arms.
f. All of the predicate offenses for RICO (18 U.S.C. Section 1961 (1)), including mail fraud, wire fraud, and similar financial transaction crimes, are also "specified unlawful activities."
g. The defendant need not know that the crime that generated the funds was a "specified unlawful activity" or even what crime generated the funds, but only that the funds are proceeds of some kind of criminal activity.
7. Courts have not required the government to trace proceeds to a specific offense, but have allowed it to be inferred from circumstantial evidence that the money used in a transaction involved proceeds of an illegal activity, even when commingled with legitimate funds (United States v. Blackman, 897 F.2d 309 (8th Cir. 1990)).
8. While the criminal provisions of Section 1956 and Section 1957 require specific knowledge or intent to impose criminal liability, Congressional history indicates that the knowledge requirement could be fulfilled by proof of "willful blindness" - i.e., intentional and knowing disregard of the nature of the finds involved - and could be inferred from evidence of out-of-the-ordinary dealings. Civil liability under 1956(b), however, does not require specific knowledge or scienter, an thus civil liability could be imposed against a person who recklessly or negligently participates in a tainted transaction. The standard of proof which must be met for civil liability is the "preponderance of the evidence."
9. The breadth and depth of the Money Laundering Control Act can be illustrated by the following two cases of notoriety.
a. Accused of hiding the proceeds of her call-girl business, accused of completing and submitting false loan papers in the purchase of her home, an accused of tax evasion, Heidi Fleiss was indicated on federal money laundering charges. (Case Number CR 94-134, C.D. Calif.)
b. Threatened product tampering led to the indictment of a New York man, on federal money laundering charges. The defendant demanded money from Pepsico, threatening that he would tamper with its product Pepsi unless Pepsico complied. (Case Number 93 Cr. 126, S.D.N.Y.)
10. However, the U.S. Supreme Court has also limited the scope of prosecution
under the Act by limiting definitions under the Act. See U.S. v. Santos, No. 06-1005 (2008) and Cuellar v. U.S., No. 06-1456 (2008)
11. For the international take on money laundering, please see the Financial Action Task Force (FATF) Report issued July, 2008.
12. For the impact of the draconian “Patriot” Act Provisions on money laundering prosecutions, see the Financial Crimes Enforcement Network (FINCEN) website at www.fincen.gov/statutes