Financial crimes are very much on the mind of prosecutors these days. From Wall Street to Main Street, law enforcement officials have focused a keen eye on financial crimes, no matter how big or how small. Often, criminal cases are built by “following the money,” which can open the door to federal money laundering charges.
This article is the first in a two-part series that examines money laundering prosecutions. Part One of the series discusses the central federal money laundering statute, 18 U.S.C. § 1956. Part Two of the series will discuss additional anti-money laundering laws, as well as provide an analysis of certain fact-patterns that arise in money laundering prosecutions.
Increased scrutiny of money laundering violations
Statistics show that investigators and prosecutors are paying attention to money laundering offenses more now, than they have in the past. The number of federal money laundering prosecutions, for example, has now grown to over 1,100 cases commenced annually nationwide. News reports also show that financial institutions are facing increased pressure from law enforcement to identify money laundering activities within their accounts.
There are good reasons why federal prosecutors seek to pursue money laundering cases when they can. The obvious reason is that it allows prosecutors to pursue financial charges when proof of other underlying crimes is hard to come by (similar to the tax-evasion case against Al Capone).
Prosecutors can also get a decent return on money laundering convictions. A conviction for laundering over $200,000, for example, results in a sentencing range of 41-51 months under the United States Sentencing Commission Guidelines (“Guidelines”). Even a conviction for laundering just over $5,000 still results in a Guidelines sentencing range of 10-16 months.
Additionally, the Guidelines provide for multiple sentencing enhancements depending on the techniques used to launder the money. Money laundering convictions also allow for asset forfeiture, which often provides justification for the law enforcement expenses involved in financial investigations.
Federal Money Laundering Statute 18 U.S.C. 1956
In simplest terms, the main federal money laundering statute prohibits an individual from conducting certain financial transactions involving the proceeds of particular crimes, known as “specified unlawful activit[ies],” 18 U.S.C. § 1956(a)(1). The statute also requires that an individual have a specific intent in conducting the financial transaction: i.e., to promote the unlawful activity, to avoid taxes, to conceal “the nature, the location, the source, the ownership, or the control of the proceeds,” or to avoid certain bank reporting requirements, 18 U.S.C. § 1956(a)(1)(B)(i).
Specified unlawful activities
The specified unlawful activities involved under the money laundering statute are many because they include the numerous predicate crimes specified under the Racketeering Influenced and Corrupt Organizations statute, 18 U.S.C. § 1961(1). These crimes include extortion, bribery, gambling, counterfeiting, theft, embezzlement, fraud, narcotics-trafficking, in addition to violent crimes such as murder, robbery and arson.
Prosecutors have a low burden when proving that money constituted proceeds from a specified unlawful activity. Proceeds are defined as “any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity,” 18 U.S.C. § 1956(c)(9).
Prosecutors need not prove that proceeds were derived from any specific instance of specified unlawful activity. For example, it is sufficient to prove that laundered money stemmed from narcotics-trafficking generally rather than from a specific transaction, United States v. Jackson, 983 F.2d 757, 766 (7th Cir. 1993). A financial transaction may also be subject to prosecution even when a small amount of the transaction itself involved criminal proceeds, United States v. McGauley, 279 F.3d 62 (1st Cir. 2002) ($49,000 transaction where only $155 constituted fraud proceeds).
Further, prosecutors often establish unlawful proceeds in money laundering prosecutions through circumstantial evidence, see, e.g., United States v. Gotti, 459 F.3d 296, 337 (2d Cir. 2006) (“[T]he government is required to link the moneys in question to specified unlawful activities, but this link can be made through circumstantial evidence.”); United States v. Monaco, 194 F.3d 381, 387 (2d Cir. 1999) (permitting evidence that “defendants had been spending money in amounts significantly in excess of earnings.”).
Regarding an individual’s knowledge that money constituted proceeds from a specified unlawful activity, prosecutors need only show that an individual believed the money stemmed from “some form of unlawful activity,” 18 U.S.C. § 1956(a)(1), and not necessarily any specified unlawful activity under the statute, United States v. Benjamin, 252 F.3d 1, 7 (1st Cir. 2001).
Importantly, ignorance of the origin of criminal proceeds is not always a defense if prosecutors can establish that an individual acted with “willful blindness” to the source of suspect funds, United States v. Flores, 454 F.3d 149, 155-56 (3d Cir. 2006). The issue of “willful blindness” arises in many money laundering cases, so a more detailed discussion will occur in Part Two of this series.
The federal money laundering statute only applies to proceeds from specified unlawful activities that are used in financial transactions. The definition of a “financial transaction,” however, is quite broad and involves many commercial and financial conveyances, as well as private transfers of money which affect interstate commerce.
The term “transaction” is first described as “a purchase, sale, loan, pledge, gift, transfer, delivery,” as well as “any … payment, transfer, or delivery by, through, or to a financial institution,” 18 U.S.C. § 1956(c)(3). The term “financial transaction” is then defined as any one of four “transactions” as defined above, which “affects interstate or foreign commerce” and involves: (a) “the movement of funds by wire or other means,” (b) “monetary instruments” (e.g., United States currency), (c) the “transfer of title to any real property, vehicle, vessel, or aircraft,” or (d) the “use of a financial institution,” 18 U.S.C. §1956(c)(4).
Finally, the use of criminal proceeds in a financial transaction becomes a money laundering offense only if there is proof of a specific intent. Intent to evade taxes is common in money laundering prosecutions, as is an intent to avoid bank reporting requirements (e.g., applicable to bank and business transactions involving $10,000 or more in cash).
Money laundering may also involve an intent to promote the specified illegal activity or conceal the nature and origin of the proceeds themselves. Examples of promotion include the “reinvest[ment] [of] illegal proceeds into [a] drug trafficking operation,” United States v. Stewart, 256 F.3d 231, 249 (4th Cir. 2001). Intent to conceal criminal proceeds is often proven by circumstantial evidence, such as by the exceptional nature of a financial transaction, United States v. Cota, 953 F.2d 753, 760-61 (2d Cir. 1992)
(“[M]ost telling of [defendant’s] intent was the strange manner in which she received and deposited proceeds from [real estate sales],” including the use of a safe-deposit box, multiple checks directed to family members, and acceptance of $50,000 “from the nominal owner of a property she only peripherally aided in closing.”).
A federal money laundering prosecution can be triggered by any one of the many transactions discussed above. An understanding of the multiple elements of the money laundering statute is therefore important, especially as investigations and prosecutions continue to grow. Part Two of this series will delve deeper into common fact-patterns in money laundering prosecutions, as well as discuss the anti-money laundering rules applying to third-party transactions and the international transfer of funds.
Alan J. Bozer is a partner with Phillips Lytle LLP and is co-chair of the Firm’s White Collar Criminal Defense and Government Investigations Practice Team. He is active in trying criminal and civil cases, and handles appellate and arbitration work as well. He can be reached at email@example.com or (716) 504-5700. Michael L. McCabe is an attorney with Phillips Lytle LLP where he focuses his practice on White Collar Criminal Defense & Government Investigations as well as Business Litigation. He can be reached at (716) 504-5729 or firstname.lastname@example.org.