This article is the second in a two-part series that examines federal money laundering prosecutions. Part One of the series (in the Feb. 11 edition of The Daily Record) discussed the central federal money laundering statute, 18 U.S.C. § 1956, and its proscription against conducting certain financial transactions involving “specified unlawful activit[ies].”
This article addresses other aspects of federal money laundering laws pertaining to international transactions (which is particularly important in the Western District of New York), as well as the illegal use of laundered funds. This article also examines a defense that is commonly raised in money laundering prosecutions, i.e., “willful blindness” to the source of proceeds from unlawful activity.
International money laundering
In addition to prohibiting transactions with funds derived from “specified unlawful activit[ies]” (e.g., extortion, bribery, gambling, counterfeiting, theft, embezzlement, fraud, narcotics-trafficking), the federal money laundering statute also makes it a crime to transport, transmit or transfer funds into or out of the United States with intent to promote a specified unlawful activity, 18 U.S.C. § 1956(a)(2)(A) (2014).
This section is unique to federal anti-money laundering laws because it does not require that funds derive from unlawful conduct. Rather, it is the intent of using the transferred funds that matters (i.e., “to promote the carrying on a specified unlawful activity”), see United States v. Hamilton, 931 F.2d 1046, 1051 (5th Cir. 1991) (violation of § 1956(a)(2)(A) would occur if drug cartel sent legitimate business proceeds into United States to finance drug trafficking activities).
In contrast, 18 U.S.C. § 1956(a)(2)(B) penalizes the international movement of funds with knowledge that the funds represent the proceeds of some form of unlawful activity and with intent to conceal the proceeds or evade reporting requirements. Interestingly, in prosecutions involving the international transportation of concealed funds, prosecutors must prove that the purpose of the transportation itself was to conceal the funds.
It is insufficient to show only that the funds were transported furtively without showing that the transportation itself was designed somehow to conceal the funds, see Regalado Cuellar v. United States, 553 U.S. 550, 567 (2008)(citation omitted) (holding that proof was insufficient for conviction even where defendant had bundled $81,000 in cash in plastic bags and hid it in a secret compartment covered with animal hair in a car en route from Texas to Mexico because “[t]he evidence suggested that the secretive aspects of the transportation were employed to facilitate the transportation, but not necessarily that secrecy was the purpose of the transportation” (citation omitted) (emphasis in the original)).
It is also a crime under 18 U.S.C. § 1957 for anyone knowingly to conduct a monetary transaction at a financial institution with more than $10,000 in proceeds from specified unlawful activity. Section 1957 bans monetary transactions without requiring an intent to conceal the nature of the funds or to promote the underlying unlawful activity (as in the case of the main money laundering statute, 18 U.S.C. § 1956).
This statute is intended to spoil the fruits of money laundering by penalizing the use of laundered funds down the transactional trail. This statute can be applied to financial professionals who permit money laundering associates to conduct monetary transactions under their watch (e.g., an investment advisor who knowingly makes an investment involving over $10,000 in criminal proceeds).
Again, like other federal anti-money laundering laws, prosecutors need not show that a defendant knew that proceeds came from any particular specified unlawful activity. It is enough that the proceeds were “criminally derived” from either a misdemeanor or felony offense, 18 U.S.C. § 1957(f) (2014).
Knowledge is the required state of mind for money laundering convictions, but prosecutors need not prove actual knowledge if they can establish that a defendant was willfully blind to the unlawful source of funds used in a transaction. This concept is also referred to as “conscious avoidance,” and it depends on the facts of individual cases. Willful blindness usually involves defendants other than the individual who is the source of tainted money.
In determining whether willful blindness is in play, courts often look to the unusual, if not suspicious, nature of the transaction involved in a particular case. For example, in United States v. Campbell, 977 F.2d 854, 859 (4th Cir. 1992), a real estate broker was convicted under both the money laundering and anti-spending statutes after accepting $60,000 in unreported cash from a drug dealer for the purchase of a house.
The cash was contained in a brown paper bag in small bundles, and the broker herself had acknowledged to a third party that the cash “may have been drug money,” id. at 857, 859. In addition, the drug dealer was known to have a lavish lifestyle without an obvious source of lawful income, id. at 859.
Similarly, in United States v. Flores, 454 F.3d 149 (3d Cir. 2006), an attorney was convicted of money laundering after he formed corporations and opened banking accounts on behalf of an individual involved in laundering money for Columbian drug traffickers. The court held that, “[t]he Government establishes willful blindness by proving that a defendant ‘was objectively aware of the high probability of the fact in question,’ and ‘could have recognized the likelihood of [illicit acts] yet deliberately avoided learning the true facts,’” id. at 155 (citation omitted).
Here, the court found that the attorney was willfully blind after he was given false Social Security and tax identification numbers to open accounts/corporations, was warned by the bank that structured transactions were occurring in the accounts, could not locate invoices for many transactions and observed that the transactions did not relate to food/flower products as represented, id. at 155-56.
The Second Circuit “ha[s] authorized” the willful blindness or conscious avoidance charge “’somewhat more readily’” than other circuits, United States v. Quinones, 635 F.3d 590, 601 (2d Cir. 2011)(citation omitted). The charge, however, is generally appropriate only under two fact-patterns: “(i) when a defendant asserts the lack of some specific aspect of knowledge required for conviction, [or] (ii) … [when] the evidence is such that a rational juror may reach the conclusion ‘beyond a reasonable doubt that the defendant was aware of a high probability of the fact in dispute and consciously avoided confirming that fact,’” United States v. Aina-Marshall, 336 F.3d 167, 170 (2d Cir. 2003)(citation omitted).
When the government succeeds in obtaining a willful blindness instruction, “there is nothing inappropriate or inconsistent in the government arguing actual and constructive knowledge in the alternative,” United States v. Ramirez, 320 F. App’x 7, 11 (2d Cir. 2009) (internal quotations and citation omitted).
The increased attention to money laundering by law enforcement will continue to result in greater prosecutions for money laundering. As this two-part series has shown, everyday transactions can become fodder for prosecution when they are coupled with a specific intent (e.g., to conceal, promote, avoid reporting, etc.) along with some degree of knowledge of the unlawful nature of the funds involved. Familiarity with the money laundering statutes discussed in these articles is thus important to understanding clients’ concerns in the context of financial crimes.
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 firstname.lastname@example.org 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 email@example.com.