Sponsored by:
The North American Gaming Regulators Association
NAGRA Annual Conference 2008
June 10 – 13, 2008
Sheraton New Orleans
500 Canal Street
New Orleans, Louisiana 70130
“Money Laundering, Impact on Gaming Industry”
Investigators’ Panel: June 11, 2008 - 10:15 to 11:45 a.m.
Speakers:
Charlie Blau - Meadows, Owens, Collier, Reed, Cousins and Blau;
Robert Stocker II - Dickinson Wright PLLC
Charles W. Blau
MEADOWS, COLLIER, REED,
COUSINS & BLAU, L.L.P.
901 Main Street, Suite 3700
Dallas, Texas 75202
214-744-3700
TABLE OF CONTENTS
I.
II.
INTRODUCTION .................................................................................................................... 1
MONEY LAUNDERING ........................................................................................................ 1
A. The Money Laundering Offenses - 18 U.S.C. §§ 1956 and 1957 ....................................... 1
1.
Summary of § 1956.......................................................................................... 1
2.
Summary of § 1957.......................................................................................... 1
B.
Analysis and Discussion of 18 U.S.C. § 1956 ............................................................. 1
1.
Elements of the § 1956 Offenses ..................................................................... 1
a.
§ 1956(a)(1)(A) and (a)(2)(A) Offenses.............................................. 2
i.
18 U.S.C. § 1956(a)(1)(A)(i).................................................2
ii.
18 U.S.C. § 1956(a)(1)(A)(ii)................................................2
iii.
18 U.S.C. § 1956(a)(2)(A) ....................................................2
b.
§ 1956(a)(1)(B) and (a)(2)(B) Offenses .............................................. 2
i.
18 U.S.C. § 1956(a)(1)(B)(i) .................................................3
ii.
18 U.S.C. § 1956(a)(1)(B)(ii) ................................................3
iii.
18 U.S.C. § 1956(a)(2)(B)(i) .................................................3
iv.
18 U.S.C. § 1956(a)(2)(B)(ii) ................................................3
c.
18 U.S.C. § 1956(a)(3) ........................................................................ 4
2.
Expanded Territorial Jurisdiction .................................................................... 4
3.
Criminal Penalties ............................................................................................ 4
4.
Definition of Key Terms .................................................................................. 4
a.
“Financial Transaction” ....................................................................... 4
b.
“Transaction” ....................................................................................... 4
c.
“Monetary Instruments” ...................................................................... 6
d.
“Funds” ................................................................................................ 6
e.
“Knowing That Property Represents Unlawful Proceeds” ................. 7
f.
"Proceeds” ........................................................................................... 7
g.
“Affects Commerce” ........................................................................... 9
h.
“Intent to Promote”............................................................................ 10
i.
“Specified Unlawful Activities”........................................................ 11
j.
“Design to Conceal” .......................................................................... 13
5.
Notable Case Law Issues ............................................................................... 14
a.
Constitutional Issues—Vagueness .................................................... 14
b.
Charging Options............................................................................... 14
c.
Charging Single Count—Encompassing Multiple Acts ................... 15
d.
Attempt .............................................................................................. 15
6.
Sentencing ...................................................................................................... 15
C.
Analysis and Discussion of 18 U.S.C § 1957 ............................................................ 18
1.
Elements of the § 1957 Offenses ................................................................... 18
a.
18 U.S.C. § 1957(a) and (d)(1).......................................................... 18
b.
18 U.S.C. § 1957(a)(2) ...................................................................... 18
2.
Criminal Penalties .......................................................................................... 18
3.
Definition of Key Terms ................................................................................ 18
a.
Specific Knowledge........................................................................... 18
b.
Origin of Property.............................................................................. 19
c.
Completed Offense ............................................................................ 19
d.
Monetary Transaction........................................................................ 19
e.
Criminally Derived Property ............................................................. 20
i
D.
E.
F.
G.
f.
Specified Unlawful Activity.............................................................. 20
g.
Interstate Commerce.......................................................................... 20
h.
$10,000 or More ................................................................................ 20
i.
Criminally Derived Funds ................................................................. 20
New Developments .................................................................................................... 21
1.
2007 National Money Laundering Strategy .................................................. 21
2.
FinCEN—Cases Involving Bank Secrecy Act Violations ............................ 21
3.
Financial Regulations Issued to Insurance Companies ................................. 21
4.
Financial Regulations Issued for Section 312 of the USA Patriot Act ......... 22
5.
The Unlawful Internet Gambling Enforcement Act of 2006-31
U.S.C. 5361 .................................................................................................... 22
Proposed Legislative Amendments ............................................................................ 22
1.
Prevent Bank Fraud by Terrorists Act of 2003, H.R. 1037 ........................... 22
2.
Non-Homeland Security Mission Performance Act of 2003, S. 910 ............ 22
Sarbanes-Oxley Act of 2002 ...................................................................................... 23
1.
The White Collar Crime Penalty Enhancement Act of 2002 (Sections
901-906). ........................................................................................................ 23
2.
U.S.C. § 1349 Attempt and Conspiracy (Section 902) ................................. 23
3
Mail Fraud/Wire Fraud .................................................................................. 23
4.
ERISA ............................................................................................................ 23
5.
Sentencing Guidelines.................................................................................... 23
6.
Corporate Responsibility for Financial Reports (Section 906) ..................... 23
Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (USA
Patriot Act of 2001)........................................................................................ 24
1.
Subtitle A—International Counter Money Laundering and Related
Measures ........................................................................................................ 24
a.
Special Measures for Jurisdictions, Financial Institutions, or
International Transactions of Primary Money Laundering
Concern: 31 U.S.C. § 5318A............................................................. 24
b.
Special Due Diligence for Correspondent Accounts and
Private Banking Accounts: 31 U.S.C. § 5318(i). ............................. 25
c.
Prohibition on United States Correspondent Accounts with
Foreign Shell Banks: 31 U.S.C. § 5318(j)........................................ 25
d.
Cooperative Efforts to Deter Money Laundering ............................. 26
e.
Inclusion of Foreign Corruption Offenses as Money
Laundering Crimes ............................................................................ 26
f.
Long-Arm Jurisdiction Over Foreign Money Launderers: 18
U.S.C. § 1956(b) ................................................................................ 27
g.
Laundering Money Through a Foreign Bank: 18 U.S.C. §
1956(c)(6) .......................................................................................... 27
h.
Forfeiture of Funds in United States Interbank Accounts................. 27
i.
Financial Institutions Specified in Subchapter II of Chapter
53 of Title 31, United States Code .................................................... 28
j.
Report and Recommendation ............................................................ 28
k.
Verification of Identification ............................................................. 28
l.
Consideration of Anti-Money Laundering Record ........................... 30
m.
Criminal Penalties.............................................................................. 30
ii
n.
H.
International Cooperation in Investigations of Money
Laundering, Financial Crimes, and the Finances of Terrorist
Groups................................................................................................ 30
2.
Subtitle B—Bank Secrecy Act Amendments and Related
Improvements................................................................................................. 30
a.
Amendments Relating to Reporting of Suspicious Activities:
31 U.S.C. § 5318(g)(3) ...................................................................... 30
b.
Anti-Money Laundering Programs: 31 U.S.C. § 5318(h) ............... 31
c.
Penalties for Violations of Geographic Targeting Orders and
Certain Record Keeping Requirements and Lengthening
Effective Period of Geographic Targeting Orders: 31 U.S.C.
§§ 5321(a)(1), 5322 ........................................................................... 31
d.
Anti-Money Laundering Strategy ..................................................... 31
e.
Authorization to Include Suspicions of Illegal Activity in
Written Employment References: 12 U.S.C. § 1828 ....................... 31
f.
Reporting of Suspicious Activities by Securities Brokers and
Dealers, Investment Company Study. ............................................... 31
g.
Special Report on Administration of Bank Secrecy
Provisions .......................................................................................... 32
h.
Bank Secrecy Provisions and Activities of United States
Intelligence Agencies to Fight International Terrorism .................... 32
i.
Increase in Civil and Criminal Penalties for Money
Laundering ......................................................................................... 32
j.
Reports Relating to Coins and Currency Received in
Nonfinancial Trade or Business ........................................................ 32
k.
Efficient Use of Currency Transaction Report System..................... 32
3.
Subtitle C—Currency Crimes and Protection ............................................... 33
a.
Bulk Cash Smuggling Into or Out of the United States: 31
U.S.C. § 5331 .................................................................................... 33
b.
Forfeiture in Currency Reporting Cases: 31 U.S.C. § 5317(c) ........ 33
c.
Illegal Money Transmitting Businesses: 18 U.S.C. § 1960 ............. 33
d.
Laundering the Proceeds of Terrorism: 18 U.S.C. §
1956(c)(7)(D)..................................................................................... 34
e.
Extraterritorial Jurisdiction: 18 U.S.C. § 1029................................. 34
Civil Monetary Penalties ............................................................................................ 34
1.
Union Bank .................................................................................................... 34
2.
Foster Bank .................................................................................................... 34
3.
American Express Bank International ........................................................... 34
4.
Beach Bank .................................................................................................... 35
5.
ABN AMRO Bank......................................................................................... 35
6.
Oppenheimer & Company ............................................................................. 35
iii
MONEY LAUNDERING
I.
INTRODUCTION.
The federal money laundering statutes, 18 U.S.C. §§ 1956 and 1957, have become a
standard indictment feature in most white-collar crime cases. The use of these statutes by
the Justice Department has expanded rapidly in all areas of criminal activity. Based on the
recent legislative proposals, this is not expected to change.
This paper presents a summary of the money laundering statutes. The focus is on recent
legislative developments and case law.
II.
MONEY LAUNDERING.
A.
B.
The Money Laundering Offenses - 18 U.S.C. §§ 1956 and 1957. On October 27,
1986, President Reagan signed the Anti Drug Abuse Act of 1986; subtitle H of Title
I of the Anti Drug Abuse Act is known as the “Money Laundering Control Act of
1986.” This statute introduced the new offenses of “laundering of monetary
instruments,” codified as 18 U.S.C. § 1956, and “engaging in monetary transactions
in property derived from specified unlawful activities,” codified as 18 U.S.C.
§ 1957. The government's use of these statutes has had far-reaching implications in
the prosecution of financial crime. Moreover, these broad statutes were further
strengthened and amended in 1988, 1990 and 2001. Legislative proposals are again
in Congress.
1.
Summary of § 1956. The provisions of § 1956 criminalize any financial
transaction which deals with the proceeds of a “specified unlawful activity”
when the activity is aimed at furthering the criminal activity, concealing the
source or ownership of the funds, or avoiding the reporting requirements of
the Bank Secrecy Act.
2.
Summary of § 1957. The provisions of § 1957 criminalize engaging in a
monetary transaction in criminally derived property that is of a value greater
than $10,000 and which is derived from a “specified unlawful activity.” The
statute does not require that the funds be used for any additional criminal
purpose.
Analysis and Discussion of 18 U.S.C. § 1956.
1.
Elements of the § 1956 Offenses. There are eight separate money laundering
offenses chargeable under 18 U.S.C. § 1956. For these purposes, laundering
of monetary instruments is divided into these subsections, § 1956(a)(1) and
(a)(2), which deal separately with domestic and international monetary
transactions and § 1956(a)(3) which deals with government-sponsored
money laundering. The government must prove in most prosecutions under
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18 U.S.C. § 1956 that the money derived or involved in the financial
transaction actually came from the “specified unlawful activity.”
a.
§ 1956(a)(1)(A) and (a)(2)(A) Offenses. In charging a person with a
violation of 18 U.S.C. § 1956(a)(1)(A), the government must show
that the person charged knew that the funds involved in the financial
transaction were from a criminal source, that the money came from
one of the “specified unlawful activities,” and that the person
conducted the transaction with the intent to promote the “specified
unlawful activity,” i.e., an attorney knowingly effects a financial
transaction with drug-related funds to purchase a plane which is used
in drug smuggling.
i.
18 U.S.C. § 1956(a)(1)(A)(i).
Conducting a financial
transaction, knowing that the property represents the
proceeds of some form of unlawful activity and the
transaction in fact involved a “specified unlawful activity” or
was intended to promote a “specified unlawful activity” is
prohibited under 18 U.S.C. § 1956(a)(1)(A)(i).
ii.
18 U.S.C. § 1956(a)(1)(A)(ii). Conducting a financial
transaction, knowing that the property represents the
proceeds of some form of unlawful activity and the
transaction in fact involves proceeds of a “specified unlawful
activity” with intent to engage in conduct constituting a
violation of 26 U.S.C. § 7201 or 26 U.S.C. § 7206 is
prohibited under 18 U.S.C. § 1956(a)(1)(A)(ii).
iii.
18 U.S.C. § 1956(a)(2)(A). Transporting, transmitting or
transferring, or attempting to transport, transmit, or transfer a
monetary instrument into or out of the United States with the
intent to promote the carrying on of a “specified unlawful
activity” is prohibited under 18 U.S.C. § 1956(a)(2)(A).
In 1998, Congress amended the statutory language of
“transports or attempts to transport” to “transports, transmits,
or transfers, or attempts to transport, transmit, or transfer, a
monetary instrument” into or out of the United States with
intent. This change was made to clarify the term “transports”
in the prior statute, since there was a question under the prior
law as to whether that term also included “transmits or
transfers.”
b.
§ 1956(a)(1)(B) and (a)(2)(B) Offenses.
Under 18 U.S.C.
§ 1956(a)(1)(B) and (a)(2)(B), an added element of proof is that the
defendant knew that the monetary transaction was conducted to
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conceal or disguise the nature, the location, the source, the ownership
or control of the proceeds of the “specified unlawful activity.” Thus,
a violation of § 1956(a)(1)(B) has occurred if the transaction
involved was in part aimed at concealing or otherwise disguising the
source and ownership of the funds or property, the defendant knew
that the money was derived from some criminal source, and the
funds came from the designated list of “specified unlawful
activities.”
i.
18 U.S.C. § 1956(a)(1)(B)(i).
Conducting a financial
transaction, knowing that the property represents the
proceeds of some form of unlawful activity and that the
transaction in fact involves “specified unlawful activity”
proceeds, which transactions were designed to conceal or
disguise, the ownership, nature, location, source or control of
the illegal proceeds of one of the “specified unlawful
activities” is prohibited under 18 U.S.C. § 1956(a)(1)(B)(i).
ii.
18 U.S.C. § 1956(a)(1)(B)(ii). Conducting a financial
transaction, knowing that the property represents the
proceeds of some form of unlawful activity and that the
transaction in fact involves “specified unlawful activity”
proceeds, which transactions were designed to avoid
Federal/State monetary reporting requirements is prohibited
under 18 U.S.C. § 1956(a)(1)(B)(ii).
iii.
18 U.S.C. § 1956(a)(2)(B)(i). Transporting, transmitting or
transferring, or attempting to transport, transmit, or transfer a
monetary instrument into or out of the United States knowing
that the monetary instrument or funds involved in the
transportation represent the proceeds of some form of
unlawful activity and knowing that such transportation in
whole or in part was to conceal or disguise the nature, the
location, the source, the ownership, or the control of the
proceeds of the “specified unlawful activity” is prohibited
under 18 U.S.C. § 1956(a)(2)(B)(i).
iv.
18 U.S.C. § 1956(a)(2)(B)(ii). Transporting, transmitting or
transferring, or attempting to transport, transmit, or transfer a
monetary instrument into or out of the United States knowing
that the monetary instrument or funds involved in the
transportation represent the proceeds of some form of
unlawful activity and knowing that such transportation in
whole or in part was designed to avoid the reporting
requirements of the Bank Secrecy Act is prohibited under 18
U.S.C. § 1956(a)(2)(B)(ii).
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c.
18 U.S.C. § 1956(a)(3). Conducting or attempting to conduct a
financial transaction with the requisite intent (same as § 1956(a)(1)
and (a)(2)) involving property “represented by” a law enforcement
officer to be the proceeds of a “specified unlawful activity” or
property used to conduct or facilitate a “specified unlawful activity”
is prohibited under 18 U.S.C. § 1956(a)(3).
2.
Expanded Territorial Jurisdiction.
Congress has also provided for
“extraterritorial jurisdiction” in § 1956 money laundering cases. Under 18
U.S.C. § 1956(f), jurisdiction for a potential violation of the law now extends
to a United States citizen anywhere in the world or to a non-citizen who has
been involved in conduct, part of which occurs in the United States. The
extraterritorial application of this statute requires, however, that the
transactions or series of transactions involved have a total value of more than
$10,000.
3.
Criminal Penalties. The criminal penalty for a violation of 18 U.S.C. § 1956
is a maximum of 20 years imprisonment and a fine of $500,000, or twice the
value of the monetary instruments or funds involved in a transaction or
transportation, whichever is greater. 18 U.S.C. §§ 1956(a)(1), (2), and (3).
4.
Definition of Key Terms.
a.
“Financial Transaction”. The term “financial transaction” is broadly
defined in 18 U.S.C. § 1956(c)(4)(A) as a transaction, which in any
way or degree affects interstate or foreign commerce, (i) involving
the movement of funds by wire or other means, or (ii) involving one
or more monetary instruments, or (iii) involving the transfer of title
to any real property, vehicle, vessel, or aircraft. Under 18 U.S.C.
§ 1956(c)(4)(B), a “financial transaction” is also defined as a
transaction involving the use of a financial institution which is
engaged in, or the activities of which, affect interstate or foreign
commerce in any way or degree. The 2006 amendments to §
1956(a)(1) offenses, provide that a financial transaction “shall be
considered to be one involving the proceeds of specified unlawful
activity if it is part of a set of parallel or dependent transactions, any
one of which involve the proceeds of specified unlawful activity, and
all of which are part of a single plan or arrangement.”
b.
“Transaction”. According to 18 U.S.C. § 1956(c)(3), the term
“transaction” is defined to include the purchase, sale, loan, pledge,
gift, transfer, delivery, or other deposition, and with respect to a
financial institution includes a deposit, withdrawal, transfer between
accounts, exchange of currency, loan, extension of credit, purchase
or sale of any stock, bond, certificate of deposit, or other monetary
-4-
instrument, use of a safe deposit box, or any other payment, transfer,
or delivery by, through, to a financial institution, by whatever means
effected.
Courts have determined that the following transactions fall into the
ambit of the money laundering statute:
i.
Procuring a loan to buy an automobile. United States v.
Davis, 205 F.3d 1335 (4th Cir. 2000).
ii.
Selling an automobile. United States v. Meschak, 225 F.3d
556, 572 (5th Cir. 2000); see also United States v. McLamb,
985 F.2d 1284, 1292 (4th Cir. 1993); United States v.
Kaufmann, 985 F.2d 884, 889 (7th Cir. 1993).
iii.
Submitting a false theft claim to an insurer. United States v.
Cavalier, 17 F.3d 90, 92 (5th Cir. 2000).
iv.
Wiring funds to drug couriers. United States v. Prince, 214
F.3d 740, 750 (6th Cir. 2000); United States v. King, 169
F.3d 1035, 1039 (6th Cir. 1999).
v.
Paying illegally obtained gambling winnings. United States
v. Febus, 218 F.3d 784, 790 (7th Cir. 2000).
vi.
Depositing funds in a bank account. United States v. Baker,
227 F.3d 955, 962 (7th Cir. 2000); United States v. Jolivet,
224 F.3d 902, 909 (8th Cir. 2000); see also United States v.
Haun, 90 F.3d 1096, 1100 (6th Cir. 1996); United States v.
Reynolds, 64 F.3d 292, 297 (7th Cir. 1995).
vii.
Posting a bail bond. United States v. France, 164 F.3d 203,
208 (4th Cir. 1999).
viii.
Withdrawing money from a bank account. United States v.
Gregg, 179 F.3d 1312 (11th Cir. 1999).
ix.
Running a casino chip-cashing scheme. United States v.
Manarite, 44 F.3d 1407, 1414 (9th Cir. 1995).
x.
Cashing checks from fraudulently obtained loan proceeds.
United States v. Cancelliere, 69 F.3d 1116, 1120 (11th Cir.
1995).
xi.
Cashing embezzled checks at a bank. United States v.
Paramo, 998 F.2d 1212, 1215 (3d Cir. 1993).
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xii.
Transferring cashier’s checks. United States v. Arditti, 955
F.2d 331, 338 (5th Cir. 1992).
xiii.
Paying a money order. United States v. Koller, 956 F.2d
1408, 1410-11 (7th Cir. 1992).
xiv.
Writing a check in conjunction with a payroll check
laundering scheme. United States v. Isabel, 945 F.2d 1193,
1201 (1st Cir. 1991).
xv.
Cashing a check for cash from account containing illicit
proceeds. United States v. Jackson, 935 F.2d 832, 841 (7th
Cir. 1991).
xvi.
Transferring title to a truck. United States v. Blackman, 904
F.2d, 1250, 1257 (8th Cir. 1990).
Despite the breadth of activities that are considered financial
transactions, mere transportation or receipt of drug proceeds
generally does not create liability under the statute. See e.g., United
States v. Stephenson, 183 F.3d 110, 121 (2d Cir. 1999); United States
v. Reed, 77 F.3d 139, 143 (6th Cir. 1996); United States v. Heaps, 39
F.3d 479, 486 (4th Cir. 1994); United States v. Puig-Infante, 19 F.3d
929, 938 (5th Cir. 1994).
But, courts typically find that
transportation combined with delivery of drug proceeds is sufficient
to constitute a financial transaction. See, e.g., United States v.
Abrego, 141 F.3d 142, 158-60 (5th Cir. 1998); United States v.
Gough, 152 F.3d 1172, 1173 (9th Cir. 1998).
c.
“Monetary Instruments”. The term “monetary instruments” has been
broadly defined in 18 U.S.C. § 1956(c)(5) to include coins or
currency of the United States or of any other country, traveler's
checks, personal checks, bank checks, money orders, investment
securities in such form that title thereto passes upon delivery, and
negotiable instruments in bearer form or otherwise in such form that
title thereto passes upon delivery. The Senate Judiciary Committee
commented that the term also included cashier's checks. S. Rep. No.
433, 99th Cong., 2d Sess. 13 (1986).
d.
“Funds”. The term “funds” generally means “pecuniary resources”
and includes cashier's checks, which are not explicitly mentioned in
the statutory definition of “monetary instrument.” United States v.
Arditti, 955 F.2d 331, 338 (5th Cir. 1992).
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e.
“Knowing That Property Represents Unlawful Proceeds”. The term
“knowing that the property involved in a financial transaction
represents the proceeds of some form of unlawful activity” means
that the individual knew that the property involved in the transaction
represented proceeds from some form, though not necessarily which
form, of activity that constitutes a felony under state, federal, or
foreign law. 18 U.S.C. § 1956(c)(1). See United States v. Isabel, 945
F.2d 1193, 1201 (1st Cir. 1991). Note that there is no proceeds
element in §§ 1956(a)(2) or (a)(3).
f.
“Proceeds”. While Congress did not define “proceeds,” the courts
have interpreted the term broadly to include much more than
monetary instruments. See e.g., United States v. One 1997
Mercedes E420, 175 F.3d 1129, 1132 (9th Cir. 1999) (cars);
United States v. Diaz, 190 F.3d 1247, 1257 (11th Cir. 1999) (a
house); United States v. Ladum, 1328, 1340 (9th Cir. 1998) (rent
payments); United States v. Estacio, 64 F.3d 477, 480 (9th Cir.
1995) (line of credit). However, tax and cost savings from hiring
illegal aliens did not give rise to “proceeds” capable of being
laundered. United States v. Khanani, ---F.3d--, 2007 WL 2826968
(11th Cir. Oct. 2, 2007), (“proceeds does not contemplate profits
indirectly derived from labor or from the failure to remit taxes”).
In United States v. Morelli, 54 F.3d 770 (3d Cir. 1999), defendants
argued that the transactions that were the subject of their
convictions did not involve the proceeds of fraud; the court
rejected their arguments and affirmed their convictions. The
defendants engaged in a series of transactions that resulted in the
embezzlement of excise taxes from fuel sales.
Defendant Morelli argued that the government failed to prove that
any of the transactions involved proceeds of fraud since the
government offered no proof of wire transfers occurring after the
point at which the taxes should have been collected. The court
rejected this argument and held that the money became the
proceeds of the fraud as soon as it entered the hand of the
member's scheme. The court also rejected Morelli's argument that
the money was not proceeds of wire fraud because the money
came into the possession of the scheme as a result of fraud before
any of the wirings involving the money occurred. The court
emphasized that the scheme succeeded as a result of each and
every wiring within each and every series of transactions.
Accordingly, the money within each series of transactions was the
proceeds of wire fraud because the fraud from which it resulted
was promoted by the wire transfers within the preceding series of
transactions.
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The Second Circuit has held that money received before a
“specified unlawful activity” is complete can be considered
“proceeds” of that unlawful activity if it is “part of a single
scheme” to commit the “specified unlawful activity.” See United
States v. Zvi, 168 F.3d 49 (2d Cir. 1999). In Zvi, the defendants
staged a robbery of their gold chain manufacturing business in
order to fraudulently obtain insurance proceeds which were
thereafter wired to the defendants’ account. The defendants argued
that the money received from the pre-robbery sale of gold did not
constitute “proceeds” of the wire fraud but rather were at most
proceeds from simple theft, which is not a “specified unlawful
activity.” The court rejected the defendant’s narrow definition of
the term “proceeds” and held that a jury could reasonably have
found that the sale of gold was “part of as single scheme” to
commit wire fraud and that the proceeds from the sale of gold
constituted the requisite “proceeds from specified unlawful
activity” under the money laundering statute.
In United States v. Misla-Aldarondo, 478 F.3d 52 (1st Cir. 2007),
the defendant was convicted of extortion and argued that because
he did not attempt to conceal the money once it reached him, he
could not be convicted of money laundering. The court disagreed,
and found that an attempt to conceal proceeds before they actually
came into the defendant’s possession does not relieve one of
criminal liability for money laundering.
There is a split among the circuits as to whether “proceeds” refers
to gross receipts or net income from the illegal activity. The
Seventh Circuit in a case authored by Judge Easterbrook held that
“when the crime entails voluntary, business-like operations,
‘proceeds’ must be net income. United States v. Scialbba, 282
F.3d 475 (7th Cir. 2002) (involving illegal gambling business); see
also Santos v. United States, 461 F.3d 886 (7th Cir. 2006) (same).
The Third Circuit declined to adopt the reasoning in Scialbba, and
instead held that “proceeds” as that term is used in § 1956 means
simply gross receipts from illegal activity, stating that “an
individual may engage in money laundering regardless [of]
whether his or her criminal endeavor ultimately turns a profit.”
United States v. Grasso, 381 F.3d 160 (3d Cir. 2004). Grasso also
noted that both the Sixth and Ninth Circuits have relied on a
dictionary definition of “proceeds” which suggests total revenue
and gross receipts.
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g.
“Affects Commerce”. The term “affects commerce in any way or
degree” is taken from the Hobbs Act, 18 U.S.C. § 1951, which
reflects the broadest exercise of Congressional law-making power
under the Commerce Clause; see United States v. Eaves, 877 F.2d
943 (11th Cir. 1989) (moving money in interstate commerce satisfied
jurisdictional prerequisites of Hobbs Act, comparing to movement of
money in interstate commerce clause of 18 U.S.C. § 1956).
Generally, courts have determined that the government must
establish that a defendant’s conduct had an effect on interstate
commerce as an element of a money laundering offense. This is
especially true given the resurgence of the commerce clause during
the last decade. The terms “interstate” and “foreign commerce” for
Title 18 purposes are defined at 18 U.S.C. § 10. See United States v.
Allen, 129 F.3d 1159, 1163 (10th Cir. 1997); United States v.
Laurenzano, 113 F.3d 689, 692 (7th Cir. 1997); United States v.
Lovett, 964 F.2d 1029, 1038 (10th Cir. 1992).
In United States v. Ables, 167 F.3d 1021 (6th Cir. 1999), the Sixth
Circuit held that the government is only required to prove that the
transaction had a de minimus effect upon interstate commerce. This
is the approach of most courts. See also United States v. Owens, 159
F.3d 221 (6th Cir. 1998) (using federally insured banks and/or
transporting monies across state borders to facilitate money
laundering create a sufficient nexus to interstate commerce to allow
application of § 1956.
In United States v. Grey, 56 F.3d 1219, 1220 (10th Cir. 1995), the
Tenth Circuit held that the transfer of $200 to video poker manager
was insufficient to establish an affect on interstate commerce, absent
showing particular money used good traveled in interstate
commerce. Similarly, a district court in the Seventh Circuit held that
an in-state payment of cash does not affect interstate commerce and
dismissed a count of indictment. United States v. Edwards, 111 F.
Supp. 2d 1057, 1062n.3 (E.D. Wis. 2000).
Some examples of activities that have been found to affect interstate
commerce sufficiently to confer federal jurisdiction:
i.
Purchasing a car. United States v. Meshack, 225 F.3d 556
(5th Cir. 2000); United States v. Kaufmann, 985 F.2d 884,
892 (7th Cir. 1993).
ii.
Transferring money intrastate in violation of a loan
agreement with an out-of-state company. United States v.
Wilkinson, 137 F.3d 214, 220 (4th Cir. 1998).
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h.
iii.
Engaging in any transaction involving funds deposited at a
federally insured institution. United States v. Ladum, 141
F.3d 1328, 1339 (9th Cir. 1998); United States v. Peay, 972
F.2d 71, 74-75 (4th Cir. 1992).
iv.
Paying a co-conspirator’s cash bond to correctional officers.
United States v. Laurenzano, 113 F.3d 69, 693 (7th Cir.
1997).
v.
Engaging in any transaction involving a check or money
order. United States v. Kunzman, 54 F.3d 1522, 1527 (10th
Cir. 1995); United States v. Koller, 956 F.2d 1408, 1411 (7th
Cir. 1992)
vi.
Transporting drug proceeds. United States v. Gallo, 927 F.2d
815, 822-23 (5th Cir. 1991).
vii.
Participating in the drug trade. United States v. Burgos, 254
F.3d 8, 13 (1st Cir. 2001)
viii.
Investing in the construction of a shopping mall. United
States v. Lucas, 932 F.2d 1210, 1219 (8th Cir. 1991).
“Intent to Promote”. To convict under § 1956(a)(1)(A), the
government must prove that a defendant conducted a transaction (i.e.
making payments) with the intent to promote the unlawful activity.
United States v. Masten, 170 F.3d 790 (7th Cir. 1999). However, the
scope of the “intent to promote” requirement is unclear. One line of
cases holds that the mere receipt of cash that is not shown to have
been reinvested in illegal activity does not evidence the requisite
intent. See United States v. Reed, 167 F.3d 984 (6th Cir. 1999) citing
United States v. Jackson, 935 F.2d 832 (7th Cir. 1991); United States
v. Heaps, 39 F.3d 479 (4th Cir. 1994).
Another line of cases stands for the proposition that transferring or
cashing a check promotes the prior unlawful activity even though the
underlying crime may have been completed. See United States v.
Reed, 167 F.3d 984 (6th Cir. 1999) citing United States v. Paramo,
998 F.2d 1212 (3d Cir. 1993) (the act of cashing embezzled checks
promoted the fraud even though the proceeds were spent on
consumer items); United States v. Haun, 90 F.3d 1096 (6th Cir.
1996); United States v. Cavalier, 17 F.3d 90 (5th Cir. 1994).
The Ninth Circuit held that the government had established the
requisite intent contrary to the defendants’ arguments, where
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defendants had accepted money to promote the sale of counterfeit
travelers’ checks. The court noted that without the payment, the
fraudulent scheme would have stopped. See United States v. Panaro,
241 F.3d 1104, 1110 (9th Cir. 2001).
The Fifth Circuit has held that § 1956 (a)(1)(A)(i) does not permit the
conviction of a defendant who deposits proceeds of some relatively
minor fraudulent transactions into the operating account of an
otherwise legitimate business enterprise and then writes checks out
of that account for general business purposes. United States v.
Brown, 186 F.3d 661 (5th Cir. 1999). In reversing the money
laundering convictions based on insufficient evidence, the Court in
Brown noted that the government chose not to indict the defendant
for depositing the proceeds of fraud, but instead made a strategic
decision to focus on spending transactions perhaps because “receipt
and deposit” money laundering prosecutions are disfavored. The
court held that having chosen to prosecute for spending (not merely
depositing) dirty money, the government was required to show that
the expenditures were conducted with an “intent to promote” the
fraudulent activity. See also United States v. McGahee, 257 F.3d
520, 527 (6th Cir. 2001) (the Sixth Circuit held that paying for
personal goods, alone, does not establish that the funds “were used to
promote an illegal activity,” and that the Government must prove the
connection between the transaction and the mechanism of the crime.)
The Brown court further held that the promotion element is a specific
intent element that is not satisfied by mere evidence of promotion, or
even knowing promotion, but requires evidence of intentional
promotion. Absent some evidence that a dirty money transaction
that in fact promoted specified lawful activity was conducted with
the intent to promote such activity, a defendant may not be convicted
of promotion money laundering under § 1956 (a)(1)(A)(i). Finally,
the court held that there does not have to be direct evidence of an
intent to promote, rather, it may be inferred from the particular type
of transaction, i.e. evidence of payments for postage for mailing
fraudulent warranty claims might have provided evidence of intent to
promote fraud. Mere evidence of legitimate business expenditures,
however, was not enough.
i.
“Specified Unlawful Activities”.
Importantly, the funds must
actually be derived from certain “specified unlawful activities.” 18
U.S.C. § 1956(c)(7)(D) contains a laundry list of “specified unlawful
activities,” including nearly all of the violations which are currently
RICO predicate offenses, all federal drug offenses, all foreign drug
offenses, Bank Secrecy Act violations, and assorted other Title 18
offenses. Additional offenses include: entry of goods by means of
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false statements; copyright infringement; misuse of precursor and
essential chemicals; aviation smuggling; transportation of drug
paraphernalia; federal health care offenses; and environmental
crimes.
In 2000, the listing was amended to include violations of section
543(a)(1) of the Housing Act of 1949 relating to equity skimming. A
major amendment to the specified activity listing came in the
Antiterrorism and Effective Death Penalty Act of 1996. It added the
manufacture, importation, sale, or distribution of a controlled
substance; murder; kidnapping; robbery and extortion; fraud, or any
scheme or attempt to defraud, by or against a foreign bank; and any
act constituting a continuing criminal enterprise as defined in § 408
of the Controlled Substance Act, 21 U.S.C. § 848 (1994).
Note that the fact that an illegal act, a “specified unlawful activity,”
cannot be prosecuted does not prevent the act from forming part of
the basis for other charges. See United States v. Zvi, 168 F.3d 49 (2d
Cir. 1999), where the substantive wire fraud count that was
dismissed for lack of venue constituted the “specified unlawful
activity” on which the money laundering charge was based. See also
United States v. Richard, 234 F.3d 763, 768 (1st Cir. 2000)
(upholding a conviction where defendant was acquitted of the
“specified unlawful activity” of bankruptcy fraud). If there is no
evidence of a “specified unlawful activity” then the conviction
cannot stand. See United States v. Phillips, 219 F.3d 404, 416 (5th
Cir. 2000).
One reported case not upholding a money laundering conviction
regarding a “specific unlawful activity” is United States v. Adkinson,
135 F.3d 1363, 1375-78 (11th Cir. 1998) (finding that inadequately
plead bank fraud preempted the money laundering charge).
Cases that have examined this general issue include: United States v.
Ford, 184 F.3d 566, 583-84 (6th Cir. 1999); United States v.
Manorite, 44 F.3d 1407, 1416 (9th Cir. 1995); United States v.
Restivo, 8 F.3d 274, (5th Cir. 1993); United States v. Levine, 970
F.2d 681, 686 (10th Cir. 1992); United States v. Skinner, 946 F.2d
176 (2d Cir. 1991); United States v. Bell, 936 F.2d 337 (7th Cir.
1991); United States v. Brown, 944 F.2d 1377 (7th Cir. 1991);
United States v. Martin, 933 F.2d 609 (8th Cir. 1991); United States
v. Montoya, 945 F.2d 1068 (9th Cir. 1991); United States v. Edgmon,
952 F.2d 1206, 1208-09 (10th Cir. 1991); United States v. Werber,
787 F. Supp. 353, 354 (S.D.N.Y. 1992); United States v. Real
Property Known as 16899 S.W. Greenbrier, 774 F. Supp. 1267 (D.
Or. 1991).
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j.
“Design to Conceal”. The Eleventh Circuit in United States v.
Abbell, 271 F.3d, 1286, 1299 (11th Cir. 2001) upheld the defendant
attorneys' money laundering convictions, which were based on the
fact that the defendants were the intermediaries through which the
drug cartel made payments to incarcerated employees and their
families. The defendants put money into inmates' commissary
accounts and gave money to the inmates' family members; they were
then reimbursed by the drug cartel. The court found that these
payments were designed to conceal the cartel as their source.
The Fifth Circuit found sufficient intent to conceal the source of
illegal funds in United States v. Powers, 168 F.3d 741 (5th Cir.
1999), where defendants used a corporation formed by defendants
to launder money. Factors that the Court considered were the use
of the corporation to disguise the payments, the face of the checks
did not reveal that the defendant was involved in the transactions,
and the defendant’s connection to the corporation could only be
discovered by accessing the bank records of the corporation and
tracing the funds from that account to the defendant’s personal
account. See also United States v. Gonzalez-Rodriguez, 966 F.2d
918 (5th Cir. 1992).
In United States v. Shoff, 151 F.3d 889 (8th Cir. 1998), the Eighth
Circuit Court of Appeals considered whether the purchase of two
automobiles with funds from a fraud scheme supported a money
laundering conviction under 18 U.S.C. § 1956(a)(1)(B). Shoff had
engaged in a long-term investment fraud to raise money to pay
gambling and personal debts, and he purchased two automobiles
with funds gained from the fraud. The government indicted and
convicted Shoff of mail fraud and money laundering under the
theory that he had purchased the cars, using funds, which had been
designed to conceal the nature, location, the source, the ownership,
or the control of the proceeds of specified unlawful activity.
The court, in reversing the money laundering counts, noted that the
defendant did nothing to conceal the purchase of the automobiles.
Shoff’s clients had transferred money to him without restriction as
to what he could do with it, and he had purchased the automobiles
in his own name. The government failed to offer particularized
proof that the financial transactions were designed to be concealed.
The court concluded that simply because Shoff had spent money
on personal items, including casino gambling, that did not convert
the activity to money laundering absent proof that the spending
transactions were themselves designed to conceal his use of the
fraud proceeds.
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The Court of Appeals for the Tenth Circuit has rejected the
interpretation that the statute should be construed broadly so as to
include all purchases made with the knowledge that the money used
comes from illegal activity. Instead, it held that a design to conceal
or disguise the nature of the activity is a necessary element to be
proved. United States v. Anderson, 189 F.3d 1201 (10th Cir. 1999).
Defendant appealed his convictions for conspiracy to distribute
cocaine, possession with intent to distribute cocaine, and money
laundering. The court reversed the money laundering conviction
because evidence that the defendant purchased a vehicle with drug
proceeds, in cash, and titled it in his mother’s name is not
sufficient to support the money laundering conviction where the
defendant made no attempt to conceal his role in the transaction
and did not caution the salesperson to talk about it. “In assessing
the sufficiency of the evidence to support a money laundering
conviction, this court has cautioned against interpreting the statute
so broadly as to ‘turn the money laundering statute into a money
spending statute.’” Id. citing United States v. Sanders, 928 F.2d
940, 946 (10th Cir. 1991); see also United States v. Stephenson,
183 F.3d 110 (2d Cir. 1999) (the mere spending of proceeds of a
specified unlawful activity is not a crime); United States v. GarciaEmanuel, 14 F.3d 1469 (10th Cir. 1994); United States v. McGahee,
257 F.3d 520, 528 (6th Cir. 2001).
Other courts have held just the opposite, however, convictions for
money laundering upheld where fact pattern showed defendants
moved cash proceeds of an illegal activity. United States v.
Wydermyer, 51 F.3d 319 (2d Cir. 1995) (arms sales); United States v.
Flores, 63 F.3d 1342 (5th Cir. 1995) (drug sales); United States v.
Salcido, 33 F.3d 1244 (10th Cir. 1994) (drug sales); United States v.
Koller, 956 F.2d 1408 (7th Cir. 1992).
5.
Notable Case Law Issues.
a.
Constitutional Issues—Vagueness.
The Courts of Appeal have
rejected all constitutional challenge on vagueness grounds to § 1956.
See, e.g., United States v. Long, 977 F.2d 1264 (8th Cir. 1992);
United States v. Awan, 966 F.2d 1415, 1425-25 (11th Cir. 1992);
United States v. Ortiz, 738 F. Supp. 1394 (S.D. Fla. 1990); United
States v. Kimball, 711 F. Supp. 1031 (D. Nev. 1989).
b.
Charging Options. The government can properly include a separate
count in an indictment for each transaction related to an overall
money-laundering scheme. See United States v. Peery, 977 F.2d
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1230, 1234 (8th Cir. 1992) (charging the defendant separately for
each wire transfer from one bank account to another.)
c.
Charging Single Count—Encompassing Multiple Acts. According
to the Second Circuit, the government can also charge a single
money laundering count that encompasses multiple acts, provided
that each act is part of a unified scheme. The Court noted that
although the Eleventh Circuit concluded money laundering is not a
continuing offense, it lacked the Second Circuit’s presumption in
favor of allowing a common scheme to be treated as part of a single
offense. In addition, the Court relied on the Supreme Court’s
acknowledgment in United States v. Cabrales, 524 U.S. 1, 8 (1998),
that there is a possibility that money laundering could be a
continuing offense. United States v. Malone, 287 F.3d 236 (2d Cir.
2002).
d.
Attempt. To prove an attempt to commit money laundering, the
government must establish that the defendant: (a) acted with the
specific intent to conduct the financial transaction described in the
substantive statute and (b) took a substantial step toward completion
of the transaction. See United States v. Barnes, 230 F.3d 311, 314
(7th Cir. 2000). A substantial step is more than just preparation but
less than the last act necessary before the completion of the crime.
Id. at 315. See also United States v. Burgos, 254 F.3d 8, 12 (1st Cir
2001).
In Barnes, the court upheld the defendants’ conviction for attempted
money laundering on the basis that placing a phone call, arranging a
meeting, and giving instructions for a closing. Id.
6.
Sentencing .
The United States Sentencing Commission revised the Money Laundering
Sentencing Guidelines in 2001. The 2001 Amendments consolidate
violations for 18 U.S.C. §§1956 and 1957. The money laundering offense
levels are tied more closely to the underlying violation. Under the
guideline, the base offense level is the level for the underlying offense if
the defendant committed or would be held accountable for the offense and
the level for the underlying offense can be determined. U.S.S.G. §
2S1.1(a)(1) (Nov. 1, 2001). See also, U.S.S.G. § 2S1.1, comment n.6
(Nov. 1, 2001). In other cases, the level is 8 plus the level from the table
in § 2B1.1 relating to the value of the funds. See, e.g., § 2S1.1(a)(2).
Specific criminal offenses have been enhanced in money laundering
sentencing. Crimes under § (a)(2) are increased six points if the defendant
knew or believed that the funds were proceeds or intended to promote
drug trafficking, a crime of violence, or an offense involving firearms,
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explosives, national security, terrorism or sexual exploitation of a minor.
§ 2S1.1(b)(1). An additional four-point enhancement is allowed for the
“professional money launder who is in the business of laundering funds.”
§ 2S1.1(b)(2)(C). This enhancement is based upon the totality of the
circumstances. Id. at comment (n.4). In all cases, if the defendant is
convicted under § 1957, the level is increased by one point and two points
if she is convicted under § 1956. If the offense involved “sophisticated
laundering,” the level is increased by two points. U.S.S.G. § 2S1.1(b)(3).
The term “sophisticated laundering” is defined to include “complex or
intricate offense conduct,” such as the use of fictitious entities, shell
corporations, and multiple layers of transactions or offshore accounts. Id.
at comment (n.5).
Additionally, because of the fact that money-laundering guidelines are
significantly higher than other theft or property crimes, a number of courts
have expressed concern about the possibility of sentencing manipulation.
See, e.g., United States v. Posters ‘N’ Things Ltd., 969 F.2d 652 (8th Cir.
1992), aff’d, 511 U.S. 513 (1994); United States v. Miller, 78 F.3d 507
(11th Cir. 1996) (holding that a downward departure should be available
for attorney who became aware of the illegal source of the money, but did
not receive any financial benefit from the money laundering); United
States v. Threadgill, 172 F.3d 357 (5th Cir. 1999) (holding that money
laundering was de minimis part of gambling activity.)
Under the money laundering sentencing regime, the driving force behind
the severity of the sentence is the amount of money involved in the
transactions before the court.
See e.g. U.S.S.G. §§ 2S1.1(b)(2),
2S1.2(b)(2). The more money involved the longer the sentence. Courts
consider the total amount laundered and deposited in a bank, not the
amount remaining the account. United States v. Landerman, 167 F.3d 895
(5th Cir. 1995) (all laundered fraud proceeds included in amount
laundered for guideline calculations); United States v. Tansley, 986 F.2d
880 (5th Cir. 1993) (court properly considered total payment as laundered
funds).
The current money laundering guideline starts at level 20, or 23, if the
defendant is convicted under 18 U.S.C. § 1956(a). U.S.S.G. §2S1.1(a).
The level is increased further if the defendant knew or believed that the
proceeds were derived from drugs. § 2S1.1(b)(1) and if more than
$100,000 is laundered, § 2S1.1(b)(2).
The offense level for Title 31 currency reporting violations is six if the
transaction was structured to evade the reporting requirements. U.S.S.G.
§ 2S1.3(a)(1)(A); see United States v. Morales-Vasquez, 919 F.2d 258 (5th
Cir. 1990). The offense level is six if the defendant filed or caused to be
filed a false report. U.S.S.G. §2S1.3(a)(1) (1993). Additionally, the
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offense level is increased if the defendant knew or had reason to believe
that the funds were proceeds or unlawful activity or intended to promote
unlawful activity. U.S.S.G. §2S1.3(b)(1). The offense level is increased
in accordance with the fraud table corresponding to the value of the funds.
U.S.S.G. §2S1.3(a) (1998). It should be noted that the 2001 amendments
changed the loss levels dramatically for all frauds.
In the tax sentencing area potentially relating to a United States citizen’s
hidden ownership and control of foreign bank accounts, the 2001
amendments create an upward adjustment for failure to report or correctly
identify the source of income exceeding $10,000 in any one year from
criminal activity. U.S.S.G. §§ 2T1.1(b)(1). The adjustment appears to be
in addition to an upward two point adjustment if the offense involved
“sophisticated means” U.S.S.G. § 2T1.1(b)(2). The same definition of
“sophisticated means” is used in the tax section as is used in the money
laundering section. Id. at comment (n.4); see United States v. Clements,
73 F.3d 1230 (5th Cir. 1996) (using off-shore bank accounts was
sophisticated means to accomplish crime).
There has been some discussion by the courts whether commingled funds
(some legitimate funds mixed into illicit funds) should be counted as
laundered money for sentencing purposes. A recent change by the United
States Sentencing Commission should resolve this issue. See U.S.S.G. §
2S1.1, comment (n.3)(B) (November 1, 2001). See also United States v.
Leahy, 82 F. 3d 624 (5th Cir. 1996) (court properly considered total
payment as laundering funds, but the legitimate funds which may have
been commingled are not included unless the court determines which
funds are legitimate). United States v. Huber, 462 F.3d 945 (8th Cir.
2006) (because of co-mingling, the district court did not error when it
declined to use the claimed loss to the government of $19 million as the
loss was impossible to estimate, and instead used the value of the
laundered funds – just under $6 million). If funds are used in more than
one money laundering transaction, both transactions may be counted.
United States v. Allen, 76 F.3d 1348 (5th Cir. 1996).
The Supreme Court in Apprendi v. New Jersey, 530 U.S. 466 (2000), has
had some impact on money laundering prosecutions, but the full extent is
not known. To increase a sentence, all elements must be proven by a
reasonable doubt. In money laundering, the “specified unlawful activity”
as an element of the offense could not be viewed as uncharged conduct.
Because the underlying offense is not always charged as a free-standing
charge and the courts have brought enhancements under a relative conduct
theory, Apprendi could be impacted. Apprendi might have some effect on
how the government will charge the defendant and/or how courts interpret
exactly what relevant conduct enhancements are appropriate in the moneylaundering context.
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C.
Analysis and Discussion of 18 U.S.C. § 1957.
1.
Elements of the § 1957 Offenses. The companion to § 1956 is 18 U.S.C.
§ 1957, which criminalizes the knowing receipt of proceeds of a criminal
transaction. The statute can be charged in two separate ways.
a.
18 U.S.C. § 1957(a) and (d)(1). Knowingly engaging or attempting
to engage in a monetary transaction in criminally derived property of
a value greater than $10,000 which is derived from a “specified
unlawful activity,” when the offense takes place within the United
States or in the special maritime and territorial jurisdiction of the
United States, is prohibited under 18 U.S.C. § 1957(a) and (d)(1).
b.
18 U.S.C. § 1957(a) and (d)(2). Knowingly engaging or attempting
to engage in a monetary transaction involving criminally derived
property of a value greater than $10,000 which is derived from a
“specified unlawful activity,” when the offense takes place outside
the United States or outside the special maritime and territorial
jurisdiction of the United States, but the defendant is a United States
person, is prohibited.
2.
Criminal Penalties. The criminal sanction for violating 18 U.S.C. § 1957 is a
maximum term of 10 years imprisonment and/or a fine of $250,000, or not
more than twice the amount of the criminally derived property in the
transaction. 18 U.S.C. § 1957(b).
3.
Definition of Key Terms.
a.
Specific Knowledge. The government must show that the individual
actually knew that the monetary transaction upon which the
prosecution is predicated was “in criminally derived property,” but
not that the individual knew that the “criminally derived property”
was “derived from a specified unlawful activity.” See United States
v. Smith, 44 F.3d 1259 (4th Cir. 1995); United States v. Salcido, 33
F.3d 1244, 46-48, (10th Cir. 1994).
Some courts have expanded the actual knowledge requirement to
include “willful blindness” as a knowledge standard. A willful
blindness instruction may be appropriate if 1) a defendant claims a
lack of knowledge, 2) the facts suggest a conscious course of
deliberate ignorance, and 3) the instruction, taken as a whole, cannot
be misunderstood as mandating an inference of knowledge. See
United States v. Coviello, 225 F.3d 54, 70 (1st Cir. 2000); United
States v. Finkelstein, 229 F.3d 90, 97 (2d Cir. 2000); United States v.
Smith, 46 F.3d 1223, 1238 (1st Cir. 1999); United States v. Stewart,
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185 F.3d 112, 126 (3d Cir. 1999); United States v. Cuman, 152 F.3d
29, 40 (1st Cir. 1998); United States v. Hildebrand, 152 F.3d 756,
765 (8th Cir. 1998); United States v. Cooper, 132 F.3d 1400, 1405
(11th Cir. 1998); United States v. Bornfield, 145 F.3d (10th Cir.
1996); United States v. Campbell, 977 F.2d 854, 857 (4th Cir. 1992);
United States v. Bader, 956 F.2d 710 (7th Cir. 1992); see also, S.
Rep. 99-433 at 6-8 (1986).
b.
Origin of Property. The government must also show that the
criminally derived property had, as it origin, one of the “specified
unlawful activities” as defined in the statute. 18 U.S.C. § 1957(f)(3).
c.
Completed Offense. The offense on which the money laundering
charge is based must be complete at the time of the monetary
transaction. In United States v. Richard, 234 F.3d 763 (1st Cir.
2000), the court upheld a defendant’s conviction under § 1957. The
defendant argued that the underlying act of bankruptcy fraud was not
completed when he transferred the money to his associates.
Therefore, his conviction was wrongfully because the funds were not
proceeds yet. The court disagreed, noting that Third and Fourth
Circuits have held that ‘proceeds’ are derived from an already
completed offense, or a completed offense, or a completed phase of
an ongoing offense. Accordingly, the court concluded that the
defendant knew he was dealing in criminally derived proceed and
affirmed his conviction. See also, United States v. Cefaratti; 221
F.3d 502, 510 (3d Cir. 2000); United States v. Nolan, 223 F.3d 1311,
1314 (11th Cir. 2000).
Defendant does not have to be convicted of underlying criminal
activity. United States v. McGauley, 279 F.3d 62 (1st Cir. 2002). In
this case Defendant appeals conviction arguing that a money
laundering conviction cannot be based on unlawful activity not
charged in the indictment and claims that the scope of any money
laundering conviction must be limited to base offenses charged by
the government. However, the court stated, “We do not require the
indictment to specify the predicate offense underlying a money
laundering charge.” United States v. Mankarious, 151 F.3d 763, 768
(1st Cir. 2000); see also United States v. Richard, 234 F.3d 763, 768
(1st Cir. 2000) (holding that a conviction under 18 U.S.C. § 1957 for
engaging in monetary transactions in property derived from specified
unlawful activity does not require that defendant also have been
convicted of the underlying unlawful activity).
d.
Monetary Transaction. This term includes the deposit, withdrawal,
transfer, or exchange, in or affecting interstate or foreign commerce,
of funds or a monetary instrument by, through, or to a financial
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institution, including any transaction that would be a financial
transaction under § 1956(c)(4)(B).
e.
Criminally Derived Property. This term means any property
constituting, or derived from, proceeds obtained from a criminal
offense.
f.
Specified Unlawful Activity. This term has the meaning given to it
in § 1956.
g.
Interstate Commerce. The interpretation of this element is similar to
the interpretation given to it under § 1956. See , e.g., United States v.
Allen, 129 F.3d 1159 (10th Cir. 1997) (“affecting interstate or
foreign commerce” requirement of § 1957 is both jurisdictional and
an essential element of the offense); see also United States v.
Ripinsky, 109 F.3d 1436, 1444 (9th Cir. 1997).
h.
$10,000 or More. In United States v. Allen, 129 F.3d 1159, 1162
(10th Cir. 1997), the court held that at least $10,000 of each transfer
charged must be derived from illicit funds. See also United States v.
Rutgard, 116 F.3d 1270, 1290-91 (9th Cir. 1997); United States v.
Adams, 74 F.3d 1093, 1100 (11th Cir. 1996).
i.
Criminally Derived Funds. In United States v. Hanley, 190 F.3d
1017 (9th Cir. 1999), Defendants appealed convictions on conspiracy
to commit wire fraud and laundering of monetary instruments under
§ 1957. Defendants, relying on United States v. Rutgard, 116 F.3d
1270 (9th Cir. 1997) to attack the sufficiency of the evidence of the
money laundering conviction, stated that Rutgard requires the
government to trace each of the allegedly illegal monetary
transactions to criminally derived proceeds, and arguing that the
government failed to do so. The government argued that it was not
required to trace each transaction because the “great majority of the
funds in the accounts consisted of fraudulent telemarketing
proceeds.” The court rejected the government’s argument and
clarified that Rutgard requires evidence that every deposit was
secured through illegal means – “that is the type of specific proof –
or tracing of criminally derived funds – generally required under
Rutgard.” However, the court affirmed the money laundering
conviction on an alternative ground advanced by the government at
trial — that the defendant’s company was an entirely fraudulent
enterprise. The court further clarified that under Rutgard the
government may prove the funds withdrawn or transferred are
criminally derived in any of three ways: (1) the government may
prove that all the money in the account came from the defendant’s
activities and that the entity was an entirely fraudulent enterprise; (2)
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that all the money in the account, at the time a particular withdrawal
or transfer as made, was criminally derived; or (3) that the amount of
a particular withdrawal or transfer exceeded the total of all noncriminally derived funds in the account just prior to the withdrawal.
But see United States v. Pennington, 168 F.3d 1060 (8th Cir. 1999)
(the government need not trace funds to prove a violation of § 1957);
United States v. Braxtonbrown-Smith, 278 F.3d 1348 (D.C. Cir.
2002) (noting that requiring tracing under § 1957, as in Hanley, is a
minority view).
The Fifth Circuit in United States v. Loe, 248 F.3d 449 (5th Cir.
2001), notes that money is fungible and that separating “clean” from
“dirty” money in a commingled account is difficult. The court set
out a rule for cases involving commingled funds: “[W]hen the
aggregate amount withdrawn from an account containing
commingled funds exceeds the clean funds, individual withdrawals
may be said to be of tainted money, even if a particular withdrawal
was less than the amount of clean money in the account.” quoting
United States v. Davis, 226 F.3d 346, 357 (5th Cir. 2000). The court
further states that the converse is true and if the amount of clean
money in a commingled account exceeds a withdrawal, “the
Government can not prove beyond a reasonable doubt that the
withdrawal contained dirty money.” Id. citing United States v. Poole,
557 F.2d 531, 535-36 (5th Cir. 1977). The court, therefore, found
that a transfer of $776,742 from an account containing a total of
$2,205,000 and $470,790.22 of dirty money could not support a
money laundering conviction. Id.
D.
New Developments.
1.
2007 National Money Laundering Strategy. The U.S. Departments of
Treasury, Justice and Homeland Security issued a report detailing their
continued efforts to ‘dismantle money laundering and terrorist financing
networks.” The strategy focuses on working to address the global threat
of money laundering with international organizations.
2.
FinCEN—Cases Involving Bank Secrecy Act Violations.
FinCEN
processed 241 cases involving financial institutions with significant Bank
Secrecy Act violations and referred 104 matters to other agencies with
examination authority in 2006.
3.
Financial Regulations Issued to Insurance Companies.
Financial
Regulations were issued requiring insurance companies to establish antimoney laundering programs and to report suspicious activity if the company
issues or underwrites certain covered products that present a risk of money
-21-
laundering, terrorist financing, or other illicit activity. The suspicious
activity reporting requirements were also extended to mutual funds.
E.
4.
Financial Regulations Issued for Section 312 of the USA Patriot Act.
Financial regulations were issued for section 312 of the USA Patriot Act
implementing the general due diligence requirement of the foreign
correspondent banking provision which required certain U.S. financial
institutions to engage in appropriate, specific due diligence in connection
with accounts maintained for foreign financial institutions.
5.
The Unlawful Internet Gambling Enforcement Act of 2006-31 U.S.C.
5361.
This Act attempts to eliminate internet gambling through the
prohibition of the acceptance of any payment instrument for unlawful
gambling. This law was passed as an Anti-money laundering legislation.
The Act carries a five year felony and the Justice Department has brought
some cases under this statute.
Proposed Legislation. There are several bills currently in Congress deal directly or
indirectly with money laundering. Most of the amendments seek to strengthen the
ability of the United States to more readily curtail international money laundering.
The following provides a brief summary.
1.
Prevent Bank Fraud by Terrorists Act of 2003, H.R. 1037. This bill
proposes a requirement that financial institutions promptly report the name
and social security or taxpayer identification number of each person
opening an account to the Social Security Administration or the Internal
Revenue Service, respectively. It was introduced in the House of
Representatives on February 27, 2003, sponsored by John E. Sweeny. The
bill was referred to the Committee on Financial Services where it remains.
2.
Non-Homeland Security Mission Performance Act of 2003, S. 910. This
bill would require the Under Secretary of each entity in the Department of
Homeland Security that performs non-homeland security functions to
submit a report “on the performance of the entity and all the functions of
that entity, with a particular emphasis on examining the continuing level
of performance of non-homeland security functions.” The reports are to
contain information relating to the non-homeland security functions of
each of these entities and focus on the ability of the entity to carry out
those functions. Some of the non-homeland security functions of the
entities in the Department of Homeland Security include the Secret
Service's duty of safeguarding payment and financial systems by
protecting against money laundering and other financial crimes and The
United States Customs Service protection of free trade by combating
money laundering.
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This bill was introduced on April 11, 2003 by Daniel Akaka, and was cosponsored by Thomas Carper and Frank Lautenberg.
F.
Sarbanes-Oxley Act of 2002. On July 30, 2002, President Bush signed into law
H.R. 3763, known as the Sarbanes-Oxley Act of 2002 (the “Act”). This is the
most sweeping piece of federal corporate legislation in over 65 years. It also
enjoyed the most lop-sided political support of any federal regulatory act in
history. It passed the Senate 99-0 and the House 423-3.
The Act quadruples sentences for accounting fraud, creates a new felony for
securities fraud that carries a 25-year prison term, places new restraints on
corporate officers and directors, and establishes a federal oversight board for the
accounting industry. When fully augmented by new SEC rulemaking mandated
by the Act, it is safe to say that every officer and director of a public company in
the United States, as well as the accounting, legal, and investment banking
professionals that serve public corporations will be impacted in ways that were
unimaginable before the Act was passed.
1.
The White Collar Crime Penalty Enhancement Act of 2002 (Sections 901906). Sections 901-906 are the most relevant portion of the Act to the
prevention of money laundering, because it increases the penalties for
violations of the money laundering and other statutes:
2.
U.S.C. § 1349 Attempt and Conspiracy (Section 902).
This section
provides that any person who attempts or conspires to commit any offense
under this chapter (Chapter 18) shall be subject to the same penalties as
those proscribed for the offense, the commission of which was the object
of the attempt or conspiracy (“a new thought crime” or just increased
sentences?).
3.
Mail Fraud/Wire Fraud. The penalties for mail fraud and wire fraud are
increased from five to 30 years (Section 903).
4.
ERISA. The criminal penalties for violation of the Employee Retirement
Income Security Act of 1974 are increased from one year to 10 years and
the fine has been increased from $100,000 to $500,000 (Section 904).
5.
Sentencing Guidelines. The Sentencing Commission is directed to review
and appropriately amend the Federal Sentencing Guidelines and related
policy provisions of the Act to make sure that white-collar crime is
punished in an appropriate fashion. One of the suggestions made is for it
to consider adding enhancements where public companies are involved.
6.
Corporate Responsibility for Financial Reports (Section 906).
-23-
a. 18 U.S.C. § 1350 is added to the Criminal Code. This section provides
that the Chief Executive Officer and Chief Financial Officer of the
issuer shall certify that the periodic report containing the financial
statements fully complies with the requirements of § 13(a) or 15(d) of
the Securities Exchange Act…and that information contained in the
periodic report fairly presents, in all material respects, the financial
condition and results of operation of the issuer.
b. A false certification results in a criminal penalty under which the
violator may be fined not more than $1,000,000 or imprisoned not
more than 10 years, or both (for a knowing violation), or $5,000,000
and 20 years (for a willful violation).
c. The word “knowingly” means that the person realized what he/she was
doing and was aware of the nature of his/her conduct, and did not act
through ignorance, mistake or accident. In such cases, you may infer
knowledge from a combination of suspicions and the indifference to
the truth. If you find that a person had a strong suspicion that things
were not what they seemed or that someone had withheld some
important facts, yet shut his/her eyes for fear of what he/she would
learn, you may conclude that he/she acted knowingly. (You may not
conclude that a defendant had knowledge if he/she was merely
negligent in not discovering the truth.) Federal Criminal Jury
Instructions of the Seventh Circuit (1999).
G.
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act of 2001).
The provisions of this Act will be subject to congressional review in four years
and will terminate only if the Congress enacts a joint resolution stating that the
amendments and additions described in the Act no longer have the force of law.
This is not an automatic sunset provision. A summary of several of the provisions
of the Act follows.
The Treasury Department and several administrative agencies have promulgated
regulations under the USA PATRIOT Act. Many of these regulations are merely
proposed, others are interim final regulations, and some are final regulations.
Where the Treasury Department has issued final regulations on a subject, they are
also summarized below.
1.
Subtitle A—International Counter Money Laundering and Related
Measures.
a.
Special Measures for Jurisdictions, Financial Institutions, or
International Transactions of Primary Money Laundering Concern:
31 U.S.C. § 5318A .
-24-
This addition to the Bank Secrecy Act permits the Secretary of the
Treasury to require domestic financial institutions to take special
measures when reasonable grounds exist for concluding that a
jurisdiction outside of the United States, a financial institution, or a
type of financial transaction is of primary money laundering
concern. The special measures must be issued together with a
notice of proposed rulemaking and cannot remain in effect for
more than 120 days except pursuant to a regulation prescribed on
or before the 120th day. The Secretary must: consult with various
officials and agencies and before requiring any special measure,
consider whether similar action has been taken by other nations,
determine whether the measure would cause a significant
competitive disadvantage, consider the extent of significant
systemic adverse impact on international business, and consider
the effect on national security and foreign policy. The kinds of
measures that can be taken pertain to: (1) record-keeping and
reporting of certain transactions, (2) information about beneficial
ownership of an account, (3) information relating to certain
payable-through accounts, (4) information relating to certain
correspondent accounts, and (5) prohibitions or conditions on
opening or maintaining certain correspondent or payable-through
accounts. The first through fourth measures can be taken only for
120 days unless by regulation, and the fifth measure can only be
taken through regulation.
b.
Special Due Diligence for Correspondent Accounts and Private
Banking Accounts: 31 U.S.C. § 5318(i).
This amendment adds a subsection (i) to 31 U.S.C. § 5318 and
requires enhanced due diligence for United States private banking
and correspondent bank accounts involving foreign persons. A
United States financial institution dealing with a bank account
involving a foreign person must: (1) ascertain the identity of the
owners of the foreign bank and the nature of their ownership interest,
(2) conduct enhanced scrutiny of the account to guard against money
laundering, and (3) ascertain whether the foreign bank provides
correspondent accounts to other foreign banks and if so, the identity
of those banks and related due diligence. These amendments will
become effective nine months after enactment.
c.
Prohibition on United States Correspondent Accounts with Foreign
Shell Banks: 31 U.S.C. § 5318(j).
This amendment adds subsection (j) to 31 U.S.C. § 5318 and
prohibits a depository institution from having a correspondent
account in the United States for a foreign bank that does not have a
-25-
physical presence in any country. Depository institutions must take
reasonable steps to prevent indirect service to foreign shell banks.
The final regulations, 31 C.F.R. 103.177, were issued September 26,
2002 and state that a covered financial institution is deemed in
compliance with this portion of the Act, if it receives certification
from the foreign bank every three years. The foreign bank must
certify that it is not suing its correspondent account to provide
services to any foreign shell bank. The regulations required covered
financial institutions to receive certification on existing
correspondent accounts by October 28, 2002 and to receive
certification within 30 days of opening any new correspondent
accounts.
d.
Cooperative Efforts to Deter Money Laundering.
This section directs the Secretary of the Treasury to prescribe
regulations promoting the sharing of financial information of
suspected terrorists between financial institutions and law
enforcement officials within six months of enactment. This section
also permits two or more financial institutions to share information
about suspected money laundering or terrorist activities. At least
semiannually, the Secretary of the Treasury must publish and
distribute to financial institutions a report containing an analysis
identifying patterns of suspicious activity.
e.
Inclusion of Foreign Corruption Offenses as Money Laundering
Crimes.
The Act adds crimes to the list of “specified unlawful activity” to
include offenses against a foreign nation. The term “specified
unlawful activity” is amended to include a list of offenses against a
foreign nation that become “specified unlawful activity” when they
involve a financial transaction occurring in whole or in part in the
United States. The Act adds as “specified unlawful activity” any act
constituting a crime of violence as defined in 18 U.S.C. § 16. It also
adds new clauses to include crimes against foreign nations involving:
(1) bribery of a public official or the theft of public funds by or for
the benefit of a public official, (2) smuggling or export control
violations involving certain munitions, and (3) any offense where the
United States would be obligated by a bilateral treaty to extradite the
offender or submit the case for prosecution if the offender were
found in the United States.
The Act also adds federal criminal violations to be included in the
definition of “specified unlawful activity.” It adds 18 U.S.C. §§ 541
-26-
(falsely classified goods); 922(1) (unlawful importation of firearms);
942(n) (firearms trafficking); and 1030 (computer fraud and abuse).
It also includes any felony violation of the Foreign Agents
Registration Act of 1938.
The Act makes it clear that none of the changes in the Financial AntiTerrorism Act of 2001 will expand civil jurisdiction in a claim for
money damages or for the collection of taxes under the revenue laws
of a foreign state unless the actions are allowed by a United States
treaty that provides the United States with reciprocal rights to pursue
the actions in the courts of the foreign state.
f.
Long-Arm Jurisdiction Over Foreign Money Launderers:
U.S.C. § 1956(b).
18
This amendment significantly extends long-arm jurisdiction under §
1956 and § 1957. It allows a court to exercise jurisdiction where
service can be made according to the Federal Rules of Civil
Procedure or the laws of the country where the foreign person found
and the foreign person: (1) commits an offense under § 1956(a)
involving a financial transaction that occurred in whole or in part in
the United States, or (2) converts property in which the United States
has an ownership interest according to an order of forfeiture by a
court of the United States, or (3) is a financial institution that
maintains a correspondent bank account at a financial institution in
the United States. These amendments also allow a court to issue a
pretrial restraining order or take other action necessary to ensure that
the account or other property held by a defendant in the United States
is available to satisfy a judgment. The Act also allows for the
appointment of a receiver to collect, manage, and maintain a
defendant’s property.
g.
Laundering Money Through a Foreign Bank:
1956(c)(6).
18 U.S.C. §
The Act amends the definition of “financial institution” to include
any institution described under 31 U.S.C. § 5312(a)(2) or any foreign
bank described in 12 U.S.C. § 3101(7).
h.
Forfeiture of Funds in United States Interbank Accounts.
The bill adds a subsection at the end of the current § 981 that
describes and addresses the treatment of funds deposited in
correspondent bank accounts. For purposes of forfeiture actions
under § 981 or the Controlled Substances Act, if a person deposits
funds in a dollar-denominated foreign bank account and that foreign
-27-
bank has a correspondent account with a bank in the United States,
then the deposit is considered to have been deposited into the
correspondent account in the United States. Therefore, the funds
deposited in that correspondent account may be seized, arrested, or
restrained.
If a forfeiture action is brought against funds described in this
section, then the government does not have to trace the funds.
This section also adds a subsection (k) to 31 U.S.C. § 5318 to require
financial institutions to reply to a request from law enforcement
officials relating to anti-money laundering compliance within 120
hours of receipt and to require foreign banks that maintain
correspondent accounts in the United States to appoint an agent for
service of process within the United States. This portion of the Act
allows the Attorney General or the Secretary of the Treasury to issue
a summons or a subpoena for the foreign bank records. If the foreign
bank fails to comply, then the domestic bank must sever its
correspondent relationship with that foreign bank. For every day that
the domestic bank fails to comply with an order to sever a
relationship with a foreign bank under this section, the domestic bank
will be fined $10,000.
i.
Financial Institutions Specified in Subchapter II of Chapter 53 of
Title 31, United States Code.
This section amends 31 U.S.C. § 5312(2) to add credit unions,
futures commission merchants, commodity trading advisors, or
community pool operators to the definition of financial institution for
purposes of the Bank Secrecy Act. The definition of “federal
functional regulator” was amended to include the Commodity
Futures Trading Commission.
j.
Report and Recommendation.
This section directs the Secretary of the Treasury to evaluate the
operation of Subtitle A of Title III of the USA Act of 2001 and
recommend any relevant legislative action, within 30 months of
enactment.
k.
Verification of Identification: 31 U.S.C. § 5318(i).
These amendments to Title 31 call for the Secretary of the Treasury
to promulgate regulations setting forth the minimum standards that a
financial institution must meet when verifying identification of a
customer applying to open a new account. In particular, Congress
-28-
has requested the Secretary to address procedures: (1) to verify a
person’s identity, (2) to maintain records of information used to
verify a person’s identity, and (3) to consult lists of known or
suspected terrorists. Congress also called for a study giving
recommendations about how to require foreign nationals to give
sufficient identification and how to maintain that identifying
information.
The Treasury Department released the final regulations, 31 C.F.R.
103.121, under this section of the USA PATRIOT Act in May of
2003. The regulations require banks, credit union, private banks and
trust companies to put in place procedures for verifying the identity
of people who open accounts, for discovering whether they appear
on a terrorism list, and for maintaining records. The procedures
adopted under these final regulations must require that the bank
must, at a minimum, obtain the following from a customer:
i.
Name;
ii.
Date of birth, for an individual;
iii.
Address; and
iv.
Identification Number (generally, a taxpayer identification
number for U.S. persons or for a non-U.S. person, a
taxpayer identification number, a passport number and
country of issuance or number and country of any other
government-issued document evidencing nationality)
The procedures must also include methods for verifying a customer's
identity a reasonable time after opening the account. The bank must
verify identity to the “extent reasonable and practicable” and the
procedures must identify when the institution will use documentary
or non-documentary methods for verification. The procedures
should also dictate the steps the institution will take if it is unable to
verify a customer's identity. Finally, at a minimum, the regulation
requires that a bank's records include the customers' identifying
information, a description of all identity verification documents, a
description of the measures taken to verify identity and a descriptions
of the resolution of any discrepancies in the identification
information. The information gathered must be kept for a minimum
of five years.
These rules were effective June 9, 2003. Compliance is required by
October 1, 2003. The difference in these dates is to give banks time
to develop procedures to comply with the new rules.
-29-
l.
Consideration of Anti-Money Laundering Record: 12 U.S.C. §
1842(c).
The Bank Holding Company Act is amended to require the Board to
consider the effectiveness of the company or companies in
combating and preventing money-laundering activities. Also, the
Federal Deposit Insurance Act is amended to require the responsible
agency to consider the effectiveness of any depository institution
involved in a merger in combating and preventing money laundering
activities when considering a proposed merger.
m.
Criminal Penalties.
This section provides criminal penalties for governmental officials
who violate their trust in the administration of Title III of the USA
Act of 2001.
n.
International Cooperation in Investigations of Money Laundering,
Financial Crimes, and the Finances of Terrorist Groups.
This part of the Act authorizes the United States government to
negotiate with any foreign country, the foreign financial institutions
doing business with United States banks or that may be utilized by a
foreign terrorist organization, the representatives of a terrorist
organization, or any person engaged in money laundering or other
financial crimes. The negotiations are for the purpose of ensuring
that foreign banks maintain adequate records of large United States
currency transactions and establish a mechanism for the records to be
made available to United States law enforcement. The Act provides
that the Secretary of the Treasury, Secretary of State, and the
Attorney General submit a report to Congress about such
negotiations.
2.
Subtitle B—Bank Secrecy Act Amendments and Related Improvements.
a. Amendments Relating to Reporting of Suspicious Activities:
U.S.C. § 5318(g)(3).
31
If a financial institution makes a disclosure of any possible
violation of law or regulation to a government agency, no
representative of the institution shall be held liable for the
disclosure. Also, no representative of the institution or the
government can disclose that the institution made the disclosure in
question.
-30-
b.
Anti-Money Laundering Programs: 31 U.S.C. § 5318(h).
The Act amends 31 U.S.C. § 5318(h) to make clear that banks
must implement an anti-money laundering program and that the
Secretary of the Treasury can promulgate regulations about the
minimum standards of such programs. The amendment became
effective six months after enactment.
c.
Penalties for Violations of Geographic Targeting Orders and
Certain Record Keeping Requirements and Lengthening Effective
Period of Geographic Targeting Orders: 31 U.S.C. §§ 5321(a)(1),
5322.
d.
Anti-Money Laundering Strategy.
This section amends 31 U.S.C. § 5341(b) to add money laundering
relating to terrorist funding to the list of subjects to be addressed in
the annual National Money Laundering Strategy that the Secretary
of the Treasury prepares according to the Money Laundering and
Financial Crimes Strategy Act of 1988.
e.
Authorization to Include Suspicions of Illegal Activity in Written
Employment References: 12 U.S.C. § 1828.
Employment references between banks can include information
concerning the possible involvement of an institution-affiliated
party in potentially unlawful activity as long as: (1) the disclosure
does not contain information that the discloser knows is false or (2)
the discloser did not act with malice or with reckless disregard for
the truth in making the disclosure.
f.
Reporting of Suspicious Activities by Securities Brokers and
Dealers, Investment Company Study.
The Act directs the Secretary of the Treasury to publish proposed
regulations requiring brokers and dealers of securities to make
suspicious activity reports under 31 U.S.C. § 5318(g). The
Secretary may also prescribe regulations under the same section to
require those involved in the trade of commodities to file
suspicious activity reports. The SEC, the Secretary of the
Treasury, and the Federal Reserve Board must submit jointly to
Congress recommendations for regulations applying the provisions
of Title 31 to both registered and unregistered investment
companies. The recommendations should include advice about
how to treat personal holding companies.
-31-
g.
Special Report on Administration of Bank Secrecy Provisions.
This section directs the Secretary of the Treasury to report to
Congress within six months about the role of the IRS in the
administration of the Bank Secrecy Act.
h.
Bank Secrecy Provisions and Activities of United States
Intelligence Agencies to Fight International Terrorism.
Generally speaking, these amendments provide for increased
disclosure of information about people and their financial
transactions for the purposes of conducting investigations of
international terrorism. Below is a list of the laws affected and
highlights of the new provisions.
i.
Increase in Civil and Criminal Penalties for Money Laundering.
This section increases the maximum civil and criminal penalties
for violations of the provisions added to the Bank Secrecy Act
from $100,000 to $1,000,000.
j.
Reports Relating to Coins and Currency Received in Nonfinancial
Trade or Business.
This section adds 31 U.S.C. § 5331, requiring any person involved
in a nonfinancial trade or business who receives more than $10,000
in coins or currency in one transaction or two or more related
transactions to file a report with the Financial Crimes Enforcement
Network as the Secretary of the Treasury may prescribe by
regulation. If a transaction occurs completely outside the United
States, then this section does not apply. Currency is defined to
include foreign currency and any monetary instrument with a face
amount of not more than $10,000.
This section of the Act also amends 31 U.S.C. § 5324 to add
subsection (b) which prohibits any person from causing or
attempting to cause a nonfinancial trade or business to fail to file a
report required under 31 U.S.C. § 5333, to make material
misstatements or omissions, or to structure a transaction with one
or more nonfinancial trades or businesses.
k.
Efficient Use of Currency Transaction Report System.
In an effort to reduce the burdensome number of unnecessary
currency transaction reports that interfere with effective law
-32-
enforcement, the Act requires the Secretary of the Treasury to
conduct a study within 90 days about the possible expansion of the
statutory exemption system now in place and methods for
improving utilization of the exemptions to reduce the number of
unnecessary currency transaction reports.
3.
Subtitle C—Currency Crimes and Protection.
a.
Bulk Cash Smuggling Into or Out of the United States: 31 U.S.C.
§ 5331.
Any person who knowingly conceals more than $10,000 in
currency with the intent of evading reporting requirements and
transfers or transports the currency into or out of the United States
is guilty of a felony. This is a new crime. This crime is punishable
by not more than five years in prison. The court imposing
sentence must order that the defendant forfeit any property
involved in the offense according to the forfeiture provisions of the
Controlled Substances Act. If the property subject to forfeiture is
unavailable and there is insufficient substitute property, then the
court must enter a personal money judgment against the defendant
for the amount that would be subject to forfeiture.
b.
Forfeiture in Currency Reporting Cases: 31 U.S.C. § 5317(c).
For any violation of 31 U.S.C. §§ 5313, 5316, or 5324, the court
must order the defendant to forfeit all property involved in the
offense and any property traceable to the offense. The criminal
forfeiture procedure is governed by the Controlled Substances Act.
Any property involved in a violation of the above-listed sections is
subject to the procedures for civil forfeiture in money laundering
cases according to 18 U.S.C. § 981.
c.
Illegal Money Transmitting Businesses: 18 U.S.C. § 1960.
Any person who is involved in an unlicensed money transmitting
business shall be fined and/or imprisoned not more than 5 years.
“Unlicensed money transmitting business” has three definitions:
(1) where the business is operated without an appropriate money
transmitting license and such operation without a license is
punishable as a misdemeanor or felony under state law, regardless
of whether the defendant knew the business had to be licensed or
that the operation without a license was punishable or (2) the
business fails to comply with the money transmitting business
registration requirements under 31 U.S.C. § 5330 or (3) the
business involves the transportation or transmission of funds that
-33-
are known to the defendant to have been criminally derived. This
section of the bill also amends 18 U.S.C. § 981(a)(1)(A) to add §
1960 as a basis for forfeiture.
d.
Laundering the
1956(c)(7)(D)..
Proceeds
of
Terrorism:
18
U.S.C.
§
The Act adds 18 U.S.C. § 2339B to the list of offenses included as
“specified unlawful activity.”
e.
Extraterritorial Jurisdiction: 18 U.S.C. § 1029.
This provision applies the financial crimes prohibitions to conduct
committed abroad in situations where the tools or proceeds of the
offense pass through or are in the United States.
H.
Civil Monetary Penalties. The Department of Justice, Department of Treasury,
and investigating agencies have looked outside the actual money-launderer “bad
guy” and have sought to recover huge fines from financial institutions for failure
to comply with the Bank Secrecy Act requirements. The large fines were often
obtained in part because of the potential for criminal indictment. Notable cases in
the last year include:
1.
Union Bank. The Office of the Comptroller of the Currency and the
Financial Crimes Enforcement Network (“FinCEN”) obtained civil
monetary penalties of $10 million for violations of the Bank Secrecy Act.
The Department of Justice agreed to a Deferred Prosecution Agreement in
exchange for a $21,600,000 fine for failing to maintain an effective antimoney laundering program, failure to file timely suspicious activity
reports, and failing to monitor certain Mexican casa de cambio accounts
despite the heightened risk of money laundering posed by those
customers.
2.
Foster Bank. Foster Bank agreed to pay a 2 million dollar civil penalty
for violating the Bank Secrecy Act, specifically for failing to implement
an adequate anti-money laundering program which led to the Bank’s
failure to timely file suspicious activity reports, and improperly exempted
certain money services customers from the currency transaction reporting
requirements.
3.
American Express Bank International.
American Express Bank and
American Express Travel Related Services Company collectively agreed
to a $25 million dollar civil penalty, in addition to forfeiting $55 million to
settle with the Department of Justice which agreed to a deferred
prosecution agreement. FinCEN determined that American Express failed
to respond to supervisory concerns relating to the effectiveness of the
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monitoring controls to ensure compliance with the Bank Secrecy Act.
FinCEN also found that American Express operated in high-risk
jurisdictions and business lines without commensurate systems and
controls to detect and report money laundering and other suspicious
activity in a timely manner. In addition, a subsidiary failed to file a
number of suspicious activity reports.
4.
Beach Bank. Beach Bank of Miami Beach, Florida, consented to civil
monetary penalties totaling $800,000 for failing to implement an adequate
anti-money laundering program and failing to monitor suspicious activity,
particularly the Bank’s high-risk accounts, which led to a failure to report
suspicious activity.
5.
ABN AMRO Bank. ABN AMRO violated the requirement to establish
and implement an adequate anti-money laundering program and failed to
report suspicious transactions, including some involving “shell
companies,” and as a result agreed to a $30 million dollar civil penalty.
6.
Oppenheimer & Company.
The penalty against Oppenheimer &
Company was the first significant penalty assessed against a securities
broker. Oppenheimer failed to report several million dollars in suspicious
transactions as a result of its failure to implement an adequate anti-money
laundering program.
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