Money laundering.

Author:Nagel, Pancho
Position::Thirtieth Annual Survey of White Collar Crime
  1. INTRODUCTION II. OVERVIEW OF THE STATUTE A. Section 1956 1. Transaction Money Laundering 2. Transportation Money Laundering 3. Sting Operations B. Section 1957 III. ELEMENTS OF THE OFFENSES A. Knowledge 1. General Knowledge 2. Willful Blindness B. Proceeds Derived From a Specified Unlawful Activity 1. Proceeds a. Scope b. Tracing 2. Specified Unlawful Activity C. Financial Transaction 1. Interstate Commerce 2. Multiple Transactions D. Intent IV. DEFENSES A. Constitutional Vagueness B. Double Jeopardy C. Constitutionally Impermissible V. PENALTIES I. INTRODUCTION

    Money laundering is a financial transaction with property that "represents the proceeds of some form of unlawful activity." (1) A money launderer "conceals the existence, illegal source, or illegal application of income, and then disguises that income to make it appear legitimate." (2) Laundering criminally derived proceeds can be a lucrative and sophisticated enterprise, (3) and it is an indispensable element of organized criminal activities. (4)

    Though anti-money laundering efforts were initially aimed at thwarting the proceeds of illegal narcotics trafficking, (5) today a range of profitable criminal activities are targeted, including the illegal sales of weapons, human trafficking, fraud, political corruption, the financing of terrorism, and child pornography. (6)

    Regardless of the crime, money laundering typically involves a three-step process when converting illicit proceeds into apparently legal monies or goods: (i) placement: the criminally derived money is placed into a legitimate enterprise; (ii) layering: the funds are layered through various transactions to obscure the original source; and (iii) integration: the newly laundered funds are integrated into the legitimate financial world "in the form of bank notes, loans, letters of credit, or any number of recognizable financial instruments." (7)

    In recognition of this problem, Congress passed the Money Laundering Control Act of 1986 (the "Act"), (8) which created liability for individuals who conduct monetary transactions knowing that the funds were derived through unlawful activity. (9) Unlike earlier unsuccessful efforts to curb the movement of illegal income by requiring financial institutions to comply with currency reporting requirements, (10) the Act targets "the lifeblood of organized crime": (11) the conversion of illegally derived funds into a clean or useable form. (12)

    The Act's expansive definition of "money laundering" allows it to reach the proceeds of a broad range of illicit activities. (13) For instance, the Act encompasses transactions involving the proceeds of many activities characteristic of organized crime, such as narcotics trafficking, certain state offenses, and predicate offenses under the Racketeer Influenced and Corrupt Organizations Act ("RICO"). (14) Moreover, the Act covers proceeds of a wide range of additional criminal offenses unrelated to drug trafficking and organized crime, such as espionage, prostitution, and tax evasion. (15) Overall, the Act covers more than 250 predicate offenses. (16)

    One of the principal purposes of the Act, embodied in [section] 1956, is to bar anyone from knowingly attempting or conducting a "financial transaction" which involves the proceeds of "specified unlawful activity". (17) In achieving this purpose, the Act targets transactions conducted through financial institutions, (18) reaching a broad range of routine commercial transactions that affect commerce. (19) Although the seizure of criminal proceeds for use as evidence is not new, (20) the Act makes the subsequent use of criminal proceeds in any transaction illegal in perpetuity, extending beyond the statute of limitations for the original criminal conduct. (21) Additionally, by eliminating the need for intent, this law essentially "freezes the proceeds of certain crimes out of the banking system." (22)

    Beyond the Act, the government also utilizes reporting laws forbidding the export of more than $10,000 of undeclared monies to prevent money laundering. (23) The Department of the Treasury has enacted rules requiring all businesses that wire money internationally to register with the government, file a report for all transactions exceeding $750, report suspicious activity, and furnish the names of both the transferor and the recipient. (24)

    Finally, after the terrorist attacks of September 11, 2001, Congress acted with renewed focus on the detection, prevention, and prosecution of money laundering, recognizing that the techniques used to launder money are essentially the same as those used to conceal the sources of terrorist financing. (25) Terrorist financing is a form of reverse money laundering, where funds originating from legitimate sources, criminal activities, or both are covertly transferred to individuals to finance terrorist operations. (26) Title III of the USA PATRIOT Act, entitled "International Money Laundering Abatement and Anti-Terrorist Financing Act" ("IMLAFA"), aims to combat terrorism by stifling terrorist financial networks. (27) IMLAFA expands the scope of money laundering laws to cover a broader range of financial institutions than those covered by traditional money laundering laws and requires such financial institutions to implement programs designed to deter and detect instances of money laundering. (28) IMLAFA amends 18 U.S.C. [section][section] 1956 and 1957 by expanding the list of predicate offenses that give rise to a money laundering charge, including corruption and export control violations, (29) and establishing the "extra--territorial bite" necessary to combat global terrorism. (30) The State Department, however, has recently encouraged large U.S. financial institutions to re-open accounts with foreign regimes encumbered by potentially illicit ties that were closed during the post-9/11 crackdown. (31)

    On July 21, 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), one of the largest financial reform legislations in recent history. (32) Notably, the Dodd-Frank Act expands the scope of the whistleblower provisions of the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002, by extending the protections afforded to whistleblowers and increasing the rewards whistleblowers can earn by reporting misconduct. (33) Not only can whistleblowers now receive between ten and thirty percent of the financial penalties collected in actions in which the financial sanctions exceed $1 million, but the Dodd-Frank Act allows whistleblowers to report wide-ranging securities violations, from insider trading to money laundering. (34) Despite the significant incentives offered by the Dodd-Frank Act, there has not been the increase in whistleblower reports that was anticipated. (35) The incentives are further enhanced by the Whistleblower Protection Enhancement Act ("WPEA"), which was signed by President Obama in November 20 1 2. (36) Among its enhancements is the provision of protection to whistleblowers who are not the first to report the violation and whose report comes in the normal course of their employment duties. (37)

    Two additional factors point toward a potential uptick in enforcement actions. First is the increased availability of prosecutorial resources. The aftermath of the 2008 financial crisis left government enforcers in the financial realm overwhelmed. (38) As those prosecutions are concluding, however, focus is shifting, at least in part, to money laundering violations that may have gone overlooked. (39) This has led to several high profile multi-billion dollar settlements with banks such as HSBC and BNP Paribas. (40)

    Second is a rule proposed by the U.S. Treasury Department's Financial Crimes Enforcement Network ("FinCen"), the arm of the Treasury tasked with money laundering enforcement. The proposed rule would require financial institutions subject to the Bank Secrecy Act to conduct "due diligence on beneficial owners having a 25 percent or greater ownership interest in, and on an individual in control of, the customer/client." (41) However, the rule proposal has been delayed for several months, due to the Treasury Department's inability to reach a consensus with regulators. (42) Comments closed on October, 3 2014, and a final rule has yet to be issued. (43)

    Section II of this Article will provide an overview of the offenses covered under the Act. Section III will provide an analysis of the elements of the offenses. Section IV will provide an overview of the constitutional theories used to attack prosecutions under the Act. Section V will provide a discussion of criminal and civil penalties under the Act.


    The Money Laundering Control Act has two sections: 18 U.S.C. [section] 1956 addresses prohibited financial transactions, prohibited financial transportation, and authorizes government sting operations, while 18 U.S.C. [section] 1957 covers transactions involving property exceeding $10,000 derived from the specified unlawful activities.

    1. Section 1956

      The three subdivisions of [section] 1956 address: (1) domestic money laundering and participation in transactions involving criminal proceeds (transaction money laundering), (44) (2) international money laundering and transportation of criminally derived monetary instruments in foreign commerce (transportation money laundering), (45) and (3) the use of government sting operations to expose criminal activity (sting operations). (46)

      1. Transaction Money Laundering

        Offenses prohibited by [section] 1956(a)(1) are commonly known as "transaction money laundering" offenses because the prohibited act is the financial transaction itself. (47) The four prohibited financial transactions are: (i) transactions conducted with the intent to promote specified unlawful activity; (48) (ii) transactions conducted with the intent to engage in 26 U.S.C. [section][section] 7201 and 7206 (49) tax evasion...

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