Money laundering.

• Author: Camelio, Andrew J.
• Position: Thirteenth Survey of White Collar Crime

1. INTRODUCTION

   According to one former federal prosecutor, "[t]he white collar crime of the 1990's is here and it is money laundering."(1) "`Money laundering' is the process by which one conceals the existence, illegal source, or illegal application of income, and disguises that income to make it appear legitimate."(2) Laundering criminally derived proceeds has become a lucrative and sophisticated business in the United States and is an indispensable element of organized crime's activities.(3) Without the ability to move and hide its enormous wealth through laundering techniques, large scale criminal activity could operate only at a small fraction of current levels, and with far less flexibility.(4)

   In recognition of this phenomenon, Congress passed the Money Laundering Control Act of 1986 (the "Act"),(5) holding criminally liable any individual who conducts a monetary transaction knowing, or with reason to know, that the funds involved were derived from unlawful activity.(6) Unlike earlier unsuccessful efforts to control the movement of illegal income through financial institution reporting requirements,(7) the act is aimed at "the lifeblood of organized crime:"(8) the act of converting funds derived from illegal activities into a spendable or consumable form.(9)

   The Money Laundering Control Act defines and prohibits a category of activity known as "money laundering."(10) The Act not only reaches the proceeds of conduct characteristic of organized crime, such as narcotics trafficking, Racketeer Influenced and Corrupt Organizations Act (RICO)(11) predicates, or certain state offenses, but also encompasses a wide range of additional criminal offenses including espionage, trading with the enemy, and conducting financial transactions with intent to engage in violations of the Internal Revenue Code.(12)

   The purpose of the Act is to bar all "monetary transactions" in "criminally derived property."(13) Although the proceeds of crime historically have been subject to seizure by warrant for use as evidence,(14) the Act makes the subsequent use of criminal proceeds in any transaction illegal in perpetuity. Long after the original statute of limitations on the criminal offense which generated the proceeds has run, those who conduct prohibited financial transactions or transport proceeds from those transactions are engaged in criminal conduct independent of the original income-producing crime.(15) Furthermore, the Act does not limit itself to transactions conducted through financial institutions,(16) but reaches a broad variety of routine commercial transactions which affect commerce.(17)

   The Government has also attempted to use currency reporting laws, which forbid exporting more than $10,000 of undeclared cash,(18) to prevent money laundering. The Supreme Court has agreed to resolve a split in the circuits regarding the constitutionality of such laws and their penalties.(19) In United States v. Bajakajian, the Ninth Circuit held that the statutory forfeiture provision of all undeclared cash(20) was excessive and in violation of the Eighth Amendment.(21) The Ninth Circuit stated that the money was not an "instrumentality" of the crime(22) and, therefore, not subject to forfeiture. Although money laundering was not at stake in Bajakajian, the Government fears that if it is not overruled, the states within the Ninth Circuit's jurisdiction "could readily become a haven for drug dealers, money launderers and tax evaders intent on conducting non-traceable currency transactions."(23)

   In a further attempt to crackdown on money launderers, the Treasury Department has proposed tough new rules to regulate businesses that wire money internationally.(24) The new rules would require all such companies to register with the government; to file a report with the government every time a customer wires more than $750; and to report suspicious activity by customers.(25) The businesses would be required to furnish the names of both the transferor and the recipient of the transfer.

   Under a similar illegal scheme in New York City, three people were arrested and others are under investigation for a violation of regulations under a joint federal, state, and local operation.(26) The Treasury Department credits the operation for the seizure of more than $50 million dollars in the last year.(27)

   Section II of this article reviews the two money laundering statutes; Section III describes the elements of the offense; Section IV analyzes the defenses: and Section V discusses the penalties for violation of these statutes.

2. OVERVIEW OF THE STATUTE

   The Money Laundering Control Act consists of two sections. Section 1956 addresses the knowing and intentional transportation or transfer of monetary funds derived from specified unlawful activities, while [sections] 1957 addresses transactions involving non-monetary property derived from the specified unlawful activities.

   1. Section 1956

      Section 1956(a) has three subdivisions described in more detail below. Section 1965(a)(1) prohibits participation in transactions with knowledge that the transaction involves the proceeds of criminal activity.(28) Section 1956(a)(2) prohibits the transportation of monetary instruments in foreign commerce with knowledge that such instruments are associated with unlawful activity.(29) Section 1956(a)(3) explicitly authorizes the use of government sting operations to expose criminal activity under this section.(30)

      1. Transaction Money Laundering

         Offenses referred to in [sections] 1956(a)(1) fall under the rubric of "transaction money laundering" because the prohibited action is the financial transaction itself.(31) Such offenses occur when an individual conducts or attempts to conduct a financial transaction with criminally derived money.(32) The four potential crimes are: (1) conducting a financial transaction with the intent to promote specified unlawful activity;(33) (2) conducting a financial transaction with the intent to engage in 26 U.S.C. [subsections] 7201, 7206(34) tax evasion violations;(35) (3) conducting a financial transaction designed to conceal or disguise the nature, location, source, ownership, or control of the proceeds of specified unlawful activity;(36) and (4) conducting a financial transaction designed to avoid a state or federal reporting requirement.(37)

      2. Transportation Money Laundering

         Section 1956(a)(2) contains three separate offenses relating to the transportation, transmission, or transfer of criminally derived proceeds(38) into or out of the United States. The three potential crimes involve (1) the intent to promote the carrying on of a specified unlawful activity;(39) (2) the knowledge that the monetary instrument represents the proceeds of some form of unlawful activity, and the transportation is designed to conceal or disguise such proceeds;(40) and (3) the knowledge that the monetary instrument represents the proceeds of some form of unlawful activity, and the transportation is designed to avoid a state or federal transaction reporting requirement.(41)

      3. Sting Operations

         Section 1956(a)(3) criminalizes three activities resulting from government sting operations. Generally, sting operations involve a financial transaction conducted with property represented by a law enforcement officer to be the proceeds of specified unlawful activity, or property used to conduct or facilitate the conduct of specified unlawful activity.(42)

         Under the sting provisions of [sections] 1956, it is illegal to conduct a financial transaction involving property represented by a law enforcement officer to be the proceeds of a specified unlawful activity with the intent: (1) to promote specified unlawful activity ;(43) (2) to conceal or disguise the nature, location, source, ownership, or control of the proceeds of specified unlawful activity;(44) or (3) to avoid a state or federal transaction reporting requirement.(45) This section, therefore, provides for the use of informants.(46)

   2. Section 1957

      Section 1957 provides sanctions for one who knowingly engages, or attempts to engage, in a monetary transaction in criminally derived property, which has a value greater than $10,000 and is derived from specified unlawful activity.(47) It is not required that the recipient actually exchange or launder the funds, nor that he have any specific intent to further or conceal unlawful activity. The scope of [sections] 1957 may be broad enough to criminalize seemingly "innocent" acts or commercial transactions.(48) Congressional intent in enacting [sections] 1957 was to dissuade people from conducting even ordinary commercial transactions with people suspected to be involved in criminal activity.(49) However, [sections] 1957 does require that the violator "knowingly" engage in a transaction involving criminally-derived property.(50)

3. ELEMENTS OF THE OFFENSES

   There are five elements which must be established to obtain a conviction under the Act. These elements, which are described in Parts A-E of this section, are: (1) knowledge; (2) the existence of a specified unlawful activity; (3) a financial transaction; (4) proceeds; and (5) intent.(51)

   1. Knowledge Requirement

      Although knowledge is a requisite element for all of the crimes established by the Money Laundering Control Act, the exact type of knowledge required varies with the specific offense. The language of the Act suggests the government must prove knowledge of either a monetary transaction in illegally derived property(52) or knowledge of a specified unlawful activity.(53) The knowledge standard has been softened and in some circuits, it is sufficient to prove that the defendant was willfully blind to the specified unlawful activity.(54)

      1. General Knowledge

         Both [subsections] 1956 and 1957 require that the property or money in question be the proceeds of a specified unlawful activity. Section 1957 imposes a knowledge requirement that the offender "knowingly engages or attempts to engage in a monetary...