Money laundering.

• Author: McCormick, Kirk
• Position: Annual white collar crime survey

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) By moving and concealing the existence of enormous amounts of wealth, money laundering gives large scale criminal activity a flexibility and scope which would otherwise be impossible.(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 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 targets "the lifeblood of organized crime":(8) the act of converting funds derived from illegal activities into a liquid or useable form.(9)

   The Act defines and prohibits as "money laundering" a broad range of activity,(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") predicates,(11) and certain state offenses; but also encompasses a wide range of additional criminal offenses including copyright infringement, environmental offenses, espionage, trading with the enemy, and conducting financial transactions with intent to engage in violations of the Internal Revenue Code.(12)

   The Act targets transactions conducted through financial institutions(13) and reaches a broad variety of routine commercial transactions that affect commerce.(14) One of the principal purposes of the Act, through [sections] 1957, is to bar all "monetary transactions" in "criminally derived property" which exceeds $10,000.(15) Although the seizure of criminal proceeds for use as evidence is nothing new,(16) the Act makes the subsequent use of criminal proceeds in any transaction illegal in perpetuity. Engaging in prohibited financial transactions is illegal independent of the original income-generating criminal conduct, and remains so even after the statute of limitations has run on the original conduct.(17)

   The Government also utilizes currency reporting laws, which forbid exporting more than $10,000 of undeclared cash,(18) to prevent money laundering. The Supreme Court recently resolved a split in the circuits regarding the constitutionality of such laws and their penalties. In United States v. Bajakajian,(19) the defendant attempted to board an international flight with more than $350,000 in cash which, although unconnected to criminal activity, was not reported to customs officials. Pursuant to Section 5316, the District Court ordered the money be forfeited. The Court of Appeals reversed, and the Supreme Court affirmed, holding that the seized money was not an instrumentality of crime. The Court found that the seizure itself was a punishment,(20) and thus a "`fine' within the meaning of the Excessive Fines Clause."(21) To determine whether the fine was excessive, the Court applied a test of gross proportionality, comparing "the amount of the forfeiture to the gravity of the defendant's offense."(22) The Court ruled that the defendant did not "fit into the class of persons for whom the statute was principally designed"(23) and held that the Government's seizure of over $350,000 was excessive. Bajakajian's effect on money laundering may prove to be minimal, however, as the Court explicitly identified money launderers as the target of such statutes where the seizure of all proceeds may be justified.(24)

   In a further attempt to crack down on money launderers, the Treasury Department enacted tough new rules to regulate businesses that wire money internationally.(25) The new rules 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.(26) The businesses are now required to furnish the names of both the transferor and the recipient of the transfer.(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; Section V discusses the penalties for violation of these statutes; and Section VI examines several recent developments related to money laundering.

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 section 1957 addresses transactions involving property exceeding $10,000 derived from the specified unlawful activities.

   1. Section 1956

      Section 1956(a) has three subdivisions. Subsection 1956(a)(1) addresses domestic money laundering and prohibits knowing participation in transactions with criminal proceeds.(28) Subsection 1956(a)(2) deals with international money laundering and prohibits knowing transportation of criminally derived monetary instruments in foreign commerce.(29) Subsection 1956(a)(3) explicitly authorizes the use of government sting operations to expose criminal activity.(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 prohibited transactions are: (1) a financial transaction with the intent to promote specified unlawful activity;(33) (2) a financial transaction with the intent to engage in 26 U.S.C. [subsections] 7201, 7206(34) tax evasion violations;(35) (3) 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) 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 possible crimes involve (1) the intent to promote the carrying on of a specified unlawful activity;(39) (2) the transportation of a monetary instrument that represents the proceeds of some form of unlawful activity, designed to conceal or disguise that instrument;(40) and (3) the transportation of the monetary instrument that represents the proceeds of some form of unlawful activity, 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. Under the sting provisions of [sections] 1956, it is illegal to conduct, or attempt to conduct, a financial transaction involving property that a law enforcement officer represents(42) to be the proceeds of a specified unlawful activity with the intent to: (1) promote specified unlawful activity;(43) (2) conceal or disguise the nature, location, source, ownership, or control of the proceeds of specified unlawful activity;(44) or (3) avoid a state or federal transaction reporting requirement.(45) This section, therefore, provides for the use of informants and undercover officers.(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) The recipient need not actually exchange or launder the funds, nor must 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) In enacting [sections] 1957, Congress intended to dissuade people from engaging in 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

   The government must prove four elements to obtain a conviction under the Act. These elements, which are described in Parts A-D of this Section, are: (1) knowledge; (2) the existence of proceeds derived from a specified unlawful activity; (3) a financial transaction; and (4) intent.(51)

   1. Knowledge Requirement

      Although knowledge is a requisite element for all of the crimes established by the 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) In some circuits, however, it is sufficient to prove that the defendant was willfully blind to the specified unlawful activity, easing the government's burden of proof.(54)

      1. General Knowledge

         Both sections 1956 and 1957 require that the defendant knows that the property or money in question be the proceeds of a specified unlawful activity. Section 1957 requires that the offender "knowingly engages or attempts to engage in a monetary transaction in criminally derived property."(55) Section 1957 also requires that the offender know that the proceeds were derived from some form of criminal conduct but not that he know the specific criminal activity involved.(56)

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