Money laundering is the process of disguising criminal proceeds—that is, the process of cleansing the taint from the proceeds of crime. Money laundering, as a very general matter, occurs when a person or organization earns money through certain illegal activities and then moves, attempts to move, or conspires to move that money in an attempt to obscure its origins or cause it to it appear legitimate (i.e., “launder” it to make it look clean). Common methods include disguising the source of the proceeds; changing the form of the proceeds; or moving the proceeds to a place where the proceeds are less likely to attract attention.
Federal statutes proscribe money laundering. The first federal Anti-Money Laundering statute was enacted in 1986 with the passage of the Money Laundering Control Act (“MLCA”), codified at 18 U.S.C. §§ 1956 and 1957. The MLCA was amended in 1988 by the Anti-Drug Abuse Act of 1988 (Pub. L. 100-690), which amended § 1956 to add a provision making it a crime to conduct or attempt to conduct a financial transaction involving the proceeds of criminal activity with the intent to violate § 7201 (attempted tax evasion) or § 7206 (false tax return) of the Internal Revenue Code of 1986. The MLCA was further amended in 1992 by the Annunzio-Wylie Anti-Money Laundering Act and the money laundering laws have been amended and supplemented in other subsequent enactments.
Violations of section 1956 can carry a maximum potential 20-year prison sentence and a $500,000 fine or twice the amount involved in the transaction, whichever is greater. Other civil penalties can also be assessed. Section 1957 carries a maximum penalty of ten years in prison and maximum fine of $250,000 or twice the value of the transaction.
In addition, federal law allows for the forfeiture of the proceeds of any predicate offense or property involved in a section 1956 money laundering offense, as well as for fines and civil penalties.
Money Laundering Laws
Money laundering activity may violate 18 USC §1956, §1957, or §1960, as well as provisions of Title 31.
The Bank Secrecy Act under Title 31 also govern money laundering and currency transactions. The B.S.A. requires information reports, including:
- Bank Secrecy Act information includes Currency Transaction Reports (CTR);
- Suspicious Activity Reports (SAR);
- Reports of Cash Payments Over $10,000 Received in a Trade or Business (Form 8300);
- Reports of Foreign Bank and Financial Accounts (FBAR);
- Registration of Money Services Business (RMSB), and
- Report of International Transportation of Currency and Monetary Instrument (CMIR).
Moreover, 26 USC §6050I of the Internal Revenue Code also contains reporting requirements on a Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.
In addition to the criminal penalties under §§1956, 1957 & 1960, lesser-included offenses in money laundering investigations include:
- 18 USC §2 (aiding and abetting)
- 18 USC §371 or 18 USC §1956(h) (conspiracy)
- 18 USC §1001 (false statements)
- 18 USC §1510(b)(3)(B)(i) (obstruction of 18 USC §1956 or 18 USC §1957 or Title 31 investigations)
- 18 USC §1621 (perjury)
- 18 USC §1960 (illegal money transmitting business)
- 31 USC §5322 (Title 31 criminal penalties)
- 31 USC §5324 (structuring)
- 31 USC §5332 (bulk cash smuggling)
- 18 USC §1028 and 18 USC §1028A (identity theft)
A related statute, the Travel Act (18 U.S.C. § 1952), punishes interstate or foreign travel, or the use of interstate or foreign facilities, conducted with the intent to distribute the proceeds of certain other predicate offenses or to promote or carry on such offenses when an overt act is committed in furtherance of that intent.
In addition, the Federal racketeer influenced and corrupt organization (RICO) provisions prohibit acquiring or conducting the affairs of an enterprise (whose activities affect interstate or foreign commerce) through a pattern of a series of underlying federal or state crimes. The Section 1956 predicate offense list includes every RICO predicate offense.
The four types of money laundering crimes
There are four primary categories of money laundering crimes under federal law.
Domestic Money Laundering
18 U.S.C. § 1956(a)(1) prohibits conducting or attempting to conduct a financial transaction, knowing that the property involved in the financial transaction represents the proceeds of some unlawful activity, with one of four specific intents, where the property is in fact derived from a specified unlawful activity.
Specified Unlawful Activity. The actual source of the funds must be one of the specified forms of criminal activity identified by the statute—in 18 U.S.C. § 1956(c)(7)—or those incorporated by reference from the RICO statute (18 U.S.C. § 1961(1)). Specified Unlawful Activities includes a lengthy list of criminal activities.
Financial Transaction. The defendant must have initiated or concluded, or participated in initiating or concluding, a financial transaction.
A “transaction” is defined in § 1956(c)(3) as a purchase, sale, loan, pledge, gift, transfer, delivery, other disposition, and with respect to a financial institution, a deposit, withdrawal, transfer between accounts, loan, exchange of currency, extension of credit, purchase or sale safe-deposit box, or any other payment, transfer or delivery by, through or to a financial institution.
A “financial transaction” is defined in § 1956(c)(4) as a transaction that affects interstate or foreign commerce and: (1) involves the movement of funds by wire or by other means; (2) involves the use of a monetary instrument; or (3) involves the transfer of title to real property, a vehicle, a vessel or an aircraft; or (4) involves the use of a financial institution which is engaged in, or the activities of which affect, interstate or foreign commerce.
A prosecutor must prove that the defendant conducted the financial transaction when the defendant knew that it involved a specified unlawful activity. The government must also prove that the defendant engaged in the transaction with the intent to promote the illegal activity, violate tax law, conceal the origin of the money (or illegal activity), or to avoid a reporting requirement under federal or state law.
International Money Laundering
To prove international money laundering under 18 U.S.C. § 1956(a)(2), the government must prove that a defendant transported, attempted to transport or transferred monetary instruments or funds. The transportation, transmission or transfer must cross the border – either originating or terminating in the United States.
The defendant must have engaged in the activity with the intent to promote the illegal activity, to conceal or disguise the proceeds as originating from the illegal activity, or to avoid a reporting requirement under federal or state law. In addition, the government must generally show that the defendant knew the monetary instrument or funds represented the proceeds of some form of unlawful activity.
Money Laundering Sting Operations
Sometimes defendants are charged with money laundering as the result of a sting investigation. Section 1956(a)(3) governs undercover operations where the financial transaction involves property represented to be proceeds of specified unlawful activity. In the typical case, law enforcement officers make a representation to a suspect for the purpose of investigating or prosecuting money laundering. Usually, the officer invites the suspect to transport money or otherwise participate in the money laundering process.
Under federal law, a defendant can be convicted of money laundering from a sting if the prosecutor proves that the suspect conducted, or attempted or conspired to conduct, a transaction that affected interstate commerce. The suspect can be convicted if the conduct was performed with the intent to promote the carrying on of the illegal activity, to conceal or disguise the origin of the money, or to avoid a reporting requirement under state or federal law.
Money Laundering Spending
The last type of money laundering is a money spending crime. 18 U.S.C. § 1957 prohibits a defendant from knowingly conducting a monetary transaction in criminally derived property in an amount greater than $10,000 where the amount is in fact proceeds of a specified unlawful activity. In this case, a prosecutor must prove that the defendant conducted a monetary transaction over $10,000 through a financial institution. This can include, e.g., a bank deposit, transfer or withdrawal. Section 1957(f)(1) defines a monetary transaction as a “deposit, withdrawal, transfer, or exchange, in or affecting interstate or foreign commerce, of funds or a monetary instrument . . . by, through, or to a financial institution (as defined in section 1956 of this title), including any transaction that would be a financial transaction under section 1956(c)(4)(B).”
The most significant difference from § 1956 prosecutions is the intent requirement. A prosecutor need not prove any intent to promote, conceal or avoid the reporting requirements. However, the defendant must know that the money came from illegal activity.
Money Laundering Conspiracies
Money laundering conspiracies are indictable under 18 U.S.C. § 1956(h).