The following does not represent legal opinion and is provided for general education only. You are strongly advised to seek the advice of a licensed attorney regarding these topics and how they may apply to you and your situation.
Basically, Money Laundering is a financial crime that involves concealing the source of money obtained through criminal activity to make it look like it resulted from legitimate business activity, or to bypass prohibited or restricted money transfer channels.
It is commonly associated with racketeering, a legal term used to describe organized crime, and drug trafficking, but it may also be associated with large-scale schemes involving offenses like insider trading or tax evasion, and most notably cyber criminality. It is prohibited around the world, under both state and federal law, and there are prohibitions under United Nations resolutions as well.
The purpose is to hide the true origin of the money, which is usually some sort of criminal activity, to make it look like it came from legal activity. If the money is “clean,” banks will accept it without suspicion, and law enforcement will not be able to connect it to the underlying crimes.
This could include depositing the money at a bank, but this is risky because banks must report large cash deposits. Money laundering can also involve a business, often known as a “shell company,” that looks legitimate and might even engage in legitimate business activities. The shell company also serves as a front for illegal activity. The company deposits the “dirty” money in its bank account and generates fake invoices or receipts to make it look like legitimate business revenue. Fans of movies about organized crime might recognize this sort of scheme.
Criminals also employ “Money Mules” who receive money from criminal activities – knowingly or unknowingly – and forward it to the criminal organization.
More complicated money laundering schemes include bank deposits, followed by transfers of funds to different accounts in a home country. and internationally. From those accounts, the funds are invested in businesses, brokerage accounts, and large assets like houses or boats, or just transferred. Eventually, the funds make their way back to the cash economy. By then, the original sum has been split into multiple separate accounts and investments that may be impossible to trace back to the source.
The federal money laundering statute and regulations apply to proceeds derived from specific criminal acts, including violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act, drug trafficking, cybercrime, murder and other violent crimes, human trafficking, certain types of bank fraud, and bribery of a public official. The person charged with money laundering must have actual knowledge that the money comes from criminal activity, although the government does not have to prove knowledge of a specific crime. If the person was unknowing originally but was warned, then they have knowledge.
The government must prove that a person had one of the following specific intents: to “promote the carrying on of specified unlawful activity,” to commit tax fraud or tax evasion, to conceal the criminal nature of the money’s source, or to avoid transaction reporting requirements under federal or state law. Penalties may include a fine of up to $500,000 or twice the value of the property at issue, whichever is greater, and up to 20 years in prison.
State money laundering laws are similar to the federal statute, but they generally apply to a wider range of criminal activity. For example, under Texas law, a person commits the offense of money laundering if he or she acquires, holds, transfers, or invests money or other property with knowledge or belief that it consists of the proceeds of criminal activity.
1. The Crime of Money Laundering and Criminal Enforcement
1.1 What is the legal authority to prosecute money laundering at the national level?
Money laundering has been a crime in the United States since 1986, making the United States one of the first countries to criminalise money laundering conduct. There are two money laundering criminal provisions, 18 United States Code, Sections 1956 and 1957 (18 U.S.C. §§ 1956 and 1957).
1.2 What must be proven by the government to establish money laundering as a criminal offence? What money laundering predicate offences are included? Is tax evasion a predicate offence for money laundering?
Generally, it is a crime to engage in virtually any type of financial transaction if a person conducted the transaction with knowledge that the funds were the proceeds of “criminal activity” and if the government can prove the proceeds were derived from a “specified unlawful activity.” Criminal activity can be a violation of any criminal law – federal, state, local, or foreign. Specified unlawful activities are set forth in the statute and include over 200 types of U.S. crimes, from drug trafficking, terrorism, and fraud, to crimes traditionally associated with organised crime, and certain foreign crimes, as discussed below in question 1.3.
The government does not need to prove that the person conducting the money laundering transaction knew that the proceeds were from a specified form of illegal activity.
Knowledge can be based on wilful blindness or conscious indifference – failure to inquire when faced with red flags for illegal activity. Additionally, knowledge can be based on a government “sting” or subterfuge where government agents represent that funds are the proceeds of illegal activity.
Under Section 1956, the transaction can be: (1) with the intent to promote the carrying on of the specified unlawful activity; (2) with the intent to engage in U.S. tax evasion or to file a false tax return; (3) knowing the transaction is in whole or in part to disguise the nature, location, source, ownership or control of the proceeds of a specified unlawful activity; or (4) with the intent to avoid a transaction reporting requirement under federal or state law.
Section 1956 also criminalises the transportation or transmission of funds or monetary instruments (cash or negotiable instruments or securities in bearer form): (1) with the intent to promote the carrying out of a specific unlawful activity; or (2) knowing the funds or monetary instruments represent the proceeds of a specified unlawful activity and the transmission or transportation is designed in whole or in part to conceal or disguise the nature, location, source, ownership or control of the proceeds of the specified unlawful activity.
Under Section 1957, it is a crime to knowingly engage in a financial transaction in property derived from specified unlawful activity through a U.S. bank or other “financial institution” or a foreign bank (in an amount greater than $10,000). Financial institution is broadly defined with reference to the Bank Secrecy Act (“BSA”) statutory definition of financial institution (31 U.S.C. § 5312(a)(2)) and includes not just banks, but a wide range of other financial businesses, including securities broker-dealers, insurance companies, non-bank finance companies, and casinos.
Tax evasion is not itself a predicate offence, but, as noted, conducting a transaction with the proceeds of another specified unlawful activity with the intent to evade federal tax or file a false tax return is subject to prosecution under Section 1956. Also, wire fraud (18 U.S.C. § 1343) is a specified unlawful activity. Wire fraud to promote tax evasion, even foreign tax evasion, can be a money laundering predicate offence. See Pasquantino v. U.S., 544 U.S. 349 (2005) (wire fraud to defraud a foreign government of tax revenue can be a basis for money laundering).
1.3 Is there extraterritorial jurisdiction for the crime of money laundering? Is money laundering of the proceeds of foreign crimes punishable?
There is extensive extraterritorial jurisdiction under the money laundering criminal provisions. Under Section 1956, there is extraterritorial jurisdiction over money laundering conduct (over $10,000) by a U.S. citizen anywhere in the world or over a non-U.S. citizen if the conduct occurs at least “in part” in the United States. “In part” can be a funds transfer to a U.S. bank.
Under Section 1957, there is jurisdiction over offences that take place outside the United States by U.S. persons (citizens, residents, and legal persons) and by non-U.S. persons as long as the transaction occurs in whole or in part in the United States.
Certain foreign crimes are specified unlawful activities, including drug crimes, murder for hire, arson, foreign public corruption, foreign bank fraud, arms smuggling, human trafficking, and any crime subject to a multilateral extradition treaty with the United States.
Generally, there is no extraterritorial jurisdiction under the BSA, discussed below in section 2. The BSA requirements for Money Services Businesses (“MSBs”) can apply, however, even if the MSB has no physical presence in the United States if the business conducts business “wholly or in substantial part within the United States,” i.e., if a substantial number of U.S. customers or recipients of funds transfers are in the United States. 31 C.F.R. § 1010.100(ff) (BSA definition of MSB).
1.4 Which government authorities are responsible for investigating and prosecuting money laundering criminal offences?
Prosecution of money laundering crimes is the responsibility of the U.S. Department of Justice. There is a special unit in the Criminal Division of the Department of Justice, the Money Laundering and Asset Recovery Section (“MLARS”), that is responsible for money laundering prosecution and related forfeiture actions. The 94 U.S. Attorney’s Offices across the United States and its territories also may prosecute the crime of money laundering alone or with MLARS. MLARS must approve any prosecution of a financial institution by a U.S. Attorney’s Office.
As required in Section 1956(e), there is a (non-public) memorandum of understanding among the Secretary of the Treasury, the Secretary of Homeland Security, the Attorney General, and the Postal Service setting forth investigative responsibilities of the various federal law enforcement agencies that have investigative jurisdiction over Sections 1956 and 1957. Jurisdiction is generally along the lines of the responsibility for the investigation of the underlying specified unlawful activity. The various federal agencies frequently work together on cases, sometimes along with state and local authorities, where jurisdiction overlaps.
The Federal Bureau of Investigation, the Drug Enforcement Administration, the U.S. Secret Service, U.S. Immigration and Customs Enforcement, the Internal Revenue Service Criminal Division, and the Postal Inspection Service frequently conduct money laundering investigations. An investigation unit of the Environmental Protection Agency can investigate money laundering crimes relating to environmental crimes.
1.5 Is there corporate criminal liability or only liability for natural persons?
There is criminal liability for natural and legal persons.
1.6 What are the maximum penalties applicable to individuals and legal entities convicted of money laundering?
The maximum penalties are fines of up to $500,000 or double the amount of property involved, whichever is greater, for each violation, and for individuals, imprisonment of up to 20 years for each violation.
1.7 What is the statute of limitations for money laundering crimes?
That statute of limitations is five years. 18 U.S.C. § 3282(a).
1.8 Is enforcement only at national level? Are there parallel state or provincial criminal offences?
Section 1956(d) specifically provides that it does not supersede any provisions in federal, state or other local laws imposing additional criminal or civil (administrative) penalties.
Many states, including New York and California, have parallel money laundering criminal provisions under state law. See, e.g., New York Penal Law Article 470.
1.9 Are there related forfeiture/confiscation authorities? What property is subject to confiscation? Under what circumstances can there be confiscation against funds or property if there has been no criminal conviction, i.e., non-criminal confiscation or civil forfeiture?
There is both criminal forfeiture following a conviction for money laundering, and civil forfeiture against the assets involved in, or traceable to, money laundering criminal conduct.
Under 18 U.S.C. § 982, if a person has been convicted of money laundering, any property, real or personal, involved in the offence, or any property traceable to the offence, is subject to forfeiture.
Under 18 U.S.C. § 981, a civil forfeiture action can be brought against property involved in or is traceable to the money laundering conduct even if no one has been convicted of money laundering. Because this is a civil action, the standard of proof for the government is lower than if there were a criminal prosecution for the money laundering conduct (preponderance of the evidence versus beyond a reasonable doubt). There is no need to establish that the person alleged to have committed money laundering is dead or otherwise unavailable.
1.10 Have banks or other regulated financial institutions or their directors, officers or employees been convicted of money laundering?
Absent established collusion with money launderers or other criminals, very few directors, officers, or employees have been convicted of money laundering. Where there have been criminal settlements with banks and other financial institutions related to money laundering, in all but two cases, the settlements have been based on alleged violations of the Bank Secrecy Act (“BSA”), not violations of the money laundering criminal offenses.
1.11 How are criminal actions resolved or settled if not through the judicial process? Are records of the fact and terms of such settlements public?
Since 2002, 35 regulated financial institutions (26 banks) have pled guilty or have reached settlements with the Department of Justice, generally, as noted, based on alleged violations of the anti-money laundering regulatory requirements under the BSA (either failure to maintain an adequate anti-money laundering program and/or failure to file required Suspicious Activity Reports).
A few of these settlements with foreign-owned banks have been based on alleged sanctions violations in addition to BSA violations. Substantial fines or forfeitures were paid as part of these settlements. There also were two other BSA prosecutions of banks in the late 1980s relating to currency transaction reporting and the Bank of Credit and Commerce International (“BCCI”) pled guilty to money laundering in 1990.
In connection with many of the criminal dispositions, civil (administrative) sanctions based on the same or related misconduct have been imposed at the same time by federal and/or state regulators and the Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”) in a coordinated settlement. See questions 2.8–2.11.
One reason criminal settlements with banks may not be based on the money laundering statute may be the severe potential legal consequences or “death penalty” for a bank if it is convicted of money laundering. If a bank is convicted of money laundering, subject to a required regulatory (administrative) hearing, the bank could lose its charter or federal deposit insurance, i.e., be forced to cease operations. Such a review is discretionary if a bank is convicted of BSA violations and, in practice, not conducted. See, e.g., 12 U.S.C. § 1818(w) (process for state-
licensed, federally-insured banks).
Records relating to the criminal settlements are publicly available, including, in most cases, lengthy statements by the government about underlying facts that led to the criminal disposition. To our knowledge, there have been no non-public criminal settlements with financial institutions.
Unfortunately for many romance scam victims, they can become involved with receiving money on behalf of their relationship partner (who happens to be a cybercriminal).
Few of these MUles make the effort to notify the police of their unwitting involvement so they can clear themselves. In fact, most seem to be making it worse by trying to hide their involvement, and indeed, the whole crime by not reporting it. Eventually, the truth will be discovered and this is where scam victims turned into mules are prosecuted, partly because their silence also enables the scammers to scam more victims.