Primary Money LaunderingPrimary Money Laundering United States Code (U.S.C) United States Code (U.S.C)
StatutesStatutes
Title 18 U.S.C. § 1956Title 18 U.S.C. § 1956
Title 18 U.S.C. § 1957Title 18 U.S.C. § 1957
Title 18 U.S.C. § 1956Title 18 U.S.C. § 1956
Financial TransactionFinancial Transaction - Whoever, conducts or - Whoever, conducts or attempts to conduct a financial transactionattempts to conduct a financial transactionProceedsProceeds - Which in fact involves the proceeds of - Which in fact involves the proceeds of Specified Unlawful Activity (SUA)Specified Unlawful Activity (SUA)KnowledgeKnowledge - Knowing that the property involved in - Knowing that the property involved in the financial transaction represents the proceeds of the financial transaction represents the proceeds of “some form” of criminal activity “some form” of criminal activity Specific Intent Specific Intent - With the intent to: (1) - With the intent to: (1) PromotePromote, , (2)(2) Evade taxesEvade taxes, , (3)(3) Conceal or disguiseConceal or disguise,, or (4) or (4) Avoid Avoid reporting requirementsreporting requirements
Four Basic Statutory ElementsFour Basic Statutory Elements
Financial TransactionFinancial Transaction
Broadly defined to include purchase, sale, loan, pledge, gift, transfer, delivery, or other disposition of property between parties. Does not need to involve a Does not need to involve a financial institutionfinancial institution
With respect to a financial institution, it includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, use of a safe deposit box, or any other payment, transfer, or delivery by, through, or to a financial institution
ProceedsProceeds
Broadly defined, need not be MONEY!MONEY!
Without proceeds there can be no money laundering violation.
Merger Issue: When does property become proceeds?
The acts that produce the proceeds being laundered must be distinct from the conduct that constitutes money laundering.
KnowledgeKnowledgeThe Government must prove that the defendant knew that the
money involved in the financial transaction represents the proceeds of some form of unlawful activity that constitutes a felony under state, federal, or foreign law.
Do not have to prove the defendant knew it was from an SUA nor that it was a felony.
U.S. vs. Hayes, 800 F. Supp. 1575 (S.D. Ohio 1992): defendant could not plead guilty to section 1956 offense where underlying offense was a misdemeanor.
Willful blindness won’t help!
Specific IntentSpecific Intent
Once you have a financial transaction involving the proceeds of a specified unlawful activity, conducted by a defendant who knew the property was some form of unlawful activity, the Government must prove that the defendant conducted or attempted to conduct a financial transaction with the intent to promote, evade, conceal or disguise, or avoid reporting requirements.
Title 18 U.S.C. § 1956Title 18 U.S.C. § 1956
Three Major Sub-SectionsThree Major Sub-Sections
1956 (a)(1) - Financial Transaction Provision1956 (a)(1) - Financial Transaction Provision
1956 (a)(3) - “Sting” Provision1956 (a)(3) - “Sting” Provision
1956 (a)(2) - International Transfer Provision1956 (a)(2) - International Transfer Provision
Specific Intent CrimeSpecific Intent Crime
Promote a Specified Unlawful Activity (SUA) – As defined in Title Promote a Specified Unlawful Activity (SUA) – As defined in Title 18 U.S.C. 1956(c)(7) , including all RICO predicates, as defined, in 18 U.S.C. 1956(c)(7) , including all RICO predicates, as defined, in Title 18 U.S.C. 1961(1). Title 18 U.S.C. 1961(1). Conceal or disguise the proceeds of an SUAConceal or disguise the proceeds of an SUAAvoid reporting requirementsAvoid reporting requirementsEvade payment of taxesEvade payment of taxesNo “Sting” provisionNo “Sting” provision
Money Laundering Activity underMoney Laundering Activity under18 U.S.C. § 1956 (a)(1)18 U.S.C. § 1956 (a)(1)
Specific Intent CrimeSpecific Intent Crime
Internationally transports, transmits, transfers, or attempts
Monetary instrument or funds Through the U.S. from within or without With intent to promote the carrying on of a
specified unlawful activity LEO sting operations possible
Money Laundering Activity underMoney Laundering Activity under18 U.S.C. § 1956 (a)(2)(A)18 U.S.C. § 1956 (a)(2)(A)
Specific Intent CrimeSpecific Intent Crime
International movement or attempt of monetary instruments or funds
Knowing proceeds were from some form of unlawful activity
With intent to disguise or conceal or to avoid transaction reporting requirements
Money Laundering Activity underMoney Laundering Activity under18 U.S.C. § 1956 (a)(2)(B)18 U.S.C. § 1956 (a)(2)(B)
Specific Intent CrimeSpecific Intent Crime
Law enforcement “Sting provision” Subject “believes” proceeds from SUA With intent to promote, conceal, or evade a
reporting requirement
Money Laundering Activity underMoney Laundering Activity under18 U.S.C. § 1956 (a)(3)18 U.S.C. § 1956 (a)(3)
Title 18 U.S.C. § 1957Title 18 U.S.C. § 1957 (a.k.a., The Spending Statute)(a.k.a., The Spending Statute)
Engages or attempts to Engages or attempts to engage in a monetary engage in a monetary transaction transaction
In the amount of In the amount of $10,000.00 or more$10,000.00 or more
And knows proceeds were And knows proceeds were derived from an SUA derived from an SUA
Distinguishing the StatutesDistinguishing the Statutes
20-year felony20-year felonyFinancial TransactionFinancial TransactionVirtually all commercial Virtually all commercial transactions coveredtransactions coveredKnowledge that funds are Knowledge that funds are from some form of from some form of “unlawful activity”“unlawful activity”Includes “Sting” provisionIncludes “Sting” provisionSpecific Intent requiredSpecific Intent requiredNo minimum dollar No minimum dollar thresholdthresholdNo exclusion for Sixth No exclusion for Sixth Amendment RightsAmendment Rights
10-year felony10-year felonyMonetary transactionMonetary transactionLimited to transactions by Limited to transactions by or through a financial or through a financial institutioninstitutionKnowledge that funds are Knowledge that funds are “criminally derived “criminally derived property”property”No “Sting” provisionNo “Sting” provisionGeneral IntentGeneral Intent$10,000.00 or more$10,000.00 or moreExcludes transactions Excludes transactions necessary to preserve necessary to preserve Sixth Amendment rightsSixth Amendment rights
§ § 19561956 §1957§1957
Three Step Money Laundering Three Step Money Laundering ProcessProcess
PlacementPlacement
LayeringLayering
IntegrationIntegration
PlacementPlacement
First step in the laundering process:First step in the laundering process: Placing the illicit funds, without discovery:Placing the illicit funds, without discovery:
into the financial systeminto the financial systeminto the domestic economy into the domestic economy into an international haveninto an international haven(e.g. Off-Shore financial institutions)(e.g. Off-Shore financial institutions)
Illicit funds are at the greatest risk of Illicit funds are at the greatest risk of detection during this processdetection during this process
LayeringLayering
Second step in the laundering process:Second step in the laundering process: Involves separating the illegally obtained money Involves separating the illegally obtained money
from its criminal source by layering it though a from its criminal source by layering it though a series of financial transactions, which makes it series of financial transactions, which makes it difficult to trace the money back to its original difficult to trace the money back to its original sourcesource
IntegrationIntegration
Third step in the process:Third step in the process: Involves moving the proceeds into a seemingly Involves moving the proceeds into a seemingly
legitimate form. Integration may include the legitimate form. Integration may include the purchase of automobiles, businesses, real estate, etc.purchase of automobiles, businesses, real estate, etc.
Stored Value CardsStored Value CardsPrepaid CardsPrepaid Cards
An Emerging ThreatAn Emerging Threat
A Money Laundering ToolA Money Laundering Tool
A tool used to purchase child pornographyA tool used to purchase child pornography
Number of Violations of Number of Violations of Credit Card Fraud SARS Credit Card Fraud SARS Fiscal Years 2004 – 2008Fiscal Years 2004 – 2008
(10/1/2003 – 6/30/2008)(10/1/2003 – 6/30/2008) NationwideNationwide
23,8
7125
,736
33,1
7430
,361
28,9
37
1,70
52,
062
2,53
6
2,63
91,
771
2,32
53,
189
3,93
7
4,11
43,
836
0
10,000
20,000
30,000
40,000
50,000
Credit Card Fraud CounterfeitCredit/Debit Card
Fraud
Debit Card Fraud
Fiscal Year 2004 Fiscal Year 2005 Fiscal Year 2006 Fiscal Year 2007 Fiscal Year 2008 (as of June 2008)
Nu
mbe
r of
SA
Rs
rece
i ved
Dollar Losses Reported of Dollar Losses Reported of Credit Card Fraud SARS Credit Card Fraud SARS Fiscal Years 2004 – 2008 Fiscal Years 2004 – 2008
(10/1/2003 – 6/30/2008)(10/1/2003 – 6/30/2008) NationwideNationwide
$399 $4
97 $596
$602
$567
$40
$85
$108
$66
$66
$38
$61
$107
$64
$57
$0
$250
$500
$750
$1,000
Credit Card Fraud CounterfeitCredit/Debit Card
Fraud
Debit Card Fraud
Fiscal Year 2004 Fiscal Year 2005 Fiscal Year 2006 Fiscal Year 2007 Fiscal Year 2008 (as of June 2008)
Dol
lar
Los
ses
Rep
orte
d in
M
illi
onsRo
un
ded
to n
eare
st
mill
ion
th
Dollar Losses Reported in Millions
Prepaid Cards: Open SystemPrepaid Cards: Open System
Used to make purchases or access cash using the Used to make purchases or access cash using the MasterCard and Visa global payment networksMasterCard and Visa global payment networks
Cards are marketed to:Cards are marketed to:– Unbanked, teens, and others without a credit cardUnbanked, teens, and others without a credit card
~10 million households in U.S. are unbanked; significant ~10 million households in U.S. are unbanked; significant number are Latino immigrants.number are Latino immigrants.
– Senders/receivers of cross-border remittancesSenders/receivers of cross-border remittancesRemittances sent from U.S. were ~$34 billion in 2003 Remittances sent from U.S. were ~$34 billion in 2003
~50% of individuals in U.S. who send remittances are ~50% of individuals in U.S. who send remittances are unbankedunbanked
– People who need help budgetingPeople who need help budgeting
Open System Prepaid CardsOpen System Prepaid Cards
Bank-issued, but Bank-issued, but no bank account is requiredno bank account is required
Prepaid Cards: Closed SystemPrepaid Cards: Closed System
Cards are issued by merchants and Cards are issued by merchants and service providers for specific goods and service providers for specific goods and servicesservices
Examples include mass transit system Examples include mass transit system access cards, retailer gift cards, and access cards, retailer gift cards, and cards for prepaid long distance servicecards for prepaid long distance service
Closed system cards have been used as Closed system cards have been used as an alternative to cash in bulk cash an alternative to cash in bulk cash smuggling schemessmuggling schemes
Closed System Prepaid CardsClosed System Prepaid Cards
United States v. Nikolai TehinUnited States v. Nikolai Tehin
Money Laundering/Mail Fraud CaseMoney Laundering/Mail Fraud Case
14 Years in Prison for the Defendant14 Years in Prison for the Defendant
Demonstrates the Effective use of Money Demonstrates the Effective use of Money Laundering Statutes used in concert with Laundering Statutes used in concert with Federal Sentencing Guidelines and Federal Sentencing Guidelines and Enhancements.Enhancements.– Vulnerable Victims, Multiple Victims, Loss Vulnerable Victims, Multiple Victims, Loss
Amounts, Position of Trust/Confidence etc…Amounts, Position of Trust/Confidence etc…
San Francisco Chronicle Article This Slide and Next
A once-prominent San Francisco lawyer convicted of stealing from his poor and sickly clients to support his luxurious lifestyle was sentenced Tuesday to more than 14 years in prison, after a federal judge upbraided him for disgracing the legal profession. Nikolai Tehin "looked his victims in the eye," U.S. District Judge Vaughn Walker said.
"Nick was ready for the worst," said his attorney, Harold Rosenthal. "But he suffers quietly." For Rosenthal, however, the sentence came as a shock. "I'm floored," he said. "This is the longest sentence I've ever had one of my clients receive in federal court."
Once he was at the top, he couldn't afford to stay there. Financial pressure "makes people do things they never would," Rosenthal said, adding that his client had already paid a heavy price for his crimes, including giving up his license to practice law. "Mr. Tehin started at the bottom and will ultimately end up at the bottom, " Rosenthal said. "He has no savings, no retirement. He's impoverished and is going to jail. And maybe he deserves it. I'm just asking you to give him a little light at the end of the tunnel."
Walker acknowledged Tehin's rags-to-riches story, but said his crimes called for severe punishment. "It was an American success story," the judge said. "Unfortunately, it was an American success story that has gone very wrong."