"Money Laundering: Cartels to Congress"
By Dana M. Grimes, Esq.
Published: April 2011 "Trial Bar News"
The Two Federal Money Laundering Statutes
Classic money laundering cases involve the indictment of accountants, real estate professionals, bankers, and anyone else who helps a criminal organization disguise its earnings. For instance, when suspected members of the Sinaloa drug cartel were caught shopping for AK-47's in Arizona earlier this year, the defendants charged with acting as straw purchasers for the firearms were indicted on federal money laundering charges. (Grand Jury Indicts 34 For Allegedly Buying Guns Destined for Mexico Drug Cartels, The Wall Street Journal, Jan. 26, 2011.)
The primary federal money laundering statutes are Title 18 U.S.C. §§ 1956 and 1957, two substantive offenses added to the criminal code by the Money Laundering Control Act, enacted in 1986. The prohibited conduct includes conducting financial transactions involving the "proceeds" of specified unlawful activity, albeit in different ways. Section 1956(a)(1) reads:
Whoever, knowing that the property involved in a financial transaction represents the proceeds of some criminal activity, conducts or attempts to conduct such a financial transaction which in fact involved the proceeds of the specified unlawful activity . . . with the intent to promote the carrying on of the specified unlawful activity . . . [shall be guilty of a crime.].
Section 1957(a), by contrast, reads:
Whoever, in any of the circumstances set forth in subsection (d), knowingly engages in or attempts to engage in a monetary transaction in criminally derived property of a value of greater than $10,000 and is derived from specified unlawful activity . . . shall be [guilty of a crime].
The crimes differ with respect to the knowlege element; Section 1957 "does not require that the defendant know of a design to conceal aspects of the transaction or that anyone have such a design," whereas Section 1956 does require a knowledge element. See, United States v. Wynn, 61 F.3d 921, 926-27 (D.C. Cir. 1995).
Proceeds of Specified Unlawful Activity
The term "proceeds" has received significant judicial attention recently. Interpreting Justice Scalia's four-judge plurality opinion in the Supreme Court's decision in United States v. Santos, 553 U.S. 507 (2008) is like wrestling an alligator, and the Ninth Circuit Court of Appeals has struggled to apply it, along with Justice Stevens' concurrence.
In Santos, the defendant was convicted of operating an illegal lottery and Section 1956 - money laundering - he challenged his money laundering convictions on the grounds that his transactions were merely the distribution of receipts to gamblers, as opposed to the profits of the illegal lottery. 553 U.S. at pp. 509-10. Justice Scalia agreed, and held that to accept the government's position would yield an unusual result - everyone who operated an illegal lottery would, by default, be committing the crime of money laundering; Scalia found this created a "merger problem." Id. at 515-16.
The recent Ninth Circuit decision in U.S. v. Bush, has shed some light on how to identify when the merger problem exists, holding ". . . the import of Santos is its requirement that a court evaluate whether the government has been redundant in its prosecution of a fraudulent scheme - that is, whether the charges separate necessary parts of the whole and treat them as independent bases for criminal activity." U.S. v. Bush, 2010 DJDAR 18138, citing Santos 553 U.S. at pp. 515-17.
The Broad Scope of Title 18 U.S.C. §§ 1956 and 1957
These statutes were originally designed to fight organized criminal organizations, but their application is much broader than that. The "specified unlawful activity" that is covered by the statutes runs the gamut from racketeering - acts or threats involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter - to welfare fraud. Other specified unlawful activity includes bribery, counterfeiting, smuggling, theft from interstate shipments, embezzlement, mail fraud, wire fraud, the manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in a controlled substance, and much more. (See, Title 18 U.S.C. § 1956(c)(7).)
Thus, money laundering can be charged in an indictment from which profits were gained from any of those activities. As a regulatory measure designed at preventing money laundering and flagging suspicious transactions, all financial institutions are required to report transactions involving more than $10,000 in cash, and transactions that appear to be structured to avoid that limit (i.e., patterns of $9,000 deposits), or are suspicious in other ways, are investigated. Businesses and professionals, including lawyers, are required to file Form 8300 with the IRS upon receipt of more than $10,000 in cash from a client.
Although the way money laundering is depicted in mafia movies is often sophisticated, sometimes the crime is not particularly organized. Take, for instance, the average urban marijuana cultivator, who has no management skills beyond those required to install lighting and irrigation systems in the bedrooms of rented houses, but who does have a very green thumb. He may find himself cultivating amounts of marijuana that are beyond the most liberal interpretation of California's Compassionate Use Act (Health & Saf. Code § 11362.5). The fortunate cultivators get caught before their operations become large enough to pique the interest of the federal authorities. Cultivators who end up with large amounts of money will sometimes ask friends or family members to help them disguise the source of the money by helping them buy houses or make other investments. Many a mother, girlfriend, and friend who were otherwise law abiding citizens have fallen afoul of the broad sweep of the federal money laundering statutes by agreeing to assist the cultivator. The federal sentencing guidelines for money laundering are driven primarily by the amount of money involved, and can be quite severe.
A Sidenote: Political Money Laundering
Political money laundering involves very different activities and different statutes than Title 18 U.S.C. §§ 1956 and 1957; the main commonality is the interest of veiling the sources of income from authority. There have been many cases in California where business owners have tried to circumvent limits on political campaign contributions by directing employees to make contributions to political campaigns, and then reimbursing the employees. We have represented people on both sides of these cases - the business executive contributor side and the politician payee side. Most of the lower level violations are resolved by negotiating a fine with the Fair Political Practice Commission (FPPC).
These fines can be substantial. The highest fine ($895,000) and largest number of counts (236), occurred in a case against a Taiwanese shipping company.
The statutes for California political money laundering cases include Government Code §§ 84301, 84302, and 84301(a). Most prosecutions under California law have been for misdemeanors, but there have been exceptions. In addition to filing felony charges under the above Government Code sections, these cases can involve felony charges of Conspiracy (Pen. Code § 182(a)(1)), and Perjury (Pen. Code § 118). Anyone receiving political contributions should research the rules on the FPPC website.
High-End Political Money Laundering
On November 24, 2010, former Republican House Majority Leader Tom "The Hammer" Delay was convicted of money laundering and conspiracy. Prosecutors in Texas proved to the satisfaction of the jury that Delay conspired to use his Texas-based PAC to send $190,000 in corporate money to an arm of the Washington-based Republican National Committee. Delay, who effectively ran Congress during most of George W. Bush's presidency, was instrumental in implementing policies of George W. Bush; had he managed to be convicted while President Bush was still in office, he would have hoped for a Presidential pardon (or a commutation, such as the one Bush granted to Scooter Libby, when he commuted the length of Libby's sentence for perjury and lying during the investigation of the leak of Valerie Plame's job with the CIA). But the timing of Delay's conviction was not on his side, and Delay will have to trust his fate to the courts.