Prior to the expansion in the last several years of the list of federal offenses for which forfeiture is available as a penalty upon conviction, now including health care offenses and telemarketing schemes for example, prosecutors frequently charged money laundering in order to wield the threat of forfeiture which followed conviction on those charges. Even now, money laundering charges remain a potent prosecutive tool, because they generally carry far more severe sentence exposure under the Sentencing Guidelines than do the underlying offenses which generated the proceeds allegedly laundered. Moreover, money laundering under Title 18, United States Code, Sections 1956 and 1957, is a broad, elastic concept, often proven through much the same evidence which serves to prove the underlying predicate offenses.
However, a recent opinion in the Sixth Circuit serves to remind prosecutors that elastic does not mean boundless. In United States v. Faulkenberry, 2010 WL 2925106 (6th Cir., July 28, 2010), the court of appeals reversed the defendant’s money laundering conviction because the government failed to prove a knowing purpose to conceal. Faulkenberry was an officer of a factor which purchased health care providers’ receivables at discount, principally using investor funds. Unfortunately, misrepresentations were made to investors and their funds were not secured as promised. Faulkenberry and others were charged with and convicted of conspiracy, securities fraud and wire fraud, the appeals court upheld those convictions.
But Faulkenberry was also charged with money laundering, under Section 1956(a)(1)(B)(i), so-called concealment money laundering, which proscribes conducting a financial transaction with proceeds known to derive from some unlawful activity if the defendant also knows that the transaction is designed in whole or in part to conceal the nature or source of those proceeds. There was no serious dispute that the transaction in question -- an advance of $22 million to a health care provider of investor funds obtained by wire fraud and securities fraud -- qualified as proceeds and that Faulkenberry knew the proceeds were derived from some unlawful activity. The issue on appeal centered on the concealment prong of the statute, that is, whether Faulkenberry was motivated by a purpose to conceal, not just whether the mechanics of the advance had the effect of concealing the origin of the monies, which had been transferred among accounts.
The Sixth Circuit held that it is not enough for the government to prove that a particular transaction had the effect of concealing the source of the proceeds, or even that it was structured to do so; the ultimate question is one of purpose, not structure, so the proof must establish that Faulkenberry’s animating purpose was to conceal. The record revealed no such evidence; documents which falsely represented that the funds were the factor’s and did not come from investors were insufficient, since they only showed a concealing structure, not this defendant’s driving purpose. The court memorably added, in a line sure to find its way into many a motion to dismiss: “Money in motion does not necessarily equal money laundering.”