Money laundering

Criminal enforcement

Which government entities enforce your jurisdiction’s money laundering laws?

Prosecution of money laundering crimes is the responsibility of the US Department of Justice. There is a special unit in the Justice Department’s Criminal Division, the Money Laundering and Asset Recovery Section (MLARS), which is responsible for money laundering prosecution and forfeiture actions. The US Attorney’s Offices across the United States and its territories may also prosecute the crime of money laundering alone or with MLARS. MLARS must approve any prosecution of a financial institution by a US Attorney’s Office.

As required in the statute, 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 federal law enforcement agencies that have investigative jurisdiction over sections 1956 and 1957. Investigative jurisdiction generally relates to responsibility for the investigation of the underlying specified unlawful activity or predicate crime. The various federal agencies frequently work together on cases, sometimes with state and local authorities, where jurisdiction overlaps.

The Federal Bureau of Investigation, the Drug Enforcement Administration, the US Secret Service, US Immigration and Customs Enforcement, the Internal Revenue Service Criminal Division and the Postal Inspection Service frequently conduct money laundering investigations.

The federal money laundering criminal statute (section 1956) 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. In practice, there is generally coordination, but investigations and prosecutions can be concurrent.

Defendants

Can both natural and legal persons be prosecuted for money laundering?

Both can be prosecuted for money laundering.

The offence of money laundering

What constitutes 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 or predicate crimes are statutorily described and include over 200 types of US crimes, from drug trafficking, terrorism and fraud, to crimes traditionally associated with organised crime, and certain foreign crimes. Under section 1956, the transaction is criminal if it is engaged in: (1) with the intent to promote the carrying on of the specified unlawful activity; (2) with the intent to engage in US 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 US bank or other financial institution or a foreign bank (in an amount greater than US$10,000). ‘Financial institution’ is broadly defined with reference to the Bank Secrecy Act (BSA) statutory definition of financial institution.

The government does not need to prove that the person conducting the money laundering transaction knew that the proceeds were from a particular form of illegal activity.

Knowledge cannot be based on negligence but can be based on wilful blindness or conscious indifference – failure to inquire when faced with red flags for illegal activity.

Depending on the facts and circumstances, financial institutions, and financial institution employees, can be prosecuted for money laundering if they have conducted a transaction with the knowledge that a customer’s funds were the proceeds of criminal activity. Since 2002, in all but two cases where there have been criminal settlements with banks and other financial institutions related to money laundering, the settlements have been based on alleged violations of the BSA, not violations of the money laundering criminal offences.

Qualifying assets and transactions

Is there any limitation on the types of assets or transactions that can form the basis of a money laundering offence?

For extraterritorial jurisdiction to apply under section 1956, the conduct must involve over US$10,000. For a prosecution under section 1957, the transaction in criminally derived property must be greater than US$10,000.

Predicate offences

Generally, what constitute predicate offences?

Specified unlawful activities or predicate crimes include over 200 types of US crimes, from drug trafficking, terrorism and fraud, to crimes traditionally associated with organised crime. 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.

Tax evasion is not itself a predicate offence, but 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. Also, wire fraud is a specified unlawful activity. Wire fraud to promote tax evasion, even to defraud a foreign government of tax revenue, can be a money laundering offence. Evasion of foreign currency controls could theoretically be a predicate as well.

Defences

Are there any codified or common law defences to charges of money laundering?

There are no specific codified defences. Filing a report of suspicious activity with the government may be a consideration in determining whether to charge a financial institution but is not a statutory defence. The defences that could be raised generally would be that the person did not have the requisite knowledge that the transaction in question involved the proceeds of illegal activity or that the acts in question did not otherwise meet the statutory elements for the crime.

Resolutions and sanctions

What is the range of outcomes in criminal money laundering cases?

A prosecutor can decline to prosecute, or enter a plea or settlement agreement with agreed upon sanctions, including payment of a forfeiture or fine.  

The maximum penalties are fines of up to US$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.

State and federal regulatory authorities and self-regulatory organisations may bar or suspend individuals from participation in an industry based upon a money laundering conviction or revoke the licence of an institution to do business.

If a federally chartered or insured bank is convicted of money laundering, subject to a required regulatory (administrative) hearing, the bank could lose its charter or federal deposit insurance (ie, be forced to cease operations). Such a review is discretionary if a bank is convicted of BSA violations. This authority has not been used to date.

Forfeiture

Describe any related asset freezing, forfeiture, disgorgement and victim compensation laws.

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.

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.

A civil forfeiture action can be brought against property involved in or traceable to the money laundering conduct even if no one has been convicted of money laundering.

Limitation periods on money laundering prosecutions

What are the limitation periods governing money laundering prosecutions?

The statute of limitations is five years.

Extraterritorial reach of money laundering law

Do the money laundering laws applicable in your jurisdiction have extraterritorial reach?

Under section 1956, there is extraterritorial jurisdiction over money laundering conduct involving over US$10,000 by a US citizen anywhere in the world or over a non-US citizen if the conduct occurs at least in part in the United States. ‘In part’ includes a funds transfer to a US bank.

Under section 1957, there is jurisdiction over offences that take place outside the United States by US persons (citizens, residents and legal persons) and by non-US persons as long as the transaction occurs in whole or in part in the United States.

Specified unlawful activities can include certain foreign crimes.