Portfolio Media. Inc. | 111 West 19th Street, 5th Floor | New York, NY 10011 | www.law360.com Phone: +1 646 783 7100 | Fax: +1 646 783 7161 | firstname.lastname@example.org Mueller's Innovative Use Of Money Laundering Statute By Solomon Wisenberg and Graham Billings (April 2, 2018, 12:15 PM EDT) Rumors of money laundering have swirled around some people close to the presidential campaign of Donald J. Trump for years. In turn, the office of the United States special counsel, Robert Mueller, has shown a willingness to use the money laundering statute in unique ways to further the investigation into links between the campaign and the Russian government. The Law of International Money Laundering International money laundering involves the flow of money into or out of the United States to advance, conceal or cleanse the proceeds of another crime. It can be charged under two statutes. Under 18 U.S.C. § 1956, an international money laundering transaction occurs when an international “financial transaction” occurs with one of three requisite intents: (1) to promote the carrying on of “specified unlawful activity” (the “promotion” theory); (2) knowing that the transaction is designed to conceal the nature, location, source, ownership, or control of the proceeds of specified unlawful activity, and knowing that the funds are the proceeds of specified unlawful activity (the “concealment” theory); or (3) knowing that the purpose is to avoid a reporting requirement, such as those for currency transaction reports or Internal Revenue Service cash transaction forms, and knowing that the funds are the proceeds of specified unlawful activity (the “avoiding reporting requirements” theory). The statute also criminalizes attempts and conspiracies to commit an international money laundering transaction. The promotion theory of the international money laundering prong of the statute differs from the other international and domestic theories in that it is entirely forward-looking. As recognized by the U.S. Department of Justice in its U.S. Attorneys’ Criminal Resource Manual’s Money Laundering Overview, under the promotion theory, the defendant need not know that the funds represent the proceeds of some unlawful activity. Moreover, there is no requirement under the promotion theory that the funds at issue actually be derived from the proceeds of specified unlawful activity — or, for that matter, any unlawful activity. On the other hand, only transactions that the defendant knows involve the proceeds of specified unlawful activity may constitute money laundering under the other international and domestic theories. Solomon Wisenberg Graham Billings A second statute, 18 U.S.C. § 1957, criminalizes the knowing engagement in a monetary transaction involving illegitimate funds valued over $10,000 and derived from specified unlawful activity. Section 1957 may reach U.S. persons outside of the jurisdiction of the United States. Prosecutions under Section 1957 differ from those under Section 1956 because the monetary threshold replaces the intent element; under Section 1957, the government does not need to establish the defendant’s specific intent to promote, conceal, or avoid reporting requirements. However, in order to violate Section 1957, the defendant still must have known the property was derived from some criminal activity and the funds must have in fact been derived from specified unlawful activity. Given these differences, prosecutors have significantly more flexibility in proving an international money laundering transaction than they otherwise would under the domestic prong. Indeed, the government has effectively used international money laundering charges to supplement criminal statutes that cannot directly reach international conduct, such as to prosecute bribes received by foreign officials. Charging international money laundering will also increase the severity of the penalty facing the defendant, as its loss-based guideline is frequently more serious than the penalty for the statute directly criminalizing the underlying conduct. The Money Laundering Charge Against Paul Manafort The special counsel has taken advantage of these distinctions to advance a unique international money laundering charge against Paul Manafort, who served as campaign manager of the Trump presidential campaign for several months in 2016. The original indictment filed in the District of Columbia against Manafort alleges that, between at least 2006 and 2015, Manafort performed political consulting and lobbying activities on behalf of the Ukrainian government and political parties affiliated with pro-Russian interests. The indictment charges Manafort with two counts of violating the Foreign Agents Registration Act, which requires that agents of a foreign principal register their affiliation with the Department of Justice. The first charge arises out of Manafort’s alleged failure to register as a foreign agent between 2008 and 2014, and the second alleges that Manafort submitted false and misleading letters to the Department of Justice in November 2016 and February 2017 related to the scope of his lobbying work. Statutorily, Manafort faces up to five years’ imprisonment under the FARA counts, although he would likely expect much less than the statutory maximum. The alleged FARA violations, however, also serve as the specified unlawful activity in a much more serious international money laundering conspiracy charge against Manafort in the same indictment. The indictment alleges that Manafort attempted to disguise his lobbying income by, among other things, describing it as loans from offshore corporate entities and by wiring money into bank accounts he controlled, with the intent of promoting the carrying on of the FARA violations. The money laundering charge against Manafort is punishable by up to 20 years’ imprisonment and could easily result in a guideline sentence exceeding 15 years’ imprisonment. Notably, the indictment does not allege, nor must the government prove, that the transferred funds were the proceeds of a FARA violation or any other criminal activity. In essence, alleged conduct that the government otherwise would have some difficulty reaching — tax evasion through a transfer of money from an offshore account — became accessible and subject to a potentially serious term of imprisonment due to Manafort’s failure to register under FARA. In a court filing, Manafort called the charge an “extremely novel reading” of the money laundering statute. Given that the government has only attempted to criminally enforce FARA on seven prior occasions since the statute’s amendment in 1966 (and only three of those were successful), Manafort’s position is not unreasonable. In a recent motion to dismiss the money laundering conspiracy count, Manafort challenged the special counsel’s international money laundering theory directly, arguing that engaging in the alleged financial transactions cannot “promote” the failure to file under FARA — an act of omission — as a matter of law. Manafort argued that acting as an unregistered foreign agent could conceivably generate proceeds, but merely failing to file cannot — but because acting as an unregistered foreign agent is not a specified unlawful activity under the money laundering statute, the special counsel could not bring a money laundering charge under that theory. While Manafort’s arguments may be factually premature for a motion to dismiss — and may be more persuasive if he were not also charged with a host of other crimes arising out of the same transactions — the district court’s views on Manafort’s arguments will likely impact the special counsel’s decision to bring additional international money laundering charges. Looking Ahead The special counsel’s use of a novel theory to support a serious international money laundering charge against Manafort provides some insight into the direction and aggressiveness of the special counsel’s investigation. The special counsel is clearly scrutinizing the use of offshore and Cypriot bank accounts and real estate transactions tied to Russia, and he may evaluate similar international money laundering charges against other members of the Trump campaign. One obvious difference between Manafort and other members of the Trump campaign, however, is the specified unlawful activity that could support such a future charge. Despite the novelty of the theory, premising an international money laundering charge on Manafort’s alleged FARA violations is relatively straightforward, particularly given the intense public scrutiny of his Ukrainian lobbying work. Attempting to predict the specified unlawful activity that may support future international money laundering charges is impossible, but the special counsel will likely evaluate other disclosure-related violations similar to FARA. One commonly discussed theory, that members of the Trump family could have laundered funds to evade paying income tax, may be legally insufficient. Unlike domestic money laundering, transacting funds internationally with the intent to evade taxes or commit tax fraud, standing alone, cannot support a money laundering charge. Moreover, tax evasion and tax fraud are not offenses that may constitute specified unlawful activity under the money laundering statute, although that could be bypassed by charging the tax crime as a wire fraud. While not binding on the special counsel’s investigation, Department of Justice policy also evidences a reluctance to premise money laundering charges on tax crimes. As a result of these considerations, the special counsel would be unlikely to premise an international money laundering charge on tax crimes. The special counsel will likely also investigate whether other members of the Trump campaign fully disclosed their foreign financial interests, like he did with Manafort. The Treasury’s Financial Crimes Enforcement Network requires that all U.S. persons having a financial interest in or authority over an overseas account valued over $10,000 file an annual report with the IRS called a Report of Foreign Bank and Financial Accounts. Like an international money laundering prosecution under the promotion prong, the willful failure to file a FBAR can support a charge under the Bank Secrecy Act even if the unreported funds are legitimate. Thus, a failure to file a FBAR report would allow the special counsel to reach transactions with connections to Russian funds without having to prove underlying criminality. Moreover, if the unreported funds are known to the defendant to be and are in fact the proceeds of foreign criminal activity, the special counsel could bring an international money laundering charge under both the concealment and avoiding reporting requirements theories. Finally, the special counsel will likely investigate another longstanding theory: that certain members of the Trump family and/or organizations may be aiding and abetting the laundering of dirty Russian money through high-end real estate transactions. Under the concealment theory, the special counsel would have to prove that the launderer knew or was willfully blind to the fact that the funds used to purchase or invest in the real estate were the proceeds of a crime. Given that there is currently no duty under the Bank Secrecy Act on real estate sellers to investigate buyers or suspicious activity, the paramount issue in any such prosecution will be the degree to which any putative defendant deliberately ignored evidence that the funds used to purchase property were ill-gotten. Conclusion Whether the special counsel will bring international money laundering charges against additional individuals who were part of the Trump campaign is as much of a political question as it is a legal one. It is clear, however, that the special counsel has both the tools and the willingness to do so. Indeed, the money laundering charges brought in the course of the special counsel’s investigation may be a bellwether for the government’s use of the statute to reach criminal conduct that otherwise may be subject to minor penalties or would be wholly outside its reach. Solomon L. Wisenberg is a partner in the Washington, D.C., office of Nelson Mullins Riley & Scarborough LLP, where he is co-chair of the firm's white collar defense and government investigations practice. He served as deputy independent counsel in the Whitewater/Lewinsky investigation, and he was selected by Judge Kenneth Starr to conduct grand jury questioning of President Clinton. Graham R. Billings is an associate in the firm's Columbia, South Carolina, office. The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.  A “financial transaction” is defined as a transaction affecting interstate or foreign commerce that involves: (1) the movement of money via wire or other means; (2) monetary instruments; (3) transfer of title to real property or a vehicle; or (4) the use of a financial institution  “Specified unlawful activity” is broadly defined and consists of hundreds of criminal offenses, including those identified as predicate acts in the Racketeer Influenced and Corrupt Organizations Act and others under specifically-enumerated statutes. 18 U.S.C. § 1956(c)(7).  Id. at (a)(2)(A)-(B).  U.S. Department of Justice, U.S. Attorneys’ Manual, Criminal Resource Manual § 2101 (1997).  See Regalado Cuellar v. United States, 553 U.S. 550, 561 (2008) (“Section 1956(a)(2)(A) also punishes the mere transportation of lawfully derived proceeds[.]”).  The Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1 et seq., criminalizes the giving, but not the receipt, of bribes. Recently, prosecutors have used the international money laundering prong and conspiracy charges to reach the recipient. See, e.g., United States v. Duperval, Case No. 1:09-cr-21010 (S.D. Fla. filed May 22, 2012).  22 U.S.C. §§ 612, 618.  No offense Guideline has been promulgated for FARA violations, and there are likely no Guidelines that are sufficiently analogous. See United States Sentencing Commission, Guidelines Manual, §2X5.1 (Nov. 2016). The last defendant to be sentenced for violating FARA sentenced to twelve months and one day of imprisonment, although the defendant also pled guilty to a significant obstruction of justice charge. United States v. Siljander, Case No. 4:07-cr-00087 (W.D. Mo. filed Jan. 12, 2012).  See U.S.S.G. §§ 2S1.1, 2B1.1.  United States v. Manafort, Case No. 1:17-cr-00201 (D.D.C. filed Nov. 4, 2017).  See U.S. Department of Justice Office of the Inspector General, Audit of the National Security Division’s Enforcement and Administration of the Foreign Agents Registration Act (Sept. 7, 2016); see also U.S. Department of Justice, U.S. Attorneys’ Manual, Criminal Resource Manual § 2062 (1997).  United States v. Manafort, Case No. 1:17-cr-00201 (D.D.C. filed March 14, 2018).  The indictment also charges Manafort under domestic tax evasion and concealment theories arising out of his failure to pay taxes on the transferred income. A later indictment separately charges Manafort with traditional tax fraud, Bank Secrecy Act, and bank fraud offenses.  18 U.S.C. § 1956(a)(1)(A)(ii). A pending Senate bill, introduced in the wake of the Panama Papers leak, would amend the international prong of the money laundering statute to mirror the domestic prong in criminalizing transfers made with the intent to evade taxes. S. 1241, 115th Cong. § 11 (2017).  U.S. Department of Justice, U.S. Attorneys’ Manual § 9-105.300 (2016) (providing that Tax Division approval is required to premise domestic money laundering charge on tax evasion); § 6-4.210 (2018) (stating Department of Justice policy against using routine tax crimes as the basis for money laundering or mail, wire, or bank fraud charges).  31 C.F.R. § 1010.350.  31 U.S.C. § 5322.  It is well-established that willful blindness may substitute for knowledge under the money laundering statute. See, e.g., United States v. Santos, 553 U.S. 507, 521 (2008).  See U.S. Department of the Treasury Financial Crimes Enforcement Network, Advisory to Financial Institutions and Real Estate Firms and Professionals (Aug. 22, 2017).