The USA and “dirty” money-ACFCS

June 24, 2012

[FACT comments: Make no mistake—money laundering laws are all about power, not crime. Govts can make all money look fishy for anyone. Don’t want the field niggers getting too uppity.]

Reagan-era US money laundering law was the first ‘convergence’ and presaged present wave

Charles Intriago

Association of Certified Financial Crime Specialists: May 21, 2012

http://www.acfcs.org/reagan-era-us-money-laundering-law-was-the-first-convergence-and-presaged-present-wave-part-i-of-3/

(This is the first of a three-part series [Part II follows below] on the United States money laundering law, which targets all financial criminals and financial crime. This article sets the background for deeper understanding of this unique law. Every person, institution or company involved in combating financial crime or complying with laws and regulations dealing with money laundering, fraud, corruption and related matters should have a working knowledge of this law. The two articles that follow will explain how it is applied and how it is used in a civil context. These articles are intended to provide accurate information about the law and related subjects. However, neither ACFCS.org nor its management or staff is engaged in rendering legal or other professional service. For that, the advice of competent professionals should be sought.)

In 1986, there was no way the US Congress could know that a quarter century later there would be a global movement to consolidate the resources and units that financial institutions, government agencies and corporations devote to monitoring and combating distinct types of financial crime, including fraud and corruption.

Prompted by the outrage over the billions that drug traffickers were earning from their illicit trade, Congress criminalized the “laundering” of criminal proceeds and created a statutory architecture that is unique in US law.

Codified at Title 18, US Code Sec. 1956, it was the world’s first money laundering law and still ranks as the most powerful and most actively-used. It is the Atomic Bomb of the US in its arsenal against financial crime and other offenses.

The money laundering law, which President Ronald Reagan signed on October 26, 1986, changed the face of compliance, enforcement and regulation profoundly and forever.

The law was the first financial crime “convergence” and, 26 years after enactment, as public and private sectors reconfigure their approach to financial crime to improve results and make processes more efficient, it provides a potent one-stop weapon that addresses all financial crimes.

The law is based on the premise that all financial crime involves the taking of money or other value from someone else, creating the corresponding necessity for the financial criminals to hide and disguise the criminal proceeds to avoid detection and impede recovery of the criminal proceeds.

It gives even private sector financial crime victims a powerful weapon allowing them to pursue financial criminals worldwide and take back the assets. Strangely, this weapon remains virtually unused 11 years after it was added to the law by the USA Patriot Act. (Title 18, USC Sec. 1956(b)(4)).

The Atomic Bomb in the US financial crime arsenal

The law aims its firepower at all financial crimes, all financial criminals, all types of transactions, and all parts of the world through its unique “extraterritorial” and international provisions. Application of the law does not depend on the amount of the transaction except when it deals with a violation by a non-US citizen outside the US, in which case the threshold is $10,000. The law has a companion, weaker statute aimed at transactions with criminally-derived funds that must also meet the $10,000 threshold (Title 18, USC Sec. 1957).

The principal money laundering law at Section 1956 carries a maximum prison term of 20 years and fines of $500,000 per violation. A financial institution or other entity that is convicted under its provisions can face enormous fines and forfeitures. A so-called “death penalty” provision in another US law puts at risk the charter and federal deposit insurance of any financial institution that is convicted of money laundering.

Three operative sections of the money laundering law and ‘SUAs’

The law has three operative provisions commonly called the “transaction prong,” the “international prong,” and the “sting prong.” For any prong to be used in a prosecution, the funds involved in the subject transaction or funds transfer must have been derived from one of more than 230 federal, state and foreign crimes that are designated as “Specified Unlawful Activities,” or SUAs, in the law. (Title 18, USC Second. 1956(c)(7)).

The overriding message the law gives to financial institutions, companies and individuals is to avoid transactions where it is known or suspected that the funds are derived from an illegal source or are destined to national borders with a criminal purpose in mind.

The element of ‘knowledge’ and the dangerous doctrine of ‘willful blindness’

As with all criminal laws, the money laundering law requires that the prosecution show the accused had “knowledge” of the illicit origin of funds. Courts have developed the legal concept of “willful blindness,” which is construed as the direct equivalent of actual knowledge.

The willful blindness doctrine is often defined as the deliberate avoidance of knowledge of the facts. Some courts call it “purposeful indifference.”

The leading willful blindness case involved a North Carolina real estate agent, Ellen Campbell, who was convicted of money laundering in 1991 even though the prosecution presented no evidence she knew her customer’s funds came from drug trafficking. In its ruling on appeal, the US Fourth Circuit Court of Appeals found that “the central issue… is whether there was sufficient evidence… to find that Campbell possessed the knowledge that (her customer’s) funds were the proceeds of illegal activity….”

The court said, “The (money laundering law) requires actual subjective knowledge. Campbell cannot be convicted on what she objectively should have known…. The element of knowledge may be satisfied by inferences drawn from proof that a defendant deliberately closed her eyes to what would otherwise have been obvious to her. A finding beyond a reasonable doubt of a conscious purpose to avoid enlightenment would prove an inference of knowledge.”

The court said the “government must prove beyond a reasonable doubt that the defendant purposely and deliberately contrived to avoid learning all the facts.” (US vs. Campbell, 977 F 2nd 854 (1992)).

Download the Money Laundering Control Act of 1986 Here

(Charles Intriago, pioneer of the AML field and founder of ACAMS and Money Laundering Alert (now no longer affiliated) will be a speaker and moderator at the upcoming ACFCS International Financial Crime Conference & Exhibition 2012, September 13  – 15 in New York. Intriago and other leading experts will provide innovative guidance on anti-money laundering and its applicability to all fields of financial crime . For more details and to register now, please click here). 

US laundering law’s three ‘prongs’ give it great firepower from all angles – domestic and foreign

Charles Intriago

Association of Certified Financial Crime Specialists: June 18, 2012

https://www.acfcs.org/us-laundering-laws-three-prongs-give-it-great-firepower-from-all-angles-domestic-and-foreign/

(This is Part II of a series dissecting and explaining the unique architecture and application of the US money laundering law, the world’s first, enacted in 1986. Part I, which is posted on ACFCS.org, explains the law’s purpose and thrust. Part II dissects the law’s three “prongs,” which allow prosecution of virtually anybody, anywhere, for any financial crime. Future parts explain the law’s “specified unlawful activities,” the “extraterritorial” reach of the law, and its unique civil provision that gives the government a less lethal option and extends certain rights to private parties).

Those who are new to the financial crime field, in the public or private sectors, will be comforted to know that no matter what financial crime they pursue, or where they criminal resides, or how the money moved, or what underlying crime was generated it, the US money laundering law stands ready to help do justice.

The 26-year-old law, codified in the US Criminal Code at Title 18, USC Section 1956, may have been inspired by the Drug Wars, but its breadth and reach go far beyond the finances of the Mexican Zetas, Chinese Triads or Japanese Yakuza. It is a law for all seasons and perfectly suited to attacking all financial criminals and their accomplices and facilitators, such as financial institutions.

Financial institutions are sine qua non of all financial crime

Financial institutions were on the minds of the drafters of “Section 1956″ because they occupy a unique position in financial crime, including foreign corrupt payments, fraud, sanctions violations and, of course, money laundering. Financial institutions are a sine qua non of every financial crime that is not conducted in currency, which means virtually all of them.

A smart person, financial institution or other entity maintains not only a good Bank Secrecy Act (BSA) compliance program, but also assures that its staff knows the various ways they can fall into the trap of a money laundering violation. The two laws are distinct with distinct requirements and roads to violation. An institution or individual can have a perfect BSA compliance program and still violate the money laundering law.

And, the money laundering law has much heavier penalties, such as a maximum 20-year prison term and a so-called “death penalty” for institutions that violate it. There are no regulatory inspections or civil money penalties under the money laundering law.

Anyone seeking a better understanding of this law should read it closely and, if necessary, seek guidance from an experienced person. It is a remarkable statute, which has changed the criminal landscape. As with all laws, the meaning of its plain words evolves with court interpretations. Unlike the BSA, which rarely appears in litigation, the money laundering law is applied and construed every day in federal courts throughout the US because it is used so frequently by federal prosecutors.

The ‘transaction prong’

The money laundering law has three operative prongs that a prosecutor may use. The first one, at Section 1956(a)(2), is commonly called the “transaction prong.” It requires the prosecution to show that a defendant “conducted or attempted to conduct a financial transaction… knowing that the property involved in the transaction represents the proceeds of a ‘specified unlawful activity.’” SUAs, as they are commonly called, include more than 200 US and foreign crimes whose proceeds must be present in the subject financial transaction for a prosecution to move forward. The SUAs are listed in Section 1956(c)(7).

The prosecution must also prove that a defendant intended either to promote an SUA, to “commit tax fraud or revision under the US tax laws,” or knowing that the transaction “is designed in whole or in part” to “conceal or disguise the nature, location, source, ownership, or control” of the proceeds of the SUA or avoid a transaction reporting requirement under federal or state law,” such as the filing of a Suspicious Activity Report.

A “transaction” is defined broadly by the law to include virtually any type of commercial or financial activity that an individual, financial institution or other organization can engage in.

The ‘international prong’

The law’s second prong is known as the “international prong.” (Section 1956(a)(2) To be convicted under this provision, the government must prove that a defendant “transported, transmitted or transferred… or attempted to transport, transmit, or transfer a monetary instrument or funds” into or out of the US with intending to promote the carrying on of an SUA or knowing that the funds represented the proceeds of some form of unlawful activity.

The plain language of this provision dispels a misconception about the money laundering law. It makes it clear that the law is not just aimed at criminal proceeds that have already been received, but is also directed at “clean money” that traverses the US border, in or out, for the purpose of committing one or more SUAs. Two notable examples illustrate this:

1. In the Enron case, from the company headquarters in Texas the corporate officers sent money to hundreds of companies they had formed in the Cayman Islands where the money was used to perpetrate and further their fraud. That was prosecutable under the law’s “international prong,”

2. If “clean” overseas money finances terrorist acts in the US, it is also a prosecutable money laundering offense under the “international prong.”

In the first instance, it is clean money leaving the US to commit a crime in a foreign country, while in the second situation, it is clean money entering the US from another country that furthers the commission of the SUA of terrorism.

Under the international prong, if the movement of funds is not designed to promote or carry out an SUA, the prosecution may also instituting money laundering prosecution for either moving funds across the US border to conceal the nature, location, source, ownership, or control of SUA proceeds, or to avoid a federal or state transaction reporting requirement.

The international prong is a two-way street. It prohibits the international movement of criminally-derived or clean funds into or out of the US for the purpose of committing a “specified unlawful activity.”

Unique third prong lures unwary with ‘stings’

The most unique provision of the US money laundering law is what is called the “sting prong.” This subsection, at Section 1956(a)(3), permits a money laundering prosecution for “conduct(ing) or attempt(ing) to conduct a financial transaction involving property represented to be the proceeds of specified unlawful activity or property used to conduct or facilitate specified unlawful activity.”

Who can so “represent,” you ask? The “sting prong” says: “(T)he term ‘represented’ means any representation made by a law enforcement officer or by another person at the direction of, or with the approval of, a federal official authorized to investigate or prosecute violations of” the money laundering law.

Therefore, under this prong, an undercover government agent or a “cooperating individual” (CI) may establish contact with a target of an investigation and propose a transaction with funds they “represent” to be unlawful, when, in fact, it is clean government money. If the target proceeds with the proposed transaction from the undercover agent or CI, it is as strong a money laundering prosecution as if the target had handled actual criminal proceeds in a transaction.

The government conducts hundreds of undercover cases each year and all of them involve communications between agents and targets. The “sting prong” gives prosecutors and additional potent weapon for use in those cases. Often, the verbal communications between agents and targets are videotaped or tape recorded so that a subsequent jury may evaluate the defendant’s conduct at the time of the “representation.”

Penalties for money laundering usually exceed those for underlying crime

The laws three prongs of the money laundering law provide US agents and prosecutors with a unique array of weapons they can unsheathed in virtually any given criminal scenario. Violation of any of them can result in a 20-year prison term and a fine of up to $500,000 per count.

In many cases, these penalties for money laundering are often greater than those that are imposed for committing the underlying crime, or SUA, that produced the laundered money.

(The ACFCS International Financial Crime Conference & Exhibition, Sept. 13-15, 2012, in New York, will offer a special 5-hour workshop on the US money laundering laws, Bank Secrecy Act, OFAC and compliance with and enforcement of all three. Financial crime pioneers, Charles Intriago, Michael McDonald and Jim Richards, will be the instructors. Visit www.financialcrimeconference.com to register or for information.)

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