The federal courts continued in 2016 to produce a stream of cases pertaining to money laundering. We focus on three below because they involve analysis of basic issues that frequently arise in money laundering litigation.
The first case tests the money laundering statute’s reach in prosecution of an alleged international fraud perpetrated primarily outside of the United States—an increasingly common fact pattern as cross-border cases proliferate and the U.S. Department of Justice (DOJ) prosecutes more conduct occurring largely overseas. The other two cases involve defense victories that focus on critical issues of mental state: the question of specific intent under the BSA, and the question, under the money laundering statutes, of knowledge by a third party that a transaction involved proceeds of another person’s crime. The issue of third-party knowledge is often crucial in prosecutions of professionals.
A case from the First Circuit underscores the DOJ’s global reach. In 2014, Evripides Georgiadis, of Greece, was convicted in the District of Massachusetts of conspiracy to commit wire fraud, 11 substantive counts of wire fraud, and conspiracy to commit money laundering. The indictment alleged that between 2007 and 2011, Mr. Georgiadis held himself out as a representative of a multibillion dollar private equity fund in Luxembourg to defraud developers seeking financing for, among other things, alternative energy projects.
Developers deposited substantial monies based on agreements with his company to receive financing. According to court documents, Mr. Georgiadis and his co-conspirators transferred the developers’ deposited money out of the United States, never financed any projects, and stole more than $7 million. Mr. Georgiadis and his co-conspirators ran the conspiracy outside Massachusetts and indeed outside the United States. Nonetheless, Mr. Georgiadis was indicted in Massachusetts, arrested at a border crossing in Croatia, and extradited to the United States.
Mr. Georgiadis appealed his convictions, arguing that venue in the District of Massachusetts was improper because no overt act in furtherance of the conspiracy occurred in Massachusetts. His claim failed.
The First Circuit began by reasoning that an overt act, in the case of money laundering, could be an act of “concealment” because the money laundering was primarily a crime of concealment. Borrowing from mail fraud cases, the First Circuit held that a “lulling communication” that was “designed to lull the victims into a false sense of security, postpone their ultimate complaint to the authorities, and therefore make the apprehension of the defendants less likely,” made in or into Massachusetts would qualify as an overt act in furtherance of the money laundering conspiracy.
Applying this reasoning, the First Circuit upheld the conviction. The court pointed to email communications made by co-conspirator Michael Zanetti, who assured a Massachusetts-based developer that funding issues were “in the process of being overcome.” The developer then threatened to go to DOJ “to pursue any and all means of redress available to us, against you and your enterprises.” Mr. Zanetti responded by stating that the “fund’s appointed reps” would be contacting the developers shortly. The court reasoned that the purpose of these communications was to delay the date the aggrieved developer “went to the authorities.” Thus, Mr. Zanetti’s correspondence qualified as “lulling” communications and an overt act occurring in Massachusetts in furtherance of the conspiracy.
In Taylor, the Second Circuit reversed the defendant’s structuring convictions, holding that the transactions at issue did not demonstrate that the defendant intended to evade reporting requirements because they failed to show a “pattern of structured transactions.”
This case implicates an evergreen issue in structuring cases under the BSA: how much evidence, if any, must the government introduce beyond the mere pattern of the financial transactions at issue to prove the required specific intent to defeat a government reporting requirement. The Taylor case also represents a rare example of an appellate court’s willingness to truly parse and evaluate the trial evidence. Appellate courts are generally unwilling to take such steps, given the appeals standard that a guilty verdict should be upheld if a rational jury could have convicted the defendant after assessing the evidence in the light most favorable to the prosecution.
The defendant was convicted of conspiracy to distribute five kilograms or more of cocaine as well as 13 counts of structuring under 31 U.S.C. § 5324(a). Among other things, a conviction for structuring requires proof that the defendant was acting with intent to evade currency reporting requirements—the filing of a currency transaction report (CTR). The court first noted that proof of intent generally involves evidence in addition to the transactions themselves. Nevertheless, proof of intent may come from a “pattern of structured transactions” alone, according to the Second Circuit—if the transactions show a “willingness to sacrifice efficiency and convenience” through depositing a total sum of monies through multiple transactions less than $10,000. Under such circumstances, a pattern of structured transactions may allow an inference that the defendant intended to evade reporting requirements.
In Taylor, the government relied solely on evidence of the defendant’s transaction history, specifically of so-called “split transactions,” to prove the requisite intent. The record indicated that the defendant had conducted multiple separate cash deposits—split transactions each less than $10,000 but totaling more than $10,000—at the same time at the same credit union branch. Notably, however, the defendant also had made multiple single deposits exceeding $10,000 during the same period.
No evidence was introduced at trial indicating that the defendant believed that his split transaction method would evade the reporting requirement, and the government failed to argue that he had such a belief. In fact, evidence at trial demonstrated the opposite: that the credit union’s policy was to aggregate and report split deposits even if those deposits were made into separate accounts. Nor was there evidence that credit union employees failed to follow these protocols or that the defendant had reason to believe that CTRs were not filed for the various split transactions.
Moreover, there was no indication that the defendant split his transactions across different banks on multiple days—traditional evidence of an intent to structure. Rather, the defendant deposited the split transactions on the same date and time, at the same bank. Finally, the defendant, during the period he was supposedly structuring his transactions, made twice as many deposits of $10,000 or more than transactions of less than $10,000.
The court reasoned that a pattern by definition requires “consistent behavior,” which would allow a jury to conclude that the behavior was not a coincidence but rather demonstrated the defendant’s intent to evade reporting requirements. As such, no pattern existed in the defendant’s actions, given his transaction history, the court ruled. This final analysis is potentially important, because few structuring cases involve completely consistent conduct by the defendant, and/or no transactions of more than $10,000.
A civil forfeiture case highlighted the key issue of knowledge that a transaction involved the dirty proceeds of an offense allegedly committed by a third person.
In 650 Fifth Avenue, the United States brought a forfeiture action to seize a Midtown Manhattan office tower at 650 Fifth Ave., owned by the Alavi Foundation, a New York not-for-profit organization. The Bank of Melli, a bank owned and controlled by the Government of Iran, financed the Alavi Foundation’s purchase of the property. In 1989, due to business income liability and tax concerns, the Alavi Foundation entered into a partnership with Assa Company Limited and Assa Corporation—together known as Assa— both effectively owned by the Bank of Melli.
Alavi and Assa formed a partnership under New York state laws as the 650 Fifth Avenue Co., to alleviate Alavi’s debt obligations to the Bank of Melli. It was undisputed that Assa functioned as an extension of the Bank of Melli until 1995.
In 1995, President Clinton issued sanctions pursuant to the International Emergency Economic Powers Act (IEEPA) against Iran, which prohibited U.S. entities such as 650 Fifth Avenue Co. and Alavi from conducting business with or providing services to any instrumentality owned or controlled by the Government of Iran—including the Bank of Melli. The bank formally divested its ownership of Assa in 1995. The U.S. government contended that after 1995, the Bank of Melli continued to have control over Assa and, owing to its partnership in 650 Fifth Avenue Co., over Alavi.
The government filed an amended civil forfeiture action in 2009 seeking forfeiture of properties owned by Assa, the Bank of Melli, 650 Fifth Avenue Co., and Alavi due to violations of the IEEPA and as proceeds traceable to property involved in money laundering. Pursuant to the money laundering theory of forfeiture, the government argued that Alavi and 650 Fifth Avenue Co.—the claimants—committed three types of money laundering: promotion, concealment, and international—all “forfeitable offenses” pursuant to 18 U.S.C. § 981(a)(1)(A). The government alleged that the claimants’ specified unlawful activity was violating the Iranian sanctions under IEEPA.
The district court had granted summary judgment in favor of the government on the claim of forfeiture of the properties held by the claimants. On appeal, however, the Second Circuit vacated the summary judgment, holding that the claimants did not necessarily have the requisite knowledge of the unlawful activity or intent to carry out the unlawful activity under the money laundering statutes. Indeed, as the court noted, to succeed on summary judgment, all money laundering offenses required that the claimants know that the property involved in the transaction represented the proceeds of some form of unlawful activity. Here, the claimants’ knowledge depended on a disputed question of whether or not Alavi had knowledge of the Bank of Melli’s control of Assa post-1995.
The grant of summary judgment therefore was inappropriate, the court ruled, because this factual dispute gave rise to triable issues as to Alavi’s culpable intent in providing services to Assa pursuant to their partnership in 650 Fifth Avenue Co.