The U.S. money laundering statutes have a broad global reach and may be used to prosecute cases involving alleged schemes perpetrated almost entirely outside of the United States. These types of allegations seem to be an increasingly common fact pattern as cross-border cases proliferate and U.S. prosecutions more often involve conduct occurring largely overseas. A recent indictment fits squarely within this trend.
The U.S. Department of Justice (DOJ) recently announced the unsealing of four related and complex indictments returned in the District of Columbia; according to the DOJ press release, 19 people were charged “with taking part in various international fraud and money laundering conspiracies that led to more than $13 million in losses[.]” The press release credited a broad array of law enforcement agencies, including Interpol. Again emphasizing the international aspect of the indictments, the press release stated that “[s]ixteen of the 19 defendants were arrested . . . . in New York and Los Angeles, as well as Hungary, Bulgaria, Germany, and Israel[,]” and that “[t]he arrests followed a multi-year investigative effort by federal and international law enforcement agencies to target multimillion-dollar fraud and money laundering schemes perpetrated by a transnational organized crime network.”
The four indictments are lengthy and we will discuss only one of them, in order to focus on the potentially broad jurisdictional reach of the “international” money laundering provision under 18 U.S.C. § 1956(a)(2).
One of the four indictments alleges that Mr. Stanislav Nazarov, an Israeli citizen, generated hundreds of thousands of dollars in proceeds from various fraudulent schemes and engaged in international money laundering. Aside from some forfeiture counts and a charge under 18 U.S.C. § 2, the general federal aiding and abetting statute, the indictment charges Mr. Nazarov with a single count of money laundering conspiracy, in violation of 18 U.S.C. § 1956(h), based upon his alleged efforts to violate two prongs of the “international” money laundering provisions under Section 1956(a)(2), as well as the “sting” provision under Section 1956(a)(3) and the separate “spending” money laundering statute, 18 U.S.C. § 1957.
In the “Introduction” section, the Indictment describes the alleged primary players in, and victims of, the conspiracy. None of them are residents of the U.S.; rather, they – both individuals and companies – are residents of Israel, Russia, India, and Dubai. Tracking statutory language, the indictment specifically alleges that the defendant violated the following in regards to “international” money laundering:
a. 18 U.S.C. § 1956(a)(2)(A), by transporting, transmitting, and transferring and attempting to transport, transmit, or transfer, monetary instruments or funds, from a place in the United States to or through a place outside the United States, that is Russia and/or Israel, with the intent to promote the carrying on of specified unlawful activity, to wit, wire fraud;
b. 18 U.S.C. § 1956(a)(2)(B)(i), by transporting, transmitting and transferring and attempting to transport, transmit, or transfer, monetary instruments or funds, from a place in the United States to or through a place outside the United States, that is Russia and/or Israel, knowing that the monetary instruments or funds involved in such transportation, transmission or transfer were designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity, to wit, wire fraud[.]
The Indictment sets forth concrete acts within the United States, specifically by “Witness 1,” or “W-1,” who allegedly created a bank account within the United States to receive a $1.4 million wiring of unlawful proceeds earned abroad through an international cyber-phishing scam. W-1, whose nationality is not identified in the Indictment, later became a government cooperator. At the direction of the government, W-1 then engaged in certain telephone and text communications from the United States with the defendant and other conspirators abroad, and wired $50,000 of the unlawful funds from the United States to the defendant in Israel, via another bank account in Russia.
These allegations presumably seek in part to satisfy the extraterritorial jurisdictional requirements of the money laundering statutes, which require, under Section 1956(f), that the “conduct prohibited by this section” be committed (i) either by a U.S. citizen, or (ii) occur in part in the United States “in the case of a non-United States citizen” and that the transaction or series of related transactions involve funds or monetary instruments of a value exceeding $10,000. The principle here is that U.S. prosecutors may pursue conduct occurring outside of the United States, but which produces effects within the United States. As the Nazarov Indictment reflects, the core of a money laundering charge is not the underlying criminality, but a subsequent financial transaction involving related proceeds. Indeed, under Section 1956(f), a defendant never needs to enter the United States, and “conduct” within the United States can include non-physical activity such as a wire transfer, e-mail or other electronic activity. The Nazarov Indictment also highlights the advantages which prosecutors may obtain by charging a conspiracy, and even potentially by using a cooperator to ensure that (government-directed) conduct occurs within the United States.
As the Nazarov Indictment reflects, the core of a money laundering charge is not the underlying criminality, but a subsequent financial transaction involving related proceeds. Indeed, under Section 1956(f), a defendant never needs to enter the United States, and “conduct” within the United States can include non-physical activity such as a wire transfer, e-mail or other electronic activity. The Nazarov Indictment also highlights the advantages which prosecutors may obtain by charging a conspiracy, and even potentially by using a cooperator to ensure that (government-directed) conduct occurs within the United States.
There are examples of money laundering prosecutions passing constitutional muster with allegations regarding U.S. jurisdiction that are arguably even less concrete than those in the Nazarov Indictment. For example, in United States v. Portillo, No. 09-cr-1142 (S.D.N.Y. Jan. 8, 2014), the defendant, the former President of Guatemala, moved to dismiss a money laundering charge for lack of venue. The indictment alleged in part that the defendant—who apparently had not entered the United States—caused fraudulent checks to be drawn upon funds held in a bank account located in New York and then caused those checks to be deposited in Florida. The court held that the indictment alleged the necessary basis for venue, and that venue was constitutionally permissible, because the indictment alleged that the defendant caused the funds involved in the charged money laundering offense (allegedly misappropriated from the Government of Taiwan) to be transported in foreign commerce from New York City.
Likewise, in United States v. Budovsky, No. 1:13-cr-00368 (DLC) (S.D.N.Y Sept. 23, 2013), the court declined to dismiss the indictment against the alleged former head of Liberty Reserve, a digital currency business allegedly operated from Costa Rica. The indictment charged Budovsky with three counts of conspiring to commit money laundering, in violation of 18 U.S.C. § 1956(h); one count of conspiring to operate an unlicensed money transmission business, in violation of 18 U.S.C. § 371; and one count of operating an unlicensed money transmission business, in violation of 18 U.S.C. § 1960. Budovsky argued that the indictment should have been dismissed because the alleged conduct had no nexus with the United States. The court rejected that argument, finding that, even assuming that an indictment must describe the nexus between the offense and the United States, the indictment alleged that “Liberty Reserve had over 200,000 users in the United States; the site’s users included criminal rings operating in the United States; Budovsky moved $13.5 million from a Costa Rican bank account held by Liberty Reserve through a correspondent bank account in the Southern District of New York; and Budovsky engaged in money laundering with the object of transferring funds in and out of the United States.”
Regardless of the ultimate outcome of the case, the Nazarov Indictment underscores the commitment of U.S. enforcement agencies to addressing the alleged laundering of foreign criminal proceeds within the United States. As the press release declared, “[t]he investigation demonstrates the importance of international cooperation amongst law enforcement in combatting fraud and money laundering on a global basis.” Although these indictments represent the fruit of years of prior investigation, it is fair to predict that, in an era of potential uncertainty regarding the future focus of U.S. enforcement and regulatory agencies, such cases will continue to be investigated and brought.