Most individuals convicted of federal money laundering charges face prison time. These prison sentences are often increased by the judge’s determination that certain sentencing enhancements unique to this crime apply. This post looks at two of those enhancements—those relating to defendants engaged in the “business of laundering funds” and those involved in “sophisticated laundering”—with a brief review of the relevant statutory guidance followed by analysis of recent cases addressing them. The importance of sentencing issues in money laundering cases is underscored by recent developments. Earlier this year, the United States Attorney General released a memorandum establishing the Department of Justice’s policy for charging and sentencing. In this memorandum, Attorney General Sessions placed renewed emphasis on sentencing and disclosure to the sentencing court of “all facts that impact the sentencing guidelines.” Even before this memorandum, however, sentencing data from the U.S. Sentencing Commission shows that in 2016, 78.6% of the individuals convicted of money laundering as their “primary offense” were incarcerated—a figure higher than the previous two years (see 2015 data here and 2014 data here). The mean prison sentence for these individuals was 41 months. Continue Reading Unique Issues in Sentencing for Money Laundering Convictions: The “Business of Laundering Funds” and “Sophisticated Laundering” Enhancements
U.S. Money Laundering Charges Stemmed from Foreign Bribes to Foreign Official by Foreign Companies
On August 25, a U.S. District Court Judge for the Southern District of New York sentenced former Guinea Minister of Mines and Geology, Mahmoud Thiam, to seven years in prison, followed by three years of supervised probations, for laundering $8.5 million bribes paid to him by China Sonangol International Ltd. and China International Fun, SA (CIF). The judge also entered an order for the forfeiture of the full of $8.5 million of laundered funds. The sentence followed Thiam’s conviction by a jury in May 2017 of money laundering.
Although the alleged money laundering transactions charged in the indictment involved wire transfers from foreign banks to bank accounts held in New York City, all of the bribery which produced the illicit proceeds at issue in the money laundering charges occurred entirely overseas. As we will discuss, this case serves as a reminder that the offense of money laundering centers on a discrete financial transaction, not the underlying illegal activity. This case also illustrates the willingness of the U.S. Department of Justice (“DOJ”) to pursue cases primarily involving conduct which occurred abroad, and also how the DOJ may use the money laundering statutes – assuming that there is a U.S. jurisdictional hook – to pursue certain individuals who would be untouchable under the Foreign Corrupt Practices Act: the foreign officials themselves who are receiving the bribes. Continue Reading Former Guinean Minister of Mines Sentenced to Seven Years in Prison for Laundering $8.5 Million in Bribes Paid by Chinese Companies in Exchange for Mining Rights
On July 26, FinCEN, in coordination with the U.S. Attorney’s Office for the Northern District of California (“NDCA USAO”), assessed a $110,003,314 civil money penalty against BTC-e a/k/a Canton Business Corporation (“BTC-e”) for willfully violating the Bank Secrecy Act (“BSA”), and a $12 million penalty against Alexander Vinnik, a Russian national who is one of the alleged operators of BTC-e, for his role in the violations. FinCEN’s press release indicates that this is the first enforcement action it has taken against a foreign-located money services business (“MSB”) doing business in the United States. As we previously have blogged, FinCEN released interpretive guidance in March 2013 stating that an administrator or exchanger of virtual currency is an MSB under the BSA unless a limitation or exemption applies.
In a parallel criminal investigation, Vinnik was arrested and detained in Greece and charged in a 21-count superseding indictment brought by the NDCA USAO and DOJ’s Computer Crime and Intellectual Property Section. The superseding indictment alleges that Vinnik and BTC-e operated an unlicensed MSB doing business in the U.S., in violation of 18 U.S.C. § 1960, and committed money laundering, in violation of 18 U.S.C. §§ 1956 and 1957, by facilitating virtual currency transactions involving various crimes, including computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking. The superseding indictment also provides some clues to the fate of the collapsed virtual currency exchange Mt. Gox, once reportedly the largest such exchange in the world. Continue Reading FinCEN Takes First Action Against Foreign-Located MSB—“The Virtual Currency Exchange of Choice for Criminals”—For Willfully Violating U.S. AML Laws
On Friday, the Department of Justice (“DOJ”) filed a civil forfeiture complaint in the Southern District of Texas seeking recovery of approximately $144 million in assets that allegedly represent the proceeds of foreign corruption and which were laundered in and through the U.S. The complaint’s narrative focuses on Diezani Alison-Madueke, who is Nigeria’s former Minister for Petroleum Resources. The 52-page complaint, which contains additional attachments, is very detailed – but nonetheless interesting reading – so we will discuss here only three salient points:
- The most eye-catching property subject to forfeiture, the spectacular yacht Galactica Star (which you can inspect here), apparently has no discernible nexus to the U.S. – except that the funds used to acquire the yacht allegedly were transferred through correspondent bank accounts at financial institutions which process their U.S. dollar wire transactions through the U.S.
- The complaint emphasizes the continued enforcement focus on high-end U.S. real estate as a potential vehicle for money laundering from abroad.
- The complaint purports to quote a recording of a conversation allegedly made by Ms. Alison-Madueke herself, in which she allegedly offers a co-schemer some critiques on his approach to laundering illicit funds.
The District Court for the Eastern District of New York has denied motions for acquittal and new trial by a Florida attorney convicted at trial of assisting in an undercover money laundering “sting” operation.
Although the sting operation was orchestrated by an undercover FBI agent, it was modeled on a similar, uncharged and actual scheme to launder the proceeds of fake stock certificates in which the attorney allegedly had participated previously, and which had been run by the defendant’s former client – who introduced the attorney to the undercover FBI agent. As is typical for money laundering prosecutions of third-party professionals, the key issue was knowledge. Continue Reading “Sting” Money Laundering Scheme and Cooperating Client Ensnares Attorney
Part II of the Analysis of the Combatting Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017
As we recently blogged, Senators Chuck Grassley (R-Iowa) and Diane Feinstein (D-California) introduced on May 25, 2017 a bill, S. 1241, entitled the Combatting Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017. As we previously noted, the Panama Papers scandal presumably motivated much of S. 1241, which also may be seeking to respond to international criticism that the U.S. has become a haven for tax cheats and money launderers.
This post focuses on Section 11 of the bill, which seeks to amend 18 U.S.C. § 1956(a)(2), the “international” prong of the “transactional” money laundering statute. This amendment, if passed, would have a significant impact on any individual or company seeking to evade U.S. taxes through a cross-border transfer of funds. This is important because pursuing the use of undisclosed foreign accounts, and related efforts to evade taxes through the use of offshore instruments, has been the centerpiece of U.S. tax fraud enforcement for almost a decade.
The most commonly enforced section of the “transactional” money laundering statute, Section 1956(a)(1), requires the proceeds involved in the transaction at issue to in fact represent the proceeds of “specified unlawful activity” (“SUA”), a defined statutory term which broadly includes many types of criminal conduct. One of the few offenses not included is tax fraud: Congress has defined “SUA” so as to not include tax crimes under Title 26, the Internal Revenue Code. Indeed, and as we note below, DOJ currently has a general policy against trying to base money laundering charges on the proceeds of tax fraud.
In contrast, Section 1956(a)(2), the “international” prong, does not necessarily require the funds at issue to in fact represent “specified unlawful activity” proceeds. In fact, the proposed amendment in Section 11 of S. 1241 appears to transform any cross-border transfer of funds done with the intent to commit U.S. tax evasion or the filing of a false U.S. tax return into an actual money laundering violation, including transfers involving entirely clean funds. Continue Reading Proposed Bill Seeks to Transform International Tax Evasion into Money Laundering
Senators Chuck Grassley (R-Iowa) and Diane Feinstein (D-California) introduced on May 25, 2017 a bill, S. 1241, entitled the “Combatting Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017.” Although it is of course impossible to know whether this bill ultimately will be enacted into law, the bill addresses a lengthy catalogue of important issues relevant to money laundering, AML programs, and international tax evasion.
- The bill is here.
- A general summary of the bill is here.
- A more detailed and useful summary of each section of the proposed bill is here.
- The press release for the bill is here.
Perhaps not surprisingly, the press release repeatedly states that the bill is designed to fight terrorism. No doubt – but if enacted, the bill’s terms also will apply to any sort of conduct implicated by its amendments to sections of the criminal money laundering statutes, 18 U.S.C. §§ 1957 and 1957, and the Bank Secrecy Act. Further, the press release does not explicitly mention the Panama Papers scandal. However, given language in the bill seeking to address international tax evasion; the subpoenaing of records of foreign banks using U.S. correspondent bank accounts; the concealment of account ownership; and the concealment of the source of assets in transactions; the Panama Papers scandal looms in the background and presumably motivated much of S. 1241, just as it may have influenced the timing of the final release of the beneficial ownership regulations by FinCEN. Further, S. 1241 may be seeking to respond to mounting international criticism that the U.S. has become a haven for tax cheats and money launderers.
The proposed bill reads like a wish list of statutory amendments provided by the Department of Justice. Indeed, the press release also quotes Senator Feinstein as stating that “[o]ur bill adopts many of the recommendations made by the Justice Department to ensure that transnational criminal organizations, including terrorist groups, face consequences for laundering illicit funds, evading laws and promoting criminal activity[.]” The press release further states:
While calculating the exact scale of worldwide money laundering is impossible, estimates suggest the annual sum to be in the trillions of dollars. Perpetrators use a variety of methods to conceal and move funds across borders and through the global financial system in an effort to evade law enforcement. These techniques include longstanding unofficial money transferring systems, such as hawalas, and more modern tools, like prepaid access cards and digital currencies.
The Senators’ legislation modernizes criminal money laundering laws, updates counterfeiting statutes to prohibit state of the art counterfeiting methods, enhances tools to crack down on smugglers and tax cheats, and promotes transparency in the U.S. financial system.
We anticipate that follow-up blog posts will analyze certain specific amendments in more detail, and their potential implications. Given the breadth of issues covered by the bill, this post merely lists below the topics covered by the bill, by drawing from its table of contents. The section-by-section summary noted above provides more information on each topic.
- Transportation or transhipment of blank checks in bearer form.
- Bulk cash smuggling.
- Section 1957 violations involving commingled funds and aggregated transactions.
- Charging money laundering as a course of conduct.
- Illegal money services businesses.
- Concealment money laundering.
- Freezing bank accounts of persons arrested for offenses involving the movement of money across international borders.
- Prohibiting money laundering through hawalas, other informal value transfer systems, and closely related transactions.
- Technical amendment to restore wiretap authority for certain money laundering and counterfeiting offenses.
- Making the international money laundering statute apply to tax evasion.
- Conduct in aid of counterfeiting.
- Prepaid access devices, digital currencies, or other similar instruments.
- Administrative subpoenas for money laundering cases.
- Obtaining foreign bank records from banks with United States correspondent accounts.
- Clarification of Secret Service authority to investigate money laundering.
- Prohibition on concealment of ownership of account.
- Prohibition on concealment of the source of assets in monetary transactions.
Stay tuned . . . .
If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch.
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). Continue Reading Indictments Spotlight Broad Extraterritorial Reach of U.S. Money Laundering Statutes