One of the many potential consequences of a criminal conviction is that the government may seize assets held by the defendant’s family to satisfy a criminal forfeiture order against the defendant himself. In United States v. Daugerdas, the Southern District of New York held that the wife of a lawyer convicted of a tax shelter fraud scheme lacked standing to raise questions about the underlying forfeiture of $32 million held in accounts which she controlled, and that she also was incapable of showing that any of her legal interests in the funds were superior to the government’s interests in forfeiture, which vested earlier when her husband began his scheme. The Daugerdas opinion illustrates the potential futility of transferring the proceeds of illegal activity to third parties. When it comes to criminal forfeiture, the U.S. is a special creditor.

Broken piggy bank

The order of criminal forfeiture at issue arose out of a well-publicized and significant tax shelter prosecution involving various tax professionals, including lawyers and accountants. Although criminal forfeiture cannot rest upon a substantive criminal tax violation under Title 26 (the Internal Revenue Code, or IRC), the government sometimes maneuvers around that statutory rule by charging what are really violations of the IRC as mail or wire fraud under Title 18. There is a DOJ policy which generally prohibits the use of the mail or wire fraud statutes to turn traditional tax violations into mail fraud, wire fraud or money laundering charges and/or forfeiture counts; this issue represents a complicated topic all by itself. Suffice it to say for the purposes of this discussion that the $32 million forfeiture order in Daugerdas rested on mail fraud convictions. The petitioner’s husband, former tax attorney Paul Daugerdas, was convicted and jailed for running an alleged tax fraud scheme from about 1994 to 2004, which produced at least $180 million in illegal proceeds. Approximately $32 million of these same proceeds – the subject of the contested forfeiture – were deposited between February 2000 and July 2009 into accounts held in the petitioner’s own name, a trust controlled by the petitioner, or a corporation the petitioner owned because her husband had assigned the corporation to her in 2002. Continue Reading Friends and Family and Criminal Forfeiture

In part two of our review of the 2016 developments in Anti-Money Laundering (AML), the Bank Secrecy Act, (BSA), the criminal money laundering statutes, forfeiture, and related issues, we discuss four additional key topics:

You can read more about these topics areas in the blogs that follow.  Click here to read the full article 2016 Year in Review: Money Laundering (Part Two).  Click here if you missed Part One of our 2016 year in review.

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.

Justitia, a monument in Frankfurt, Germany

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. Continue Reading 2016 Year End Review: Money Laundering Opinions of Note

House and cashThe field of forfeiture saw significant action in 2016. The IRS offered to return forfeited funds used in structuring, but Congress still may clip its ability to forfeit such funds. Meanwhile, DOJ renewed a controversial program that incentivizes local law enforcement to aggressively pursue forfeiture. It filed a major forfeiture action which reminds law firms of their own need to vet the source of funds flowing into firm bank accounts. Finally, the U.S. Supreme Court made it clear that “clean” funds cannot be restrained pretrial when a defendant needs those funds for his criminal defense, even if the government wants to restrain the money in order to pay for forfeiture or restitution if the defendant is convicted. Continue Reading 2016 Year in Review: Forfeiture