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 Money Laundering Part 1 

Michael Santos

Michael Santos

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WHAT YOU NEED TO KNOW ABOUT MONEY LAUNDERING (PART 1)

Money laundering, the process of making criminal proceeds appear clean or legitimate, is a current law enforcement priority.

INTRODUCTION

Money laundering occurs when a person engages in a financial transaction designed to conceal the illegal nature of money obtained. Various federal laws prohibit money laundering, and the penalties are severe. 

Money laundering goes hand in hand with many other financial crimes. For example, money laundering charges can appear in government contracting fraud cases where someone purchases a home with alleged ill-gotten gains. Another example of money laundering is a person using the money from illegal activities to pay for personal expenses or open a bank account.

DISCUSSION

Money laundering — the process of making criminal proceeds appear clean or legitimate — continues to increase unabated. As reported online, every year, an estimated amount in the range of US$800 billion-US$2 trillion (2-5% of global GDP) gets laundered globally. 

According to Kroll’s latest Global Enforcement Review, fines related to financial crimes such as money laundering, bribery and sanctions totaled US$4.67 billion in 2020 compared to US$3.75 billion in 2019. 

And, global financial crime fines totaled US$1.13 billion from 23 regulatory actions during the first half of 2021.

Classic Money Laundering Methods

Some classic money laundering methods include:

  • Cash structuring (often called “smurfing”); (CLICK ON OUR BLOG POST RE CASH STRUCTURING)
  • Foreign exchanges;
  • Cash mules and wire transfers to move money across borders;
  • Investments in high-value commodities such as diamonds and gold;
  • Buying and selling real estate;
  • Setting up foreign bank accounts;
  • Counterfeiting; and 
  • Gambling and shell companies.

Federal law enforcement is on to these classic methods.

Latest Money Laundering Methods

With the advent of new technology, law enforcement is trying to stay on top of how people use the internet and new technology to hide and clean tainted money. 

Modern methods used by launderers to beat detection include: 

  • Online banking (where there are many loopholes and lax standards as compared to traditional banking). One tactic is to transfer money directly to someone’s account, then get back laundered monies.
  • Business email compromise to effectuate wire transfers. This technique mainly serves to commit fraud, but it can also be an effective tool to launder money.
  • Synthetic identity. People create fake identities online and open accounts for credit cards, online deposits, and loans. The providers of these digital accounts have much less rigorous customer checks, and offenders can easily circumvent the basic security checks. 
  • Anonymous online payment services. People can purchase payment methods like prepaid gift cards, prepaid debit cards, and prepaid credit cards completely anonymously or with fictitious details. People can purchase those cards with cash as well. The amount of money loaded in these cards is redeemable online anywhere in the world without revealing the user’s identity.
  • Virtual currencies. Cryptocurrencies such as bitcoin are still inherently anonymous for the most part, and virtual currencies are one of the most convenient ways to wash money. Cryptocurrencies are not connected to a person’s identity and only depend on the private key connected to an account. Moreover, owners of digital currencies do not have to rely on others for value transfers. Many experts believe that the rise in the prices of many cryptocurrencies is because people use them to launder money. 

Law enforcement globally and in the US is working overtime to shore up the systems to curb the money laundering risks of cryptocurrency. The growing number of money laundering cases through cryptocurrency makes this issue even more urgent for law enforcement. Regulators and crypto players are working towards more robust measures to avoid money laundering through cryptocurrency. 

A Recent Federal Money Laundering Case

Money laundering is often a charge added to an indictment for other federal financial crimes. In this recent case, federal prosecutors include money laundering charges as an add-on to an indictment for PPP pandemic loan fraud.

According to the DOJ, a federal grand jury in Shreveport, Louisiana, returned an indictment charging a Louisiana man with fraudulently obtaining more than $1.1 million in Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) Program loans. 

In this case, defendant Michael Tolliver submitted nine fraudulent PPP and EIDL Program loan applications on behalf of several companies that Tolliver owned. According to the indictment, Tolliver falsified information in the loan applications and supporting documents, including falsely claiming that some of his businesses had over 100 employees. He also submitted falsified federal tax returns. 

In total, Tolliver sought more than $7.6 million in PPP and EIDL Program loans and obtained more than $1.1 million. Tolliver allegedly laundered and misused the loan proceeds, including transferring the funds to personal bank accounts and purchasing cars and luxury goods.

Tolliver’s indictment includes two counts of wire fraud and three counts of money laundering. If convicted, Tolliver faces a maximum penalty of 20 years in prison per count of wire fraud and ten years in prison per count of money laundering. 

Of course, Tolliver is presumed innocent until proven guilty, and an indictment is not a conviction. If convicted, a federal judge would sentence Tolliver with input from the US Sentencing Guidelines, among other things.

*Pro-Tip: Prison Professors, an Earning Freedom company, regularly assists clients facing a federal sentencing process to craft mitigation strategies to obtain better outcomes.

Prosecutors’ Burden of Proof

To prove the crime of money laundering at a criminal trial, federal prosecutors have to show beyond a reasonable doubt that:

  • The money is “tainted” (i.e., came from some underlying criminal source).
  • The defendant knew that the money was tainted before engaging in the illegal money laundering transaction.
  • The defendant conducted or attempted to conduct a transaction involving tainted monies for unlawful purposes such as evading taxes, hiding the origins of the money, or avoiding a reporting requirement.

At a trial, the government bears the burden to prove criminal guilt beyond a reasonable doubt. 

Federal Anti-Money Laundering Statutes

The prohibitions against money laundering are embodied in specific federal statutes.

18 United States Code Section 1956 prohibits money laundering. 

Specifically, Section 1956 prohibits a person from:

  • Conducting (or attempting to conduct) any financial transaction involving the proceeds of unlawful activity to promote the illegal activity.
  • Conducting (or attempting to conduct) any financial transaction designed to conceal the origin, ownership, location, source, or control of funds obtained through participation in illegal activity.
  • Transmitting or moving money or funds from inside the US to outside the US, or from outside the country into the US, to promote unlawful activity, or transferring funds with the knowledge that the funds came from unlawful activity.
  • Transmitting or moving money from inside the US to outside the US, or from outside the US into the US, to avoid triggering governmental reporting requirements, or to disguise the source, ownership, location, or control of the funds.
  • Structuring financial transactions involving the proceeds of unlawful activity to avoid triggering state or federal reporting requirements.
  • Conducting or attempting to conduct any type of financial transaction involving the proceeds of unlawful activity to avoid tax obligations or frustrate other provisions of the Internal Revenue Code.

*Pro-Tip: Any person under investigation or indictment for money laundering should consult legal counsel. Prison Professors, an Earning Freedom company, regularly assists clients to locate and vet experienced criminal defense counsel.

18 United States Code Section 1957 prohibits depositing or spending more than $10,000 of the proceeds from a Section 1956 predicate offense. 

Violations of Section 1956 are punishable by imprisonment for not more than 20 years. Section 1957 carries a maximum penalty of imprisonment of 10 years.

Check out the Prison Professors blog for Part 2 of What You Need to Know About Money Laundering, covering the criminal penalties associated with a money laundering conviction, as well as some of the factors a court would typically consider when sentencing a person for this crime.

CONCLUSION

Federal law enforcement is devoting significant resources to curb the use of modern technology to launder money. There is a particular concern among law enforcement and regulators about the rising use of cryptocurrency platforms to commit money laundering. 

Money laundering is a serious criminal offense that carries hefty fines and penalties, as well as prison time.

Follow the Prison Professors blog for regular updates on the criminal justice system.

Prison Professors, an Earning Freedom company, works alongside (not in place of) civil and criminal defense counsel to help clients proactively navigate through investigations and prosecutions. Our team also helps clients prepare mitigation and compliance strategies.

If you have any questions or are uncertain about any of the issues discussed in this post, schedule a call with our risk mitigation team to receive additional guidance.

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