Primary Money LaunderingPrimary Money Laundering United States Code (U.S.C) United States Code (U.S.C)

StatutesStatutes

Title 18 U.S.C. § 1956Title 18 U.S.C. § 1956

Title 18 U.S.C. § 1957Title 18 U.S.C. § 1957

Title 18 U.S.C. § 1956Title 18 U.S.C. § 1956

Financial TransactionFinancial Transaction - Whoever, conducts or - Whoever, conducts or attempts to conduct a financial transactionattempts to conduct a financial transactionProceedsProceeds - Which in fact involves the proceeds of - Which in fact involves the proceeds of Specified Unlawful Activity (SUA)Specified Unlawful Activity (SUA)KnowledgeKnowledge - Knowing that the property involved in - Knowing that the property involved in the financial transaction represents the proceeds of the financial transaction represents the proceeds of “some form” of criminal activity “some form” of criminal activity Specific Intent Specific Intent - With the intent to: (1) - With the intent to: (1) PromotePromote, , (2)(2) Evade taxesEvade taxes, , (3)(3) Conceal or disguiseConceal or disguise,, or (4) or (4) Avoid Avoid reporting requirementsreporting requirements

Four Basic Statutory ElementsFour Basic Statutory Elements

Financial TransactionFinancial Transaction

Broadly defined to include purchase, sale, loan, pledge, gift, transfer, delivery, or other disposition of property between parties. Does not need to involve a Does not need to involve a financial institutionfinancial institution

With respect to a financial institution, it includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, use of a safe deposit box, or any other payment, transfer, or delivery by, through, or to a financial institution

ProceedsProceeds

Broadly defined, need not be MONEY!MONEY!

Without proceeds there can be no money laundering violation.

Merger Issue: When does property become proceeds?

The acts that produce the proceeds being laundered must be distinct from the conduct that constitutes money laundering.

KnowledgeKnowledgeThe Government must prove that the defendant knew that the

money involved in the financial transaction represents the proceeds of some form of unlawful activity that constitutes a felony under state, federal, or foreign law.

Do not have to prove the defendant knew it was from an SUA nor that it was a felony.

U.S. vs. Hayes, 800 F. Supp. 1575 (S.D. Ohio 1992): defendant could not plead guilty to section 1956 offense where underlying offense was a misdemeanor.

Willful blindness won’t help!

Specific IntentSpecific Intent

Once you have a financial transaction involving the proceeds of a specified unlawful activity, conducted by a defendant who knew the property was some form of unlawful activity, the Government must prove that the defendant conducted or attempted to conduct a financial transaction with the intent to promote, evade, conceal or disguise, or avoid reporting requirements.

Title 18 U.S.C. § 1956Title 18 U.S.C. § 1956

Three Major Sub-SectionsThree Major Sub-Sections

1956 (a)(1) - Financial Transaction Provision1956 (a)(1) - Financial Transaction Provision

1956 (a)(3) - “Sting” Provision1956 (a)(3) - “Sting” Provision

1956 (a)(2) - International Transfer Provision1956 (a)(2) - International Transfer Provision

Specific Intent CrimeSpecific Intent Crime

Promote a Specified Unlawful Activity (SUA) – As defined in Title Promote a Specified Unlawful Activity (SUA) – As defined in Title 18 U.S.C. 1956(c)(7) , including all RICO predicates, as defined, in 18 U.S.C. 1956(c)(7) , including all RICO predicates, as defined, in Title 18 U.S.C. 1961(1). Title 18 U.S.C. 1961(1). Conceal or disguise the proceeds of an SUAConceal or disguise the proceeds of an SUAAvoid reporting requirementsAvoid reporting requirementsEvade payment of taxesEvade payment of taxesNo “Sting” provisionNo “Sting” provision

Money Laundering Activity underMoney Laundering Activity under18 U.S.C. § 1956 (a)(1)18 U.S.C. § 1956 (a)(1)

Specific Intent CrimeSpecific Intent Crime

Internationally transports, transmits, transfers, or attempts

Monetary instrument or funds Through the U.S. from within or without With intent to promote the carrying on of a

specified unlawful activity LEO sting operations possible

Money Laundering Activity underMoney Laundering Activity under18 U.S.C. § 1956 (a)(2)(A)18 U.S.C. § 1956 (a)(2)(A)

Specific Intent CrimeSpecific Intent Crime

International movement or attempt of monetary instruments or funds

Knowing proceeds were from some form of unlawful activity

With intent to disguise or conceal or to avoid transaction reporting requirements

Money Laundering Activity underMoney Laundering Activity under18 U.S.C. § 1956 (a)(2)(B)18 U.S.C. § 1956 (a)(2)(B)

Specific Intent CrimeSpecific Intent Crime

Law enforcement “Sting provision” Subject “believes” proceeds from SUA With intent to promote, conceal, or evade a

reporting requirement

Money Laundering Activity underMoney Laundering Activity under18 U.S.C. § 1956 (a)(3)18 U.S.C. § 1956 (a)(3)

Title 18 U.S.C. § 1957Title 18 U.S.C. § 1957 (a.k.a., The Spending Statute)(a.k.a., The Spending Statute)

Engages or attempts to Engages or attempts to engage in a monetary engage in a monetary transaction transaction

In the amount of In the amount of $10,000.00 or more$10,000.00 or more

And knows proceeds were And knows proceeds were derived from an SUA derived from an SUA

Distinguishing the StatutesDistinguishing the Statutes

20-year felony20-year felonyFinancial TransactionFinancial TransactionVirtually all commercial Virtually all commercial transactions coveredtransactions coveredKnowledge that funds are Knowledge that funds are from some form of from some form of “unlawful activity”“unlawful activity”Includes “Sting” provisionIncludes “Sting” provisionSpecific Intent requiredSpecific Intent requiredNo minimum dollar No minimum dollar thresholdthresholdNo exclusion for Sixth No exclusion for Sixth Amendment RightsAmendment Rights

10-year felony10-year felonyMonetary transactionMonetary transactionLimited to transactions by Limited to transactions by or through a financial or through a financial institutioninstitutionKnowledge that funds are Knowledge that funds are “criminally derived “criminally derived property”property”No “Sting” provisionNo “Sting” provisionGeneral IntentGeneral Intent$10,000.00 or more$10,000.00 or moreExcludes transactions Excludes transactions necessary to preserve necessary to preserve Sixth Amendment rightsSixth Amendment rights

§ § 19561956 §1957§1957

Three Step Money Laundering Three Step Money Laundering ProcessProcess

PlacementPlacement

LayeringLayering

IntegrationIntegration

PlacementPlacement

First step in the laundering process:First step in the laundering process: Placing the illicit funds, without discovery:Placing the illicit funds, without discovery:

into the financial systeminto the financial systeminto the domestic economy into the domestic economy into an international haveninto an international haven(e.g. Off-Shore financial institutions)(e.g. Off-Shore financial institutions)

Illicit funds are at the greatest risk of Illicit funds are at the greatest risk of detection during this processdetection during this process

LayeringLayering

Second step in the laundering process:Second step in the laundering process: Involves separating the illegally obtained money Involves separating the illegally obtained money

from its criminal source by layering it though a from its criminal source by layering it though a series of financial transactions, which makes it series of financial transactions, which makes it difficult to trace the money back to its original difficult to trace the money back to its original sourcesource

IntegrationIntegration

Third step in the process:Third step in the process: Involves moving the proceeds into a seemingly Involves moving the proceeds into a seemingly

legitimate form. Integration may include the legitimate form. Integration may include the purchase of automobiles, businesses, real estate, etc.purchase of automobiles, businesses, real estate, etc.

Stored Value CardsStored Value CardsPrepaid CardsPrepaid Cards

An Emerging ThreatAn Emerging Threat

A Money Laundering ToolA Money Laundering Tool

A tool used to purchase child pornographyA tool used to purchase child pornography

Number of Violations of Number of Violations of Credit Card Fraud SARS Credit Card Fraud SARS Fiscal Years 2004 – 2008Fiscal Years 2004 – 2008

(10/1/2003 – 6/30/2008)(10/1/2003 – 6/30/2008) NationwideNationwide

23,8

7125

,736

33,1

7430

,361

28,9

37

1,70

52,

062

2,53

6

2,63

91,

771

2,32

53,

189

3,93

7

4,11

43,

836

0

10,000

20,000

30,000

40,000

50,000

Credit Card Fraud CounterfeitCredit/Debit Card

Fraud

Debit Card Fraud

Fiscal Year 2004 Fiscal Year 2005 Fiscal Year 2006 Fiscal Year 2007 Fiscal Year 2008 (as of June 2008)

Nu

mbe

r of

SA

Rs

rece

i ved

Dollar Losses Reported of Dollar Losses Reported of Credit Card Fraud SARS Credit Card Fraud SARS Fiscal Years 2004 – 2008 Fiscal Years 2004 – 2008

(10/1/2003 – 6/30/2008)(10/1/2003 – 6/30/2008) NationwideNationwide

$399 $4

97 $596

$602

$567

$40

$85

$108

$66

$66

$38

$61

$107

$64

$57

$0

$250

$500

$750

$1,000

Credit Card Fraud CounterfeitCredit/Debit Card

Fraud

Debit Card Fraud

Fiscal Year 2004 Fiscal Year 2005 Fiscal Year 2006 Fiscal Year 2007 Fiscal Year 2008 (as of June 2008)

Dol

lar

Los

ses

Rep

orte

d in

M

illi

onsRo

un

ded

to n

eare

st

mill

ion

th

Dollar Losses Reported in Millions

Prepaid Cards: Open SystemPrepaid Cards: Open System

Used to make purchases or access cash using the Used to make purchases or access cash using the MasterCard and Visa global payment networksMasterCard and Visa global payment networks

Cards are marketed to:Cards are marketed to:– Unbanked, teens, and others without a credit cardUnbanked, teens, and others without a credit card

~10 million households in U.S. are unbanked; significant ~10 million households in U.S. are unbanked; significant number are Latino immigrants.number are Latino immigrants.

– Senders/receivers of cross-border remittancesSenders/receivers of cross-border remittancesRemittances sent from U.S. were ~$34 billion in 2003 Remittances sent from U.S. were ~$34 billion in 2003

~50% of individuals in U.S. who send remittances are ~50% of individuals in U.S. who send remittances are unbankedunbanked

– People who need help budgetingPeople who need help budgeting

Open System Prepaid CardsOpen System Prepaid Cards

Bank-issued, but Bank-issued, but no bank account is requiredno bank account is required

Prepaid Cards: Closed SystemPrepaid Cards: Closed System

Cards are issued by merchants and Cards are issued by merchants and service providers for specific goods and service providers for specific goods and servicesservices

Examples include mass transit system Examples include mass transit system access cards, retailer gift cards, and access cards, retailer gift cards, and cards for prepaid long distance servicecards for prepaid long distance service

Closed system cards have been used as Closed system cards have been used as an alternative to cash in bulk cash an alternative to cash in bulk cash smuggling schemessmuggling schemes

Closed System Prepaid CardsClosed System Prepaid Cards

United States v. Nikolai TehinUnited States v. Nikolai Tehin

Money Laundering/Mail Fraud CaseMoney Laundering/Mail Fraud Case

14 Years in Prison for the Defendant14 Years in Prison for the Defendant

Demonstrates the Effective use of Money Demonstrates the Effective use of Money Laundering Statutes used in concert with Laundering Statutes used in concert with Federal Sentencing Guidelines and Federal Sentencing Guidelines and Enhancements.Enhancements.– Vulnerable Victims, Multiple Victims, Loss Vulnerable Victims, Multiple Victims, Loss

Amounts, Position of Trust/Confidence etc…Amounts, Position of Trust/Confidence etc…

San Francisco Chronicle Article This Slide and Next

A once-prominent San Francisco lawyer convicted of stealing from his poor and sickly clients to support his luxurious lifestyle was sentenced Tuesday to more than 14 years in prison, after a federal judge upbraided him for disgracing the legal profession. Nikolai Tehin "looked his victims in the eye," U.S. District Judge Vaughn Walker said.

"Nick was ready for the worst," said his attorney, Harold Rosenthal. "But he suffers quietly." For Rosenthal, however, the sentence came as a shock. "I'm floored," he said. "This is the longest sentence I've ever had one of my clients receive in federal court."

Once he was at the top, he couldn't afford to stay there. Financial pressure "makes people do things they never would," Rosenthal said, adding that his client had already paid a heavy price for his crimes, including giving up his license to practice law. "Mr. Tehin started at the bottom and will ultimately end up at the bottom, " Rosenthal said. "He has no savings, no retirement. He's impoverished and is going to jail. And maybe he deserves it. I'm just asking you to give him a little light at the end of the tunnel."

Walker acknowledged Tehin's rags-to-riches story, but said his crimes called for severe punishment. "It was an American success story," the judge said. "Unfortunately, it was an American success story that has gone very wrong."