Primary Money Laundering United States Code (U.S.C) Statutes Title 18 U.S.C. § 1956 Title 18 U.S.C. § 1957

Title 18 U.S.C. § 1956 Financial Transaction - Whoever, conducts or attempts to conduct a financial transaction Proceeds - Which in fact involves the proceeds of Specified Unlawful Activity (SUA) Knowledge - Knowing that the property involved in the financial transaction represents the proceeds of “some form” of criminal activity Specific Intent - With the intent to: (1) Promote, (2) Evade taxes, (3) Conceal or disguise, or (4) Avoid reporting requirements Four Basic Statutory Elements

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

Proceeds MONEY! Broadly defined, need not be 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.

Knowledge The 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 (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 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. § 1956 Three Major Sub-Sections  1956 (a)(1) - Financial Transaction Provision  1956 (a)(3) - “Sting” Provision  1956 (a)(2) - International Transfer Provision

Specific Intent Crime Promote a Specified Unlawful Activity (SUA) – As defined in Title 18 U.S.C. 1956(c)(7), including all RICO predicates, as defined, in Title 18 U.S.C. 1961(1). Conceal or disguise the proceeds of an SUA Avoid reporting requirements Evade payment of taxes No “Sting” provision Money Laundering Activity under 18 U.S.C. § 1956 (a)(1)

Specific 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 under 18 U.S.C. § 1956 (a)(2)(A)

Specific 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 under 18 U.S.C. § 1956 (a)(2)(B)

Specific Intent Crime  Law enforcement “Sting provision”  Subject “believes” proceeds from SUA  With intent to promote, conceal, or evade a reporting requirement Money Laundering Activity under 18 U.S.C. § 1956 (a)(3)

Title 18 U.S.C. § 1957 (a.k.a., The Spending Statute) Engages or attempts to engage in a monetary transaction In the amount of $10, or more And knows proceeds were derived from an SUA

Distinguishing the Statutes 20-year felony Financial Transaction Virtually all commercial transactions covered Knowledge that funds are from some form of “unlawful activity” Includes “Sting” provision Specific Intent required No minimum dollar threshold No exclusion for Sixth Amendment Rights 10-year felony Monetary transaction Limited to transactions by or through a financial institution Knowledge that funds are “criminally derived property” No “Sting” provision General Intent $10, or more Excludes transactions necessary to preserve Sixth Amendment rights § 1956§1957 § 1956 §1957

Three Step Money Laundering Process PlacementLayeringIntegration

Placement First step in the laundering process:  Placing the illicit funds, without discovery: into the financial system into the domestic economy into an international haven (e.g. Off-Shore financial institutions)  Illicit funds are at the greatest risk of detection during this process

Layering  Second step in the laundering process:  Involves separating the illegally obtained money from its criminal source by layering it though a series of financial transactions, which makes it difficult to trace the money back to its original source

Integration Third step in the process:  Involves moving the proceeds into a seemingly legitimate form. Integration may include the purchase of automobiles, businesses, real estate, etc.

Stored Value Cards Prepaid Cards An Emerging Threat A Money Laundering Tool A tool used to purchase child pornography

Number of Violations of Credit Card Fraud SARS Fiscal Years 2004 – 2008 (10/1/2003 – 6/30/2008) Nationwide Number of SARs received

Dollar Losses Reported of Credit Card Fraud SARS Fiscal Years 2004 – 2008 (10/1/2003 – 6/30/2008) Nationwide Dollar Losses Reported in Millions Rounded to nearest millionth Dollar Losses Reported in Millions

Prepaid Cards: Open System Used to make purchases or access cash using the MasterCard and Visa global payment networks Cards are marketed to: –Unbanked, teens, and others without a credit card ~10 million households in U.S. are unbanked; significant number are Latino immigrants. –Senders/receivers of cross-border remittances Remittances sent from U.S. were ~$34 billion in 2003 ~50% of individuals in U.S. who send remittances are unbanked –People who need help budgeting

Open System Prepaid Cards Bank-issued, but no bank account is required

Prepaid Cards: Closed System Cards are issued by merchants and service providers for specific goods and services Examples include mass transit system access cards, retailer gift cards, and cards for prepaid long distance service Closed system cards have been used as an alternative to cash in bulk cash smuggling schemes

Closed System Prepaid Cards

United States v. Nikolai Tehin Money Laundering/Mail Fraud Case 14 Years in Prison for the Defendant Demonstrates the Effective use of Money Laundering Statutes used in concert with Federal Sentencing Guidelines and Enhancements. –Vulnerable Victims, Multiple Victims, Loss 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."