Money Laundering: It’s a Dirty Business

In 2005 Congressman Tom DeLay, R-Texas, was convicted, along with two associates, of funneling $190,000 in corporate contributions through the Republican National Committee to Republicans running for the Texas State Legislature in 2002. Congressman DeLay was forced to step down, his political career in shambles. He has been free on a $10,000 bond and has maintained a high profile, even appearing on this author’s guilty pleasure reality show, “Dancing with the Stars.” In September 2013, the Texas Court of Criminal Appeals overturned his conviction, rejecting the case brought against the flamboyant politician. “The evidence was legally insufficient to support DeLay’s convictions,” wrote Justice Melissa Goodwin in the opinion for the majority. “The fundamental problem with the state’s case was its failure to prove proceeds of criminal activity.” While a jury found that Mr. DeLay was guilty of money laundering, the appeals court disagreed.

What is Money Laundering?

At its most basic, money laundering is the act of making money that comes from one source look like it comes from another. Criminals try to disguise the origins of ill-gotten gains by funneling that money through legal businesses. Otherwise, the bad guys can’t use the money because it would connect them to the original crime, giving law enforcement the right to seize the funds. In addition, it is a federal crime to engage in any monetary transaction with criminally derived property.[1]

Money laundering in today’s complex financial and volatile political environments is far more insidious than gangsters investing in the local pizzeria or dry cleaners and “laundering” their gambling, prostitution or drug money through legitimate enterprises. A bad guy in Moscow transfers dirty money to another bad guy in Prague who sends it along to Buenos Ares and then to the Caymans and then back to Moscow, all squeaky clean and spendable.

The Financial Crimes Enforcement Network, called FinCEN, describes money laundering as involving three steps: placement, layering and integration. First, the funds are furtively introduced into the legitimate financial system. The money is then moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Lastly, the money is integrated into the financial system through additional transactions until the “dirty money” appears “clean.”[2] FinCEN’s mission is “to safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering and other illicit activity.”

History of Anti-Money-Laundering Laws

Since the passage of the Bank Secrecy Act in 1970, there have been a series of laws designed to curtail money laundering. Many of these laws amend multiple titles and sections of the United States Code; for these, I have noted the Public Law numbers.

Bank Secrecy Act (1970) (BSA): 31 U.S.C. 5311 et seq and 31 CRF 101 et seq.

  • Established requirements for recordkeeping and reporting by individuals, banks and other financial institutions
  • Designed to help identify the source, volume and movement of currency and other monetary instruments transported or transmitted into or out of the United States or deposited in financial institutions
  • Required banks to (i) report cash transactions over $10,000 using the Currency Transaction Report (CTR); (ii) properly identify persons conducting transactions (the “know your customer” rules); and (iii) maintain a paper trail by keeping appropriate records of financial transactions.

Money Laundering Control Act (1986): 18 U.S.C. 1956 et seq.

  • Established money laundering as a federal crime
  • Prohibited structuring of transactions to evade CTR filings (depositing $9,999, just under the limit; then depositing another $9,999, and so on)
  • Introduced civil and criminal forfeiture for BSA violations
  • Directed banks to establish and maintain procedures to ensure and monitor compliance with the BSA reporting and recording requirements.

Anti-Drug Abuse Act of 1988: 21 U.S.C. 801 et seq.

  • Expanded the definition of financial institution to include businesses such as car dealers and real estate closing personnel and required them to file reports on large currency transactions
  • Required the verification of identify of purchasers of monetary instruments over $3,000 (think money orders).

Annunzio-Wylie Anti-Money Laundering Act (1992): Pub. L. 102-550 (amends various titles and sections of the United States Code)

  • Strengthened the sanctions for BSA violations
  • Required Suspicious Activity Reports (“SAR”) and eliminated previously used Criminal Referral Forms
  • Required verification and recordkeeping for wire transfers.

Money Laundering Suppression Act (1994): 31 U.S.C. 5301 et seq.

  • Required banking agencies to review and enhance training and develop anti-money laundering examination procedures
  • Required banking agencies to review and enhance procedures for referring cases to appropriate law enforcement agencies
  • Streamlined CTR exemption process (those businesses that are not required to file CTRs)
  • Required registration of Money Services Businesses (“MSBs”) (a business that offers money orders, traveler’s checks, check cashing, currency dealing/exchange, stored value cards and conducts more than $1,000 in money services business activity with the same person on the same day or the business provides money transfer services in any amount)
  • Required every MSB to maintain a list of businesses authorized to act as agents in connection with the financial services offered by the MSB
  • Made operating as an unregistered MSB a federal crime
  • Recommended that states adopt uniform laws applicable to MSBs[3]

Money Laundering and Financial Crimes Strategy Act (1998): 31 U.S.C. 5301 et seq.

  • Required banking agencies to develop anti-money laundering training for examiners (didn’t the Money Laundering Suppression Act do that?)
  • Required the Department of the Treasury and other agencies to develop a National Money Laundering Strategy[4]
  • Created the High Intensity Money Laundering and Related Financial Crime Area (HIFCA) Task Forces to concentrate law enforcement efforts at all levels of government

Uniting and Strengthening America by Providing Appropriate Tools to Restrict, Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act): Pub. L. 107-56 (codified in various titles and sections of the United States Code)

  • Title III of the USA PATRIOT Act is referred to as the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001; the USA PATRIOT Act was hurriedly passed following the attacks on 9/11/2001.
  • Criminalizes the financing of terrorism and augmented the existing BSA framework by strengthening customer identification procedures
  • Prohibited US financial institutions from engaging in business with foreign shell banks
  • Required financial institutions to have due diligence procedures and enhanced due diligence procedures for foreign correspondent and private banking accounts
  • Improved information sharing between financial institutions and the US government by requiring government-institution information sharing and voluntary information sharing among financial institutions
  • Expanded the anti-money laundering program requirements to all financial institutions
  • Increased civil and criminal penalties for money laundering
  • Provided the Secretary of the Treasury with the authority to impose “special measures” on jurisdictions, institutions or transactions that are of “primary money laundering concern”
  • Facilitated records access and required banks to respond to regulatory requests for information within 120 hours
  • Required federal banking agencies to consider a bank’s anti-money laundering record when reviewing bank mergers, acquisitions and other applications for business combinations

Intelligence Reform & Terrorism Prevention Act of 2004: Pub. L. 108-458 (amended various titles and sections of the United States Code)

  • Amended the BSA to require the Secretary of the Treasury to prescribe regulations requiring certain financial institutions to report cross-border electronic transmittals of funds if the Secretary determines that such reporting is “reasonably necessary” to aid in the fight against money laundering and terrorist financing.

Money Laundering in the News

You cannot pick up a real or virtual newspaper these days without seeing reports of efforts to curtain money laundering and terrorist financing. Consider these headlines:

  • “Kenya Attacks to Invigorate Counterterrorism Financing Efforts against Somali Group …”
  • “Treasury Fines TD Bank $52 Million for Willfully Ignoring Ponzi Schemer’s Transactions”
  • “Cyprus Missed AML Deadlines” (a condition of receiving a 10 billion euro bailout)
  • “NJ Attorneys Request Saddle River Valley Bank to Forfeit $1.2 Million to Settle BSA Violations”
  • “Defense Attorney, Legal Broker Arrested in Puerto Rico on Money Laundering Charges.”

Bankers as Criminalists

Bankers uniformly despise their role as cops in the war on terror and organized crime. Many feel that they have been conscripted into the service of ICE, the FBI, CIA and Interpol without the accompanying glamour and cool cars. The paperwork burdens are enormous, and the costs associated with hiring, training, and retaining qualified BSA officers are more than some small banks can endure. Small technical infractions of the BSA/Anti-Money Laundering rules are meted out by bank examiners as if the failure to file one CTR or SAR might spell the end of democracy as we know it. If only some eagle-eyed banker had stopped the transfer of funds, somehow, to those extremists who flew planes into our monuments to free enterprise and democracy… if only someone in a convenience store selling a money order to one of the terrorists had been suspicious … if only. We will probably never know whether the small things that bankers do each day to obey the law and help enforce these onerous statutes really make any difference, but we hope that all this trouble is worth it. As a nation, we must do all we can to catch and punish the bad guys — and even the sort-of-bad guys. In this case, I think the trip is worth the fare.

Notes

  1. 18 U.S.C. §1957.
  2. See www.fincen.gov/news_room/aml_history.html.
  3. See Tennessee Department of Financial Institutions Department Bulletin B-05-1, Guidance Regarding Non-Bank Financial Institution Customers, February 23, 2005.
  4. The Department of Treasury established the Office of Terrorism and Financial Intelligence to help combat all aspects of money laundering at home and abroad. See www.treasury.gov/recourse-center/terrorist-illicit-finance.

Katie Edge KATHRYN REED EDGE is a member in the Nashville office of Butler, Snow, O’Mara, Stevens & Cannada PLLC, with offices in Tennessee, Mississippi, Alabama, Pennsylvania, and Louisiana. She is co-chair of the firm’s Banking Subgroup and concentrates her practice in representing regulated financial services companies. She is a past president of the Tennessee Bar Association and a former member of the editorial board for the Tennessee Bar Journal.