The federal government last month indicted eleven operators of alleged “brothels” in New York City.
Charged with conspiracy to violate the Travel Act and money laundering, the federal indictment filed on April 13 in the Southern District of New York accused the defendants of laundering $1.4 million between 2011 and 2016.
The government alleged that the brothels posed as legitimate business—most often as spas—and catered to specific patrons the operators believed had been vouched for. Federal prosecutors said most of the female prostitutes came from Korea and didn’t need permission to enter the country on tourist visas.
Federal Money Laundering Statutes
There are two federal money laundering statutes: Sections 1956 and 1957 of Title 18, United States Code. Of the two, Section 1956 is the one most often used to prosecute money laundering offenses. The statute prohibits four kinds of money laundering. Each can occur only in connection with what the statute defines as “specified unlawful activities” (SUA). Section 1956’s companion, Section 1957, prohibits depositing or spending more than $10,000 of the proceeds from Section 1956 SUA. In short, money laundering has been defined as the act of transferring illegally obtained money through people or accounts so that its original source cannot be trace.
Section 1956 carries a penalty of not more than 20 years while Section 1957 carries a penalty of not more than 10 years. Violations of these two statutes may implicate other federal statutes, such as RICO which involves additional 20-year felonies. Violations of these two statutes may also involve conspiracies to commit separate federal offenses punishable by imprisonment of not more than five years.
SUAs generally involve both mail and wire fraud. A conviction for money laundering will usually result in a much more severe sentence than a conviction based solely upon mail or wire fraud. One legal scholar has written that there are at least 250 or so SUAs.
Money laundering became a Federal crime in 1986. In 2005, it became a national “threat assessment” with the creation of the Money Laundering Threat Assessment—the first government wide analysis of money laundering in the United States. This threat assessment includes a detailed analysis of the thirteen money laundering methods. Today, the FBI, DEA, Customs and Border Protection, U.S. Immigration and Customs Enforcement, the IRS, and U.S. Treasury’s Office of Terrorist Financing and Financial Crime coordinate efforts to detect and prosecute money laundering offenses.
Money laundering prosecutions have escalated over the past decade with some devastating effects. Individuals and businesses who have unknowingly handled “dirty money” are convicted as money launderers, primarily through “willful blindness” instructions to juries. This can include situations where an individual or a business may have suspicions the money is dirty but who do not take any action to confirm or disprove their suspicions.
Worse yet, federal prosecutors have adopted the tactic of “piling on” money laundering charges that are merely incidental or which are indistinguishable from the SUAs. For example, an individual can be charged with money laundering for spending dirty money, even without any attempt to conceal its source, such as a merchant who knowingly accepts money from a drug dealer.
The results of “piling on” can be crippling. Money laundering charges in connection with drug trafficking can result in a sentence almost four times what could ordinarily be given with a simple drug violation. Further, piling on money laundering charges allows prosecutors to obtain easy plea bargains and forfeitures in white collar crime cases.
The Call For Reform
The National Association of Criminal Defense Lawyers (NACDL) has long advocated reforms in the federal money laundering statutes. As far back as 2001, the NACDL has urged Congress to act on the following reforms:
“Piling on money laundering charges to an alleged crime other than drug trafficking often results in a sentence almost four times what would ordinarily be incurred.(7) In white collar criminal cases, in particular, this allows prosecutors to obtain easy plea bargains and forfeitures that may not be in the interest of justice.
“The following proposals are designed to address the money laundering statutes’ most serious flaws:
- The promotion prong of 18 U.S.C. 1956, which has been subject to absurd application and conflicting interpretations, serves no purpose and should be repealed;
- The concealment prong of 18 U.S.C. 1956 should be expressly limited to financial transactions designed by the defendant with the intent to create the appearance of legitimate wealth; and
- Congress should amend 18 U.S.C. 1957, which broadly prohibits transactions involving illegal proceeds of a value greater than $10,000, to focus on professional money launderers, rather than one-time offenders. The monetary threshold should be raised and, unless the defendant engaged in a pattern of illegal transactions, the offense should be a misdemeanor.
“Additionally, NACDL is proposing amendment to 18 U.S.C. 1957(f), which excludes “any transaction necessary to preserve a person’s right to representation as guaranteed by the Sixth Amendment to the Constitution.” This proposal adopts the original statutory language, approved by the House on three separate occasions in 1986 and 1988, and is consistent with congressional intent to give full accord to the necessity of pre-indictment (not just post-indictment) representation.”
How Is Money Laundering Proven?
In order to prove money laundering, the government has to show that the defendant knew the money involved was obtained by committing a felony. This can be direct or circumstantial evidence.
The government doesn’t have to show that the defendant knew the exact crime from which the money was derived, only that the money was derived by illegal means.
The government must also prove that the defendant initiated, completed, or participated in initiating or completing a financial transaction with the money. A transaction is defined as a:
The key is that a defendant must know that the money was obtained illegally and that a financial transaction was involved.
If you have been accused of money laundering, your intent and knowledge of both the money and the actual transaction will be extremely important to your defense. If you were unaware of where the money came from or a financial transaction didn’t actually occur, then an experienced criminal defense attorney might be able to help get your charges reduced or dropped altogether.