Federal Criminal Law – The Federal Code – Money Laundering

The federal criminal law is sometimes a very dangerous, and absurd beast.  In the federal criminal code, Title 18, Sections 1956 and 1957, the goverment has convinced Congress over the years to make it very easy to convict someone of “laundering” proceeds of what used to be certain criminal offenses, but which has expanded to cover virtually every single federal crime.

The first, and tougher, money laundering offense, Sec. 1956, requies to get a conviction that the government prove, first, that the financial transaction involves the “proceeds” of some form of unlawful activity – anything from bookmaking to drug dealing to RICO to Medicare fraud.  To be convicted under this federal criminal law, then the government must prove that the defendant was doing what he did to “promote the underlying unlawful activity;” and that he knew the assets came from some illegal conduct; that he tried to “conceal or disguise the nature, location, source, ownership or control” of those illegal proceeds or tried to avoid an otherwise legally mandated “financial transaction report,” as from a bank, or a car dealership, jewelry store, or airplane sales company, etc.

The penalty on conviction is up to 20 years in prison.  If the girlfriend of a drug dealer takes some cash from him and goes out and buys a bunch of “throwaway” cell phones for her boyfriend’s associates to use in selling the drugs, she can be convicted and sentenced to prison of a long time.

But then there is Sec. 1957, the second tier money laundering statute, and really the most devious.  It “only” carries a maximum of 10 years in prison, but the trade-off is that the government has very little to prove:

The government must prove that the funds came from some illegal activity and that ther person using those fuds knew it, it does not have to prove she or he tried to conceal or disguise the nature, location, source, ownershipor control of thopse proceeds to be convicted. Incredibly, all the government has to prove is that the person engaged in a financial transaction of any kind, knowing where the money came from. Nor is proof required that the transaction was engaged in to promote the underlying criminal activity – only that it was engaged in!

So, if an on-line bookmaker uses his earnings to pay his ex-wife the alimony or child support ordered by a divorce judge, as long as she knows that’s where it came from, just accepting the alimony or child support qualifies as “engaging in a financial transaction with illegal proceeds.”

She can go to prison for 10 years just for accepting the child support obligation to feed her children.  Is it likely that the government would often go that far? No, unless it wanted to press the bookmaker to plead guilty to something, under the threat of his ex-wife’s prospect of prison.  Or unless the government wanted to squeeze some money from the ex-wife and needed a wedge to threaten her with.

I know, because it happened to a client of mine.