Under the Annunzio-Wylie Act, the U.S. Treasury is authorized to require financial institutions to adopt anti-money laundering programs that include: (a) internal policies, procedures, and controls; (b) designation of a compliance officer; - continuation of an ongoing employee training program; and (d) an independent audit function to test the adequacy of the program.
Source: Zagaris, 1999, p. 1023.
Therefore, building a case against sophisticated money-laundering schemes begins with recognizing when a violation of one more of the controlling laws have been violated, and understanding which law enforcement organization is the most appropriate for handling it and these issues are discussed further below.
How a Case is Built against Money Launderers.
While any of the foregoing current laws could be used in building a case against money laundering operations, the Money Laundering Control Act's ("the Act") expanded definition of "money laundering" activities has provided investigators with the ability to reach the proceeds of a broader range of illegal activities; for example, Lahey (2005) reports that the Act encompasses the proceeds of conduct that is characteristic of organized crime, such as narcotics trafficking, certain state offenses, and predicate offenses under the Racketeer Influenced and Corrupt Organizations Act ("RICO"). Furthermore, the Act addresses proceeds from a wide range of additional criminal offenses including copyright infringement, environmental offenses, espionage, trading with the enemy, and conducting financial transactions with intent to engage in violations of the Internal Revenue Code (Lahey, 2005).
The Money Laundering Control Act is comprised of two sections: (a) Section 1956 and (b) Section 1957; Section 1956 addresses the knowing and intentional transportation or transfer of monetary funds that are derived from specified unlawful activities and Section 1957 addresses transactions that involve property exceeding $10,000 in value that are derived from the specified unlawful activities (April & Grasso, 2001). A further description of how Section 1956 can be used to build a case against money launders is provided in Table 2 below.
Application of Sections 1956 of the Money Laundering Act.
Section 1956(a) has three subdivisions a) Subsection 1956(a)(1) concerns domestic money laundering and prohibits knowingly participating in transactions with criminal proceeds; Subsection 1956(a)(2) deals with international money laundering and prohibits knowingly transporting criminally derived monetary instruments in foreign commerce; and Subsection 1956(a)(3) explicitly authorizes the use of government sting operations to expose criminal activity.
Transaction Money Laundering
Offenses referred to in [sections] 1956(a)(1) fall under the rubric of "transaction money laundering" because the prohibited action is the financial transaction itself. An offense occurs when an individual conducts or attempts to conduct a financial transaction with criminally derived money. The four prohibited transactions are: (1) a financial transaction with the intent to promote specified unlawful activity, (2) a financial transaction with the intent to engage in 26 U.S.C. [subsections] 7201, 7206(28) tax evasion violations, (3) a financial transaction designed to conceal or disguise the nature, location, source, ownership, or control of the proceeds of specified unlawful activity, and (4) a financial transaction designed to avoid a state or federal reporting requirement.
Transportation Money Laundering
Section 1956(a)(2) contains three separate offenses relating to the transportation, transmission, or transfer of criminally derived proceeds into or out of the United States. The three possible crimes involve: (1) the intent to promote the carrying on of a specified unlawful activity; (2) the transportation of a monetary instrument that represents the proceeds of some form of unlawful activity, designed to conceal or disguise that instrument; and (3) the transportation of the monetary instrument that represents the proceeds of some form of unlawful activity, designed to avoid a state or federal transaction reporting requirement.(35)
Section 1956(a)(3) authorizes the government to utilize sting operations. Under the sting provisions of [sections] 1956, it is illegal to conduct, or attempt to conduct, a financial transaction involving property that a law enforcement officer represents to be the proceeds of a specified unlawful activity with the intent to: (1) promote specified unlawful activity; (2) conceal or disguise the nature, location, source, ownership, or control of the proceeds of specified unlawful activity; or (3) avoid a state or federal transaction reporting requirement.
Source: April & Grasso, 2001, p. 1051.
Since the passage of the U.S.A. PATRIOT Act, the U.S. Treasury Department has been tasked with the responsibility for developing regulations for implementation of its money-laundering provisions and for financial services businesses, including mutual funds, credit card companies, and securities brokers and dealers registered with the Securities and Exchange Commission (Connolly, 2003). According to Ronczkowski (2004), "The U.S.A. PATRIOT Act of 2001, formally known as the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 from the 107th Congress, HR 3162, was established to deter and punish terrorist acts in the U.S. And around the world, and to enhance law enforcement investigatory tools" (p. 60). Some of the provisions included in the Act enhancing surveillance procedures and the International Money Laundering Abatement and Antiterrorist Financing Act of 2001 (Ronczkowski, 2004).
In addition, the U.S.A. Patriot Act also requires banks and large financial services centers, as well as brokers and dealers outside of banks, credit unions and money-transmitting businesses, to be aware of and report any suspicious financial activity (Carlson, 2003). In this regard, Birks (1995) suggests that, while the positive requirement to notify law enforcement authorities arises only once the financial institution actually knows or suspects that a person or organization is involved in money laundering, the author also emphasizes that, "It is difficult to avoid the conclusion that the precautionary procedures required by these new regulations will affect significantly the financial community's perception of what inquiries are necessary in the context of significant financial transactions" (p. 93). Nevertheless, Ronczkowski (2004) insists that the PATRIOT Act will provide law enforcement and regulatory authorities with a number of additional tools needed to address this complex problem: "Beyond the immediate benefit of the act, which is enhanced surveillance procedures, law enforcement at all levels will reap the greatest investigative rewards from the money-laundering and financial tracking capabilities as well as the increased information sharing among agencies. The act is geared toward the one thing that no terrorist organization can do without, finances" (emphasis added) (p. 61).
The goal of building a case against money laundering is to disrupt laundering in its many forms; this goal is particularly relevant concerning what is done by third-party money launderers and the masterminds of the criminal organizations that support them. In the process, the fight is supposed to undermine the process of financing and profiting from crimes ranging from drug trafficking to terrorism; however, the ongoing battle against money laundering has not provided policymakers with the effective tools they need to develop viable cases against them (Cuellar, 2003). According to this author, just as with a number of other enforcement issues, the fight against money laundering involves three major components: (a) statutes with criminal penalties charged by prosecutors, (b) rules administered by regulators, and - detection systems primarily operated by investigators (Cuellar, 2003). A critical examination of these three fundamental components indicates the ability to build cases against money launderers continue to have a number of constraints, including:
The disproportionate imposition of severe penalties on predicate offenders who are easily detected;
Lax and narrowly-focused regulatory authority;
Limited capacity to detect a range of chargeable domestic and international offenses; and,
Global diffusion of a fight against money laundering that leaves implementing authorities plenty of room for discretion and lax enforcement (Cuellar, 2003).
Certainly, these constraints do not exist because of ignorance, incompetence or bad faith on the part of the policymakers or law enforcement authorities, but rather because the major players involved in running the system (including legislators, prosecutors, investigators, and regulators) are confronted with a morass of incentives that causes them to diminish the intensity and scope of enforcement against some targets and to enhance the sanctions faced by other targets (Cuellar, 2003).
Although some evidence exists that suspicious activity reporting probably helps identify illegally obtained money placement in banks, the existing frameworks do not appear particularly effective in accomplishing the goals of detecting and disrupting the larger scope of criminal financial activity; this inability to accomplish the fundamental goals of existing money-laundering initiatives has resulted in increased calls for more effective programs in the fight against money laundering (Cuellar, 2003). Nevertheless, the foregoing constraints contribute to an international system wherein it is extremely difficult to identify terrorist financing using the anti-laundering system, even though it is a more simple matter to freeze assets that have been associated with alleged terrorist organizations (Cuellar, 2003). According to this author, "Some changes in the system such as enhancing audit trails and strengthening suspicious activity reporting and analysis could be defended in the name of making the system work, though politics would make them difficult to achieve and their ultimate consequences are hard to predict" (p. 31). While new initiatives are being developed by the U.S. And international community, the current…