Money Laundering: Laws, Investigations, and Case Building

Introduction

The same forces that have driven the globalization process have also made it easier for criminals to transfer enormous sums of money from one financial institution to another until it becomes "clean" — a process known as money laundering. An increasing number of observers caution that terrorist organizations are using money laundering techniques to avoid international sanctions on their assets and to help finance plots against the United States and its interests abroad. Even where the proceeds of money laundering are not used by terrorist groups, the criminal elements involved avoid paying taxes on their ill-gotten gains in whatever jurisdictions are implicated, and the practice appears to be increasing despite numerous laws designed to combat it.

Clearly, the fight against money laundering has assumed a new level of importance in recent years. This paper reviews relevant peer-reviewed and scholarly literature to identify what money laundering is, what controlling legislation exists, and what types of investigatory processes are used to uncover it. An analysis of how cases are built against money launderers is followed by a summary of key research findings in the conclusion.

Defining Money Laundering

There are several definitions of money laundering. In general terms, it can be defined as "the doing of a number of acts concerned with concealing, disguising or transferring out of the jurisdiction funds derived from drug trafficking, terrorism or criminal conduct" (Birks, 1995, p. 93). According to April and Grasso (2001), "Money laundering is the process by which one conceals the existence, illegal source, or illegal application of income, and disguises that income to make it appear legitimate" (p. 1051). In this regard, the Money Laundering Control Act of 1986 defined money laundering as "a broad range of activities used to conceal the proceeds of illegal activity and make the funds appear legitimate" (cited in April & Grasso, 2001, p. 1051).

More specifically, Black's Law Dictionary (1990) describes money laundering as the term used for "investment or other transfer of money flowing from racketeering, drug transactions, and other illegal sources into legitimate channels so that its original source cannot be traced" (p. 884). Today, the laundering of proceeds from national and international criminal activities has become a lucrative and increasingly sophisticated enterprise in the United States and abroad, representing an essential element of organized criminal activity (April & Grasso, 2001). The ability to move and conceal enormous amounts of money provides large-scale criminal organizations with a flexibility and scope that would not otherwise be possible (April & Grasso, 2001). Money laundering is also a federal crime under 18 U.S.C.A. Section 1956 (Black's, 1990), but a wide range of additional international and domestic laws can be used in the fight against it, as discussed below.

Controlling Legislation

Complex problems require complex solutions, and both the international community and the United States have developed a wide range of initiatives to combat money laundering. While the provisions and scope of these laws differ, they share one fundamental commonality: "The fight against money laundering aims at a more effective enforcement of the criminal law in relation to profit-oriented crime" (Stessens, 2000, p. 3).

The international community has enacted a number of substantive measures in recent years to combat money laundering. Multilateral organizations have been created to develop anti-money laundering standards, mechanisms, and institutions. The United Nations pioneered the 1988 Vienna Convention Against the Trafficking in Illegal Narcotic and Psychotropic Substances, which requires the criminalization of money laundering and the immobilization of assets belonging to persons involved in illegal narcotics trafficking.

In 1989, the G-7 Economic Summit Group established the Financial Action Task Force (FATF), which operates from the Office of Economic Cooperation and Development (OECD) headquarters in Paris. FATF has issued a set of forty recommendations concerning legal requirements, financial and banking controls, and external affairs, and publishes an annual report providing an overview of progress and problems in international anti-money laundering efforts. The G-10 Basle Group of Central Banks has provided timely guidelines for central bank supervisors and regulatory controls; on September 23, 1997, it issued supervision guidelines.

Regionally, the Council of Europe's 1991 Convention on Laundering, Search, Seizure and Confiscation of Assets has become the major international convention requiring signatory governments to cooperate against money laundering. The European Union, as a signatory to the 1988 Vienna Drug Convention and based on its own initiatives to address financial crimes, issued a 1991 Anti-Money Laundering Directive and has subsequently issued additional initiatives targeting cybercrimes (Zagaris, 1999).

Like the international community, the United States has enacted a number of laws that can be used to address illegal offshore banking activities affecting U.S. interests. The primary provisions of anti-money laundering law in the United States are found in Titles 12, 18, and 31 of the U.S. Code (Zagaris, 1999). A description of key controlling legislation is provided below.

The Bank Secrecy Act of 1970 (BSA). This law was a precursor to dedicated anti-money laundering statutes and was intended to deter laundering and the use of secret foreign bank accounts. It established an investigative paper trail for large currency transactions by creating regulatory reporting standards and requirements, such as the Currency Transaction Report (CTR Form 4789). The BSA imposed civil and criminal penalties for noncompliance and was designed to improve the detection and investigation of criminal, tax, and regulatory violations. A distinctive aspect of U.S. anti-money laundering law — one that other countries are beginning to emulate — is its simultaneous use of anti-money laundering, tax, regulatory, and criminal (especially organized crime) goals.

The Money Laundering Control Act of 1986. This law was part of the Anti-Drug Abuse Act of 1986 and created three new criminal offenses for money laundering activities conducted by, through, or to a financial institution: (a) knowingly helping launder money; (b) knowingly engaging — including by being willfully blind — in a transaction of more than $10,000 involving property derived from criminal activity; and (c) structuring transactions to avoid the reporting requirements of the BSA.

The Anti-Drug Abuse Act of 1988. This Act strengthened anti-money laundering laws by significantly increasing civil, criminal, and forfeiture sanctions for laundering crimes and BSA violations; requiring stronger and more precise identification and recording of cash purchases of certain monetary instruments; allowing the Treasury Department to require geographically targeted reports from financial institutions; requiring the Treasury Department to negotiate bilateral international agreements covering the recording of large U.S. currency transactions and information sharing; and increasing criminal sanctions for tax evasion when money from criminal activity is involved.

The Housing and Community Development Act of 1992. This Act strengthened penalties for financial institutions violating anti-money laundering laws and allowed regulators to close or seize institutions by appointing a conservator or receiver or by terminating the institution's charter. Federal regulators may also suspend or remove institution-affiliated parties who have violated the BSA or been indicted for money laundering or criminal activity. The Act forbids any individual convicted of money laundering from participating in any federally insured institution.

The Annunzio-Wylie Anti-Money Laundering Act, Pub. L. No. 102-550. Under this Act, the Treasury must issue regulations requiring national banks and other depository institutions to identify non-bank financial institution account holders, such as money transmitters or check-cashing services. Treasury, together with the Federal Reserve, must also issue regulations requiring financial institutions to maintain records of domestic and international wire transfers useful in law enforcement investigations. The Act established a BSA Advisory Group — including representatives from the Departments of Treasury and Justice, the Office of National Drug Control Policy, and other interested parties — to develop harmonious public-private cooperation on anti-money laundering. The Act also authorizes Treasury to require financial institutions to adopt anti-money laundering programs that include: (a) internal policies, procedures, and controls; (b) designation of a compliance officer; (c) an ongoing employee training program; and (d) an independent audit function to test the adequacy of the program (Zagaris, 1999, p. 1023).

Building a case against sophisticated money-laundering schemes begins with recognizing when one or more of these controlling laws have been violated and determining which law enforcement organization is best positioned to handle it.

Conclusion

The research showed that money laundering is the process by which criminals attempt to conceal the proceeds from their illegal activities to make them appear legitimate. Although the practice is by no means new, it has become increasingly common in many parts of the world as a result of the same innovations in technology that have fueled the globalization process. The ease with which enormous sums of money can be transferred electronically between financial institutions makes combating this crime even more difficult, and the various policies, regulations, and laws designed to address these issues continue to be refined to meet emerging needs.

In the final analysis, although criminals still appear to be winning this war, the tide is turning and existing laws are starting to have some effect. Whether money launderers will simply find alternatives to their current practices remains to be seen, but history has demonstrated time and again that adaptation is their modus operandi — a tendency that regulators ignore at their peril.

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