May 21, 2012
By: Charles Intriago
(This is the first of a three-part series on the United States money laundering law, which targets all financial criminals and financial crime. This article sets the background for deeper understanding of this unique law. Every person, institution or company involved in combating financial crime or complying with laws and regulations dealing with money laundering, fraud, corruption and related matters should have a working knowledge of this law. The two articles that follow will explain how it is applied and how it is used in a civil context. These articles are intended to provide accurate information about the law and related subjects. However, neither ACFCS.org nor its management or staff is engaged in rendering legal or other professional service. For that, the advice of competent professionals should be sought.)
In 1986, there was no way the US Congress could know that a quarter century later there would be a global movement to consolidate the resources and units that financial institutions, government agencies and corporations devote to monitoring and combating distinct types of financial crime, including fraud and corruption.
Prompted by the outrage over the billions that drug traffickers were earning from their illicit trade, Congress criminalized the “laundering” of criminal proceeds and created a statutory architecture that is unique in US law.
Codified at Title 18, US Code Sec. 1956, it was the world’s first money laundering law and still ranks as the most powerful and most actively-used. It is the Atomic Bomb of the US in its arsenal against financial crime and other offenses.
The money laundering law, which President Ronald Reagan signed on October 26, 1986, changed the face of compliance, enforcement and regulation profoundly and forever.
The law was the first financial crime “convergence” and, 26 years after enactment, as public and private sectors reconfigure their approach to financial crime to improve results and make processes more efficient, it provides a potent one-stop weapon that addresses all financial crimes.
The law is based on the premise that all financial crime involves the taking of money or other value from someone else, creating the corresponding necessity for the financial criminals to hide and disguise the criminal proceeds to avoid detection and impede recovery of the criminal proceeds.
It gives even private sector financial crime victims a powerful weapon allowing them to pursue financial criminals worldwide and take back the assets. Strangely, this weapon remains virtually unused 11 years after it was added to the law by the USA Patriot Act. (Title 18, USC Sec. 1956(b)(4)).
<strong>The Atomic Bomb in the US financial crime arsenal</strong>
The law aims its firepower at all financial crimes, all financial criminals, all types of transactions, and all parts of the world through its unique “extraterritorial” and international provisions. Application of the law does not depend on the amount of the transaction except when it deals with a violation by a non-US citizen outside the US, in which case the threshold is $10,000. The law has a companion, weaker statute aimed at transactions with criminally-derived funds that must also meet the $10,000 threshold (Title 18, USC Sec. 1957).
The principal money laundering law at Section 1956 carries a maximum prison term of 20 years and fines of $500,000 per violation. A financial institution or other entity that is convicted under its provisions can face enormous fines and forfeitures. A so-called “death penalty” provision in another US law puts at risk the charter and federal deposit insurance of any financial institution that is convicted of money laundering.
<strong>Three operative sections of the money laundering law and ‘SUAs’</strong>
The law has three operative provisions commonly called the “transaction prong,” the “international prong,” and the “sting prong.” For any prong to be used in a prosecution, the funds involved in the subject transaction or funds transfer must have been derived from one of more than 230 federal, state and foreign crimes that are designated as “Specified Unlawful Activities,” or SUAs, in the law. (Title 18, USC Second. 1956(c)(7)).
The overriding message the law gives to financial institutions, companies and individuals is to avoid transactions where it is known or suspected that the funds are derived from an illegal source or are destined to national borders with a criminal purpose in mind.
<strong>The element of ‘knowledge’ and the dangerous doctrine of ‘willful blindness’ </strong>
As with all criminal laws, the money laundering law requires that the prosecution show the accused had “knowledge” of the illicit origin of funds. Courts have developed the legal concept of “willful blindness,” which is construed as the direct equivalent of actual knowledge.
The willful blindness doctrine is often defined as the deliberate avoidance of knowledge of the facts. Some courts call it “purposeful indifference.”
The leading willful blindness case involved a North Carolina real estate agent, Ellen Campbell, who was convicted of money laundering in 1991 even though the prosecution presented no evidence she knew her customer’s funds came from drug trafficking. In its ruling on appeal, the US Fourth Circuit Court of Appeals found that “the central issue… is whether there was sufficient evidence… to find that Campbell possessed the knowledge that (her customer’s) funds were the proceeds of illegal activity….”
The court said, “The (money laundering law) requires actual subjective knowledge. Campbell cannot be convicted on what she objectively should have known…. The element of knowledge may be satisfied by inferences drawn from proof that a defendant deliberately closed her eyes to what would otherwise have been obvious to her. A finding beyond a reasonable doubt of a conscious purpose to avoid enlightenment would prove an inference of knowledge.”
The court said the “government must prove beyond a reasonable doubt that the defendant purposely and deliberately contrived to avoid learning all the facts.” (US vs. Campbell, 977 F 2nd 854 (1992)).
(Charles Intriago, pioneer of the AML field and founder of ACAMS and Money Laundering Alert (now no longer affiliated) will be a speaker and moderator at the upcoming ACFCS International Financial Crime Conference & Exhibition 2012, September 13 – 15 in New York. Intriago and other leading experts will provide innovative guidance on anti-money laundering and its applicability to all fields of financial crime . For more details and to register now, please click here).