When money is obtained by illegal means – such as embezzlement, drug trafficking or illegal gambling – the perpetrators have to conceal where the money came from and process it in a way to avoid detection. For example, a drug trafficker channels “dirty” money through what looks like a legitimate business such as a restaurant. The money is “cleaned” through the operations of the restaurant and can be moved elsewhere without suspicion, such as into a bank, real estate holdings or other businesses. Money laundering is both a state and federal crime with serious penalties. Charges are often made along with other crimes, such as racketeering, tax evasion, drug trafficking, credit card fraud, or identification theft.
The money laundering process contains three phases – placement, layering and integration.
In the placement phase, the funds obtained through illegal means are first introduced into a legitimate financial system. During this period the perpetrators’ aim is to offload large quantities of cash, but they are also at the greatest risk of being discovered by attracting attention from the authorities. Many countries have established money laundering prevention measures for businesses that move significant amounts of money, including banks, casinos, check-cashing services, and pawnbrokers and suspicious activity may raise red flags.
Due to the Patriot Act, financial institutions are required to report transactions of over $10,000. Structuring or “smurfing” divides dirty money into smaller amounts to avoid detection. Cash can be deposited into multiple accounts via small transactions, or moved through cashier’s checks or money orders.
Integration is the final phase, when the money is now “clean” from structuring through other financial systems and is treated as cash from legitimate, legal sources. The perpetrators use the clean money to further their criminal activity.
Other examples of how money is laundered include:
- Real Estate. Dirty money can be used to make a cash purchase of a property, and when the property is sold, the profits will appear to be clean.
- Cash businesses. The perpetrator can infuse the dirty money into a business that normally handles a lot of cash, such as a nightclub, so the illegally obtained funds appear to come from legitimate customers.
- It is legal to win money at a casino, so in this method, the perpetrator can buy chips, be seen gambling with some of it, and then cashing in all of the chips. The dirty money is then clean.
- Altered Business Documents. The perpetrator will falsify invoices and other documentation to disguise the dirty money as clean profits.
- Banks. The owner or operator of a financial institution can use their bank as a conduit for dirty money to transfer it to other banks. A number of well-known banks, including Wachovia and HSBC, have been implicated in money laundering crimes. Shell banks and shell companies are common ways to move dirty cash.
Massachusetts Money Laundering Laws
Money laundering is defined as a crime in the Commonwealth of Massachusetts under General Law, Part IV, Title I, Chapter 271A, To be a charged with a money laundering crime, the perpetrator must be suspected of:
- Possessing funds obtained from illegal activity (defined as a crime punishable in Massachusetts by time in state prison, or a felony in other states) for the purpose of furthering that illegal activity.
- Being involved in a financial transaction with funds obtained from illegal activity for the purpose of furthering that illegal activity, and knowingly doing so to obscure the source of the funds and/or to avoid detection by the authorities by structuring.
Under Massachusetts law, funds involved in criminal activity can include currency (U.S. or foreign), checks, credit cards, stocks, casino chips, and precious gems. Financial institutions which can be involved in money laundering are not limited to traditional banks and credit unions, but also pawn brokers, car dealerships, and betting shops. Additionally, a transaction is defined not only as deposits or withdrawals from banks but also gifts, sales or purchases of merchandise, stocks or bonds, or using a safe deposit box.
In a well-known Massachusetts money laundering case, the defendants were indicted for laundering money obtained from drug trafficking through a number of businesses in Boston and Hanover, including a restaurant and an electronics store. A months-long wiretap investigation called Operation Good Fortune revealed that one of the perpetrators was trafficking marijuana and moving the proceeds through the restaurant via electronic transfers. The defendants also dealt in stolen or falsified gift cards to purchase Apple products which we then sold overseas. Some of the dirty money was exchanged for foreign currency which was then sold to customers at a discounted exchange rate.
The authorities seized more than $250,000 in cash from one of the defendants, which was stashed in their vehicle under boxes of frozen meat headed for the restaurant.
Money laundering in Massachusetts carries the following penalties:
- A maximum of six years in state prison, and/or a fine of the greater of $250,000 or two times the value of the money laundered for the first offense.
- A minimum of two years and a maximum of eight years in state prison, and/or a fine the greater of $500,000 or three times the amount of the value of the money laundered for additional offenses.
Federal Money Laundering Crimes
Money laundering crimes under federal law are defined under 18 U.S.C. § 1956. It is unlawful to:
- Promote the continued success of a specified unlawful activity
- Attempt to conceal or disguise the nature, source or control of unlawfully acquired proceeds
- Avoid a state or federal transaction reporting requirement.
Penalties for federal money laundering include:
- A maximum of 20 years in prison, and/or $500,000 fine or twice the amount of the property laundered.
Domestic money laundering: It is unlawful to knowingly engage in a financial transaction using funds obtained by criminal activity. The source of funds must be from a specified unlawful activity, including racketeering charges such as murder, kidnapping, extortion, arson, gambling, robbery or drug trafficking; as well as bribery or fraud.
A transaction can include a sale, purchase, loan, gift, deposit, withdrawal or exchange of currency to or from a financial institution. A financial transaction is defined as the movement of money including via a wire transfer, the transfer of a title of property, a vehicle, boat or plane; or involving a financial institution engaged in activity across states or internationally.
International money laundering:
Federal laws about international money laundering are similar to domestic money laundering, but the prosecution needs to show that the funds were transported, or attempted to be transported, outside the US border in order to constitute an international money laundering crime.
In an example of an international money laundering scheme, a group of perpetrators, based in Europe, advertised cars for sale online. The unsuspecting buyers wired funds to the imposter sellers’ bank accounts, which were based in the United States. Other players involved in the scheme had previously traveled to the US and opened bank accounts based on false IDs. They withdrew the funds and after they were laundered, transferred them back to Europe. More than $3 million was profited by the perpetrators, and eight of them were indicted.
Investigating Money Laundering Crimes
Authorities count on paper trails left by transactions to investigate money laundering crimes.
- Banking records are often included in criminal court cases involving organized crime, and can be obtained through freedom of information requests.
- Since proceeds from criminal activity frequently end up in real estate purchases, property records can provide evidence of how dirty money ends up invested in a beachfront mansion or luxury vineyard.
- Company records reveal details about finances, property transactions, and shareholders.
- Import-export databases can identify fictitious commercial operations moving money from overseas.
These activities may also trigger suspicion of money laundering:
- Owning a business that operates primarily by cash
- Flipping a property for short term profit
- Deposits of cashier’s checks or money orders
- Business records showing an unusual increase in profits
- Owning a financial institution where laundered funds have been deposited
Defenses Against Money Laundering Crimes
- The prosecution must prove that the defendant had specific intent in the money laundering crime – that they knowingly committed money laundering to achieve a specific result. If the prosecution cannot prove beyond a reasonable doubt the defendant knowingly moved or transacted funds gained from illegal activity with the intent of obscuring its origin and using it to further the illegal activity, then the defendant cannot be found guilty of money laundering.
- The defendant may have been under duress when involved in money laundering, meaning they were threatened or sincerely believed they would be harmed if they did not commit the crime.
- A conviction relies on appropriate evidence. If there is insufficient evidence that the defendant knowingly obscured the origin of illegally obtained funds, or that the funds actually came from an illegal source, the defendant can not be convicted of money laundering.
If you have been charged with money laundering, Riccio Law’s experienced legal team will expertly handle your case and defend your rights. Contact us today for a free consultation.