• Military
• WMD
• Intelligence

• Security Menu                     

• Systems
• Industry
• Operations
• Hot Documents
• News
• Reports
• Policy
• Budget
• Congress
• Links

• Space

TESTIMONY PRESENTED TO THE HOUSE SUBCOMMITTEE ON CRIME

Hearing on Money Laundering Act of 1999

Prepared Statement of Ian M. Comisky

February 10, 2000

Distinguished Members of the Committee. I appreciate the opportunity to testify with respect to proposed amendments to the money-laundering statutes. After graduating from the University of Pennsylvania Law School, I clerked for the Honorable Alfred Luongo of the District Court for the Eastern District of Pennsylvania. I was then an Assistant District Attorney in Philadelphia and an Assistant United States Attorney in the Southern District of Florida before joining my present firm Blank Rome Comisky & McCauley, LLP in 1980, which now has over 350 attorneys. I have lectured both nationally and internationally to government agencies, attorneys, accountants and financial institutions on money-laundering and related issues. I am co-author of a treatise entitled "Tax Fraud and Evasion" which includes in Volume 2, chapters on money-laundering and asset forfeiture. My practice includes white collar criminal defense and compliance-related work on behalf of our firm's financial institution clients. Hopefully, therefore, I bring to the discussion a different prospective and view with respect to these money-laundering proposals.

Over the years, Congress has attacked money-laundering using two different approaches. Legislation was initially enacted as far back as 1970, and expanded during the 1980's to require currency reporting for financial and other transactions where none had existed before. Congress, thereafter, began to attack money-laundering directly by enacting specific money-laundering offenses. In general, the statutes prohibit engaging in certain kinds of transactions with "tainted money." The proposals I will discuss today describe amendments both to the currency reporting and the money-laundering statutes. Due to the short time-frame involved to study the proposals, I am limiting my remarks to certain selected proposals dealing with money-laundering. I will then discuss global issues that Congress may wish to consider in connection with any review of these statutory provisions. In general, Congress should review several of the proposals with caution and may wish to consider broader clarifying legislation with respect to various elements of the statutory framework in need of revision.

The currency reporting and money-laundering statutes are already powerful tools in the government's arsenal. They provide for significant criminal penalties, including heavy sentences under the Sentencing Guidelines, see U.S.S.G. § 2S, fines, and the specter of civil and/or criminal asset forfeiture. The "mean" money-laundering sentence, as reported by the United States Sentencing Commission for fiscal year 1998, was 35.9 months for a Category I offender. 1998 Sourcebook of Federal Sentencing Statistics, Table 14. Amendments are proposed to both 18 U.S.C. § 1956, the 20-year felony dealing with the laundering of monetary instruments and 18 U.S.C. § 1957, a statute which provides almost strict liability for those engaging in monetary transactions with property derived from specified unlawful activities.

Section 7 of the proposed legislation seeks an amendment to 18 U.S. C. § 1956(c)(6) to include a foreign bank, a defined term, with the definition of a "financial institution." This proposal, however, cannot be examined in a vacuum because the term is included in other definitional provisions. The term "financial institution" is employed in 18 U.S.C. § 1956(b)(4) as part of the definition of a "financial transaction." The term "financial transaction" is defined, in part, to include "(B) a transaction involving the use of a financial institution which is engaged in, or the activities of which affect, interstate

or foreign commerce in any way or degree. . . ." 18 U.S.C. § 1956(a)(1) then prohibits conduct by "[w]hoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity."

The proposed amendment would thus seem to provide domestic jurisdiction for conduct which occurs entirely outside the United States through a foreign bank. At present, it is clear that a financial transaction occurring entirely outside the United States is not subject to the scope of the money-laundering laws. See United States v. Kramer, 73 F.3d 1067 (11th Cir.), cert. denied, 519 U.S. 1011 (1996). 18 U.S.C. § 1956(f) already provides for some extraterritorial jurisdiction if the conduct is by a U.S. citizen, or if by a non-U.S. citizen, the conduct occurs in part in the United States and the transaction involves over $10,000. I believe that caution should be exercised before expanding the potential reach of the statute to include purely off-shore transactions when a U.S. citizen is involved or, alternatively, foreign transactions involving a non-U.S. citizen if some overt act, perhaps a single telephone call in furtherance of an alleged money-laundering conspiracy, occurs in the United States.

Section 8 of the proposal also seeks to expand the reach of the statute by enacting new categories of specified unlawful activity. I believe that several of the expanded definitions should be subject to scrutiny and study before enactment. The proposal includes as a new predicate offense, "fraud or any scheme to defraud committed against a foreign or individual entity, an individual residing in a foreign country, a foreign government, or foreign governmental entity." Existing case law currently permits the government to charge as money-laundering a scheme involving foreign governmental victims. See United States v. Trapilo, 130 F.3d 547 (2d Cir. 1997), cert. denied sub nom. Pierce v. United States, 119 S. Ct. 45 (1998).

Trapilo sustained a money-laundering conviction with respect to a scheme to defraud involving the smuggling of liquor to avoid Canadian taxes. The court examined the scheme with reference to existing domestic wire and mail fraud law. See 18 U.S.C. § 1343 and 18 U.S.C. § 1341. The proposed amendment does not specify whether the fraud or the scheme to defraud would require a determination of foreign law and an application of foreign law to the money-laundering statute. For instance, one can readily conceive of circumstances where an individual could be subject to a "fraud" type charge where the same conduct would not be considered a crime in the United States. See McNally v. United States, 483 U.S. 350 (1987); United States v. D'Amato, 39 F.3d 1249 (2d Cir. 1994); United States v. Brown, 79 F.3d 1550 (11th Cir. 1996) (discussing limits of mail fraud statute). If some change is to be made, it should be grounded as in Trapilo and rely on existing applications of the mail and wire fraud law.

The statute also includes a new specified unlawful activity for an "offense with respect to which the United States would be obligated by a multilateral treaty either to extradite the alleged offender or to submit the case for prosecution. . . ." It is unclear what multilateral treaties would be brought into play, and perhaps the better approach here would be to list the multilateral treaties and the specific type of predicate offenses which the government believes would be swept into the money-laundering statute by adding this new specified unlawful activity.

If this Committee is to examine the specified unlawful activities predicate of the money-laundering statutes, review of the existing case law that has developed with respect to mail fraud and wire fraud is appropriate with a view toward clarifying the use of certain of the predicate offenses. Congress intended the money-laundering statutes to impose incremental punishment on those who engage in the predicate offenses and then in subsequent financial transactions with the "tainted funds." In most circumstances, the statute requires and the case law provides that the underlying criminal offense must be completed and "proceeds" created before a money-laundering charge can be brought. Stated another way, the government is required to prove a second financial transfer, rather than an initial transfer of funds, before charging money-laundering. See United States v. Johnson, 971 F.2d 562 (10th Cir. 1992) (18 U.S.C. § 1957 decision); United States v. Christo, 129 F.3d 578 (11th Cir. 1997).

In cases involving mail fraud, wire fraud and similar predicate offenses, however, there is emerging case law that the crime is completed upon the creation of the scheme and, therefore, the first financial transaction is sufficient to create a money-laundering offense. See generally United States v. Kennedy, 64 F.3d 1465 (10th Cir. 1995); United States v. Pretty, 98 F.3d 1213 (10th Cir. 1996), cert. denied, 520 U.S. 1266 (1997) (18 U.S.C. § 666 predicate offense); United States v. Mankarious, 151 F.3d 694 (7th Cir.), cert. denied, 119 S. Ct. 621 (1998) (attempting to harmonize rulings under mail fraud, wire fraud and bank fraud statutes). This conflates the underlying offenses of mail fraud with the money-laundering offense and permits a money-laundering charge based upon conduct identical to that required to establish the underlying predicate offense. Incremental punishment is achieved with no incremental conduct under some of these cases.

On a broader level, in connection with any proposed amendments, the Committee may wish to consider revision of other statutory provisions which have created significant

divisions among the courts under existing law. The government almost always charges that the defendant either promoted the carrying on of a specified unlawful activity and/or concealed the location or source of the proceeds. 18 U.S.C. § 1956(a)(1)(A)(i) prohibits conducting a financial transaction "with the intent to promote the carrying on of specified unlawful activity." The promotion element of the statute has resulted in significant conflicts among the circuit courts as to whether one can promote a completed, as opposed to ongoing, criminal scheme. Compare United States v. Calderon, 169 F.3d 718 (11th Cir. 1999) (suggesting that one can only promote ongoing criminal activity) with United States v. Cavalier, 17 F.3d 90 (5th Cir. 1994); United States v. Paramo, 998 F.2d 1212 (3d Cir. 1993), cert. denied, 510 U.S. 1121 (1994); United States v. Montoya, 945 F.2d 1068 (9th Cir. 1991) (promotion of completed scheme). The Committee may wish to consider reviewing this case law and clarifying whether the statute should reach the promotion of past or just future conduct.

The most often used section of the money-laundering statute is 18 U.S.C. § 1956(a)(1)(B) which prohibits engaging in a financial transaction "knowing that the transaction is designed in whole or in part - (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity. . . ." In general, courts have held that the statute does not prohibit the mere spending of money. Nonetheless, instead of employing the statute to charge money-laundering with respect to sophisticated schemes to conceal, prosecutors have charged any asset acquisition as concealment money-laundering. Case law, thus, varies dramatically from circuit to circuit as to whether a particular purchase, or titling of property, is sufficient to establish an intent to conceal. Compare United States v. Stephenson, 183 F.3d 110 (2d Cir.), cert. denied, 120 S. Ct. 517 (1999) (open and notorious purchase of vehicle in defendant's own name insufficient to establish intent to conceal); United States v. Dobbs, 63 F.3d 391 (5th Cir. 1995) (deposit of proceeds of fraudulent cattle sales into wife's bank account and conversion of sales checks into a number of small cashier's checks insufficient to establish intent to conceal); United States v. Olaniyi-Oke, ___ F.3d ___, ___, 1999 WL 1269165 (5th Cir. 1999) (purchase of computers for use unrelated to underlying credit card scheme insufficient to establish intent to conceal) with United States v. Willey, 57 F.3d 1374 (5th Cir), cert. denied, 516 U.S. 1029 (1995) (bankruptcy fraud scheme employing checks issued by corporation to a co-defendant to pay the mortgage on a property controlled by the defendant; holding that concealing the defendant's relationship to the proceeds was sufficient to establish an intent to conceal); United States v. Wilkinson, 137 F.3d 214 (4th Cir.), cert. denied, 119 S. Ct. 172 (1998) (corporation diverted funds from an insurance provider designed to finance physician's accounts receivable and later transferred funds to original owner to make required interest payments; holding sufficient evidence to establish intent to conceal); United States v. Powers, 168 F.3d 741 (5th Cir.), cert. denied, 120 S. Ct. 360 (1999) (scheme to defraud gas producer by inserting middleman to purchase and resell gas; deposit of funds into account of corporation owned by defendant and his wife prior to transfer to a personal account held sufficient to establish intent to conceal). Congress may wish to clarify that "money spending" is not prohibited and to change the language with respect to the type of concealment activity (perhaps sophisticated concealment) warranting conviction under this money-laundering statute.

Finally, any review of the statute should undertake an examination of the applicable sentencing guidelines. The circuit courts continue to struggle with whether the guidelines for money-laundering offense overstate the seriousness of the criminal activity for those not involved in narcotics or large-scale organized frauds. See, e.g., United States v. Skinner, 946 F.2d 176 (2d Cir. 1991); United States v. Smith, 186 F.3d 290 (3d Cir. 1999); United States v. Hemmingson, 157 F.3d 347 (5th Cir. 1998).

Section 17 of the proposed legislation deals with the concept of commingled accounts under 18 U.S.C. § 1957 and is worthy of comment. It appears to have been drafted to overrule a specific decision of the Ninth Circuit, United States v. Rutgard, 108 F.3d 1041 (9th Cir. 1997), which required the government to show a tracing of funds in order to obtain an 18 U.S.C. § 1957 convictions. The proposal then goes on to provide "clarifying" amendments with respect to commingled funds for purposes of 18 U.S.C. § 1956.

The proposal actually contains two separate provisions with respect to 18 U.S.C. § 1957. First, it amends the statute to provide that any transaction of more than $10,000 from a commingled account would be presumed to consist of specified unlawful activity proceeds. The commentary relies on United States v. Banco-Cafetero of Panama, 797 F.2d 1154 (2d Cir. 1986), a civil forfeiture case which provided a first out "presumption" for civil forfeiture purposes. 18 U.S.C. § 1957, however, is a criminal statute creating almost strict liability for financial transactions involving over $10,000 of specified unlawful activity proceeds. The statute is of special concern to financial institutions because it contains none of the knowledge or intent requirements of 18 U.S.C. § 1956. Financial institutions face difficult issues in this area because of the requirement that they investigate customer conduct and file Suspicious Activity Reports ("SARs") for questionable transactions. See 31 U.S.C. §5318(g); 31 C.F.R. § 103.21. Institutions which engage in financial transactions on behalf of their customers after filing a SAR may run afoul of 18 U.S.C. § 1957 and are subject to charter revocation if convicted. See 12 U.S.C. § 1818. This proposed amendment should be carefully examined. For example, when an account has $1 million dollars of proceeds of which $10,000 are allegedly tainted, any transaction from the account could be charged by the government as an 18 U.S.C. § 1957 violation up to the full amount of funds contained in the account, or the funds in the account as later replenished. As proposed, the use of the account would forever be prohibited. Similarly, if $10,000 were placed in an account containing more significant sums, $10 million, $20 million or more, the account would still be tainted. As written, a binding presumption would be created subject to constitutional challenge as eliminating a required element of a money-laundering offense. See Sandstrom v. Montana, 442 U.S. 510 (1979).

Second, the proposal would add a "structuring" provision for 18 U.S.C. § 1957 for amounts under $10,000. Since its inception, the statute has contained a monetary threshold of over $10,000 because of its strict penalties and broad scope. I recommend that Congress carefully review whether it wants to permit aggregated transactions, that is, structured deposits under the $10,000 limit but in toto exceeding the limit, under a statute which requires none of the intent or knowledge requirements imposed by 18 U.S.C. § 1956. Such a provision would also place an additional burden on financial institutions to monitor non-cash transactions of its customer's accounts.

Finally, section 22 of the proposal includes a new crime for bulk cash smuggling. The government's stated view is that by creating a new 31 U.S.C. § 5331, the limits imposed by the Supreme Court under the Eighth Amendment Excessive Fines Clause would be circumvented. The offense of bringing money into or out of the country can already be punished under two different statutes, 18 U.S.C. § 1001 and 31 U.S.C. § 5316. I question whether the creation of an additional statute, including a proportionality provision providing guidance for a district court in determining whether the forfeiture is excessive under the Eighth Amendment Excessive Fines Clause, serves any useful purpose.

I am happy to answer any questions.

M:\COMISKY.IM\ARTICLES\Testimony to House Committee 02-08-2000.wpd