Mr. Chairman, Congressman Scott, and Members of the Subcommittee, thank you for the opportunity to testify in support of the Administration's anti-money laundering legislation, the Money Laundering Act of 2000.
Our current money laundering laws, which are found primarily in title 18, U.S. Code, Sections 1956, 1957 and 1960, and title 31, U.S. Code, Section 5324, were enacted for the most part in 1986, and have changed very little since that time. Those statutes have served us well. Every year, in more than 2000 cases, criminals who seek to hide the proceeds of their criminal acts are brought to justice under these provisions of the law.
When the money laundering laws were enacted in 1986, however, they were designed to address what was then primarily a domestic problem. Today, we see money laundering as an international problem. Currency, monetary instruments and electronic funds flow easily across international borders allowing criminals in foreign countries to hide their money in the United States, and allowing criminals in this country to conceal their ill-gotten gains in any one of hundreds of countries around the world, all with little concern that their activities will be detected by law enforcement.
The reality of international money laundering in this new century has caused countries from Northern Europe to South Africa, and from here in the West to the financial centers of the Far East, to look for ways to update their domestic laws to address this threat to our security. Equally important, countries around the globe are searching for ways to work together to address this problem jointly, irrespective of our different legal systems, customs and traditions. The criminals respect no borders; their criminal proceeds move from country to country in the blink of an eye, making it absolutely essential that our laws be brought up to date, and are changed to make it possible to cooperate fully with our partners in law enforcement abroad.
The United States should be the leader in this process, but sadly we are falling behind. While our laws have remained mostly static for 14 years, other countries are moving ahead to criminalize international money laundering and to take other steps to separate the criminal from his criminal proceeds. Too often, we in the United States find ourselves unable to render the kind of assistance to foreign law enforcement that we ask them to render to us. And too often, we find ourselves standing idly by as criminals find new ways to circumvent our laws by moving criminal proceeds overseas. It is time to act.
The Administration's Anti-Money Laundering Strategy
The President in the State of the Union address said:
"...the major security threat this country will face will come from the enemies of the nation state: the narco-traffickers and the terrorists and the organized criminals, who will be organized together...[and] I'm going to send you new legislation to go after what these drug barons value the most - their money. And I hope you'll pass that..."
The Money Laundering Act of 2000 sets out a core group of statutory tools that we must have in order to meet the domestic and transnational organized crime threats of the 21st Century. Both Attorney General Reno and Secretary of the Treasury Summers consider passage of this legislation as essential to increasing our ability to succeed in disrupting and dismantling the business of organized crime. The Act will give us additional tools to attack the critical infrastructure of money laundering organizations and to do, more effectively, what the President has called for - depriving the drug barons and other criminals of what they value most - "their money."
At the G-8 Ministerial Conference on Combating Transnational Organized Crime (Moscow, October 19-20, 1999) Attorney General Reno and the other Ministers issued a Communique which addressed, inter alia, the fight against the "dark side of globalization."
"The financial crime and money laundering activities of transactional organized crime are a threat to the national security of all nations. Money laundering epitomizes the globalization of crime and has created a class of professional money launderers and money laundering organizations. International cooperation and a multi disciplinary approach to block the laundering of illegally acquired proceeds are essential elements of the fight against serious transnational organized crime and will help ensure an environment which promotes official integrity and is intolerant of corruption."
International criminals today engage in a wide range of illegal activities and move vast sums of money through the international financial system - dwarfing the combined economies of many nations.
In September 1999 Secretary of the Treasury Summers and Attorney General Reno issued the Administration's National Money Laundering Strategy for 1999, calling for a broad-based international and domestic program to combat money laundering. Justice and Treasury have worked very closely together to implement the Strategy. One of the key Action Items is the legislation you are considering today.
Money laundering taints our financial institutions, and, where allowed to thrive, it erodes public trust in their integrity. In an age of rapidly advancing technology and globalization, it can affect trade flows and ultimately disturb financial stability. Money laundering is a threat to the national security of the United States.
We work closely with the Treasury and State Departments everyday in carrying out our responsibilities to investigate and prosecute money laundering and to seize and forfeit the proceeds of transnational organized crime. Our goal and that of our colleagues is to ensure that criminals and their laundered money can find no safe haven anywhere in the world and especially in the United States, and to destroy the criminal organizations by taking the profit out of crime.
As Secretary Summers has stated:
"The attack on money laundering is an essential front in the war on narcotics and the broader fight against organized crime worldwide. Money laundering may look like a polite form of white collar crime, but it is the companion of brutality, deceit and corruption."
Foreign Proceeds in the United States
I would like to focus on the two principal problems that are addressed by this legislation, starting with the laundering of the proceeds of foreign crimes by foreign criminals who conceal their money in the United States. This problem has been much discussed in Congress and in the media for the past year, and I will not dwell on it long. I will say only that it is now apparent, as it has been for some time, that criminals abroad - are causing the proceeds of crime to be deposited in U.S. bank accounts, invested in U.S. securities, and used to purchase U.S. goods and services. We do not want the United States to become the haven for the world's criminal proceeds. It should be a crime for a foreign criminal to use our domestic financial institutions to launder the proceeds of his foreign crime. Except in a few instances, our current laws do not address this problem.
Under Section 1956 and 1957, it is a crime to launder the proceeds of three categories of foreign crimes in the United States: drug trafficking, bank fraud, and violent crimes linked to terrorism. The proceeds of consumer fraud, or public corruption, or racketeering, loansharking, trading in arms and military secrets, or in endangered species are simply not covered. Our present law does not make it a crime to conceal or even to spend the proceeds of any of these offenses in the United States.
Our proposal, the Money Laundering Act of 2000, contains a number of provisions that will give law enforcement some of the tools it needs to arrest this growing problem.
Section 8 expands the list of "predicate crimes" to include most serious foreign offenses. Thus, it would be a federal offense, punishable under Section 1956 or 1957, to launder the proceeds of any of the foreign offenses listed in the statute, including any offense for which extradition is available under a multilateral treaty.
In addition, Section 4 would allow a federal judge to freeze the U.S. bank account, for a period of 30 days, of any person arrested abroad, to give federal and foreign authorities an opportunity to gather whatever evidence may be required to commence a formal action against the defendant or the property. This is something that we in federal law enforcement routinely ask of our counterparts in foreign countries - to freeze the assets in that country of the criminal we have arrested here. If the situation were reversed, the United States might not be able to comply with a foreign country's request to freeze the criminal's assets in the U.S.
Section 26 allows us to render additional assistance by commencing a formal action to confiscate foreign criminal proceeds that are found in the U.S. Under current law, we are permitted to initiate such confiscation actions only against the proceeds of foreign drug trafficking offenses.
As an alternative, Section 25 creates a mechanism whereby a foreign country that has already obtained a confiscation order under its law can ask a federal court to enforce that order in the United States. The provision in Section 25 is modeled on the Canadian statute, and would put the United States in compliance with Article V of the Vienna Convention against drugs. That provision, like others in similar international agreements, calls on the member States to recognize each other's judicial orders regarding the confiscation of criminal proceeds that have moved from one country to another.
Finally, Section 27 closes a loophole in the present statute that authorizes us to share the confiscated funds with other countries that participate in the law enforcement action.
Laundering U.S. Proceeds Abroad
Let me turn now to the other side of this problem: what occurs when a criminal who commits a crime in the United States wants to launder the proceeds of his offense by sending the money abroad. This can occur with respect to all manner of crimes: telemarketing fraud, sports betting, and many other offenses now being committed in ways that routinely result in the transfer of funds out of the United States to Canada, the Caribbean, Latin America, or some place else. The problem is enormous with respect to drug trafficking, alone.
Drug traffickers have an enormous logistical problem: after they have gone through the trouble of growing, manufacturing, importing and distributing their product, they must find a way of dealing with the money that they receive in return. If the proceeds of cocaine trafficking are received in "street money," i.e., equal numbers of 5, 10 and 20 dollar bills, the money will weigh 3 ½ times as much as the cocaine. If an airplane is used to smuggle cocaine into the United States, the same airplane would have to fly out of the U.S. three-and-a-half times to return the drug proceeds to the trafficker. The laundering of the drug money thus becomes the most difficult - and most vulnerable - part of the drug trafficking cycle.
The money laundering stage is when the criminal is most vulnerable for several reasons. First, it exposes him to the greatest risk of loss. If the cocaine coming into the U.S. is seized by law enforcement, it can be easily replaced for a fraction of its street value. In other words, if a drug trafficker suffers the loss of a load of powder cocaine having a street value of $1 million, he can replace it in South America for a fraction of that amount. He has not yet completed the distribution process that results in the conversion of his product into cold, hard cash. But if the drug dealer suffers the loss of the $1 million in cash, he loses his entire investment plus all the mark-ups and profits that accrue along the way as he moves the cocaine to its final distribution sites. It is for that reason that we see the confiscation of the drug proceeds as perhaps the most important weapon we have to interrupt the trafficking cycle, and it is why the traffickers go to such great lengths to conceal their proceeds from law enforcement.
Also, the laundering stage presents great difficulty for the drug trafficker because of the success we in law enforcement have had in keeping the drug traffickers' proceeds out of the banking system. A legitimate businessman who took in a large quantity of cash from a his grocery store or restaurant would simply deposit the cash in a bank, often on a daily basis. But a drug dealer cannot do that, because in depositing his money in a bank he will create a paper trail - the Currency Transaction Report (CTR) that all banks are required to file - detailing his identity and the time, place and amount of his cash transaction. Creating such a paper trail is the last thing that a drug trafficker wants to do.
Because of our success in enforcing the CTR and other requirements of the Bank Secrecy Act (31 U.S.C. § 5312 et seq.), drug dealers and other criminals are forced to conceal and transport their money outside of the banking system, and therein lies our opportunity to identify, investigate, and prosecute them.
Black Market Peso Exchange
There are many methods used by drug traffickers to move their drug proceeds from the stash houses where it collects in New York, Los Angeles and other cities, large and small, back to South America. One of the most pervasive is the Black Market Peso Exchange.
The scheme works like this: A drug trafficker has a large quantity of cash - say $1 million in the proceeds of drug sales - in a stash house. What he really wants is local currency, such as Colombian pesos, at home in South America, where he can spend the money for labor, raw material, equipment, and to live a luxurious life style. To minimize or avoid altogether the risk in repatriating his proceeds, the drug trafficker is willing to pay a substantial premium to someone - a money exchanger, also known as a money broker or casa de cambio - to handle the money for him.
Money
exchangers
operate
legitimate
businesses
throughout
South America
- and
particularly
in Colombia,
Brazil,
Venezuela,
Peru and
Ecuador -
exchanging
local
currency for
U.S. dollars.
There are
also many
money
exchangers
who will
handle drug money, for high fees or to obtain the money at a greatly discounted
rate.
In this scenario, the drug trafficker sells the money exchanger the money in the stash house for, perhaps, $800,000 worth of local currency, such as Colombian pesos. The top half of the diagram illustrates this exchange. When it is completed, the dollars in the stash house belong to the money exchanger, who has paid for them with local currency delivered to the trafficker in South America. Thus, at the earliest stage, the drug trafficker has received what he wanted (local currency at home) and transferred the problem (the stash of U.S. dollars) to the money exchanger who is now responsible for the money still in the U.S.
The money exchanger does not want to keep this money, of course. His business involves selling U.S. dollars to people, such as South American businessmen who need dollars to pay for imported goods like cigarettes, electronics, jewelry, airplanes, farm machinery and anything else that is exported from the U.S., Europe or Asia to South America.
The South American importer who needs dollars to pay for his imports could go to a local bank and buy dollars at the official exchange rate, but he will do better if he goes to the money exchanger and buys dollars that the money exchanger obtained at a steep discount. In this example, the South American importer might pay $900,000 in local currency for $1 million in U.S. dollars.
The importer needs the dollars to pay off the invoices he has received from the exporters in the U.S. and elsewhere who have shipped him goods. So the third party importer (in the lower right corner of the diagram) gives local currency to the money exchanger and instructs the money exchanger to send the dollars to a designee (the exporter) in the U.S., or Italy or Hong Kong, or wherever. The diagram shows the transaction being completed when the money exchanger delivers the dollars to the South American importer's designee.
In this scheme, all have profitted. The drug trafficker has his money at home, the importer has paid for his goods (with cheap dollars), the exporter has been paid for his exports, and the money exchanger has made a handsome profit. (Because, as the diagram illustrates, there are several sets of parallel transactions, the black market is sometimes referred to as the "parallel market.")
This kind of transaction is extremely common. In case after case, in Operation Casablanca, Operation Skymaster, Operation Juno, and others in the last 2 years, we have traced money from a drug trafficking organization through a money exchanger only to find it in the hands of a jewelry exporter in Milan, or an airplane manufacturer in Texas, or an electronics firm somewhere else. And there can be no doubt that the exporters who are accepting drug money in payment for their merchandise through this system are an essential link in the money laundering scheme.
How does the money exchanger get the dollars to the third party's designee?
The diagram is, of course, oversimplified. In particular, it glosses over the most
difficult part of the operation for the money exchanger, that is, converting the
dollars he has acquired in the stash house (in the upper left of the diagram) into
funds he can use to pay the third party or his designee (in the lower left). The
next diagram
expands this
left half of
the operation
to illustrate
how the money
exchanger
accomplishes
this
conversion.
The money
exchanger has
several ways
in which to
turn his hoard
of cash into
useable funds.
First, he can
"smurf" the
money into his
U.S. bank
account. (All
money
exchangers
maintain U.S.
bank accounts
to facilitate
dollar
transactions.)
"Smurfing" is the crime of turning cash into monetary instruments, such as money
orders or travelers checks, or into bank deposits, in amounts structured under
$10,000 so as not to generate a Currency Transaction Report. "Smurfing" is slow and
labor-intensive, but it is still done.
Second, the money exchanger can collaborate with a U.S.-based money remitter to have the money wired to a designated bank account overseas. Money remitters are commonplace in neighborhoods throughout the United States and conduct a legitimate business sending money to family members in foreign countries. Thus, money remitters are already engaged in a high-volume cash business, and can easily disguise the money received from the money exchanger as legitimate funds destined for families of immigrants "back home." Of course, the money, as the remitter well-knows, is actually drug proceeds that, for a fee, the remitter is willing to deposit in his own bank account and wire to the money exchanger's bank account abroad. When this is accomplished, the money exchanger has his money in a foreign bank.
Finally, and perhaps most commonly, the money exchanger can simply smuggle the cash in bulk out of the United States by means of a courier, container ship, airplane or by some other means. The smuggling usually occurs in several stages: a courier does a "pick-up" of cash at the stash house and transfers the money to another courier; the second courier drives the cash southbound on the interstate, or to a place on the southwest border, or turns it over to another courier in a city with a major airport; finally, the last courier (or a group of couriers who divide up the money to reduce the risk of loss) either carries the money physically across the border, or boards a commercial airline flight and flies with the currency in his luggage or concealed on his person.
It is this physical movement of cash that explains the large number of out-bound currency interdiction cases that have come before the federal courts in the last few years - cases involving currency seizures on highways, at airports, in marine terminals, and at border crossings. See United States v. $129,727.00 U.S. Currency, 129 F.3d 486 (9th Cir. 1997) (drug courier intercepted with large quantity of cash in bundles wrapped in fabric softener sheets and plastic wrap); United States v. One Lot of U.S. Currency ($36,674), 103 F.3d 1048 (1st Cir. 1997) (cash seized from courier at airport); United States v. $39,873.00, 80 F.3d 317 (8th Cir. 1996) (currency seized during highway stop); United States v. $189,825.00 in U.S. Currency, 8 F. Supp. 2d 1300 (N.D. Okla. 1998) (cash found concealed in gas tank on highway known as a "drug pipeline"); Albajon v. Gugliotta, ___ F. Supp.2d ___, 1999 WL 1049616 (S.D. Fla. Sept. 7, 1999) ($57,000 cash found in courier's socks and pants) ; United States v. $86,020.00 in U.S. Currency, 1 F. Supp. 2d 1034 (D. Ariz. 1997) (cash taken from courier traveling under false name); United States v. $9,135.00 in U.S. Currency, 1998 WL 329270 (E.D. La. 1998) (courier caught with cash stuffed in pockets and shoes); United States v. $206,323.56 in U.S. Currency, 998 F. Supp. 693 (S.D. W. Va. 1998) (courier caught fleeing from highway stop); United States v. $263,448.00 in U.S. Currency, Civ. No. 1:96-CV-284-HTW (N.D. Ga. Sept. 24, 1998) (unpub) (21-year old drop-out with no source of income caught at airport with $263,000 in street money in a carry-on bag).
Once the currency has been smuggled out of the country, the money exchanger has many options. He can deposit the money in a foreign bank and wire it to his account in the U.S., or directly to the third-party's designee. He can use it to buy foreign bank drafts - essentially cashiers checks written on the bank's own correspondent account in the U.S. - and then deposit the bank drafts into his own account or deliver them to the third party's designee. Or he can, through a complex process, use the cash to buy personal checks, money orders and travelers checks from people traveling to and from the U.S., and then send those instruments back to the United States for deposit into his own account, or deliver them directly to the third party's designee. (The travelers are instructed always to leave the payee field blank on their checks and money orders so that it is easier to negotiate them later.)
It is not unusual to see millions of dollars in the form of foreign bank drafts and sequentially numbered personal checks, travelers checks and money orders passing through the U.S. bank account of a large scale money exchanger.
In sum, through this process, or some variation thereof, the money exchanger performs his task of converting a stash house full of cash into funds that he can easily transfer to an exporter designated by a South American businessman as the recipient of the U.S. dollars the businessman has purchased from the money exchanger.
Proposed legislation
This proposed legislation can help law enforcement break this money laundering cycle. Referring again to the diagram, there are a number of points where we could interrupt the flow of the laundered money, if we had the tools to do so.
First, as set forth in Section 22, we must make bulk cash smuggling a crime. It is a crime to smuggle all manner of things, from jewels to guns to CD's to rhino horns, but it is not a crime to smuggle currency. The only criminal offense associated with bulk cash smuggling is the reporting requirement in 31 U.S.C. § 5316, which makes it an offense to transport more than $10,000 in or out of the United States without filing a report with the Customs service. See 31 U.S.C. § 5322(a). The Supreme Court has held that a reporting violation is a minor offense for which the punishment is limited. See United States v. Bajakajian, 524 U.S. 321 (1998). In that case, the Court limited the punishment to the confiscation of $15,000, even though the defendant had been convicted of a criminal offense involving the failure to report $357,000 that was concealed in the false bottom of a suitcase and under his wife's clothing.
It is time to recognize that the smuggling of cash in large quantities is itself a serious offense that merits significant punishment, including loss of the smuggled money itself. We note that Section 22 has already been separately introduced by Chairwoman Roukema of the Banking and Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit.
Second, as set forth in Section 23, we should make it an offense to transport criminal proceeds in interstate commerce. In other words, we should make it a crime for the currency courier to transport money that he knows is criminal proceeds on the interstate highways, at airports or border crossings. Current law does not make being a currency courier a criminal offense. See United States v. Puig-Infante, 19 F.3d 929 (5th Cir. 1994) (transporting drug proceeds from Florida to Texas is not a money laundering "transaction"); United States v. Gonzalez-Rodriguez, 966 F.2d 918 (5th Cir. 1992) (carrying cash through an airport is not a money laundering transaction).
Next, we can tighten up the law on money remitters. Section 3 clarifies the mens rea requirement in the existing law, 18 U.S.C. § 1960, to ensure that we can prosecute money remitters who knowingly operate their businesses without a state license. See United States v. Velastegui, ___ F.3d ___, 1999 WL 1136863 (2d Cir. Dec. 13, 1999) (defendant prosecuted for operating money remitter business without New York license).
Section 6 gives us "long-arm" jurisdiction so that we can file an enforcement action against a foreign bank that knowingly participates in a money laundering offense in the United States. Current law, 18 U.S.C. § 1956(b), already authorizes such lawsuits, but it has two major short-comings. First, the absence of a long-arm statute makes it difficult for a court in the United States to obtain jurisdiction over the foreign bank, even if it committed the money laundering offense here. Second, current law contains no mechanism for freezing the U.S. assets of the foreign bank - i.e., its correspondent account, so that the United States is able to collect its judgment if it prevails in its § 1956(b) lawsuit. Section 6 addresses both problems.
Section 16 would apply when we bring a criminal action against a money exchanger or other person involved in this scheme, but he remains a fugitive. Current law allows fugitives to contest the confiscation of the property they leave behind by proxy, i.e., through counsel. The fugitive from justice should be forced to make a choice: either surrender to face the criminal charges or stay abroad and suffer the consequences. A fugitive should not have the option of flouting the jurisdiction of the criminal court while at the same time availing himself of the opportunity to use the same court to preserve his interest in the criminal proceeds he left behind. Section 16 forces the fugitive to make this choice by codifying what is known as the "fugitive disentitlement doctrine."
Likewise, Section 5 would apply when a money launderer attempts to frustrate the government's attempt to establish the connection between his property and a criminal offense by hiding behind the bank secrecy laws of a foreign country. Those challenging the confiscation of criminal proceeds should not be allowed to use the law as both as sword and a shield simultaneously. If bank records that are material to a money laundering or other criminal case are in a "bank secrecy" jurisdiction, the defendant must choose between waiving the bank secrecy laws or withdrawing his claim to the disputed property. He cannot have it both ways.
We also need to focus on the third party (or designee) who is the ultimate recipient of the laundered drug money. As described earlier, that person plays an essential role in this process. If he were not willing and able to purchase the drug money on the black market, this entire money laundering scheme would come to a halt. Unfortunately, the only means we have of deterring black market customers is to seize the money from their bank accounts under 18 U.S.C. § 981, but that statute has proven to be an ineffective deterrent because it allows a black market customer to recover his property on a simple showing that he did not know that the money came from an illegal source. See United States v. Funds Seized From Account Number 20548408 at Baybank, N.A., 1995 WL 381659 (D. Mass. 1995) (wealthy Colombian who purchased 182 dollar-denominated money orders totaling $100,000 was innocent owner; he had no duty to inquire as to source of the money); United States v. Real Property 874 Gartel Drive, 79 F.3d 918 (9th Cir. 1996) (in contrast to other innocent owner statutes, claimant in a money laundering case governed by § 981(a)(2) can prevail simply by showing lack of knowledge; there is no requirement that claimant take all reasonable steps to avoid acquiring criminal proceeds); United States v. $705,270.00 in U.S. Currency, 820 F. Supp. 1398, 1402 (S.D. Fla. 1993) (because § 981(a)(2) does not contain a consent prong, the "all reasonable steps" test does not apply).
We think that the bar should be raised just a little higher. Under Section 15, black market customers would be required to show that they took all reasonable steps to verify that the funds in question were not derived from criminal activity. Many will be able to meet that standard; but some will not, and that will put all on notice that the days when money can be freely laundered through the black market are over.
Finally, I would like to highlight two provisions that will apply whenever we succeed in bringing criminal charges against a money launderer and have brought him before the court. First, Section 20 gives the criminal court the authority to order the defendant standing before it to bring his laundered criminal proceeds back into the United States or face contempt of court sanctions. Second, for cases where it impossible to locate the laundered criminal proceeds, or impossible to recover them from a foreign country, Section 32 gives the criminal court the authority to freeze the U.S. assets of the defendant so that they are available to satisfy a money judgment that may be imposed as part of the sentence at the conclusion of the criminal case. See United States v. Voigt, 89 F.3d 1050, 1084, 1088 (3rd Cir. 1996) (government is entitled to a personal money judgment equal to the amount of money involved in the money laundering offense); United States v. Saccoccia, 823 F. Supp. 994, 1006 (D.R.I. 1993) (court enters money judgment for the amount laundered, $136 million, most of which the defendant had transferred overseas), aff'd 58 F.3d 754 (1st Cir. 1995); United States v. Saccoccia, 898 F. Supp. 53, 56 (D.R.I. 1995) (the money judgment may be satisfied out of the laundered funds, property traceable thereto, or substitute assets).
The courts are, at present, divided as to whether current law already authorizes such pre-trial restraint. The issue is one of statutory interpretation. Compare In Re Billman, 915 F.2d 916 (4th Cir. 1990) (pre-trial restraint of substitute property is authorized); United States v. Scardino, 956 F. Supp. 774 (N.D. Ill. 1997) (holding that reference to "subsection (a)" property in § 853(c) applies to substitute assets, and stating, in dicta, that the same would apply to pre-trial restraint under § 853(e)); United States v. O'Brien, 836 F. Supp. 438 (S.D. Ohio 1993) (government entitled to pre-trial order restraining substitute assets); with United States v. Gotti, 155 F.3d 144 (2d Cir. 1998) (pre-trial restraint not authorized); United States v. Floyd, 992 F.2d 498 (5th Cir. 1993); In Re Assets of Martin, 1 F.3d 1351 (3rd Cir. 1993); United States v. Ripinsky, 20 F.3d 359 (9th Cir. 1994); United States v. Field, 62 F.3d 246 (8th Cir. 1995).
Section 32 resolves the ambiguity in the current law, making it clear that a money launderer's assets can be restrained if a money judgment may be imposed upon conviction in a criminal case.
Corrections to close other loopholes
The remaining elements of the bill seek to plug loopholes or correct errors in the statutes that have been discovered over the past decade.
For example, as representatives of the Department have testified before, in money laundering cases where the underlying crime is some type of fraud, one of the principal purposes of bringing the case is to recover the laundered fraud proceeds so that they can be restored to the victim. Some money laundering statutes allow the Attorney General to restore the property to the victims, but some do not. Section 28 corrects this unevenness in the money laundering statutes.
In addition, current law, except in the Second Circuit, requires every financial transaction to be charged as a separate offense, even if identical transactions are conducted repeatedly on a regular basis. See United States v. Prescott, 42 F.3d 1165 (8th Cir. 1994) (charging multiple financial transactions as a continuing course of conduct in a single count is duplicitous); United States v. Conley, 826 F. Supp. 1536 (W.D. Pa. 1993) (dismissing duplicitous charge with leave to refile); but see United States v. Gordon, 990 F. Supp. 171 (E.D.N.Y. 1998) (single money laundering count charging multiple financial transactions not duplicitous where all transactions were part of single continuous scheme; applying U.S. v. Margiotta, 646 F.2d 729 (2nd Cir. 1981) (multiple mailings may be charged in single mail fraud count)). In major cases, this can lead to indictments that resemble the Manhattan telephone directory. Section 11 will allow prosecutors to charge a money laundering scheme as a "course of conduct" in one count in an indictment.
Section 12 is needed to update the venue provision in the money laundering statutes in light of the Supreme Court's decision in United States v. Cabrales, 524 U.S. 1 (1998). The amendment permits the prosecutor to charge the money laundering offense in the district where the underlying crime occurred, as long as the money launderer committed at least some act in that district. This allows prosecutors to join money laundering cases with charges for the underlying crime, instead of having to indict and try the cases separately in two different districts.
Finally, a most important revision to the existing statutes is needed to overcome a controversial decision of the Court of Appeals for the Ninth Circuit. Under Section 1957, the government must prove that at least $10,000 in criminally-derived funds was involved in the financial transaction. The problem arises when a defendant puts more than $10,000 in criminal proceeds into a bank account and commingles it with other funds before conducting a transaction in excess of $10,000. The following diagram illustrates this scenario.
When a criminal commingles $100,000 in criminal proceeds with $100,000 in money from an unknown source, the "clean money" and the "dirty money" are indistinguishable from each other. Whether the subsequent transfer of more than $10,000 from the commingled account constitutes a money laundering offense under Section 1957 turns on whether the court assumes that the "dirty money" moves first or last.
In United States v. Rutgard, 108 F.3d 1041 (9th Cir. 1997), a defendant, who had deposited fraud proceeds into a California bank account and commingled it with other money, got wind of the criminal investigation and transferred a large portion, but not all, of the commingled funds to the Isle of Man. The government charged the defendant with a Section 1957 offense, alleging that it was logical to assume that the defendant had transferred the fraud proceeds overseas and left the "clean money" in California. But the Ninth Circuit held that defendants are entitled to a presumption that the criminal proceeds are the "last out" of a commingled bank account. Thus, the conviction was reversed.
We do not believe that the Congress intended this result when it enacted 18 U.S.C. Section 1957. To address the problem, Section 17 provides that transactions in excess of $10,000 from commingled bank accounts involve the required amount of criminal proceeds as long as at least $10,000 in such proceeds were deposited into the commingled account at an earlier point in time.
CONCLUSION
For all of these reasons, we strongly believe that the Money Laundering Act of 2000 is long overdue legislation needed to update our money laundering laws, to address the international movement of the proceeds of crime, and to give law enforcement the tools necessary to confront the real-world problems before us at the beginning of the 21st Century.
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