International Law

Effect of Congress Amending Money Laundering Statute

By Rick Rein

Money laundering refers to a process where "dirty" money is rendered clean. The techniques and ways to launder are endless. Nonetheless, the concept is the same. It involves channeling the ill-gotten funds into the legitimate financial system. It then involves obfuscation by employing a series of complex, second-level transactions designed to separate the proceeds from their original origins. This aims to place barriers to link assets with the illicit source. Layering typically involves use of trusts, shell companies and a multitude of accounts. These accounts are frequently held in fictitious names or aliases or in the names of nominees or companies. Insurance and re-insurance vehicles are being used as well.

On May 20, 2009, the Fraud Enforcement and Recovery Act of 2009 ("FERA") was enacted. FERA amends the federal money laundering statute to extend the definition of "proceeds" under that statute to include the gross receipts of illegal activity, rather than just profits derived from it as the original definition described.

 It is a crime to conduct, or attempt to conduct, a financial transaction involving "the proceeds of specified unlawful activity" if the perpetrator knows that the property involved "represents the proceeds of some form of unlawful activity" and a) has the intent to promote the carrying on of the specific unlawful activity or b) has the intent to engage in conduct constituting a violation of the IRS Code or c) knows that the transaction is designed in whole or part to conceal or disguise the nature, the transaction location, the source, the ownership, or the control or the proceeds of the specified unlawful activity or d) knows that the transaction is designed in whole or part to avoid a transaction reporting requirement under federal or state law. 18 U.S.C. Section 1956 (a) (1) (A)-(B). Cross-border transport of such proceeds is also prohibited under Section 1956.

Thus, under the FERA, the proceeds that are the subject of Section 1956 are now gross receipts, rather than just profits. It makes proof of money laundering much easier since proof of ill-gotten funds are easier to develop, than a profit making analysis. For civil litigants, it is now simpler to establish money laundering as the basis of the fraud to convince foreign courts that the cross-border transport of ill-gotten funds should be restrained.

Full post as published by International Asset Recovery Law Blog on June 24, 2009 (boomark / email).