Money Laundering

views updated Jun 11 2018

MONEY LAUNDERING

The process of taking the proceeds of criminal activity and making them appear legal.

Cuellar v. United States

In June 2008, the U.S. SUPREME COURT determined that a criminal defendant who had hidden several thousands of dollars in his car should not have been found guilty of violating a federal money laundering statute . The decision in Cuellar v. United States, No. 06–1456, 2008 WL 2229165 (2008), reversed the judgment of the Fifth Circuit Court of Appeals and resolved a split of authority among several lower federal appellate courts.

A Texas police officer named Kevin Herbert pulled over Humberto Fidel Regaldo Cuellar on July 14, 2004. Cuellar was driving south towards Del Rio, Texas in a Volkswagon Beetle. Del Rio is directly across the border from Acuna, Mexico. Herbert had observed Cuellar driving very slowly at 40 miles per hour in a 70 mile per hour zone.

Herbert also saw Cuellar swerve onto the shoulder of the highway, leading Herbert to believe that Cuellar was intoxicated.

After Herbert stopped Cuellar, the officer called in a state trooper named Danny Nunez for assistance because Herbert could not speak Spanish. While Herbert and Cuellar waited for Nunez, Herbert attempted to determine whether Cuellar had insurance. Cuellar handed Herbert some papers from the car's glove compartment. Cuellar then exited the car without Herbert asking him to do so and lifted the hood of the trunk at the front of the car. This act alerted Herbert that Cuellar might be trying to divert attention from another area of the car where contraband may be kept.

None of the papers that Cuellar handed were insurance. These papers instead consisted of such items as bus tickets and certain Mexican permits. When Nunez arrived, he questioned Cuellar about where he was traveling. Cuellar acted nervously and avoided making eye contact with Nunez, which made Nunez become suspicious. Several of Cuellar's stories contradicted one another. During the conversation, Nunez saw a bulge in Cuellar's pocket and asked Cuellar about it. It turned out to be a wad of cash that smelled like marijuana to the officers.

With Cuellar's consent, the officers conducted a search of the vehicle. They saw evidence of drill marks on the fender walls as well as evidence of tampering with the gas tank. This evidence suggested that someone may have hidden contraband in or around the gas tank. The officers also saw mud that had apparently been splashed on the car, which was also a sign that someone had tried to hide tool marks or other evidence of work done on a car in an effort to hide contraband.

The interior of the car was also suspicious. The officers noted that some of the carpet looked newer than other parts, which were faded and worn. Moreover, the officers found animal hair near the rear of the car but not towards the front. Some criminals evidently use animal hair to try to confuse dogs, though police experts note that this tactic does not work. Other items in the car, such as a receipt from a fast food restaurant, suggested that Cuellar was dishonest in telling the officers where he had been.

When the canine unit arrived, the dogs discovered money below the car's back floorboard area. In a hidden compartment the officers discovered $83,000 wrapped in bundles in Walmart bags and duct tape. The bags were marked with a Sharpie, indicating the amount in each bundle. The officers located a Sharpie, along with other tools, in the glove compartment of the car. After his arrest, Cuellar continued to tell conflicting stories to the officers regarding his travels.

Cuellar was prosecuted for violating the international money laundering statute at 18 U.S.C. 1956(a)(2). Under this statute, the government was required to prove that the transportation used by Cuellar was designed to “conceal or disguise the nature, the location, the source, the ownership, or the control” of the money. A jury convicted Cuellar after a two-day trial, and the trial judge sentenced Cuellar to 78 months in prison.

A divided panel of the Fifth Circuit Court of Appeals reversed Cuellar's conviction. According to Judge Jerry Smith of the court, though the evidence may have shown that Cuellar had concealed the money for the purpose of transporting it, for the statute to apply, the purpose of the transportation itself must have been to conceal or disguise the unlawful proceeds. In other words, the transportation must have been undertaken to give the appearance of legitimate wealth, since this is the goal of someone attempting to launder money. Cuellar v. United States, 441 F.3d 329 (5th Cir. 2006).

The Fifth Circuit reheard the case en banc and reversed the panel's decision. Judge Eugene Davis, who had dissented in the panel opinion, wrote the majority opinion for the en banc court. According to Davis' opinion, Cuellar had violated the statute, in large part, due to his extensive efforts to hide the nature, location, source, ownership or control of the funds. Judge Smith dissented, stressing the difference between “concealing something to transport it, and transporting something to conceal it,” with only the latter implicating the money laundering statute. Cuellar v. United States, 478 F.3d 282 (5th Cir. 2007).

The U.S. Supreme Court granted certiorari on October 15, 2007 and heard oral arguments on February 25, 2008. During the oral arguments, several justices posed questions based on hypotheticals, pondering how far criminal liability under the statute would extend. Some of the discussion focused on the title of the statute regarding money laundering, with several justices asking why that title would be appropriate if the statute also applied to a defendant concealing money to transport it. Justice RUTH BADER GINSBURG noted, “On the government's theory, anyone who transports hidden money to get it out of the country, who drives the car, just the driver, is a money launderer.”

A unanimous Supreme Court agreed with the government's position to some extent but nevertheless reversed Cuellar's conviction. According to an opinion by Justice Clarence Thomas, Congress had intended for the money laundering statute to cover a broader range of activities than the title might suggest. Thus, the Court agreed that it covers transportation that is designed to conceal or disguise the location, ownership, or control of the funds. With regard to Cuellar, however, the Court could not conclude that the merely hiding the funds was enough to violate the statute. Cuellar instead must have known that the design of his transportation was to conceal or disguise the nature, location, source, ownership, or control of the money. Since the government had failed to prove that Cuellar had the requisite purpose to violate the statute, the Court held that the conviction could not stand.

American Law Yearbook 2008

Money Laundering

views updated May 14 2018

Money Laundering

BIBLIOGRAPHY

Money laundering, also known as “cleaning of money,” is the practice of engaging in specific financial transactions in order to conceal the identity, source, or destination of money. Money laundering is a main operation of the underground economy. “Dirty money” is useless to organized crime because it leaves a trail of incriminating evidence. Criminals who wish to benefit from the proceeds of crime have to disguise their illegal revenues without implicating themselves. Therefore, money laundering is a process whereby the origin of funds generated by illegal means such as drug trafficking, gun smuggling, corruption, bribery, embezzlement, fraud, and extortion is concealed. The objective of the operation, which usually takes places in several stages, is to make illegally gained assets appear as though they are derived from a legitimate source. Money laundering is a dynamic process that requires three stages: placement, or moving the funds from direct association with the crime; layering, or disguising the trail to foil pursuit; and integration, or making the money available to the criminal once again with its occupational and geographic origins hidden from view. The consequences of money laundering are detrimental to business, economic development, government, and the rule of law. Money laundering increases the demand for cash, makes interest and exchange rates more volatile, and causes high inflation. The drainage of financial resources from ordinary economic growth is detrimental for the whole economy. Most importantly, money laundering empowers corruption and organized crime.

Money laundering is not a new phenomenon; it is as old as crime itself. However, the forms and dimensions of this type of crime have evolved and have become more sophisticated as a result of the rapid growth of globalization, integration, and economic liberalization, as well as dramatic developments in the provision of financial information, in technology, and in communications. Illegal money can be moved anywhere in the world with speed and ease. Tax havens (offshore centers) that offer stability, quality of service, and bank secrecy allow criminals to shield money in complex networks of shell companies. At the same time, the escalation of the drug market and the globalization of organized crime have led to an increased international awareness of the problem of money laundering. The International Monetary Fund (IMF) estimates that money laundering accounts for between 2 and 5 percent of the world’s Gross Domestic Product (GDP), or about $600 billion annually.

While the term money laundering was once only applied to financial transactions related to organized crime, its definition has expanded. The term today covers any financial transaction that generates an asset or value as the result of an illegal act, including tax evasion or false accounting. Accordingly, in addition to members of organized crime, individuals, small and large businesses, government officials, and even national governments can be considered money launderers. However, the authorities have reacted primarily to the danger of abuse of the financial market by criminal organizations. Over the years, national and international agencies have created a new relationship between law enforcement authorities and those involved in the financial sector, allowing for a united fight against money laundering. In addition, since September 11, 2001, there has been a coordinated attempt, especially in the United States, to cut off terrorist financing. Through the aggressive pursuit of money trails, law enforcement hopes to identify and capture criminals and terrorists and to deny terrorist entities the funds necessary to finance further acts of terror.

SEE ALSO Capital Flight; Corruption; Drug Traffic; Finance

BIBLIOGRAPHY

Alldridge, Peter. 2003. Money Laundering Law: Forfeiture, Confiscation, Civil Recovery, Criminal Laundering, and Taxation of the Proceeds of Crime. Oxford: Hart Publishing.

Beare, Margaret E., ed. 2003. Critical Reflections on Transnational Organized Crime, Money Laundering, and Corruption. Toronto: University of Toronto Press.

Camdessus, Michel. 1998. Money Laundering: The Importance of International Countermeasures. Washington, DC: International Monetary Fund.

Jain, Arvind K., ed. 1998. Economics of Corruption. Boston: Kluwer Academic Publishers.

Jain, Arvind K., ed. 2001. The Political Economy of Corruption. London and New York: Routledge.

Naylor, R. T. 1987. Hot Money and the Politics of Debt. New York: Linden Press/Simon and Schuster.

Aristidis Bitzenis

John Marangos

International Encyclopedia of the Social Sciences

Money Laundering

views updated May 17 2018

MONEY LAUNDERING

The process of taking the proceeds of criminal activity and making them appear legal.

Laundering allows criminals to transform illegally obtained gain into seemingly legitimate funds. It is a worldwide problem, with approximately $300 billion going through the process annually in the United States. The sale of illegal narcotics accounts for much of this money. Those who commit the underlying criminal activity may attempt to launder the money themselves, but increasingly a new class of criminals provides laundering services to organized crime. This new class consists of lawyers, bankers, and accountants.

Criminals want their illegal funds laundered because they can then move their money through society freely, without fear that the funds will be traced to their criminal deeds. In addition, laundering prevents the funds from being confiscated by the police.

Money laundering usually consists of three steps: placement, layering, and integration. Placement is the depositing of funds in financial institutions or the conversion of cash into negotiable instruments. Placement is the most difficult step. The easiest way to begin laundering large amounts of cash is to deposit them into a financial institution. However, under the federal Bank Secrecy Act of 1970 (BSA), 31 U.S.C.A. §§ 5311 et seq., financial institutions are required to report deposits of more than $10,000 in cash made by an individual in a single day. To disguise criminal activity, launderers route cash through a "front" operation; that is, a business such as a check-cashing service or a jewelry store. Another option is to convert the cash into negotiable instruments, such as cashier's checks, money orders, or traveler's checks.

Layering involves the wire transfer of funds through a series of accounts in an attempt to hide the funds' true origins. This often means transferring funds to countries outside the United States that have strict bank-secrecy laws. Such countries include the Cayman Islands, the Bahamas, and Panama. Once deposited in a foreign bank, the funds can be moved through accounts of "shell" corporations, which exist solely for laundering purposes. The high daily volume of wire transfers makes it difficult for law enforcement agencies to trace these transactions.

Integration involves the movement of layered funds, which are no longer traceable to their criminal origin, into the financial world, where they are mixed with funds of legitimate origin.

Many banks did not comply with the BSA during the 1970s and early 1980s. Following several federal investigations where it was revealed that banks had failed to report billions of dollars of cash transactions, reporting requirements were strengthened. Congress also enacted the Money Laundering Control Act of 1986 (MLCA), 18 U.S.C.A. §§ 1956 et seq. This statute criminalizes money laundering itself. It centers its attention on the criminals and conspirators who seek to launder the proceeds of illegal activity, including merchants, bankers, and members of the professions who assist criminals with money laundering. Another provision of the MLCA authorizes the government to confiscate all property that is traceable to violations of laws against money laundering.

After the september 11th attacks on the United States in 2001, the federal government began to investigate more closely the connection between terrorism and the sale of illegal drugs. According to President george w. bush, "[T]errorists use drug profits to fund their cells to commit acts of murder. If you quit drugs, you join the fight against terror in America." Terrorists have laundered money through such foreign countries as Colombia and Afghanistan. In September 2002, the drug enforcement administration opened a museum exhibit in New York entitled "Target America: Traffickers, Terrorists and You" in an effort to educate the American public about the connection between drug sales and terrorism.