The North American Gaming Regulators Association

Sponsored by:

The North American Gaming Regulators Association

NAGRA Annual Conference 2008

June 10 – 13, 2008

Sheraton New Orleans

500 Canal Street

New Orleans, Louisiana 70130

“Money Laundering, Impact on Gaming Industry”

Charles W. Blau

MEADOWS, COLLIER, REED,

COUSINS & BLAU, L.L.P.

901 Main Street, Suite 3700

Dallas, Texas 75202

214-744-3700

TABLE OF CONTENTS

I.INTRODUCTION......

II.MONEY LAUNDERING......

A. The Money Laundering Offenses 18 U.S.C. §§1956 and 1957.....

1.Summary of §1956......

2.Summary of §1957......

B.Analysis and Discussion of 18 U.S.C. §1956......

1.Elements of the §1956 Offenses......

a.§1956(a)(1)(A) and (a)(2)(A) Offenses......

i.18 U.S.C. §1956(a)(1)(A)(i)

ii.18 U.S.C. §1956(a)(1)(A)(ii)

iii.18 U.S.C. §1956(a)(2)(A)

b.§1956(a)(1)(B) and (a)(2)(B) Offenses......

i.18 U.S.C. §1956(a)(1)(B)(i)

ii.18 U.S.C. §1956(a)(1)(B)(ii)

iii.18 U.S.C. §1956(a)(2)(B)(i)

iv.18 U.S.C. §1956(a)(2)(B)(ii)

c.18 U.S.C. §1956(a)(3)......

2.Expanded Territorial Jurisdiction......

3.Criminal Penalties......

4.Definition of Key Terms......

a.“Financial Transaction”......

b.“Transaction”......

c.“Monetary Instruments”......

d.“Funds”......

e.“Knowing That Property Represents Unlawful Proceeds”......

f."Proceeds”......

g.“Affects Commerce”......

h.“Intent to Promote”......

i.“Specified Unlawful Activities”......

j.“Design to Conceal”......

5.Notable Case Law Issues......

a.Constitutional Issues—Vagueness......

b.Charging Options......

c.Charging Single Count—Encompassing Multiple Acts......

d.Attempt......

6.Sentencing......

C.Analysis and Discussion of 18 U.S.C §1957......

1.Elements of the §1957 Offenses......

a.18 U.S.C. §1957(a) and (d)(1)......

b.18 U.S.C. §1957(a)(2)......

2.Criminal Penalties......

3.Definition of Key Terms......

a.Specific Knowledge......

b.Origin of Property......

c.Completed Offense......

d.Monetary Transaction......

e.Criminally Derived Property......

f.Specified Unlawful Activity......

g.Interstate Commerce......

h.$10,000 or More......

i.Criminally Derived Funds......

D.New Developments......

1.2007 National Money Laundering Strategy......

2.FinCEN—Cases Involving Bank Secrecy Act Violations......

3.Financial Regulations Issued to Insurance Companies......

4.Financial Regulations Issued for Section 312 of the USA Patriot Act.....

5.The Unlawful Internet Gambling Enforcement Act of 2006-31 U.S.C. 5361

E.Proposed Legislative Amendments......

1.Prevent Bank Fraud by Terrorists Act of 2003, H.R. 1037......

2.Non-Homeland Security Mission Performance Act of 2003, S. 910......

F.Sarbanes-Oxley Act of 2002......

1.The White Collar Crime Penalty Enhancement Act of 2002 (Sections 901-906).

2.U.S.C. § 1349 Attempt and Conspiracy (Section 902)......

3Mail Fraud/Wire Fraud......

4.ERISA......

5.Sentencing Guidelines......

6.Corporate Responsibility for Financial Reports (Section 906)......

G.Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act of 2001)

1.Subtitle A—International Counter Money Laundering and Related Measures

a.Special Measures for Jurisdictions, Financial Institutions, or International Transactions of Primary Money Laundering Concern: 31 U.S.C. § 5318A.

b.Special Due Diligence for Correspondent Accounts and Private Banking Accounts: 31 U.S.C. § 5318(i).

c.Prohibition on United States Correspondent Accounts with Foreign Shell Banks: 31 U.S.C. § 5318(j)

d.Cooperative Efforts to Deter Money Laundering......

e.Inclusion of Foreign Corruption Offenses as Money Laundering Crimes

f.Long-Arm Jurisdiction Over Foreign Money Launderers: 18 U.S.C. § 1956(b)

g.Laundering Money Through a Foreign Bank: 18 U.S.C. § 1956(c)(6)

h.Forfeiture of Funds in United States Interbank Accounts......

i.Financial Institutions Specified in Subchapter II of Chapter 53 of Title 31, United States Code

j.Report and Recommendation......

k.Verification of Identification......

l.Consideration of Anti-Money Laundering Record......

m.Criminal Penalties......

n.International Cooperation in Investigations of Money Laundering, Financial Crimes, and the Finances of Terrorist Groups

2.Subtitle B—Bank Secrecy Act Amendments and Related Improvements..

a.Amendments Relating to Reporting of Suspicious Activities: 31 U.S.C. § 5318(g)(3)

b.Anti-Money Laundering Programs: 31 U.S.C. § 5318(h)......

c.Penalties for Violations of Geographic Targeting Orders and Certain Record Keeping Requirements and Lengthening Effective Period of Geographic Targeting Orders: 31 U.S.C. §§ 5321(a)(1), 5322

d.Anti-Money Laundering Strategy......

e.Authorization to Include Suspicions of Illegal Activity in Written Employment References: 12 U.S.C. § 1828

f.Reporting of Suspicious Activities by Securities Brokers and Dealers, Investment Company Study.

g.Special Report on Administration of Bank Secrecy Provisions....

h.Bank Secrecy Provisions and Activities of United States Intelligence Agencies to Fight International Terrorism

i.Increase in Civil and Criminal Penalties for Money Laundering...

j.Reports Relating to Coins and Currency Received in Nonfinancial Trade or Business

k.Efficient Use of Currency Transaction Report System......

3.Subtitle C—Currency Crimes and Protection......

a.Bulk Cash Smuggling Into or Out of the United States: 31 U.S.C. § 5331

b.Forfeiture in Currency Reporting Cases: 31 U.S.C. § 5317(c)....

c.Illegal Money Transmitting Businesses: 18 U.S.C. § 1960......

d.Laundering the Proceeds of Terrorism: 18 U.S.C. § 1956(c)(7)(D)

e.Extraterritorial Jurisdiction: 18 U.S.C. § 1029......

H.Civil Monetary Penalties......

1.Union Bank......

2.Foster Bank......

3.American Express Bank International......

4.Beach Bank......

5.ABN AMRO Bank......

6.Oppenheimer & Company......

1

MONEY LAUNDERING

1. INTRODUCTION.

The federal money laundering statutes, 18 U.S.C. §§ 1956 and 1957, have become a standard indictment feature in most white-collar crime cases. The use of these statutes by the Justice Department has expanded rapidly in all areas of criminal activity. Based on the recent legislative proposals, this is not expected to change.

This paper presents a summary of the money laundering statutes. The focus is on recent legislative developments and case law.

1. MONEY LAUNDERING.

1. The Money Laundering Offenses 18 U.S.C. §§ 1956 and 1957. On October 27, 1986, President Reagan signed the Anti Drug Abuse Act of 1986; subtitle H of Title I of the Anti Drug Abuse Act is known as the “Money Laundering Control Act of 1986.” This statute introduced the new offenses of “laundering of monetary instruments,” codified as 18 U.S.C. §1956, and “engaging in monetary transactions in property derived from specified unlawful activities,” codified as 18 U.S.C. §1957. The government's use of these statutes has had farreaching implications in the prosecution of financial crime. Moreover, these broad statutes were further strengthened and amended in 1988, 1990 and 2001. Legislative proposals are again in Congress.

1. Summary of §1956. The provisions of §1956 criminalize any financial transaction which deals with the proceeds of a “specified unlawful activity” when the activity is aimed at furthering the criminal activity, concealing the source or ownership of the funds, or avoiding the reporting requirements of the Bank Secrecy Act.

1. Summary of §1957. The provisions of §1957 criminalize engaging in a monetary transaction in criminally derived property that is of a value greater than $10,000 and which is derived from a “specified unlawful activity.” The statute does not require that the funds be used for any additional criminal purpose.

1. Analysis and Discussion of 18 U.S.C. §1956.

1. Elements of the §1956 Offenses. There are eight separate money laundering offenses chargeable under 18 U.S.C. §1956. For these purposes, laundering of monetary instruments is divided into these subsections, §1956(a)(1) and (a)(2), which deal separately with domestic and international monetary transactions and § 1956(a)(3) which deals with government-sponsored money laundering. The government must prove in most prosecutions under 18 U.S.C. §1956 that the money derived or involved in the financial transaction actually came from the “specified unlawful activity.”

a.§1956(a)(1)(A) and (a)(2)(A) Offenses. In charging a person with a violation of 18 U.S.C. §1956(a)(1)(A), the government must show that the person charged knew that the funds involved in the financial transaction were from a criminal source, that the money came from one of the “specified unlawful activities,” and that the person conducted the transaction with the intent to promote the “specified unlawful activity,” i.e., an attorney knowingly effects a financial transaction with drug-related funds to purchase a plane which is used in drug smuggling.

1. 18 U.S.C. §1956(a)(1)(A)(i). Conducting a financial transaction, knowing that the property represents the proceeds of some form of unlawful activity and the transaction in fact involved a “specified unlawful activity” or was intended to promote a “specified unlawful activity” is prohibited under 18 U.S.C. §1956(a)(1)(A)(i).

1. 18 U.S.C. §1956(a)(1)(A)(ii). Conducting a financial transaction, knowing that the property represents the proceeds of some form of unlawful activity and the transaction in fact involves proceeds of a “specified unlawful activity” with intent to engage in conduct constituting a violation of 26 U.S.C. §7201 or 26 U.S.C. §7206 is prohibited under 18 U.S.C. §1956(a)(1)(A)(ii).

1. 18 U.S.C. §1956(a)(2)(A). Transporting, transmitting or transferring, or attempting to transport, transmit, or transfer a monetary instrument into or out of the United States with the intent to promote the carrying on of a “specified unlawful activity” is prohibited under 18 U.S.C. §1956(a)(2)(A).

In 1998, Congress amended the statutory language of “transports or attempts to transport” to “transports, transmits, or transfers, or attempts to transport, transmit, or transfer, a monetary instrument” into or out of the United States with intent. This change was made to clarify the term “transports” in the prior statute, since there was a question under the prior law as to whether that term also included “transmits or transfers.”

1. §1956(a)(1)(B) and (a)(2)(B) Offenses. Under 18 U.S.C. §1956(a)(1)(B) and (a)(2)(B), an added element of proof is that the defendant knew that the monetary transaction was conducted to conceal or disguise the nature, the location, the source, the ownership or control of the proceeds of the “specified unlawful activity.” Thus, a violation of §1956(a)(1)(B) has occurred if the transaction involved was in part aimed at concealing or otherwise disguising the source and ownership of the funds or property, the defendant knew that the money was derived from some criminal source, and the funds came from the designated list of “specified unlawful activities.”

1. 18 U.S.C. §1956(a)(1)(B)(i). Conducting a financial transaction, knowing that the property represents the proceeds of some form of unlawful activity and that the transaction in fact involves “specified unlawful activity” proceeds, which transactions were designed to conceal or disguise, the ownership, nature, location, source or control of the illegal proceeds of one of the “specified unlawful activities” is prohibited under 18 U.S.C. §1956(a)(1)(B)(i).

1. 18 U.S.C. §1956(a)(1)(B)(ii). Conducting a financial transaction, knowing that the property represents the proceeds of some form of unlawful activity and that the transaction in fact involves “specified unlawful activity” proceeds, which transactions were designed to avoid Federal/State monetary reporting requirements is prohibited under 18 U.S.C. §1956(a)(1)(B)(ii).

1. 18 U.S.C. §1956(a)(2)(B)(i). Transporting, transmitting or transferring, or attempting to transport, transmit, or transfer a monetary instrument into or out of the United States knowing that the monetary instrument or funds involved in the transportation represent the proceeds of some form of unlawful activity and knowing that such transportation in whole or in part was to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of the “specified unlawful activity” is prohibited under 18 U.S.C. §1956(a)(2)(B)(i).

1. 18 U.S.C. §1956(a)(2)(B)(ii). Transporting, transmitting or transferring, or attempting to transport, transmit, or transfer a monetary instrument into or out of the United States knowing that the monetary instrument or funds involved in the transportation represent the proceeds of some form of unlawful activity and knowing that such transportation in whole or in part was designed to avoid the reporting requirements of the Bank Secrecy Act is prohibited under 18 U.S.C. §1956(a)(2)(B)(ii).

1. 18 U.S.C. §1956(a)(3). Conducting or attempting to conduct a financial transaction with the requisite intent (same as §1956(a)(1) and (a)(2)) involving property “represented by” a law enforcement officer to be the proceeds of a “specified unlawful activity” or property used to conduct or facilitate a “specified unlawful activity” is prohibited under 18 U.S.C. §1956(a)(3).

1. Expanded Territorial Jurisdiction. Congress has also provided for “extraterritorial jurisdiction” in §1956 money laundering cases. Under 18 U.S.C. § 1956(f), jurisdiction for a potential violation of the law now extends to a United States citizen anywhere in the world or to a non-citizen who has been involved in conduct, part of which occurs in the United States. The extraterritorial application of this statute requires, however, that the transactions or series of transactions involved have a total value of more than $10,000.

1. Criminal Penalties. The criminal penalty for a violation of 18 U.S.C. §1956 is a maximum of 20 years imprisonment and a fine of $500,000, or twice the value of the monetary instruments or funds involved in a transaction or transportation, whichever is greater. 18 U.S.C. §§1956(a)(1), (2), and (3).

1. Definition of Key Terms.

1. “Financial Transaction”. The term “financial transaction” is broadly defined in 18 U.S.C. §1956(c)(4)(A) as a transaction, which in any way or degree affects interstate or foreign commerce, (i) involving the movement of funds by wire or other means, or (ii) involving one or more monetary instruments, or (iii) involving the transfer of title to any real property, vehicle, vessel, or aircraft. Under 18 U.S.C. §1956(c)(4)(B), a “financial transaction” is also defined as 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. The 2006 amendments to § 1956(a)(1) offenses, provide that a financial transaction “shall be considered to be one involving the proceeds of specified unlawful activity if it is part of a set of parallel or dependent transactions, any one of which involve the proceeds of specified unlawful activity, and all of which are part of a single plan or arrangement.”

1. “Transaction”. According to 18 U.S.C. §1956(c)(3), the term “transaction” is defined to include the purchase, sale, loan, pledge, gift, transfer, delivery, or other deposition, and with respect to a financial institution includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, use of a safe deposit box, or any other payment, transfer, or delivery by, through, to a financial institution, by whatever means effected.

Courts have determined that the following transactions fall into the ambit of the money laundering statute:

1. Procuring a loan to buy an automobile. United States v. Davis, 205 F.3d 1335 (4th Cir. 2000).

1. Selling an automobile. United States v. Meschak, 225 F.3d 556, 572 (5th Cir. 2000); see also United States v. McLamb, 985 F.2d 1284, 1292 (4th Cir. 1993); United States v. Kaufmann, 985 F.2d 884, 889 (7th Cir. 1993).

1. Submitting a false theft claim to an insurer. United States v. Cavalier, 17 F.3d 90, 92 (5th Cir. 2000).

1. Wiring funds to drug couriers. United States v. Prince, 214 F.3d 740, 750 (6th Cir. 2000); United States v. King, 169 F.3d 1035,1039 (6th Cir. 1999).

1. Paying illegally obtained gambling winnings. United States v. Febus, 218 F.3d 784, 790 (7th Cir. 2000).

1. Depositing funds in a bank account. United States v. Baker, 227 F.3d 955, 962 (7th Cir. 2000); United States v. Jolivet, 224 F.3d 902, 909 (8th Cir. 2000); see alsoUnited States v. Haun, 90 F.3d 1096, 1100 (6th Cir. 1996); United States v. Reynolds, 64 F.3d 292, 297 (7th Cir. 1995).

1. Posting a bail bond. United States v. France, 164 F.3d 203, 208 (4th Cir. 1999).

1. Withdrawing money from a bank account. United States v. Gregg, 179 F.3d 1312 (11th Cir. 1999).

1. Running a casino chip-cashing scheme. United States v. Manarite, 44 F.3d 1407, 1414 (9th Cir. 1995).

1. Cashing checks from fraudulently obtained loan proceeds. United States v. Cancelliere, 69 F.3d 1116, 1120 (11th Cir. 1995).

1. Cashing embezzled checks at a bank. United States v. Paramo, 998 F.2d 1212, 1215 (3d Cir. 1993).

1. Transferring cashier’s checks. United States v. Arditti, 955 F.2d 331, 338 (5th Cir. 1992).

1. Paying a money order. United States v. Koller, 956 F.2d 1408, 1410-11 (7th Cir. 1992).

1. Writing a check in conjunction with a payroll check laundering scheme. United States v. Isabel, 945 F.2d 1193, 1201 (1st Cir. 1991).

1. Cashing a check for cash from account containing illicit proceeds. United States v. Jackson, 935 F.2d 832, 841 (7th Cir. 1991).

1. Transferring title to a truck. United States v. Blackman, 904 F.2d, 1250, 1257 (8th Cir. 1990).

Despite the breadth of activities that are considered financial transactions, mere transportation or receipt of drug proceeds generally does not create liability under the statute. See e.g., United States v. Stephenson, 183 F.3d 110, 121 (2d Cir. 1999); United States v. Reed, 77 F.3d 139, 143 (6th Cir. 1996); United States v. Heaps, 39 F.3d 479, 486 (4th Cir. 1994); United States v. Puig-Infante, 19 F.3d 929, 938 (5th Cir. 1994). But, courts typically find that transportation combined with delivery of drug proceeds is sufficient to constitute a financial transaction. See, e.g., United States v. Abrego, 141 F.3d 142, 158-60 (5th Cir. 1998); United States v. Gough, 152 F.3d 1172, 1173 (9th Cir. 1998).

1. “Monetary Instruments”. The term “monetary instruments” has been broadly defined in 18 U.S.C. §1956(c)(5) to include coins or currency of the United States or of any other country, traveler's checks, personal checks, bank checks, money orders, investment securities in such form that title thereto passes upon delivery, and negotiable instruments in bearer form or otherwise in such form that title thereto passes upon delivery. The Senate Judiciary Committee commented that the term also included cashier's checks. S. Rep. No. 433, 99th Cong., 2d Sess. 13 (1986).

1. “Funds”. The term “funds”generally means “pecuniary resources” and includes cashier's checks, which are not explicitly mentioned in the statutory definition of “monetary instrument.” United States v. Arditti, 955F.2d 331, 338 (5th Cir. 1992).

1. “Knowing That Property Represents Unlawful Proceeds”. The term “knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity” means that the individual knew that the property involved in the transaction represented proceeds from some form, though not necessarily which form, of activity that constitutes a felony under state, federal, or foreign law. 18 U.S.C. §1956(c)(1). See United States v. Isabel, 945 F.2d 1193, 1201 (1st Cir. 1991). Note that there is no proceeds element in §§ 1956(a)(2) or (a)(3).

1. “Proceeds”. While Congress did not define “proceeds,” the courts have interpreted the term broadly to include much more than monetary instruments. See e.g., United States v. One 1997 Mercedes E420, 175 F.3d 1129, 1132 (9th Cir. 1999) (cars); United States v. Diaz, 190 F.3d 1247, 1257 (11th Cir. 1999) (a house); United States v. Ladum, 1328, 1340 (9th Cir. 1998) (rent payments); United States v. Estacio, 64 F.3d 477, 480 (9th Cir. 1995) (line of credit). However, tax and cost savings from hiring illegal aliens did not give rise to “proceeds” capable of being laundered. United States v. Khanani, ---F.3d--, 2007 WL 2826968 (11th Cir. Oct. 2, 2007), (“proceeds does not contemplate profits indirectly derived from labor or from the failure to remit taxes”).

In United States v. Morelli, 54 F.3d 770 (3d Cir. 1999), defendants argued that the transactions that were the subject of their convictions did not involve the proceeds of fraud; the court rejected their arguments and affirmed their convictions. The defendants engaged in a series of transactions that resulted in the embezzlement of excise taxes from fuel sales.

Defendant Morelli argued that the government failed to prove that any of the transactions involved proceeds of fraud since the government offered no proof of wire transfers occurring after the point at which the taxes should have been collected. The court rejected this argument and held that the money became the proceeds of the fraud as soon as it entered the hand of the member's scheme. The court also rejected Morelli's argument that the money was not proceeds of wire fraud because the money came into the possession of the scheme as a result of fraud before any of the wirings involving the money occurred. The court emphasized that the scheme succeeded as a result of each and every wiring within each and every series of transactions. Accordingly, the money within each series of transactions was the proceeds of wire fraud because the fraud from which it resulted was promoted by the wire transfers within the preceding series of transactions.

The Second Circuit has held that money received before a “specified unlawful activity” is complete can be considered “proceeds” of that unlawful activity if it is “part of a single scheme” to commit the “specified unlawful activity.” SeeUnited States v. Zvi, 168 F.3d 49 (2d Cir. 1999). In Zvi, the defendants staged a robbery of their gold chain manufacturing business in order to fraudulently obtain insurance proceeds which were thereafter wired to the defendants’ account. The defendants argued that the money received from the pre-robbery sale of gold did not constitute “proceeds” of the wire fraud but rather were at most proceeds from simple theft, which is not a “specified unlawful activity.” The court rejected the defendant’s narrow definition of the term “proceeds” and held that a jury could reasonably have found that the sale of gold was “part of as single scheme” to commit wire fraud and that the proceeds from the sale of gold constituted the requisite “proceeds from specified unlawful activity” under the money laundering statute.