Money Laundering Laws

People often associate money laundering with organized crime, but even individual, low-level criminals may try to camouflage the proceeds of their activities. Money laundering may be charged under federal or state laws. Someone under investigation for this crime should not try to solve the problem by telling their side of the story to the police or prosecutors directly. Anything that they say could come back to haunt them, potentially undermining a defense. Instead, a suspect should consult an attorney who understands how these cases work and can develop a strategy for protecting their rights.

What Is Money Laundering?

Money laundering generally involves transactions designed to hide the fact that certain funds were acquired through criminal activities.

Elements of Money Laundering

18 U.S. Code Section 1956 is the main federal money laundering statute. It prohibits conducting a financial transaction that involves the proceeds of specified unlawful activity, while knowing that the property represents the proceeds of unlawful activity, if:

• The defendant knows that the transaction is designed to conceal or disguise the nature, location, source, ownership, or control of the proceeds of specified unlawful activity, or designed to avoid a transaction reporting requirement under state or federal law; or
• The defendant intends to promote specified unlawful activity, or to engage in a specified tax offense

The statute covers further forms of prohibited conduct as well, such as international money laundering. Another federal statute, Section 1957, prohibits knowingly engaging in a transaction in criminally derived property worth more than $10,000 that is derived from specified unlawful activity. (Section 1956 defines “specified unlawful activity” for the purposes of both statutes, listing numerous crimes.)

State laws also prohibit money laundering, which may be defined somewhat differently from the federal crime. For example, California Penal Code Section 186.10 generally defines money laundering as conducting a transaction involving a monetary instrument worth more than $5,000 through a financial institution with the intent to further a criminal activity, or while knowing that the monetary instrument came from criminal activity. The law also applies to multiple transactions totaling more than $5,000 in a seven-day period, or totaling more than $25,000 in a 30-day period.

Example of Money Laundering

Phil runs a restaurant while selling cocaine on the side. He adjusts the financial records of the restaurant to show a profit that reflects both the actual restaurant profits and the money that he received from cocaine trafficking. Phil then deposits the combined amount in the bank. This conceals the illegal source of the trafficking money.

On the other hand, consider a situation in which Phil uses the money from a cocaine transaction for a steak dinner. This is not money laundering under the federal statute, even though the money came from an illegal activity, since Phil did not try to hide the illegal source of the funds or use them to further any other illegal activity.

Offenses Related to Money Laundering

Some other offenses that could be charged in situations similar to those supporting money laundering charges include:

• Tax fraud: intentionally providing false information to a taxing authority, or failing to provide information that should have been provided
• Wire fraud: various fraudulent schemes perpetrated by using devices like phones or computers
• Money counterfeiting: making or using fake currency with a fraudulent intent

In addition to the money laundering charge, a defendant could face a charge based on the underlying activity that produced the money or property. For example, Phil in the scenario above could face a drug trafficking charge as well as a money laundering charge.

Defenses to Money Laundering

Since money laundering has several specific elements, a defendant might have multiple ways to attack the charge. They might argue that the funds or property did not come from illegal activity, or that they did not know about their illegal source. A defendant charged with a violation of Section 1956 might claim that they did not know that the transaction at issue was meant to “launder” the illegal proceeds. If a statute requires proving that the property had a certain value, the defendant might question whether it met the threshold.

In limited situations, a defense called “entrapment” might arise. This means that law enforcement induced the defendant to engage in money laundering when they would not have been predisposed to conduct the transaction. Or they might argue “duress,” which means that a third party forced them to conduct the transaction under an imminent threat of serious harm.

Penalties for Money Laundering

A defendant convicted of money laundering under either federal statute could face a long time behind bars and a heavy fine. Section 1956 generally imposes up to 20 years of imprisonment and a fine of up to $500,000 or twice the value of the property involved in the transaction, whichever is greater. Section 1957 generally imposes up to 10 years of imprisonment and a fine under Section 3571, which provides for a maximum $250,000 fine in most felony cases like these. (If someone gets financial gain from the offense or someone other than the defendant suffers financial loss, the defendant may be fined up to twice the gain or twice the loss, whichever is greater, if this is more than the $250,000 ceiling.) However, a court also may impose an alternate fine consisting of up to twice the amount of the criminally derived property involved in the transaction.

States impose their own penalties, which may depend on the amount involved. For example, Florida provides that money laundering is a third-degree felony if it involves more than $300 but less than $20,000 in a 12-month period, while it is a second-degree felony if it involves at least $20,000 but less than $100,000 in a 12-month period, and it is a first-degree felony if it involves at least $100,000 in a 12-month period. A third-degree felony carries up to five years of imprisonment and a $5,000 fine, while a second-degree felony carries up to 15 years and a $10,000 fine, and a first-degree felony carries up to 30 years and a $10,000 fine. In addition, a defendant may be sentenced to pay a fine of up to $250,000 or twice the value of the transactions, whichever is greater.

Pennsylvania takes a simpler approach. A conviction under its money laundering statute may result in up to 20 years of imprisonment, regardless of the value involved. The defendant also may face a fine of twice the value of the property involved in the transaction, or $100,000 if that is greater.

Last reviewed October 2024