MONEY LAUNDERING II

Outside the Beltway

Source: US Army

MONEY LAUNDERING II

James Joyner

November 25, 2003

Comments

In the comments section of this morning’s post on Rush Limbaugh and money laundering, Kevin Drum observes

You know, I basically agree with Megan, but….

Rush was doing this to buy illegal drugs, which is exactly what the law was intended for. It’s not as if this is some wild stretch.

It doesn’t, however, comport with my understanding of money laundering–which is designed, not to hide illegal activity requiring money but to hide illegally made money. That is, the point of “laundering” is to make “dirty” money “clean.”

I have virtually no training in statutory law, but a plain reading of the statute in question would seem to confirm this:

Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity

Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States…

Again, the money itself is the focus: transfering money to or from the country.

Indeed, the language directly after the portion Mark Kleiman quotes is

conducts or attempts to conduct a financial transaction involving property represented to be the proceeds of specified unlawful activity, or property used to conduct or facilitate specified unlawful activity

Rush’s money, so far as we know, was earned from his radio show, books, and other legal activities. It was the things he was purchasing, not the tender with which he was purchasing it, that was illicit.

So, the person(s) selling Rush the illegally obtained drugs (remember, the drugs are “legal” if obtained through legitimate channels) could be guilty of money laundering if he took Rush’s “clean” money, now “dirtied” as a function of the transaction, and took measures to disguise the orgin of the money and/or the reporting of the money to authorities. Which comports with the genral perception of the crime.

Or no?

30 responses to “MONEY LAUNDERING II”

lefty skeptic

November 25, 2003 at 2:07 pm

“Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity.”

My interpretation is that the money Rush paid for illegal drugs are “proceeds” of the deal, whether or not he is the one receiving the “proceeds”. So he did conduct a financial transaction which involves the “proceeds”.

I think this might be in line with the intent of the law, as well. Suppose I am a “retail” drug dealer and you, James, are my “wholesale” supplier. I have to buy drugs in large quantities from you. I could attempt to evade detection by the authorities by structuring my transactions just as Rush did. However, if the law covers the case of a buyer as well as a seller, then the DEA (or whoever) would have an additional weapon to use against me, even if they were unable to prove that I resold the drugs.
Paul

November 25, 2003 at 2:48 pm

LS- Did skim the last 2 paragraphs and miss the point?

I’d rehash it but it seems to answer your question if you read it.

Paul
Paul

November 25, 2003 at 3:02 pm

And there is another component of this law that bothers me. Ostensibly Rush broke section C:

(C) to avoid a transaction reporting requirement under State or Federal law,

That is just another of a growing list of “thought crimes.”

To get a conviction the prosecution has to be able to convince a jury what Rush was THINKING.

They have to convince a jury that by pulling out amounts higher than (say) 8000 but less than 10,000 he was THINKING about not filling out the paperwork.

Considering he wrote all these checks, all Rush has to do is say he just did not like to carry more than 10,000 on him at a time. The fact the Feds picked the same number for their reporting requirement just shows the power of round numbers. Case dismissed.

How can the state prove what a citizen was thinking?

Paul

(Now considering Rush has complained about the law I don’t doubt it was intentional. But if you want me on the jury to convict someone for their thoughts, I just ain’t gonna do it.)
James Joyner

November 25, 2003 at 3:05 pm

Paul,

Most crimes have an element of intent. Even homicide differs based on what the prosecution can prove was the accused’s state of mind. I don’t see how to avoid that.
lefty skeptic

November 25, 2003 at 3:12 pm

Umm, no, Paul, I don’t think I missed the point. Did you just skim what I wrote? You can interpret “proceeds” in the statute to mean the money involved in the illegal transaction, whatever the source of that money.
James Joyner

November 25, 2003 at 3:17 pm

ls,

But they wouldn’t be “proceeds” until the transaction was completed, right? They’re not proceeds when he’s taking them out of the bank.
lefty skeptic

November 25, 2003 at 3:20 pm

Just for clarity’s sake, I am referring to section 1 of the statute. Sections 2 and 3 give other scenarios where someone might be charged under this law. But they aren’t relevant to this case.

Here’s more from the statute that backs up my point –

“knowing that the transaction is designed in whole or in part –
(i)
to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or ”

Disguising the source of the proceeds is covered by the statute, and that’s exactly what Rush did.
James Joyner

November 25, 2003 at 3:27 pm

ls,

Rather clearly, the statute is designed to prevent the recipient of the money from false record keeping and the like. Rush was hiding the fact of the withdrawal of money in order to discourage attention as to how he was spending it. That’s not money laundering.
lefty skeptic

November 25, 2003 at 3:27 pm

James – I think the “intent” and “knowingly” parts of the statute speak to your point. Rush’s intent in withdrawing $9900 from the bank was to knowingly conceal the source of the transaction.
lefty skeptic

November 25, 2003 at 3:29 pm

James – by the definition of the statute (whatever the intent of the authors of the statute), Rush is guilty of money laundering. The definition of a term for the purposes of a law does not have to be identical to the common definition of a term.
Paul

November 25, 2003 at 3:33 pm

LS I was being polite and giving you an out… OK you’re wrong.

“the source.. of the proceeds of specified unlawful activity”

It does not become “proceeds of specified unlawful activity
” until the unlawful activity takes place. (ie: he buys the drugs.)

If Rush has a joint bank account with his brother and his brother sold him drugs and the brother took the money out 9,000 at a time THAT would apply.

The whole point of the law is about cleaning dirty money. It is not about drying up a source of case for drug users.
Paul

November 25, 2003 at 3:56 pm

James,

I knew someone would point to the homicide example and I started to address it but brevity won. My complaint is that this is on a growing list of goofy ones.

For example if I beat a man to death with my bare hands I get (say) 7 years in prison. If I beat a GAY man to death with my bare hands I get 14 years because it is a “hate crime.”

That is assuming I hate gay people. If I am gay then I’d only get the regular 7. – UNLESS I am a gay man who has not come out the closest, was frustrated because I grew up in a repressive family and killed the gay guy because he was gay. In THAT case I get the 14 years.

While that is a “topic for another day” as we say in radio, this law is equally as goofy.

They have a law that says you must fill out a form.
Then they pass a law that says if you are THINKING about going around the law, we’ll get you for that too. (Note: You are not even thinking about breaking the law in this case, just avoiding it.)

That is a far cry from manslaughter vs premeditation.

Consider this: Murder is illegal.
What if I buy a gun cuz I am planning on killing my neighbor. Then I realize what I am doing and I destroy the gun.

Do I still go to jail because I was THINKING about murdering someone?

Paul

AH!- Or a better analogy… If I buy one of those books that say we don’t really have to pay income tax, should I be charged with tax evasion even if I pay my taxes?

The law is just goofy.
James Joyner

November 25, 2003 at 4:00 pm

Paul,

No, I agree. Society is complicated and we need more laws now than in the frontier days, just because of technology and more interaction. But we’ve definitely gone overboard–it’s impossible for even lawyers and judges to know what is against the law without looking it up–and even then it’s debatable. How the ordinary citizen is supposed to cope, I dunno.
lefty skeptic

November 25, 2003 at 4:31 pm

Sorry, Paul, but you are wrong.

If, as a prosecutor, I can prove the following statement – “Mr. Limbaugh repeatedly withdrew amounts of $9900 in order to conceal the source of the proceeds of a transaction violating Federal drug statutes.”, then I have proven a violation of the money laundering statute.

Why is it so difficult for you to understand that the “source of the proceeds” can refer to a transaction that took place prior to the drug deal itself?
Ross Judson

November 25, 2003 at 4:39 pm

Paul, if you beat a man to death you get seven years. If you beat a gay man to death you also get seven years. If you do it in front of a bunch of other people and scream “die fag die” while you’re beating him to death, you get fourteen years.

Why is that so hard to understand? The nature of the victim does not necessarily trigger the hate crime statute — the nature of the crime does.

Should the sentence for setting fire to a pile of wood on a neighbor’s lawn be the same as the sentence for setting fire to a cross on a lawn? They’re both just wood, right?
Ross Judson

November 25, 2003 at 4:54 pm

And on the laundering issue, you need to read a bit further in the statute. Section 3 clearly indicates that if you engage in transactions designed to avoid reporting requirements involving property that is _used to conduct or facilitate_ unlawful activity.

Limbaugh breaks the cash withdrawls up to avoid reporting requirements. He intends to use the cash for an unlawful activity (purchasing controlled substances). Section 3 applies. I think. IANAL.

(3)

Whoever, with the intent –

(A)

to promote the carrying on of specified unlawful activity;

(B)

to conceal or disguise the nature, location, source, ownership, or control of property believed to be the proceeds of specified unlawful activity; or

(C)

to avoid a transaction reporting requirement under State or

Federal law,

conducts or attempts to conduct a financial transaction involving property represented to be the proceeds of specified unlawful activity, or property used to conduct or facilitate specified unlawful activity, shall be fined under this title or imprisoned for not more than 20 years, or both. For purposes of this paragraph and paragraph (2), the term ”represented” means any representation made by a law enforcement officer or by another person at the direction of, or with the approval of, a Federal official authorized to investigate or prosecute violations of this section.
Bill Wallo

November 25, 2003 at 4:57 pm

“Mr. Limbaugh repeatedly withdrew amounts of $9900 in order to conceal the source of the proceeds of a transaction violating Federal drug statutes.”

Having spent some time representing depository institutions when the disclosure statutes were tightened 10-12 years ago, I can only say that it is my belief that the federal depository disclosure statutes work much like James suggested in his initial post, and that to prosecute Limbaugh for “money laundering” here would be an odd expansion of the normal interpretation of the statute. Usually, the focus is on the money itself: is the money clean or dirty when it comes in? In other words, if you have dirty money and you start depositing or withdrawing it amounts less than $10K in order to “clean” it, you’ve violated the statute.

But to charge Limbaugh with money laundering when he took his own money to buy illicit goods is to my way of thinking just an attempt to find a possible charge, even one that doesn’t quite fit: rather like charging with “manufacturing weapons of mass destruction.” Limbaugh may be guilty of illegally obtaining drugs; he isn’t guilty of money laundering.
Bill Wallo

November 25, 2003 at 5:00 pm

Apparently, I screwed up the url in my last comment, in which I attempted to say:

But to charge Limbaugh with money laundering when he took his own money to buy illicit goods is to my way of thinking just an attempt to find a possible charge, even one that doesn’t quite fit: rather like charging a guy making methamphetamine with “manufacturing weapons of mass destruction.” Limbaugh may be guilty of illegally obtaining drugs; he isn’t guilty of money laundering.
Bill Wallo

November 25, 2003 at 5:50 pm

Everyone here seems to want to focus on the fact that Limbaugh wanted to withdraw the cash for an unlawful purpose. For example, take Ross’ cited section:

Yes, there is intent to carry on a specific illegal activity, but the problematic aspect of the statute for prosecutors is this:

conducts or attempts to conduct a financial transaction involving property represented to be the proceeds of specified unlawful activity, or property used to conduct or facilitate specified unlawful activity

The money here wasn’t “proceeds” of unlawful activity, and at the time of the withdrawal it hadn’t been used to conduct or facilitate an unlawful activity. I really think prosecutors will have a very hard time making money laundering stick: it simply isn’t an appropriate charge.
Ross Judson

November 25, 2003 at 10:22 pm

Uh, Bill…the money was taken out of the bank in small increments, then used to purchase drugs illegally. Are you saying that he has to use it for something illegal, right that very second, or he’s free and clear? Think it through.

The money was used to facilitate an illegal activity (otherwise known as buying controlled substances).

It is very much an appropriate charge, given the wording of the statute.
Bill Wallo

November 25, 2003 at 10:57 pm

Ross:

Yes, actually I am. Why? Because we’re talking about money laundering, not simply drug buying. Were your supposition true, any time a junkie took $20 bucks out of the bank to buy some dope, they could be looking at a money laundering charge.

Look at the language carefully: intent and the rest are only important in two contexts: if the money in question (that is, the money being withdrawn) IS the “proceeds” of illegal activity (and the term “proceeds” is legally defined to be something that follows from, not precedes – i.e., for example, money obtained by selling drugs) OR is “property used to conduct or facilitate specified unlawful activity.”

The ONLY way for a prosecutor to succeed on this charge is if he can demonstrate that the money Limbaugh withdrew from the bank – the cash – was itself property “used” to conduct or facilitate unlawful activity. The determination will hinge upon whether “used” means before the deposit or not. Since the Treasury department’s information on these financial reporting laws indicates that they are designed to target illegitimate money either as it enters or leaves the monetary system, I believe the character of the money is critical. Since it was “legit” money when it left, and had not previously been “used” to conduct or facilitate an illegal activity, I question the application of the statute in this case.

You may disagree with me, and so may a court. But am I thinking the law through, from its intended target to a logical interpretation of the term “used?” I believe so.
Ross Judson

November 26, 2003 at 8:55 am

Bill, I understand your reasoning, and I think the law is somewhat unclear on this point. I agree that in your case, a $20 withdrawl shouldn’t mean a charge of laundering. The $10,000 trigger point for laundering makes sense, but I don’t really find language to that effect. Overall, the statute doesn’t say what to do when large amounts of legitimately earned money are used for illegitimate purposes.

On balance, I’d say that you’re probably correct in a logical sense.

I’m not a lawyer, and presume that you’re not either. It’s likely that this is one of those “multiple test” problems and there is case law out there guiding judges on how to get at it.

In this case we have avoiding reporting requirements, large (> $10,000) sums of money, and use for illegal purposes…but it isn’t laundering. Forfeiture, maybe, laundering, no.

I suspect it is rare that the court encounters this situation — where the large sums of money involved were earned _legally_.
BIll Wallo

November 26, 2003 at 9:34 am

Ross:

Is it an admission against interest to admit to being a lawyer (albeit not a criminal lawyer?) 😉

I appreciate your reasoning as well: I think it is the clearest I’ve seen in counterpoint, and you very well could be right about how a court might interpret the statute (I haven’t researched the issue as fully as I’d like). And I agree that this is probably an unusual situation, in which Limbaugh has basically admitted to a bunch of withdrawals, all just under the reporting cap, and has said the bank officer told him as long as it was under $10K they didn’t have to report it. That of course raises the old red flag, and undoubtedly ticks off federal regulators.

We’ll see how it goes . . .
Peter

November 26, 2003 at 1:02 pm

There is also reason to question how much, even if any, of those withdrawels were used illegally. Limbaugh tips more than I made in a year, my best year ever. Most of us use cash for legal purchases, routinely. What percent of a withdrawel must be used illegally for the whole withdrawel to be money laundering? During the time in question Limbaugh had a house and a New York apartment renovated. Having done the same myself, on a much smaller scale, I learned the value of cash. It’s plumb faster.
I doubt Limbaugh will be prosecuted. As a retired LEO I know how difficult it is to win a case in court. Limbaugh was not on the radar when he possesed the drugs. His exposure means he’s on the radar now. His risk of prosecution comes if he relapses into drug use.
irishlass

November 26, 2003 at 10:23 pm

the definition of
Proceeds \Pro”ceeds\, n. pl. That which comes forth or results; effect; yield; issue; product; sum accruing from a sale, etc.

If you substitue the word results for proceeds the statue is clear. Money Laundering is when money that results from illegal activity is cleaned to conceal that activity.
Mark Kleiman

November 27, 2003 at 3:44 pm

All of this discussion is fascinating, but most of it misses the point. Yes, “money laundering” as commonly used means the activities of someone who has made money illegally and is trying to conceal its source. The “money laundering” laws are designed to make that both illegal and technically difficult. By structuring his transactions to avoid having to file a currency transaction report, Limbaugh was deliberately helping his dealer escape scrutiny. That turns out to be a crime. The funds involved weren’t “proceeds” of the crime of drug dealing, they were “used to facilitate” the crimes of drug dealing and drug possession. Legally, this isn’t even a close case.

As to “intent”: almost every crime has an “intent” element. Killing someone isn’t the crime of murder unless it can be shown than I intended to kill that person.
Bill Wallo

November 27, 2003 at 8:30 pm

Mark:

While you dance around it a bit, you really haven’t addressed my contention that money “used” to facilitate criminal activity is past tense, not present or future. To truly cover what you’re talking about, I think the statute would need to say “to be used” to facilitate criminal activity. The statute’s focus is on money which has been used; as such, I tend to agree that it really isn’t a close case, albeit in the opposite direction. It is my plan to see if I can find any cases which would support your position; to date, the materials I’ve found indicate to the contrary.
eve

December 2, 2003 at 9:10 pm

Actually I was having this same debate with someone. I decided to check out the jury instructions for what exactly is meant by proceeds. While I didn’t get that, I found this on the topic of withdrawing money and the intent to commit a crime:

“By carrying on crime, it may be that the crime to be carried on is one that will be committed in the future, or it may be a crime already committed or a crime that is still underway or ongoing that the defendant intended to continue or complete.”

I found this at
http://www.usdoj.gov/usao/eousa/foia_reading_room/usam/title9/crm02120.htm