Money Laundering
| Statute: | 18 U.S.C. § 1956, § 1957 |
| U.S. Code: | Title 18, Chapter 95 |
| Max Prison: | 20 years (§ 1956) / 10 years (§ 1957) |
| Max Fine: | $500,000 or twice the laundered amount |
| Guidelines: | USSG §2S1.1 |
| Base Level: | 8 + underlying offense level |
| Agencies: | FBI, IRS-CI, DEA, FinCEN, HSI |
| Related: | Wire Fraud, Drug Trafficking, Tax Evasion |
Money laundering is a federal crime under 18 U.S.C. § 1956 and § 1957 that prohibits financial transactions designed to conceal the proceeds of criminal activity or to promote unlawful conduct. The money laundering statutes are among the most powerful tools in the federal prosecutor's arsenal, allowing them to target not only the proceeds of crime but also the financial networks that make criminal enterprises possible.[1]
Money laundering under § 1956 carries a maximum sentence of 20 years imprisonment, while the related offense of engaging in monetary transactions in property derived from unlawful activity under § 1957 carries a maximum of 10 years. Both statutes carry substantial fines, including the greater of $500,000 or twice the amount of the criminally derived property involved.[2]
Types of Money Laundering Offenses
The federal money laundering statutes create several distinct offenses:
Section 1956(a)(1) - Transaction Money Laundering
This provision prohibits conducting a financial transaction with proceeds of "specified unlawful activity" (SUA) when the defendant knows the property represents the proceeds of some form of unlawful activity, and:
- (A)(i) Promotion: The transaction is designed to promote the carrying on of specified unlawful activity; or
- (A)(ii) Tax Evasion: The transaction is designed to evade taxes; or
- (B)(i) Concealment: The transaction is designed to conceal the nature, source, location, ownership, or control of the proceeds; or
- (B)(ii) Structuring: The transaction is designed to avoid a reporting requirement under federal or state law[1]
Section 1956(a)(2) - International Transportation Money Laundering
This provision prohibits transporting or transferring monetary instruments or funds to or from the United States, or through the United States, with:
- Intent to promote specified unlawful activity, or
- Knowledge that the funds represent the proceeds of unlawful activity and are intended to conceal or disguise the nature, source, ownership, or control of the proceeds[1]
Section 1956(a)(3) - Sting Money Laundering
This provision allows prosecution when a defendant conducts or attempts to conduct a financial transaction involving property represented by a law enforcement officer to be proceeds of unlawful activity, with intent to promote unlawful activity or conceal the proceeds.[1]
Section 1957 - Monetary Transaction in Criminally Derived Property
Section 1957 prohibits knowingly engaging in a monetary transaction in criminally derived property of a value greater than $10,000. This is a simpler offense to prove than § 1956 because it does not require proof of intent to conceal or promote; the defendant need only know that the property was criminally derived.[2]
Elements of the Offense
Section 1956 Elements
To convict under § 1956(a)(1), the government must prove:
- Financial Transaction: The defendant conducted or attempted to conduct a financial transaction
- Proceeds of SUA: The transaction involved proceeds of "specified unlawful activity"
- Knowledge: The defendant knew the property involved represented proceeds of some form of unlawful activity
- Intent: The defendant had the required intent (to promote SUA, evade taxes, or conceal/disguise the proceeds)[3]
Section 1957 Elements
To convict under § 1957, the government must prove:
- Monetary Transaction: The defendant engaged in a monetary transaction (deposit, withdrawal, transfer, or exchange)
- Amount: The transaction exceeded $10,000
- Criminally Derived Property: The property was derived from specified unlawful activity
- Knowledge: The defendant knew the property was criminally derived[3]
Specified Unlawful Activity
"Specified unlawful activity" (SUA) is defined in 18 U.S.C. § 1956(c)(7) and includes over 200 federal and state offenses. Major categories include:
- Drug trafficking offenses
- Fraud offenses (wire, mail, bank, healthcare, securities)
- Bribery and public corruption
- RICO violations
- Immigration offenses
- Terrorism-related offenses
- Environmental crimes
- Certain state felonies (murder, kidnapping, robbery, extortion, gambling)
- Foreign crimes of violence or drug trafficking[1]
Statutory Penalties
| Offense | Maximum Imprisonment | Maximum Fine |
|---|---|---|
| § 1956(a)(1) - Transaction money laundering | 20 years | Greater of $500,000 or twice the amount involved |
| § 1956(a)(2) - Transportation money laundering | 20 years | Greater of $500,000 or twice the amount involved |
| § 1956(a)(3) - Sting money laundering | 20 years | Greater of $500,000 or twice the amount involved |
| § 1957 - Monetary transactions over $10,000 | 10 years | Greater of $250,000 or twice the amount involved |
| § 1956(h) - Conspiracy | Same as underlying offense | Same as underlying offense |
In addition to imprisonment and fines, defendants face:
- Asset forfeiture of all property involved in the offense and all property traceable to the offense
- Restitution orders
- Civil penalties[1]
Federal Sentencing Guidelines
Money laundering is sentenced under USSG §2S1.1, which links the offense level to the underlying criminal conduct that generated the laundered proceeds.
Base Offense Level Calculation
The base offense level for money laundering depends on the type of laundering:
For § 1956 Promotion or Concealment Money Laundering:
- Start with the offense level for the underlying offense (the SUA that generated the proceeds)
- If the defendant knew or believed the laundering was designed to promote further criminal activity: use the underlying offense level (minimum 8)
- If the defendant knew or believed the laundering was designed to conceal proceeds: use the underlying offense level minus 4 (minimum 8)[4]
For § 1957 Monetary Transactions:
- Use the offense level for the underlying offense minus 4 (minimum 8)
- If the defendant was in the business of laundering: minimum offense level of 23
Value of Laundered Funds Enhancement
If the value of laundered funds exceeds the loss from the underlying offense, the offense level is increased:
| Value of Laundered Funds | Level Increase |
|---|---|
| More than $95,000 | +1 |
| More than $150,000 | +2 |
| More than $250,000 | +3 |
| More than $550,000 | +4 |
| More than $1,500,000 | +5 |
| More than $3,500,000 | +6 |
| More than $9,500,000 | +7 |
| More than $25,000,000 | +8 |
| More than $65,000,000 | +9 |
| More than $150,000,000 | +10 |
| More than $250,000,000 | +11 |
| More than $550,000,000 | +12 |
Sophisticated Laundering Enhancement
An additional +2 levels applies if the defendant used sophisticated laundering techniques, such as:
- Shell companies
- Nominees
- Offshore accounts
- Complex financial transactions designed to conceal the source of funds[4]
Common Money Laundering Methods
Structuring (Smurfing)
Breaking up large cash transactions into smaller amounts to avoid Currency Transaction Reports (CTRs), which banks must file for cash transactions over $10,000. Structuring is independently criminalized under 31 U.S.C. § 5324.
Shell Companies
Creating business entities with no legitimate operations to move money through seemingly legitimate transactions. Shell companies can layer transactions to obscure the source of funds.
Real Estate
Using cash purchases of real estate, often through LLCs, to convert illicit cash into legitimate assets. The property can later be sold or mortgaged to obtain "clean" funds.
Cash-Intensive Businesses
Commingling illicit cash with legitimate revenue from businesses such as restaurants, car washes, or retail stores.
Trade-Based Laundering
Over-invoicing or under-invoicing international trade transactions to move value across borders while appearing to conduct legitimate commerce.
Professional Money Laundering
Use of lawyers, accountants, or financial professionals to create layers of transactions that obscure the origin of funds.
Cryptocurrency
Converting fiat currency to cryptocurrency, using mixing services or multiple wallets, then converting back to fiat—a modern adaptation of traditional layering techniques.[5]
Notable Cases
HSBC (2012)
HSBC Bank agreed to pay $1.92 billion to settle charges that it laundered hundreds of millions of dollars for Mexican drug cartels and violated U.S. sanctions. The case represented the largest money laundering settlement in history and highlighted the role of major financial institutions in facilitating illicit finance.[6]
Wachovia (2010)
Wachovia Bank paid $160 million to settle charges that it failed to apply proper anti-money laundering controls to $378.4 billion transferred from Mexican currency exchange houses, enabling drug cartels to launder proceeds through the U.S. financial system.[7]
Sam Bankman-Fried (2024)
Sam Bankman-Fried, founder of the FTX cryptocurrency exchange, was convicted of money laundering conspiracy along with wire fraud and other charges. He was found to have laundered billions of dollars in customer funds through Alameda Research. He was sentenced to 25 years in federal prison.[8]
Paul Manafort (2018)
Paul Manafort was convicted of money laundering charges related to hiding millions of dollars in foreign income through offshore accounts and shell companies. He used over 30 foreign accounts in three countries to launder more than $30 million. He was sentenced to 7.5 years in federal prison.[9]
Roman Abramovich (Sanctions Evasion)
In 2023, federal prosecutors charged associates of Russian oligarch Roman Abramovich with money laundering and sanctions evasion related to maintaining yachts and aircraft after U.S. sanctions were imposed following Russia's invasion of Ukraine.[10]
Statistics
According to the United States Sentencing Commission:
- In fiscal year 2023, federal courts sentenced approximately 1,200 defendants for money laundering offenses
- The median sentence for money laundering was 36 months imprisonment
- Approximately 85% of money laundering defendants received some term of imprisonment
- Drug trafficking was the most common predicate offense for money laundering charges
- Wire and mail fraud were the second most common predicates[11]
Defenses
Lack of Knowledge
The defendant may argue they did not know the funds were derived from criminal activity. This defense is particularly viable in cases where the defendant was a service provider or intermediary with no direct knowledge of the underlying criminal activity.
No Specified Unlawful Activity
Money laundering requires that the proceeds derive from "specified unlawful activity" as defined in the statute. If the underlying conduct does not qualify as an SUA, there can be no money laundering conviction.
No Intent to Conceal or Promote
For § 1956 charges, the government must prove the defendant's intent to conceal proceeds or promote unlawful activity. Ordinary business transactions, even if they happen to involve criminal proceeds, may not satisfy this element.
Legitimate Business Exception
Section 1957 provides an exception for transactions necessary to preserve a person's right to representation by an attorney. This exception has been interpreted narrowly and does not protect attorneys who knowingly participate in money laundering schemes.
No Financial Transaction
The definition of "financial transaction" under the statute is specific. Not all movements of money qualify, and the government must prove a covered transaction occurred.
Bank Secrecy Act and Related Statutes
Money laundering prosecutions often involve related Bank Secrecy Act (BSA) violations:
Structuring (31 U.S.C. § 5324)
It is illegal to structure transactions to avoid BSA reporting requirements, even if the underlying funds are legitimate. Maximum penalty: 5 years (10 years if committed while violating another law or as part of a pattern of illegal activity).
Failure to File Reports (31 U.S.C. § 5322)
Financial institutions must file Currency Transaction Reports (CTRs) for cash transactions over $10,000 and Suspicious Activity Reports (SARs) for potentially suspicious transactions. Willful failure to file carries criminal penalties.
Currency Reporting (31 U.S.C. § 5316)
Persons transporting over $10,000 in currency into or out of the United States must file a Report of International Transportation of Currency or Monetary Instruments (CMIR). Failure to report is a criminal offense.
See also
- Wire Fraud
- Mail Fraud
- Drug Trafficking
- Tax Evasion
- Bank Fraud
- Federal Sentencing Guidelines and Offense Enhancements
- Sam Bankman-Fried
- Paul Manafort
Frequently Asked Questions
Q: What is money laundering?
Money laundering is a federal crime under 18 U.S.C. § 1956 and § 1957 that involves conducting financial transactions with proceeds from criminal activity, either to conceal those proceeds or to promote further unlawful activity. It is designed to make "dirty" money appear legitimate.
Q: What is the maximum sentence for money laundering?
Under 18 U.S.C. § 1956, money laundering carries a maximum sentence of 20 years in federal prison. Under § 1957 (monetary transactions over $10,000 in criminally derived property), the maximum is 10 years. Fines can reach $500,000 or twice the amount laundered.
Q: What is the difference between § 1956 and § 1957?
Section 1956 is the more serious offense, requiring proof that the defendant intended to conceal proceeds or promote unlawful activity. Section 1957 is simpler to prove—it only requires a monetary transaction over $10,000 in property the defendant knew was criminally derived, regardless of intent.
Q: What is structuring?
Structuring (also called "smurfing") is breaking up large cash transactions into smaller amounts to avoid bank reporting requirements. Banks must file Currency Transaction Reports for cash transactions over $10,000. Structuring is illegal under 31 U.S.C. § 5324 even if the underlying funds are legitimate.
Q: What is a "specified unlawful activity"?
Specified unlawful activity (SUA) is a legal term referring to the predicate crimes whose proceeds can form the basis for a money laundering charge. The statute lists over 200 offenses, including drug trafficking, fraud, bribery, RICO violations, terrorism, and certain state felonies.
Q: Can I be charged with money laundering for spending my own legally earned money?
No. Money laundering requires that the funds derive from "specified unlawful activity." However, you can be charged with structuring if you break up legitimate cash transactions to avoid bank reporting requirements, even though structuring is not technically money laundering.
References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 18 U.S.C. § 1956.
- ↑ 2.0 2.1 18 U.S.C. § 1957.
- ↑ 3.0 3.1 U.S. Department of Justice, Money Laundering Section, Criminal Resource Manual.
- ↑ 4.0 4.1 United States Sentencing Commission, USSG §2S1.1 (2024).
- ↑ Financial Crimes Enforcement Network, "Cryptocurrency Money Laundering Trends" (2024).
- ↑ U.S. Department of Justice, "HSBC Holdings Plc and HSBC Bank USA N.A. Admit to Anti-Money Laundering and Sanctions Violations," December 11, 2012.
- ↑ U.S. Department of Justice, "Wachovia Enters Into Deferred Prosecution Agreement," March 2010.
- ↑ U.S. Department of Justice, "Samuel Bankman-Fried Sentenced To 25 Years For His Orchestration Of Multiple Fraudulent Schemes," March 28, 2024.
- ↑ U.S. Department of Justice, "Paul J. Manafort Convicted," August 21, 2018.
- ↑ U.S. Department of Justice, "Two Defendants Charged in Scheme to Evade Russian Sanctions," October 2023.
- ↑ United States Sentencing Commission, 2023 Annual Report and Sourcebook of Federal Sentencing Statistics.
White Collar Crimes: Wire Fraud · Mail Fraud · Tax Evasion · Money Laundering · Bank Fraud · Healthcare Fraud · Securities Fraud · Aggravated Identity Theft · Embezzlement · Bribery · Insurance Fraud · Mortgage Fraud
Other Federal Offenses: Drug Trafficking · Illegal Reentry · Felon in Possession · RICO · Conspiracy · False Statements · Obstruction of Justice · Child Exploitation