Money Laundering : A Guide for Criminal Investigators, Third Edition

421 Pages·2011·23.58 MB·English

by  John, Madinger

K13169_cover 11/16/11 1:16 PM Page 1
C M Y CM MY CY CMY K
CRIMINAL JUSTICE & LAW
THIRD EDITION
THIRD EDITION
MONEY
LAUNDERING
A Guide for Criminal Investigators
Many changes have occurred in the twenty-five years that have passed since the enactment of the Money
Laundering Control Act of 1986. The law has been amended, new underlying crimes have been added,
and court decisions have modified its scope. The Act remains an important tool in combating criminal activity.
Now in its third edition, Money Laundering: A Guide for Criminal Investigators covers the basics
of finding ill-gotten gains, linking them to the criminal, and seizing them. Providing a clear understanding
of money laundering practices, it explains the investigative and legislative processes that are essential in
detecting and circumventing this illegal and dangerous activity.
Highlights of the Third Edition include
•Important court decisions and changes in federal law since the second edition
•New trends in crime and terrorism financing
•The rise of money laundering in connection with major frauds, including the Bernie Madoff case
•Law and policy shifts related to terrorism and financing since the Obama administration
•New methods for financial intelligence and the filing of Suspicious Activity Reports
•How changes in technology have enabled launderers to move funds more easily and anonymously
Knowledge of the techniques used to investigate these cases and a full understanding of the laws and
regulations that serve as the government’s weapons in this fight are essential for the criminal investigator.
This volume arms those tasked with finding and tracing illegal proceeds with this critical knowledge, enabling
them to thwart illegal profiteering by finding the paper trail.
THIRD
EDITION
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MADINGER
MONEY LAUNDERING
THIRD EDITION
MONEY
LAUNDERING
A Guide for Criminal Investigators
THIRD EDITION
MONEY
LAUNDERING
A Guide for Criminal Investigators
JOHN MADINGER
Boca Raton London New York
CRC Press is an imprint of the
Taylor & Francis Group, an informa business
CRC Press
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Boca Raton, FL 33487-2742
© 2012 by Taylor & Francis Group, LLC
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Version Date: 2011928
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Contents
Preface......................................................................................................................................................................................... xv
Introduction...............................................................................................................................................................................xvii
Author.........................................................................................................................................................................................xxi
Chapter 1 Basic.Concepts......................................................................................................................................................... 1
Money,.Money,.Money............................................................................................................................................ 1
The.Evolution.of.Money.......................................................................................................................................... 2
Money.Laundering................................................................................................................................................... 5
The.Money.Laundering.Cycle................................................................................................................................. 7
Rex v. William Kidd, et al.:.A.Case.of.Piracy.......................................................................................................... 8
Money.Laundering.Facts....................................................................................................................................... 10
Key.Points.to.Consider.......................................................................................................................................... 10
Chapter 2 The.Historical.Context........................................................................................................................................... 11
Analysis.of.the.Watergate.Money.Laundering.Scheme.................................................................................... 18
Did.CRP.or.its.representatives.conduct.a.fnancial.transaction?................................................................. 18
What.was.the.object.of.the.money.laundering.scheme.and.what.charges.might.apply?............................. 18
What.was.the.underlying.criminal.activity.(specifed.unlawful.activity)?.How.would.this.
activity be documented?............................................................................................................................... 18
How.far.did.the.committee.get.into.the.money.laundering.cycle?............................................................... 18
How.could.law.enforcement.have.detected.this.scheme?............................................................................ 19
More.Money.Laundering.Schemes........................................................................................................................ 19
American.Airlines............................................................................................................................................ 19
Braniff.Airlines................................................................................................................................................. 20
George.Steinbrenner.and.American.Shipbuilding............................................................................................ 22
Chapter 3 Federal.Money.Laundering.Statutes...................................................................................................................... 23
The.Money.Laundering.Control.Act..................................................................................................................... 24
Title.18.U.S.C..§1956.(a).(1).............................................................................................................................. 26
The.Money.Was.Proceeds.of.an.SUA.......................................................................................................... 26
The.Defendant.Knew.That.the.Money.Was.Proceeds.of.an.SUA............................................................... 27
Defendant.Used.“Proceeds”......................................................................................................................... 28
The.Defendant.Conducted.or.Attempted.to.Conduct.a.Financial.Transaction............................................ 28
The.Defendant.Acted.with.Intent................................................................................................................. 29
Title.18.United.States.Code.§1956.(a).(2):.The.International.Transportation.Offense.......................................... 31
Title.18.U.S.C..§1956.(a).(3):.The.“Sting”.Provision............................................................................................. 33
Title.18.U.S.C..§1957............................................................................................................................................. 34
Title.18.U.S.C..§1956.(h):.Conspiracy................................................................................................................... 35
Other.Issues........................................................................................................................................................... 36
Venue.and.Statute.of.Limitations...................................................................................................................... 36
Sentencing......................................................................................................................................................... 36
Frequently.Asked.Questions.about.SUAs.............................................................................................................. 37
v
vi Contents
Chapter 4 The.USA.PATRIOT.Act........................................................................................................................................ 39
Criminal.Sanctions................................................................................................................................................ 40
Bulk.Cash.Smuggling............................................................................................................................................ 41
Forfeiture............................................................................................................................................................... 41
Regulatory.Action.................................................................................................................................................. 42
Prohibition.on.US.Correspondent.Accounts.with.Shell.Banks.(31.U.S.C..5318.(j);.Act.Section.313)............. 42
Availability.of.Bank.Records............................................................................................................................ 42
Due.Diligence.for.Private.Banking.and.Correspondent.Accounts.(31.U.S.C..5318.(i);.Act.Section.312)........ 43
“Special.Measures”.for.Certain.Jurisdictions,.Financial.Institutions,.International.Transactions,.
and Accounts.(31.U.S.C..5318A;.Act.Section.311)............................................................................................ 43
Standards.for.Verifcation.of.Customer.Identifcation.(31.U.S.C..5318(l);.Act.Section.326)............................ 43
Suspicious-Activity.Reporting.(31.U.S.C..5331,.Act.Section.365)................................................................... 43
Forfeiture.of.Funds.in.US.Interbank.Accounts.(18.U.S.C..981(k);.Act.Section.319)........................................ 43
Anti-Money-Laundering.Program.Requirement.(31.U.S.C..5318(g);.Act.Section.352)................................... 44
Filing.of.SARs.by.Securities.Brokers.and.Dealers.(Act.Section.356).............................................................. 44
Filing.of.SARs.by.Businesses.(31.U.S.C..5331;.Act.Section.365).................................................................... 44
Penalties.(31.U.S.C..5321,.5322,.5324;.Act.Sections.353.and.363)................................................................... 44
Sunset.Provisions.............................................................................................................................................. 44
Effects.of.the.USA.PATRIOT.Act......................................................................................................................... 44
USA.PATRIOT.Improvement.and.Reauthorization.Act.of.2005.......................................................................... 45
Chapter 5 Money.Laundering.Forfeiture................................................................................................................................ 47
Money.Laundering.Forfeiture................................................................................................................................ 48
Civil.Forfeiture...................................................................................................................................................... 50
What.Can.Be.Seized?....................................................................................................................................... 50
Title.18.U.S.C..§981.(Civil.Money.Laundering.Forfeiture)......................................................................... 50
Title.18.U.S.C..§984.(Civil.Forfeiture.of.Fungible.Property)....................................................................... 50
Procedures.for.Civil.Seizures.Under.§981.(b).................................................................................................. 50
Seizure.Incident.to.Lawful.Arrest.or.Search............................................................................................... 50
Seizure.Made.with.Seizure.Warrant............................................................................................................ 51
Administrative.Forfeiture.Proceedings............................................................................................................. 51
Section.982.Criminal.Forfeiture............................................................................................................................ 51
Criminal.Forfeiture.Statute:.18.U.S.C..§982..................................................................................................... 51
What.Property.Is.Subject.to.Criminal.Money.Laundering.Forfeiture?............................................................ 52
The.Criminal.Forfeiture.Process...................................................................................................................... 52
Substitution.of.Assets........................................................................................................................................ 52
Special.Forfeiture.Issues........................................................................................................................................ 53
Preseizure.Planning.......................................................................................................................................... 53
Grand.Jury.Information.in.Forfeiture.Cases..................................................................................................... 53
Non-Grand-Jury.Information............................................................................................................................ 54
Seizure.of.Real.Property................................................................................................................................... 54
Equitable.Sharing.................................................................................................................................................. 55
Chapter 6 Related.Federal.Statutes........................................................................................................................................ 57
Bank.Secrecy.Act.................................................................................................................................................. 57
Reports.Required.by.the.BSA........................................................................................................................... 59
Currency.Transaction.Report....................................................................................................................... 59
Report.of.International.Transportation.of.Currency.or.Monetary.Instruments.......................................... 60
Currency.Transaction.Report.by.Casinos.................................................................................................... 60
Foreign.Bank.Account.Report..................................................................................................................... 60
Suspicious.Activity.Report........................................................................................................................... 61
Report.of.Cash.Payments.over.$10,000.Received.in.a.Trade.or.Business................................................... 61
Business.Registration........................................................................................................................................ 62
Penalties.Under.Title.31............................................................................................................................... 63
Investigations.Under.Title.31....................................................................................................................... 64
Contents vii
Racketeer.Infuenced.and.Corrupt.Organizations.Act.......................................................................................... 65
Illegal.Money.Transmitter.Businesses................................................................................................................... 66
Investment.of.Illicit.Drug.Profts........................................................................................................................... 66
False.Statements.................................................................................................................................................... 67
Chapter 7 International.Money.Laundering.Control.............................................................................................................. 69
International.Organizations................................................................................................................................... 70
INTERPOL....................................................................................................................................................... 70
United.Nations.................................................................................................................................................. 70
British.Commonwealth..................................................................................................................................... 70
Financial.Action.Task.Force............................................................................................................................. 71
Organization.of.American.States...................................................................................................................... 72
The.Egmont.Group........................................................................................................................................... 72
Other.Initiatives................................................................................................................................................ 75
Impact.on.Law.Enforcement.................................................................................................................................. 75
Obtaining.Information.from.Abroad..................................................................................................................... 75
Chapter 8 Introduction.to.Financial.Investigation.................................................................................................................. 79
Case.Study:.Treason.............................................................................................................................................. 79
The.Importance.of.Context.................................................................................................................................... 81
A.“How-To”.Guide.to.Financial.Investigation....................................................................................................... 82
Looking.Ahead...................................................................................................................................................... 84
Chapter 9 Introduction.to.Books.and.Records....................................................................................................................... 85
The.Capone.Organization...................................................................................................................................... 87
Accounting.Principles............................................................................................................................................ 88
The.Dreaded.Debits.and.Credits....................................................................................................................... 97
Analyzing.the.Balance.Sheet............................................................................................................................... 104
Analyzing.the.Income.Statement......................................................................................................................... 106
Using.Books.and.Records.in.a.Financial.Case.................................................................................................... 107
Conclusion........................................................................................................................................................... 108
Chapter 10 Indirect.Methods.of.Proving.Income................................................................................................................... 109
Indirect.Methods.................................................................................................................................................. 109
Net.Worth.........................................................................................................................................................110
Defenses.to.Net.Worth................................................................................................................................112
Conclusion...................................................................................................................................................113
Source.and.Application.of.Funds.....................................................................................................................113
Bank.Deposits..................................................................................................................................................114
Unit.and.Volume...................................................................................................................................................114
Application.in.Money.Laundering.Cases.............................................................................................................115
Crime.of.the.Century—Laundering.the.Hottest.Money.in.America...................................................................115
Chapter 11 Business.Operations............................................................................................................................................. 121
Proprietorships..................................................................................................................................................... 121
Partnerships......................................................................................................................................................... 121
General.Record.Information........................................................................................................................... 124
Terms.Used.in.Connection.with.Partnerships................................................................................................ 124
Corporations........................................................................................................................................................ 124
Corporate.Advantages.and.Disadvantages..................................................................................................... 124
For.the.Investigator......................................................................................................................................... 125
Corporate.Criminal.Liability.......................................................................................................................... 126
viii Contents
Other.Business.Entities........................................................................................................................................ 127
Summing.Up........................................................................................................................................................ 128
Chapter 12 Domestic.Banking............................................................................................................................................... 129
Money.and.Banking............................................................................................................................................ 129
Borrowing.and.Lending....................................................................................................................................... 132
Bank.Regulation.and.Control.............................................................................................................................. 132
Bank.Management.and.Operation....................................................................................................................... 133
Bank.Functions.................................................................................................................................................... 134
Making.Loans...................................................................................................................................................... 134
Receiving.Deposits.............................................................................................................................................. 135
Hold.and.Administer.Property.for.Others........................................................................................................... 135
Not.All.Banks.Are.Created.Alike....................................................................................................................... 135
Resources.on.Banking......................................................................................................................................... 137
Chapter 13 Banking.Operations............................................................................................................................................. 139
Making.Loans...................................................................................................................................................... 139
Consumer.Loan.Types.................................................................................................................................... 139
Mortgage.Loans......................................................................................................................................... 139
Secured.Property.Loans............................................................................................................................. 139
Secured.Cash.Loans................................................................................................................................... 140
Credit.Card.Loans...................................................................................................................................... 140
Personal.Lines.of.Credit............................................................................................................................. 140
Overdraft.Protection.................................................................................................................................. 140
Student.Loans............................................................................................................................................. 140
Home.Equity.Loans....................................................................................................................................141
Miscellaneous.Loans...................................................................................................................................141
The.Loan.Process............................................................................................................................................141
Receiving.Deposits......................................................................................................................................... 142
Paying.Checks................................................................................................................................................. 144
Check.21—Big.Changes.for.Banks.(Almost).Everywhere..............................................................................147
Monthly.Account.Statements...........................................................................................................................147
Transferring.Funds.............................................................................................................................................. 148
Cashier’s.Checks............................................................................................................................................. 148
Bank.Money.Orders........................................................................................................................................ 149
Bank.Drafts..................................................................................................................................................... 149
Traveler’s.Checks............................................................................................................................................ 149
Certifed.Checks............................................................................................................................................. 149
Exchange.Instruments..................................................................................................................................... 150
Holding.and.Administering.Property.for.Others................................................................................................ 150
Collecting.and.Processing.Financial.Instruments............................................................................................... 151
Other.Services..................................................................................................................................................... 151
Currency.Exchange......................................................................................................................................... 151
Services.for.Business...................................................................................................................................... 151
Trust.Department.Services............................................................................................................................. 152
Bank.Recordkeeping.and.Reporting................................................................................................................... 152
Chapter 14 International.Banking.......................................................................................................................................... 155
International.Transactions................................................................................................................................... 155
Cash.in.Advance............................................................................................................................................. 155
Documentary.Letters.of.Credit....................................................................................................................... 156
Documentary.Collection................................................................................................................................. 156
Open.Account................................................................................................................................................. 156
Basic.Documents.Used.in.International.Trade.................................................................................................... 156