Defending Against Money Laundering and BSA Charges During an IRS CI Investigation

While the Internal Revenue Service’s Criminal Investigation Division (IRS CI) is responsible for investigating federal tax crimes, it doesn’t focus solely on criminal violations of the Internal Revenue Code. IRS CI investigates other financial crimes as well, and it routinely works alongside the Federal Bureau of Investigation (FBI) and the U.S. Department of Justice (DOJ) to investigate money laundering and related offenses under the Bank Secrecy Act (BSA).

These investigations present substantial risks for the individuals and entities targeted. The federal money laundering statute (18 U.S.C. Section 1956) imposes fines of $500,000 or twice the value involved in the illicit transaction (whichever is greater) and up to 20 years of federal imprisonment. Under the BSA, criminal charges can carry similar fines for individuals (and even greater penalties for “financial institutions”), and individuals can face up to 10 years of federal imprisonment in some cases.

Process for Defending Against Money Laundering and Related BSA Charges

As a result, facing an investigation under the federal money laundering statute or the BSA (or both) is a very serious matter. Executing a strategic defense is paramount, and this starts with gaining a clear understanding of the factual and legal issues involved. While each case requires a circumstance-specific, custom-tailored approach, the process for defending against money laundering and related BSA charges broadly involves:

1. Making Contact with IRS CI

When facing an investigation, it is important to make contact with IRS CI promptly. By inserting themselves into the investigative process, targeted individuals and entities can gain insights into the allegations at issue and slow down the process as they formulate their defense strategies. But, communicating with federal authorities during an investigation can be risky, so targets should rely on their defense counsel to interface with IRS CI on their behalf.  

2. Conducting a Comprehensive (and Privileged) Case Analysis

Once a target has an understanding of the allegations at issue, the target should work with counsel to conduct a comprehensive case analysis. This may involve reviewing relevant internal records, reviewing internal and external communications, interviewing internal personnel, and gathering pertinent information through a variety of other means. With the oversight of outside counsel, the work product of this case analysis will be protected by the attorney-client privilege, which means it will not be subject to discovery during IRS CI’s investigation.

3. Evaluating Potential Charges

IRS CI investigations targeting allegations of money laundering, reporting and recordkeeping violations under the BSA, and other related issues can lead to a wide range of federal criminal charges. This includes not only charges under the federal money laundering statute and the BSA but also potentially criminal charges such as:

• Wire fraud (18 U.S.C. Section 1343)
• Conspiracy (18 U.S.C. Section 1349)
• Tax evasion (26 U.S.C. Section 7201)
• Failure to collect or pay over tax (26 U.S.C. Section 7202)
• Tax-related perjury (26 U.S.C. Section 7206)

These charges all carry substantial penalties as well, and even these are just examples of some of the charges that can stem from an IRS CI money laundering investigation. By identifying the likely charges at issue, targets can then work with their defense counsel to formulate defense strategies focused on resolving their investigations without charges being filed.

4. Identifying Viable Defenses

The defenses available during an IRS CI investigation depend on both the allegations at issue and the facts at hand. After evaluating potential charges, targets and their counsel can identify viable defenses based on the specific elements of each offense. For example, to prove money laundering under 18 U.S.C. Section 1956(a)(1)(A), the DOJ must be able to establish that:

• The target knew the property involved in a financial transaction was connected to the proceeds from criminal activity; and,
• The target either (i) intended to promote specified criminal activity or (ii) intended to commit tax evasion or tax-related perjury.

If IRS CI does not have the evidence it needs to substantiate charges, it will not refer the matter to the DOJ for criminal prosecution. Thus, exposing issues related to the government’s burden of proof at the investigative stage can be a highly effective and efficient defense strategy.

5. Formulating a Comprehensive and Cohesive Defense Strategy

Just as different charges give rise to different defenses, different cases call for different defense strategies. After assessing the various specific defenses a target may have available, it is the defense counsel’s job to formulate an overall defense strategy that reflects the risks and other realities of the circumstances at hand. In some cases, it will be possible to steer the investigation toward a close by affirmatively demonstrating compliance with the BSA or exposing the government’s inability to substantiate charges. In other cases, cooperating with an eye toward settlement may be necessary.

6. Continuing to Interface with IRS CI

Regardless of a target’s defense strategy, it will be critical to continue interfacing with IRS CI. At this stage, the goal is still to resolve the investigation without charges being filed. This involves executing the target’s defense strategy while addressing any additional issues that may arise during the investigative process and leveraging the facts and law to either close the investigation without further consequence or negotiate a settlement that minimizes the consequences of any past mistakes.

7. Preparing for a Grand Jury Subpoena if Necessary

If IRS CI Special Agents believe that they have enough evidence to substantiate criminal charges under the federal money laundering statute, the BSA or any other federal criminal statutes, the next major step is for the DOJ to issue a grand jury subpoena and seek an indictment. If a pre-charge resolution isn’t in the cards, the target and defense counsel will need to anticipate a subpoena and begin preparing for the next stages of the process.

Contact Lawrence Brown, Founding Attorney of Brown Tax, P.C.

Brown Tax, P.C. is a federal defense firm that represents individual and corporate taxpayers during IRS CI investigations and in other serious federal criminal matters. To request an appointment with Founding Attorney Lawrence Brown, please call 817-870-0025 or contact us online today.