Money Laundering Relating to Tax Offenses in Violation of Title 18 U.S.C. Section 1956
Title 18, United States Code, Section 1956(A)(1)(a)(ii), makes money laundering as it relates to Title 26 offense a crime, and provides as follows:
(1) 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-
(A) (i) with the intent to promote the carrying on of specified unlawful activity; or
(ii) with intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986;
shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both. For purposes of this paragraph, a financial transaction shall be considered to be one involving the proceeds of specified unlawful activity if it is part of a set of parallel or dependent transactions, any one of which involves the proceeds of specified unlawful activity, and all of which are part of a single plan or arrangement.
Prior to its the enactment of the Fraud Enforcement and Regulatory Act of 2009, there were court rulings with differing interpretations of the statute’s use of the term “proceeds.” Through the Act, “proceeds” is defined under § 1956(c)(9) as follows:
The term “proceeds” means any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity.
In order for the government to achieve a conviction under § 1956(a)(1)(A)(ii), it must prove the following four elements beyond a reasonable doubt:
- An individual conducted or attempted to conduct a financial transaction,
- An individual knew the property involved in the transaction represented the proceeds of some unlawful activity,
- The proceeds did represent the proceeds of a specified illegal activity, as defined in § 1956(c)(7), and
- An individual intended to engage in conduct constituting a violation of 26 U.S.C. § 7201 (tax evasion) or 26 U.S.C. § 7206 (false statement).
Conducted or Attempted to Conduct a Financial Transaction
The first element the government must prove in a tax money laundering case is an individual conducted a financial transaction. “Transaction” and “financial transaction” are defined under §§ 1956(c)(3) and (c)(4), respectively, as follows:
…a purchase, sale, loan, pledge, gift, transfer, delivery, other disposition, and with respect to a financial institution, a deposit, withdrawal, transfer between accounts, loan, exchange of currency, extension of credit, purchase or sale safe-deposit box, or any other payment, transfer or delivery by, through or to a financial institution by whatever means effected;
…a transaction which affects interstate or foreign commerce and: (1) involves the movement of funds by wire or by other means; (2) involves the use of a monetary instrument; or (3) involves the transfer of title to real property, a vehicle, a vessel or an aircraft; or (4) involves the use of a financial institution which is engaged in, or the activities of which affect, interstate or foreign commerce.
Knew the Property Represented Proceeds of Unlawful Activity
The second element the government must prove in a tax money laundering case is the individual knew the property represented proceeds of unlawful activity- e.g., the individual carried out the transaction differently than they would have with lawfully obtained proceeds. The government does not have to prove a specific event from which the illegal proceeds were obtained.
Proceeds/Property was from Illegal Activity
The third element the government must prove in a tax money laundering case is the illegitimacy of the proceeds/property. Again, the government does not have to prove the specific event from which the illegal proceeds were obtained.
For example: Any currency expended by a known drug dealer, who did not have legitimate sources of income, can be circumstantially proven to be proceeds of unlawful activity.
Tax Evasion or Tax Fraud
The fourth element the government must prove in a tax money laundering case is the illegal activity was voluntarily conducted with intent to violate known legal duties under tax laws, specifically § 7201 and § 7206. Under § 1956(a)(1)(A)(ii), the government does not have to show the illegal activity was completed, just that an individual engaged in the illegal activity.
In cases where violation of tax laws occurs and the government seeks to establish a charge of money laundering relating thereto, the Tax Division must approve such action.
A violation of § 7201 occurs when an individual “willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof.”
In summary, a violation of § 7206 occurs when any person:
- willfully makes or subscribes to a false return or other document under penalties of perjury,
- willfully aids or assist in the preparation or presentation of a false return or other document,
- falsely or fraudulently signs, executes, procures, or schemes at the false execution of any bond, permit, entry, or other document required by tax laws,
- falsely or fraudulently conceals or removes any item on which tax could be imposed, or on which levy is sanctioned, with the intention of evading or defeating the collection or assessment of tax, and
- conceals or destroys, or otherwise makes unavailable, property or records relating to any offer in compromise.
Because the money laundering of assets may be carried out for a number of reasons unrelated to tax laws, the government must prove the individual intended to violate tax laws/evade tax to proceed under § 1956(a)(1)(A)(ii). Such proof can be had, for example, when an individual characterizes taxable funds as loan repayments, loan, or gifts.
If appropriate, when tax money laundering is charged under this statute, an individual is faced with exposure to a significantly greater sentence and the possibility of criminal forfeiture of assets; as opposed to violations under Title 26.
The venue, for purpose of § 1956(a)(1)(A)(ii), will occur in any district where the offense occurred or where an act in furtherance thereof occurred.
Statute of Limitations
Since § 1956(a)(1)(A)(ii) does specify a statute of limitations, Title 18, § 3282(a) will apply, which holds:
In General. Except as otherwise expressly provided by law, no person shall be prosecuted, tried, or punished for any offense, not capital, unless the indictment is found or the information is instituted within five years next after such offense shall have been committed (emphasis supplied).