Written by Brandon Sample
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If you or someone you love is under investigation for federal money laundering, or has already been charged, you probably want to know two things: what exactly the crime is, and how much prison time is at stake. Here is the short answer. Under federal law, money laundering means doing something with money that came from a crime — moving it, spending it, or hiding it — in a way the law forbids. The two main laws are 18 U.S.C. § 1956, with up to 20 years in prison, and 18 U.S.C. § 1957, with up to 10 years.
This article was first published in 2020. The law may have changed since then.
You hear the phrase “money laundering” in TV crime dramas and mob movies, where it brings to mind shady deals in the world of organized crime. When this article was first written, news reports were also raising money laundering questions about the president in office at the time. Yet while the phrase is everywhere, few people know exactly what crime it describes.
Money laundering is not one single act. It covers many different acts, and the classic goal behind them is the same: hiding the fact that money came from a crime.
What does “money laundering” actually mean?
Where does the name come from?
The name describes the crime well. The person is trying to “launder,” or clean, money. Why does it need cleaning? Because it is “dirty” — it came from a crime. So the person runs it through another transaction or business. That step puts distance between the dirty money and the person, and when the money comes back, it no longer looks like money from a crime.
What are the three stages of money laundering?
The process is often broken into three steps:
- Placement: a crime puts money in the person’s hands, and the money goes into the banking system or a business.
- Layering: the money is moved through one or more transactions to hide who first got it from the crime.
- Integration: the money comes back to the person in an indirect way, looking like ordinary income. At that point the money has been “laundered.”
A pop-culture example makes this concrete. In the TV show Breaking Bad, the main character, former science teacher Walter White, made a lot of money selling high-quality crystal meth. He then bought a car wash with that money. In the three steps: (1) Walter had a lot of money from selling drugs; (2) he bought the car wash to hide that the money came from crime; and (3) the dirty money that went into the car wash was “laundered,” so the profit coming out of the car wash no longer looked tied to drug sales.
Which federal laws make money laundering a crime?
The Bank Secrecy Act of 1970: cash reports and structuring
Congress passed the Bank Secrecy Act in 1970 to fight money laundering at the federal level. Under the rules that carry out this law, banks must file a report on cash (currency) transactions of more than $10,000 (31 U.S.C. § 5313; 31 C.F.R. § 1010.311). This filing is often called a currency transaction report. So if someone walks into a bank and deposits more than $10,000 in cash, the bank must report it.
What about splitting the cash up? Breaking up cash deposits or withdrawals to keep each one under $10,000, so the bank will not file that report, is a separate crime called structuring (31 U.S.C. § 5324). It carries up to 5 years, or up to 10 years in some cases. And it can be charged even if the money itself came from a legal source.
The Money Laundering Control Act of 1986: §§ 1956 and 1957
About 16 years later, Congress passed the Money Laundering Control Act of 1986, which made money laundering itself a federal crime. It created the two main sections prosecutors use today: 18 U.S.C. § 1956 and § 1957.
Section 1956 makes it a crime to do a financial transaction with money from certain listed crimes, which the law calls “specified unlawful activities.” The list is long. It includes drug trafficking, murder, fraud, bribery, and most crimes on the RICO list (18 U.S.C. § 1956(c)(7)).
What must the government prove under § 1956?
Under 18 U.S.C. § 1956(a)(1), the government must prove that you:
- Did a financial transaction, or tried to
- Using money that in fact came from a specified unlawful activity
- Knowing the money came from some kind of crime
- And did it for one of the purposes the law lists: to promote the crime, to evade taxes, to hide the money’s nature, source, owner, location, or control, or to avoid a reporting requirement
In other words, hiding the source of the money is one way to break § 1956, but not the only way. The penalty is up to 20 years in prison and a fine of up to $500,000 or twice the value of the property involved, whichever is greater. Conspiracy to launder money carries the same penalty (18 U.S.C. § 1956(h)).
Is spending more than $10,000 of crime money a separate crime?
Yes. Section 1957 is nicknamed the “money spending” statute. It makes it a crime to knowingly do a transaction of more than $10,000 through a bank or other financial institution using money from a specified unlawful activity. Unlike § 1956, there is no need to prove you meant to hide anything. If you spend more than $10,000 of crime money through a bank, whether or not you wanted to disguise it, you may have broken § 1957. The government also does not have to prove you knew exactly which crime the money came from (18 U.S.C. § 1957(c)). The penalty is up to 10 years.
There is one important exception: money spent to hire a criminal defense lawyer is not covered by § 1957 (18 U.S.C. § 1957(f)(1)).
The USA PATRIOT Act of 2001 and two 2008 Supreme Court cases
After the September 11 attacks, Congress passed the USA PATRIOT Act in 2001. It added more reporting and record-keeping duties for banks and other financial businesses, to help stop the funding of terrorism.
In 2008, the U.S. Supreme Court decided two cases that explained the federal money laundering law:
- Cuellar v. United States, 553 U.S. 550 (2008): This case involved hiding cash while driving it to Mexico. The Court held that, to convict for moving money out of the country to conceal it, the government must prove that hiding the money’s nature, location, source, ownership, or control was the purpose of the trip. It is not enough that the money was hidden during the trip.
- United States v. Santos, 553 U.S. 507 (2008): This case involved an illegal lottery. The Court ruled that the word “proceeds” in § 1956 meant the profits of the crime, not all the money it took in (gross receipts). The Justices did not agree on one reason, so the ruling was narrow.
Congress responded to Santos in 2009. It added a definition saying “proceeds” means any property obtained or kept, directly or indirectly, through unlawful activity, including the gross receipts of that activity (18 U.S.C. § 1956(c)(9), added by Pub. L. 111-21). So for conduct after that change, the Santos “profits only” reading no longer applies.
What else should you expect in a money laundering case?
Money laundering can be a hard crime for prosecutors to prove. Even so, investigators often treat a person with an unusual amount of cash as a red flag that money laundering may be happening.
Money laundering charges usually come with a charge for the underlying crime, such as fraud or drug trafficking. The government also often seeks forfeiture, which means asking the court to take the money and property involved. Because these penalties can stack up, have a lawyer who handles money laundering cases review the evidence before you make decisions about your case.
Where can you read more about money laundering law?
Money laundering (Cornell Law School Legal Information Institute)
Anti-money laundering in the United States, 2016 (Getting the Deal Through)
What related charges often come up?
What should you do next?
Book a consultation to talk it through with Brandon Sample.
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