A Brief History of Money Laundering Laws  

© 2006  Peter J. Loughlin, Esq.

Money Laundering was, at one time, largely unchecked in this country. At one time all a criminal need do to legitimize his ill-gotten gains was to deposit the proceeds in his local bank. This made the banker an unwitting, or, in some cases, an unassailable coconspirator to the crime generating the proceeds. The history of money laundering and the development of laws intended to halt its insidious progress have been likened to the proverbial cat and mouse game. Where Congress has acted to close the door on money launderers by careful construction of statutes, the launderers find new and innovative ways to circumvent the legislation – which leads to new laws. Thus has been the history of money laundering legislation in the United States.

The first volley hurled by the government was with the passage of the Bank Records and Foreign Transactions Act of 1970, better known as the Bank Secrecy Act of 1970.[1]    This Act was more directly aimed at banks and financial institutions and thus, in a sense, indirectly targeted money laundering.  For example, the BSA primarily deals with requiring banks to establish and maintain records of financial transactions with its customers.  Central to the Act’s efficacy is the Currency Transaction Report or CTR.  The CTR was required to be completed and filed each time a customer made a deposit or withdrawal of an amount equal to or exceeding $10,000. 

Another facet of the BSA was the requirement of U.S. persons/depositors of foreign banks to file a notice with the Internal Revenue Service for all foreign bank deposits/balances exceeding $10,000.[2]   However, this aside, the BSA, as originally drafted, was largely an administrative or regulatory act leading predominantly to prosecutions of banks for failure to comply with the paperwork requirements.[3]

The BSA did not in anyway criminalize money laundering and the CTRs were easily circumvented by the structuring of deposits not to equal or exceed the $10,000 limit.   This structuring or “smurfing” as became known was merely an annoyance to the serious minded money launderer, but in no significant way did it stop or even mitigate its growth.

Congress’ next move was to increase the number of regulators to make it even more uncomfortable for the launderers (and the bankers).  This was accomplished with an amendment to the Internal Revenue Code, 26 U.S.C. § 60501 with the requiring of any business or trade to complete Form-8300 on any transaction or series of transactions (anti-smurfing) equal to or exceeding $10,000.[4]

Again, this was mainly an inconvenience, which was easily circumvented and served more to raise the ire of businessmen and bankers than it did to eliminate money laundering.

1970, was an important year for another statute that would, as time developed, cause many problems for money launderers who acquired their illicit proceeds from the drug trade. This act was the Comprehensive Drug Abuse Prevention and Control Act of 1970 [5] and it empowered the government use civil forfeiture against property used or acquired in violation of federal drug laws. Certain amendments were also made to the Racketeer Influenced and Corrupt Organization Act of 1961[6] which would usher in a new form of punishment for criminals and eventually for money launderers in their own right. (See United States v. Saccoccia).[7]

The BSA was a start, but more would be needed.  Furthermore, the constitutionality of the BSA was challenged in 1974 on the basis of its violating due process and the Fourth and Fourteenth Amendment protections against unreasonable search and seizure.  Interestingly enough, the action was not originated by money launderers, but by a group of bankers.[8]   This would underscore the rift that was developing between the banking community and the lawmakers – an issue that would need to be addressed – in the near future.

Finally, Congress made a direct attack on the money launderers and for the first time in American history, money laundering became a crime unto itself.  The Money Laundering Control Act of 1986 (MLCA)[9] criminalized both money laundering an smurfing.  Essentially, MLCA § 1956 criminalizes the “ . . . knowing and intentional transportation of monetary funds derived from specified unlawful activities, while § 1957 address transactions involving property exceeding $10,000 derived from the specified unlawful activities”.[10]  

What are the “specified unlawful activities”?  In effect this is any act or activity constituting a RICO[11], or the Controlled Substances Act [12] violation coupled with the knowing concealment of use of proceeds from a criminal enterprise, specifically including smurfing (§ 1956) and the knowing acceptance of such funds from a criminal or money launderer (§ 1957).   This now placed bankers, businessmen, and associates on notice that their willingness (or willful blindness) to accepted tainted proceeds could place them in the role of a coconspirator  (See U.S. v. Campbell).[13]

By 1990 it was apparent that a coordinated plan would necessary to unify the efforts of the myriad of law enforcement and prosecutorial agencies involved in the campaign against money laundering.  This plan culminated in the formation of the Financial Crimes Enforcement Network or FinCEN.[14]  Among FinCEN’s many duties and accomplishments was the formation of an advisory group[15] to address the growing rift between the government and the bankers et al who were growing resentful of the mandatory regulatory duties the government had shouldered upon them.  It had long been felt that much of the record keeping such as CTRs was largely more effort than it was worth.  The advisory group permitted a forum from which the government could listen to the many valuable suggestions that private industry could offer and a chance to work in cooperation. As a result, cumbersome reporting practices were eliminated or modified to the benefit of all.

By 1992 Congress was busy making long needed amendments to the BSA in the form of the Annunzio-Wylie Money Laundering Act of 1992.[16]    The Act came at the foot heels of the Bank of Commerce and Credit International case (BCCI) money laundering scandal in 1989 wherein Panamanian president, Manuel Noriega, laundered millions through multiple banks throughout the world.[17]   This Act would terminate the charter, license, insurance, etc of any U.S. bank convicted of money laundering related to drug trafficking.[18]   Additionally the Act would indemnify any bank or its employees from civil liability in reporting suspicious transactions to the authorities thus further expanding the governments growing army of informants.

1994 brought again new legislation, this time the Money Laundering Suppression Act of 1994.[19]  Congress codified a number of changes to the reporting requirements with the goal of reducing the number of CTRs filed by 30%.[20]   Congress was apparently listening to the bankers and advisory group’s recommendations.  The Act also contained a number of provisions to bring more control over the non-bank financial businesses with the focus on drug related money laundering.[21]

Was all this effort making a dent in the money laundering industry?  That’s difficult to answer.  Money Laundering in the U.S. is currently estimated at $600 billion dollars per year.[22]   This, of course, is staggering, but it is difficult to say what the figures would be with without the governments efforts to date.  Certainly there have been some outstanding government successes in the war.  For example, consider “Operation Casablanca” purported to be the largest money laundering sting in U.S. history, yielding over $60 million and 110 indictments.[23]   Briefly, the operation involved money wire fraud from the U.S. to Mexico with government agents posing as members of a drug cartel.

FinCEN was authorized by the BSA to impose penalties under 31 U.S.C. § 5321 for willful violations by U.S. financial institutions failure to comply with its regulations and record keeping requirements.  Yet by 1994 FinCEN had only closed on 14% of its annual BSA civil violation caseload.[24]   However, in April 2000 $1.3 million was collected in BSA penalties from banks, credit unions and, in particular, casinos.[25]

As indicated above, a most powerful weapon against money launderers is, perhaps, asset forfeiture.  Yet as powerful a deterrent forfeiture could be by removing the fruit and funding of crime, some criticism has been raised based on a host of issues ranging from due process to Eighth Amendment violations for excessive punishment.  For example, in United States v. Bajakajian[26], the Supreme Court held that the confiscation and forfeiture of the defendant’s $300,000+ for failure to comply with notice requirements in removing cash from the U.S. was excessive and disproportional punishment under the Constitution.

Such decisions and public condemnation of what was sometimes perceived to be “draconian”, led to the passage of a reform Act known as the Civil Asset Forfeiture Reform Act of 2000 (CAFRA).[27]    CAFRA made significant changes which should offer more safeguards without sacrificing the overall deterrent value needed in the war against money laundering.

The past 30 years has brought forth a multitude of legislation, amendments and case law in a concerted effort to eliminate money laundering from our shores and throughout the world.  As noted, this has been nothing short of a cat and mouse game, however, there have been significant advances made by the government and the financial services industry.  In many ways, the full parameters of the game are just beginning to be identified.  It is clear that success can come not only by a dedicated national effort, but by one of international cooperation on a supra national scale.  Such efforts are sure to come to fruition in this new century as the experiences of the past 30 years bring with them a real opportunity to rein in our sinister and universal foe – money laundering. 

Notice: United States Department of Treasury Regulation Circular 230 requires that we notify you that, with respect to any statements regarding tax matters made herein, including any attachments, (1) nothing herein was intended or written to be used, and cannot be used by you, to avoid tax penalties; and (2) nothing contained herein was intended or written to be used, and cannot be used, or referred to in any marketing or promotional materials. Further, to the extent any tax statement or tax advice is made herein, Peter J. Loughlin and Goldman & Loughlin, PLLC does not and will not impose any limitation on disclosure of the tax treatment or tax structure of any transactions to which such tax statement or tax advice relates. The Information provided here is for general information only and is not intended to nor does it constitute legal or tax advice to any person or entity. You should review your particular circumstances with your independent legal and tax advisors.

Endnotes