Money Laundering Prosecutions and Enforcement to Be Strengthened

John M. Pachkowski, J.D., Writer/Analyst, CCH Federal Banking Law Reporter and Bank Compliance Guide, Co-Author, CCH Financial Services Modernization-Gramm-Leach-Bliley Act of 1999-Law and Explanation and CCH Federal Privacy Rules for Financial Institutions; Contributing Author, CCH Focus.

he International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (IMLAFAT) contains a number of provisions that increase the strength of U.S. measures to prevent, detect and prosecute international money laundering and the financing of terrorism. These measures address a number of findings stated by Congress in Section 301 of the Act. Among other things, Congress found that:

money launderers are subverting legitimate financial mechanisms and banking relationships by using them as protective covering for the movement of criminal proceeds and the financing of crime and terrorism; and
U.S. anti-money laundering efforts are impeded by outmoded and inadequate statutory provisions that make investigations, prosecutions and forfeitures more difficult, particularly in cases in which money laundering involves foreign persons, foreign banks or foreign countries.

This analysis will focus on those measures that will assist law enforcement efforts in making it easier to prosecute money laundering crimes.

COOPERATION AND INFORMATION SHARING

Section 314 of IMLAFAT enhances the ability of the government to share more specific information with banks, and the ability of banks to share information with one another on potential terrorist or money-laundering activities. The Secretary of the Treasury is required to issue regulations that encourage cooperation in sharing information on “persons reasonably suspected, based on credible evidence, of engaging in terrorist acts or money laundering activities.” In order for banks to share information among themselves, they will have to notify the Treasury Secretary.

In addition, Section 330 of IMLAFAT states “the sense of Congress” that the President should direct the Secretaries of State and Treasury, and the Attorney General, to seek negotiations with foreign supervisory agencies to ensure that foreign institutions maintain adequate records on any foreign terrorist organization or person engaged in any financial crime and to make such records available to U.S. law enforcement and financial supervisory personnel.

Finally, Section 328 of IMLAFAT requires the Treasury Secretary to take all reasonable steps to encourage governments to require the inclusion of the name of the originator in wire-transfer instructions sent to the United States. The Treasury Secretary must consult with the Attorney General and the Secretary of State and submit an annual report to the House Financial Services Committee and the Senate Banking Committee on progress made toward that goal.

MONEY-LAUNDERING CRIMES

To make it easier to prosecute money-laundering crimes, a number of IMLAFAT’s provisions either update rules or remove impediments that are contained in outmoded and inadequate statutory provisions.

“Specified Unlawful Activity”

Under 18 USC 1956, a person can be found guilty of money laundering if he or she knows that property involved in a transaction was the proceeds of a “specified unlawful activity.” Section 315 of IMLAFAT expands the list of crimes that constitute “specified unlawful activities” for purposes of the criminal money laundering provisions by adding:

foreign corruption offenses,
smuggling and U.S. export control violations,
certain customs and firearm offenses,
computer fraud offenses and
felony violations of the Foreign Agents Registration Act of 1938.

The changes made by Section 315 are intended to prevent a “rapacious foreign dictator” from bringing his funds to the United States and hiding them here without fear of detection or prosecution.

Financial Institutions

Another change made by Section 318 of IMLAFAT expands the definition of a financial institution for purposes of money-laundering statutes found in 18 USC 1956 and 1957 to include banks operating outside of the United States. This change eliminates an ambiguity in current law on money laundering through foreign banks.

Long-Arm Jurisdiction

U.S. courts are given new “long-arm” jurisdiction over foreign persons committing money-laundering offenses in the United States. This new power, found in Section 317 of IMLAFAT, also covers foreign banks opening U.S. bank accounts and foreign persons who convert assets ordered forfeited by a U.S. court.

Asset Preservation. A federal court also is permitted, when dealing with foreign persons subject to the long-arm jurisdiction, to issue a pre-trial restraining order or take other action necessary to preserve property in the United States that can be used to satisfy an ultimate judgment.

Federal Receivers. This asset preservation is supplemented by a federal court’s ability to appoint a federal receiver to collect and take custody of a defendant’s assets to satisfy criminal or civil money-laundering or forfeiture judgments. According to Sen. Carl Levin, D.-Mich., Chairman of the Permanent Subcommittee on Investigations, the federal receiver provision was included in IMLAFAT because “many money laundering crimes include such complex flows of money across international lines that the average prosecutor does not have the time or resources needed to chase down the money, even when that money represents savings stolen or defrauded from hundreds of crime victims in the United States.”

FORFEITURE AND CONFISCATION

Several provisions of IMLAFAT affect the criminal and civil forfeiture provisions codified in Title 18 of the United States Code.

Section 316 of IMLAFAT establishes procedures intended to protect the rights of persons whose property may be subject to confiscation in the exercise of the government’s anti-terrorism authority. This provision is designed to assure that a defendant in a forfeiture action will not lack the opportunity to challenge the forfeiture simply because of the authority under which the forfeiture is sought.

Section 319(a) generally treats amounts deposited by foreign banks in interbank or correspondent accounts with U.S. banks as having been deposited in the United States for purposes of the forfeiture rules. The Attorney General does have the authority, in the interest of fairness and consistent with the United States’ national interest, to suspend a forfeiture proceeding based on that presumption. This provision closes a loophole that existed in forfeiture rules. Prior to the enactment of Section 319(a), U.S. law enforcement officials faced a significant and unusual legal barrier to seizing funds from a correspondent account. It was not sufficient for U.S. law enforcement to show that criminal proceeds were deposited into the correspondent account; instead, because funds in a correspondent account are considered to be the funds of the foreign bank itself, the government also was required to show that the foreign bank was somehow part of the wrongdoing.

Finally, Section 320 of IMLAFAT permits the United States to institute forfeiture proceedings against the proceeds of foreign criminal offenses found in the United States.

ANTI-MONEY LAUNDERING PROGRAMS AND STRATEGIES

To give financial institutions a greater role in detecting and alerting law enforcement officials to money laundering, Section 352 of IMLAFAT requires that each financial institution establish anti-money laundering programs. This provision is a departure from those in effect prior to the enactment of IMLAFAT. Previously, 31 USC 5318(h) provided that the Secretary of the Treasury may require financial institutions to carry out anti-money laundering programs.

The minimum program requirements are unchanged under IMLAFAT. An effective anti-money laundering program should include:

the development of internal policies, procedures and controls,
the designation of a compliance officer,
an ongoing employee training program, and
an independent audit function to test programs.

The language of IMLAFAT Section 352 is very general because Congress did not intend the establishment of an anti-money laundering program to be a “one-size-fit-all” requirement.

Effective Date

This new anti-money laundering program requirement takes effect 180 days from Oct. 26, 2001. During this time period, the Treasury Secretary is authorized to issue regulations providing guidance to financial institutions on complying with the statutory requirements. In issuing the regulations, the Treasury Secretary must consider the extent to which the requirements imposed under the new Section 5318(h) are commensurate with the size, location and activities of the financial institutions to which the regulations would apply.

Compliance Records

Finally, a separate provision found in IMLAFAT Section 319(b) requires U.S. financial institutions to reply to a request for information from a U.S. regulator on anti-money laundering compliance within 120 hours of receipt of the request.

Money Laundering Strategy

Also, Section 354 of IMLAFAT adds “money laundering related to terrorist funding” to the list of subjects to be addressed in the annual National Money Laundering Strategy prepared by the Treasury Secretary. The strategy, which is required by the Money Laundering and Financial Crimes Strategy Act of 1998, requires the Treasury Secretary to establish a plan for combating money laundering and other financial crimes by coordinating federal, state and local efforts and resources.