Money Laundering charges now require proof that a transaction has the purpose of concealing illegal monies

Aug 06, 2010   

Recently two cases involving the amount of proof required to sustain criminal convictions for money laundering were decided before the United States Court of Appeals for the Sixth Circuit, based out of Cincinnati. Money laundering charges in recent years have been a powerful weapon for prosecutors in fraud cases, because money laundering convictions often carried much higher penalties than for fraud from which the money being laundered was derived. These new cases are interesting because they arise after Cuellar v. United States, a case decided in 2008 where the Supreme Court changed the quantum of proof necessary to convict someone of money laundering, and thereby making it harder for prosecutors to sustain money laundering charges.

United States v. Faulkenberry and United States v. Donald Ayers both arose from a prosecution of a securities fraud scheme involving National Century Financial Enterprises. As part of the prosecution of the fraud scheme, the government charged both defendants with money laundering for monetary transactions conducted during the fraudulent scheme with phony documents. Although the Court of Appeals found sufficient evidence that the defendants committed fraud, it found that there was insufficient evidence to prove money laundering under the standards set by the Supreme Court in Cuellar v. United States.

The Supreme Court in Cuellar held that to prove money laundering, the government must prove that a monetary transaction must be “designed in whole or in partto conceal or disguise” the nature and source of the fraudulently obtained money.  The Supreme Court held that this means that the purpose of the monetary transaction must be to conceal of disguise the illegal monies. The Court of Appeals, following the Cuellar case, found in, that although the government proved the defendants knew about the monetary transactions and that they were structured to conceal the funds, there was insufficient evidence that the purpose of the monetary transaction was to conceal the money, as opposed to merely facilitating the fraud.  Engaging in monetary transactions for the purpose of facilitating a fraud, instead of the purpose of concealing the money, is not money laundering according to the Court of Appeals. As stated by the Court in Faulkenberry, “money in motion does not necessarily equal money laundering”.

As Courts construe the new proof requirements of Cuellar, prosecutors will find it more difficult to convict defendants of money laundering unless the government has specific proof that monetary transactions were specifically conducted with the purpose of concealing illegal monies. This removes a potent weapon from prosecutors armory in many fraud cases, but is more in line with the purposes of the money laundering laws: to criminalize the intentional secreting of illegal monies separate and apart from the conduct that earned the illegal monies in the first place.