In its 3rd MER, the U.S. was rated largely compliant with these requirements. The technical deficiencies were: the list of domestic predicate and foreign ML offenses did not fully cover the designated categories of offenses; mere possession and concealment of proceeds did not constitute ML; and the definition of property for the cross border ML offense only included monetary instruments or funds.
Criterion 3.1 - The U.S. has four Federal offenses which criminalise ML broadly in line with the Vienna and Palermo Conventions:
a) “Basic offense”: conducting or attempting to conduct a financial transaction with property knowing that it is the proceeds of a felony under State, Federal or foreign law, and which in fact involves the proceeds of “Specified Unlawful Activity” (SUA), with the intent to: i) promote carrying out an SUA; ii) commit tax evasion; or knowing the transaction is designed in whole or in part to iii) conceal/disguise the nature, location, source, ownership or control of the proceeds; or iv) avoid a transaction reporting requirement: 18USC§1956(a)(1).
b) “International offense”: transporting, transmitting or transferring monetary instruments or funds out of/into the U.S.: i) with the intent to promote carrying out an SUA regardless of whether or not the monetary instruments/funds constitute criminal proceeds; or ii) knowingly transporting, transmitting, or transferring a monetary instrument/funds constituting the proceeds of some form of unlawful activity with the specific intent to conceal/disguise aspects of the proceeds of an SUA or avoid a transaction reporting requirement under State/Federal law: 18 USC §1956 (a)(2)(A) & (B).
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c) “Undercover sting offense”: conducting a financial transaction with property represented to be the proceeds of an SUA by an undercover law enforcement official or someone acting under his/her direction and with a similar intent as those set out in
§1956(a)(1): §1956(a)(3).
d) “Transactional offense”: knowingly engaging or attempting to engage in a “monetary transaction” (transaction through a FI) in criminally derived property of over USD 10 000: §1957.
The Federal ML offenses apply if: 1) there is even a de minimis connection63 to “inter-state commerce” (a requirement necessary to establish Federal jurisdiction); and 2) the activity constitutes a financial transaction64 (18 USC 1956 offenses) or monetary transaction (18 USC 1957 offense). Mere possession is not criminalised because the ML act is not distinct from the predicate crime. ML is not charged in relation to mere acquisition of proceeds of crime through commission of the predicate offense although mere receipt by a third party, with requisite knowledge, may be sufficient to attract liability for ML: U.S. v. Gotti, 459 F.3d 296, 335 (2d Cir. 2006).
Criterion 3.2 - All but one of the 21 designated categories of predicate offenses are covered. Predicate offenses are defined in a statutory list of SUA covering approximately 250 serious offenses:
§1956(c)(7)(A)-(F). Tax crimes are not SUAs although the laundering of proceeds of another predicate offense with the intent to evade taxes is considered a crime: §1956(a)(1)(A)(ii) and United States v. Zanghi, 189 F.3d 71, 81 (1st Cir. 1999) and the U.S. relies on mail and wire fraud to capture instances of tax fraud - when appropriate.
Criterion 3.3 - The U.S. does not apply a threshold approach domestically.
Criterion 3.4 - The basic and undercover sting offenses cover any type of property, regardless of value, that directly or indirectly represents the proceeds of a SUA: 18 USC §§1956(a)(1), (2), and (3). The international offense covers these aspects but only in relation to “funds” or “monetary instruments § 1956(a)(2). The transactional offense only applies where the value of the laundered property exceeds USD 10 000: §1957. Gaps under the transactional and international offenses are deemed minor since the basic offense will apply when the transmission or transfer of proceeds qualifies as a transaction. Criterion 3.5 - When proving that property is the proceeds of crime, it is not necessary that a person be convicted of a predicate offense: 18 USC §§1956 & 1957.
63 The “inter-state commerce” requirement has been broadly interpreted by the courts to include cases involving: use of interstate transportation (e.g. highways), telephones or the mail; any drug offence; theft from companies purchasing goods interstate in the normal course of their business; ML involving goods partially manufactured interstate (e.g. jewelry, diamonds), etc.
64 The term “financial transaction” covers a very broad range of conduct and is defined in §1956(c)(4) as “(A) a transaction which in any way or degree affects interstate or foreign commerce involving (i) the movement of funds by wire or other means or (ii) one or more monetary instruments, or (iii) the transfer of title to any real property, vehicle, vessel, or aircraft, or (B) a transaction involving the use of a financial institution which is engaged in, or the activities of which affect, interstate or foreign commerce in any way or degree.” A transaction is understood to include the sale, purchase, lease, pledge, gift, transfer, or other disposition (deposit, withdrawal, transfer between account, exchange of currency, loan, extension of credit, using a safe deposit box or purchasing/selling monetary instruments). Any disposition of the receipt of proceeds, any handing over in the care of, including mere receipt by a third party, with requisite knowledge, may be sufficient to attract liability for ML.
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Criterion 3.6 - Twelve designated categories are specifically included as foreign predicate offenses:
§1956(c)(7)(B)(i)-(vii). The remaining 9 categories are not listed individually in this sub-section:
1) participating in an organized criminal group and racketeering; 2) illicit trafficking in stolen and other goods; 3) fraud (when it is not by/against a foreign bank); 4) counterfeiting currency;
5) counterfeiting and piracy of products; 6) environmental crime; 7) forgery; 8) insider trading and market manipulation; and 9) tax crimes. The gap is largely mitigated as: (i) the definition of SUA includes crimes arising under foreign law65; (ii) section 1956(c)(7)(B)(vi) can capture any foreign predicate, so long as the crime abroad is transnational in nature and involves an organized criminal group (three or more persons) set up to commit a serious offense, as defined by the Palermo Convention;66 and (iii) in circumstances where the non-listed foreign predicates are not captured by
§1956(c)(7)(B)(vi), the U.S. is able to use certain domestic predicates for ML which apply extraterritorially. The U.S. provided assessors with case law in which domestic predicates served to capture foreign conduct, thus permitting a money laundering charge in the U.S. for the nine non-listed offenses. This means any one of the approximately 250 violations encompassed in §1956(c)(7) might be domestic predicate offenses for ML in some circumstances, and have been interpreted by Federal courts to apply extraterritorially in some instances.67
Criterion 3.7 - Self-laundering is criminalised: 18 USC §§1956 & 1957.
Criterion 3.8 - For the three ML offenses under 18 USC §1956, proof of knowledge and the intention can be inferred from direct, indirect or objective factual evidences. All elements of the ML offense must be proved beyond reasonable doubt. For the transactional offense, proof of criminal intent is not necessary. The only proof needed is that the defendant knowingly engaged in the monetary transaction and knew the property involved in that transaction was criminally derived from activity constituting a felony under State, Federal or foreign law.
Criterion 3.9 - Proportionate and dissuasive criminal sanctions apply to natural persons convicted of ML. A criminal fine of up to USD 500 000 or twice the value of the property involved in the transaction (whichever is greater), or imprisonment for up to 20 years, or both apply for the basic, international,
65 Additionally, the money laundering statutes, by virtue of 18 USC §1956(f), apply extraterritorially, provided that “the conduct is by a United States citizen or, in the case of a non-United States citizen, the conduct occurs in part in the United States; and the transaction or series of related transactions involves funds or monetary instruments of a value exceeding USD 10 000.” Thus, a U.S. citizen can be charged with ML that occurs exclusively abroad. Further, § 1956 applies to “foreign persons” who commit offenses involving transactions, property, or institutions with certain specified connections to the U.S. Id. §1956(b)(2), (f). Additionally, §1957 imposes criminal liability on “United States person[s]” who engage in prohibited transactions “outside of the United States.” Id. §1957(d)(2).
66 § 1956(c)(7)(B)(vi)’s reference to “an offense with respect to which the United States would be obligated by a multilateral treaty, either to extradite the alleged offender or to submit the case for prosecution, if the offender were found within the territory of the United States,” has been interpreted by case law, to capture any foreign predicate, so long as the crime abroad is considered serious, transnational, and organized in nature, as defined by the Palermo Convention. United States v. Real Property Located at 9144 Burnett Road, SE, Yelm, Washington, 104 F. Supp. 3d 1187 (W.D. Wash. 2015). Section 1956(c)(7)(B)(vi) includes participating in an organized criminal group and tax evasion, per case law, but could also include any of the other 7 foreign predicates not listed individually in §1956(c)(7)(B)(i)-(vii). The judicial precedent that permits the U.S. this flexibility is new since its 2006 MER, and U.S. authorities can seek to rely on it in all judicial districts as needed, but it is not binding.
67 This is in addition to the offenses against foreign nations specifically listed in 18 USC §1956(c)(7)(B)(i)‐(vii).
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undercover sting, and conspiracy offenses: 18 USC §1956(a)(1)-(3). A criminal fine of up to USD 250 000 (for a natural person) or USD 500 000 (for a legal person), or twice the amount of the criminally derived property involved in the transaction (whichever is greater), or imprisonment for up to 10 years, or both apply for the transactional offense: 18 USC §1957. Higher fines may be applied in cases of egregious conduct. All ML offenses are also punishable by civil fines of up to USD 10 000 or the value of the property involved in the transaction (whichever is greater): § 1956(b). Any officer, director or employee of a FI found guilty of a ML offense should also be the subject of a written notice to the relevant regulatory agency: §1956(g). Natural persons may be sanctioned as principals to the offense or accessories after the fact: 18 USC §§2 & 3.
Criterion 3.10 - Criminal liability and proportionate, dissuasive sanctions for ML apply to legal persons, and are without prejudice to the criminal liability of natural persons: 1 USC § 1. Legal persons are punishable by the same criminal and civil fines described in c. 3.9. Any FI found guilty of a ML offense should be the subject of a written notice to the relevant regulatory agency and may subsequently face the revocation of its licence: USC §1956(g).
Criterion 3.11 - There are ancillary offenses to all of the ML offenses: §1956(h), §1956(a)(1)-(3) and 1957(a)., including conspiracy and attempt. Anyone found aiding and abetting, counselling, commanding, inducing, procuring, or wilfully causing a ML offense can be prosecuted and punished as a principal: 18 USC §2.
Weighting and Conclusion:
Criterion 3.1 shortcomings are minor as the Federal ML offenses cover all but an extremely limited number of circumstances. That gap is also narrowed to some extent by the 36 States which have enacted State-level ML offenses (all of which apply regardless of any connection to “inter-state commerce”). Shortcomings under c.3.2 and c. 3.6 are also considered minor: while tax crimes are not specifically listed as predicate, other predicates in effect criminalise a range of tax fraud and even though 9 designated categories of predicate are not specifically listed as foreign SUAs, a broad range of foreign conduct is captured by other means including domestic SUAs applying extra-territorially.
Recommendation 3 is rated largely compliant.