What is Money Laundering?
Money laundering is a serious crime. Money launderers may face both federal and state charges.
Texas Penal Code Chapter 34 § 34.02 defines money laundering. A defendant may face money laundering charges in Texas if he or she knowingly acquires, maintains interests in, conceals, possesses, transfers, or transports proceeds of any criminal activity.
In addition, you may be charged with money laundering if you facilitate, supervise, or conduct transactions that involve such proceeds.
Money laundering may also include investing, expending or receiving the proceeds of a criminal activity – or offering to do so – as well as financing or investing funds which are intended to be used to further the commission of a criminal activity, or intending to do so.
This crime often involves complex tactics and bookkeeping. Although the specific techniques used to clean dirty money vary, financial experts cite three stages of money laundering in the process: 1) placement, 2) layering, and 3) integration.
Stage 1 of Money Laundering: Placement
The first stage of money laundering, placement, requires the placement of criminally-derived proceeds in the financial system.
This step must occur so that the criminal disposes of cash derived from a criminal source. Because it is usually dangerous and unwise to keep large amounts of cash, the individual or criminal enterprise may attempt to place the proceeds in a more secure location.
Clearly, placement of the funds or assets is the most vulnerable stage of the money laundering process. Financial institutions, including banks, broker-dealers, money managers, and fiduciaries, are trained to identify suspicious transactions, such as cash or travelers check deposits.
The criminal must attempt to circumvent the amount threshold reporting levels. In Texas and throughout the United States, financial institutions are required to report transactions above a specific amount to regulators.
To bypass the financial system, the criminal enterprise may exchange the proceeds to other cash equivalents, such as savings account deposits, traveler’s checks, or official bank drafts.
The criminal may also use cash businesses, dummy invoices, smurfing, trusts/offshore entities, foreign banks, and aborted transactions to place the dirty money in stage one of the typical money laundering process:
- One or more cash businesses may be used to absorb the ill-gotten cash. The funds are added to the cash business, such as a tanning salon, casino, car wash, restaurant, parking garage, or strip club, and deposited into the cash business’ bank account. Thereafter, the cash may be withdrawn and distributed to employees or associates.
- False invoicing may be used to account for the dirty funds. The criminal matches the invoices to the cash, to make it appear that payments were received to settle the false invoice.
- Smurfing involves distributing small amounts of dirty funds below the regulatory reporting thresholds at financial institutions or credit card accounts, then withdrawing these funds to pay others or cover expenses.
- Trusts and offshore entities are often useful to disguise the real beneficial owner’s identity. This can be useful in placing the money for the purposes of money laundering.
- Similarly, foreign bank accounts may be used to cleanse the funds. The criminal make distribute small amounts of the funds to a variety of international financial institutions, below the threshold necessary for customs declaration. After depositing the money in foreign accounts, the criminal withdraws the money to use in his or her actual location.
- Aborted transactions are another strategy used by the money launderer. In this example, the criminal sends funds to an accountant or an attorney, with instructions to hold the funds in the escrow account in order to settle a transaction. After the funds are deposited, the “client” aborts the transaction. The funds in account are then repaid from an unimpeachable source.
The placement of criminal proceeds could also be packed into a valise and smuggled out of the country. The money launderer might use smurfing to get around thresholds and generally try to avoid suspicion. Additional placement methods include 1) gambling: using the dirty funds to buy gambling chips or to make bets on organized sports events or 2) currency: exchanging the dirty funds for currency of other nation through a legitimate currency exchange.
The second step of the typical money laundering event involves layering.
Stage 2 of Money Laundering: Layering
The second stage of money laundering, layering, involves the conversion of criminally-derived proceeds into another asset or form of funds, and the creation of complex financial transaction layers to cover up the audit trail, the source of funds, and the ownership of funds.
The criminal tries to separate the funds from the illegal, original source. This step often involves complexity.
Funds are quickly moved, usually to different physical and functional areas, to “transform” the funds and to make them undetectable through audits.
At this stage, the funds might be wired or couriered to several countries. It’s also probably in the form of several investments to allow it to move quickly and “under the radar” of regulators.
To combat money laundering around the globe, like-minded nations meet to share, develop, or implement multilateral agreements and intelligence.
The final step of the traditional money laundering transaction involves integration.
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Stage 3 of Money Laundering: Integration and/or Extraction
After the dirty money or assets are layered – and the criminal has taken steps to distance them from the true origin – the proceeds are available to the criminal to control and/or use as seemingly legitimate money.
The third step of the traditional money laundering process involves integration and/or extraction.
The ill-gotten gains may be sent to a legitimate enterprise in the economy or used by the criminal for his or her personal lifestyle. The criminal can receive assets from a business entity he or she bought with the dirty funds, such as a coin-op laundry, car wash, restaurant, or retail store.
They may employ fake employees as a means to get money out of the business. These “employees” are typically paid in cash and collect their pay in person. The enterprise may make “loans” to a director or shareholder of the business, with the expectation that it won’t be repair. It may also pay phony dividends to shareholders of the companies in order to extract funds.
If the owner employs others to run these businesses, he or she is usually careful to pay all business and employee taxes, and file federal and state taxes on time to avoid scrutiny. They’re often happy to lose 50 percent or more of the “take” in the wash of the funds.
There are actually many other ways in which clean money can be returned to the criminal. His or her major objective in the integration/extraction stage is to get the funds or assets back in his or her control, without drawing undue attention from the authorities.
For instance, the criminal might use proceeds to buy real estate, high end cars, jewelry, or art at this stage. He or she can enjoy these criminal profits and eventually liquidate the assets for clean cash.
Money Laundering Charges
An individual who launders criminal proceeds may face money laundering charges.
Unfortunately, people who aren’t aware of their passive involvement in a money laundering crime might be implicated. For instance, an account who receives funds from a criminal might not know that his or her client is a criminal.
Defenses to Money Laundering in Texas
Money laundering is a complex crime. Defenses arising to such charges may include:
- Lack of evidence. The prosecution bears the burden of proof in establishing all elements of the crime. If adequate evidence isn’t presented to fulfill the burden, the defendant cannot be convicted by the jury. The prosecutor must demonstrate that the defendant obtained the funds via illegal act(s). An inference isn’t enough. The prosecutor must also show that the accused attempted to hide the original source of dirty funds.
- No intent. The crime of money laundering often involves as certain mental state, e.g. the defendant’s intention to hide the original source of illegal funds. If the defendant had no intention, e.g. an account or banker might not have intent, he or she may unwittingly become a party to money laundering. If the defense is able to establish that he or she didn’t have an awareness of the original source of the dirty funds, he or she may raise a successful defense.
- Duress. An aggressive criminal may pull professional services professionals, e.g. accountants, or financial services professionals, e.g. bankers, into money laundering activities. If the criminal posed threats to the professional (or his or her family), and he or she declines to engage in money laundering, he or she may state duress as a defense.
Money Laundering Penalties in Texas
If convicted of money laundering, the offender faces severe penalties determined by the amount of assets involved in the alleged scheme:
- $1,500 – $20,000: he or she faces a state jail penalty with a 180-day to two-year jail term plus up to $10,000 in fines.
- $20,000 – $100,000: he or she faces a third-degree felony with a two – 10-year prison sentence plus up to $10,000 in fines.
- $100,000 – $200,000: he or she faces a second-degree felony with a two – 20-year prison term plus up to $10,000 in fines.
- Greater than $100,000: he or she may face a first-degree felony with a five to 99-year prison term plus up to $10,000 in fines.
Contact an Experienced White Collar Crimes Attorney for Your Case
Money laundering charges are often filed along with drug crime charges, e.g. drug manufacturing or trafficking. These charges may also be filed in tandem with organized crime or conspiracy charges because these activities usually require the engagement of others.
If you’re facing a state or federal investigation of money laundering charges, contact Brett Podolsky without delay. He will protect your legal rights.
Call the Law Office of Brett A. Podolsky now at 713-227-0087 to request an initial consultation.