Lawyers. We love our caveats. So here it is. This blog post is not a how-to blog post on money laundering. What I am posting is an answer to a question proposed by Kerry from North Carolina who’s developing a fictional plot involving trade-based money laundering. There are various nuances and twists to Kerry’s plot that include insurance fraud and obstruction of justice, but for purposes of this post I’ll limit my response to the following question — What would the government have a right to seize in a trade-based money laundering case?
Here’s your answer Kerry, and thanks for asking the question.
The Fictional Scenario
Kerry’s protagonist runs a family business in Texas. His brother, who has ties with a Mexican drug cartel, funnels drug money through the family business. The brother receives the “dirty” cash from the cartel’s drug sales, then buys company product for the cartel. The product is exported to Mexico, then sold through a seemingly legitimate cartel business converting the ill-gotten gains into pesos. The laundering scheme allows the cartel to now deposit the cleaned bills into the banking system.
What Is Money Laundering?
Most of us understand the term “money laundering” as the process of disguising the nature, source, or ownership of proceeds from criminal activities as legitimate assets. Typically, money laundering is connected to most profit-based crimes like bribery, fraud, prostitution, pornography, robbery, and trafficking of arms, drugs, or humans. Common examples include the commingling of criminal proceeds with legally obtained cash in cash-intensive businesses like liquor and convenient stores, or the purchasing and selling of real estate, or, like Kerry’s fictional scenario, the buying and selling of legitimate trade.
The money launderer need not know how the proceeds were generated, only that the money was dirty. There is no limit on how much or how little money is laundered, and the actual transaction does not have to succeed in concealing the source of the money. Usually, a financial institution or business is involved in the scheme, but it is not a requirement. A simple passing of money to another with the intent of concealing the source will suffice.
They Have To Forfeit All That?
When the federal government believes that funds or property are involved with or traceable to trade-based laundering, they are authorized to seize the funds or property. These seizures are called forfeitures, and the owner of the funds or property isn’t compensated (although there are defenses which we’ll discuss in a moment). Forfeiture laws are meant not only to punish defendants and reduce illegal profits to deter criminal activity, but also produce revenue for law enforcement agencies (well over $5 billion in 2015).
In Kerry’s scenario, the government could legally seize the family business accounts tied to the drug cartel purchases, even if funds were commingled with legitimate purchases. They could also seize any property bought with the tainted money — real estate, home goods, warehouses used to store the product bought with the drug money, vans used to deliver the product to Mexico, etc. Really, anything that can be tied to the drug money is fair game for seizure. Because forfeitures are huge revenue sources for the government, they often cast the seizure net wide.
The Forfeiture Process
There are three basic steps before any property in connection with money laundering can be seized: the defendant must be convicted, there must be proof the property was connected to the illegal scheme, and the prosecutor must identify what property is to be seized. In general, the prosecutor would tell the court in the money laundering case it intends to seize certain property, and request a lien on the property to keep it from being disposed of before the government can get a conviction. Once the prosecutor obtains a conviction, the court identifies the property in a preliminary order of forfeiture so third parties can object (like the bank who holds the mortgage, or the defendant who can prove the property wasn’t involved in the crime). There will be a hearing. The judge will consider the arguments and defenses, then give a final order.
The But-I-Didn’t-Know Defense
Kerry’s protagonist, the owner of the family business, could claim he was innocent and had no idea what was happening, or if he did, he made reasonable efforts to put a stop to it. This defense gives a court the ability to stop the seizure of property from someone who had no idea (like a bank holding the mortgage or a husband who co-owns a van with his wife who used the van in the trade-based laundering scheme). Under those parameters, a person would be immune to the forfeiture; or at least have an argument that something shouldn’t be seized.
It would be plausible for the Feds to use one brother against the other in a sting operation aimed at nailing the cartel connection. Certain perks might be offered (immunity, reduced sentence), or certain property not seized in exchange for cooperation.
On a side note, there are both state and federal forfeiture laws. There is usually equitable sharing in the proceeds from any federal forfeiture. If the state elects to share in the proceeds, then federal forfeiture rules apply.
Hope this helps. Good luck with your plot.