Money Laundering – A Guide for Criminal Investigators (3rd Edition)

Money Laundering – A Guide for Criminal Investigators (3rd Edition)

The year 2011—October 27, in particular—marks the 25th anniversary of the passage of the Money Laundering Control Act of 1986, Public Law 99-570. There have been a lot of changes in those 25 years, including amendments to the law, the addition of new underlying crimes, court decisions interpreting the statute in ways favorable to the government or limiting the scope of the act, but most in law enforcement would say that the law has become an important tool in combating criminal activity.

One of the most significant changes over the years has been the steady extension of the reach of the statute. Very few people, even those familiar with the history of the statute, remember that the Money Laundering Control Act was not enacted as a stand-alone law, but rather was a part (Subtitle H) of The Anti-Drug Abuse Act of 1986. This placement illustrates a common view of the money laundering problem at the time. True, the law prohibited the laundering of money derived from a number of so-called Specified Unlawful Activities (SUAs), but in the early days of its implementation, investigators focused on the vast profits of the illegal drug trade. My first money laundering case (the first brought in our judicial district) targeted a multistate cocaine trafficking organization that laundered profits through a car dealership front. The majority of the cases filed in the early years also had drug sales as the underlying SUA, but this trend didn’t last.

Cases involving drug money are still important today, but headlines in recent years have announced money laundering indictments in multibillion-dollar fraud schemes, environmental crimes, and for many of the SUAs added since 1986. At this writing, at least 260 crimes are listed as SUAs, and more will probably be added this year. In fact, the Asset Forfeiture and Money Laundering Section (AFMLS) of the Justice Department is examining ways to expand the statute’s reach to any crime that is a “domestic felony” under federal law, as well as to foreign crimes that have an equivalent in American law. If these changes are enacted, the concept of the SUA will cease to exist, replaced by a prohibition of the laundering of the proceeds of pretty much any federal crime. Measures to that effect are already on the books in many states, which essentially reach any criminal act under state law.

That major change and even the gradual expansion of the statute over time create new opportunities and challenges for law enforcement. Some federal agencies, notably the FBI, DEA, IRS, and Customs Service, got a lot of practice investigating money laundering during the law’s first 25 years, developing effective methods and techniques in use today. The Bureau of Justice Statistics reported in 2003 that between 1994 and 2001, 18,500 persons faced a money-laundering- related charge in federal court. Most of those cases were brought by agencies of the Departments of Justice and the Treasury, but as the list of SUAs got longer, other agencies were given a stake in the money laundering game—one that, as time went by, everyone played for higher and higher stakes. The money, as a Texas hold ’em player might say, is getting very serious. Multimillion-dollar money laundering cases are no longer uncommon, and some of the recent frauds—Bernie Madoff’s being the most widely publicized— involve billions, even tens of billions, of dollars. By expanding the scope of the money laundering law and by broadening the reach of federal forfeiture statutes, Congress brings more law enforcement agencies into a crowded field, but one that is much more hazardous for the criminal.

With this opportunity come those challenges mentioned earlier. Investigators whose jurisdictions included postal or environmental or food and drug crimes now have the chance to pursue violators who are laundering their illegal profits —and to go after those profits as well. The many investigators who pursue fraudsters may also have a fresh line of attack and new charges to pursue. This is obviously exactly what Congress intended by expanding the scope of the money laundering law, but practical obstacles remain, especially for those who are new to the money laundering arena and may be unfamiliar with the rules of the game or the players’ techniques. For those who are hoping to develop their knowledge of this crime and the means needed to investigate it, you’ve come to the right place; this book was written for you. As the title states, this book is a guide for criminal investigators, and the concepts and techniques outlined herein apply equally to detectives investigating drug violations as part of a federal task force, special agents tracking illegal polluters or perpetrators of fraud, or those tracking the terrorist financing threat.

These changes weren’t the only important developments on the money laundering front over the past quarter of a century. During that time, Congress provided law enforcement with additional tools, such as regulations under the Bank Secrecy Act (BSA) that made money laundering easier to detect, investigate, and prosecute. In April 1990, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) went operational and has since become the nation’s primary financial intelligence resource; its role has expanded to include participation in international intelligence coordination and administration of the BSA’s provisions. Since 1986, not just FinCEN, but also law enforcement generally got better at processing financial information, and the extension of the BSA to nonbank financial institutions and other businesses meant that more entities report the types of transactions commonly seen in money laundering schemes. This intelligence has proven invaluable to investigators, and an entire chapter of this latest edition is devoted to exploring the ways and means by which it can be exploited.

Another major development, also relating to information, took place during the period of the explosion in information technology and the growth of the Internet. Today, money launderers and criminals communicate instantly around the world, using technology that did not exist in 1986. Funds can be transferred safely and anonymously using things like stored value cards that were mostly conceptual 25 years ago. The world has become a lot smaller since 1986, and money launderers have taken full advantage of the shrinkage.

These developments are addressed in the latest edition of this book, which was first published in the last century when the money laundering statute was only 13 years old. In the chapters that describe money laundering and forfeiture law, we’ll look at some of the court decisions and statutory changes that have taken place and other changes that are being proposed for the future, some of which have altered or will drastically alter the rules by which the game is played.

A new chapter discusses the explosive growth in nontraditional money laundering cases that do not involve the cash proceeds of drug trafficking or other organized crime. These cases, particularly the ones that spring from complex and often enormous fraud schemes, require a new approach by investigators and have caused the courts to take hard looks at the money laundering charges brought before them. What do Bernie Madoff and Somali pirates have in common? Effective money laundering schemes, to name only one thing. We’ll explore these for an understanding of how the law works— and sometimes doesn’t work—in dealing with these crimes.

Another new chapter discusses financial intelligence, a concept that barely existed 25 years ago, but one that has spread to dozens of countries around the world and is a critical part of American law enforcement’s war on drugs and crime. The new tools that financial intelligence units provide are vital—not only in organized crime and drug investigations, but also in the disruption of terrorism financing. Investigators all over the world are making use of these tools and techniques to develop criminal cases and to seize assets.

Much has happened in the quarter of a century that followed passage of the 1986 money laundering statute. A war on drugs saw entire nations fall victim to the corruptive power of immense drug profits. A war on terror showed the peril posed by well-funded terrorist organizations, a menace that could kill thousands in a single morning. Countries around the world recognized that the proceeds of organized criminal activity and fraud threatened not just financial institutions but also the financial system itself. Governments responded by curtailing the type of bank secrecy that drug traffickers, criminals, and corrupt officials previously used to hide their profits. Financial intelligence units now process millions of reports on suspicious transactions, and countries that once were havens for criminal proceeds now freeze and seize assets as aggressively as the United States did years ago.

That all of this took place in a relatively short period of time is quite astonishing, but it emphasizes the fluid, transforming nature of the problem—money laundering—and its solution: effective law enforcement. Knowledge of the techniques used to investigate these cases and a full understanding of the laws and regulations that serve as the government’s weapons in this fight are essential for the criminal investigator. It is this book’s purpose and objective to furnish the criminal investigator with this knowledge and understanding.


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