Money Laundering

Contrary to the common idiom, crime can pay. It can pay so much, in fact, that people with illegally acquired funds often develop complicated plans to make it appear as if the money originated from a legal source. This act is money laundering.

What Is Money Laundering?

Money laundering occurs whenever a person attempts to conceal the source, destination, or identity of illegally obtained or acquired money. Money laundering is criminalized under both state and federal laws.

Concealment of Proceeds

Money laundering applies when a person attempts to conceal illegally obtained funds, but it doesn't include merely spending money. If, for example, you make $1,000 selling stolen goods and then go out and buy something, you haven't laundered any money. Though you have committed the crime of dealing in stolen goods, money laundering charges don't apply unless you try to conceal or disguise where the money originated or otherwise disguise it.

The Supreme Court has ruled that in order to prove federal money laundering charges, prosecutors must show a person concealed money specifically to conceal the location, ownership, source, nature, or control of the money. It isn't money laundering, for example, to try to conceal money during transportation by putting it in a hidden place. Laundering would involve taking that money and trying to make it appear as if it came from a legitimate source.

Supreme Court rulings also clarify that federal money laundering laws don't apply when someone is simply making money from crime. For example, if you decide to run an illegal lottery in which you collect money from people who play and then pay the winners, this isn't money laundering. Though you're receiving money from illegal activity and using that money to pay winners, money laundering requires that you in some way try to hide the profits from your activity. Paying money to winners isn't considered concealing profits.

Proceeds From Illegal Activity

Money laundering targets the specific act of concealing, or attempting to conceal, the ill-begotten proceeds of criminal activity. Courts have ruled that there must be some criminal activity involved that produced the profits before it can be money laundering. If, for example, you make $10,000 by selling a car and then try to hide that money from the IRS at tax time, you haven't committed money laundering. You've violated tax laws, but because the sale of the car was legal your actions do not count as money laundering.

What Are Examples of Money Laundering?

Common examples of money laundering crimes include using legitimate businesses to clean illegal money, creating shell companies or accounts to deposit and conceal illegal proceeds, or running small amounts of illegal proceeds through numerous deposits, wire transfers, or currency exchanges to conceal the illegal source.

For instance, a drug trafficker who owns a legitimate furniture store might inflate company sales so he can funnel drug money into and out of the company's bank accounts. Or that same drug trafficker might form a new company and deposit legitimate and illegitimate funds into the new company's accounts in order to avoid detection of the drug money. Some laundering schemes are less sophisticated. A person might take cash from the drug sale and obtain cashier's checks or money orders, use the drug money to buy and sell assets (like used cars), or undergo a combination of "legitimate" transactions to avoid detection.

What Are the Penalties for Money Laundering?

State and federal money laundering laws differ significantly in the potential penalties associated with them.

Federal Penalties for Money Laundering

Federal law prohibits money laundering under two statutes. Both provide stiff felony penalties for a conviction. A defendant faces 10 to 20 years in federal prison, plus fines up to $500,000 or twice the value of the laundered funds involved in the crime. Additional penalties may apply if the money laundering was part of an ongoing criminal enterprise or related to terrorist activities.

(18 U.S.C. §§ 1956, 1957, 1961, 1963, 2339C (2023).)

State Penalties for Money Laundering

State laws on money laundering vary widely. For instance, California makes money laundering a wobbler offense, meaning it can be penalized as a misdemeanor or felony. Any crimes involving more than $50,000, though, must be punished as a felony. These high-dollar crimes are also subject to increasing sentencing enhancements based on the dollar amounts involved. (Cal. Penal Code § 186.10 (2023).) New York divides money laundering offenses into four degrees based on the amounts involved—all carry felony penalties. A person convicted of money laundering in the first degree faces a class B felony, punishable by up to 25 years in prison. The lowest offense is a fourth-degree offense that carries a class E felony penalty of four years' incarceration. (N.Y. Penal Law §§ 470.10 to 470.20 (2023).)

What Factors Affect a Criminal Sentence for Money Laundering?

When sentencing a defendant for money laundering, courts generally look to the specific circumstances of the crime and the defendant's criminal history. The judge can sentence up to the maximum penalty, but typically, that only happens if the defendant is a career criminal or the crime was exceptionally severe.

The judge will review factors, such as:

• the extent of the defendant's involvement
• the number of victims involved
• the amount of losses sustained by any victims
• whether illicit funds crossed the border
• the severity of the crimes
• whether the stolen funds came from a public program, and
• whether the defendant shows remorse.

The sentence will also depend on whether the defendant is sentenced in state or federal court and the applicable penalties in that jurisdiction.

Consult a Lawyer in Your Area

Money laundering charges are very serious and a conviction can haunt you forever. If you're charged with money laundering you need to speak to a local criminal defense attorney who can review your case, evaluate your options, and give you advice. Most local attorneys are versed in state criminal laws. So if you're facing federal charges, make sure to find an attorney who practices in federal court.