Anatomy of a Money Laundering Case – A Case Study

Several years ago, I had the unique opportunity of working on a large-scale money laundering case that was litigated in federal court. This case was “hands down” one of the most defining moments of my career. I was a bright-eyed and bushy-tailed attorney fresh out of law school when this “once in a lifetime” opportunity to become a part of the criminal defense team in such a high profile case presented itself. It inspired me to become a criminal defense attorney.

The facts have been tweaked slightly and the names have been altered to protect the privacy of the parties. John Doe was the president and CEO of ABC Computer Company, a computer distribution company. ABC Computer had contracts to sell desktop computers to various school districts in New Jersey. Like most successful businesspeople, Mr. Doe was a visionary and had hoped to turn ABC into a global leader in the computer distribution marketplace. He realized that the burgeoning computer market in Latin America was a fertile place to start. Mr. Doe exported computers and computer parts to Columbian businessmen who owned legitimate computer retail businesses in Bogota and Cali.

The Columbian businessmen purchased dollars from Colombian money exchangers at a discounted rate that was substantially less than Colombia’s official exchange rate. The Colombian businessmen directed these money exchangers to deliver cash to ABC Computer Company as payment for the computers they received. This is how they paid ABC Company for the shipments they received.

A few times a month, the money exchanger’s associate (Mr. Smith) would show up at ABC Computer with a suitcase or duffel bag. These suitcases or duffel bags were stuffed with hundreds of thousands of dollars in U.S. currency – in small denominations. This cash was the proceeds of street-level narcotics transactions.

Mr. Doe deposited this cash into various business accounts belonging to ABC. On a single day, he would make multiple cash deposits into two or more bank accounts at the same bank, with each deposit exceeding $ 10,000. As you might have been quick to recognize, deposits in excess of $ 10,000 trigger a Form 8300 reporting requirement. Bank personnel advised Mr. Doe that he must file a Form 8300.

Concerned about revealing the source of the cash due to the “shady” way in which it was being delivered, Mr. Doe reported receiving the cash from individuals other than the actual person who delivered it. For example, in an effort to lend apparent legitimacy to the transaction, Mr. Doe reported receiving the cash from Meghan Connolly, the CEO of UCC in Miami, a subsidiary of ABC, and not from Mr. Smith.

Irregularities on the Form 8300s submitted by ABC led a representative from the IRS to schedule a meeting with Mr. Doe to explain the reporting requirements in detail and to instruct him on the proper way of completing a Form 8300. Specifically, she emphasized three points: first, that a single deposit in the amount of $ 10,000 automatically triggers the filing of a Form 8300; second, that multiple deposits into two or more ABC accounts on a single day also triggers the filing of a Form 8300 if the aggregate amount of all deposits exceeds $ 10,000, even if no single deposit does; and third, that the section requiring the filer to identity the person from whom the cash was received was literal – i.e., that it referred to the person who actually delivered the money, even if that person was delivering the money on behalf of another.

A short time later, Mr. Doe went “cold turkey” on depositing cash in amounts greater than $ 10,000. In what the government would later refer to as “erratic conduct,” Mr. Doe hastily began opening up new bank accounts at different banks in the tri-state area. Mr. Doe provided the money exchangers with the account numbers to these bank accounts. The money exchangers forwarded these account numbers to Mr. Smith.

Mr. Smith traveled to as many as four banks a day to deposit cash, never depositing more than $ 10,000 at any one bank on a single day. In that way, none of the deposits – taken together or apart – triggered the bank’s duty to file a report or keep a record. Several million dollars was deposited into ABC business accounts this way.

Upon receipt of the cash, the Colombian businessmen paid the money exchangers in pesos. This went on for several years until one summer night in July 20_ _. That night, Mr. Smith was pulled over by the police while driving back from Miami. A consent search of the car was subsequently conducted. Officers found several suitcases stuffed with over $ 1.0 million in cash inside the trunk of Mr. Smith’s car. Also found inside the car was a briefcase containing deposit slips for ten different bank accounts, with each deposit slip already filled out in amounts under $ 10,000.

The cash was separated into bundles, each bundle wrapped with a rubber band and containing a deposit slip. The deposit receipts belonged to several different bank accounts. All of the account numbers on the deposit receipts reverted back to ABC.

The next day, the FBI applied for and received a search warrant for Mr. Smith’s apartment. They seized 340 kilos of cocaine. The FBI subsequently applied for and received a search warrant for ABC Company. They seized computers and financial documents.

Mr. Doe was charged with (1) conspiracy to commit money laundering under 18 U.S.C. § 1956; (2) conspiracy to structure transactions to evade the CTR reporting requirements in violation of 31 U.S.C. § 5324(a)(3); and (3) conspiracy to structure transactions to evade the Form 8300 reporting requirements in violation of 31 U.S.C. § 5324(b).

After a four-month long trial, a jury found Mr. Doe guilty of conspiracy to commit money laundering in violation of 18 U.S.C. § 1956 and structuring transactions to evade the CTR reporting requirements in violation of 31 U.S.C. § 5324(a)(3). What follows is a summary of the Government’s case, along with the evidence that was presented to prove that Mr. Doe knew of the reporting requirements and evaded them.

a. The Government’s Case

The government’s case was purely circumstantial. They presented evidence for the jury to infer that Mr. Doe had the requisite intent to structure – namely, that Mr. Doe knew that the banks had a duty to report transactions over $ 10,000 and that he broke down cash transactions to amounts under $ 10,000 in order to evade these requirements. This evidence was introduced in the form of oral testimony and various banking documents. For example, the government’s witness list consisted of bank officers, an IRS agent, and a snitch. The government’s exhibits exceeded 10,000, consisting primarily of CTRs, Form 8300s, deposit slips, and deposit receipts.

The government presented the following evidence, in addition to a pattern of large cash deposits below the CTR threshold, to prove knowledge and intent. First, in a “textbook-style” structuring scheme, Mr. Doe made multiple cash deposits into different bank accounts at the same bank on the same day, such that the total of these deposits aggregated to more than $ 10,000, even though no single transaction did. Second, after learning that this conduct did not free the bank from its duty of filing a CTR, Mr. Doe abruptly ceased depositing cash in this way.

Mr. Doe turned to “structuring,” never depositing more than $ 10,000 into the same bank on a single day. But that presented a problem. On the one hand, hundreds of thousands of dollars in cash were being delivered every two weeks. On the other hand, a $ 50,000 weekly cap on deposits meant that no more than $ 50,000 could be deposited into the same or different bank accounts at the same bank during a one-week period, without triggering the bank’s duty to file a CTR. At that rate, it would take nearly four months just to deposit a one-time delivery of $ 800,000. Without the ability to deposit cash into its account regularly, ABC could not run its business. Very simply, it could not make payroll and pay its suppliers.

This caused Mr. Doe to open up new checking accounts at different banks. By doing so, he could deposit more than $ 10,000 into the financial system on any given day without triggering the bank’s duty to file a CTR. This was accomplished by splitting up a cash hoard between two or more different banks on a single day such that the aggregate of the transactions exceeded $ 10,000, but that the amount deposited into a single bank did not. Thus, the number of sub-$10,000 deposits that could be made on a single day was only limited by the number of banks that held ABC checking accounts.

The government presented evidence that Mr. Doe instructed Mr. Smith to travel to as many as four different banks a day to make sub-$10,000 cash deposits. In that way, almost $ 40,000 was deposited in a single day. The government argued that Mr. Doe sacrificed efficiency and convenience for no justifiable reason – what some Circuit Courts consider to be a strong indication of intent to structure. For example, in United States v. Gibbons, the Eighth Circuit Court of Appeals explained that the cashing of multiple checks where one would have been more efficient leads to the inescapable conclusion that the defendant sought to evade the reporting requirements.

Third, the deposit receipts, deposit slips, and stacks of money found in the briefcase inside Mr. Smith’s car was damning. It suggested that Mr. Doe intended to evade the currency transaction reporting requirement by conspiring with Mr. Smith. The deposit receipts contained account numbers that could be traced back to ABC Company. The deposit receipts also confirmed that deposits were being structured in amounts below $ 10,000 to avoid the reporting requirements. For example, the receipts revealed that $ 80,000 was deposited into ten different bank accounts in increments of $ 8,000.

The remaining cash found in Mr. Smith’s briefcase was broken down into several bundles. Each bundle contained a deposit slip, with a different account number, indicating that the money was intended to be deposited into separate accounts. Like the deposit receipts, the deposit slips contained account numbers that could be traced back to ABC Company. The government argued that Mr. Doe’s use of so many accounts in an organized manner was circumstantial evidence of his willful intent to avoid the reporting requirement.

b. Mr. Doe’s Defense to Conspiracy to Commit Money Laundering

18 U.S.C. § 1956(a) has four elements. First, the defendant must know that the property involved in the financial transaction represents the proceeds of some form of unlawful activity. Second, the property involved must be the proceeds of a specified unlawful activity. Third, a financial transaction must occur. And fourth, a prohibited activity must occur. Prohibited activities include: 1) transactions that will promote the carrying on of the specified unlawful activity; 2) transactions designed to conceal or disguise the nature, location, source, control, or ownership of the proceeds; or 3) transactions designed to avoid a transaction reporting requirement.

Of these four elements, none is more litigated than the mens rea element. An important distinction must be made with respect to that element. The government need not prove which form of unlawful activity the property is the proceeds of so long as it represents the proceeds of some form of unlawful activity. Thus, the government need not prove that a defendant specifically knew that the property involved in the transaction represented the proceeds of drug trafficking.

To prove knowledge, the government relied on the theory of willful blindness – i.e., that Mr. Doe dug his head into the sand like an ostrich to deliberately keep himself ignorant of the fact that the money was the proceeds of illegal activity. Knowledge may be shown by proof of “willful blindness, deliberate ignorance, or conscious avoidance.” The proofs, together with the government’s argument at closing, strongly suggest that the jury verdict rested on willful blindness.

The defense argued that there was no evidence that Mr. Doe knew that the payments for computer parts were the proceeds of narcotics trafficking, let alone some other form of unlawful activity. No witness at trial testified that they told Mr. Doe that the cash they were delivering was drug money. The closest the government came to proving knowledge was through the testimony of Mr. Smith. But there were a number of problems with Mr. Smith’s testimony. First, Mr. Smith never stated, under oath, that Mr. Doe knew. Even viewing his testimony in a light most favorable to the government, he merely implied that Mr. Doe knew.

More importantly, Mr. Smith’s testimony was inherently untrustworthy. He was an undocumented Immigrant who was facing up to life in prison and deportation as a result of his drug trafficking and money laundering activities. Mr. Smith was caught red-handed with 119 kilos of cocaine and over $ 1.6 million in cash. His motive to testify falsely in order to protect his own hide was at an all-time high and his testimony at trial reeked of desperation.

Mr. Smith’s motivation became transparent as the terms of his “deal” were revealed. The most hair-raising part of the deal was what he was not charged with. Mr. Smith worked as a drug trafficker for over a year. By his own admission, he transported and distributed over 340 kilos of cocaine. Notwithstanding, Mr. Smith was not charged with distributing 340 kilos of cocaine. In fact, he was not even charged with the 119 kilos that were seized from his home. Rather, he was charged with a mere 50 kilos.

Not only was Mr. Smith charged with just 50 kilos, but the government agreed not to charge him with money laundering – a crime that carries up to twenty years in prison. Facing up to life in prison for drug trafficking, up to twenty years for money laundering, and inevitable deportation, Mr. Smith was prepared to say whatever the government needed him to say – regardless of whether it was true or not – in order to limit his exposure.

In summary, Mr. Smith was not charged with the full weight of the drugs, nor was he charged with money laundering. And the government sweetened the pot even more: Mr. Smith anticipated receiving relief from deportation.

Mr. Smith’s testimony was completely unreliable and uncorroborated. At the outset, he said that he bought a phony passport and came to America for political asylum because he feared for his life and that of his family, because of the constant threat of Colombian Guerillas. Upon arrival, he surrendered at the airport to federal Immigration officials and was provisionally released, pending a final hearing under two conditions. First, he had to maintain a residence and inform Immigration of that residence. And second, under no circumstances could he commit a crime.

Incredibly, the same man who was deathly afraid of the guerillas and feared for the safety of both himself and his family threw caution to the wind by violating both of the conditions necessary to stay in the country – he established a new residence outside of the state of New Jersey without the knowledge or consent of Immigration where he began his career as both a drug dealer and a money launderer. This hardly depicted a man desperate to keep himself and his family out of harms way.

Mr. Smith’s testimony became more and more incredulous as the trial wore on. He claimed that Mr. Doe asked him to make a two thousand dollar deposit at a specific trust bank in New York City because Mr. Doe did not believe it was “safe” for him to store it at his office. It is hard to imagine that the president of a company whose gross receipts exceeded $ 50 million in 20_ _ suddenly became skittish over two thousand dollars. Even setting aside the implausibility of this story, there was no evidence deduced at trial that a trust account in the name of Mr. Doe even existed.

Mr. Smith also testified that he had a direct face-to-face conversation with Mr. Doe, where Mr. Doe allegedly told him not to tell Maureen Franks (a co-conspirator) about his deliveries for other customers. But Mr. Doe’s travel records confirmed that he was out of the country at the time of this communication.

These instances were but a sample of the incredible story that Mr. Smith wove at trial. The court properly instructed the jury to view Mr. Smith’s testimony with extreme caution and great care because cooperators, such as Mr. Smith, possess a motive to exaggerate or testify falsely. The defense was quick to pounce on this instruction arguing that Mr. Smith was not a credible witness.

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