Charged With Federal Money Laundering? The Law, Penalties, and Defenses

Federal money laundering can carry up to 20 years in prison per count. It is often charged together with the crime that produced the money, such as drug dealing or fraud. Below is what the crime is, how it is punished, and how it can be defended.

The old saying goes, "crime doesn't pay." In practice, crime often does pay, sometimes a lot. The original version of this article noted that the IRS has reported that crimes involving money make up most criminal activity in the United States. Because money laundering is part of so many financial crimes, it helps to understand the law and the penalties.

Sentencing for Money Laundering

What is money laundering?

People hear the phrase "money laundering" a lot, but it can be hard to picture. How do you "clean" money, and why is that a crime?

Money laundering means turning money from a crime into money that looks like it came from a legal source. In other words, it is "cleaning" dirty money so it is harder to trace.

Here is an example. Drug dealers often need to hide the fact that their cash came from drug sales. A dealer may use the cash to buy gift cards. (In recent years, iTunes gift cards have also been used this way.) The dealer uses the cards to buy electronics, jewelry, or other items that are easy to resell, then sells those items in legal sales. The money from those sales goes into a bank account, and then into a house or car. Each legal step makes it harder for police to trace the money back to the drugs, which is the whole point.

Why is it a separate crime?

There is usually an earlier crime that produced the money, so you may wonder why laundering is a crime too. The reason is that laundering hides an illegal transaction, and the law treats hiding a crime's money as its own crime. It is a bit like hiding a wanted person in your home. You are making it harder for police to catch the original crime, whether that is drug dealing, theft, or embezzlement.

What the law covers

Federal money laundering law is mainly found in two statutes passed in the Money Laundering Control Act of 1986: 18 U.S.C. § 1956 and 18 U.S.C. § 1957.

In plain terms, the law targets three kinds of activity:

1. Using dirty money in later transactions to make it look legitimate and hide where it came from.
2. Moving money. Transporting, sending, or transferring money or monetary instruments into or out of the country to promote the crime or hide where the money came from. Being caught moving huge amounts of cash can be the basis for a money laundering charge.
3. False statements. Lying to banks or other institutions about where money came from, to hide its source or to avoid reporting rules.

Section 1956 makes it a crime to use money from certain listed crimes (such as drug dealing, murder, fraud, and bribery) in a financial transaction, or to move it into or out of the United States, with one of these purposes:

1. To promote (keep going) the underlying crime.
2. To hide where the money came from, who owns it, or who controls it.
3. To avoid a reporting requirement, such as a bank's cash reporting rules.
4. To evade taxes or file a false tax return.

Section 1957, sometimes called the "money spending statute," makes it a crime to knowingly engage in a transaction of more than $10,000 with money that came from certain crimes. You do not have to be trying to hide anything. Spending the money is enough.

What are the penalties?

• Section 1956: Up to 20 years in prison and a fine of up to $500,000 or twice the amount of money involved, whichever is more.
• Section 1957: Up to 10 years in prison, plus a fine.

These are maximums for each count, and each transaction can be charged as a separate count. For example, if you are charged with 12 counts under § 1956, the maximum could be 240 years in prison and fines of at least $6 million. In practice, the actual sentence is usually driven by the sentencing guidelines (USSG §2S1.1), which look closely at the amount of money and the underlying crime.

Money laundering is usually charged alongside the crime that produced the money. If a drug deal brought in a lot of cash, and the cash was then moved to hide where it came from, you could face charges for both the drug distribution and the money laundering. Each crime can carry its own penalty.

To learn more, read our federal sentencing process article.

Defenses to money laundering

Money laundering penalties are serious, but there are real defenses, and a strong one can narrow the charges or the amount the government can hold you responsible for.

Lack of knowledge or intent. The government must prove you knew the money came from crime. For a § 1956 charge, it must also prove one of the purposes above, such as intent to hide the money. If it cannot prove that, you cannot be found guilty under § 1956. People who handle large sums at work, like bankers or accountants, sometimes get caught up in these cases without that knowledge or intent, and that lack of intent is a defense.

Duress. If you took part only because you reasonably believed you or your family would be harmed if you refused, duress may be a defense.

If you are under investigation, do not talk to agents or move money around before getting legal advice. Keep your bank statements, business records, and any paperwork showing where the money came from, because those records are often the heart of the defense.

Facing a federal sentence? Book a consultation to talk it through with Brandon Sample.