The core federal statutes regulating money laundering were enacted in 1970 with the passage of the Bank Secrecy Act and in 1986 with the passage of the Money Laundering Control Act. Several significant laws have also amended this existing framework, such as the USA Patriot Act. These laws criminalise certain financial transactions associated with criminal activity and require financial institutions to take steps to prevent that activity.
Recent US Department of Justice guidance
As the statutory framework has grown, the United States Department of Justice (DOJ) has sought to coordinate its various components’ efforts to address the problem of money laundering both within the United States and globally. The Money Laundering and Asset Recovery Section (MLARS) leads the DOJ’s anti-money laundering efforts, often collaborating with other Criminal Division Sections and United States Attorneys Offices in the appropriate jurisdictions. In addition, the DOJ has deployed specialist units to keep pace with the ever-evolving tactics used by criminal enterprises. For example, in response to the growth of the cryptocurrency industry and the proliferation of digital assets, in October 2021, the DOJ announced the creation of the National Cryptocurrency Enforcement Team to leverage and coordinate existing expertise to address criminal activity involving cryptocurrency.
The DOJ most recently (in January 2020) updated the portions of its Justice Manual (previously known as the United States Attorneys’ Manual) in respect of money laundering prosecutions. One of the chief goals of those changes was to ensure the ‘appl[ication] of [the money laundering statutes] in a consistent manner’ and to centralise the review and approval for prosecutions under the Money Laundering Control Act within MLARS. The DOJ also published updated guidance (in September 2022) on corporate criminal enforcement, noting that the policies set forth within the memorandum will be incorporated into forthcoming revisions to the Justice Manual. Here, too, the DOJ emphasised the need for consistency (‘[r]obust corporate criminal enforcement remains central to preserving the rule of law—ensuring the same accountability for all, regardless of station or privilege’) and transparency (‘[t]ransparency can also instill public confidence in the Department’s work’). The DOJ’s guidance on corporate criminal enforcement remains highly relevant to the Department’s prosecution of money laundering and related offences, as corporations have increasingly found themselves in the ambit of criminal money laundering prosecutions and investigations. Finally, some have seen the recent personnel changes in MLARS leadership as a sign that the DOJ hopes to make money laundering prosecutions both more aggressive and more efficient.
Recent US Department of Justice prosecutions
The latest updates to the Justice Manual and the launch of new resources to update existing anti-money laundering tools and to address money laundering in the cryptocurrency industry have been accompanied by robust efforts to investigate and prosecute money laundering offences. Several trends have emerged in the DOJ’s recent prosecutions of money laundering and related offences:
- More aggressive prosecutions: The DOJ is increasing prosecutions that apply aggressive combinations of money laundering charges under the Money Laundering Control Act and wire fraud, securities fraud or tax fraud charges.
- Focus on cryptocurrency: The DOJ appears to be intensely focused on illegal laundering schemes involving cryptocurrency, now that it has secured a foothold in the global economy.
- Sanctions evasion: The DOJ is targeting individuals and entities that aid international terrorist organisations and hostile foreign state actors who are finding increasingly evasive ways to avoid sanctions and participate in the global economy.
Combining money laundering charges with tax and fraud charges
The DOJ has intensified its use of money laundering charges to increase potential criminal penalties, especially in fraud and tax cases. In the past, prosecutors have used criminal charges such as wire fraud to expand the DOJ’s jurisdiction, or added charges with a longer statute of limitations, such as securities fraud (six years) or bank fraud (10 years). In a somewhat similar way, the DOJ is increasingly adding violations of US Code (USC), Title 18, Section 1956 (Laundering of monetary instruments – a maximum penalty of 20 years) and violations of 18 USC Section 1957 (Engaging in monetary transactions in property derived from specified unlawful activity – a maximum penalty of 10 years) to lengthen potential sentences faced by defendants who have been charged.
For example, in March 2023, the United States Attorney’s Office for the Southern District of New York (SDNY) unsealed a 12-count indictment charging Ho Wan Kwok and Kin Ming Je with, among other crimes, wire fraud, securities fraud, bank fraud and money laundering in connection with their alleged participation in an offering of unregistered and fraudulent securities. The indictment alleges a sprawling conspiracy that began in 2018, wherein Kwok, Je and others defrauded thousands of victims of more than US$1 billion. The government alleges that the two defendants solicited investments in various unregistered entities and programmes through false statements and representations to hundreds of thousands of Kwok’s online followers. Kwok faces imprisonment for up to 195 years and Je faces up to 215 years; of the total potential sentences, 55 years stem from money laundering offences for each defendant. Additionally, in the six months from September 2022 to March 2023, the government seized approximately US$634 million, which it will seek to forfeit as proceeds of the illegal enterprise.
As another example, in April 2023, federal prosecutors unsealed a four-count indictment against 10 defendants (four executives and six owners and operators of certain vendors and customers) for a decade-long defrauding of Polar Air Cargo Worldwide, resulting in company losses of approximately US$52 million. Of the 10 defendants, eight have appeared in court in the United States, one has been arrested in Thailand and is awaiting extradition, and one is still at large. The indictment alleges conspiracy to commit wire fraud, honest services fraud and conspiracy to commit money laundering. The indictment describes a complicated scheme wherein certain defendants paid executives kickbacks in various forms in exchange for favourable contracts, valuable cargo space, favourable shipping rates and enrolment in various incentive programmes. Six of the defendants each face up to 60 years in prison, and four defendants each face up to 80 years. The conspiracy charge to commit money laundering carries the largest penalty, with a maximum sentence of 20 years.
Money laundering prosecutions involving digital assets
A 2023 report by the International Monetary Fund estimated that the value of the global digital asset market has fluctuated from approximately US$3 trillion in November 2021 to under US$1 trillion as of the report’s publication in February 2023. As of March 2023, Forbes estimated that there are 22,932 digital assets with a total market capitalisation of approximately US$1.1 trillion. Regardless of digital assets’ value at any given time, it is clear that these assets have gained a massive, and increasing, role in the global economy and provide the latest vehicle for money laundering. Accordingly, DOJ prosecutors continue to closely watch the activities of major cryptocurrency actors.
In June 2022, New York federal prosecutors indicted Nathaniel Chastain in connection with a scheme to commit insider trading in non-fungible tokens (NFTs). The indictment included one count of wire fraud and one count of money laundering. Chastain was alleged to have concocted a scheme through which he used confidential information about which NFTs would be featured on his company’s home page to secretly purchase dozens of NFTs at a lower price shortly before they were featured. After they were featured, Chastain would sell the NFTs at prices many times higher than his initial purchase price. Following a week-long jury trial in May 2023, Chastain was found guilty on both counts, in what has been hailed as the first conviction for insider trading of digital assets. Prosecutors opted to rely on wire fraud statutes rather than securities fraud statutes, thereby obviating the need for protracted litigation about whether NFTs are securities.
In December 2022, a federal grand jury returned an indictment against Samuel Bankman-Fried, the founder of FTX, an international cryptocurrency exchange that collapsed in November 2022. Several superseding indictments followed and Bankman-Fried was ultimately charged with numerous offences, including wire fraud conspiracy, wire fraud, conspiracy to commit money laundering, conspiracy to commit commodities fraud, conspiracy to commit securities fraud, securities fraud, conspiracy to defraud the United States and commit campaign finance violations, and conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act. Prosecutors allege, among other offences, that Bankman-Fried and certain co-conspirators misappropriated billions of dollars of customers’ funds and defrauded lenders by concealing their misuse of the funds.
Prosecutions involving sanctions evasion
Certain foreign governments – Russia, Iran, and North Korea, in particular – are subject to increasingly strict sanctions by the United States in response to, among other things, the war in Ukraine, clandestine nuclear programmes and illicit cooperation among themselves. Indeed, the DOJ’s focus on sanctions enforcement with respect to Russia is particularly pointed. One need only look to the creation of Task Force KleptoCapture in March 2022 to recognise the DOJ’s interest in this regard. The DOJ issued a statement that KleptoCapture is ‘an interagency law enforcement task force dedicated to enforcing the sweeping sanctions, export restrictions, and economic countermeasures that the United States has imposed, along with allies and partners, in response to Russia’s unprovoked military invasion of Ukraine’. KleptoCapture is currently led by Andrew Adams, a former SDNY prosecutor. In short, the DOJ has recently been aggressively and swiftly prosecuting those assisting these states to evade sanctions.
In April 2022, federal prosecutors charged two foreign nationals, Alejandro Cao de Benos and Christopher Emms, with conspiring with a United States citizen (Virgil Griffith, who had previously pleaded guilty, was sentenced to 63 months in prison and was fined US$100,000) to violate US sanctions against North Korea. Though the two foreign defendants were not charged with money laundering offences directly, the indictments alleged that they attended a cryptocurrency conference in North Korea and, while there, provided instructions to North Korean nationals on how North Korea could use blockchain and cryptocurrency technology to launder money and evade US sanctions. Both defendants remain on the FBI’s Most Wanted list. These indictments are emblematic of the DOJ’s efforts at proactively stemming the tide of the illegal financing of sanctioned nation-states and entities.
In April 2023, the DOJ announced the indictment and arrest of John Can Unsalan, also known as Hurrem Can Unsalan, the president of Metalhouse LLC, for engaging in a scheme to illegally conduct business with Sergey Kurchenko, a sanctioned Russian oligarch, and his companies. The 22-count indictment includes 11 money laundering offences stemming from engaging in trade with the sanctioned individuals and entities to procure steel-making equipment and raw material despite knowledge of applicable US sanctions. It alleges that for a period of roughly three years, Unsalan, through Metalhouse LLC, transferred more than US$150 million in cash to Kurchenko and companies controlled by him. The case is pending in the United States District Court for the Middle District of Florida.
In May 2023, SDNY prosecutors unsealed a nine-count indictment against Chinese national Xiangjiang Qiao, also known as Joe Hansen, for using Sinotech Dalian, a sanctioned Chinese company, to provide to Iran materials used to produce weapons of mass destruction, in exchange for payments made through the US financial system. Prosecutors allege that, to receive payments for the raw materials he sold to Iran for use in producing weapons of mass destruction, Qiao concealed Sinotech Dalian’s involvement in the scheme by opening a bank account in the name of a front company to receive two transfers from a US bank totalling more than US$15,000. Of the nine counts in the indictment, three relate to money laundering offences. The defendant remains at large, presumably in China. Assistant Attorney General Matthew G Olsen commented: ‘These charges demonstrate the Justice Department’s commitment to preventing sensitive technology from falling into the hands of foreign adversaries, including Russia, China, and Iran.’
Recent high-profile guilty pleas
In addition to the ongoing prosecutions outlined above, the DOJ has recently secured notable guilty pleas admitting money laundering crimes. In February 2022, Arthur Hayes and Benjamin Delo pleaded guilty, in federal court in Manhattan, to a charge of violating the Bank Secrecy Act by wilfully failing to establish, implement and maintain an anti-money laundering programme at Bitcoin Mercantile Exchange (BitMEX), which the two men founded. Hayes and Delo admitted that they failed to implement any know-your-customer or other anti-money laundering programmes at BitMEX, even after learning that BitMEX was being used to launder the proceeds of a cryptocurrency hack. The remaining co-defendants, Samuel Reed and Gregory Dwyer, also pleaded guilty, in March and August 2022, respectively.
In September 2022, Hanan Ofer pleaded guilty, in federal court in Brooklyn, New York, to a charge of violating the Bank Secrecy Act by failing to maintain an effective anti-money laundering programme. Breon Peace, United States Attorney for the Eastern District of New York, issued a statement that ‘[w]ith [Ofer’s] admissions today, the defendant will be held responsible for exposing financial institutions to the risk of illicit activity’. Another federal official commented that ‘[m]oney laundering is a vital component of transnational criminal organizations wishing to legitimize their ill-gotten gains, and ensuring the compliance of BSA regulations is the first step to fighting these organizations’. Ofer admitted that, from 2014 to 2016, he operated a credit union in New York and failed to implement the sufficient anti-money laundering oversight the Bank Secrecy Act requires. As a result, his credit union processed a significant volume of high-risk transactions, including from Mexican banks, without ever filing a suspicious activity report, as the Bank Secrecy Act requires. Ofer, who faces up to 10 years in prison, was due to be sentenced on 30 August 2023. Ofer’s prosecution is notable because prosecutors charged him, an individual, with a Bank Secrecy Act violation, not for failing to implement an anti-money laundering programme but for deploying an inadequate one. Although the DOJ often brings such charges against large financial institutions, doing so against an individual underscores its commitment to enforcing anti-money laundering laws.
Significant court decisions
In April 2023, the Supreme Court held, as a matter of first impression, that the Foreign Sovereign Immunities Act (FSIA) does not immunise foreign states and their instrumentalities from criminal proceedings. Halkbank, a bank indirectly owned by the Republic of Turkey, was indicted in 2019 ‘for a multi-year conspiracy to evade economic sanctions imposed by the United States on Iran’. The indictment alleged that ‘Halkbank, with the assistance of high-ranking Turkish government officials, laundered billions of dollars of Iranian oil and gas proceeds through the global financial system, including the U.S. financial system, in violation of U.S. sanctions and numerous federal statutes’. Halkbank moved to dismiss the indictment on the grounds that the general criminal jurisdiction statute, 18 USC Section 3231 (Crimes and Criminal Procedure), does not extend to foreign instrumentalities, and, alternatively, that it was shielded from prosecution because of its status as an instrumentality of the Turkish state.
Judge Richard M Berman (SDNY) denied Halkbank’s motion to dismiss, finding in pertinent part that the ‘FSIA does not appear to grant immunity in criminal proceedings’ and that it is ‘axiomatic that where, as here, a District Court has subject matter jurisdiction over the criminal offenses charged, it also has personal jurisdiction over the individuals charged in the indictment [pursuant to 18 U.S.C. § 3231 on district courts]’. A panel of the United States Second Circuit Court of Appeals affirmed, holding in pertinent part that even if the FSIA were to ‘confer[] immunity in the criminal context, the offense conduct with which [Halkbank] is charged would fall under the commercial activity exception to FSIA’. The commercial activity exception to the FSIA is intended to deny foreign states immunity when they engage in conduct that is based on a commercial activity carried out in the United States.
Justice Brett Kavanaugh, writing for the majority, affirmed the Second Circuit, holding that ‘[t]hrough the FSIA, Congress enacted a comprehensive scheme governing claims of immunity in civil actions against foreign states and their instrumentalities [and that] scheme does not cover criminal cases’. The Supreme Court also affirmed the Second Circuit’s holding that the District Court has jurisdiction over Halkbank pursuant to 18 USC Section 3231. The Supreme Court, however, vacated the Second Circuit’s judgment regarding Halkbank’s common-law immunity arguments and remanded on that issue. The Supreme Court’s decision is likely to have broad ramifications for the global financial sector, particularly as foreign-owned banks and other financial institutions seek to continue using the United States’ banking and financial systems.
International cooperation
The DOJ has long sought to foster international cooperation to uncover, prosecute and deter illegal money laundering operations. Now, it is seeking cooperation in respect of cryptocurrency and financial crimes on digital platforms. In June 2022, Attorney General Merrick Garland issued a report pursuant to Section 8(b)(iv) of Executive Order 14067, which President Biden signed on 9 March 2022. The report focuses on three basic recommendations to strengthen the international response to the use of digital assets in money laundering crimes and sanctions evasion. These primary recommendations are improved funding, communication and uniform standards. The report recognises that bad actors seeking to leverage anonymity and technologies aimed at avoiding detection and prosecution will be attracted to moving from traditional banking to digital assets, and suggests a heightened need for cross-border and intra-state cooperation. In the meantime, and as global law enforcement agencies battle the fast pace of criminal enterprises, the DOJ will continue to depend on the far-reaching jurisdictional hooks of US criminal statutes and the willingness of many nation-states to extradite criminals to the United States for prosecution. As long as the United States’ economy and financial sector remain the largest and most sophisticated in the world, thereby attracting global investors and companies, the DOJ will be able to secure a certain amount of de facto international cooperation in the fight against money laundering.
Conclusion
In sum, recent DOJ guidance, as well as the high-profile and aggressive prosecutions undertaken by the Department, shows a clear pattern that prosecutors are leaning on the money laundering statutes to prosecute other core crimes (wire fraud, securities fraud, tax fraud and sanctions evasion, to name a few) while also pushing along important government objectives (tighter regulation and oversight of the use of cryptocurrency, and full-throated prosecution and deterrence of international criminal organisations, among others).
Footnotes
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