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THE BANK SECRECY ACT - 1970:
The first major effort by the United States to curtail money laundering came in 1970 when Congress passed the Bank Secrecy Act. This law was enacted in response to reports that individuals were bringing large bags filled with currency into the country. The Bank Secrecy Act is a "record keeping and reporting statute," establishing that certain financial transactions involving cash be reported to the Internal Revenue Service. (Byrne, 1990, pg. 354) The act requires individual identification by way of filing a Currency Transaction Report (CTR) for any person who withdraws or deposits $10,000 or more in cash or purchases a monetary instrument for $3,000 or more and makes it a crime for any individual to fail to file, file a false or cause a financial institution to fail to file a CTR.
The BSA created two consequences in the battle against money laundering. Thomas Manzi is his articles, Money Laundering and the Law: The Problem and Its Solutions, explains:
Money launderers began a process known as "structuring" or "smurfing" wherein a cell head in a U.S. city employs an army of runners, or "smurfs," who run from bank to bank, making deposits or purchasing monetary instruments in amounts just under $10,000 to evade BSA reporting requirements....Secondly, the BSA's response from financial institutions was notable because of its insignificance. Even without smurfing, most banks simply ignored BSA rules. (Manzi, Money Laundering and the Law)
Banks challenged BSA requirements on the grounds that it violated their customers' Fourth Amendment rights against unreasonable searches and seizures and their Fifth Amendment rights against self-incrimination. In 1994, in California Bankers Assn. v Shultz 416 US 21 (1974), the United State Supreme Court held BSA requirement's constitutional. (Banks and Beyond) In another case, United States v Miller 425 U 435 (1976), the Supreme Court ruled "that bank customers possess no privacy interests protected by the Fourth Amendment in records of their affairs maintained by the bank with which they deal." (Banks and Beyond) As a result of these decisions, and, BSA amendments in 1984 that dramatically increased the penalties for banks who did not comply, BSA reporting increased.
MONEY LAUNDERING CONTROL ACT - 1986:
Banks' compliance still did not curtail the "structuring" or "smurfing" on the part of the criminals to avoid reporting requirements. However, the ability to deal more effectively with structuring and to prosecute money laundering federally was strengthened by the Money Laundering Control Act (MLCA). (General Government Division, 1992, pg. 11) The MLCA has been characterized as "the most sweeping legislation to date in combating money launderers." ( Manzi, Money Laundering and the Law) Enacted by Congress in 1986, the statute made money laundering in and of itself a crime. The chief statutes, Title 18 of the U.S. Code §1956 and §1957, establish four different types of money laundering violations:
Subsection (a)(1) of 18 U.S.C. §1956 makes it illegal to conduct or attempt to conduct a financial transaction with proceeds known to be from specified unlawful activity with:
(1) intent to promote the carrying on of specified unlawful activity;
(2) intent to evade taxes; or
(3) knowledge that the transaction is designed to conceal or disguise the nature of the proceeds or to avoid a state or federal transaction reporting requirement.
Subsection (a)(2) of 18 U.S.C. § 1956 makes it illegal to transport or attempt to transport monetary instruments or funds to or from the United States with:
(1) intent to promote the carrying on of specified unlawful activity; or
(2) knowledge that the monetary instruments or funds represent the proceeds of unlawful activity and that such transportation was designed in whole or in part to conceal or disguise the nature of the proceeds or to avoid a state or federal transaction reporting requirement.
Subsection (a)(3) of 18 U.S.C. §1956 makes it illegal to conduct or attempt to conduct a financial transaction involving property a law enforcement officer represents to be the proceeds of specified unlawful activity or property used to conduct or facilitate specified unlawful activity with the intent:
(1) to promote the carrying on of specified unlawful activity;
(2) to conceal or disguise the nature of property believed to be the proceeds of specified unlawful activity; or
(3) to avoid a state or federal transaction reporting requirement.
The statute affixes penalties of a fine not to exceed $500,000 or twice the value of the property involved, or, imprisonment not to exceed twenty years.
Further, the MLCA, made it a crime to structure transactions to avoid reporting requirements: §1957 of title 18, U.S.C., makes it illegal knowingly to engage or attempt to engage in a monetary transaction involving property valued at more than $10,000 if it is derived from specified unlawful activity.
MLCA had some significant consequences in the war against money laundering. Manzi explains:
Money laundering became so much more difficult that drug traffickers mostly withdrew from it, relying instead on a service industry comprised of a loose, ad hoc network of independent financial professionals who contract with the cartel leadership to cleanse their profits... The effectiveness of the MLCA is evidenced by the fact that money laundering fees have risen dramatically since 1985. In traditional money laundering, funds change hands several times, with each "subcontractor" taking cuts as his fee. These fees totaled 6% before 1986, but now hover around 26%, so the MLCA has essentially deprived drug kingpins of a fourth of their profits. (Manzi, Money Laundering and the Law)
THE ANTI-DRUG ABUSE ACT - 1986:
Money launderers were still able to enjoy some of the fruits of the crimes even after penalties or prison. However, the Anti-Drug Abuse Act of 1986 gave, among other things, the Internal Revenue Service the power to seize property involved in the breach of money laundering laws. The act also gave the government the authority to designate certain areas of the United States as high intensity drug trafficking areas (HIDTAs). To date, there are fifteen HIDTAs located throughout the country.
ANNUZIO-WYLIE MONEY LAUNDERING ACT - 1992:
The Annuzio-Wyle Money Laundering Act amended the Bank Secrecy Act to require financial institutions and it's employees to report any suspicious transactions that may be relevant to a possible violation of a law or regulation. The act further requires financial institutions to carry out anti-money laundering programs and authorizes them to maintain special record keeping procedures relating to the transferring of funds. In addition, the act made it a crime to operate an illegal money transmitting business.
MONEY LAUNDERING SUPPRESSION ACT - 1994:
The last major federal statute to be discussed is the Money Laundering Suppression Act of 1994. The act again amended the BSA as follows:
"It required liberalization of the rules for exception of transactions from the currency transaction reporting requirement, in an effort to reduce the number of Currency Transaction Report (CTR) forms filed by at least 30 percent,"
"It authorized Treasury to designate a single agency to receive reports of suspicious transactions from financial institutions," and,
"It required "money transmitting businesses" to register with the Treasury."
(Banks and Beyond)
The act also requires non-bank financial institutions (NBFI's) to submit to a more stringent investigation and reporting process. Until that time, NBFI's, like brokerage or securities firms, were completely unregulated and were ideal places for individuals to "wash" funds. Some of these firms continue to be major players in laundering ill-gotten proceeds; however, new, more stringent regulations are being implementing to increase the formal reporting requirements of NBFI's.
STATE STATUTES:
The federal government is not the only agency with the legal authority to prosecute money laundering cases. To date thirty states have enacted statutes regarding these crimes. These state statutes vary in the types of activities they prohibit and the amounts of money required to be considered a money laundering crime: some states require a threshold dollar amount; some apply only to drug proceeds; some apply to any criminal activity; and, still others apply only to specific criminal activities. (Money Laundering Alert, August, 1996, pg. 2)
One of the earliest states to enact a money laundering statute was New York; however, the statute is unpopular with state prosecutor's. Penal Law §470, was enacted in 1988 and has rarely been used since (New York Criminal Law, 1995, 906). The main problem with the New York statute revolves around its "exchange" requirement (New York Criminal Law, 1995, 906). Penal Law §470 requires "a completed exchange of the proceeds of criminal activity for a different item or items of value" (New York Criminal Law, 1995, 906). The federal statute does not have this requirement nor do most of the other states' money laundering statutes. Furthermore, cases in which an under-cover officer is used (which is so often the case in a money laundering investigation) an argument could be raised that a completed exchange did not occur. Thus, the defendant would only be charged with an attempt and would receive a substantially lesser punishment for the crime. Time will tell how successful state prosecutors will be in the fight against money laundering.
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