On May 20, 2009, the President signed the Fraud Enforcement and Recovery Act (FERA) into law. FERA provides the Department of Justice with significant criminal and civil tools that can be used in the investigation and prosecution of mortgage fraud, commodities fraud, and related financial fraud offenses. Descriptions of several of the new law enforcement tools were previously issued on June 24, 2009 and August 14, 2009.
Among the provisions of FERA was one that amended the federal money laundering statutes—18 U.S.C. §§ 1956 and 1957—as discussed below. In addition to the changes in these statutes, FERA included a "Sense of Congress" provision that imposes new approval and reporting requirements for certain categories of money laundering prosecutions. This memorandum (1) addresses the provisions of the legislation relating to the money laundering statutes, (2) describes the procedures that should be followed to ensure the Department adheres to pre-existing internal guidance and satisfics thc ncw approval requirements, and (3) outlines the new reporting requirements associated with the fiing of certain money laundering charges.[FN1]
I. Clarifying the Money Laundering Statute
FERA amended 18 U.S.C. § 1956(c) by defining "proceeds" as "any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity." FERA also inserted a conforming reference into 18 U.S.C. § 1957. The provision was designed to eliminate the confusion created by the Supreme Court's decision in United States v. Santos, 128 S Ct. 2020 (2008), which held that the "proceeds" of crime may be limited, at least in some money laundering prosecutions, to "net profits" of the predicate offense or specified unlawful activity. FERA eliminates this confusion and defines "proceeds" in the money laundering statutes as "gross receipts" of unlawful activity.
II. Instituting Approval Requirements
In response to FERA, the Department has implemented new approval requirements for certain money laundering prosecutions. Subsection 2(g) of FERA, known as the "Sense of Congress" provision, states that certain money laundering prosecutions require prior approval by the Attorney General, the Deputy Attorney General, the Assistant Attorney General for the Criminal Division, a Deputy Assistant Attorney General for the Criminal Division, or the relevant United States Attorney (hereafter "Appropriate Official"):
(1) SENSE OF CONGRESS—It is the sense of the Congress that no prosecution of an offense under section 1956 or 1957 of title 18, United States Code, should be undertaken in combination with the prosecution of any other offense, without prior approval of the Attorney General, the Deputy Attorney General, the Assistant Attorney General in charge of the Criminal Division, a Deputy Assistant Attorney General in the Criminal Division, or the relevant United States Attorney, if the conduct to be charged as "specifed unlawful activity JJ in connection with the offense under section 1956 or 1957 is so closely connected with the conduct to be charged as the other offense that there is no clear delineation between the two offenses.
(emphasis added).The relevant language in the Sense of Congress provision appears to be based on the following consultation requirement located in § 9-105.330 of the United States Attorneys Manual (USAM):
Cases Involving Financial Crimes. In any case in which the conduct to be charged as "specified unlawful activity" under sections 1956 and 1957 consists primarily of one or more financial or fraud offenses, and in which the financial and money laundering offenses are so closely connected with each other that there is no clear delineation between the underlying financial crime and the money laundering offense, no indictment or complaint may be filed without prior consultation with AFMLS, Criminal Division. (This issue is often referred to as the "merger" issue.)
A. Cases that Require Approval
Explanation: Sections 1956 and 1957 both require that the property involved in the money laundering transaction be the proceeds of specified unlawful activity at the time that the transaction occurs. The statute does not define when property becomes "proceeds," but the context implies that the property wil have been derived from an already completed offense, or a completed phase of an ongoing offense, before it is laundered. Therefore, as a general rule, neither section 1956 nor section 1957 should be used where the same financial transaction represents both the money laundering offense and a part of the specified unlawful activity generating the proceeds being laundered.
In light of the similarities between the current language of the USAM and the Sense of Congress provision, which was enacted in response to the "merger" concerns discussed in the Santos decision, the following categories of cases wil be subject to the Sense of Congress approval requirement: (1) cases that fall within the existing consultation requirement of § 9-105.330 of the USAM; and (2) any money laundering offense charged under a promotion theory under section 1956(a)(I)(A)(i) where the financial transaction is alleged to promote the specific SUA offense that generated the proceeds, and where both money laundering and the SUA offense are being charged.
The following are examples of charges that require prior approval:
- Money laundering charges based on a transaction where criminal proceeds are used to pay essential expenses of the specific SUA offense that generated those proceeds.
- Money laundering charges based on a transaction that is an integral part of the underlying criminal activity, such as the receipt of money for sellng drugs, or the receipt of fraud proceeds from a victim.
For example, the following transactions require prior approval before they can be used as the basis for a money laundering charge:
The Sense of Congress provision does not, however, impose an approval requirement on all money laundering charges. For example, charges based on the following types of transactions do not require prior approval:
- A drug retailer has a supply of drugs "fronted" to him, sells the drugs, and then pays his supplier for the "fronted" drugs.
- The promoter of a Ponzi scheme cashes a check he received from an "investor" victim.
- The operator of an ilegal lottery uses sales proceeds to pay winners.
- A sex trafficker uses the money earned by prostitutes in his massage parlors to pay current expenses such as rent, utilties, phone bils, and advertising costs for the massage parlors.
- In a health care fraud prosecution, a dentist uses proceeds of the fraud to pay current expenses of his practice, such as building rent, equipment rent, and dental supplies.
- A telemarketer uses proceeds of his fraud scheme to pay the current monthly phone bil of his boiler room operation.
- A Ponzi scheme operator diverts victim investment proceeds to pay his office rent.
- Transactions where the "promotion" element involves an SUA different from the SUA that generated the proceeds.
- Transactions where the "promotion" element involves a future crime or new phase of the SUA activity, such as soliciting new victims in a fraud scheme, implementing a new phase of a fraud scheme, or expanding the scope, nature, or geographical range of the SUA activity.
- Transactions charged under section 1956(a)(I)(A)(ii) or (B)(ii).
- Transactions where the money laundering charged under section 1957 does not involve payment of essential expenses of the criminal enterprise or ordinary business expenses of the criminal operation.
- Cases involving international money laundering under section 1956(a)(2)(A) or section 1956(a)(2)(B).
- Cases where money laundering is charged, but the underlying SUA is not.
- Cases involving conceal-or-disguise money laundering under sections 1956(a)(1) (B)(i) or (a)(2)(B)(i).
- Any civil forfeiture action, regardless of whether such civil action is related to a criminal investigation, indictment or complaint that would otherwise require prior approval.
For example, the following transactions do not require prior approval before they can be used as the basis for a money laundering charge:
B. Approval Process
- A drug smuggler sells a load of marijuana and uses the money to set up a meth lab.
- A drug dealer sells a kilogram of heroin and uses the proceeds to buy more heroin for future sales.
- A sex trafficker uses money earned by prostitutes in a massage parlor to open a massage parlor in another city.
- A terrorist in Indonesia sends money to a terrorist in the United States to pay for a car bomb attack.
- A bank robber gives the proceeds of a robbery to a straw man to purchase a house for the robber.
- The operator of a Ponzi scheme uses fraud proceeds to purchase a mailng list of new potential victims.
Currently, the USAM requires that all federal prosecutors must consult with the Asset Forfeiture and Money Laundering Section, Criminal Division ("AFMLS") prior to filing an indictment or complaint that involves a "merger" issue. See USAM 9-105.330. All prosecutors should continue to adhere to the USAM consultation requirement.
In addition, to comply with the new "Sense of Congress" provision in FERA, all federal prosecutors are reqnired to seek approval from an Appropriate Official prior to filing an indictment or complaint in the categories of cases described above.
The request for approval should be in writing and should include a brief description of the facts of the case, identify the count or counts that raise "merger" concerns, describe the "merger" issue, state the reasons why approval should be granted, and indicate when AFMLS was consulted, note the result of that consultation, and attach any related correspondence or memoranda.
- For AUSAs, approval must be obtained from their respective United States Attorney.
- For Criminal Division trial attorneys, approval must bc obtained from a Deputy Assistant Attorney General by means of a request submitted through AFMLS.
- For other Department components; approval must be obtained from a Deputy Assistant Attorney General within the Criminal Division by means of a request submitted through AFMLS.
To document that the approval process has been followed, the form attached to this memorandum should be completed and maintained in the case file. See [Criminal Resource Manual 2188 ("Money Laundering 'Merger' Case Approval Form")].
III. Instituting Reporting Requirements
FERA also imposes new reporting requirements. Section 2(g)(2) of the bil requires that one year after the date ofFERA's enactment, and at the end of each of the four succeeding one year periods, the Attorney General shall report to the House and Senate Judiciary Committees on efforts undertaken by the Department of Justice to ensure that the review and approval process described above takes place in all appropriate cases. Specifically, the Attorney General must report on:
(1) The number of prosecutions that were undertaken during the previous oneyear period after prior approval by an Appropriate Official. The prosecutions must be classified by type of offense and by the approving official.
To ensure the Attorney General can timely and accurately report the above-described information to Congress, on or before May 1 of every year, starting in May 2010 and ending in May 2015, every U.S. Attorney's Office and Department component must provide copies of all of the "Money Laundering 'Merger' Case Approval Forms" generated during the prior one year period to AFMLS. Because the reporting requirement was effective as of May 20, 2009, every U.S. Attorney's Office and Department component should also notify AFMLS of any cases indicted or charged by complaint after May 20, 2009, but before the date of this memorandum for which approval would have been required had this memorandum then been in force.
(2) The number of prosecutions that were undertaken during the previous oneyear period without prior approval by an Appropriate Official. The prosecutions must be classified by type of offense, and the reasons why prior approval was not obtained.
(3) The number of times during the previous year in which an Appropriate Official denied approval for a prosecution.
Forms must be submitted by email, fax, or courier delivery service (not by mail) as follows:
By courier delivery service:
United States Department of Justice
Asset Forfeiture and Money Laundering Section
1400 New York Avenue, N.W., Suite 10100
Washington, D.C. 20530
Attention: Deputy Chief for Policy
By email: AFMLS-FERA@usdoj.gov
By fax: (202) 514-5522 (Attention: Deputy Chief for Policy)
AFMLS will, in turn, compile the information and provide the reporting information to the Attorney General on or before May 10 of each year.
In addition, every U.S. Attorney's Office and Department component must take adequate steps to ensure that no prosecutions subject to the approval and reporting requirements are brought without prior approval of an Appropriate Official. In the event that a U.S. Attorney's Office or Department component learns that any such prosecution was undertaken without prior approval, it must immediately notify AFMLS, providing a description of the case and explaining why prior approval was not obtained.
If you have any questions, please contact Jim Meade, Deputy Chief for Policy, Asset Forfeiture and Money Laundering Section, at (202) 307-2115.
FN 1. The procedures implemented by the Department in response to the Sense of Congress recommendations are not intended to create any privileges, benefits, or rights, substantive or procedural, enforceable by any individual, part or witness in any administrative, civil, or criminal matter.
[added January 2010] [cited in USAM 9-2.400; 9-105.330]