Restaurant Owner Money Laundering.

Money laundering is commonly defined as the act of concealing the source, ownership, nature, control, or disposition of proceeds derived from specified unlawful activity. Restaurants are often categorized as “cash-intensive businesses” or “cash businesses,” allowing for the commission of money laundering offenses by commingling illicit proceeds with the proceeds from a restaurant’s legitimate operations. Inflating the revenue of a restaurant by including proceeds from criminal activity, such as selling narcotics, can make illegal proceeds appear to be legitimate business income. At Spodek Law Group, we handle money-laundering cases involving various underlying offenses. While money laundering charges are typically levied in connection with drug trafficking cases, the government pursues charges for money laundering in connection with all forms of financial fraud, bribery, and embezzlement as well. As a result of banks’ Anti-Money Laundering (AML) and Know Your Customer (KYC) obligations, banks must keep a close eye on customers’ and customers’ customers’ activities. When a bank determines, after review, that activity meets the applicable regulatory criteria for a Suspicious Activity Report, it files a SAR with the U.S. Financial Crimes Enforcement Network (FinCEN), which may share the report with appropriate law-enforcement and regulatory agencies. That said, a suspicious transaction alert does not, by itself, establish criminal liability for money laundering, and it is not unusual for business owners to be investigated by the federal government despite conducting legitimate operations in cash-intensive businesses. The elements required for a federal money-laundering conviction depend on the charged subsection of 18 U.S.C. § 1956 or § 1957. In an extraterritorial prosecution under § 1956(f), the government must additionally establish the citizenship or location and transaction-value requirements specified in that subsection. If you need a criminal defense attorney for federal money laundering allegations, it is vital that you choose an experienced defense attorney who has been on both sides of these cases.

Why can’t suspicious deposits alone establish a federal §1956 or §1957 offense?

Many articles on the internet describing the process of money laundering mention the “placement,” “layering,” and “integration” stages of money laundering. While these three stages can describe the actual process of money laundering, they are not themselves legal requirements for establishing criminal liability. Rather, placement, layering, and integration are used to describe the methods that people use to launder money, and they are not universally applicable to all cases. With regard to federal money laundering, the relevant federal statutes are 18 U.S.C. § 1956 and 18 U.S.C. § 1957. The federal money laundering offenses that are established under these two statutes create different burdens of proof. The federal money laundering statute at 18 U.S.C. § 1956 is very broad. The statute applies to criminal offenses involving transactions that are alleged to:

• “Promotional” Money Laundering: In cases alleging a “promotional” money-laundering offense under § 1956, federal prosecutors may be able to establish a conviction even if the transactions in question only have the effect of potentially enhancing or enabling future unlawful activity.
• “Concealment” Money Laundering: In cases involving allegations of “concealment” money laundering, federal prosecutors must also establish that the defendant intended to conceal or disguise the nature, source, ownership, or control of the allegedly illicit proceeds.
• “Avoidance” Money Laundering: In addition to promotional and concealment money-laundering offenses, § 1956 also applies to conduct intended to avoid statutory reporting requirements in cases involving proceeds from illegal acts.

In order to secure a conviction for any of these offenses under § 1956, federal prosecutors generally must also establish a connection between the allegedly illicit proceeds and the underlying unlawful activity. While federal prosecutors must prove the existence of a predicate offense in some cases, there are certain exceptions to this rule.

With regard to 18 U.S.C. § 1957, the elements that must be proven are similar to those for offenses under § 1956, but the statute has certain limitations. The primary limitation with § 1957 is that prosecutors must be able to prove that the transaction involved more than $10,000 of proceeds that were derived from some form of unlawful activity.

While banks identify transactions that trigger suspicious transaction alerts, federal prosecutors can allege money laundering in connection with numerous forms of transactions. These examples include bank deposits, wire transfers, checks, purchases of securities, use of currency-transaction machines (CTMs), and purchases of real property.

Which restaurant deposit patterns trigger scrutiny without proving laundering?

In our experience, there are a number of common deposit patterns that can trigger the bank to file a suspicious transaction alert, or that can attract the attention of federal law enforcement agencies. A few examples include:

• Cash deposits made close together. While this can be an innocent mistake, making frequent cash deposits can cause red flags to be raised. In fact, structuring is a common method used to engage in money laundering, which makes frequent small deposits look like attempts to avoid the bank’s reporting obligations. However, structuring is also its own offense under federal law, and it is often investigated alongside allegations of money laundering. Banks have transaction monitoring systems in place to identify patterns and behaviors that could signify that an account holder is engaging in money laundering. Under the Anti Money Laundering Act (AMLA) and Know Your Customer (KYC), banks have the obligation to know who is doing business with them, and their monitoring systems are designed to identify behavior such as:
• Excessive cash deposits. If a customer makes excessive cash deposits relative to the average for a business of that type, this could trigger an automated alert.
• Rapid inter-bank transfers. Rapid interbank transfers can also be a red flag for layering, which is the process of attempting to make the movement of money harder to trace.
• Deposits into unrelated accounts. Making deposits into unrelated accounts can be another red flag for smurfing, which is the process of which small amounts of money are sent to various different accounts. While banks use automated systems to flag suspicious transactions, this is just the first step in the process. Once an account is flagged by an automated system, the bank’s internal investigator or AML officer reviews the alert to determine whether it has merit. If the transaction or pattern of transactions appears suspicious upon closer scrutiny, the bank must then file a Suspicious Activity Report (SAR) with the appropriate federal authorities.

How do Wisconsin and California change the charges and maximum exposure?

The fact that the state government also has jurisdiction over money laundering does not preclude the federal government from prosecuting laundering-related conduct that occurs within the United States. In many cases, prosecutors on both sides can pursue independent criminal cases, and the penalties available in either venue can be substantial. With regard to Wisconsin, money laundering can be prosecuted as either a felony or a misdemeanor. The penalties that apply in money laundering cases in Wisconsin increase in severity based on the dollar amount of the proceeds involved in the allegedly-laundering transaction. Wisconsin’s highest tier of money laundering covers transactions with proceeds exceeding $100,000, and a guilty verdict for this highest tier can result in up to twelve years and six months of imprisonment and a fine of $25,000. While the maximum statutory penalties for money laundering in Wisconsin may appear less severe than those at the federal level, it is still possible to face both state and federal charges and for both of them to present substantial risks to your freedom. The state of California has similar provisions regarding the prosecution of money laundering-related conduct. For example, California Penal Code section 186.10 applies to transactions conducted with “the intent to promote the carrying on of criminal activity” and specifically addresses transactions involving “any financial institution.” For this reason, a California defendant who is facing charges for money laundering may need to target his defense efforts on challenging the government’s attempts to establish criminal liability under Section 186.10. While state statutes on money laundering may be different from the federal statutes, they both present potential criminal liability that should not be ignored. Here are common examples of defendants accused of money laundering who face both state and federal charges:

• Fraudulent use of personal information: If a defendant allegedly commits fraud involving identity theft in multiple states, the federal government may pursue federal fraud charges, and one or more states may pursue state charges for theft, fraud, and money laundering as well.
• Wire fraud and identity theft: Similarly, when a fraudster alleged to be using identity theft to commit wire fraud is arrested by federal law enforcement agents, he can be charged with federal wire fraud. Simultaneously, the state where the wire fraud occurred may decide to prosecute him for money laundering and for any other offenses that may have been committed during the execution of the alleged fraud scheme.

Talk to Spodek Law Group

Every case turns on its own facts, and general information is no substitute for advice about yours. Todd Spodek, managing partner of Spodek Law Group, and the firm's attorneys defend federal criminal and white collar matters nationwide. Reach the firm at 888 348 8028.