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65 Count Indictment Against Texas Man for Bankruptcy Fraud and Structuring Financial Transactions
The U.S. Attorney’s Office for the Western District of Texas announced charges against Jack Texas Alves. The grand jury returned a 65 count indictment against Mr. Alves for one count of bankruptcy fraud in violation of 18 U.S.C. 152 and 64 counts of structuring domestic financial transactions in violation of 31 U.S.C. 5324(a)(3).
The indictment alleges that in a bankruptcy court filing on May 23, 2008, Mr. Alves falsely stated the amount of cash he had in his possession was $4,000 when in fact, Mr. Alves knew he possessed substantially more cash which he concealed from the bankruptcy court and creditors. The indictment further alleges that Mr. Alves engaged in a pattern of structuring bank deposits, totaling more than $100,000 in a 12 month period, for the purpose of evading reporting requirements. According to a detailed list in the indictment, from February 24, 2010 until May 12, 2011, Mr. Alves made a total of 64 bank deposits-each one between $5000 and $8100.
Not mentioned in the accouncement or the indictment is whether Mr. Alves’ bank notified FinCEN of these transactions by filing suspicious activity reports or SARs. The indictment dates all of the transactions and it isn’t suprising that the bank caught on to Mr. Alves activities. For example, Mr. Alves made a deposit almost every business day for nearly two months. Each deposit was shy of the standard trigger for reporting purposes, $10,000. Bank’s are instructed to report structured transactions when series of deposits in a short duration of time add up to an amount that would have otherwise been reported if deposited together. Furthermore, banks are prohibited from telling a person that they filed an SAR about them to FinCEN. Thus, Mr. Alves likely had no idea that the bank had sent the SAR to FinCEN where it was being processed by analysts who eventually coordinated with law enforcement officials about the transactions.
The indictment also indicates that the government is seeking forfeiture of two bank accounts currently seized. Pursuant to 18 U.S.C. 981(a)(1)(C), 28 U.S.C. 2461 and Federal Rules of Criminal Procedures Rule 32.2, the government is seeking to forfeit funds that Mr. Alves alledly concealed from the bankruptcy court and creditors. Pursuant to 31 U.S.C. 5317(c)(1)(A) and Rule 32.2 the government also seeks forfeiture of the funds involved in the structured transactions. The funds the government looks to forfeit amount to nearly $400,000.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
FinCEN Proposes Reporting Requirement of International Transport of Prepaid Access Products at U.S. Borders
Furthering the U.S. Department of the Treasury’s efforts to address the potential misuse of prepaid access products, the Financial Crimes Enforcement Network (FinCEN) recently proposed adding certain tangible prepaid access devices to the list of monetary instruments to be reported when transported into or out of the United States. FinCEN’s proposal would add devices such as general use prepaid cards, certain gift cards, and potentially cell phones to the list of other monetary instruments that must be aggregated to determine if they exceed more than $10,000 and included on the Currency and Monetary Instrument Report (CMIR), the form used to report international transport of funds at U.S. borders. The proposal is intended to address certain devices that can be used as a substitute for currency, as they provide access to funds by any bearer of the device. This product attribute, as FinCEN’s cooperation and consultation with law enforcement has indicated, may enable the anonymous transfer or concealed transport of illicit funds across the U.S. border.
Excluded from the proposal are credit cards and debit cards, and codes and personal identification numbers or items like computers or web enabled cell phones, or other devices that are not dedicated to accessing specific prepaid funds.
“The proposal we’re releasing today is a further step in our staged approach, building upon our newly implemented regulations of prepaid access, in a coordinated effort with law enforcement to shine a light on the transfer of money obtained through illicit activity,” said FinCEN Director James H. Freis, Jr. “Reporting tangible prepaid access devices puts another tool at the disposal of law enforcement to interrupt the transfer of monetary value anonymously across international borders when that value was obtained illegally.”
Current regulations require that a CMIR be filed regarding the international transportation, mail, or shipment of currency or other monetary instruments – defined as coin or currency, traveler’s checks, checks, promissory notes, money orders in bearer form, and bearer bonds among others – in an aggregate amount that exceeds $10,000. FinCEN’s proposal will update U.S. reporting requirements, which have been in place since the 1970s, to reflect the emergence of new payment methods and monetary instruments that could be used to facilitate illicit financial activity.
While FinCEN was already developing regulatory proposals in this area, the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 required the issuance of regulations in final form implementing the BSA, regarding the sale, issuance, redemption, or international transport of stored value, including stored value cards. FinCEN defined prepaid access and included new regulatory requirements in July 2011, expanding beyond the previous framework for certain products known as “stored value.”
This proposal should serve as a warning to those who frequently travel with monetary instruments worth over $10,000. Travellers will need to accurately add up the total value of their monetary instruments and account for items such as gift cards, prepaid cards, and possibly even pre-loaded cell phones. If a traveller either fails to report or reports inaccurately their total value of monetary instruments, including these new items, such items can be seized by U.S. Customs and Border Protection and subsequently subject to forfeiture. Such seizures will make transporting money even more expensive by enabling the government to levy fines and penalties against travellers.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
F.B.I. Shifting its Focus from Ordinary Crime to National Security and Intelligence Gathering
The N.Y. Times is reporting that agents at the Federal Bureau of Investigation (FBI) are more likely to be hunting potential threats to national security than for ordinary criminals in recent years.
This finding comes from data collected detailing the bureau’s activities the last 2 years. The data was part of an internal FBI report that the NY Times successfully obtained under the Freedom of Information Act (FOIA). The report details the FBI’s shift from a law-enforcement agency focused on solving crimes to a domestic intelligence agency whose mission is to detect potential threats before they can reach fruition.
In order to accomplish this transition the FBI instituted a policy to investigate every single national security tip, no matter how dubious the tip may be. Further, if the FBI receives a national security related tip from another agency, like the CIA or OFAC, the FBI will immediately open a more intensive investigation instead of starting with an “assessment.” (A couple of posts about the FBI’s new operations guide regarding assessments and investigations were discussed previously here, and here)
The FBI’s shift away from investigating ordinary crime to prioritizing national security related issues has already had a significant impact. So the critical question that needs to be asked is: What exactly are national security related issues? The U.S. government has expressly stated at one time or another through its various agencies and institutions that crimes related to money laundering, bank secrecy, smuggling, currency transaction reporting, trade sanctions, tax evasion, and narcotics production and trafficking are all national security related issues. As this list demonstrates, the government has unequivocally focused its attention on terrorism finance as one of the major ways of securing national security.
Coupling the government’s focus on terrorism finance with the FBI’s new focus on national security issues probably means more criminal investigations of people in immigrant groups with links to the Middle East, South America, Africa, and East Asia for activities that, in fact, are not at all related to national security. Additionally, this change in federal law enforcement policy coupled with a newly invigorated focus on terrorism finance also means more criminal investigations and scrutiny of traditional white collar activities and financial transactions. Thus, as everyday activities are increasingly linked to national security the general public will be subjected to increased government scrutiny.
Although many traditional protections offered to people that are targets of criminal investigations have eroded since September 11, the FBI is still, at its heart, a law enforcement agency receptive to this country’s legal standards associated with criminal investigations and trials (i.e. reasonable suspicion, probable cause, and beyond a reasonable doubt). However, as the FBI increases its intelligence gathering operations, the need for an effective federal defense attorney becomes even more important. Because the FBI will be subjecting more everyday activities to investigations for “intelligence gathering,” a knowledgeable federal defense attorney will be needed to explain to agents cultural nuances, federal regulatory policies, and foreign policy concerns applicable to a particular client’s situation. This level of knowledge in an attorney is vital to ensuring that the FBI doesn’t misinterpret the findings of an investigation which can ultimately lead to an erroneous indictment or conviction.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Tax Evasion and Filing a False Tax Return – The Government’s Back-up Plans
Previously in this blog we discussed federal offenses such as money laundering, bulk cash smuggling, unlicensed money transmitting businesses, and smurfing. These are all serious offenses in their own right; offenses that can send someone to prison for up to 20 years. But as is the case in many financial crimes there are two offenses related to all the above that the goverment can additionally charge someone of at its own discretion. They are tax evasion and filing a false tax return.
Although these tax crimes are separate and distinct from the other financial crimes mentioned, the conduct of the underlying financial offense often overlaps and quite organically evolves into a subsequent tax crime. For example, someone who launders money, smuggles cash, or structures payments isn’t likely to truthfully report this illicit income in their tax returns. But let’s take a closer look at the offenses and understand why the government can convict someone of the tax offenses even if it cannot convict the person for the underlying financial crimes that originally motivated its investigation.
Tax evasion, 26 U.S.C. 7201, is the more serious of the two tax crimes because it carries the harshest penalties. An individual defendant can be charged with a separate tax evasion charge for every year the defendant evaded taxes. For each tax evasion charge the defendant faces a maximum penalty of 5 years and a $100,000 fine. For corporate defendants the fine could be as steep as $500,000 for each offense.
There does not need to be a filing or a false statement to convict someone of tax evasion. All the government must do is demonstrate beyond a reasonable doubt that the defendant (1) underpaid taxes; (2) engaged in an affirmative act of evasion or attempt to evade; and (3) acted willfully. So even if the government doesn’t catch a defendant smuggling cash out of the country it can still charge him with tax evasion if it later finds out that the money was put into an overseas bank account with the intent of evading tax liabilities.
Filing a false tax return, 26 U.S.C. 7206, is very similar to the offenses of false statements and perjury. Each individual ‘false’ filing can be charged as a separate offense and an individual defendant can face prison sentences as lengthy as 3 years and a $100,000 fine per offense. Corporate defendants can be fined as much as $500,000 per offense.
For the government to successfully prosecute someone under this offense they must prove beyond a reasonable doubt that the defendant (1) signed the tax return or related document; (2) signed under penalty of perjury; (3) the return or related document was in fact false; (4) the falsity was material; and (5) the defendant acted willfully. Most people file their taxes but probably don’t report illicit funds in their returns. By under-reporting or concealing material facts about the sources of income may subject a defendant to the provisions of this statute. For example, a defendant that fails to accurately mention in his return the funds that he received from overseas because they were under the $10,000 reporting requirement may never be investigated for a structured transaction offense but could very well be investigated for filing a false tax return. The government may not be able to prove that the underlying transaction was intended to evade a reporting requirement; but the government knows the money exists in the defendant’s account and that it is unaccounted for in the return.
It is evident that the government has plenty of tools in its kit when it suspects someone of committing a financial crime. With the ever growing link between global terrorism and financial crime it would be unwise to expect the government to withold from using any of its tools to prosecute people.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Money Laundering: Understanding 18 U.S.C. 1956 and 1957
Congress enacted the principal money laundering statutes in 1986. 18 U.S.C. 1956 and 1957 criminalize financial and monetary transactions with proceeds of underlying criminal activity. These statutes make money laundering a crime in and of itself. Thus, not only can someone be charged with the underlying offense that initially taints the funds, they can also be charged with money laundering if they use (or attempt to use) the proceeds derived from their criminal activity in ways sanctioned by the money laundering statutes.
Although initially enacted as a means of countering narcotics trafficking activities, the money laundering statutes are now applied to all kinds of kinds of white collar or national security related offenses. For example, these statutes can be invoked when the underlying criminal activity is fraud, sanctions violations, tax evasion, etc. Any time money is derived, earned or otherwise possessed from some specified unlawful activity, it is considered dirty and the person possessing such funds is at risk of also being a money launderer. This is significant because money laundering carries a 20 year maximum sentence, a sentence significantly higher than most white collar or national security related offenses.
Although sections 1956 and 1957 are related, they differ in some very important ways. Under section 1956 a federal prosecutor must prove that: (1) the defendant conducted or attempted to conduct a financial transaction; (2) the defendant knew that the financial transaction involved the proceeds of some type of unlawful activity; (3) the funds were in fact proceeds from unlawful activity; and (4) the defendant intended to “promote” criminal activities, “conceal” the funds, avoid currency transaction reporting laws, or commit tax fraud. [Concealment money laundering makes it an offense to make "dirty" money look "clean" or that attempts to hide the money from the government in any way. Promotion money laundering criminalizes those who use the proceeds of their criminal activity to further or promote their criminal activity].
Under section 1957 a federal prosecutor must prove that: (1) the defendant engaged or attempted to engage in a monetary transaction; (2) the monetary transaction was of a value greater than $10,000; (3) the transaction derived from criminal activity; (4) the transaction either took place in the U.S. or the defendant is a U.S. person; and (5) the defendant knew that the property was criminally derived.
One critical distinction between the two statutes is the conduct being targeted. 1956 targets “financial transactions,” while 1957 targets “monetary transactions.” Financial transactions includes a broad range of financial dealings that affect interstate commerce. The term encompasses almost any deal, like bank transactions, gifts, purchases and other transfers of money and property. 1957 accomplishes its goal primarily by prohibiting “dirty” money from entering the financial system through monetary transactions (i.e. deposits, withdrawals, etc.) with financial institutions (i.e. banks). Thus the goal of 1956 is prohibiting the actual “laundering” of “dirty” money whereas 1957 is concerned with keeping the financial system clean by keeping “dirty” money out.
Another key distinction is that 1956 has no specified minimum value for the financial transactions to be subject to the statute. Thus, even the most miniscule financial transaction can subject someone to criminal prosecution under 1956. Quite by design, the statute broadly covers most everyday transactions and includes transactions of any value so long as the requisite intent is present. On the other hand, Section 1957 mirrors currency reporting laws and requires the monetary transaction to be worth at least $10,000.
Both statutes require the government to prove that the defendant knew the funds were criminally derived, but does not require the government to prove that the defendant knew the specific criminal activity underlying the transaction. Therefore, as long as the government can prove beyond a reasonable doubt that the defendant knew the funds he was transacting with were likley derived from some prohibited conduct, he can be liable under either money laundering statute. Willful ignorance is not a defense to this intent requirement. Thus, the defendant need not be involved in the criminal activity himself, let alone know what criminal acts were specifically undertaken to derive the funds, to be liable in these cases.
It is apparent that these statutes broadly apply to many people in many situations. Most of these situations would seem more economic in nature, rather than criminal. Bank tellers, traders, merchants, retailers, etc. are at risk and should understand these statutes because they directly relate to their lawful businesses. Thus people should be mindful of money transfers, purchases or transactions by performing some level of due diligence to ensure the funds are not derived from criminal activity. Further, people conducting trade or transactions on an international level should be mindful of the various economic sanctions programs, export/import laws, etc. in order to minimize their instances of possessing “dirty” money. In other words: know where the money is coming from and decline to work with those who cannot give you adequate assurances, even if those people are your customers, friends, or family.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Evading currency reporting requirements? Immigration and Customs Enforcement has a Bulk Cash Smuggling Center for that.
The U.S. government has a plethora of criminal statutes designed to curb the illicit transfer of funds and the flow of money in the underground economy. Federal law enforcement officers can investigate unlicensed money transmitting businesses (i.e. hawala) pursuant to 18 U.S.C. 1960, ensure compliance with reporting requirements in 31 U.S.C. 5316, investigate structured transfers (or “smurfing”) subject to 31 U.S.C. 5324, investigate RICO related foreign travel in 18 U.S.C. 1952, and intercept bulk cash smuggling pursuant to 31 U.S.C. 5332. These are in addition to the anti-money laundering and tax evasion statutes also found in the U.S. code.
Law enforcement officers from the FBI, Customs and Border Protection, Homeland Security Investigations and Immigration and Customs Enforcement rely on these authorities to, either directly or indirectly, disrupt and dismantle criminal networks that move bulk cash. Although you may not consider yourself an associate of a criminal network, you are still at risk of being criminally prosecuted for technical violations of these statutes.
At least since 9/11 and the USAPATRIOT Act the U.S. has identified the link between illicit funds, criminal enterprises, and terrorist organizations that endanger American national security. To curb these threats Congress has unapologetically empowered the executive branch to shine a light on funds transfers by either targeting institutions or individuals that facilitate money transfers or targeting the transfers themselves when they are worth more than $10,000 USD. From the U.S. government’s perspective, if everyone with legitimate funds complied with its financial laws, then the only funds left to be transferred outside the law would be the ones derived from illicit activities. Therefore it is imperative for any individuals looking to move around money to fully comply with Treasury’s reporting requirements and to utilize only licensed money transmitters, in addition to satisfying any tax liabilities. Merely paying your taxes will not exonerate you from violations of the financial criminal statutes listed above.
As if the federal government didn’t have enough assistance from the authority granted to it by Congress, ICE provides a law enforcement resource known as the Bulk Cash Smuggling Center (BCSC). The BCSC provides real-time tactical intelligence, investigative support and expertise to federal, state, tribal, local, and foreign law enforcement authorities. This center is available to law enforcement officers 24-hours a day so that they always have access to financial investigative expertise that will help them better follow the money trail, seize and forfeit criminal proceeds. In addition to using K-9 units to identify large amounts of cash, BCSC has awarded government contracts to technology firms to research and develop nonintrusive technology that can more accurately identify large amounts of U.S dollars, Canadian dollars, and Euros. These efforts have recently made enforcement more effective than ever. In 2010 alone 203 individuals were arrested and over $101 million USD was seized. Many of the offenses can lead to sentences that could be as severe as several years in prison.
So please, be mindful of these laws the next time you need to transport money internationally between family members or friends. There is no law limiting the amount of money you can move, so long as you follow the rules associated with moving it.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Smurfing: Individuals Structuring Monetary Transactions to Evade Reporting Requirements Can Be Imprisoned
The federal government has the authority to criminally prosecute individuals who structure their transactions in a manner that evades the $10,000 reporting requirements. See 18 USC 5324. Penalties range from 5 years in prison, to fines, or both. Enhanced penalties, including up to 10 years of imprisonment, can be assessed in aggravated cases like ones establishing a pattern of illegal activity or involve the violation of other federal laws, like economic sanctions. Of particular interest to the authors of this blog is part (c)(3) of this statute which prohibits individuals from structuring their monetary transactions to or from international locations. The statute states that “no person shall, for the purpose of evading the reporting requirements of section 5316, structure or assist in structuring, or attempt to structure or assist in structuring, any importation or exportation of monetary instruments.” The unfortunate reality of this law is that it targets U.S. persons who have family or friends overseas who may support or depend on one another financially.
Traditionally, federal laws regarding currency transaction reporting (CTR) targeted financial institutions such as banks, currency exchanges, credit unions, and other institutions that deal with large sums of currency. The definition of “financial institution” has always been broader than “depository instititution” and also includes pawnbrokers, travel agencies, and auto dealerships among others. These institutions would have to file a report whenever a currency transaction of over $10,000 took place. The laws never required individual customers to file the actual report, only the financial institution the individual was transacting with had to file a CTR. The obvious reaction by people who wanted to avoid having their transactions reported to the government was to structure their transactions so that no single transaction would be over $10,000. This practice was commonly referred to as “smurfing.” And since the reporting laws only targeted financial institutions, many individuals were able to escape liability. A few unlucky people were prosecuted under 18 USC 371 for conspiring to defraud the United States before any anti-structuring statutes existed, but that was not enough for Congress. Accordingly, in 1986, Congress decided to specifically target individuals who utilized the $10,000 loophole by passing 18 USC 5324.
Somewhat disturbingly, Chapter 53 of the U.S. code also empowers the Department of the Treasury to pay a reward to individuals who provide information which leads to a recovery of a criminal fine, civil penalty, or forfeiture for violations of these reporting and anti-structuring laws. The reward can be as high as 25% of the net amount of the fine, penalty, or forfeiture collected. A law that already targets U.S. persons who have family or friends overseas who may depend on or support one another is exacerbated by the fact that their neighbors now have an incentive to disclose the conduct to the government.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
