The peculiarities of the US financial system make it ideal for money laundering | Hacker News Reader

The peculiarities of the US financial system make it ideal for money laundering

qz.com

102 pointschmaynard70 comments

The Manafort/Gates indictments, I think, demonstrate how easy it is to launder money into the US and how unlikely it is to get caught. These guys were pretty blatant about it and nothing happened to them, for years, laundering millions of dollars into the US. It's pretty clear that they would have gotten away with it if a precise sequence of events in the last couple of years hadn't happened.

Money laundering is a vague term used to justify intrusive government overreach. If you have $16,000 in cash and deposit $9,000 in your bank account one day and $7,000 the next, you are a criminal guilty of structuring.

That's not what Manafort/Gates were accused of doing.

They are accused of being unregistered agents for the Russian government, violating foreign influence laws, and Manafort bank fraud by lying on a loan application.

The money laundering charges were used as leverage to get Gates to turn, which makes one wonder if the government should be allowed such a powerful tool that can be misused against the innocent. Shouldn’t the prosecution be focused on proving their real crimes and not a victimless reporting statute?

They were both indicted on tax fraud. By laundering that 30 million, they were also evading taxes on it. The victim is the US government and by extension the US generally. The "reporting requirement" they evaded was... paying taxes.

> “Manafort and Gates generated tens of millions of dollars in income as a result of their Ukraine work. From approximately 2006 through the present, Manafort and Gates engaged in a scheme to hide income from United States authorities, while enjoying the use of the money,” the indictment charges.

https://www.washingtonpost.com/world/national-security/speci...

I don't think the crimes were 'structuring' or some technical violation. They moved millions of dollars into offshore accounts (some of which appear to be the financial proceeds of the crimes you mentioned above), while failing to report the income or the accounts to the IRS.

That's completely false. That situation you just described is absolutely not structuring.

Here's the fact pattern that _would_ make you a criminal guilty of structuring:

"You have $16,000 in cash. Knowing that there are reporting events that trigger some additional scrutiny of transactions about $10,000 you deliberately break the deposit into two separate transactions with the purpose of avoiding that scrutiny. As such, you deposit $9,000 in your bank account one day and $7,000 the next".

That's structuring. It requires the intent of avoiding the scrutiny. If you broke your deposits into two transactions for any other reason, it is not against the law.

The definition of structuring is 31 USC § 5324.

> No person shall, for the purpose of evading the reporting requirements of section 5313(a) or 5325 or any regulation prescribed under any such section, the reporting or recordkeeping requirements imposed by any order issued under section 5326, or the recordkeeping requirements imposed by any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508

https://www.law.cornell.edu/uscode/text/31/5324

Good luck proving it was not intended to avoid reporting when the DA decides to make an example of you.

If you do it one time, I suspect you're not going to get dinged for structuring.

If you do it all the time, you'd want to have a pretty solid explanation for why.

So, guilty until proven innocent?

In a criminal context the burden of proof would rest on the prosecution to prove a nefarious purpose.

This is because—as in all criminal cases—we presume innocence and put the burden of proof on the prosecutor.

This isn’t true when the prosecution can bankrupt the defendant by seizing their businesses working capital even before the trial.

This is certainly the standard practice. However, there's a recent case, Luis v. US (2016), challenged on 6th amendment grounds (right to counsel) that permits a Defendant to use funds that have no reasonable connection to the crime. Of course, in practice, they'll seize your assets or restrict your use (via pretrial conditions), and you'll need those funds to engage your attorney to move for the modification in the first place.

That's moving the goalposts. The point upthread was that splitting a single deposit made you "a criminal guilty of structuring".

But yeah, sorta: if you are repeatedly splitting such deposits in exactly the way needed to avoid reporting and scrutiny, and don't have a valid non-structuring explanation, those facts are going to go a long way toward proving intent in the minds of a jury. Would you seriously argue otherwise?

Maybe I structure my deposits because I don’t feel safe carrying $10,000+ to the bank. So five times a week I’m depositing $5k in the bank, until the DA seizes my businesses working capital to put me out of business and you on the jury vote to convict me because my behavior was “repeated”?

Not feeling safe is a valid reason to avoid large physical cash deposits. Many businesses do the same. I doubt a jury would convict.

> Not feeling safe is a valid reason to avoid large physical cash deposits.

It's a reason shared by everyone. It's even true for drug dealers laundering their drug money. If that's a valid reason then who could be charged under this law?

That's the problem with the laws against money laundering. They prohibit things that are perfectly innocuous and done by honest people for legitimate reasons. They give prosecutors something to charge anyone they don't like with, even though thousands of other businesses are doing exactly the same thing without being charged because the prosecutors don't care about them.

It's nothing but an excuse to charge someone with something when you can't prove the thing they're actually supposed to be guilty of.

>It's nothing but an excuse to charge someone with something when you can't prove the thing they're actually supposed to be guilty of

This is exactly it.

If you want to stop a drug dealer, then prove they are dealing drugs, and put them in prison for that.

But it's too hard to prove they're dealing drugs, so create a law that criminalizes something that could potentially help a drug dealer cover his/her tracks, like concealing large transfers from the government. Now all of a sudden a new category of crime has been created that affects far more than drug dealers.

Anti-money-laundering laws are a blunt instrument for fighting crime that restricts the rights of millions of innocent people, in the name of stopping a small population of criminals.

It isn't binary.

Basically yes, the financial system is moving towards more of a whitelisting approach when it comes to cash.

Criminal charges require the DA to prove your intent, not the other way around.

If you want to cry about the lack of due process in civil forfeiture, I will be with you 100%.

Your complaint was about _criminal_ structuring, which puts a significant burden of proof on the prosecutor and not on the defendant

https://www.washingtonpost.com/local/the-irs-seized-59000-fr...

That's civil, not criminal.

> If you want to cry about the lack of due process in civil forfeiture, I will be with you 100

Edit: stike that, I didn't see the guilty plea to structuring. This was a criminal case.

Edit: I will note the fact pattern in the WaPo article _is_ much closer to the one I described above. Kwon was breaking his transactions into smaller deposits to avoid paperwork (which is distinct from scrutiny, but not massively distinct).

The burden of proof argument is also not reached in this case. I doubt the prosecution would have been able to prove that Kwon was actually structuring (given that it seems likely he could establish the distinction of avoiding _paperwork_ and avoiding _scrutiny_ to a jury). Still, this case has no bearing on burden of proof, as it was resolved by a guilty plea.

I agree that this case shows a fairly clear failure of prosecutorial discretion. I don't think it has any relevance towards a burden of proof debate about intent.

Lastly, that was some _really_ bad advice provided by the bank teller. Like...very very bad.

Sorry, I should have quoted the specific parts I was trying to refer to, but I'm on my phone and it is super annoying to do any text operations.

But yes, I was specifically calling out the guy who pled guilty...maybe he just had a bad lawyer, but I would have to assume that he pled guilty because of the fear of god the DA was putting in him regarding this 'structuring'

Yea, I had the same problem. Was on mobile and confused by the multiple cases in the article. I edited after a more thorough reading and better understanding.

I think this case shows more problems with prosecutorial discretion, and the absolute reliance on plea deals in the system—that insanely incentive people to accept plea deals even when innocent.

Don't get me wrong, I think our criminal justice system is broken in a lot of ways. I also think there are lots of overly broad statutes that criminalize normal behavior and leave people exposed to selective prosecution.

All that said, I don't think this particular statute is that problematic.

The Kwon case demonstrates that the government doesn’t have to prove squat. They’ll keep your money and bleed you in court till you fold.

According to an article in the Washington Post[1], the Kwon case resulted in an outcry that caused Congress to change its guidelines, adding the additional requirement that the IRS must show the money in question are the profits of criminal activity. That Kwon hasn't yet received his money back appears to be a bureaucratic problem, not statutory.

Even given all of this, the Kwon case has more to do with the tax court than it does the Federal criminal courts.

I do believe that money laundering laws as currently written are often abused, however I don't think the Kwon case demonstrates what you assert.

[1] https://www.washingtonpost.com/local/the-irs-seized-59000-fr...

You, uh, understand how the burden of proof works in criminal cases under US law, right?

That doesn’t make me any less concerned. I’ve read about enough DOJ fuckery over the last 20+ years that when I see assertions like yours I have to add “ostensibly”.

There are plenty of cases near and dear to HN’s heart where the consensus is DOJ did wrong things. I don’t understand how we can simultaneously act like it’s safe to rely on the prosecution’s need to prove intent.

Sure, but that's an argument for reforming those parts of our criminal justice system.

Literally every law that includes intent as a component—which I would argue should be almost all of them—rely on the prosecution's need to prove intent.

The fact that the criminal justice system is broken doesn't mean this statute is broken. If we're going to throw out this statute because it depends on the prosecutor's ability to prove intent, I guess that means we need to throw out all of the criminal statutes.

Totally agree about prosecutorial fuckery (though, I wouldn't contain it to just the DOJ, plenty of state level prosecutorial fuckery). I just don't see how that shows that money laundering or structuring statutes themselves are the problem.

I’d be less strident if the government was required to return all seized property and pay all legal fees and damages in cases it lost, so at least we can attempt to make the citizen whole again.

Sure, but again, that seems like a complaint across the entire criminal justice system—and not specific to this statute or money laundering statutes.

I think your problem is more with the criminal justice system (which I agree is broken in systematic ways) than with these particular laws. These complaints could be directed at the abuse of any number of reasonable laws on the books.

What prevents the citizen from recovering those things in a civil suit against the police, federal government, etc?

That's easy to do, just declare it as income on your 1040 and pay your taxes.

That didn’t help Kwon.

Wow, that's totally fucked up. Apparently it is now illegal to structure even if you are not evading any law:

https://www.washingtonpost.com/news/the-watch/wp/2014/03/24/...

And supporters of these kinds of laws, whether it be anti-money-laundering-laws, or anti-sex-trafficking laws like FOSTA, show no consideration for the general pattern of unintended consequences that stem from undermining particular legal principles.

I'm going to assume that most of these comments have absolutely no experience with the Federal System. I've had multiple clients encounter absurd (Federal) money laundering charges (18 US 1956). Proving application of complex laws belies the fact that the audience you must prove them before is (usually) made up of the average citizen (bench trials notwithstanding). Prosecutorial misconduct (from questionable charges to overcharging to Giglio violations to misstatements in court) is so rampant as to be an epidemic. Recently I had a client charged with money laundering, because after completing a project moved money from his (solely owned) software firm account to his personal account, paid taxes on it, and then moved (a similar amount) back a few months later to cover cashflow beginning the next project. This combination transaction absent no other fact pattern was apparently sufficient. And don't forget that in the civil system you routinely throw out facially insufficient cases [12(b)6], however, this is essentially non-existent in the Federal System. For one, judges never throw out indictments. I can count the number of I've seen one thrown out. Second, you only invite the prosecution to craft a new one. Lastly, once you move to trial you're hardly up against a rigid legal framework; certainly not in the minds of jurors. Federal Court is a theatre, and the play is 100% emotional. This is by design. During voire dire, the prosecution will not intentionally leave anyone will subject matter expertise or much legal experience in that box. Leaving you to win an emotional game if you can, or leaving you with a Rule 29 or an appeal. If they want you, they'll probably get you (99.8% Federal conviction rate). The object lesson is that you should avoid even the remotest question of impropriety or misconduct even avoiding completely innocent conduct that you could be used against you in the hands of malicious prosecution. It happens every day.

I have a wholesale business and some of my clients like to make deposits in cash. and im talking about hundreds of thousands every year. I never had a question asked as long as I filed them as they are supposed to - sales, not a gift od whatever.

The City of London's strange history is a precursor to the convenient Wall Street offshoring and laundering arrangements

'The City of London’s strange history' Maurice Glasman, Labour peer and academic https://www.ft.com/content/7c8f24fa-3aa5-11e4-bd08-00144feab...

> The international community usually looks to the US to be a leader in criminal justice, transparency, and the rule of law.

They do?

I just attended a crypto convention, where most of the speakers, some with legal background, said their respective countries are waiting to see how the US SEC rules on ICOs, before taking a similar approach.

They have to use the US as a ceiling on the amount of regulation they can do, or else business will just move to the US while still operating in their country.

I guess it depends on whether you interpret "leadership" to entail virtue or excellence as opposed to influence or impact.

Certainly not for criminal justice. A criminal lawyer friend of mine in Berlin considers the US system a shameful travesty (1% of the adult population in prison, plea bargaining, for-profit-prisons, death penalty, and more - IANAL). Transparency and the rule of law – historically, certainly. Recently, maybe less so.

FWIW, the 2017/2018 World Justice Project's Rule of Law index has the USA on rank 19 (out of 113).

EDIT to add source: https://worldjusticeproject.org/our-work/wjp-rule-law-index/...

Under no circumstance do you ever need to use the acronym IANAL on the internet.

In some areas, the US was indeed the driving force for changes that I believe anyone would describe as positive.

One example is the legality of bribing foreign officials: these bribes were outlawed with the Foreign Corrupt Practices Act in 1977. In my home country of Germany, foreign bribes were not just legal, but actually tax-deductible until the late 1990s.

not sure if starting to require a physical human being as a beneficiary for a company will do much. in post Soviet countries its a requirement and most of the shell companies are registered to some homeless guy or a shepherd who was told sign these papers here is $100. criminal enterprises wont have difficulty finding some poor guy to sign the papers for anything

This piece is gold:

> One report uncovered an Afghan company that was contracted to supply our troops but was secretly owned by the Taliban.

They make it ideal for the wealthy to launder money, rather. It's just a symptom of US general lack of regulation of corporations, other than regulation meant to cripple small corporations that are threatening larger corporations. Just a product of total regulatory capture, as developed in the US from the mid-1890s, secured at the end of the 1910s, and lasted until FDR fixed the economy in the 1930s. The resurgence in the late 1970s which was secured by the late 90s is still operating at peak now, but if you judge by the last time, hopefully this will come to an end soon.

The principle behind money laundering laws is exactly like the one behind legislation like FOSTA.

It makes people legally responsible for others using the services they provide in connection with a crime.

It legally mandates that third party intermediaries act as deputies for regulatory agencies, and disallow private use of the services they provide.

Laws like this effectively criminalize privacy in entire categories of human activity, in the name of preempting crime.

It's an absolutely terrible way to try to manage risk, and concentrates power in the hands of governing institutions to extremely dangerous proportions.

"Money laundering" is an oxymoron - the entire essence of money is that it is fungible. When you tie the value of some dollars to their supposed history, what you are left with is subjective points that vary based on the political connections required to redeem them. At that point, why not just stop pretending that an individual can have means independent of their standing with the bureaucracy?

Like every new regulation, the outrage driving this will be stoked using the egregious examples of powerful criminals, but the actual effects will only ever be felt by the little guy.

> the outrage over this will be stoked using the egregious examples of powerful criminals, but the actual effects will only ever be felt by the little guy.

Can confirm, I'm a little guy, I did 5 years for money laundering.

You honestly don't believe anybody should ever care if the gold-nugget they are being handed came from a person just murdered outside their store?

Like many abstractions, that concept of a fungible, anonymous, history-less, and wholly judgement-free "value" is just a useful fantasy.

What bothers me about your post is that it seems you think the fantasy is the true original state of the world... and that the flawed reality is "new" and artificially created by a sinister cabal.

The fundamental problem here is like your question - conflating two completely separate concepts. A shopkeeper, being a person, should care if someone just murdered someone else outside of their shop. A shopkeeper that has just completed a sale, and then found out the customer is a murdering thief, should feel no compunction about considering the cash in the drawer theirs. They should of course help bring the murderer to justice.

Abstractions are only useful if we can rely on them. Under the regime of separate ambient titles (which the concept of money laundering is intertwined with), you can never be sure anything that you have is actually yours! So this creates a whole lot of ambiguity. As I alluded to, this ambiguity erodes the rule of law because it can't not lead to selective enforcement based around the gut feelings of whomever decides if a claim to reverse has merit.

And yes, lack of an ambient title most certainly is the base state of the world - it's modern communications technology that has enabled us to even fathom tracking the history of everything. But you're the one strawmanning this "sinister cabal". I would describe it as power tending to coalesce, and emergently promulgating a paradigm that relies on (and thus further necessitates) said power.

I think what you’re trying to say is that ALL property can be traced back to theft. So either sale cleans all of it or sale cleans none of it. We can’t have it both ways.

The entire concept of ownership is the abstraction. The gold nugget didn't commit the murder, the murderer did. So you charge them with murder and "money laundering" has nothing to do with it.

Nobody’s claiming that money laundering somehow modifies the money itself.

My impression (and I'm not an accountant or lawyer) is that the US make it very hard for their own citizens (and anyone else) to evade US taxes, but are otherwise happy to host other people's dirty money.

Luxury real-estate was looked into in 2016 and up to 30% of deals they looked into were suspicious as money laundering conduits [1]. Who knows how much this inflates real estate values or diminishes needed supply.

With Citizen's United vs FEC it is now a massive target for money laundering as well [2]. Tons of foreign money is involved with it and can get in easily with Citizens United [3]. Our politics is going to get much more crazy with not only the foreign money involved but the dark money being cleaned.

Russian oligarchs or any group under sanctions also have ways to get money laundered besides the old school ways of casinos, black market products, etc [4].

> According to James Henry, a former chief economist at McKinsey & Company who consulted on the Panama Papers, some $1.3 trillion in illicit capital has poured out of Russia since the 1990s. [4]

> In 1998, Russia defaulted on $40 billion in debt, causing the ruble to plummet and Russian banks to close. The ensuing financial panic sent the country’s oligarchs and mobsters scrambling to find a safe place to put their money. [4]

> Among the new tenants was Eduard Nektalov, a diamond dealer from Uzbekistan. Nektalov, who was being investigated by a Treasury Department task force for mob-connected money laundering, bought a condo on the seventy-ninth floor, directly below Trump’s future campaign manager, Kellyanne Conway. A month later he sold his unit for a $500,000 profit. The following year, after rumors circulated that Nektalov was cooperating with federal investigators, he was shot down on Sixth Avenue.[4]

> In 2013, police burst into Unit 63A of Trump Tower and rounded up 29 suspects in a $100 million money-laundering scheme [4].

[1] https://cnbc.com/2017/08/24/a-third-of-luxe-real-estate-deal...

[2] https://www.theatlantic.com/politics/archive/2013/12/theres-...

[3] https://theintercept.com/2016/08/03/citizens-united-foreign-...

[4] https://newrepublic.com/article/143586/trumps-russian-laundr...

Art also.

https://www.nytimes.com/2013/05/13/arts/design/art-proves-at...

I don't want the government having its greedy mitts on every financial transaction under the sun.

It's not black and white. There has to be some middle ground between "big brother sees all" and "the proceeds of illegal activities and rampant corruption flow freely into the pockets of wrongdoers".

That middle ground should be for the government to seize the proceeds of illegal activities after proving the illegal activities themselves in a court beyond a reasonable doubt.

The government shouldn't be allowed to take shortcuts.

And what you described is basically the principle of due process, which the creation of money laundering as a category of crime totally undermines in spirit.

The lifeblood of criminal enterprises is revenues that are primarily driven by prohibition. I think I see a better solution.

Legalize extortion rackets and kickbacks?

I clearly said primarily. An end to Prohibition leaves organized crime with a tiny fraction of its current revenues. And frees law enforcement to give extortion and kickbacks (along with actual crimes with actual victims) lots more attention.

Not all this money is drug money; a lot of the international money is the result of corruption or theft from the state.

That’s clearly not a problem for the US justice system. I’d kind of like it focused on the all of the crimes with US victims that are currently too low priority to investigate, including millions of untested rape kits.

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