“Please Tell Me you Didn’t. . . How to Keep Client’s Out of the Jailhouse, Poorhouse and Lawyers Out of the Nuthouse” -Blog
“Help! The FBI is in my lobby!” The call usually begins, but even that is an understatement. When I get there, the client’s lobby looks more like an explosion at an alphabet soup factory. There will be swarms of blue and gold law enforcement jackets emblazoned with “FBI,” “DEA,” the “HHS OIG,” and the “DOD OIG.”
A March 2024 D Magazine article describes these scenes as “a hawk descending on a field mouse.” I can vouch that this is the one time the government doesn’t seem to skimp on the expense of throwing a party.
Most lawyers hope to go their entire careers without their clients ever meeting an FBI agent in person. I would like to help keep it that way. I can start by pointing out that some of the blue blazers often read “IRS.” Even stolen or ill-gotten money is considered “income” for tax purposes. Tax evasion is usually less difficult to prove than underlying crimes. That is after all, how Al Capone ended up in Alcatraz.
But the IRS codes have even nastier cousins down the hall at the Treasury Department, beginning with 18 USC § 1956 “Money Laundering” and the long list of ancillary crimes, like conspiracy and aiding and abetting.
In healthcare crimes, I often see cases where a search warrant results in agents finding a safe with hundreds of thousands of dollars in cash in it (that no one can explain). The “no apparent legitimate business purpose” is one of the tests for tax evasion and money laundering.
Usually, where a lot of money is in a healthcare client’s safe, it is difficult for clients to deny they were “in on” some kind of “white envelope” shenanigans, such as payments are being made under the table to hide illegal kickbacks.
In other client’s cases, it is not so apparent to the recipient that the money is from an illegal source. Other than the obvious fact that there is an awful lot of it. Either way, it’s a fun day for federal agents, when they open a client’s safe and find hundreds of thousands of dollars in cash.
What is “money laundering?” The problem for criminals, which I suppose may of us learned from the television show Breaking Bad, is that it is really hard for them to spend or accumulate cash that hasn’t been reported as legitimate income. They often need to recruit witting and unwitting helpers to launder it.
In layman’s terms, money laundering is taking the proceeds from ill-gotten gains, and making it look like it came from legitimate sources. This often includes a scheme to pay taxes on cash “earned” by a seemingly legitimate business, to cover the money’s illegal origins.
“Smurfing” and other Ancillary Crimes. A really good overview of what money laundering is, and how clients can unwittingly become involved, can be found in the U.S. Department of Treasury FinCen website, entitled “Money Laundering Prevention.” (Just Google it, it will pop right up.) According to the FinCen website money laundering can be a complex process. It involves three different, and sometimes overlapping, stages:
Placement involves physically placing illegally obtained money into the financial system or the retail economy. This can involve “Smurfing” also known as “structuring,” whereby illegal funds are divided into smaller amounts by multiple people (like little “Smurfs”) who deposit smaller amounts into multiple bank accounts or financial institutions. This is done to circumvent financial regulations that require banks to report large transactions.
Layering involves separating the illegally obtained money from its criminal source by layering it through a series of financial transactions, which makes it difficult to trace the money back to its original source.
Integration involves moving the proceeds into a seemingly legitimate form. Integration may include the purchase of automobiles, businesses, real estate, etc.
The “accidental criminal,” meaning the unwitting client who might not know he is doing something wrong, can sometimes end up being charged with “conspiracy” or “aiding and abetting” when he simply thought he was helping out some acquaintance.
Any time large sums of unexplained cash are involved, it is always a good idea to advise clients to tread carefully if not, “run the other way.” Otherwise, they could end up covered in alphabet soup.