63 Tenn LRev 143

DATE DOWNLOADED: Fri Oct 28 10:59:55 2022
SOURCE: Content Downloaded from HeinOnline
Citations:
Bluebook 21st ed.

Scott Sultzer, Money Laundering: The Scope of the Problem and Attempts to Combat It,
63 TENN. L. REV. 143 (1995).
ALWD 7th ed.

Scott Sultzer, Money Laundering: The Scope of the Problem and Attempts to Combat It,
63 Tenn. L. Rev. 143 (1995).
APA 7th ed.

Sultzer, S. (1995). Money laundering: the scope of the problem and attempts to combat
it. Tennessee Law Review, 63(1), 143-238.
Chicago 17th ed.

Scott Sultzer, "Money Laundering: The Scope of the Problem and Attempts to Combat
It," Tennessee Law Review 63, no. 1 (Fall 1995): 143-238
McGill Guide 9th ed.

Scott Sultzer, "Money Laundering: The Scope of the Problem and Attempts to Combat It"
(1995) 63:1 Tenn L Rev 143.
AGLC 4th ed.

Scott Sultzer, 'Money Laundering: The Scope of the Problem and Attempts to Combat It'
(1995) 63(1) Tennessee Law Review 143
MLA 9th ed.

Sultzer, Scott. "Money Laundering: The Scope of the Problem and Attempts to Combat
It." Tennessee Law Review, vol. 63, no. 1, Fall 1995, pp. 143-238. HeinOnline.
OSCOLA 4th ed.

Scott Sultzer, 'Money Laundering: The Scope of the Problem and Attempts to Combat It'
(1995) 63 Tenn L Rev 143
-- Your use of this HeinOnline PDF indicates your acceptance of HeinOnline's Terms and
Conditions of the license agreement available at
https://heinonline.org/HOL/License
-- The search text of this PDF is generated from uncorrected OCR text.
-- To obtain permission to use this article beyond the scope of your license, please use:
Copyright Information
MONEY LAUNDERING: THE SCOPE OF THE
PROBLEM AND ATTEMPTS TO COMBAT IT
SCOTT SULTZER*
Table of Contents
1. BACKGROUND AND OVERVIEW ........................ 145

A. Introduction ................................... 145
B. The Mechanics of Money Laundering ................. 148
1. Placem ent ................................. 149
2. Layering ................................. 150
3. Integration ................................. 151
C. The Bank Secrecy Act of 1970 (BSA) ................. 151
D. Money LaunderingFrom the 1960s
Through the Mid-1980s .......................... 154
II. MONEY LAUNDERING SINCE 1986 ..................... 158

A. The Money Laundering Control Act of 1986 (MLCA 86) . .. 158
1. Background ............................... 158
2. The Criminalization of Money Laundering .......... 159
a. Section 1956(a)(1): Money Laundering
Involving Financial Transactions .............. 160
b. Section 1956(a)(2): Money Laundering
Involving the Transportation of Monetary
Instruments Across United States Borders ........ 164
c. Section 1956(a)(3): Law Enforcement
Sting Operations Directed at Money Laundering ... 166
* B.S., 1983, The Citadel; J.D., anticipated 1996, University of Tennessee College of
Law; United States Army Infantry Officer for eight years, with tours of duty in the United
States and the Republic of Korea. Many thanks to the numerous people who provided
invaluable advice, assistance, and information: John Byrne, Senior Federal Legislative
Counsel, American Banker's Association; Beth Daniels, Counsel, Office of the General
Counsel, United States Department of the Treasury; Greg Gonzalez, General Counsel,
Tennessee Department of Financial Institutions; Bobbie Jackovich, Criminal Investigation
Division, Tennessee Bureau of Investigation; David Jennings, Chief, Asset Forfeiture Unit,
East Tennessee Branch, United States Attorney's Office; Linda Noonan, Counsel, Office of
the General Counsel, United States Department of the Treasury; Glenn Harlan Reynolds,
Associate Professor of Law, University of Tennessee College of Law; Sherri Wassenaar,
Intell Research Specialist, Financial Crimes Enforcement Network (FinCEN); Rodger Weiner,
Deputy Director, Office of Financial Enforcement, United States Department of the Treasury.
TENNESSEE LA W REVIEW [Vol. 63:143
d.Section 1957: Engaging in Monetary

Transactions In Property Derived
From Specified Unlawful Activity ............. 167
3. The Criminalization of Structuring ............... 168
4. Forfeiture of Property Tainted by Money Laundering... 168
5. Limitations on Forfeiture Proceedings ............. 171
6. Legislative Attempts to Track Money Laundering ..... 176
7. Summary and Conclusions Regarding the MLCA 86 . .. 177
B. Government OrganizationalFramework For
Combatting Money Laundering and
Prosecuting Under the MLCA Statutes ................ 179
C. Money LaunderingSince 1986 in the United States:
The Move Away from Banks to Complicated
Transfers and Smuggling .......................... 184
1. Smuggling . ................................ 185
2. Transfers Through Non-Bank Financial Institutions .... 188
3. Transfers Through the Use of "Front Companies"
and "Payable Through" Accounts ................ 192
4. Transfers Through Recent Technological
Advances in Payment Systems .................. 195
III. THE INTERNATIONAL RESPONSE TO MONEY LAUNDERING ..... 198

A. The InternationalScope of Money Laundering .......... 198
B. United States Attempts to Combat International
Money Laundering ............................. 206
IV. RECENT UNITED STATES LEGISLATION REGARDING

MONEY LAUNDERING ...........................
A. The Annunzio- Wylie Anti-Money Laundering Act of 1992 ...
B. The Money Laundering Suppression Act of 1994
(MLSA 94) and New Regulations Reducing
Recordkeeping Requirements ...................... 217
V. CONCLUSIONS ............................. ...... 219

A. The Domestic Response to Money Laundering:
What is Needed .......................... ...... 219
B. Evaluating the CurrentBSA Reporting Requirements ...... 220
C. Regulation of the Wire Transfer System ......... ...... 223
D. Regulation of Non-Bank FinancialInstitutions .... ...... 231
E. PursuingAlternatives ...................... ...... 234
1995] MONEY LAUNDERING
Money laundering is the process of taking the proceeds of criminalactivity

and making it appear legal. Money laundering has been called the "life-
blood" of crime because, without cleansing the profits of crime, the
criminal enterprise cannot flourish. While drug money laundering captures
the most public attention, money laundering sustains every criminal activity
engaged in for profit, which is to say all crime but crimes of passion or
vengeance.
2
"Crime is a cash business."
I. BACKGROUND AND OVERVIEW
A. Introduction
This Article examines money laundering-how it is practiced in the

domestic and international arenas, the response of the United States to
money laundering, and the issues associated with money laundering. Money
laundering has received a great deal of attention in Congress and in the law
enforcement community over the past twenty-five years. The reasons are
threefold. First, money laundering is a major world-wide problem.3
1. Federal Government's Response to Money Laundering: Hearings Before the

Committee on Banking, Finance, & Urban Affairs, 103d Cong., 1st Sess. 200-01 (1993)
[hereinafter 1993 H.R. Hearings on Money Laundering] (statement of Ronald K. Noble,
Assistant Secretary for Enforcement, U.S. Dep't of the Treasury).
2. Money LaunderingLegislation:Hearing of the Committee On The Judiciary,99th
Cong., Ist Sess. 190 (1985) [hereinafter 1985 Senate Hearings] (statement of William W.
Nickerson, Former Deputy Assistant Secretary, U.S. Dep't of the Treasury); see also S. REP.
No. 433, 99th Cong., 2d Sess. 4 (1986). "Without money laundering, drug traffickers would
literally drown in cash. Drug traffickers need money laundering to conceal the billions of
dollars in cash generated annually in drug sales and to convert this cash into manageable
form .... Id. (quoting Senator Joseph R. Biden, Jr.).
A major indicator of drug activity in a city is the cash reserves held at local banks.
Banks in a normal, growing city have historically run an annual cash deficit which
necessitates annual borrowing from the Federal Deposit Bank. Leading the list of cities with
surpluses based on Federal Reserve Board figures for 1993 were Los Angeles ($9.312
billion), Miami ($5.381 billion), Jacksonville ($2.580 billion), San Antonio ($2.434 billion),
El Paso ($664 million), Nashville ($365 million), Denver ($223 million), Little Rock ($78
million), Helena ($72 million), and Philadelphia ($36 million). 5 MONEY LAUNDERING
ALERT (Alert Int'l Inc., Miami, Fla.), Feb. 1, 1994, at No. 5.
3. Money laundering is "occurring with varying degrees of regularity in more than
125 [countries]." U.S. DEP'T OF STATE, INT'L NARCOTICS CONTROL STRATEGY REPORT 20
(Mar. 1995) [hereinafter INT'L NARCOTICS CONTROL STRATEGY REPORT]. The major money
laundering countries-i.e., are those:
Estimates of the problem in the United States, alone, put the amount of
money being derived from criminal enterprises and then laundered in the
United States at approximately $300 billion annually.4 Second, money
laundering presents the most effective target for law enforcement officials
as they attempt to reach the leaders of organized criminal enterprises.5
whose financial institutions engage in currency transactions involving significant

amounts ofproceeds from international narcotics trafficking [include] Argentina, Aruba,
Brazil, Canada, Cayman Islands, Colombia, Costa Rica, Ecuador, Germany, Hong Kong,
India, Italy, Japan, Liechtenstein, Luxembourg, Mexico, the Netherlands, Netherland
Antilles, Nigeria, Pakistan, Panama, Paraguay, Russia, Singapore, Spain, Switzerland,
Thailand, Turkey, United Arab Emirates, United Kingdom, Uruguay, United States, and
Venezuela.
Id. at 39. It is estimated by the United Nations that, world-wide, over $750 billion in illicit
funds are generated annually. Lucia Mouat, UN States Try to Curb Organized Crime,
CHRISTIAN SCI. MONITOR, May 3, 1995, at I.
The overriding concern regarding these illicit revenues-the majority of which are
generated by the drug trade-is the corruption they foster:
Corruption is a threat to any nation's security, for it allows criminal elements to
undermine the legitimacy of the state from within. Democracies are especially
vulnerable-particularly fragile democracies in the developing world.
Among all criminal enterprises, the drug trade is best positioned to spread corruption.
Drugs generate illegal revenues on a scale without historical precedent .... [The amount
of drugs seized in the Western Hemisphere in 1994 if it had proceeded to sale], would
have been worth at least $10 billion, more than the GNP of many developing countries.
This gives the drug trade revenues on a scale not available to most national govern-
ments-and traffickers do not have to account to a central budget authority for their
expenditures. Trafficking organizations have the wherewithal to buy their way into
power .... Of course, since they have modem fire-power and few ethical restraints
against using it, violence is available as a fall-back position.
U.S. DEP'T OF STATE, INT'L NARCOTICS CONTROL STRATEGY REP., supra, at 4-5.
4. 1993 H.R. Hearingson Money Laundering,supra note 1, at 546 (statement of
John P. LaWare, Governor of the Board of Governors, U.S. Federal Reserve System) (citing
Federal Bureau of Investigation (FBI) estimates).
5. See 1993 H.R. Hearings on Money Laundering, supra note 1, at 450-53
(testimony of Frederick B. Verinder, Deputy Assistant Director, FBI). The leaders of
criminal organizations, such as the drug cartels, distance themselves from the underlying
criminal activities by delegating to subordinates, but they always maintain a link to the profits
and revenue involved. Id at 451-52. "The use of the money laundering statutes reduces the
profitability through seizure and attacks the underpinnings of the enterprise by attacking the
organizational infrastructure which facilitates the money laundering function .... [This
allows] target[ing] the members of the enterprise for whom the money is being laundered
. at 453.
.Id.
In fact, many in law enforcement believe that attacking money laundering is the only
effective weapon against organized crime, in general, and the drug barons of Colombia, in
particular. See INGO WALTER, THE SECRET MONEY MARKET 155 (1990); 1993 H.R.
Hearings on Money Laundering, supra note 1, at 205 (testimony of Ronald K. Noble,
Third, money laundering is generally easier to track and intercept than the
underlying criminal activities, making it easier for government agents to
produce measurable, visible results.6
The growth of money laundering has given rise to a new class of
criminals. These individuals are often separate7 from those participating in
the underlying crimes which create the criminal proceeds. Such underlying
crimes include narcotics trafficking, extortion, and fraud.' The class of
people providing money laundering services to organized crime are, by and
large, professionals such as lawyers, bankers, accountants, or entrepreneurs
with business and financial acumen. 9 Laundering funds is a very profitable
6. See INT'L NARCOTICS CONTROL STRATEGY REPORT, supra note 3, at 6.

Organized crime's ability to respond to the interdiction efforts of law enforcement directed
against the underlying criminal activity has proven greater than its ability to protect its
profits, which must enter into the legitimate financial system at some point. See WALTER,
supra note 5, at 155.
7. Arturo Gomez, who ran a casa de cambio laundering operation in the southeast,
told of several very simple techniques that he often used for laundering, which could easily
have been done by the drug dealers who were paying him to launder their money. He noted,
however, that none of the drug dealers wanted to involve themselves with laundering,
evidently preferring to trust in the services of a professional. Current Trends in Money
Laundering:Hearingsbefore the PermanentSubcommitteeon Investigationsofthe Committee
on Governmental Affairs, 102d Cong., 2d Sess. 21-27 (1992) [hereinafter 1992 Senate
Hearings on casas de cambio] (testimony of Arturo Gomez, former owner of a casa de
cambio, now under indictment for money laundering); see also Timothy L. O'Brien, Cash-
Flow Woes: Law Firm 's Downfall Exposes New Methods Of Money Laundering,WALL ST.
J., May 26, 1995, at AI (explaining that the Cali cartel uses an "international network" of
white collar professionals to launder its revenues).
8. 18U.S.C. § 1956(c)(7)(1988&Supp. 1994) lists 104 criminal offenses forwhich
the handling of the proceeds derived from the offenses will be punishable as money
laundering.
9. WALTER, supra note 5, at 151 (1990) (quoting Current Problem of Money
Laundering:Hearingofthe Committee On GovernmentAffairs, 99th Cong., 1st Sess. (1985)).
[Laundering is] an extremely lucrative criminal enterprise in its own right. Treasury's
investigations uncovered members of an emerging criminal class-professional money
launderers who aid and abet other criminals through financial activities. These
individuals hardly fit the stereotype of an underworld criminal. They are accountants,
attorneys, money brokers, and members of other legitimate professions. They need not
become involved with the underlying criminal activity except to conceal and transfer the
proceeds that result from it. They are drawn to their illicit activity for the same reason
that drug trafficking attracts new criminals to replace those who are convicted and
imprisoned-greed. Money laundering, for them, is an easy route to almost limitless
wealth.
Id.; see INT'L NARCOTICS CONTROL STRATEGY REPORT, supra note 3, at 468.
One does not have to look far to see the potentially corrupting influence of the enormous
wealth associated with money laundering. Several of the most notable arrests for money
laundering and related crimes recently have been of former federal prosecutors - including
business.' ° Money launderers work on a volume basis with their proceeds

reaching anywhere from two to twenty percent of the amount they move
through the wash cycle." The technique used by the Cali Cartel to move
and launder their revenues from the United States is illustrative:
Increasingly, say law-enforcement officials, major cocaine traffickers
avoid being traced by having others handle their money. Now, when a drug
sale is completed in the U.S., a "controller" auctions off the loot to
[professional money launderers] who bid about 85 cents on the dollar for
$10 million to $20 million bundles. [The launderers] have two weeks to
return 85% of the cash-in Colombian pesos-to traffickers. 2
B. The Mechanics of Money Laundering
The goal of money laundering is to lend legitimacy to illicit funds. This

allows the money to move freely through society without being confiscated
or leading to the arrest of those handling the funds.' 3 To this end, money
laundering usually requires three steps: placement, layering, and integra-
tion.' 4 Placement involves changing the money derived from criminal
activities into an easily manipulated and/or less suspicious form, culminating5
in the introduction of the funds into the mainstream financial system.'
The second step, layering, commonly involves the wire transfer of funds
through numerous accounts in an attempt to hide the funds' true origins. 6
Often, this means transferring funds to accounts in one of many countries
outside the United States which have strict bank secrecy laws. 7 Integra-
tion, the final step, involves movement of the layered funds, their origins no
Michael Abbell, the former head of the U.S. Justice Department's Office of International
Affairs. Ex-ProsecutorAdmits Aiding Cocaine Cartel / He agrees to testify against other
lawyers, S.F. CHRON., July 4, 1995, at A8.
10. See infra note 59.
11. See 1992 Senate Hearings on casas de cambio, supra note 7, at 27, 41; U.S.
CONGRESS, OFFICE OF TECHNOLOGIES FOR THE CONTROL OF MONEY LAUNDERING 13 (1995)
[hereinafter MONEY LAUNDERING].
12. O'Brien, supra note 7, at Al.
13. See supra notes 1-2 and accompanying text.
14. Wire Transfer Laundering, 2 DEP'T OF JUSTICE ALERT 14 (Nov. 1992)
[hereinafter Wire Transfer Laundering].
15. See id.
16. MONEY LAUNDERING, supra note 11, at xii, 3-4.
17. The "vast majority" of money being laundered is "going through financial
institutions" for the purposes of "wire transfer." 1993 H.R. Hearingson Money Laundering,
supranote 1,at 21 (testimony of John E. Hensley, Assistant Commissioner for Enforcement,
U.S. Customs Service); see Wire TransferLaundering,supra note 14; Robert E. Taylor, Ex-
Smuggler Tells of Huge Drug Profits Laundered,Placedat Major U.S. Banks, WALL ST. J.,
Feb. 12, 1988, at A4.
longer ascertainable, into the global financial world to be mixed with funds
of legitimate origin.' 8
1. Placement
Placement is the most difficult step for would-be money launderers, and
it is the point at which money laundering is most vulnerable.' 9 The
criminal activiiies that have made money laundering such a hot issue
generate a tremendous amount of cash.2" The first problem faced by a
money launderer is eminently practical-how to move the masses of cash
into the layering stage. The easiest solution is to deposit the cash directly
into a financial institution which can then move the funds by wire trans-
fer.2' The problem is that this is precisely the type of action that most
United States money laundering enforcement techniques are designed to
detect.22 Launderers will often route cash through a "front" operation,
such as a jewelry store or a check cashing operation, in order to give the
funds a legitimate cover when they are deposited into a financial institu-
tion.2 3
Another possibility is to convert the cash into negotiable instruments
such as cashier's checks, money orders, or traveler's checks. Once the
money has been converted into a negotiable instrument, it gains two
desirable properties from a money launderer's standpoint. First, its physical
form is much more manipulable. The lighter bulk of the same amount of
money in money orders rather than cash makes the money easier to
smuggle-a common technique.24 The second desirable characteristic
gained by money which has been converted into negotiable instruments is
that it can be deposited into mainstream financial institutions without
triggering most of the money laundering controls currently in place.2"
Whichever form of placement the money launderer uses, his goal is to
situate the funds so that their origins can then be hidden through layering.
18. MONEY LAUNDERING, supra note 11, at 4.

(statement of Henry R. Wray, Director, Administration of Justice Issues, General Government
Division, General Accounting Office).
21. See infra note 58 and accompanying text.
22. See infra notes 44-51 and accompanying text.
23. See infra note 229 (discussions on IRS Criminal Investigative Division and
Comptroller of the Currency).
24. See infra notes 60, 211-13 and accompanying text.
25. See infra notes 48-54 and accompanying text; Taylor, supra note 17, at A4.
2. Layering
Because of the international scope and mechanics of global banking, the

layering phase of money laundering has proven far more resistant to law
enforcement interdiction efforts than the placement phase.26 Money
launderers often accomplish layering by wire transferring funds through
offshore banking havens such as the Cayman Islands, Panama, the Bahamas
and, to a lesser extent today, Switzerland and Pakistan.27 Once out of the
United States and into a country with strict bank secrecy laws, the funds'
origins often become far more difficult to trace. 2' Additional layers of
complexity can be added by routing the funds through accounts of "shell"
corporations 29 and by using counterbalancing loan schemes-that is,
parking the illicit funds in an off-shore bank while using the value of the
account as collateral for a bank loan in another country.3 °
Law enforcement agencies have difficulty tracing simple transfers of
funds because of the tremendous daily volume of wire transfers throughout
the world and because of nuances associated with the systems used. 3' As
one member of the Justice Department framed the problem:
A major money laundering method is the extensive and increasing use of
the domestic and international funds transfer and message systems. The
popularity of this method is based, in part, on the known difficulty
26. See Taylor, supra note 17, at A4. Once illicit funds are out of the United States
and have been placed in the international monetary system, they become far more difficult
to trace.
27. MONEY LAUNDERING, supra note 11, at 8, 10. "Offshore banking, with the
assurance for absolute secrecy by many jurisdictions which license such facilities ... [was]
of increasing concern [to the United States government] at year's end." INT'L NARCOTICS
CONTROL STRATEGY REPORT, supra note 3, at 20.
28. See infra note 341 and accompanying text.
30. See Complex Wash Cyclefor DirtyDrug Money, WALL ST. J., May 29, 1991, at
A 1l (letter to the editor submitted by John E. Robson, Deputy Secretary of the Treasury).
31. 1993 H.R. Hearingson Money Laundering,supra note 1, at 424-25 (statement
of Mark Richard, Deputy Assistant Attorney General, Criminal Division, U.S. Dep't of
Justice).
One example of how drug-cash proceeds flow illustrateswhy international cooperation
is so essential. In a recent case, drug cash was picked up in various U.S. cities and
deposited in different banks. Funds were then wire-transferred from those banks to an
undercover account in Tampa, Fla., then wire-transferred via New York to Luxembourg
and London, where they were converted to certificates of deposit. The certificates were
then used as loan collateral for a bank loan generated in Nassau. The loan proceeds
were then wire-transferred back to the undercover account in Tampa. From Tampa the
loan proceeds were wire-transferred to an account in Uruguay, and from there to a drug
organization in Colombia.
Complex Wash Cycle for Dirty Drug Money, supra note 30, at A 11.
investigating authorities have in tracing the proceeds of criminal activity

through these systems. Investigative efforts are hindered because, in many
cases, the names and other identifying information regarding the original
senders and ultimate beneficiaries are not included in every payment order
or message, or, if originally recorded, are lost during the funds transfer
process. 2
3. Integration
Once the illicit funds are sufficiently layered, they are integrated into the
legitimate financial world in any one of "a seemingly endless variety of licit
and illicit financial instruments, including letters of credit, bonds, and other
securities, prime bank notes and guarantees," to be freely moved and
accessed anywhere in the world while the true origins of the funds remain"
hidden.33 When integration attempts fail, entire accounts, which may also
contain funds actually derived legitimately, may be seized by authorities.34
C. The Bank Secrecy Act of 1970 (BSA)
Historically, legislative initiatives and enforcement efforts directed to the

problems of money laundering have focused primarily on the placement
stage because of its vulnerability. 5 These efforts have been successful to
a large degree in driving placement from the mainstream banking institu-
tions in the United States.36 There have been efforts since the late 1970s
and early 1980s to address layering, but the mechanical difficulties with
tracing wire transfers and the international aspects of money laundering
present even more difficult problems. 37 Traditionally, these efforts have
been embodied in international agreements, treaties, and other attempts at

of Mark Richard, Deputy Assistant Attorney General, Criminal Division. U.S. Dep't of
Justice).
33. INT'L NARCOTICS CONTROL STRATEGY REPORT, supra note 3, at 467.
34. See 1993 H.R. Hearings on Money Laundering, supra note 1, at 45, 51-52
(statement of Tom Clifford, Assistant Special Agent, Drug Enforcement Agency (DEA));
United States v. All Monies ($477,048.62) In Account No. 90-3617-3, Isreal Discount Bank,
New York, New York, 754 F. Supp. 1467, 1472-76 (D. Haw. 1991) (holding that the entire
account, not just the portion attributable to a predicate offense, was forfeitable because the
legitimate funds were used to hide the illicit funds). Cf. United States v. Sonny Cook
Motors, 819 F. Supp. 1015, 1018 (N.D. Ala. 1993) (holding that "18 U.S.C. § 981 . . .
subjects all contiguous real property, no matter how large, to forfeiture if it is 'involved in
a transaction or attempted transaction' in violation of any of the drug laundering statutes.").
(statement of Henry R. Wray, Director, Administration ofJustice Issues, General Government
Division, General Accounting Office).
37. MONEY LAUNDERING, supra note 11, at 9.
TENNESSEE LAW REVIEW [Vol. 63:143
removing the cloak of banking secrecy in order to trace the movement of

drug money on its ride through the international wash cycle.38 Domestical-
ly, American attention is focused on combatting the placement of funds into
non-bank financial institutions,39 developing the capability to track money
during the layering phase,4" and developing a regulatory scheme for new
financial technology.4 Internationally, the focus of the United States is on
piercing the veil of off-shore bank secrecy and developing international
cooperation and consensus in dealing with money laundering.42
As early as 1970, it was clear to law enforcement in the United States
that there was a growing phenomenon.43 Organized crime, particularly
with the growth of the drug trade, was generating a tremendous amount of
cash revenue. The cash was being placed into the American banking system
in huge deposits which were subsequently put through the layering
process.44 Congress responded in 1970 by introducing the Bank Secrecy
Act (BSA). 45 The express purpose of the BSA was to "require certain
reports or records where they have a high degree of usefulness in criminal,
tax, or regulatory investigations or proceedings. '
The BSA of 1970 requires recordkeeping and reports of selected
activities by financial institutions47 and international travelers upon penalty
of criminal and civil liability. 48 The centerpiece of the BSA is a require-
ment that financial institutions file an IRS Form 4789, Currency Transaction
Report (CTR), whenever an individual or a person acting on the individual's
behalf conducts one or more cash transactions in a single day which involve,
38. 1993 H.R. Hearingson Money Laundering,supra note 1, at 137, 197-98. See
infra text accompanying notes 401-04.
39. MONEY LAUNDERING, supra note 11, at 15-17.
40. Id. at 1.
41. Id. at 119-20.
42. Id. at 101-02. See infra text accompanying note 388.
43. 1985 Senate Hearings,supra note 2, at 101 (statement of James D. Harmon, Jr.,
Executive Director and Chief Counsel, President's Comm'n on Organized Crime). See 1993
H.R. Hearingson Money Laundering, supra note 1, at 201 (statement of Ronald K. Noble,
44. Id. at 101-02.
45. Bank Secrecy Act, Pub. L. No. 91-508, 84 Stat. 114 (codified as amended at 31
U.S.C. §§ 5311-5314, 5316-5324).
46. 31 U.S.C. § 5311 (1988).
47. 31 C.F.R. § 103.33 (1994); 31 U.S.C. § 5312(a)(2) (1988).
48. 31 U.S.C. § 5316 (1988). 31 U.S.C. § 5321 provides civil penalties for a
violation of the CTR reporting requirements. As passed in 1970, the penalties were limited
to the greater of the amount involved in the transaction, up to $100,000, or $1,000 per day
for any willful violation. 31 U.S.C. § 5321 (1988). 31 U.S.C. § 5322, as originally passed,
provided criminal penalties of up to $1,000 and one year in prison for willful offenders. 31
U.S.C. § 5322 (1988).
in the aggregate, over $10,000. 4 9 Another major provision of the BSA

requires any person transporting monetary instruments worth more than
$10,000 into or out of the United States to declare the action on a Currency
and Monetary Instrument Report (CMIR).5 ° If a transporter fails to file
such a report the funds being transported are subject to forfeiture. 5
However, this law only applies to the physical transportation of negotiable
instruments across a border with the United States and does not apply to
wire transfers.52
With the enactment of the BSA, Congress ultimately hoped to effect a
two-fold result. First, it wanted to create a paper trail which would inform
law enforcement of potentially suspicious activity.53 Second, Congress
49. 31 U.s.c. § 5313 (1988); 31 C.F.R. § 103.22 (1994). A financial institution's

reporting requirements under the BSA are supplemented by recordkeeping requirements
codified at 31 C.F.R. §§ 103.33-103.34 (1994). These code sections require financial
institutionsto maintain detailed information on activity within customeraccounts, transactions
involving the sale of negotiable instruments, investments, and signature loans of over
$10,000. Id. § 103.33. The financial institutions are required to maintain these records for
five years. Id. § 103.33(d). Additionally, each individual or entity in the United States
which maintains a foreign bank account is required to declare it on their tax returns pursuant
to 31 U.S.C. §§ 5314, 5315. Supplementing this is C.F.R. § 103.32 which requires that
individuals maintain records of the account for inspection by the IRS for a period of five
years.
50. 31 U.S.C. § 5316(a)(1) (1988). As originally passed in 1970, Pub. L. 91-
508, § 23 I, 84 Stat. 1122 (1970), the threshold for the CMIR report was $5,000. It has since
been amended to $10,000. 31 U.S.C. § 5316(a)(1) (1988).
51. 31 U.S.C. § 5317(c) (1988 & Supp. 1993). The statute provides for a total
forfeiture of funds when an amount in excess of the statutory limit-5,000 in 1970; $10,000
today-is transported or attempted to be transported across a U.S. border and there is a
corresponding failure to file a CMIR on the transaction. Id. §§ 5316-5317. It does not
matter if transporting the funds across the border is legal. If the CMIR is not filed and the
transporter has been made aware of the requirement, the funds are forfeited. United States
v. One (1) Lot of Twenty-Four Thousand Nine Hundred Dollars ($24,900.00) in U.S.
Currency, 770 F.2d 1530, 1534, 1536 (1 1th Cir. 1985). Further, some circuits hold that
knowledge of the CMIR reporting requirement is not a prerequisite for the forfeiture of funds,
only an intent to transport a sum that is in excess of the statutory threshold. United States
v. Forty-Seven Thousand Nine Hundred Eighty Dollars ($47,980) in Canadian Currency, 804
F.2d 1085, 1090-91 (9th Cir. 1986) (rejecting Eleventh Circuit's holding that proof of
knowledge of the CMIR reporting requirements is a prerequisite to forfeitability), cert.denied
sub nor, BSP Inv. & Dev., Ltd. v. United States, 481 U.S. 1072 (1987).
The net effect of these holdings is that customs agents and border guards have the right
to immediately seize cash that is being smuggled. An additional civil penalty for a violation
of the 31 U.S.C. § 5316 filing requirement is provided in 31 U.S.C. § 5321(a)(2) (1988).
The penalty is equal to the amount transported, less any amount forfeited as a result of
seizure, presumably at a port or border. 31 U.S.C. § 5321(a)(2) (1988).
52. United States v. Ortiz, 738 F. Supp. 1394, 1403-04 (S.D. Fla. 1990).
53. 1993 H.R. Hearingson Money Laundering, supra note 1, at 373 (statement of
TENNESSEE LA W RE VIEW [Vol. 63:143
hoped to use the BSA as a weapon to prosecute money launderers by

imposing criminal penalties and civil sanctions for failure to file proper
forms or for causing the forms not to be filed.54
D. Money LaunderingFrom the 1960s Through the Mid-1980s
The BSA had minimal impact on money laundering throughout the

1970s and into the early 1980s. 5' Banks of that period rarely complied
with the CTR reporting requirements,56 and bank regulators often did not
catch reporting irregularities." Consequently, the most cost effective
method for placing large amounts of cash into the financial system in
anticipation of layering continued to be "walking into the lobbies of banks
across the country and depositing
58
garbage bags and suitcases full of cash,
with few questions asked.
Peter G. Djinis, Director, Office of Financial Enforcement, U.S. Dep't of the Treasury).
54. 1985 Senate Hearings,supra note 2, at 101 (statement of James D. Harmon, Jr.,
Executive Director and Chief Counsel, President's Comm'n on Organized Crime); S. REP.
No. 433, 99th Cong., 2d Sess. 9 (1986).
55. MONEY LAUNDERING, supra note 11, at 4-5.
56. See 1993 H.R. Hearingson Money Laundering, supra note 1, at 207 (statement
of Ronald K. Noble, Assistant Secretary for Enforcement, U.S. Dep't of the Treasury). In
some cases, the noncompliance was based on a conscious decision to engage in money
laundering-e.g., the Garfield Bank in Los Angeles. See 1985 Senate Hearings,supra note
2, at 221-22 (statement of John K. Van de Kamp, California Attorney General). The bank's
president, vice president, and eight employees were arrested for running a laundering
operation through the bank, cleansing millions of dollars before it was shut down. Id. There
is no indication, however, that the noncompliance of banks was purely driven by greed. A
more realistic explanation is that "the industry performed precisely as regulated industries
historically have acted: the industry reflected the priorities of its regulators, most of whom
had little interest in the BSA because it has minimal impact on the principal supervisory goal
of preserving the safety and soundness of the financial institutions." John K. Villa, A
Critical View of Bank Secrecy Act Enforcement and the Money Laundering Statutes, 37
CATH. U. L. REV. 489, 490 (1988).
57. See 1985 Senate Hearings,supra note 2, at 29-30 (statement of Senator Joseph
R. Biden, Jr.). As late as 1982, Treasury examiners missed blatant acts of noncompliance
in their inspection of the Bank of Boston. Id.
58. 1992 Senate Hearings on casas de cambio, supra note 7, at I (statement of
Senator Sam Nunn) (describing placement as it was commonly practiced until the passage of
the 1986 Money Laundering Control Act). The truth of Senator Nunn's characterization is
borne out by the facts of some of the major drug laundering cases which were finally
prosecuted in the mid- 1980s. See George Melloan, Dirtv-MoneyDealings,WALL ST. J., Apr.
21, 1992, at A14; Sarah Bartlett, et al., Money Laundering Who's Involved, How It Works,
And Where It's Spreading,Bus. WK., Mar. 18, 1985, at 74.
Until recently [prior to 1985], it was not hard to find bankers who wanted the [large
cash deposits], particularly in Miami. "There was so much capital pouring out of Latin
America during those days it was easy to convince ourselves that it was legitimate--or
Since some financial institutions occasionally complied with the

reporting regulations, some money launderers changed their methods of
placement. They developed a method called "structuring," which involved
dividing large deposits into multiple smaller transactions of less than
$10,000 each in order to circumvent the CTR reporting requirement. 9
This method garnered much publicity when the "Grandma Mafia" case was
exposed in California in 1982.60 That case involved a sixty year old
grandmother who led a group of middle-aged women in making structured
deposits at California banks of $25 million worth of cash earned in the
Florida drug trade. 61 As structuring proliferated, it exposed the BSA's
failure to criminalize the evasion of CTR reporting requirements. This
failure caused inconsistent effects among jurisdictions: while some jurisdic-
tions allowed prosecution of structuring on a theory that launderers were
aiding and abetting noncompliance with CTR requirements, other courts
refused to hold that structuring was a criminal offense.62
Other methods of laundering intensified. Some launderers moved away 63
from the mainstream banks and into "non-bank financial institutions.,
Money launderers frequently haunted casinos in their attempts to change
close to it," admits one South Florida banker. In the words of one disgusted judge,
Miami became "the Wall Street of the drug trade." Until a few years ago, it was
common to see couriers standing in bank lines with duffel bags, suitcases, cardboard
boxes, and shopping bags crammed with cash. "We didn't think anything of it," admits
a Miami banker.
One Miami-based launderer, Beno Ghitis, described to a congressional committee how
he washed $240 million in eight months, equivalent to $1.5 million each business day.
He kept his office above a branch of Miami's Capital Bank, and his couriers were
regular depositors downstairs ....
Id. at 76.
59. MONEY LAUNDERING, supra note 11, at 8. Employing conspirators to make
structured deposits at various banks in order to circumvent the BSA's reporting requirements
is known as "smurfing" and is still quite common today. 1992 Senate Hearings on casas
de cambio, supra note 7, at 41 (testimony of Ron Eatinger, Chief, Criminal Investigations
Division, Internal Revenue Service, Houston, Texas).
60. See 1985 Senate Hearings,supra note 2. at 222.
61. Id.
62. See United States v. Thompson, 603 F.2d 1200 (5th Cir. 1979) (affirming
banker's conviction on charges of structuring currency transaction in a manner that caused
the bank to fail to file CTR); United States v. Konefal, 566 F. Supp. 698 (N.D.N.Y. 1983)
(holding defendants were subject to prosecution for causing bank to fail to file CTR). Contra
United States v. Anzalone, 766 F.2d 676 (1st Cir. 1985) (concluding that no duty was
imposed on defendant to inform bank of structured nature of the transactions in question).
63. MONEY LAUNDERING, supra note 11, at 16. As James D. Harmon, Jr., Executive
Director and Chief Counsel of the President's Comm'n on Organized Crime, prophetically
stated: this movement into unregulated businesses outside of the BSA's reach meant that
launderers could "operate for long periods of time with virtual impunity." 1985 Senate
Hearings,supra note 2, at 102.
small, bulky bills into chips and then into $100 dollar bills for subsequent
smuggling out of the country.' During this time, drug traffickers also
began to buy real estate, businesses, automobiles, and high dollar consumer
goods for cash.65
A significant development in placement and layering was the use of
"front" companies for sophisticated, large volume money laundering.66 For
example, Eduardo Orozco-Prada headed an organization called Cirex
International. 67 He used this as a front to deposit $150 million in cash
with American banks and investment firms over a period of several years
during the late 1970s and early 1980s, until he was prosecuted for violations
of the CTR and CMIR reporting requirements, among other offenses.68
Another variation was the use of "front" companies to conduct
fraudulent international commercial trade.69 Drug sellers deposited their
proceeds in American banks and used them to fund letters of credit for the
fictitious importation of consumer goods into the United States from
Colombia. 70 An individual needed only to present a false bill of lading at
the appropriate bank in Colombia to collect the proceeds.7'
Another popular placement method was simple smuggling-accom-
plished by hiding the currency in goods being transported out of the country
or by physically carrying the currency across the border.72 Smuggling
currency became so common that
64. See 1985 Senate Hearings,supra note 2,at 104 (statement of James D. Harmon,
J.r., Executive Director and Chief Counsel, President's Comm'n on Organized Crime). The
Bureau of Engraving made calculations for one case to explain why casinos were so popular
with launderers. Id. One organized crime figure in the late 1970s entered an Atlantic City
casino with $1,187,450 in small bills. The Bureau estimated that the cash weighed 280 lbs.
and had a volume of 5.75 cubic feet. Id. After sustaining some losses, this person cashed
in $800,000 worth of chips for $100 bills. This, the Bureau estimated, weighed 16 lbs. and
had a volume of .33 cubic feet. Id. The money was deposited into a Swiss bank account
several days later. Id.
65. 1985 Senate Hearings,supra note 2, at 104-05 (statement of James D. Harmon,
Jr., Executive Director and Chief Counsel, President's Comm'n on Organized Crime).
Law enforcement authorities ...have observed for some time that narcotics traffickers
in various sections of the country have frequently sought to dispose of currency by
purchasing expensive automobiles, real estate, and even retail businesses in cash. (One
narcotics trafficker in New York City, Freddie Myers, literally tried to launder some of
his narcotics proceeds by purchasing a laundromat.)
Id.
66. MONEY LAUNDERING, supra note 11, at 9. See WALTER, supranote 5, at 161-66.
67. United States v. Orozco-Prada, 732 F.2d 1076, 1078 (2d Cir.), cert. denied,469
U.S. 845 (1984).
68. Id. at 1078-79.
69. WALTER, supra note 5, at 160.
70. Id.
71. Id. at 160-61.
72. Bartlett et al., supra note 58, at 74, 76.
19951 MONEY LA UNDERING
airport officials [grew] used to spotting couriers carrying Pampers or

Monopoly boxes stuffed with bills .... [In the early 1980's], federal agents
caught Maria Lilia Rojas carrying $1.43 million crammed into six
Monopoly boxes out of the country. And [in Feb. 1985], officials in Texas
busted the pilot and two passengers of a private jet flying $5.9 million out
of the country."
Some of this smuggled cash went to offshore banks in the Caribbean74 or

to Europe.7" A very large chunk went to Panama, whose government, at
the time headed by Manuel Noriega, actively supported money laundering
and the drug trade in general.76 For instance, Ramon Milian-Rodriguez
laundered approximately $146 million in 1983 by putting the money in his
Lear jet and flying it to Panama.77 A former employee of BCCI's Panama
branch described the situation as being one in which
literally tons of cash from the U.S [arrived in Panama daily] .... As the
business grew, the logistics became staggering. Planeloads of currency
jammed into cardboard boxes began arriving day and night, much of it...
originating at the Hollywood, Fla., airport.
8
Noriega cronies got an armored
car service to carry the cash around.
The layering problem, particularly as it related to offshore banking, was

obvious as early as 1970, and money laundering in general had become a
major issue by the early 1980s. However, through the early and mid-1980s,
the government's efforts remained focused on placement of illegal funds in
domestic financial institutions.79
73. Id.
74. 1993 H.R. Hearings on Money Laundering, supra note 1, at 161.
75. Id. at 165-75.
76. See John Dinges, The Case Against Noriega, WASH. POST MAG., Jan. 28, 1990,
at 13.
77. 1985 Senate Hearings,supra note 2, at 102-03 (statement of James D. Harmon,
Jr., Executive Director and Chief Counsel, President's Comm'n on Organized Crime).
78. Michael Allen, The Real Mysteryin This Best Seller: Who PublishedIt?, WALL
ST. J., Aug. 2, 1991, at AI, A4.
79. See 1993 H.R. Hearingson Money Laundering,supra note 1, at 201 (statement
of Ronald K. Noble, Assistant Secretary for Enforcement, U.S. Dep't of the Treasury). In
enacting the Bank Secrecy Act of 1970, Congress was responding to several important
factors, one of which was that "criminals of all sorts were sending the proceeds of their
crimes abroad to take advantage of foreign bank secrecy laws." Id.
II. MONEY LAUNDERING SINCE 1986
A. The Money Laundering Control Act of 1986 (MLCA 86)
1. Background
Several events coalesced to bring money laundering sharply into focus

in the early 1980s. First, the growth of the drug trade was the subject of
several major investigations which revealed the enormous amount of money
involved. ° Other investigations revealed the widespread non-compliance
of banks with the reporting requirements of the BSA." The most famous
of these investigations involved the Bank of Boston, generally regarded as
the turning point for bank compliance with the BSA. The investigation
involved a much publicized regulatory review of the Bank of Boston,
resulting in a $500,000 fine against the bank. The report revealed that the
bank had failed to file CTR's on currency transactions valued at $1.2
billion. 2 Subsequently, numerous banks conducted internal audits to check
their CTR compliance before the regulators arrived, and approximately forty
banks voluntarily came forward to admit irregularities. 3
Through numerous Congressional hearings, it became clear that the BSA
was ineffective. For example, prosecutors were finding it difficult to
prosecute for money laundering strictly on the basis of failure to file CTR
reports. 4 Second, there were obvious ways around the reporting require-
ments, one of which was to go ahead and file the CTR on the laundered
money. This satisfied the BSA requirements and only rarely led to an
investigation. 85 The other method around the reporting requirement was
80. See id. at I (statement of Senator Strom Thurmond) (referring to major, well-
publicized drug investigations in Florida and New York).
81. See WALTER, supra note 5, at 244-50.
82. Id. at 245.
83. Id. at 247. Among the banks that came forward to admit BSA violations were
several of the largest in the nation. Id. The largest fine assessed against a bank at the time
was a penalty of $2.25 million against Crocker National Bank for 7,877 CTR reporting
violations on cash deposits totaling $3.98 million. See id. The largest BSA civil fine
imposed in recent years was against the Republic National Bank of Miami - $1.95 million,
for failure to properly file CTR's. See Agents Fume As Bank Ducks CriminalCharges.Bank
Pays Huge Sum, Eludes Indictment in Long FederalProbe, 5 MONEY LAUNDERING ALERT
(Alert Int'l, Inc., Miami, Fla.), Feb. 1, 1994, at No. 5. In addition to the fine, Republic
agreed to make restitution of an additional $4 million of tainted funds to the government in
exchangc for clemency from criminal money laundering prosecution. Id.
84. 1985 Senate Hearings, supra note 2, at 223-24 (statement of John K. Van de
Kamp, California Attorney General).
85. See id. at 102 (statement of James D. Harmon, Jr., Executive Director and Chief
Counsel, President's Comm'n on Organized Crime). "[A] money launderer who complies
with the [BSA's] requirements by filing the appropriate forms, (as money launderers have
structuring, upon the legality of which courts disagreed.8 6 In addition, the

fine for failing to report, as required by the BSA, was relatively small, 7
and there was no requirement that the financial institution inquire about the
source of funds. 8 Nor was any penalty assessed against the depositor for
giving false information to be filed on the CTR. 89 "[C]ompliance with the
BSA [prior to 1985] and awareness of money laundering was dismal. 9 °
Congress ultimately responded to the situation with the Money Laundering
Control Act of 1986 (MLCA 86). 9' The Act criminalized money launder-
ing and structuring, and it provided for both civil and criminal forfeitures
of funds or property implicated in the laundering.92
2. The Criminalization of Money Laundering:

Elements and Explanations
The heart of the new legislation was the criminalization of money

laundering itself, independent of any CTR reporting violation. In 1984
Congress passed 18 U.S.C. § 1956 ("Laundering of monetary instruments")
and 18 U.S.C. § 1957 ("Engaging in monetary transactions in property
derived from specified unlawful activity"). Section 1956 is directed at the
criminals and conspirators who seek either to hide the origins of tainted
money or to use the money to further their criminal operations. 93 Section
1957 casts a much broader net by criminalizing the knowing acceptance of
frequently done in the past) ... may be able to operate for long periods of time with virtual
impunity." Id. When the Pizza Connection case was broken in 1987, it came to light that
several Wall Street investment firms, including E.F. Hutton, had, on several occasions,
accepted several million dollars in investment cash from the heroin smuggling operation.
WALTER, supra note 5, at 248-49. Each time, the firms escaped liability for themselves and
the smugglers by filing the required CTRs. Id.
86. Compare United States v. Anzalone, 766 F.2d 676 (1st Cir. 1985) with United
States v. Cook, 745 F.2d 1311 (10th Cir. 1984), cert. denied, 469 U.S. 1220 (1985).
87. In 1984, the criminal penalties for a violation of the BSA were increased from
a maximum of one year of imprisonment and a $100,000 fine to a maximum of 5 years
imprisonment and a $250,000 fine. See Pub. L. No. 98-473, 98 Stat. 473 (codified as
amended at 31 U.S.C. § 5322(a) (1989 & Supp. 1994). In 1986, civil penalties were
increased to a maximum of $100,000, up from 1984's maximum of $10,000. See Pub. L.
No. 99-570, 100 Stat. 3207 (codified as amended at 31 U.S.C. § 5321 (1988 & Supp. 1994).
88. 1992 Senate Hearingson casas de cambia, supra note 7, at 75 (staff statement).
89. Id.
90. 1993 H.R. Hearingson Money Laundering,supra note 1, at 207 (testimony of
Ronald K. Noble, Assistant Secretary for Enforcement, U.S. Dep't of the Treasury).
91. Pub. L. No. 99-570, 100 Stat. 3207-18 (codified as amended at 18 U.S.C. §§
1956-1957, 31 U.S.C. §§ 5324-5326).
92. Id.
93. 18 U.S.C. § 1956 (1994).
tainted funds. 94 Section 1957 includes in its net many of the merchants
and businessmen who interact with the criminals and money launderers.
Both statutes apply extra-territorially to reach both Americans and non-
American citizens who are outside of the United States. 95
18 U.S.C. § 1956 divides the crime of money laundering into three
categories. First, money laundering involving financial transactions may be
punished by a fine up to the greater of $500,000 or two times the value of
the property involved in the transaction as well as imprisonment for up to
twenty years.9 6 Second, money laundering involving the movement of
monetary instruments across United States borders carries penalties identical
to those for laundering involving financial transactions. 97 Finally, law
enforcement sting operations directed at money laundering may result in
fines and imprisonment of up to twenty years. 98
Each category contains several common elements which the government
must show to establish a violation of the statute: that the funds involved
were derived from a particular group of specified unlawful activities or were
represented to be from unlawful activities by law enforcement officers
conducting a sting operation; that the defendant knew of the funds' illicit
origins; that the defendant either executed or attempted to execute the
prohibited conduct; and that the defendant executed the prohibited conduct
with an unlawful intention.99
a. Section 1956(a)(1): Money Laundering

Involving Financial Transactions
To establish a § 1956(a)(1) violation, the government must first show

that the funds involved derived from a "specified unlawful activity.' ' 0
As defined in the statute, "specified unlawful activity" covers over one
hundred possible offenses including not only drug trafficking, but also such
94. Id. § 1957.

95. Id. §§ 1956(c), 1957(d). The Justice Department has proposed a broad
interpretation of § 1956(f): a "mere attempt by aliens outside of the United States to initiate
or engage in prohibited transactions is likely to also be within the law's reach as long as the
transactions are intended to take effect in the United States." Mark J. Biros & Bradley L.
Kelly, Global Reach for Ill-Gotten Gains: U.S. Anti-Money Laundering Laws Extend Beyond
Our Borders,CRIM. JUSTICE, Winter 1994, at 8, 10 (quoting U.S. Dep't of Justice Manual).
96. 18 U.S.C. § 1956(a)(1) (1994).
97. Id. § 1956(a)(2).
98. Id. § 1956(a)(3).
99. See 18 U.S.C. § 1956 (1988 & Supp. 1994).
100. See United States v. Hayes, 800 F. Supp. 1575 (S.D. Ohio 1992) (overturning a
money laundering conviction where the government could not trace the origin of the proceeds
to a specified unlawful activity per 18 U.S.C. § 1956(a)(1)(A)), rev'd in part on other
grounds, 995 F.2d 1066 (6th Cir. 1993).
things as fraud, espionage, and environmental crimes."°1 To show this

genesis of the funds, "the government cannot rely exclusively on proof that
a defendant charged with using proceeds from an unlawful activity has no
legitimate source of income."'0 2 While something more is required, the
burden is not so stringent that it requires the government to "trace the
proceeds to a particularsale" to show that the money derived from one of
the specified unlawful activities.0 3 For example, "evidence of a
defendant's use of wire service to transfer cash to Haiti rather than a bank,
combined with evidence of defendant's drug trafficking, is sufficient to
sustain a conviction of money laundering under 18
U.S.C. § 1956(a)(1)(B)(i)."' 4 Likewise, if the government can show that
the offender is utilizing property bought with proceeds derived from a
specified unlawful activity, 0 5 or that the offender is utilizing a bank
account containing commingled funds, only some of which derive from a
"specified unlawful activity, ' ' 1°6 then the.government has met its burden
of showing that the property involved represents proceeds from a "specified
unlawful activity."
As a second element of section 1956(a)(1), the government must
establish that the defendant knew the property involved in the transaction
"represent[ed] the proceeds of some form of unlawful activity." This does
not mean that the government must show that the offender actually knew of
the specific crime which gave rise to the proceeds. Rather, the government
need only show that the accused knew that "the property involved in the
transaction represented proceeds from some form, though not necessarily
which form, of activity that constitutes a felony under State, Federal, or
foreign law, regardless of whether or not such activity is a 'specified
unlawful activity."' 7 To this end, the government may use circumstantial
evidence from which it can be inferred that the accused actually knew,'0 8
or was willfully blind'0 9 to the fact, that he involved himself in a financial
101. 18 U.S.C.A. § 1956(c)(7) (1988 & Supp. 1994).

102. United States v. Blackman, 897 F.2d 309, 317 (8th Cir. 1990).
103. Id. at 316-17.
104. Id. at 317 (citing United States v. Massac, 867 F.2d 174 (3d Cir. 1989)).
105. United States v. Werber, 787 F. Supp. 353, 356-57 (S.D.N.Y. 1992) (holding that
illicit funds which have been converted into property are proceeds within the meaning of the
statute).
106. United States v. Jackson, 983 F.2d 757, 765 (7th Cir. 1993) (impliedly holding
that transactions involving commingled funds of both licit and illicit origins qualify as
proceeds within the meaning of the statute).
107. 18 U.S.C. § 1956(c)(1).
108. See United States v. Carr, 25 F.3d 1194, 1204-06 (3d Cir. 1994) (jury must be
able to infer actual knowledge from circumstantial evidence), cert. denied, 115 S. Ct. 742
(1995).
109. See United States v. Campbell, 977 F.2d 854 (4th Cir. 1992), cert. denied, 113
S. Ct. 1331 (1993). Under the doctrine of willful blindness, the government must prove more
transaction that was designed to launder, in some fashion, the proceeds from
some criminal activity."' A court may charge a jury regarding "willful
blindness" when "(1) [the] defendant claims a lack of knowledge, (2) the
facts suggest a conscious course of deliberate ignorance, and (3) the
instruction, taken as a whole, cannot be misunderstood by a juror as
mandating such an inference."'II
The third element under 18 U.S.C. § 1956(a)(1) is that the defendant
conducted or attempted to conduct a financial transaction with funds he
knew were derived from some unlawful activity and which were, in fact,
derived from one of the "specified unlawful activities." The term "financial
transaction" has been drafted broadly in the statute" 2 and has been given
a liberal interpretation by the courts to include almost any disposition of
illicit funds which has a conceivable nexus with interstate commerce. For
example, mailing of illicit funds from one point in the United States to
another is considered a financial transaction, 113 as is the physical transpor-
tation of money from one state to another.' Other examples include
writing a check drawn on a bank,' placing illicit funds in a safety deposit
box at a bank," 6 or giving a gift when the illicit funds were first convert-
ed into a money order." 7 Likewise, vendors who deal in goods or
than simply that the defendant was negligent or even reckless and "should have known";
rather, it requires the government to prove beyond a reasonable doubt that "the defendant
purposely and deliberately contrived to avoid learning the facts" about "what otherwise would
have been obvious to her." Id. at 857.
110. See id. at 858.
111. United States v. St. Michael's Credit Union, 880 F.2d 579, 584 (1st Cir. 1989)
(holding credit union liable for failure to file CTR reports where the failure was due to the
willful blindness of an employee).
112. See 18 U.S.C. §§ 1956(c)(3), (4).
113. United States v. Hamilton, 931 F.2d 1046, 1051-52 (5th Cir. 1991) (holding that
defendant's attempt to mail proceeds of a drug transaction from Mississippi to California
constituted money laundering under 18 U.S.C. § 1956(a)(1)).
114. United States v. Dimeck, 815 F. Supp. 1425, 1427-28 (D. Kan. 1993), rev'don
other grounds, 24 F.3d 1239, 1246 (1Oth Cir. 1994). But see United States v. Samour, 9
F.3d 531, 536 (6th Cir. 1993) ("merely transporting cash does not meet the definition of
'financial transaction' for purposes of the money laundering statute").
115. See United States v. Jackson, 935 F.2d 832 (7th Cir. 1991).
116. In United States v. Bell, 936 F.2d 337 (7th Cir. 1991), the court overturned a
money laundering conviction upon determining that the mere "placing of [cash derived from
drug sales] and/or withdrawing of [the same] from a safe deposit box [at a bank] where no
record is made and no interest is paid" was not a transaction within the scope
of § 1956(c)(3). Id. at 341. Congress immediately amended the statutory definition of
"financial transaction" to include the use of safety deposit boxes. See Pub. L. No. 102-550,
106 Stat. 4065 (codified as amended at 18 U.S.C. § 1956(c)(3)).
117. See United States v. Koller, 956 F.2d 1408 (7th Cir. 1991). In Koller, the
defendant made a gift of money to pay for his girlfriend's restitution obligation. Id. at 1410-
11. He took money derived from drug sales and used it to purchase a money order from a
1995] MONEY LA UNDERING
services, which themselves implicate interstate commerce, are considered to

have taken part in a financial transaction cognizable under section 1956.' 8
When the government must show that an attempt to conduct a financial
transaction has occurred, it must show more than mere preparation. "[M]ere
preparation alone will not suffice to support conviction for conducting a
financial transaction affecting interstate commerce. There must be a
substantial step taken toward the commission of a crime" such as where a
defendant develops an elaborate plan to launder money using complex
financial transactions and is then caught with the money he intends to
launder moments after receiving it." 9
Finally, once these three elements are satisfied, the government must
also establish that the offender acted with one of four specified impermissi-
ble intentions. To satisfy this intent element the government must prove the
defendant acted with one of these four specific intents: (1) the offender
conducted a financial transaction with the intent "to promote the carrying
on" of one of the specified unlawful activities 2 °; (2) the defendant en-
bank, which he then gave to his girlfriend's probation officer. Id. The court found that this
was a financial transaction pursuant to 18 U.S.C. §§ 1956(c)(3), 1956(c)(4)(B). Id. at 1411.
Ironically, the court indicated that, had the offender not converted the cash into a money
order-which the probation officer required-there would have been no cognizable "financial
transaction" with a nexus in interstate commerce and, accordingly, no conviction for money
laundering. Id. at 1412.
118. See, e.g., United States v. McLamb, 985 F.2d 1284 (4th Cir. 1993) (holding
without discussion that the sale of a vehicle by a car dealer constituted a financial transaction
actionable under the statute); United States v. Campbell, 777 F. Supp. 1259, 1263 (W.D.N.C.
1991) ("[I]t is readily apparent that a ... jury could reasonably conclude that the sale of the
[real estate] was in interstate commerce .... ), rev'dinparton othergrounds, 977 F.2d 854
(4th Cir. 1992), cert. denied 113 S. Ct. 1331 (1993).
119. United States v. Fuller, 974 F.2d 1474, 1477-78 (5th Cir. 1992) (finding that
defendant who developed an elaborate plan to launder money had made a cognizable attempt
to conduct a financial transaction within the meaning of 18 U.S.C. § 1956(a) when he was
arrested while leaving a hotel immediately after receiving drug money which he was to
launder), cert. denied, 114 S. Ct. 112 (1993). Cf United States v. Ramirez, 954 F.2d 1035,
1039-40 (5th Cir. 1992) (overturning a money laundering conviction because the mere
possession of tainted money does not give rise to an inference of an intent to conduct a
financial transaction), cert. denied, 505 U.S. 1211 (1992).
120. 18 U.S.C. § 1956(a)(1)(A)(i). This first type of intent is normally found in cases
in which proceeds from an unlawful activity are used in financial transactions designed to
support future unlawful activity. See United States v. Montoya, 945 F.2d 1068, 1075-79 (9th
Cir. 1991). The intent to promote the carrying on of a specified unlawful activity has even
been found where a financial transaction occurred subsequent to a single, discreet transaction.
Id. In Montoya, a state legislator who accepted a $3,000 check as a bribe and then deposited
it in his bank, making no attempt to disguise its origins, was found guilty of money
laundering because, as the court reasoned, the act of cashing or depositing the check at the
bank was necessary to "carry out the illegal bribery," since he couldn't use the bribe
otherwise. Id. at 1076. But see United States v. Heaps, 39 F.3d 479, 485-86 (4th Cir. 1994)
gaged in the transaction with the intent of evading taxation ' or fraudu- -
lently concealing assets from taxation by filing false tax documents'2 2; (3)
the defendant acted with the intent "to conceal or disguise the nature, the
location, the source, the ownership, or the control of the proceeds of
specified unlawful activity" 23 ; (4) the defendant attempted to conduct a
"transaction," intending24
to "avoid a transaction reporting requirement under
state or federal law.'1
b. Section 1956(a)(2): Money Laundering Involving the Transportation

of Monetary Instruments Across United States Borders
The third element of section 1956(a)(2) requires a showing that a

defendant attempted to or did "transport, transmit, or transfer a monetary
instrument" across United States borders (either entering or leaving this
country). The statute defines the term "monetary instruments" very broadly,
covering almost any conceivable transfer of a cash or cash equivalent,
(overturning money laundering convictions which had been based on a payment made to
satisfy a debt arising from the past purchase of drugs because, in the court's view, the
transaction did not promote the unlawful activity).
This intent has also been found where proceeds from illegal gambling are used to
purchase more gambling equipment, see United States v. Conley, 37 F.3d 970. 977-78 (3d
Cir. 1994), or where the proceeds from a fraudulent investment scam are used to pay for an
expensive car used to impress and dupe more potential clients to invest in the scheme, see
United States v. Johnson, 971 F.2d 562, 566 (10th Cir. 1992).
121. See 26 U.S.C. § 7201 (1988). For example, a contractor conspiring with two
drug dealers to carry them on his payroll, thereby providing some cover for their illicit
income, engages in a transaction with the intent of evading taxation. See United States v.
Isabel, 945 F.2d 1193 (1st Cir. 1991).
122. See 26 U.S.C. § 7206 (1988).
123. 18 U.S.C. § 1956(a)(l)(B)(i). However, the mere fact that illicit funds are used
to purchase a consumer good such as a car does not, in and of itself, show an intent to
conceal the origins of the funds. See, e.g., United States v. Sanders, 928 F.2d 940 (10th Cir.)
(overturning money laundering convictions where the defendants had, in person, purchased
two vehicles which they then used conspicuously, because such actions did not show an intent
to conceal the origins of the funds or property), cert. denied, 502 U.S. 845 (1991).
At the other end of the spectrum, a "classic example" of the intent to conceal the nature
of funds occurs when a defendant buys a bank certificate of deposit with illicit funds and uses
it as collateral for a bank loan to his legitimate business, from which he ostensibly derived
his wealth. See United States v. Garcia-Emanuel, 14 F.3d 1469, 1477 (10th Cir. 1994)
(finding "classic money laundering" when drug proceeds were used to buy a certificate of
deposit, which was then used as collateral for a loan to an insurance company which the
defendant partially owned).
124. 18 U.S.C. § 1956(a)(l)(B)(ii). For example, if a drug dealer uses a "front man"
to conduct financial transactions at a bank, so that the dealer does not appear on the
mandatory CTR reports which must be filed, the dealer avoids a reporting requirement. See
United States v. Beddow, 957 F.2d 1330, 1335 (6th Cir. 1991).
including: "(i) coin or currency of the United States or of any other country,
travelers' checks, personal checks, bank checks, and money orders, or (ii)
investment securities or negotiable instruments, in bearer form or otherwise
in such form that title thereto passes upon delivery.' ' 1 5 Courts have
interpreted the phrase "transport, transmit, or transfer" broadly enough to
encompass almost any cross-border movement of the value of funds into or
out of the United States, covering everything from simple smuggling 26 to
wire transfers. 27 Because the nature of the conduct of cross-border
transfers of funds is unambiguous, it will usually be easy to show that an
attempt to execute the prohibited conduct has been made. Money placed
into a shipping container bound for Colombia, for example, has been 28
interpreted as an attempt to transfer funds across an American border.
Cases in which this is a contested element will likely be few in number and
highly fact specific.
When the government claims that a defendant transported a monetary
instrument across the border with the intent of the action to conceal the
nature of funds or to avoid a transaction reporting requirement, then the first
two prerequisites to proving a violation of section 1956(a)(2) are the same
as under section 1956(a)(1).129 In such circumstances, the government
must establish that the funds involved were derived from one of the
specified unlawful activities 30 and that the defendant knew that the funds
were derived from "some form of unlawful activity.""' However, when
the government claims that the cross-border movement of funds was
executed with the intent to "promote the carrying on of specified unlawful
activity," then the government must merely show the intent; the government
does not have to show that the funds derived from a specified 13 2
unlawful
activity, or that the defendant knew of the funds' origins.
Once each of these three elements (origin, knowledge, and prohibited
conduct) is satisfied, the government must also establish that the offender
acted with one or more of three specified impermissible intentions: (1) the
defendant conducted a cross-border transfer of funds with an intent to carry
125. 18 U.S.C. § 1956(c)(5).

126. See, e.g., United States v. Ortiz, 738 F. Supp. 1394 (S.D. Fla. 1990).
127. United States v. Salazar, 958 F.2d 1285, 1296 (5th Cir.), cert. denied, 113 S.Ct.
185 (1992).
128. See United States v. Ortiz, 738 F. Supp. 1394 (S.D. Fla. 1990) (holding that
defendant who attempted to smuggle $497,170 out of the United States in a water heater
destined for air shipment to Colombia was guilty of money laundering pursuant to 18
U.S.C. § 1956(a)(2)(B)(ii) by attempting to transport cash across American borders with the
intent to evade reporting requirements).
129. See 18 U.S.C. § 1956(a)(2)(B).
132. See 18 U.S.C. § 1956(a)(2)(A).
on or promote an unlawful activity'; (2) the defendant acted with the

intent "to conceal or disguise the nature, the location, the source, the
ownership, or the control of the proceeds of specified unlawful activi-
ty" 34 ; (3) the defendant attempted to conduct a "transaction" with the
intention of "avoid[ing] a transaction reporting requirement under State or
Federal law."'' 35 Note that these intent standards mirror those in section
1956(a)(1), with the notable exception of intent to commit tax fraud. The
cross-border movement of funds with the intent to conduct tax fraud (as
defined by section 1956(a)(1)) is not an impermissible intent under section
1956(a)(2).
c. Section 1956(a)(3): Law Enforcement Sting Operations

Directed at Money Laundering
The third category of money laundering offenses created by 18

U.S.C. § 1956 pertains to law enforcement sting operations. 36 The
elements of a money laundering offense under this category duplicate the
elements of the first category, 18 U.S.C. § 1956(a)(1), with two exceptions.
The first difference is that under section 1956(a)(3), the proceeds need not
actually derive from one of the specified unlawful activities. The only
requirement is that a law enforcement officer represent, and the offender
reasonably believe, that the object of the transaction is derived from those
activities.3 7 The second difference is that section 1956(a)(3) does not
133. See 18 U.S.C. § 1956(2). Note that when there has been a cross-border transfer
of funds with an intent to carry on or promote an unlawful activity, the government must
prove only that the intent to "promote the carrying on of a specified unlawful activity" exists,
not that the funds transferred in fact derived from a specified unlawful activity.
This intent can be found if the government demonstrates that the prohibited conduct was
designed to further a future operation. The wire transfer of $77,000 to Colombia to pay for
and promote future sales and profits from narcotics traffic, for example, constitutes a cross-
border transfer of funds. See United States v. Salazar, 938 F.2d 1285 (5th Cir.), cert. denied,
113 S.Ct. 185 (1992).
134. 18 U.S.C. § 1956(a)(2)(B)(i). Evidence that a drug dealer flew out of the United
States with funds derived from illicit activities intending to buy emeralds for resale in the
United States and transported the emeralds back across America's international boundaries
implies the necessary intent. See United States v. Beddow, 957 F.2d 1330, 1334-35 (6th Cir.
1991).
135. 18 U.S.C. § 1956(a)(2)(B)(ii). Evidence of attempting to physically smuggle
funds out of the United States, without declaring them on a CMIR form, demonstrates this
intent. See United States v. Ortiz, 738 F. Supp. 1394 (S.D. Fla. 1990).
136. 18 U.S.C. § 1956(a)(3).
137. See United States v. Fuller, 974 F.2d 1474 (5th Cir. 1992), cert. denied, 114 S.
Ct. 112 (1993). The defendant must be operating under the belief that the funds were from
a specified illegal activity. Id. at 1480. "[lt is enough that sufficient evidence was presented
that the jury could have found beyond a reasonable doubt that (the Government agent)
19951 MONEY LAUNDERING
criminalize financial transactions conducted with funds represented by law

enforcement as derived from a criminal activity in cases where
138
the intent of
the launderer is to evade or conceal assets from taxation.
d. Section 1957: Engaging in Monetary Transactions

In Property Derived From Specified
Unlawful Activity
Section 1957 greatly extends the potential reach of section 1956's

criminal prohibition against money laundering to cover situations in which
the defendant's only bad act is having accepted funds, valued in excess of
$10,000, which he knows are tainted. To convict pursuant to this statute,
the government need not prove that the transaction was executed with the
intent to carry on the activity, nor with an intent to conceal the assets, nor
that the transaction was undertaken with an intent to avoid reporting
requirements. In short, the government is not constrained by having to
prove any of the impermissible intentions found in 18 U.S.C. § 1956. The 139
government needs to prove only that the defendant "knowingly
engag[ed] or attempt[ed] to engage in a monetary transaction 4 ' in crimi-
nally derived property [that was] of a value greater than $10,000 and [that
was] derived from specified unlawful activity.'' 4 ' As a jurisdictional
prerequisite, the defendant must somehow involve these funds in a
transaction which implicates interstate commerce. 42 For example, a
defendant who transfers proceeds which he knows originated from some
criminal activity between banks in separate states 43 likely violates the
represented, and (the defendant) understood, that the funds they were laundering were the
proceeds of the specified illegal activities." Id.
138. See supra notes 121-22.
139. 18 U.S.C. § 1957(c) states that this does not require "the Government ... to
prove the defendant knew that the offense from which the criminally derived property was
derived from specified unlawful activity."
140. Under 18 U.S.C. § 1957(f)(1) (1988 & Supp. 1994),
[Tlhe term "monetary transaction" means the deposit, withdrawal, transfer, or
exchange, in or affecting interstate or foreign commerce, of funds or a monetary
instrument ... by, through, or to a financial institution ... including any transaction
that would be a financial transaction under section 1956(c)(4)(B). . . but such term does
not include any transaction necessary to preserve a person's right to representation as
guaranteed by the sixth amendment to the Constitution.
Id.
141. 18 U.S.C. § 1957(a).
142. See 18 U.S.C. § 1956(c)(4)(B).
143. SeeUnited States v. Lovett, 964 F.2d 1029, 1038-39 (10th Cir.), cert. denied, 113
S. Ct. 169 (1992).
This statute has broad implications, particularly for the criminal defense bar, though the
Justice Department has been extremely circumspect in using this statute to attack lawyers
statute. The penalty for a section

44 1957 violation includes a fine and
imprisonment of up to ten years.
3. The Criminalization of Structuring
The Money Laundering Control Act of 1986 (MLCA 86) criminalized

structuring, attempted structuring, and aiding and abetting in structuring 45
transactions, for the purpose of avoiding the CTR filing requirements.1
This statute subjects a person found guilty of engaging in or aiding
structuring of cash transactions to substantial fines and prison terms of up
to ten years. 146 31 U.S.C.A. § 5324 was interpreted by the Supreme Court
in Ratzlaf v. United States.'4 7 In that case, the defendants had deliberately
structured a cash transaction of $100,000, used to pay a gambling debt at a
casino, to avoid triggering the BSA's reporting requirement. 48 In a five
to four decision, the Court held that the "willfulness" component of section
5324 requires the Government to prove that the defendant had knowledge
that his actions were illegal. 49 The Court noted that Congress could have,
but failed to, explicitly dispense with the willfulness requirement in the
statute. 50 In reaction to Ratzlaf Congress amended this section to
dispense with the wilfulness requirement; it enacted the Money Laundering
Suppression Act of 1994.''
4. Forfeiture of Property Tainted by Money Laundering
Other major provisions of the MLCA 86 were designed to aggressively

attack the illicit revenues which formed the basis of money laundering.
These statutes, 18 U.S.C. §§ 981, 982, were enacted based on a belief by
law enforcement officials that the most effective way to combat organized
crime-and the only effective weapon at all against the drug lords-was to
attack their profits.' These two sections provide for civil and criminal
taking fees from criminal clients. For an excellent discussion of this topic, see Eugene
Gaetke & Sarah Welling, Money Laundering and Lawyers, 43 SYRACUSE L. REV. 1165
(1992).
144. 18 U.S.C. § 1957(b).
145. 31 U.S.C. § 5324 (1988).
146. Id.
147. 114 S.Ct. 655 (1994).
148. Id. at 657.
149. Id. at 663.
150. Id. at 662.
151. Pub. L. No. 103-325, § 411, 108 Stat. 2160, 2253 (1994). See infra part IV.B.
152. The leaders of criminal organizations, such as the drug cartels, distance
themselves from the underlying criminal activities through delegation to subordinates, but
they always maintain a link to the profits and revenue involved. "The use of the money
laundering statutes reduces the profitability through seizure and attacks the underpinnings of
forfeiture, respectively, of any property, real or personal, involved in a

transaction in violation of the money laundering statutes (18 U.S.C. §§
1956, 1957), the structuring statute (31 U.S.C. § 5324), or the CTR
reporting statute (31 U.S.C. § 5313).' 18 U.S.C. § 981 authorizes
forfeiture pursuant to any lawful arrest or search, and provides authority for
the federal government either to retain the proceeds from the forfeiture or
to share the proceeds with state and local officials.'54 Section 982 requires
courts to order forfeiture of all property traceable to violations of the money
laundering, structuring, or CTR reporting statutes for which the violator has
been convicted.' 55
Lawsuits under the civil forfeiture statute, 18 U.S.C. § 981, may be
brought in any district where the acts giving rise to the forfeiture occurred,
in the district where the asset is located, or, in a situation where the
the enterprise by attacking the organizational infrastructure which facilitates the money
laundering function .... [It allows] target[ing] the members of the enterprise for whom the
money is being laundered .. " 1993 H.R. Hearingson Money Laundering,supra note 1,
at 453 (testimony of Frederick B. Verinder, Deputy Assistant Director, Criminal Investigative
Division, FBI).
153. 18 U.S.C. §§ 981, 982 (1988).
154. 18 U.S.C. § 981 (1988). The sharing of forfeited funds between the federal
government and state or local law enforcement agencies can come about in two ways. U.S.
DEP'T OF JUSTICE, A GUIDE TO EQUITABLE SHARING OF FEDERALLY FORFEITED PROPERTY
FOR STATE AND LOCAL LAW ENFORCEMENT AGENCIES 3 (Mar. 1994). The first method of
sharing forfeited funds occurs when local or state officials are involved with federal officials
in ajoint investigation which culminates in a forfeiture. Id. The second method occurs when
local officials conduct an investigation on their own, decide that property exists which would
be forfeitable under federal law, and requests that the Justice Department conduct the civil
forfeiture. Id. Sharing in either a joint operation or adoptive forfeiture allows state agencies
to receive up to 80% of the proceeds of the forfeited property. Id. at 7-8. When money is
given to the state or local agencies under the adoptive forfeiture program, the federal
regulations restrict its use. First, the money can be used only for law enforcement purposes,
such as training, purchasing new equipment, or conducting operations. Id. at 10-11. Second,
the money cannot be used to offset funding budgeted by the state and local legislators. Id.
at 14. Many state and local law enforcement agencies turn to the federal government when
there is forfeitable property because either their state does not have viable forfeiture laws, or
because the proceeds from a forfeiture, under state law, would not come back to the law
enforcement agency, at least not as supplemental funds. Interview with David Jennings,
Chief, Asset Forfeiture Unit, East Tennessee Branch, U.S. Attorney's Office (June 22, 1995).
See Robert E. Misseck, Union Prosecutor'sOffice Reaps Share of Money Launder 'Take,'
STAR-LEDGER (Newark, N.J.), Mar. 8, 1995 (availableinWestlaw, 1995 WL 5192946). As
one local district attorney noted, "[i]t is the participation in these federal [asset forfeiture]
programs which is the greatest source of forfeiture funds for this office .... Giving [sic]
the reduced levels of government funding available to prosecutors' offices today, these funds
become an important, integral part of our efforts to maintain services." Id.
155. 18 U.S.C. § 982 (1988).
forfeitable property is in a foreign land, then in the District of Colum-

bia. 5 6 The government bears the burden of establishing probable cause-
"more than mere suspicion, but less than primafacie proof"'-that a substan-
tial connection exists between property to be forfeited and a predicate of-
fense.' 57 However, the property does not have to be traced to a specific
offense: evidence need only give rise to an inference that the property was
from one of the predicate offenses.' 58 Probable cause can be proven at the
proceeding, using evidence acquired after the seizure, and determination of
probable cause is not limited to evidence existing at or before the time the
seizure actually occurred. 5 9
Once probable cause has been established by the government, the burden
then shifts to claimant to demonstrate by a preponderance of evidence that
the property was not, in fact, linked to the commission of a predicate crime,
or, if the claimant is a third party owner or lienholder, that the claimant is
an "innocent owner" who did not have any knowledge of the laundering
activity. 16 The owner of property can successfully assert an "innocent
owner" defense where he can establish that he reasonably and prudently did
not know that his property was being used to launder money.' 6 ' "The
innocent owner defense turns on the claimant's actual knowledge, not
constructive knowledge."'' 62 Actual knowledge 63 may, however, be inferred
from "non-neutral" circumstantial evidence.
Lawsuits brought under the criminal forfeiture statutes are tried as part
of a bifurcated criminal proceeding. The criminal charges are tried first.
A second phase of the proceeding is then held to determine whether the
property was implicated in money laundering."M When the property is
found to have been implicated in money laundering, it is forfeitable pursuant
to 18 U.S.C. § 982. The government may obtain a warrant to seize property
it suspects of being forfeitable, based on probable cause, prior to trial. 65
156. 28 U.S.C. § 1355(b).

157. United States v. Puello, 814 F. Supp. 1155, 1159 (E.D.N.Y. 1993).
158. See United States v. Blackman, 897 F.2d 309, 316-17 (8th Cir. 1990); see also
United States v. $41,305 in Currency, 802 F.2d 1339, 1343 (1 lth Cir. 1986).
159. S41,305 in Currency, 802 F.2d at 1343.
160. 18U.S.C. § 981 (a)(2) (1988); United Statesv. 1988 OldsmobileCutlass Supreme,
983 F.2d 670, 674 (5th Cir. 1993).
161. United States v. Sonny Cook Motors, 819 F. Supp. 1015, 1018-19 (N.D. Ala.
1993).
162. United States v. 6960 Miraflores Ave., 995 F.2d 1558, 1561 (11 th Cir. 1993).
163. United States v. Four Million, Two Hundred Fifty-Five Thousand, 762 F.2d 895,
906 (i Ith Cir. 1985), cert. denied, 474 U.S. 1056 (1986).
164. Interview with David Jennings, supra note 154.
165. 21 U.S.C. § 853(0 (1988). Technically, forfeitable property vests in the United
States upon the commission of the act giving rise to the forfeiture. Id. § 853(c). Third party
transfers after the fact are null unless the third party can show that he or she was a "bona fide
purchaser for value" without reasonable cause to know that the property in which he or she
Although this forfeiture action is a criminal proceeding, the government

need only prove its case by a preponderance of the evidence.' 6 6 If a jury
finds that the property should be forfeited, the court enters a preliminary67
order of forfeiture divesting the defendant of his interest in the property.
The government must then provide notice to the public of the court's intent
to forfeit the property to the United States and must, upon request, hold an
ancillary hearing to allow
168
any person with a legal interest in the property to
contest the forfeiture.
5. Limitations on Forfeiture Proceedings:

The Eighth Amendment Excessive Fines Clause,
The Fifth Amendment Double Jeopardy Clause,
and Statutory Limitations on Forfeiture
Defendants have attempted to limit the application of both criminal and

civil forfeiture actions by invoking the Eighth Amendment Excessive Fines
Clause. 169 In Austin v. United States, the Supreme Court held that civil
forfeiture of real property used to facilitate a crime is per se punitive in
nature because it is "[a] civil sanction that cannot be said solely to serve a
remedial purpose . . . .""7 The Court further held that punitive civil
forfeitures are subject to the Eighth Amendment's prohibition against
excessive fines-but they provided no guidance as to how to determine
whether a fine is excessive, allowing the lower courts the opportunity to
address and fully develop this new standard. 17' However, in a separate
concurrence, Justice Scalia suggested that the appropriate analysis should
focus not on the value of the property in relation to the offense, but rather
on whether the property
' 72
stands in close enough relation to the offense to
render it "guilty."'
The Fourth Circuit, in United States v. Chandler, adopted Scalia's
approach: the Fourth Circuit standard focused solely on the nexus between
the property and the offense, but it gave no consideration to the "proportion-
ality" between the offense and the value of the forfeiture.' 7 4 Other courts,
however, have refused to limit their Excessive Fines analyses. The Ninth
acquired a legal interest was forfeitable to the government. Id.

166. Id. § 853(d).
167. Id. § 853(g).
168. Id. § 853(n).
169. "Excessive bail shall not be required, nor excessive fines imposed, nor cruel and
unusual punishments inflicted." U.S. CONST. amend. VIII.
170. 113 S. Ct. 2801, 2812 (1993).
171. Id. See Yee v. City of Escondido, 503 U.S. 519, 538 (1992).
172. Austin v. United States, 113 S. Ct. 2801, 2815 (Scalia, J., concurring in part and
concurring in the judgment).
173. 36 F.3d 358 (4th Cir. 1994).
174. Id. at 365-66.
Circuit, in United States v. 6380 Little Canyon Road,7 ' reasoned that
focusing exclusively on the nexus between the property and the offense
would leads to potentially "harsh" results.' 76 Instead, the Ninth Circuit
adopted an analysis which combines both a "nexus" test and a "proportion-
ality" tests.'77 Under this test the government must first show the "nexus"
between the property and the offense. 78 If the government succeeds, the
burden then shifts to the defendant to show that the forfeiture is unconsti-
tutional because it is "grossly disproportionate given the nature and extent
of [the defendant's] criminal culpability."' 7 9 When the "forfeiture of an
owner's property that was an instrumentality of the crime ... appears to be
an excessive fine within the80 meaning of the Eighth Amendment, [the
forfeiture] must be reduced."'
Similar to their Eighth Amendment arguments, criminal defendants have
relied on the Fifth Amendment's Double Jeopardy Clause to limit forfeiture
actions by the government. A series of rulings by the Supreme Court and
lower courts since 1989 have raised the specter that civil forfeiture
proceedings taken apart from related criminal prosecutions may violate the
Fifth Amendment's prohibition against double jeopardy.' 8 ' Such rulings
175. 59 F.3d 974 (9th Cir. 1995).

176. Id. at 983. See United States v. RR #1, Box 224, 14 F.3d 864, 873-76 (3d Cir.
1994) (rejecting the "nexus" test as the sole test for an Excessive Fines Clause analysis).
177. 6380 Little Canyon Road, 59 F.3d at 982.
178. Id.
179. Id. at 985. The Ninth Circuit's proportionality test requires courts to focus on:
(1) the fair market value of the property; (2) the intangible, subjective value of the
property, e.g., whether it is the family home; and (3) the hardship to the defendant,
including the effect of the forfeiture on defendant's family or financial condition ...
The culpabilityof the owner should include consideration of the following factors: (1)
whether the owner was negligent or reckless in allowing the illegal use of his property;
or (2) whether the owner was directly involved in the illegal activity, and to what extent;
and (3) the harm caused by the illegal activity, including (a) (in the drug trafficking
context) the amount of drugs and their value, (b) the duration of the illegal activity, and
(c) the effect on the community.
Id. at 985-86.
180. Id. at 986.
181. No person shall "be subject for the same offense to be twice put in jeopardy of
life or limb...." U.S. CONST. amend. V. This defense requires the defendant prove five
elements, all of which are somewhat controversial: (1) the defendant has been subject to two
or more punishments, (2) the punishments were imposed in separate proceedings, (3) the
punishments were for the same offense, (4) the multiple punishments were imposed on the
same defendant, and (5) that the punishments were imposed by the same sovereign. Austin
v. United States, 113 S. Ct. 2801 (1993). The development of the Double Jeopardy defense
may be of interest and is outlined below. In the 1984 case of United States v. One
Assortment of 89 Firearms,the Supreme Court held that double jeopardy does not bar a
"civil, remedial forfeiture proceeding initiated following an acquittal on related criminal
charges." 465 U.S. 354, 361 (1984). The Court wrote that "[u]nless the forfeiture sanction
was intended as punishment, so that the proceeding is essentially criminal in character, the
Double Jeopardy Clause is not applicable." Id.at 362. See Helvering v. Mitchell, 303 U.S.
391, 398-99 (1938). After the decision in 89 Firearms,it was not until several years later,
in 1989 in United States v. Halper that the Supreme Court unanimously held that a civil fine
designed to compensate the United States for its damages and expenses but which, as applied
in that case, actually exceeded damages by some 220 times, was a penalty. 490 U.S. 435
(1989). As a penalty, the Court held that the fine could not be imposed in a civil proceeding
following a criminal proceeding for the same offense, because it violated the Double Jeopardy
Clause. Id. at 450-51.
In Austin v. United States, the Court held that civil forfeitures of real property used to
facilitate criminal activities were punishments-at least for the purposes of the Eighth
Amendment. 113 S.Ct. 2801, 2812 (1993). Whereas the Court in Austin held the civil
forfeiture of real property under a facilitation theory constituted punishment, the Court had
previously held civil forfeiture of "contraband" or "of goods involved in customs violations"
to be merely remedial in nature. Id.(citing United States v. One Assortment of 89 Firearms,
465 U.S. 354, 354-64 (1984); One Lot Emerald Cut Stones v. United States, 409 U.S. 232,
237 (1972)). In the wake of Halper and Austin, numerous defendants who had been
subjected to civil forfeiture actions, separate and apart from related criminal prosecutions,
raised claims that the separate proceedings violated the Fifth Amendment's prohibition against
double jeopardy.
The Second Circuit, in United States v. Millan, 2 F.3d 17 (2d Cir. 1993), cert. denied
sub nom. Bottone v. United States, 114 S. Ct. 992 (1994), and the Eleventh Circuit, in United
States v. 18755 North Bay Road, 13 F.3d 1493 (11th Cir. 1994), rejected this defense as it
applied to civil forfeiture proceedings initiated concurrently with the criminal prosecutions.
However, the Ninth Circuit rejected the rationale of both the Second and Eleventh Circuits.
United States v. $405,089.23 U.S. Currency, 33 F.3d 1210 (9th Cir. 1994). The Ninth
Circuit held that a civil forfeiture pursuant to 18 U.S.C. § 981 is per se punitive, and that
separate proceedings, whether or not initiated concurrently, violate the double jeopardy
clause. Id. at 1216-17, 1221-22. This decision was criticized by the Ninth Circuit's Judge
Rymer in his dissent to that court's decision not to rehear the case:
The [9th Circuit's] opinion [in $405.089.23] collapses Halper into Austin, converting
Halper'srule of reason for the "rare" case into a per se rule for the routine case. It also
merges the inquiry for excessive fines cases-whether the amount forfeited is partly
punishment-into doublejeopardy cases, where the issue is whether the amount forfeited
is entirely punishment. And, perhaps most critically, the opinion treats proceeds,which
are forfeitable under § 881 (a)(6), like a car or a house used to facilitate a drug offense.
This has to be wrong. 89 Firearms-whichAustindistinguishes but leaves intact-says
otherwise; and so does the Fifth Circuit, with which we are now squarely in conflict.
[The Fifth Circuit, in] United States v. Tilley. . .[held] post-Austin and post-Halper,
forfeiture of illegal proceeds cannot be punishment for doublejeopardy purposesbecause
it is of property to which the defendant never had a legal right and "it exacts no price
in liberty or lawfully derived property" . ...
If the Supreme Court has changed its mind-if instead of being a remedial sanction
that does not trigger the double jeopardy bar as 89 Firearms held with respect to
contraband, separating a drug trafficker from the proceeds of his trafficking is
punishment which either bars forfeiture after conviction or prosecution after seizure-it
is up to that Court to say so. I question whether it has.
have serious implications, the most immediate and far reaching of which
may be the release of numerous criminals currently in prison. 8 2 If a
person was previously subjected to both criminal prosecution and civil
Id. at 43 (Rymer, J., dissenting) (citations omitted).

Following these decisions, the Supreme Court entered the arena once again with its
decision in Department of Revenue of Montana v. Kurth Ranch, which addressed the issue
of whether a punitive tax on marijuana was subject to a double jeopardy analysis. 114 S. Ct.
1937, 1941 (1994). The penalty at issue was imposed in a separate proceeding, held at
approximately the same time as a criminal proceeding, and assessed after the end of the
criminal proceeding. Id. at 1942-43. The Supreme Court held, in a 5-4 decision, that the
imposition of the tax in a separate proceeding after the criminal prosecution was barred by
the Double Jeopardy Clause. Id. at 1945-48. The Court further noted that the statute, and
therefore the Court's holding, did not address "whether an ostensibly civil proceeding that
is designed to inflict punishment may bar a subsequent proceeding that is admittedly criminal
in character." Id. at 1947 n21.
In the aftermath of this decision, some commentators have speculated that Kurth Ranch
throws into doubt the Second Circuit decision in Millan and the Eleventh Circuit opinion in
18755 North Bay Road.. E.g., United States v. Torres, 28 F.3d 1463, 1465 (7th Cir. 1994 )
(Judge Easterbrook commenting on the problem of separate trials under the Double Jeopardy
Clause). Most recently, in United States v. Ursery, the Sixth Circuit became the first
appellate court to address the issue left unanswered by the Supreme Court in Kurth Ranch:
whether a prior civil forfeiture bars a subsequent criminal prosecution. 59 F.3d 568 (6th Cir.
1995). In Urserv,the government first sought civil forfeiture of the defendant's house based
on a theory of facilitation-a forfeiture which is per se punitive for the purposes of an
excessive fines analysis pursuant to the holding of Austin. Then, four months later, the
government prosecuted the defendant for the same offense. Id. at 570-71. The Sixth Circuit
held that prosecution of the defendant for the same offense violated the double jeopardy
clause based on reasoning similar to that of the Ninth Circuit in $405,089.23 U.S. Currency.
Id. at 573-74. Subsequently, the Sixth Circuit has limited the holding of Urseryto property
forfeited under a facilitation theory and adopted the Fifth Circuit holding of Tilley--that
where the forfeited property is the actual proceeds of a drug sale, forfeiture of the property
is not punishment for double jeopardy purposes. United States v. Salinas, 65 F.3d 551 (6th
Cir. 1995).
182. One author explained:
Because federal prosecutors either ignored or misread a 1989 U.S. Supreme Court
decision, hundreds-perhaps thousands-of drug and money-laundering convictions
could be overturned by the courts in the next few months, and millions in alleged drug
profits returned to its owners.
Already, some major San Francisco Bay area drug cases have been lost because of
[the double jeopardy defense]. Hundreds of appeals from convicted drug traffickers,
racketeers and money launderers are flooding federal courts across the West .... Federal
officials concede they have a mess on their hands that may take years to clean up.
"This could have a very significant effect on federal drug cases for the last 10 years,"
Assistant U.S. Attorney Kenneth Bauman said in Portland, Ore., recently.
Gary Webb, OversightMight Lead To Hundreds of Appeals, TULSA WORLD, June 17, 1995,
at C19.
forfeiture proceedings for the same offense, he now be able to argue, under
a writ of83habeas corpus, that he should be released on double jeopardy
grounds. 1
The specter of double jeopardy has also had a chilling effect on the use
of the civil forfeiture provision by law enforcement in the timing of their
operations.' 84 As a practical matter, civil forfeiture-proven effective in
combatting money laundering-is no longer perceived by enforcement
officials as such a preferred method of for reaching money launderers.' 85
This is unfortunate for prosecutors because civil forfeiture's procedural and
strategic aspects-its lighter evidentiary burdens, its separation from
criminal proceedings where the jury is first asked to find guilt beyond a
reasonable doubt, and the fact that it can be used at any time regardless of
when or if criminal charges are brought-have made it a desirable
alternative to criminal forfeitures.
In addition to these constitutional limitations on forfeiture, political,
branches of the government have responded to the perceived harsh effects
of forfeiture and its potential abuses. In an effort to "ameliorat[e] the harsh
results in individual forfeiture cases" and to provide relief for innocent
persons whose property is used by another for a criminal purpose,'8 6 the
Department of Justice, on June 29, 1994, published for comment a
regulation designed to amend and adopt procedures regarding petitions for
the mitigation and remission of forfeitures.' 87 The proposed regulation
would allow innocent owners and, in limited circumstances, the victims of
a crime, to petition the Attorney General's Office for relief pursuant to
administrative or judicial forfeiture proceedings.' 88 Another shield against
abuse of forfeiture proceedings by the government is 28 U.S.C. § 2412,89
the provisions of which allow innocent owners of property to recover
attorney's fees under certain conditions in civil actions, and in both civil and
criminal actions when the government's bad faith is shown. 9 '
183. Interview with David Jennings, supra note 154. See Dep't of Revenue of
Montana v. Kurth Ranch, 114 S. Ct. 1937, 1958-59 (1994) (Scalia, J., dissenting).
184. Interview with David Jennings, supra note 154.
185. In the wake of the recent decisions concerning civil forfeiture and double
jeopardy, many attorneys in the Department of Justice now rely almost solely on criminal
forfeiture proceedings taken as part of a criminal prosecution. Interview with David
Jennings, supra note 154.
186. See 59 Fed. Reg. 33,457, 33,458 (1994) (to be codified at 28 C.F.R. pt. 9).
187. Id. at 33,457.
188. Id.
189. 28 U.S.C. § 2412(b) (1988).
190. See United States v. Bachner, 877 F. Supp. 625, 627-28 (S.D. Fla. 1995)
(attorney's fees awarded to an innocent owner against the government, for bad faith in a
criminal forfeiture proceeding, when the government refused to release property after the
claimant proved both his interest and his innocence in court).
6. Legislative Attempts to Track Money Laundering:

Recordkeeping Changes Instituted by
the MLCA 86 and Other Mid-1980s Legislation
In addition to the criminalization of money laundering generally and

structuring specifically, MLCA 86 also revised some existing statutes. For
example, pursuant to changes to the Bank Secrecy Act (BSA), the Treasury
Department also implemented recordkeeping changes. Each financial
institution is now required to maintain records of all transfers of $10,000 or
more, in any form. Transfers must be reported each time funds are moved
into a United States account or transferred out of a United States account to
another account or place outside of this country. 9 '
The adoption of 26 U.S.C. § 60501 of the Internal Revenue Code
actually predated the MLCA 86 by two years, and while it is closely tied to
money laundering, 26 U.S.C. § 60501 was expressly enacted to address the
underreporting of income by all taxpayers.9 12 Modeled on the BSA's CTR
report, it focuses on high dollar cash transactions. Section 60501 requires
that an I.R.S. Form 8300, which is very similar to a CTR report, be
submitted by any person engaged in a trade or business 93 who engages
in either a single or series of related transactions 94 involving cash or cash
equivalents' 95 involving an aggregate in excess of $10,000." Failure
to file a required Form 8300 is punishable by fines and up to five years in
'97
prison.
The business community's compliance with the Form 8300 reporting
requirements has not been spotless. In 1990, to check compliance with the
law, "congressional investigators visited businesses at random across the
country and asked if they could pay cash for a big ticket item without its
being reported to the government ....Not only did 76 of 79 businesses
agree, but many offered laundering ideas of their own."' 9 s In 1991, the
IRS launched a drive to enforce Form 8300 reporting requirements."'
191. 31 C.F.R. § 103.33 (1994).

192. S.REP. No. 300, 98th Cong., IstSess. 121 (1983).
193. 26 C.F.R. § 1.60501-1(d)(1) (1995).
194. The term "related transaction" actually has two meanings. First it refers to the
aggregate of all transactions with a particular customer within a twenty-four hour period. 26
C.F.R. § 1.60501-1(c)(7)(ii) (1995). Second, it refers to the aggregate of other transactions,
outside of the twenty-four hour period, which are related to each other. Id.
195. Under 26 C.F.R. § 1.60501- l(c)( l)(1995), cash is defined as not only traditional
government coin, but also, in certain circumstances, cashier's checks, bank drafts, traveler's
checks, and money orders, when they have face amounts less than $10,000.
196. 26 U.S.C. § 60501 (a) (1988).
197. 26 U.S.C. § 60501 (0(2) (1988).
198. Gene Marlowe, U.S. Finds Effort to Stop LaunderingofDrug Money is Hit-and-
Miss Affair, RICH. TIMES-DISPATCH, Sept. 29, 1994, at B1.
199. See Eugene Carlson, Money-LaunderingCrackdown Snaring Small Firms, WALL
The investigation targeted 5,407 firms, many of them car dealerships or

marine dealerships, that "occasionally sell high-priced items for cash."2 '
The investigation revealed 5,773 unreported cash payments which involved
an aggregate of $109.2 million.2 ' As a result of these violations, the IRS
assessed $6 million in civil penalties and initiated forty-four criminal
investigations.20 2 In the aftermath of the 1991 sweep, reporting by
businesses and trades of cash payments in excess of $10,000, on the 8300
form, increased from 30,800 filings in 1990 to 71,400 filings in 1991 and
142,400 filings in 1992.203 By 1994, however, filings of the 8300 form
had fallen to 121,100 while, at the same time, CTR reports filed by banks
increased 14 percent. 2 This prompted another nationwide sweep by the
IRS, which began in April 1995.205 The 1995 sweep focused again on
small businesses such as auto dealerships and jewelry stores, with specific
targeting of businesses which had been depositing large amounts of cash at
banks, but which had made few Form 8300 filings. 0 6
Money laundering has obvious implications for tax payment. Since the
adoption of section 60501 and the establishment of tax fraud as one of the
possible predicates for money laundering under 18 U.S.C. § 1956,207 the
IRS has become a major player in the government's fight against money
laundering. 0 8
7. Summary and Conclusions Regarding the MLCA 86
The criminal prohibitions against money laundering that became part of

the law in 1986 have emerged as major, effective tools in the fight against
crime for profit. In 1987, only seventeen people were charged with money
laundering and only one was convicted.20 9 In 1993, 1,546 people were
charged with money laundering and, of those, 857 were convicted and 22
acquitted. 210 As one former federal prosecutor stated, "[t]he money-
ST. J., Feb. 12, 1992, at B2.

200. Id.
201. Id.
202. Id.
203. Federal Cash Reports Filed 1989-1994, 6 MONEY LAUNDERING ALERT (Alert
Int'l, Inc., Miami, Fla.), Feb. 1, 1995, at No. 5 (IRS figures reported through the Financial
Crimes Enforcement Network (FinCEN)).
204. Id.
205. John Emshwiller, U.S. Tax Agency Pays Small Firms Surprise Visits, WALL ST.
J. EUR., May 2, 1995, at 6 (availablein Westlaw, 1995 WL-WSJE 2148966).
206. Id.
207. (1988 & Supp. 1994).
208. See generallyPatriciaMorgan, Money Laundering,The InternalRevenueService,
And Enforcement Priorities,43 FLA. L. REv. 939 (1991).
209. Feds Chase Cash to Convictions,ST. PETERSBURG TIMES, Aug. 28, 1994, at 4B.
210. Id.
laundering laws are the weapons of choice of the 1990s for prosecu-
.... 112ll
tors
One simple but important concept that the federal government sought to
enact through its legislation and regulations was to encourage all financial
institutions to adopt a "know your customer" policy.2 t2 This policy was
designed to make the financial institutions sensitive to money laundering and
to prevent, to the extent possible, the use of false information in the
establishment of accounts.213 Treasury regulations require a financial
institution to verify the identity of all customers who open accounts as well
2 14
as any whose activities require reporting under the BSA.
Additionally, financial institutions must verify the identity of purchasers
of negotiable instruments, such as cashiers checks or travelers checks, in
amounts over $3,000.2"5 Depository institutions must report suspected
money laundering, and they are granted statutory immunity from tort
litigation for notifying authorities. 16 Further, depository institutions must
provide the Treasury Department with a report identifying all accounts
maintained by other non-bank financial institutions.2" 7 Finally, the current
regulations allow a financial institution to exempt certain business clients
from the CTR reporting requirements. Businesses such as retail operations,
bars, or check cashing operations, which normally engage in large currency
transactions, are allowed exemption. 1 8 However, the statute requires that
a bank be circumspect in choosing to exempt an entity from the CTR
reporting requirements. Banks must use "reasonable" judgement in making
the decision whether or not to exempt. 2 9 Further, if a bank chooses to
exempt a business under the regulation, the bank is responsible for
211. Id. (quoting Charles Intriago, publisher of the newsletter MONEY LAUNDERING
ALERT).
212. The "know-your-customer" policy was a specifically stated goal of the BSA when
it was introduced in 1970. See 1993 H.R. Hearingson Money Laundering,supra note 1, at
722 (statement of Sara Redding Wilson, Senior Corporate Counsel, Signet Banking Corp.)
(discussing the legislative history of the BSA). The Department of the Treasury has stated
an intent to promulgate regulations in 1995 which would require all financial institutions to
adopt "know your customer" policies. Amendment to the Bank Secrecy Act, 60 Fed. Reg.
220, 223 (1995) (to be codified at 31 C.F.R. pt. 103).
213. See 1993 H.R. Hearings on Money Laundering, supra note 1, at 723-24.
214. 31 C.F.R. § 103.28 (1994).
215. 31 U.S.C. § 5325 (1988).
216. Reports of Crimes and Suspected Crimes, 12 C.F.R. § 21.11 (1995); 31
U.S.C. § 5318 (Supp. 1993).
217. 31 U.S.C. § 5327 (Supp. 1993).
218. 31 U.S.C. § 5313 (Supp. 1995); 31 C.F.R. § 103.22(d) (1994).
219. Id. This vague requirement has kept numerous banks from exempting many
clients because of the potential for large penalties should the government find, in retrospect,
that the bank did not exercise reasonable judgment. 1993 H.R. Hearings on Money
Laundering,supra, note 1, at 501-02, 504.
"independently verifying the activity of the account and determining

applicable dollar limits for exempted deposits or withdrawals."'2 2 The
"know your customer" policy has been very effective in the American
banking industry as pertains to combating money laundering. During
congressional hearings on money laundering in 1993, law enforcement and
banking industry personnel testified that the majority of money laundering
investigations arising from the BSA reporting requirements were initiated by
tips from banks. 22' These tips were based on suspicious activity rather
than law enforcement's review of the reports.22
B. Government OrganizationalFrameworkFor Combatting Money

Laundering and Prosecuting Under the MLCA Statutes
There are seven major players in the fight against money laundering,
some of which are subdivisions of one another: (1) the Justice Depart-
ment 223; (2) the United States Attorney General's Office224 ; (3) the Fed-
220. Reports of Currency Transactions, 31 C.F.R. § 103.22(d) (1994).

221. See generally1993 H.R. Hearingson Money Laundering,supra note 1, at 107-09
(statement of Sara R. Wilson, Senior Corporate Counsel, Signet Banking Corporation)
(discussing large volume of CTRs filed by banks on a regular basis).
222. Id.The Federal Reserve Board has listed guidelines which bank personnel should
consider in determining certain customer behavior suspicious. Tips on Suspicious
TransactionsFrom the FederalReserve Board, 6 MONEY LAUNDERING ALERT (Alert Int'l,
Inc., Miami, Fla.), Apr. 1, 1995, at No. 7.
223. The Department of Justice's Organized Crime Drug Enforcement Task Force
Program (OCDETF) was initiated in 1982. The program mounts coordinated investigations
involving all federal investigative agencies, state and local law enforcement, and United
States attorney's offices, and coordinates as needed with foreign law enforcement. 1993H.R.
Hearingson Money Laundering,supra note 1, at 419 (statement of Mark Richard, Deputy
Assistant Attorney General, Criminal Division, U.S. Dep't of Justice). To assist in the
development of the money laundering and asset forfeiture laws, the Justice Department
maintained, until recently, a special section, the Money Laundering Section, consisting of 12
attorneys who specialized in providing advice and assistance in the prosecution of money
laundering offenses. Id. at 417-18. However, this section was abolished in September 1994,
and its functions and personnel divided between the Asset Forfeiture and Narcotics sections
of the Justice Department. Telephone Interview with Beth Jones, Assistant General Counsel,
U.S. Dep't of the Treasury (Nov. 15, 1994).
The OCDETF has conducted over 5,000 major investigations since its inception. In
1992, it had 875 ongoing investigations, 75% of which addressed money laundering. Every
major money laundering investigation in the United States has been handled through the
OCDETF. Id. at 419-20.
224. See id. The United States Attorney's Office has 94 offices across the nation
which handle prosecution of federal crimes. Federal prosecutors have steadily increased use
of the money laundering statutes over the last several years. Id. at 427. In terms of
forfeitures and seizures, the Justice Assets Forfeiture Fund contained over $362 million in
currency in fiscal year 1992. Id.
eral Bureau of Investigation (FBI) 225; (4) the Drug Enforcement Agency
(DEA) 2 6; (5) the Federal Reserve Board 227 ; (6) the Federal Deposit
Insurance Corporation (FDIC) 228 ; and (7) the Treasury Department. The
Treasury Department encompasses six different offices which play a role in
combatting money laundering. 29
225. The FBI has primary investigativejurisdiction over "violation of federal criminal
law not specifically assigned to another investigative agency by statute." 1993 H.R. Hearings
on Money Laundering,supra note 1, at 439 (statement of Frederick B. Verinder, Deputy
Assistant Director, Criminal Investigative Division, FBI). The FBI has concurrent jurisdic-
tion, with the DEA, in drug-related crimes. Id. at 439-40.
226. The DEA has jurisdiction in money laundering investigations in which the
underlying offense is drug-related. See id. at 457 (statement of John J. Coleman, Assistant
Administrator for Operations, DEA). The DEA maintains a drug intelligence database, which
it shares with all other federal branches with investigative roles in money laundering. See
id. at 458.
227. The Federal Reserve Board is responsible for the annual BSA compliance
examinations of state banks which are members of the Federal Reserve and American
branches of foreign banks. Id. at 535, 576 (statement of John P. LaWare, Governor, Federal
Reserve Board). The Board shares responsibility with the Treasury Department to develop
regulations regarding wire transfers of funds. Id. at 542.
228. Id. at 575 (statement of Stanley J. Poling, Director, Division of Supervision,
FDIC). The FDIC conducts BSA compliance inspections approximately once every two years
of the 7,100 insured, state-chartered banks that are not members of the Federal Reserve
system. It also conducts inspections of 52 insured, state-licensed branches of foreign banks
once every two years. Id.
229. In addition to the Financial Crimes Enforcement Network (FinCEN), discussed
in the next paragraphs of text, the other five Treasury Department organizations involved in
tracking money laundering are described here.
The Office of Financial Enforcement (OFE) is a wholly administrative division which
is not involved in the actual investigation of money laundering activities. In November 1994,
OFE was reorganized as a division of FinCEN. The OFE is responsible for collection and
maintenance of the BSA report databases at Detroit (IRS) and Virginia (FinCEN). OFE
promulgates regulations regarding the BSA for the Treasury Department, and is currently
working with the Federal Reserve Board to promulgate regulations regarding wire transfers.
The OFE is also responsible for imposing civil sanctions against violators of the BSA when
such violations are brought to the attention of OFE by the IRS, Customs Service, DEA, FBI,
Department of Justice, or federal or state financial regulators. Id. at 365-76 (statement of
Peter G. Djinis, Director, Office of Financial Enforcement, U.S. Dep't of the Treasury).
The United States Customs Service (Customs) is primarily involved in controlling the
international movement of currency requiring CMIR reports pursuant to 31 U.S.C. § 5316.
Id. at 398 (statement of John Hensley, Assistant Commissioner (Enforcement), U.S. Customs
Service). Its operations focus on money being smuggled into and out of the country. See
id. at 398-402. In 1992, Customs made 862 seizures of currency and monetary instruments
valued at a total of $42.4 million. Id. at 405.
The IRS plays a dual role regarding money laundering. The IRS Examination Division
has the regulatory responsibility for ensuring BSA compliance of all non-bank financial
institutions and of ensuring all businesses comply with the reporting requirements of 26
Perhaps most important of these Treasury Department organizations is

the Financial Crimes Enforcement Network (FinCEN), which was estab-
lished in 1990 to provide strategic analysis and intelligence to federal and
state law enforcement and regulatory organizations concerning financial
crimes in general and money laundering in particular.23 ° This small
organization includes 200 employees as well as analysts and agents from
fourteen federal law enforcement and regulatory agencies. 23' FinCEN
maintains Treasury's financial database, which contains the data from all of
the reports generated nationwide pursuant to the BSA.232 Treasury
regulations promulgated in 1995 designated FinCEN as the sole location for
financial institutions to submit reports of suspicious transactions.23 3
U.S.C. § 60501. Id. at 380 (statement of Donald K. Vogel, AssistantCommissioner (Criminal

Investigation) and Michael L. Killfoil, Acting Assistant Commissioner (Examination), IRS).
In 1992, the IRS conducted 3,350 compliance examinations of non-bank financial institutions
and 8,178 compliance examinations of businesses subject to § 60501 reporting requirements.
Id. at 388. Additionally, the IRS maintains a database, separate from FinCEN's, which
contains information from all reports which have been submitted pursuant to the BSA, and
this information is available on-line only to IRS personnel, the United States Customs Service
and FinCEN. Id. at 389.
The IRS Criminal Investigation Division (CID) conducts investigations of all general
financial crimes, and is actively involved in the investigation of numerous crimes implicating
money laundering. Id. at 380. In 1992, the CID was responsible for 1,669 seizures, totalling
$165.5 million. Id. at 384.
The Comptroller of the Currency is responsible for BSA compliance examinations of
3,600 national banks. Id. at 551 (statement of Robert B. Serino, Deputy Chief Counsel,
Office of the Comptroller of the Currency). Examinations are conducted biannually of banks
with more than $1 billion in assets and randomly for all others, with approximately 16%
covered each year. Id. at 555.
The Office of Thrift Supervision (OTS) conducts BSA compliance inspections of the
nation's thrifts. Id. at 687 (statement of John F. Robinson, Acting Deputy Director for
Washington Operations, OTS). Inspections are conducted once every two years for those
thrifts receiving a satisfactory compliance rating and every six months to one year for all
others. Id. at 689.
230. Id. at 350 (statement of Brian M. Bruh, Director, FinCEN). In 1994, FinCEN
assisted 150 agencies in over 6,000 investigations, and the number of investigations assisted
with is expected to exceed 10,000 in 1995. Shannon Henry, Treasury Crime Fighters Vow
to Ease Banks' Burden, AM. BANKER, Feb. 23, 1995, at 14.
231. See 1993 H.R. Hearingson Money Laundering,supra note I, at 351 (statement
of Brian M. Bruh, Director, FinCEN).
232. Id. at 350, 354.
233. Minimum Security Devices and Procedures, 60 Fed. Reg. 34,476 (1995) (to be
codified at 12 C.F.R. pt. 21); 60 Fed. Reg. 34,481 (1995) (to be codified at 12 C.F.R. pts.
208, 211 and 225). Currently, there are dual reporting requirements for banks filing CTRs.
The CTR reports normally go to the IRS in Detroit for input. If the bank wishes to note that
the subject of the CTR report is suspicious, there is a box that must be checked on the form.
If the bank has a strong reason to suspect that the transaction involves money laundering, it
TENNESSEE LA W RE VIEW [Vol; 63:143
Additionally, as of November 1994, FinCEN assumed control of the Office

of Financial Enforcement.23 4 FinCEN has extensive computer capability
and can automatically acquire, integrate, and present data across the multiple
external databases accessed by FinCEN.235
A primary goal of FinCEN is to use artificial intelligence to extract
targeting information from BSA reports.23 6 FinCEN's use of artificial
intelligence has met with limited success, but efforts are continuing to
develop useful search criteria and to expand computer capability. 237 A
major initiative of FinCEN, known as Project Gateway, has been to allow
states to access the database on-line.238 Until early 1994, FinCEN also
is required to file a Criminal Referral Report. This report must go to seven different
agencies, including FinCEN, IRS, and the FBI. Each agency has its own version of the form.
Telephone Interview with John Byrne, Senior Federal Legislative Counsel, American
Banker's Association (ABA) and member of the Bank Secrecy Act Advisory Group (Nov.
16, 1994).
Under proposed new rules, a depository institution would continue to submit the normal
CTR report on deposits in excess of$ 10,000. However, if the depository institution feels that
any transaction is suspicious-i.e., it involves money laundering or BSA violations-the bank
would fill out a Suspicious Activity Report (SAR) and send it to a single source, FinCEN.
The institution would send in an SAR for all suspicious transactions, regardless of whether
the aggregate amount involved was over $10,000. Minimum Security Devices and
Procedures, 60 Fed. Reg. 34,476 (1995) (to be codified at 12 C.F.R. pt. 21); 60 Fed. Reg.
34,481 (1995) (to be codified at 12 C.F.R. pts. 208, 211 and 225).
These reports will be housed in a database dubbed the Financial Institution and
Regulatory Agencies Criminal Referral Enforcement System (FIRACRES). See WhileSnafius
Stall CRF, Information-SharingSuffers,5 MONEY LAUNDERING ALERT, supra note 83, Jan.
1, 1994, at No. 4. Each report will be scanned into the system and will include any
accompanying investigative reports or like documentation. Id. The precise methods by
which law enforcement and other agencies will access these reports is not clear at this time.
Id.
234. Telephone Interview with Beth Jones, supra note 223.
235. 1993 H.R. Hearings on Money Laundering,supra note 1,at 350-64 (statement
of Brian Bruh, Director, FinCEN).
236. Id.
237. Id.
238. Telephone Interview with Bobbie Jackovich, Criminal Investigation Division,
Tennessee Bureau of Investigation (TBI) (Nov. 15, 1994). Project Gateway was tested
experimentally in 1993-94 in Texas and was found to be quite useful in aiding ongoing
investigations and in developing links to previously unidentified subjects. Id. It has since
been opened to 35 other states which have requested access. Id. Although not all states can
access the database, some are currently in the process of completing the intermediate steps
necessary to be certified by FinCEN for access. Id. For example, Tennessee has sent two
TBI agents for training on the FinCEN system, and has met the other necessary requirements,
but is still awaiting final "on-line" access, which should occur during 1995-1996. Id. Under
the program, certain designated individuals in state law enforcement can access the database
for information concerning named suspects. Data available to the states includes the 50
1995l MONEY LA UNDERING
published a quarterly newsletter, Trends. The newsletter was designed to

disseminate information on trends and techniques in money laundering to
bankers and others who were required to submit reports under the BSA.23 9
The response from bankers was that they generally found this publication
extremely informative and helpful.240 FinCEN does not currently have
access to IRS Form 8300s, which must be filed with the IRS pursuant to 26
U.S.C. § 60501. The form requires businesses to report transactions
involving more than $10,000 cash.
Today, the vast majority of money laundering investigations begin either
as a result of tips to law enforcement personnel by financial institutions, or
as a result of information gathered by law enforcement personnel in the
course of ongoing criminal investigations.2 4 Undercover sting operations
are a favorite technique of law enforcement in combating money launder-
ing. 242 These undercover operations can be time-consuming as well as
million BSA reports in the Treasury database, a database of known non-bank financial
institutions, a database which shows who has made queries on the same suspects (which
seems to be a very well conceived tool to allow for internal coordination among the nation's
law enforcement entities), and the sophisticated soft-ware manipulation capabilities of
FinCEN. Telephone Interview with Sherri Wassenaar, Intell Research Specialist, FinCEN
(Nov. 15, 1994). See FINANCIAL CRIMES ENFORCEMENT NETWORK, U.S. DEP'T OF THE
TREASURY, THE FINCEN BULLETIN, PROJECT GATEWAY (1994); Laurie E. Ekstrand, U.S.
General Accounting Office, Report to the Chairman of the Committee on Banking, Finance
and Urban Affairs 2 (1994).
239. Telephone Interview with Sherri Wassenaar, supra note 238.
240. E.g., Telephone Interview with John Byrne, supra note 233. According to
reports, FinCEN suspended publication of this document in 1993, the reason for which is
unclear. Telephone Interview with Sherri Wassenaar, supra note 238.
241. See 1992 Senate Hearings on casas de cambio, supra note 7 at 11; Paul M.
Barrett, OtherAgencies Say No Soap to Treasury'sPushfor High-Tech Tracking of Money
Laundering,WALL ST. J., Dec. 14, 1989, at A24. The volume of leads received by IRS from
banks is so large that CID must prioritize.
"We've got too many leads that are solid tips from banks to spend a lot of time on what
we get" from headquarters, [an] IRS agent says. The IRS, which shares responsibility
with Customs for analyzing currency reports, has employed 2,800 criminal investigators
for the past decade. But the number of annual filings of the most common type of
report has grown from a few hundred thousand to 6.4 million. "If you want us to do
these cases right, we need more people to do them," the agent says.
Id.
of Frederick B. Verinder, Deputy Assistant Director, Criminal Investigative Division, FBI).
Undercover operations are popular in money laundering investigations because they are highly
effective and "alleviate the 'laborious, frustrating, and often impossible task of tracing
transactions through a labyrinth ofbusinessand international transactions. "'FBICites Pitfalls
In UndercoverCases,5 MONEY LAUNDERING ALERT (Alert Int'l, Inc., Miami, Fla.), Feb. 1,
1994, at No. 5 (quoting from a paper published by the FBI's Asset Seizure/Money
Laundering Unit).
very expensive."' The cost of running an undercover operation can average

a minimum of $40,000 per month--excluding of operating costs for
laundering or buying drugs. 2 " These types of operations tend to be more
difficult because non-bank financial institutions act as the launderers and the
people they serve are often family or people with whom they have had long-
term relationships.24 5
Until very recently, the reports generated pursuant to the BSA were not
used in a proactive manner to detect money laundering.2 46 The primary
uses of the reports were to aid on-going investigations and to use as
evidence in prosecutions.2 47 In March 1993, FinCEN came "on-line" with
a computer system with artificial intelligence (FAIT).2 48 FAIT has the job
of examining all of the 2BSA
49 reports submitted and the goal of generating
proactive targeting data.
C. Money Laundering Since 1986 in the United States: The Move

Away from Banks to Complicated Transfers and Smuggling
In the wake of significant strengthening of domestic money laundering

statutes and heavy regulatory efforts to ensure BSA reporting compliance
after the Bank of Boston affair, banks have become very attentive to the
responsibilities imposed on them by the BSA.2 50 Banks have, in effect,
become the government's "front-line defense" in the fight against money
laundering.2 5' Consequently, money laundering has largely moved out of
243. See 1992 Senate Hearingson casasde cambio, supra note 7,at 11 (testimony of
Kim L. Wherry, Staff Counsel, Permanent Subcommittee on Investigations, and Harold B.
Lippman, Staff Investigator).
244. Id.
245. Id. at 81 (prepared statements of Ms. Wherry and Mr. Lippman).
246. See, e.g., FINANCIAL CRIMEs ENFORCEMENT NETWORK, supranote238; Ekstrand,
supra note 238, at 2.
247. See 1993 H.R. Hearingson Money Laundering,supra note 1,at 514 (statement
of Henry R. Wray, Director, Administration of Justice Issues, U.S. General Accounting
Office).
248. Id. at 126 (questions to Brian M. Bruh, Director, FinCEN, by Henry B. Gonzalez,
Chairman, House Committee on Banking, Finance and Urban Affairs).
249. Id. at 127.
250. Id. at 207-08 (statement of Ronald K. Noble, AssistantSecretary for Enforcement,
U.S. Dep't of the Treasury).
251. Id. at 207. Because steep penalties can be imposed for noncompliance with the
BSA statutes and regulations, banks have gone to great lengths to ensurc that they report
properly - even to the extent of installing software to detect when CTR's must be filed as
a result of multiple deposits occurring in a single day. Id. at 503 (referring to a letter from
Sara R. Wilson, Senior Corporate Counsel, Signet Banking Corp.). There has even been a
"steady reduction in the use of [CTR] 'exemptions' [which banks can allow businesses under
31 C.F.R. § 103.22(d)] .. .[as banks] find it safer and often cheaper to file routine daily
1995l MONEY LAUNDERING
the highly regulated world of mainstream banking.252 Launderers now

place greater emphasis on smuggling money out of the country, domestic
placement of money through non-bank financial institutions, and domestic
placement through front companies.25 3 The use of wire transfers in the
layering process has retained its importance and there has been an increase
in the sophistication of layering techniques, primarily, the use of shell
25 4
corporations and bank loans used to disguise the basis of the wealth.
Recent technological developments in payment systems promise to become
new arenas for money laundering in the future.25
1. Smuggling
Since the 1986 legislation, one of the principal techniques of placement

has become simple smuggling to move cash out of the country.256 Current
CTRs rather than to follow the uncertain, subjective process Treasury prescribes for
exemption establishment and administration." Id.at 504. These actions seem to bejustified.
In 1993, the Treasury Department imposed more penalties on financial institutions for BSA
violations than in any single prior year. Twenty five penalties were assessed in 1993, with
an aggregate fine of $4,962,143. TreasuryEnds LargestBSA Penalty Year With Two More,
5 MONEY LAUNDERING ALERT (Alert Int'l, Inc., Miami, Fla.), Jan. 1, 1994, at No. 4.
252. For example, in Dec. 1994, when a ring of would-be money launderers was
indicted for placing large amounts of cash directly into a bank, they were ridiculed in the
pages of the nation's newspapers:
[T]he Citibank ring, prosecutors contend in an indictment handed up a month ago, did
something almost ludicrously unsophisticated: Its participants stuffed thousands of
dollars into garbage bags, filled out deposit slips and delivered the stash to a friendly
employee at the bank.
If the charges are true-several of the principals have pleaded not guilty-they offer
a certain reassurance: Even in this age of increasingly sophisticated organized crime,
some criminals are, well, not that bright.
"It sounds pretty dumb to me," says Charles Intriago, editor of Money Laundering
Alert, a Miami-based newsletter aimed at the banking industry.
Malcolm Gladwell, Bagging a Bumbling Band OfAllegedMoney Launderers, WASH. POST,
Jan. 4, 1995, at A23.
253. E.g., infra notes 256-58, 272-77, 308.
254. E.g., supra notes 27-32; infra notes 355-58.
255. MONEY LAUNDERING, supra note II, at 51-63.
256. See, e.g., Barrett, supra note 241, at A24:
In one sense, this ...[smuggling] trend is heartening to officials. It demonstrates that
increased policing of bank currency transactions has had a deterrent effect. Smuggling
suitcases of cash is less convenient than ordering almost instantaneous wire transfers.
But given how huge and porous U.S. borders are, it's unlikely authorities can stop more
than a small fraction of the cash flowing out. Once abroad, the money can be deposited
in banking-secrecy havens such as Panama, and from there, wired anonymously
anywhere in the world.
estimates suggest that as much as fifty billion dollars are being smuggled
out of the United States annually.257 Assuming overall estimates of
laundered funds are correct, twenty to fifty percent of all profits derived
from criminal enterprise are completely bypassing the plethora of money
laundering hurdles set up within the United States.
One of the most common methods of smuggling is to smuggle the "bulk
cash out of the country through the same channels that bring drugs in,
primarily airplanes and cargo containers."2" 8 Yet another method is by
courier, with people hand-carrying the cash aboard commercial or private
aircraft. 25 9 A third method is to transform the cash into negotiable instru-
ments, such as money orders or traveler's checks, and mail them out of the
country to a foreign bank.26 In fact, use of the United States postal
257. John J. Fialka, Drug Dealers Export Billions of Dollars To Evade Laws on
CurrencyReporting, WALL ST. J., Apr. 7, 1994, at A4. The amount smuggled is so huge
and unstoppable that contemplation of the problem led Senator Sam Nunn to observe that
President Truman was incorrect as to our borders--"the buck doesn't stop here anymore."
Id. Part of the reason for this, no doubt, is the lack of manpower given to interdicting
smuggling. According to a report by the General Accounting Office, "[o]nly 130 of 6,228
customs inspectors are assigned full time to inspecting outbound shipments .... They have
to patrol 11,000 miles of coastline, 6,000 miles of land borders and more than 300 air, land
and sea ports." Jonathan Marshall, On Economics: Money Laundering, S.F. CHRON., May
2, 1994, at D3.
258. Barrett, supra note 241, at A24; see 1993 H.R. Hearingson Money Laundering,
supra note 1, at 152 (discussing large seizures of cash found hidden in cargo containers
destined for Panama).
259. Frontline:Hot Money (PBS television broadcast, Nov. 1, 1994) (transcript on
file with the Tennessee Law Review). Kenneth Rijock, a Miami attorney now under
indictment for money laundering, stated that he made frequent trips to the island banking
havens on chartered flights with his money laundering clients in tow carrying suitcases full
of cash for placement at the island banks. See id.; see also George Melloan, Drugs-The
Argentine Connection, WALL ST. J., Apr. 25, 1991, at A14. A personal secretary to the
Argentine president regularly acted as a "camel" for drug smugglers by bringing at least one
million dollars, wrapped in a blanket inside a suitcase, into Argentina after each of her trips
to New York. Id.
260. 1992 Senate Hearingson casasde cambio, supra note 7, at 67 (statements of Kim
L. Wherry, Staff Counsel, Permanent Subcommittee on Investigations, and Harold B.
Lippman, Staff Investigator). It is suggested that this method accounted for the large amount
of money orders-in excess of $180 million-negotiated by Panamanian banks in 1992. Id.
at 153. In response to this abuse of money orders for international money laundering, the
Postal Service published a final rule in the Federal Register on February 2, 1995, that
restricted the negotiation of domestic postal money orders to the United States and certain
associated territories. 60 Fed. Reg. 7912 (1995) (to be codified at 39 C.F.R. pt. 20). This
final rule took effect March 1, 1995, and amended § 39 1.11 of the International Mail Manual,
incorporated by reference in 39 C.F.R. pt. 20.1. Consequently, if a domestic money order
is mailed overseas and negotiated at a foreign bank, the Postal Service will not honor the
money order when it is presented for payment by the bank.
system is considered one of the safest and most efficient ways to smuggle
cash and negotiable instruments out of the country.26 ' According to
reports, this is rapidly becoming a method of choice because of the
reliability of the mail system and the heightened protection that the United
States affords its mail against warrantless searches.262
A common variation of smuggling was described by a money launderer
who operated near the border of Mexico. 263 He would place the cash in
his car and drive the illicit funds across the border into Mexico. 2M As he
265
crossed into Mexico, he would not declare the funds on a CMIR report.
Subsequently, he would turn around and come back into the United States,
declaring the funds at the border as legitimate revenue derived from business
dealings in Mexico. 266 Customs would issue him an appropriate form for
declaring the funds at the border. 67
With this form in hand, we could then deposit the cash in any of my
U.S. bank accounts without generating any suspicion. Once the cash was
in my account, I would then wire transfer it to any destination selected by
the customer without any problem, since there are no reporting require-
ments for such transactions, regardless of the amount. 68
A FinCEN study of money declared along the American-Mexican border

lends circumstantial evidence to the validity of this smuggling technique.
From 1988 to 1990, the small-town border area of Brownsville-Laredo,
Texas had the most funds declared upon entry to the United States-eight
billion dollars.269 Second on the list, with five billion dollars declared,
was the small town area of Nogales, Arizona. 270 The largest population
centers along the border, El Paso, Texas and San Diego, California, placed
third and fourth.27 '
261. Fialka, supra note 257, at A4.

262. Id. 31 U.S.C. § 5317(b) authorizes customs officers to conduct warrantless
searches of any person, vehicle, aircraft, envelope, or container coming into or departing from
the United States for the purposes of ensuring compliance with the CMIR reporting
requirements. Mail or packages moving internationally through the United States postal
system, however, pass outside Customs' authority. See Fialka, supra note 257, at A4.
263. 1992 Senate Hearingson casas de cambio, supra note 7, at 21-22 (testimony of
Arturo Gomez, former owner of a casa de cambio, currently under indictment for money
laundering).
264. Id. at 21.
265. Id.
266. Id.
267. Id.
268. Id.
269. 1992 Senate Hearings on casas de cambio, supra note 7, at 34 (testimony of
Charles Lewis, Assistant United States Attorney, Southern District of Texas).
270. Id.
271. Id.
2. Transfers Through Non-Bank Financial Institutions
The term "non-bank financial institutions" is used by the government to

refer to the entire spectrum of financial institutions, outside the highly
regulated world of banks and thrifts, which engage in exchanging money,
wire transfers of money, cashing checks, and selling money orders and
traveler's checks.272 These institutions fall under the oversight responsi-
bility of the IRS and are subject to the requirements of the BSA.273 By
and large, however, non-bank institutions are essentially free from
oversight. 274 Because until recently there was not a federal nor, in most
cases, even a state licensing requirement for transferring any form of money,
the government has no idea how many of these organizations exist within
the United States. 27 5 Because they are far less regulated than banks, these
institutions have attracted money launderers.276 The three methods most
commonly used by non-bank financial institutions to place illicit funds are
structuring cash deposits to evade the CTR reporting requirements, failing
to file CTRs, and falsifying CTRs.277
One type of non-bank financial institution, which is nearly synonymous
with money laundering, is a casa de cambio. Casas de cambio are peso-
dollar exchange businesses, which came into being following the devaluation
of the peso in 1982.278 As non-traditional financial institutions, these
272. See 1992 Senate Hearingson casas de cambio, supra note 7, at 54 (statements
of Kim L. Wherry, Staff Counsel, Permanent Subcommittee on Investigations, and Harold
B. Lippman, Staff Investigator).
273. Id. at 55. These non-bank institutions must file CTR's for transactions involving
cash in excess of $10,000. They also have some recordkeeping requirements in that they
must maintain a chronological log of money orders, bank drafts, and travelers checks that are
sold at S3,000 to $10,000. Id.
274. One author reported:
Most of these businesses operate without significant government supervision, says
Charles Saphos, chief prosecutor in the Justice Department's narcotics section. "We
regulate the hell out of banks, but the regulation of the currency exchanges is done by
state agencies-pay S50 [for a license] and you're a currency exchange, no questions
asked."
Barrett, supra note 241, at A24.
275. See 1993 H.R. Hearings on Money Laundering,supra note 1, at 387 (statement
of Donald K. Vogel, Assistant Commissioner (Criminal Investigation), and Michael L.
KilIfoil, Acting Assistant Commissioner (Examination), IRS). The IRS first began attempting
to identify non-banking financial institutions nation-wide in 1989. By 1992, it had identified
31,000, a 240% increase. Id.
276. See 1992 SenateHearingson casasde cambio, supra note 7, at 55-56 (statements
B. Lippman, Staff Investigator).
277. Id. at 57.
278. See id. at 16 (testimony of Ms. Wherry and Mr. Lippman).
businesses are subject to federal CTR reporting requirements, but regulation

and supervision by local, state, and federal authorities has been very spotty
and uneven. 279 According to government estimates, in 1992 there were 2- °
over 1,000 casas de cambio in existence in the states bordering Mexico.
In the first several years of their existence, the casas de cambio served the
needs of a largely legitimate clientele.2 8 ' It is now estimated that at least
80 percent of the existing casas de cambio are involved in money launder-
ing.28 2 The average casa de cambio launders approximately $5 million per
month, while the largest launders an estimated $200 million every six
months. 28 3 The average charge by a casa to a client is between two and
five percent.284 Closely related to the casas de cambio are the "giro"
houses. Though fewer in number than the casas, they are identical except
that they cater to Colombians.285
The primary money transmitters in the United States are American
Express, Western Union, and Traveler's Express.286 These businesses
specialize in the domestic and international transfer of funds by wire, check,
computer network, and other means. 287 All claim to be free of money
laundering, 28 but there are indications that they can be and, in fact, are
279. See id. at 38 (testimony of James D. Dutton, Deputy Attorney General, Special
Prosecutions Office, Office of the Attorney General, State of California). Until 1992, the IRS
had levied only one civil fine against a casa for failure to comply with CTR reporting
violations. ld.
280. See id. at 10 (testimony of Harold B. Lippman, Staff Investigator, Permanent
Subcommittee on Investigations).
281. Id. at 16.
282. See id. at 10. A 1995 offensive against casas de cambio on both sides of the
border, carried out jointly by Mexican authorities and a multi-agency American task force,
resulted in the seizure of $65 million in illicit funds, the arrest of 40 people, and the
indictment of 40 others. Sebastian Rotella, U.S., Mexico Join ForcesAgainst Drug Cartels,
L.A. TIMES, Apr. 4, 1995, at A3. This highly successful operation was an elaborate sting
which had undercover agents presenting themselves as drug dealers in need of the services
of the Casas. Id.
283. See 1992 Senate Hearingson casas de cambio, supranote 7, at 10 (testimony of
Harold B. Lippman, Staff Investigator, Permanent Subcommittee on Investigations).
284. See id. at 27 (testimony ofArturo Gomez, former owner ofa casa de cambio now
under indictment for money laundering).
285. See 1992 Senate Hearingson casasde cambio, supranote 7, at 31-32 (testimony
of Charles Lewis, Assistant U.S. Attorney, Southern District of Texas).
286. Id. at 82 (statements of Kim L. Wherry, Staff Counsel, Permanent Subcommittee
on Investigations, and Harold B. Lippman, Staff Investigator).
287. See id.
288. Id. When approached about numerous instances found by Senate investigators
where the products of these corporations were being used in money laundering, all three
protested vigorously and stated that they had anti-money laundering policies in effect and
were strongly opposed to money laundering. Id.
being used rather extensively for money laundering.289 American Express,

for example, has 37,000 locations where its money orders are sold, 19,000
of which are at diverse non-bank financial institutions. 290 American
Express does not run a criminal background check in licensing any of its
agents,29 ' nor does it ever check the operations of its agents to insure that
CTR reporting requirements are being me. 292 Additionally, the agents of
these corporations are not licensed or regulated by the states.293 While
most states require licensing of the parent company in order to sell its
products within the state, no state requires additional licensing of the agents
of these large money transmitting corporations. 94 Senate investigators,
in their 1992 probe of money laundering through non-bank financial institu-
tions, "continuously" ran across American Express products being used for
money laundering purposes. 295 The situation regarding background checks
and the potential for corruption is very similar at Western Union.296
There is evidence that Wall Street's large securities firms may be
laundering money. 297 In some cases, laundering through investment firms
289. See id. at 82, 84.

290. Id. at 82-83.
291. Id. at 83. The requirements to become an American Express agent are that the
prospect must have been in business for three years, must have a good credit rating, and the
contract must be personally guaranteed by an individual, unless the prospect is a publicly
traded company. Id.
292. Id.
293. Id. at 11 (testimony of Kim L. Wherry, Staff Counsel, Permanent Subcommittee
on Investigations).
294. Id.
295. See id. at 82 (statements of Kim L. Wherry, Staff Counsel, Permanent
Subcommittee on Investigations, and Harold B. Lippman, Staff Investigator). American
Express has also had more recent problems with money laundering. In 1994, a senior vice
president of American Express Bank International was convicted of money laundering for the
assistance he rendered a gas station employee in moving $30 million through American
Express. American Express Unit's Official Guilty in U.S. Case, WALL ST. J., June 3, 1994.
at B3. Ultimately, two American Express employees were imprisoned. American Express
settled charges against the corporation for $36 million. David Meister, U.S. WillLean On
Banks, Nonbanks In Battle Against Money Laundering, AM. BANKER, Apr. 20, 1995, at 6.
296. See 1992 SenateHearingson casasdecambio, supra note 7, at 83-85 (statements
B. Lippman, Staff Investigator). Arturo Gomez, who is under indictment for money
laundering, testified that Western Union solicited his casa de cambio to contract for its
services, but that by and large the casas did not contract with them because the casas
considered their prices to be too steep. Id. at 28.
297. Markey Asks SEC for Data About Money-Laundering, WALL ST. J., Sep. 23,
1994, at A4.
More than $10 million worth 'of Wall Street accounts have been seized by the
government. ... [T]he firms under scrutiny include Merrill Lynch & Co., Dean Witter
Discover Inc., Prudential Securities Inc. and PaineWebber Group Inc.
begins with large cash transactions. E.F. Hutton was fined one million
dollars for its role in a money laundering scheme in which the firm
accepted, but did not report, large investments of cash.2 98 In other cases,
investment brokers have had actual knowledge of the source of funds and
have intentionally chosen to engage in money laundering. 99 The most
common problem with investment services has been an attitude seemingly
adopted from President Clinton-don't ask, don't tell. The firms, which
often receive large wire transfers of money for investment from offshore
banking havens such as Panama, the Bahamas, and the Cayman Islands,3"'
are only required to report to the IRS transactions which the firms believe
are "suspicious." 30 ' Because wire transfers are not reported, it is believed
that investment firms are increasingly becoming the "venue of choice for
money laundering. 30 2 Government officials believe that there has been
a great deal of "willful blindness" on the part of securities firms regarding
the origins of investments the firms are accepting.3 This area has
recently become the subject of money laundering investigations by the
United States Senate, the Internal Revenue Service, and the Treasury Department. 3°'
"Nothing there (Wall Street) would surprise me, because, unlike banks, most of the
salespeople there work on commission," said Charles Intriago ... who publishes a
Miami-based newsletter, Money Laundering Alert.
Gene Marlowe, U.S. Finds Effort to Stop LaunderingofDrug Money Is Hit-and-MissAffair,
RICH. TIMES-DISPATCH, Sep. 29, 1994, at B8.
298. See E.F. Hutton Admits LaunderingMoney, Pays $]Million Fine,WALL ST. J.,
May 17, 1988, at 5. The firm noted that it would, in the future, refuse to accept any large
cash transactions. Id.
299. See, e.g., David WitterPleads Guilty to Money Laundering, WALL ST. J.,July
18, 1994, at B2. The grandson of Dean Witter, an investment broker and partner in an
investment firm in Florida, recently pleaded guilty to knowingly accepting and attempting to
launder over $1 million in drug profits. Id.
300. Alexandra Peers, Brokers ProbedIn Laundering of Drug Money, WALL ST. J.,
Sept. 21, 1995, at A3, A5.
301. Id. Of the 20,000 suspicious transactions reported to the IRS annually by the
financial services industry, only about 300 originate from Wall Street investment firms. Id.
302. Id.at A3. According to Peter Farrell, chief of the Criminal Investigation Division
of the IRS, money laundering is "far more gophisticated in the Wall Street community, and
there are larger amounts of money than we see at the banks." Id.at A3, A5. 31
C.F.R. § 103.35 (1994) places a recordkeeping requirement on brokers and securities dealers.
These brokers obtain the taxpayer identification number or the passport number of each
person maintaining an account. Id. Existing regulations require securities brokers to
maintain records of funds activities which involve the receipt or remittance of any monetary
instrument or credit greater than $10,000 from an account or place outside of the United
States. Id. Since these firms are "financial institutions" as defined by 31 U.S.C. § 5312,
they are subject to the CTR reporting requirements.
303. Alexandra Peers, Brokers ProbedIn Laundering of Drug Money, WALL ST. J.,
Sept. 21, 1994, at A3, A5.
304. See id; see also MarkeyAsks SECfor DataAbout Money-Laundering,WALL ST.
3. Transfers Through the Use of "Front Companies"

and "Payable Through" Accounts
The lure of the front company is the ostensibly legitimate method for
changing cash into negotiable instruments, which can be easily accessed or
transferred out of the country. 305 First, front companies do not necessarily
require the complicity of a financial institution or non-bank financial
institution in order to operate. 0 6 Second, front companies are difficult to
detect if they also conduct legitimate operations. 307 This is particularly
true when front companies operate businesses exempted from CTR reporting
requirements by banks because they handle large volumes of cash.308
Such businesses include jewelry stores, 30911check cashing businesses,"'
J., Sept. 23, 1994, at A4.

305. See supra notes 69-71; infra notes 309-13.
306. See supra note 63 and accompanying text.
307. Id.
308. See supranotes 218-20 and accompanying text; Barrett, supra note 241, at A24.
"Liquor stores, race tracks and restaurants are among the 75 types of businesses that banks
can unilaterally exempt. 'It's the biggest chink in the armor right now,' says Rick Harms, a
senior Customs official." Id.
309. Recently, police arrested fifty people from Rhode Island who used a precious
metal store to mask an immense money laundering operation which washed an estimated
$500 million in drug money over a five year period. Suzanne Alexander, Money-Laundering
Ring Is Broken Up, U.S. Officials Say, WALL ST. J., Nov. 26, 1991, at B6. The store was
compromised when several of the fifty banks used by the launderers reported suspicious
transactions to the IRS. Jewelry companies also make convenient fronts for money
laundering. In 1989, the Justice Department headed an investigation which found that
Adonian Brothers Manufacturing Company and Ropex Corporation were actually fronts for
laundering cocaine money. Dozens Are ChargedIn Major US. Probe of Cocaine Profits,
WALL ST. J., Feb. 23, 1989, at B6. Operators placed cash, ostensibly from the stores, into
Los Angeles banks and later wire transferred the funds to South America, using the store to
launder more than one billion dollars. Id. In 1990, in Manhattan, a money laundering ring,
purported to have laundered over $1.2 billion, was broken up only after Wells Fargo
contacted the FBI, despite the fact that banks were aware that two small jewelry stores were
grossing almost as much as Tiffany & Co. Jolin J. Fialka, Cleaning Up: How a Big Drug
Cartel Laundered$1.2 Billion With Aid of U.S. Firms, WALL ST. J., Mar. 1, 1990, at A l.
310. Check cashing operations are one of the most common types of business serving
as fronts for money laundering. 1993 H.R. Hearingson Money Laundering, supra note 1,
at 219 (FinCEN report on money laundering). See 1992 Senate Hearings on casas de
cambio, supra note 7, at 42-43 (testimony of Dennis E. Crawford, Chief, Criminal
Investigative Division, IRS, Los Angeles, California). The Chairman of the New Jersey State
Commission of Investigation, after examining check cashing operations, characterized the
businesses as "being tapped at will by mobsters and other unscrupulous individuals, a number
from New York, whose objectives include such notorious activities as money laundering,
income tax evasion, embezzlement, loansharking and other frauds." Id. at 73 (statements of
Kim L. Wherry, Staff Counsel, Permanent Subcommittee on Investigations, and Harold B.
" ' import/export businesses,3 12 and insurance compa-

travel agencies, 31
3
nies. " 3
Lippman, Staff Investigator).

Check cashing businesses throughout the country are essentially unregulated. See 1992
Senate Hearingson casas de cambio, supra note 7, at 62 (statements of Kim L. Wherry,
Staff Counsel, Permanent Subcommittee on Investigations, and Harold B. Lippman, Staff
Investigator). As of 1992, only six states required that a check cashing business be licensed.
Id. In New York, for example, four investigators were responsible for the oversight of all
of the state's check cashing operations. Id. at 79. k California store used its cache of drug
money to cash checks for ordinary customers. Id. at 42-43 (testimony of Dennis E.
Crawford, Chief, Criminal Investigative Division, IRS, Los. Angeles, California). The
negotiable checks, used to launder almost two million dollars in one year, did not trigger a
CTR report when they were deposited into the liquor store's local account. See id. at 43.
The funds were wired from that account to other accounts throughout the United States,
before finally being transferred by wire to Colombia. Id.
311. Travel agencies which have the capability of wiring funds are also attractive as
front companies. See 1992 Senate Hearings on casas de cambio. supra note 7, at 71
(statements of Kim L. Wherry, Staff Counsel, Permanent Subcommittee on Investigations,
and Harold B. Lippman, Staff Investigator). A former New York attorney general recently
estimated that travel agencies in New York City were laundering over one billion dollars per
month by wire transfer; these travel agencies typically serve a Colombian clientele. Id.
of John Hensley, Assistant Commissioner (Enforcement), U.S. Customs Service).
Commercial import-export enterprises are being used increasingly. These operations use
under-valuation and over-valuation of goods or double invoicing to provide cover for the
illicit funds. Id. The fraudulent valuing of goods is not just a common technique used by
organized crime, but is also used by the international trading community to escape taxation
on profits. See INT'L NARCOTICS CONTROL STRATEGY REPORT, supra note 3, at 468. Two
business professors at Miami International University analyzed the Commerce Department's
database of prices paid for goods in international trade, and estimate that the fraudulent
valuation of goods by international triders costs the United States at least $28 billion in
underpaid income taxes per year. Dan Cordtz, Dirty Dollars,FIN. WORLD, Feb. 1, 1994, at
20, 24.
In one of the most successful undercover operations ever run by American law
enforcement, Operation Green Ice, the DEA established a network of leather goods stores
which offered drug cartels the opportunity to launder money using a scheme involving phony
bills of lading. See 1993 H.R. Hearingson Money Laundering,supra note 1, at 43-44, 430-
33 (statements of Tom Clifford, Supervisory Special Agent for Operation Green Ice, and
Mark Richard, Deputy AssistantAttorney General, U.S. Dep't ofJustice (Criminal Division)).
The operation resulted in 200 arrests, including seven ranking figures of the drug cartels'
money laundering operations and the seizure of over $47 million. Id. at 44 (statement of
Tom Clifford, Supervisory Special Agent for Operation Green Ice, DEA).
313. Insurancecompaniesare considerednon-bank financial institutionsand are subject
to the normal CTR reporting requirements for cash transactions in excess of $10,000.
American insurance firms have been used, in a limited way, for the placement of laundered
funds. See 1993 H.R. Hearingson Money Laundering,supra note 1, at 38 (testimony of
Tom Harrington, Special Agent, White-Collar Crime Section, FBI). The placement of funds
TENNESSEE LA W REVIEW [Voi. 63:i43
"Payable through" accounts at American banks are one of the most

recent venues for money laundering.3 14 These are accounts maintained at
American banks by foreign banks, and which are used by the foreign bank
to conduct affairs in the United States.315 In some cases, the foreign
banks are allowing launderers to use their "payable through" accounts to
conduct personal transactions and the American banks are ignorant as to the
true nature of the transactions. 1 6 Government regulators have taken note
and have recently begun to work with banks to clean up these types of
accounts. 17
4. Transfers Through Recent Technological

Advances in Payment Systems
Technology promises to revolutionize current banking practices and

payment systems in the near future. With this technology, the potential for
money laundering abuse grows exponentially. 318 Ronald K. Noble, United
States Undersecretary of the Treasury for Enforcement, framed the problem:
with an American insurance company involves the purchase of a single premium annuity
under a false name or through a corporate entity. The annuity can then be canceled, with a
small penalty, and the insurance company will remit a check for the balance or wire the
proceeds to a specified account. Once that is accomplished, the funds appear to be legitimate
and can be negotiated or sent out of the country at will. Meanwhile, the launderer resolves
any queries about the source of his wealth by attributing them to settlement of an insurance
contract. Id.
Off-shore insurance companies, on the other hand, have been used extensively for the
placement, layering, and integration of funds. A sophisticated scheme involves the purchase
or creation of an insurance or re-insurance company by a corporate entity in a country with
little or no oversight of such businesses. The company usually establishes some type of sales
force in the United States. Id. at 39. Cash generated from criminal activities is placed with
the company as insurance premiums. The company then generates a realistic audit trail
which gives the appearance of legitimacy. False claims are filed and paid to the individuals
who reintegrate the funds into the legitimate financial world. Launderers have also purchased
reinsurance companies to do business with their off-shore insurance companies, adding
greatly to the complexity of the operation. In an attempt to gain information and combat this
type of money laundering, the FBI has established a task force in the Caribbean. Id. at 38-
40.
314. See Craig L. Webb, FDICJoins Crackdown On Pay- Throughs, WASH. WATCH,
May 1, 1995, at 4.
315. MONEY LAUNDERING, supra note i1, at xii.
316. Id.
317. See Webb, supra note 314, at 4; OCC Issues Payable-ThroughAccount Rules,
WASH. WATCH, June 26, 1995, at 6.
318. Telephone Interview with a source requesting anonymity, General Counsel's
Office, U.S. Dep't of the Treasury (Dec. 2, 1994).
We stand at the dawn of an age of global economic integration.

Unfortunately, we are in some sense victims of our own progress.
The same opportunities and convenience that a smaller, economically
interconnected world afford legitimate commerce, also make easier the job of
disposing of criminal proceeds. Now, more than ever, criminal groups can
manipulate an expanding array of tools to shield their ill-gotten gains without
regard to international borders.319
Some of the new technologies for payment systems may well make the
transfer of money much easier-without the direct use of traditional banks
or money transmitters.
An emerging area of concern for law enforcement is the development
of "cyber-banking" on the Internet. 321 "Cyberbanks allow money launder-
ers the capacity to move vast sums of money or to transfer entitlements to
valuable assets with speed, security, and anonymity or invisibility. That was
nearly impossible until recently. 3 -'2 Many of the large American banks
will soon offer limited services on the Internet and, with the development
of adequate encryption technology, banks expect, eventually, to offer a full
range of Internet banking services.3 22 The "cyber-banks" that are begin-
ning to crop up on the Internet today are not banks in the normal sense.
Cyberbanks do not currently accept deposits; rather, they act as intermedi-
319. Noble Warns of Technological ProgressAs Boon to Laundering, 6 MONEY

LAUNDERING ALERT No. 9 (Alert Int'l, Inc., Miami, Fla.), June 1, 1995 [hereinafter Noble
Warns of TechnologicalProgress].
320. See "Phantom" Cyberbanks Pose Laundering Tax Evasion Threats, 6 MONEY
LAUNDERING ALERT (Alert Int'l, Inc., Miami, Fla.), July 1, 1995, at No. 10 [hereinafter
"Phantom" Cyberbanks]. See also "Cyberlaundering"PosesThreat to Controls, 6 MONEY
LAUNDERING ALERT, supra note 222 [hereinafter "Cyberlaundering']. "Stanley Morris,
director of [FinCEN], has targeted cyberspace banking as one ofFinCEN's highest priorities.
Given its home outside the present regulatory reach of the U.S. and most other countries, his
concerns are not misplaced." Id.
321. "Phantom" Cyberbanks,supra note 320.
322. E.g., Martha Brannigan, Once There Were Banks; Then A TMs; And Now .
WALL ST. J., Dec. 14, 1994 (Southeast Journal), at S2 (availablein Westlaw, 1994 WL-WSJ
205658 1). First Union Corp., a major southeastern bank, became one of the first actual banks
on the Internet in 1995, offering Internet users
a menu of the bank's products and services, including everything from checking
accounts to mutual funds.
The bank acknowledges one big stumbling block: the lack of privacy. For instance,
a loan application filled out by a customer would be "in the clear"-cybertalk for
unencrypted. So, anyone on the Net could look at an applicant's personal finances.
But when suitable encryption software becomes available, "the sky's the limit," says
Fred Winkler, a senior vice president at First Union. The company estimates that, by
the year 2000, physical branches will handle only 30% to 35% of today's volume of
business; alternative means ofproviding services-like the Internet-will handle the rest.
aries in financial transactions and sales.323 Cyberbanks are unregulated,

and on the Internet they "operate in an environment where identities are
often concealed, national borders do not exist, and transactions are instanta-
neous and potentially untraceable. 32 4 The potential for cyberbanks to
layer and integrate illicit funds is tremendous. "Electronic mail messages,
aided by encryption and cyberspace banking transfers, will enable launderers
to transfer assets around the world many times a day," making tracing them
much more difficult. 325 Further, any cyberbank which chooses to engage
in laundering may be able to operate for long periods by operating off-
shore, by transmitting from 'phantom' electronic 32 6 forwarding addresses" or
by "'moving' periodically to avoid detection.
Encryption of financial transactions-a necessity for "cyberbanking"-is
a major issue being addressed by government.327 In 1993, the government
proposed a plan to establish a single, nationwide encryption system-the
"Clipper Chip"--for all computer generated data transmissions. 328 The 3 29
system would have allowed encryption of signals across the Internet.
The government would have maintained a "key" so that, with a proper
warrant, it could decode selected transmissions coming across the
Internet. 330 The proposal failed. Meanwhile, a private individual devel-
oped an encryption program called Pretty Good Privacy (PGP).3 3 1 PGP,
an encryption system which even the government cannot break, has spread
worldwide over the Internet.332
Rather than outlaw PGP and other such programs, a policy that would
probably be unconstitutional, the Administration is taking a marketing
approach. By using its purchasing power to lower the cost of Clipper
technology, and by vigilantly enforcing restrictions against overseas sales
of competing encryption systems, the government is trying to make it
323. "Cyberlaundering, "supra note 320. It is foreseeable that these "cyberbanks"

may begin to accept "deposits" in some fashion - a function that adds exponentially to their
threat as laundering vehicles since it is placement which has historically been the weak link
in money laundering. See "Phantom" Cvberbanks, supra note 320.
324. "Cyberlaundering, "supra note 320.
325. Id. The security of financial transactions over the Internet is dependant upon
encryption. Numerous companies that are looking to the Internet are in the midst of closely
studying the use of encryption systems for secure transactions. See William M. Bulkeley,
CyberCashInc., Checkfree Expected To Start a Venture, WALL ST. J.,July 13, 1995, at B7.
326. "Phantom" Cyberbanks, supra note 320.
327. Id.; "Cyberlaundering, "supra note 320.
328. Kevin G. Salwen, U.S. Develops Computer Chip For PrivacyCoding, WALL ST.
Apr. 19, 1993, at B8.
J.,
329. See id.
330. See id.
331. William M. Bulkeley, Cipher Probe: Popularity Overseas Of Encryption Code
Has the U.S. Worried, WALL ST. J., Apr. 28, 1994, at Al.
332. Id.
difficult for any alternative schemes to become widespread. If Clipper

manages to establish itself as a market standard-if, for example, it is built
into almost every telephone, modem and fax machine sold-people who
buy a nonstandard system might find themselves with an untappable phone
but no one to call.
That's still a big if. [The creator of PGP] is already working on a
version of PGP for voice communications that could compete directly with
Clipper, and if it finds a market, similar products are sure to follow. "The
crypto genie is out of the bottle," says Steven Levy, who is writing a book
about encryption. If that's true, even the NSA may not have the power to
put it back.333
The government has established a task force, the National Information

Infrastructure Forum, to deal with the problem.334 Members of the task
force confer with private industry "to develop alternate ways to get a
reliable encoding system and adequate law enforcement."335 '
Another technological advancement of concern is the "smart card." A

smart card is somewhat like a debit card, "the difference [being] that it
disburses money that has previously been loaded from the customer's
account directly onto the microchip through an ATM or a specially adapted
telephone."3'36 The card 337 has the potential to hold millions of dollars
'stored' on its micro-chip. The technology, which has recently been
tested in England and is being prepared for marketing in the United States,
has been criticized because "money loaded onto one card can be transmitted
electronically to another card over phone wires using specially adapted
telephones, without the intervention of a bank, . . . [making the system]
'totally unaccounted and not auditable' .... ,338 "Smart card" technology
is expected to compliment "cyber-banking."339 '
Without adequate controls,
a system such as "smart cards" may be ripe for abuse by money launder-
ers. 340 These methods are part of the action-reaction cycle between
organized crime and the government. Such recent developments further
demonstrate the increasing demand for the government's resources to
combat money laundering.
333. Philip Elmer-DeWitt, Who Should Keep The Keys?, TIME, Mar. 14, 1994, at 90,
91.
334. John J. Fialka, U.S. to Propose Data-HighwayAgency, WALL ST. J., June 14,
1995, at B3.
335. Id.
336. Nicholas Bray, Future Shop: 'No Cash Accepted; Microchip-CardPurchases
OnlV,'WALL ST. J., July 13, 1995, at B1.
337. Id.
338. Id.
339. Id.
340. Id.
TENNESSEE LAW RE VIEW [Vol. 63:143
III. THE INTERNATIONAL RESPONSE TO MONEY LAUNDERING:

A U.S. PERSPECTIVE
A. The InternationalScope of Money Laundering
Once "dirty" money has been moved out of the United States and into
off-shore banks, layering the money has generally been made easy by
banking secrecy rules and sophisticated laundering techniques involving
"shell" corporations, nominee accounts, and bank loans. As Robert Serino,
general counsel for the Comptroller of the Currency noted in 1988, "[i]f you
physically get the money out34of
1
the U[nited] S[tates] ... you can do almost
anything you want with it."
Money laundering occurs worldwide in varying degrees.342 In devel-
oped countries, money laundering is seen as a blight which depletes the tax
base, and which is actively fought by the countries' governments.343 But
many small countries, with little or no industrial base, view the development
of a banking industry as a tax and secrecy haven and a source of tremen-
dous revenue.344
34 1. Taylor, supra note 17, at A4. In one publicized case, Ramon Milian Rodriguez,
a money launderer now serving a 43-year prison term for racketeering, reputedly wired a total
of $11 billion to various United States banks, including Citibank and BankAmerica. The
funds were wired to the United States for bank deposits and the purchase of securities, real
estate, certificates of deposit, and other investments. Because the money was received by
wire transfer, banks and brokerage houses were not under any duty to report it unless they
felt the transactions were suspicious. Id.
342. See 1993 H.R. Hearingson Money Laundering,supra note 1, at 137-38.
In 1992, the major trends [in international money laundering] were: (1) further
sophistication of money laundering practices; (2) greater investment of drug and other
illicit proceeds into established businesses, both to conceal money movements and to
capitalize on illicit profits; (3) the internationalization of money laundering networks
whose operations involve an ever larger number of countries and territories, regardless
of their importance as financial centers or as drug producing or transit countries; and (4)
the intensified involvement of the Sicilian Mafia and other criminal organizations in
Europe, Asia and the Western Hemisphere who commingle proceeds from many crimes
to confound investigators, and are now acting as brokers for funds unrelated to their own
trafficking activities .... [M]oney laundering is taking place in a second and even third
tier of countries which were not of major concern three years ago. Traffickers seek out
countries and territories with weak central banks, limited controls on foreign exchange,
and restrictive bank secrecy practices. Money laundering continues even in leading
financial centers like the US, UK,Germany and Switzerland, where governments and
banks have adopted laws and practices to prevent it, a reflection of the increasing
sophistication and changing tactics of narcotics and other money launderers.
Id. at 137.
343. See INT'L NARCOTICS CONTROL STRATEGY REPORT, supra note 3, at 19-20.
344. See, e.g., David Beard, Caribbeanisland leadersseduced by drug trade, TIM ES-
PICAYUNE (New Orleans), Mar. 26, 1995, at A23; Ron Suskind, Second Invasion.-Made Safi
Cultivation of a strong banking industry has played a major role in the

development of several small European countries such as Liechtenstein,
Luxembourg, and Switzerland.345 Several Caribbean countries, including
the Bahamas, the Cayman Islands, and the Netherlands Antilles have utilized
the advances in telecommunications to become major financial centers.346
The Cayman Islands is a classic example of how the banking industry can
be cultivated and exploited as a tax haven to bring tremendous benefits to
a small country. The Cayman Islands includes small Caribbean islands with
only 26,000 inhabitants as of 1993. 347 In 1964, the country had only two
banks and no offshore businesses.34 8 By 1992, the Cayman Islands was
a major center for international banking-and money laundering.34 9 The
Caymans now has the sixth largest financial center in the world, with 548
banks controlling over $400 billion in assets, and 23,500 corporations
registered on the island. 350 The per capita annual income of the Cayman
Islands has grown to $20,000 per year, one of the highest in the western
hemisphere.'
Countries which have cultivated their banking industries into tax and
secrecy havens share several characteristics. First, they all have strict bank
secrecy laws, and in many cases it is a criminal offense to divulge
information regarding customer accounts except in very limited circumstanc-
es. 35 2 Second, they have very stable governments.3 53 Third, the govern-
by Marines,Grenada Now Is Haven For Offshore Banks, WALL ST. J., Oct. 29, 1991, at A 1,
A15. Consider the plight of Grenada, where a conscious decision was recently made to
develop the financial sector. See Suskind, supra at Al. Grenada currently has no industry,
its agricultural sector is depressed, unemployment is at 25%, and the average per capita
income is $1,429. Id. at A 1,A 15. Courting "assorted shady characters" who owned offshore
banks, and showing "just the right mixture of need and greed," Grenada has successfully
developed its financial industry. Id. at Al.
The problems and alternatives which face Grenada are pervasive in the Caribbean. See
Beard, supra,at A23. "There is an economic imperative for survival, and many people [on
the Caribbean] islands believe that the best way is doing what they're doing-planting and
exporting marijuana, transshipping cocaine and money laundering." Id. (quoting Ivelaw
Griffith, political scientist, Florida International University).
345. See 1993 H.R. Hearingson MoneyLaundering,supra note 1,at 168-70, 172-73.
346. See id. at 161-63.
347. Id. at 163.
348. Ethan A. Nadelmann, Negotiationsin CriminalLaw Assistance Treaties, 33 AM.
J. COMp. L. 467, 499 (1985).
349. 1993 H.R. Hearingson Money Laundering, supra note 1, at 163.
350. Id.
351. Id.
352. Similar to Cayman law, Bermuda common law infers a contract of confidentiality
between a Bermuda bank and its customer, pursuant to which "no Bermuda bank may release
information in its possession concerning its customers' affairs unless (1) it is ordered to do
so by a court of competent jurisdiction in Bermuda, or (2) it receives a specific written
ments of these countries have cultivated the growth of the financial sector
in the absence of other viable economic alternatives 354 ; therefore, the
countries tend to have lenient financial regulatory environments and many
financial institutions push the envelope of what they can do to attract busi-
ness.355 Finally, most of these countries have liberal corporation laws,
which allow the establishment of shell or nominee corporations.
The terms "shell," and "nominee corporations," generally refer to a
corporate structure which provides for anonymous corporate ownership,
usually through a combination of nominee directors and ownership by bearer
shares. These corporations are easy to set up, but add greatly to the
complexity of layering by making it difficult to trace funds or property to
the actual recipient or beneficiary. 356 By the early 1980s, for example, as
much as twenty percent of all real property in the Miami area was owned
by entities incorporated in the Netherlands Antilles. When American
direction from its customer requesting the bank to release such information." Doe v. United
States, 487 U.S. 201, 203 n. I (1988). Luxembourg, which has very successfully vied for a
piece of the secrecy market, also has criminal laws against disclosure. See WALTER, supra
note 5, at 222. The country will only allow response to a request for information from
foreign authorities "when the depositor in question has been charged in his home country
with an offense that is also a crime in Luxembourg and which also relates to the account
under scrutiny." Id. The Luxembourg banking community is, at this point, far more
secretive than the Swiss, who have eroded their system of secrecy in recent years-largely
due to extreme international pressure. Id. at 222.
353. The importance of governmental stability to attract deposits-of both legitimate
and illicit money-was clearly demonstrated by events which occurred in Panama. In the
early 1980's, Panama was a major off-shore banking haven which solicited money
laundering. See WALTER, supranote 5, at 223-29. By 1987, just as Noriega's problems with
the United States began to unfold, Panamanian banks had as much as $50 billion in deposits.
Id. at 225. By mid-1988, deposits had shrunk 30%. See id. at 229. With Panama once
again a stable regime, money laundering has not only returned in force, it is now reportedly
exceeding the "Noriega" levels. U.S. Assistance Efforts in Panama: Hearings Be/bre the
Subcommittee On Legislation and National Security, 102d Cong., 1st Sess. 4 (1991); see
Carla A. Robbins, Mixed Message: As U.S. Looks at Haiti, Its Invasion of Panama Shows
Limited Results, Aug. 3, 1994, at Al.
354. Beard, supra note 344, at A23.
355. Indicative of the type of environment in which the banking havens flourish is the
British Virgin Islands. The Chief Minister of the Virgin Islands, Hamilton Stout, who is
responsible for the regulation of businesses and banks on the island, responded to a query
about the phenomenal growth of shell corporations on his island by ascribing it to the
"friendliness of the people" in the Virgin Islands "which produces a desirable climate for
business." Mr. Stout became quite upset during an interview when a reporter asked him a
question about the role and ramifications of banking confidentiality and regulatory leniency
as pertains to the Virgin Islands. He refused to respond because the question had not been
submitted to him for screening prior to the interview. Frontline.'HotMoney(PBSTelevision
Broadcast, Nov. 1, 1994) (transcript on file with the Tennessee Law Review).
356. E.g., WALTER, supra note 5, at 219.
officials attempted to find out who owned a particular piece of property in

Orange County, Florida, they traced ownership of the property through three
layers of Netherlands Antilles shell corporations before discovering the
actual company of ownership. Officials found it was owned by bearer
shares and was therefore listed only as "a corporation organized under the
laws of the Netherlands Antilles., 357 Due to their utility, these types of
corporations have become358prominent in the business of money laundering,
fraud, and tax avoidance.
Typically, a lawyer or accountant residing on the island registers several
businesses at the island's central registry, for a fee, 359 naming himself as
the nominee chairman. 36" The same person then sets up corporate ac-
counts at the island's banks with himself as the signatory.36 "
' He maintains
these "shell" corporations in order to provide immediate, off-the-shelf
availability to customers who wish to establish a nominee corporation.3 62
Kenneth Rijock, a Miami attorney now under indictment for money
laundering, frequently dealt with island lawyers and accountants on behalf
of his drug trafficking clientele. He considered it "easier then brushing your
teeth" to fly to the islands, set up a nominee corporation, and provide
standing instructions on how deposits into the nominee account were to be
handled-all within one hour. Typically, these instructions involve wire
transfer of the funds through one or more accounts, with a final destination
in the United States. Often, the "nominee" of the corporation
363
never knows
the identity of the actual beneficiary of the accounts.
Another prominent scheme in international money laundering is the use
of counterbalancing bank loans made against illicit funds parked in off-shore
banks. These types of loans make tracing the money difficult. Such a
357. Id.
358. Id. The rise in sophistication of money laundering as evidenced by the increased
use of off-shore shell corporations has grown tremendously in recent years. For example, in
the British Virgin Islands, there were approximately 5,000 corporations registered in the mid-
1980s. In 1994, there were over 120,000 shell corporations. Frontline:Hot Money (PBS
Television Broadcast, Nov. 1, 1994) (transcript on file with the Tennessee Law Review).
359. Annual registration fees for the government of Grenada to register a "shell" off-
shore bank are $5,000 dollars-no questions asked. These are then resold by the local
lawyers and accountants to foreign clientele for an average of $30,000. Collection of these
fees by the government is seen as a public duty by the management of the local newspaper,
the Grenadian Voice, which expressed the seemingly common opinion: "Why let the lawyers
and accountants make it all?" Suskind, supra note 344, at Al, AI5.
360. Frontline: Hot Money (PBS Television Broadcast, Nov. 1, 1994) (statement of
Shawn Murphy, former accountant on the Cayman Islands responsible for laundering several
hundred million dollars for unnamed beneficiaries) (transcript on file with the TennesseeLaw
Review).
361. Id.
362. Id.
363. Id.
202 TENNESSEE LA W REVIEW [Vol. 63:143
scheme came to light during an undercover Customs operation aimed at the

Bank of Commerce & Credit International, better known as BCCI.
Robert Mazur, an undercover Customs agent who deposited the cartel's
funds [with BCCI as part of a money laundering sting operation], says
various BCCI officers warned him he was doing it all wrong, and would
likely be nabbed by American authorities. In testimony in federal court in
Tampa, he said Syed Aftab Hussain, a BCCI officer in Panama, advised
him not to use checks, but instead to employ an untraceable "counterbal-
ancing loan scheme." Mr. Mazur has testified, for example, that, under the
scheme, $476,595 he placed with an unidentified BCCI office was wired
through a correspondent account in First American Bank in Washington to
the BCCI branch in Geneva, Switzerland. Then he received what appeared
to be an unrelated loan for the same amount, minus a small fee, from
BCCI's Panama branch. 3"
BCCI, is the most famous-and infamous-of banks which took

advantage of the lenient regulatory environment available in some coun-
tries. 36' BCCI was a bank which was incorporated under the laws of
Luxembourg and the Cayman Islands, among other countries.366 BCCI
grew phenomenally throughout the 1970s and early 1980s, primarily due to
questionable banking practices and the largesse it spread about the ruling
elite of the Middle East and other areas.367 As many huge loans became
non-performing, BCCI desperately sought new deposits to 3cover 69
its
debts. 368 The range of its activities has since approached legend.
364. John J. Fialka & Peter Truell, Rogue Bank: BCCI Took DepositsFrom Drugs,
Noriega, And Now Is in the Red, WALL ST. J., May 3, 1990, at AI, A13.
365. See generallyThomas Petzinger, Jr. & Peter Truell, BCCI."Here's What All the
Fuss Is About, WALL ST. J., Aug. 9, 1991, at A2.
366. Id.
367. See Fialka & Truell, supra note 364, at AI.
368. Id. at A13.
369. One author wrote:
Consider drugs. BCCI in 1989 pleaded guilty to the biggest money-laundering case ever
brought. Manuel Noriega washed money at BCCI, according to investigators (and
perhaps all too predictably carried a BCCI Visa card). If BCCI gave out toasters, by
some accounts, the Medellin cartel of Colombia would be up to its ears in English
muffins. As Sen. John Kerry (D., Mass.), chairman of the Senate subcommittee on
narcotics and terrorism, has alleged, BCCI was part of the process that helped stock the
shooting galleries of the nation's cities.
Then there are nuclear weapons. BCCI wrote the letters of credit that allegedly
helped a Pakistani general to export strategic metals from the U.S. illegally for possible
use in nuclear development. And terrorism. The chief financial officer of the Abu Nidal
terrorist organization, which conducted a violent spree through much of the 1980s,
operated from a BCCI branch office on Park Lane in London, according to a former
bank official interviewed by the British Broadcasting Corp.
The biggest problem for a majority of the small countries which develop
their banking industries as tax and secrecy havens is that the same overall
confluence of factors which draws the huge revenue from legitimate sources
is the same set of factors which draws money laundering.37 It is very
difficult to separate the two. In many countries which act as tax havens, the
governments are exhibiting growing concern about the corrupting impact
that money laundering can have on their countries. 37' Not only can it be
This may be why Robert Gates, nominated to become director of the Central
Intelligence Agency, once referred to BCCI as the "Bank of Crooks and Criminals
International."
Petzinger & Truell, supra note 365, at A2.
As of 1994, the United States was still attempting to trace an estimated $10 billion in funds
missing in the wake of the BCCI scandal. To that end, the United States signed a deal with
the leader of the United Arab Emirates, giving him immunity from American criminal and
civil actions in return for BCCI-related records and the extradition of BCCI's former chief
executive officer, Swaleh Nawvi, to the United States. Abu Dhabi Accord PortendsMore
BCCI Trials,Restitution,5 MONEY LAUNDERING ALERT (Alert Int'l, Inc., Miami, Fla.), Feb.
1, 1995, at No. 5.
While BCCI is certainly the most famous of the money laundering scandals involving
foreign banks, it is far from the only one-the U.S. government fined and/or prosecuted ten
foreign banks for money laundering between 1989 and 1993. See The Money Laundering
And Bank Secrecy Act Trap For Foreign Banks In The U.S., 5 MONEY LAUNDERING ALERT
(Alert Int'l, Inc., Miami, Fla.), Jan. 1, 1994, at No. 4. The most recent of these incidents,
involving Banque Leu, of Luxembourg, shows the extent ofthe American government's reach
and the standards to which it now holds foreign banks. Banque Leu has no branches in the
United States. Lurembourg Bank Launders There, Pleads Guilty In U.S., 5 MONEY
LAUNDERING ALERT (Alert Int'l, Inc., Miami, Fla.), Jan. 1, 1994, at No. 4. In 1991 it
processed the transfers of $1.7 million from two of its accounts-which, it turned out,
belonged to a launderer for a Colombian cartel-to accounts in the United States. Id. Based
on this, the United States government prosecuted the bank and one of its officers for money
laundering and entered an agreement under which Banque Leu paid a fine of $60,000 and
forfeited $2.3 million. Id. As an additional penalty, the bank agreed to prepare a
"monograph" for distribution among European financial institutions, with information on
money laundering and the American and European laws applicable to the subject. Id.
Office, U.S. Dep't of the Treasury (Dec. 2, 1994). See INT'L NARCOTICS CONTROL
STRATEGY REPORT, supra note 3, at 476.
See also Suskind, supra note 344, at Al; see generally 1993 H.R. Hearingson Money
Laundering,supra note 1, at 161-64.
In the rare cases when an island decides to crack down, [the money launderers and
fraudulent companies] just go island-hopping. Montserrat called in Scotland Yard and
last year completed its deregistering of 220 offshore banks that the local British
governor said were operating illegally and committing financial fraud. It turned out to
be a Pyrrhic victory: Many of those names from Montserrat have now washed ashore
in Grenada.
Suskind, supra, note 344, at A15.
a corrupting influence on the infrastructure of the countries, but, as it

becomes more overt, it can also drive away legitimate funds.37 2 Indeed,
many countries have found that there is a difference between benign neglect
of financial regulations and the outright support of money laundering.
Panama is one example. By 1985, Panama was so overtly involved in drug
money laundering that it began to lose revenue due to flight of legitimate
(relatively speaking) funds.373 Likewise, the Bahamas saw a great deal of
its business flow to the Cayman Islands when, in 1984, it was widely
publicized that the Bahamian Prime Minister had accepted bribes from
Colombian cartel figure Carlos Lehder.374 Nonetheless, cash-strapped
governments in places such as Pakistan, where the underground economy is
as large as the official economy, have determined that the immediate need
for 3foreign
75
capital makes it desirable to actively pursue money launder-
ing.
Another recent development to the international aspect of money
laundering is the wholesale involvement of the Sicilian Mafia as a broker of
international money laundering services. 376 American atoiiscnie
authorities consider
this very ominous because the Sicilian Mafia has an extremely well-
Office, U.S. Dep't of the Treasury (Dec. 2, 1994). The amount of concern displayed by the
individual countries tends to increase proportionally to the particular country's dependence
on its financial market for revenue. Id. One newspaper has recently cited a State
Department report which accused politicians of several Caribbean states of being compro-
mised, including Antigua, St. Kitts-Nevis, and St. Vincent and the Grenadines. Beard, supra
note 344, at A23.
372. See WALTER, supra note 5, at 227.
373. Id.
374. See Pete Engardio & Gail DeGeorge, How Drugs Turned the Tide Against
Bahamas" Banks, BUS. WK., May 23, 1988, at 142.
375. Thomas Petzinger, Jr., We Clean Cash! PakistanPitches Money-Launderingin
the U.S., WALL ST. J., Mar. 18, 1992, at CI.
In 1992, the State Bank of Pakistan, in order to advertise its new issue of government
bonds (which were, of course, bearer bonds), ran a four-column-wide ad in the Wall Street
Journal which announced: "No Questions Asked About Source of Funds!... No Identity to
be Disclosed!" A reporter who subsequently inquired of the securities department of the
Pakistani central bank in Karachi as to the purpose of the offer, was told by Munir Ahmad,
a bank official, "[tihis is a way to launder the black money .... Anybody having some
black money, if they want to make it white ... Do you understand now?" The advertisement
noted that the bonds would be available in the United States through several financial
institutions, including American Express. Id. at C20. Under pressure from the international
community, Pakistan withdrew its bond offer from the American market after five days.
1993 H.R. Hearings on Money Laundering,supra note 1, at 182.
Pakistan preceded this issue of bonds by liberalizing its banking laws in 1991. 1993
H.R. Hearings on Money Laundering, supra note 1, at 182. Records of large cash
transactions are no longer kept, nor are the identities of bank customers checked.
Consequently, Pakistan's foreign exchange assets grew 400% in two years. ld.
376. See id. at 139-140.
developed, world-wide organization which has proven very adept at

laundering. 77 The mafia's prices are reportedly steep--twenty percent or
more-but they guarantee their services against law enforcement interdic-
tion."' 8
Money laundering is certainly not confined to the United States and
small Caribbean countries; it, is a major problem in most, if not all, of the
developed countries around the world, including Canada, Germany, England,
Italy, Spain, and Japan. 37 9 These countries all face the same basic prob-
lems that the United States faces today: more sophisticated money
laundering techniques involving the increased use of non-bank financial
centers for placement and wire transfers. 380 But each country's response
to money laundering may also be hampered by individual problems, such
as the lack of measures to address currency movements across international
borders,38" ' the lack
of cash transaction reporting,3 82 the lack of law
enforcement efforts to combat the money laundering problem,383 varying
levels of bank secrecy laws or customs, 38 4 and a restrictive definition of
money laundering. 381
377. See id.

378. Id.
379. See generally id. at 148-91 (discussing money laundering and efforts to combat
it in countries around the world).
380. See id. at 137.
381. See, e.g., id. at 148. Canada is a major drug laundering center in large measure
because of its proximity to the United States. One of Canada's major weaknesses is a lack
of controls on currency crossing its border with the United States. See id.
382. See, e.g., id. at 173-74. Britain has very strong laws against money laundering.
Id. at 173. However, their enforcement may be hampered somewhat because the financial
institutions are under no compulsion to report large currency transactions. See id. at 174.
383. See, e.g., id. at 148. Many nations have laws against money laundering, but, for
whatever reason, they seem to devote little effort to prosecuting the crime. In many cases,
once money laundering is established as a crime, there is a lengthy lull before the new laws
are utilized. Canada is a case in point. There, money laundering laws were on the books for
several years without any prosecutions. Recently, however, Canada has seen several
prosecutions for large scale money laundering. Telephone Interview with a source requesting
anonymity, General Counsel's Office, U.S. Dep't of the Treasury (Dec. 2, 1994).
384. Japan, for example, has no laws on its books preserving bank secrecy. However,
the roles of secrecy and circumspection imbedded in the culture are seen as significant
obstacles to curtailing money laundering. Bruce Zagaris & Sheila M. Castilla, Constructing
an InternationalFinancialEnforcement Subregime: The Implementation of Anti-Money-
LaunderingPolicy, 19 BROOK. J. INT'L L. 871, 929 (1993). It is believed that money
laundering in Japan, which was completely unchecked until recent laws passed in 1991, is
occurring on a huge scale. See 1993 H.R. Hearingson Money Laundering,supra note 1, at
185-86.
385. Many countries define money laundering only in relation to a predicate offense
involving illicit narcotics traffic. See id. at 139.
Numerous practical difficulties also impede international cooperation in

combating money laundering. Many countries with restrictive definitions of
money laundering do not, as a matter of law, honor requests for cooperation
from another country on a money laundering investigation unless the
predicate offense satisfies the host country's definition of money launder-
ing. 38 6 Another barrier to effective cooperation is the widely varying
procedural requirements and protections different countries have regarding
asset freezing and asset forfeiture.387 In spite of difficulties such as these,
however, an international response has begun to coalesce, with the United
States at the forefront.
B. United States Attempts to Combat InternationalMoney Laundering
Historically, the primary method the United States and most other
countries used to assist each other in criminal investigations was the use of
letters rogatory. Letters rogatory is an internationally recognized procedural
device which allows a judicial body in one country to petition the courts of
a foreign country for assistance in a criminal investigation."' The
drawbacks to the use of letters rogatory are that they are "slow and
relatively inefficient" as well as costly.389 Because of these problems, the
United States turned to other methods to pierce the veil of international
banking secrecy. An early alternative was the heavy-handed use of
subpoenas.3 9 ° In the early 1980s, the United States used subpoenas to
pressure banks with American branches to produce records from accounts
held in branches in other countries.391 There is a split of authority as to
whether the act of state doctrine should apply in instances in which the
production of bank records from foreign accounts would violate the laws of
the host country on the host country's own soil. In two cases dealing with
the Bank of Nova Scotia, the Eleventh Circuit held that American subpoenas
could be enforced against a bank with American branches to produce
documents held at a foreign branch when the foreign country's laws made
386. See Zagaris & Castilla, supra note 384, at 876.

387. Id. at 875-76.
388. See generallvAmy Jeanne Conway, Note, In Re Request For JudicialAssistance
From The FederativeRepublic of Brazil: A Blow To InternationalJudicial Assistance, 41
CATH. U. L. REV. 545 (1992). The authority for the American courts to answer letters
rogatory is found at 28 U.S.C. § 1782 (1988), a statute adopted for this procedure, in limited
circumstances, in 1863. Id. at 549.
389. Bruce Zagaris, DollarDiplomacy:InternationalEnforcementofMoney Movement
and RelatedMatters-AUnitedStatesPerspective,22 GEO. WASH. J. INT'L L. & ECON. 465,
497 (1989).
390. See NewMLAT TreatieslncreaseDOJ'sReach, 4 DEP'T OF JUSTICE ALERT, Apr.
18, 1994, at No. 7 [hereinafter New MLAT Treaties].
391. Id.
such production illegal. 92 The decisions produced great hue and cry from
members of the international community. More recently, however, in a
situation with facts similar to the Nova Scotia cases, the D.C. Circuit Court
refused to impose a subpoena for the production of bank records of a bank
owned by a foreign government.3 93
Perhaps because the approach taken in the Nova Scotia cases was seen
by governments throughout the world as a flagrant abuse of power by the
United States,394 the United States turned to a somewhat more palatable
approach of consent directives. Consent directives are an individual's
395
consent, given to a foreign entity, to turn over records of his accounts.
The directives are initiated by court order and require an individual, under
penalty of contempt, to sign a consent form which is then delivered to the
foreign country. 396 This technique was approved, with some limitations,
in Doe v. United States397 in which the Supreme Court held that the
coercive pressure of a contempt decree to enforce signing of the form did
not violate the Fifth Amendment. 398 The consent form facially meets the
392. In re Grand Jury Proceedings the Bank of Nova Scotia, 740 F.2d 817 (11th Cir.
1984), cert. denied, 469 U.S. 1106 (1985); In re Grand Jury Proceedings, 691 F.2d 1384
(11 th Cir. 1982), cert. denied, 462 U.S. 1119 (1983). The Bank of Nova Scotia, headquar-
tered in Canada, had branches in the United States, the Bahamas. and the Cayman Islands.
Bank of Nova Scotia, 740 F.2d at 820. As part of a grand jury investigation, the United
States government delivered a subpoena to the Bank of Nova Scotia's American branch
requiring the bank to produce records of a customer account held at its branch in the
Bahamas. Id. The Bahamas made it a criminal offense to produce records of its banks'
account holders for dissemination. Grand Jury Proceedings, 691 F.2d at 1386. The
American judge imposed a fine of $25,000 per day, and the bank gave in. Bank of Nova
Scotia, 740 F.2d at 821. At almost the same time, a similar circumstance arose in regard to
a customer's account held at the Cayman Islands branch. Id. at 820. This time the bank
balked and refused to produce the documents until the fines had reached $1,800,000. Id. at
824. The fines were subsequently upheld. Id. at 820.
393. In re Sealed Case, 825 F.2d 494, 495, 498 (D.C. Cir.), cert. deniedsubnoni., Roe
v.United States, 484 U.S. 963 (1987). The court held that it would not force the bank to
break a foreign country's law on that country's own soil, under the circumstances of the case.
Id. at 498. However, the court did uphold a subpoena which required a bank official who
had formerly worked at the foreign branch to testify as to his knowledge of the accounts.
Id. at 495, 497. While the witness would still violate the foreign country's law by testifying,
the offense would not be on that country's soil and it would only subject the witness to
prosecution in that country if he voluntarily returned there. Id. at 497.
394. See WALTER, supra note 5, at 275-76.
395. See Zagaris, supra note 389, at 539.
396. Id.at 541.
397. 487 U.S. 201 (1988).
398. Id. at 206. The Court found that the execution of such a directive is a
nontestimonial act, analogous to the production of a handwriting sample. Id. at 217. The
directive was, therefore, the "equivalent to a statement by Doe that, although he expresses
no opinion about the existence of, or his control over, any such account, he is authorizing the
requirements of such banking havens as Bermuda and the Cayman Islands,

whose laws only allow production of bank records with customer con-
sent.399 This device does not ensure cooperation by foreign entities.40 0
Since these early efforts in the mid-1980s, the United States' interna-
tional involvement in combating money laundering has centered on
obtaining treaties and promoting uniform laws to develop an effective
international response to money laundering.40 ' To this end, the United
States has pursued several goals, including criminalization of money
laundering throughout the world, the erosion of international banking
secrecy, simplification and enhancement of the international community's
ability to provide timely and adequate mutual assistance to fight money
laundering across national borders, development of effective asset forfeiture
systems and sharing provisions among nations, the acceptance of "know
your customer"" rules in the international banking community with
required reporting of suspicious transactions, and improved regulation and
oversight among non-bank financial sectors of domestic and international
economies. 43 The United States has attempted to accomplish these goals
bank to disclose information relating to accounts over which, in the bank's opinion, Doe can
exercise the right of withdrawal." Id. at 217-18. The Court explained that the form, itself,
did not acknowledge that the account in a foreign bank existed or that it was controlled by
Doe. Id. at 215-16. Nor did the form indicate whether the foreign bank held any
information or documents relating to Doe, assuming that an account actually did exist. Id.
at 216. The Court reasoned that "if the Government obtains bank records after Doe signs the
directive, the only factual statement made. . . will be the bank's implicit declaration, by its
act of production in response to a subpoena, that it believes the accounts to be [Doe's]." Id.
at 218.
399. See id. at 216. Under Cayman law, a bank commits a crime if it divulges any
confidential information regarding a customer's account without the customer's consent. Id.
at 203 n. 1. Likewise, under Bermuda common law, an implied contract of confidentiality
exists between a Bermuda bank and its customer, "pursuant to which 'no Bermuda bank may
release information in its possession concerning its customers' affairs unless (1) it is ordered
to do so by a court of competent jurisdiction in Bermuda, or (2) it receives a specific written
direction from its customer requesting the bank to release such information."' Id. (quoting
letter from Richard A. Bradspies, Vice President-Operations, Bank of Bermuda International
Ltd., to David Geneson, Fraud Section, Criminal Division, U.S. Dep't of Justice (Aug. 1,
1984)).
400. See Zagaris, supra note 389, at 541.
402. The "know your customer" policy takes on particular significance in the
international arena because of the prevalence of shell corporations to provide layering. One
notable recent adherent to this policy is Switzerland, which requires attorneys or others who
act as intermediaries in establishing accounts for their clients to know the identity of their
clients. Swiss Ban on LaunderingMoney to Go Into Effect, WALL ST. J., July 31, 1990, at
A 10. See Glenn Whitney, With Swiss Secrecy Law Under Attack, PrivateBankers Seek
Wider Client Base, WALL ST. J., July 6, 1990, at A3C.
403. See Zagaris & Castilla, supra note 384, at 908-911.
by several means, including: the development of Mutual Legal Assistance

Treaties (MLATs); participation in the United Nations Convention Against
Illicit Traffic in Narcotic Drugs and Psychotropic Substances (UN Drug
Convention); the G-7 Financial Action Task Force (FATF); and model
legislation developed by the Inter-American Drug Abuse Control Comm'n
(CICAD) of the Organization of American States (OAS). 40 4 Another
important aspect of the international response to money laundering and its
predicate crimes has been the unprecedented development of substantive ties
and cooperative interaction among law enforcement agencies around the
world.
A Mutual Legal Assistance Treaty is an individual treaty between the
United States and another country, designed to allow for cooperation and
assistance in connection with criminal investigations. 0 5 MLATs, the first
of which was signed with Switzerland in 1977,46 represent the first
focused attempts by the United States to negotiate with countries that were
404. See Zagaris, supra note 389, at 517-35. Some might include two other vehicles-
the Kerry Amendment and the actions of the Basle Committee. The Kerry Amendment to
money laundering legislation, codified at 31 U.S.C. § 5311 (1988), authorized the Treasury
Department to conduct negotiations with countries, to export our BSA reporting requirements
to them, and then to allow the United States to access new information. See id. at 476.
Noncompliance was to result in a ban from conducting banking transactions in the United
States. See id. at 477. No country was ever banned and, while the United States has, in fact,
negotiated several of these treaties-they are currently in force with Venezuela, Peru,
Colombia, Panama, Uruguay, and Ecuador; however, they are arguably of limited value
because they are narrowly focused solely upon the exchange of information and because each
of the treaties negotiated provides the signatories with a right to withhold cooperation and
information with minimal justification. Phyllis Solomon, Note, Are Money LaunderersAll
Washed Up in the Western Hemisphere? The OAS Model Regulations, 17 HASTINGS INT'L
& CoMP. L. REV. 433, 443 (1994). Authority to make these treaties was transferred to the
State Department in 1990. Id.
In 1989, the Basle Committee adopted a statement of principles in response to money
laundering which urged banks to adopt "know-your-customer" principles, to be sensitive to
money laundering and cooperate fully with authorities where it is suspected, and to take
appropriate measures in dealing with customers suspected of money laundering. See
INTERNATIONAL EFFORTS TO COMBAT MONEY LAUNDERING 275-77 (W.C. Gilmore ed.,
1992). The recommended appropriate measures in response to money laundering include
reporting the information to authorities, severing relations with the customer, or freezing
accounts. Id. at 277.
405. Zagaris, supra note 389, at 495. Since they are "individual" treaties, each will
have its own nuances. Id. at 498.
406. New MLA T Treaties,supranote 390. The MLAT with Switzerland has emerged
as the most effective of the MLATs. Id. Recently, Switzerland cooperated in the largest
cash seizure of drug profits ever made by freezing, with the intent of transferring to the
United States as part of a forfeiture, $170 million in an account belonging to members of a
Colombian cartel. Warren Richey, Suspect Leaves Swiss Jailto Face U.S. Drug Charges,
SUN-SENTINEL (Ft. Lauderdale, Fla.), Jan. 5, 1995, at 4B.
either uncooperative banking secrecy havens or whose legal systems

somehow presented administrative blocks to cooperation.4 °7 One reason
the MLATs are so important is the mutual agreement by each nation to
produce the defendant's bank records, which can be vital to prosecution.4 8
Recent MLATs allow only for an exchange of information between
governments. They cannot be utilized in a criminal case by a defendant;
criminal defendants are relegated to the use of the much slower and
inefficient letters rogatory. 4°9 All government requests for information are
funnelled through the Department of Justice's Office of International
Assistance.4 1 °
On a larger scale, the United Nations Drug Convention of 1988 was a
watershed event in the development of a coordinated international response
to money laundering. 41 ' The product of the convention was a law en-
forcement treaty, signed by forty-four countries, which took effect
November 1, 1990.412 The treaty established money laundering and the
aiding and abetting of money laundering as criminal offenses.413 Other
407. See Zagaris, supra note 389, at 497-98. The United States had put a great deal
of pressure on several nations, particularly the Bahamas, to negotiate an MLAT. Id. at 504-
05. When the MLATs were delivered to Congress, they were held up for a year because
Senator Helms raised constitutional concerns about the right to confront witnesses and lax
standards for probable cause. Id. at 504. Even more embarrassing was the public castigation
of the United States Senate by the Bahamian government for delay-after the United States
government had publicly accused the Bahamas of failing to cooperate. Id. at 504-05.
408. New MLAT Treaties, supra note 390.
409. See id.
According to Bruce Zagaris of D.C.'s Cameron & Hombostel, MLATs negotiated before
the mid-1980s were silent on the issue. But afterwards, the Justice Department began
including language in MLATs which specifically prohibited defendants and private
parties from gaining the benefit of MLATs.
"I testified before the Senate that this would be unfair and against due process for a
defendant. The Justice Department's view was that defendants should use letters
rogatory. But at the same time, they were urging the Senate to ratify several MLATs
because letters rogatory were such an ineffective means of gathering evidence." says
Zagaris. "I think it was the most two-faced attitude they could take," argues Abbell,
who worked closely with Zagaris on the issue. However, neither felt this situation
would arise very often.
Another potential concern revolves around the cross-examination of witnesses.
Witnesses produced under the MLAT with Mexico cannot be cross-examined by defense
lawyers or the prosecution because the treaty does not allow for it. According to
Zagaris, other MLATs carry similar provisions.
Id.
410. Id.
412. Id. at 883-84.
413. United Nations Convention Against Illicit Traffic in Narcotic Drugs and
Psychotropic Substances, Dec. 20, 1988, 28 I.L.M. 493 art. 3 (entered into force Nov. 1,
important provisions of the treaty require international cooperation in the

investigation and prosecution of money laundering, including asset
forfeiture,4" 4 extradition,4" 5 and general mutual assistance between law
enforcement agencies."46 The treaty provides that signatories cannot
invoke bank secrecy rules to avoid cooperating with requests - for assis-
tance.4" 7 Although the provisions of this. treaty are somewhat broad in
nature, it has been extremely important in providing both the spark and the
framework for continued international cooperation.4 18
Another major development in the international response to money
laundering came out of the Group of Seven (G-7) Heads of State and
Finance Ministers Economic Summit in July 1989."' 9 The G-7 proposed
the development of a multinational financial action task force (FATF),
devoted strictly to combating international money laundering by
"harnoniz[ing] the financial and legal systems of its participants. 42 ° The
FATF is comprised of twenty-six countries and two regional organiza-
tions.4 2 ' The work of the FATF has built upon the U.N. Drug Conventioi
and the FATF has been very active in developing recommendations and
providing analysis of the execution of money laundering initiatives among
the members. 4 2 Regional offshoots of the FATF have developed, includ-
ing Caribbean Financial Action Task Force (CFATF), which includes the
United States and most of the countries in the Caribbean Basin. 423 The
CFATF actually grew from a regional conference initiated in 1991 by the
Prime Minister of Aruba because of his concerns about the influx of
narcodollars into Aruba.42 4 While the Caribbean countries have participat-
ed in the CFATF conferences and meetings, they have been slow to fully
adopt the recommendations which have thus far been promulgated by that
1990). This article establishes a mens rea of "knowing" for the crime of engaging in, aiding,
or abetting money laundering. Id.
414. Id. art. 5.
415. Id. art. 6.
416. Id.art. 7.
417. Id. art. 7, para 5.
418. Another important product of the United Nations treaty has been the development
of United Nations model treaties which call for extensive cooperation in the identification and
forfeiture ofassetsand simplified extradition proceedings. See Zagaris & Castilla, supranote
384, at 884.
419. 1993 H.R. Hearingson Money Laundering,supra note 1, at 132 (letter to Henry
B. Gonzales, Chairman, Committee on Banking, Finance & Urban Affairs, from Sheila F.
Anthony, Assistant Attorney General, U.S. Dep't of Justice).
420. Id.
421. Id. at 132 n.1.
422. Id. at 132-33.
423. See Zagaris & Castilla, supra note 384, at 899-900.
424. Telephone Interview with a source requesting anonymity, Office of the General
Counsel, U.S. Dep't of the Treasury (Dec. 2, 1994).
organization. 25 The reason for this is that the banking havens wish to
surgically remove the narcodollars, but fear driving away their revenue
base. 2 6. The Bahamas, for example, has instituted a "know your custom-
er" policy in an apparently sincere and effective attempt to reduce the
prevalence of drug-money laundered through the country. 42 7 Further
cooperation by the Bahamas has not occurred due to concerns about
remaining a competitive financial services center.428
Another major effort to combat money laundering has been undertaken
by CICAD, an organization within the OAS.429 In 1992, the OAS, whose
membership includes virtually all nations in the Western Hemisphere,
formally adopted a set of model regulations promulgated by CICAD to
combat money laundering. 431 These model regulations were adapted, in
large part, from the United Nations Drug Convention of 1988. 41' The
model regulations are non-binding on the member-states of the OAS.43 -
As of October 1993, only Chile had enacted legislation fully encompassing
the model regulations; however, the regulations have served as the focal
point for numerous discussions and regional conferences on the issue of
money laundering and various aspects of the regulations are in various
stages of incorporation by the individual members of the OAS.433
A final aspect of the international response to money laundering is the
unprecedented development of substantive ties and cooperative interaction
among law enforcement agencies around the world. The United Nations has
played a role in bringing nations together to focus on this effort by hosting
conventions such as the United Nations Congress on the Prevention of
Crime and the Treatment of Offenders, which ended its most recent session
in May 1995. 434 Outside of the United Nations framework, many coun-
425. Id.
426. Id.
427. See 1993 H.R. Hearings on Money Laundering, supra note 1, at 161.
428. Presidential Determination No. 94-22, Certifications for Major Narcotics
Producing and Transit Countries, 59 Fed. Reg. 17,231, 17,232 (1994).
429. Solomon, supra note 404, at 444.
430. Id. at 444-46.
431. Id. at 445.
432. Id.
433. Telephone Interview with a source requesting anonymity, Office of the General
Counsel, U.S. Dep't of the Treasury (Dec. 2, 1994).
434. Mouat, supra note 3, at 1. The United Nations has been instrumental in bringing
the nations of the world together to focus on the problem of combatting international crime-
a phenomenon which has exploded as many organized crime groups have moved into new
areas "such as trade in nuclear technology ... and money laundering." Id. at 1. The May,
1994 meeting, which was held in Cairo, was attended by some 1,300 government and law
enforcement officials from around the globe. Id. at 12. This convention meets every five
years. Id. But the United Nations also has a permanent branch concerned with these issues,
the Crime Prevention and Criminal Justice Branch, which is headquartered in Austria. Id.
tries have reached out on their own to forge ties and conduct operations with
the law enforcement bodies of other nations.435 It is becoming common-
place for the United States to interact and cooperate extensively with foreign
governments in international law enforcement activities. The DEA
maintains seventy-two offices in fifty countries worldwide.436 In 1994, the
FBI established, for the first time, a long-term joint investigative team with
the United Kingdom to investigate money laundering and white collar crime
in the Caribbean.43 7 In 1995, the United States opened an FBI internation-
al police training academy in Budapest, Hungary, 438 and established an
FBI team in Denmark to monitor money laundering and organized crime
emanating from the Eastern Bloc. 39 Illustrative of the modern spirit of
international cooperation-and the global scope of modern organized
crime-is "Project Dinero." Project Dinero was an undercover operation in
which two undercover DEA agents established and ran a Caribbean "bank"
which advertised in Colombia, South America, and catered to the money
laundering needs of organized crime. 44 1 When it was finally concluded,
the operation resulted in the seizure of $54 million, nine tons of cocaine,
and the arrest of 88 suspected drug dealers. 4 ' The operation was assisted
at various points by the law enforcement entities of Italy, Spain, Great
Britain, and Canada. 44 2 Implicated in the operation was a mind-boggling
alliance of criminal organizations including the Cali Cartel, the Italian
Mafia, Spanish and Croatian mobsters, and Russian criminals in the United
435. See Richard L. Holman, Countriesto Fight Dirty Money, WALL ST. J., June 12,
1995, at A8. "Two dozen nations, including the U.S., will strengthen links to combat money
laundering. At a Brussels meeting, the first of its kind, law-enforcement agents agreed to try
to overcome legal barriers to sharing information and to pursue use of the Internet to aid
investigations." Id.
436. FBI to MonitorRussian and East Bloc Crime From Denmark, Associated Press,
June 6, 1995, available in Westlaw, 1995 WL 4391374.
437. Minibanner: United Kingdom HD: U.S. joins with UK. to investigate money
laundering,5 MONEY LAUNDERING ALERT (Alert Int'l, Inc., Miami, Fla.), Jan. 1, 1994, at
No. 4.
438. David Johnston, Long arm ofAmerican law gains global reach,stirs controversy,
ATLANTA CONST., Apr. 17, 1995, at A7.
439. INT'L NARCOTICS CONTROL STRATEGY REPORT, supra note 3, at 45.
440. John J. Fialka, DEA 's 'Sting' Bank in the Caribbean Uncovers Launderingof
Drug Monev, WALL ST. J., Dec. 19, 1994, at A9B. This was the first sting operation in
which the United States set up an offshore bank. Id. The DEA agents ran the bank with the
assistance and advice of the IRS and banking consultants who operated out of an Atlanta
office. Id.
441. Id. The agents actually laundered $47.9 million for their customers. As the
checks came through their "bank," the agents were able to trace all of the proceeds-and get
to them in the end. Id.
442. Id.
States with claimed ties to the former Soviet KGB.443 How far this
international cooperation between law enforcement agencies will go is
unknown. At least one observer of cooperative efforts among the world's
nations has stated that he foresees the development of "a world police
investigative and enforcement444effort" as being an inevitable response to the
internationalization of crime.
IV. RECENT UNITED STATES LEGISLATION REGARDING

MONEY LAUNDERING
A. The Annunzio- Wylie Anti-Money Laundering Act of 1992
The Annunzio-Wylie Anti-Money Laundering Act of 199244' ad-

dressed several facets of money laundering. These statutes, enacted largely
in response to the BCCI scandal," 6 provide for termination of a bank's
charter, its insurance, or its license to conduct
7 business in the United States
if it is convicted of money laundering."4
443. Id. The alliances and international ties between criminal organizations,
particularly those conducting drug traffic, is becoming quite pronounced.
Despite enforcement and interdiction efforts [in 1994], the principal drug trafficking
organizations did a brisk business .... They demonstrated an unprecedented degree
of sophistication, rivaling that of the world's great multinational corporations. In Brazil,
for example, we uncovered a trafficking organization managed by Russians, using
Ghanian and Nigerian couriers, and moving cocaine by way of West Africa to Europe
and the [United States.] In their organization and technology, the trafficking networks
compare favorably with the most modem businesses.
INT'L NARCOTICS CONTROL STRATEGY REPORT, supra note 3, at 1.
444. Mouat, supra note 3, at 12 (quoting Emilio Viano, Professor of criminal law,
American University, Washington).
445. Pub. L. No. 102-550, 106 Stat. 4044 (codified as amended in scattered sections
of 12 U.S.C., 18 U.S.C., 22 U.S.C. and 31 U.S.C.).
446. Amy G. Rudnick & James M. Schwarz, Banks Must Gear Up for Comprehensive
New Money LaunderingLaw, BANKING POL'Y REP., Dec. 21, 1992, at 1. Repercussions
from the BCCI scandal are evidently still animating federal legislative efforts. On Dec. 13,
1994, the Board of Governors of the Federal Reserve System published regulations for
comment which allow the Board to shut down any United States branch of a foreign bank
which the Board determines "is not subject to comprehensive supervision or regulation [in
its country of incorporation] on a consolidated basis." 59 Fed. Reg. 64,171 (1994) (to be
codified at 12 C.F.R. § 211.30). See also 138 CONG. REC. S17,912 (daily ed. Oct. 8, 1992).
447. 12 U.S.C. §§ 93, 1818, 3105 (1994). Ifa domestic bank is convicted of money
laundering, a bank regulator will then conduct hearings to determine whether to revoke the
bank's deposit insurance under 12 U.S.C. § 1818, or to consider the revocation of the bank's
charter or the appointment of a conservator to take over the bank under 12 U.S.C. § 93. In
the case of a foreign bank branch, the Federal Reserve Board must immediately begin
termination proceedings under 12 U.S.C. § 3105. For a domestic institution, the punitive
measures are not mandatory, and they may make a case under 12 U.S.C. § 93 to the regulator
If a United States-based branch of a foreign bank is found guilty of

engaging in money laundering, the branch will be shut down.44 8 If an
American bank is found guilty of engaging in money laundering, the
appropriate regulatory agency conducts a hearing to determine whether to
terminate the institution" 9 or ban culpable individuals from further
involvement with the institution. 45" The Annunzio-Wylie Act also amend-
ed the BSA to allow the Secretary of the Treasury to require all financial
institutions to develop policies to counter money laundering and to engage
in ongoing training to recognize and respond to money laundering.4"5 ' The
Secretary of the Treasury may require any or all financial institutions to
report suspicious transactions and may prohibit the financial institutions
from disclosing the report to the individual who was the subject of the
report. 452 However, no regulations have yet been issued to mandate such
reporting. 453 The Annunzio-Wylie Act also authorized the formation of
a Bank Secrecy Act Advisory Group which would have input in the
development of BSA related reports.454 The group consists of personnel
from the Treasury and Justice Departments, as well as members of the
financial industry and others affected by the BSA. 455 Another major
aspect of the Act was directed at layering and the problem of wire transfers.
The Act required the Treasury Department and the Federal Reserve Board
as to why the sanctions should not be imposed. A bank official convicted of money
laundering may be banned from the industry under 12 U.S.C. § 1818.
448. 12 U.S.C. § 3105(i) (1994).
449. 12 U.S.C. § 93(d)(1) (1994). Various other statutes provide similar penalties
depending on the designation of the financial institution as a thrift, credit union, or some
other designation. See, e.g., 12 U.S.C. § 1786(b)(1) (1994).
450. 12 U.S.C. § 1818(e)(2) (1994). Various other statutes provide similar penalties
depending on the designation of the financial institution. See, e.g., 12 U.S.C. § 1786(g)
(1994).
451. 31 U.S.C. § 5318(h) (Supp. 1994).
452. Id. § 5318(g).
453. Banks are under a requirement, subject to penalty for noncompliance, to submit
a Criminal Referral Form for transactions with a high probability of involving violations of
United States laws and regulations, pursuant to 12 C.F.R. § 21.11 (1995). However, there
are no requirements for other institutions to do so. Thus, where there may be some suspicion
but no hard evidence of money laundering, banks are going to be much more likely to report
suspicious transactions than other non-bank financial institutions such as securities firms or
money transmitters. Reports indicate, however, that the Treasury Department intends to
promulgate regulations in the near future which will make it mandatory for all institutions
to report suspicioustransactions. Telephone Interview with Rodger Weiner, Deputy Director,
Office of Financial Enforcement, U.S. Dep't of the Treasury (Nov. 22, 1994).
454. Noble Names 30-Member Bank Secrecy Act Advisory Group, 5 MONEY
LAUNDERING ALERT (Alert Int'l, Inc., Miami, Fla.), Mar. 1, 1994, at No. 6.
455. See id. (listing the names and titles of the newly convened board).
jointly to develop regulations regarding verification and record-keeping

requirements for wire transfers.456
The Annunzio-Wylie Act addressed the problem of non-bank financial
institution involvement in money laundering by attempting to identify and
locate these institutions. Curiously, Congress attempted this by requiring
banks and other deposit institutions to provide identifying information about
every account holder that was a non-depository financial institution as
defined by 31 U.S.C. § 5 3 1 2 .4 7 As of July 1995, however, the Treasury
Department had not moved to pass regulations enforcing the statute.4 58
The Annunzio-Wylie Act's second attempt at addressing the problem was
to provide federal criminal penalties of up to five years imprisonment for
any money transmitting business which operated without a state license in
a state
459
where such operation constituted a misdemeanor or felony under state
law.
B. The Money LaunderingSuppression Act of 1994 (MLSA 94) and New

Regulations Reducing Recordkeeping Requirements
The primary substantive focus of the Money Laundering Suppression

Act of 1994 (MLSA 94)460 is on combating money laundering
accomplished through non-bank financial institutions. Congress opted to
involve the states in policing these organizations. The MLSA 94 contains
a provision requesting that states develop and enact, by 1997, uniform laws
for the licensing and regulation of businesses which "provide check cashing,
456. 12 U.S.C. § 1829b (1994). Final regulations were issued by FinCEN and the
Board of Governors of the Federal Reserve on January 3, 1995. 60 Fed. Reg. 220 (1995)
(to be codified at 31 C.F.R. §§ 103.11, -.25, -.33). Seesupra notes 381-404 and accompany-
ing text.
457. 31 U.S.C. § 5327 (Supp. 1992). This seems to be a clear case of over-reliance
on the banking industry. Banks are financial institutions-nothing more. They are not an
investigatory arm of the federal government. While it may be a practical necessity to
bootstrap banks into government service for the purposes of identifying suspect cash transac-
tions, anything more places the costs of investigation and regulation of non-bank financial
institutions on the banks. This is difficult to justify.
458. Where Pending FinCEN Bank Secrecy Act Regulations Stand, 6 MONEY
LAUNDERING ALERT (Alert Int'l, Inc., Miami, Fla.), July 1, 1995, at No. 10 [hereinafter
Pending FinCEN Regulations]. The statute itself is duplicative in light of the 1994
legislation requiring all non-bank financial institutions to register with the government. See
Treasury Delays TransmitterRegistration,6 MONEY LAUNDERING ALERT (Alert Int'l, Inc.,
Miami, Fla.), June 1, 1995, at No. 9.
459. 18 U.S.C. § 1960 (1994). In addition, the Annunzio-Wylie Act of 1992 amended
the criminal forfeiture statute, 18 U.S.C. § 982, to apply to any violation of this new statute.
Id.
460. Pub. L. No. 103-325, §§ 401-13, 108 Stat. 2160, 2243-55 (to be codified in
scattered sections of 18 U.S.C. and 31 U.S.C.).
currency exchange, or money transmitting or remittance services, or issue

or redeem money orders, travelers' checks, and other similar instru-
ments.""46 Congress's express goals in the development of these state
laws are to "prevent money laundering and protect[] the payment system
from fraud or abuse."462 The provisions of the uniform state laws should
set licensing standards based on background checks and provide for a
system to ensure compliance with BSA reporting requirements. The states
are to proscribe criminal or civil penalties for variance from the state
licensing and federal BSA reporting requirements. The Secretary of the
Treasury is to report to Congress annually on the progress made by the
states in implementing the statutes.463
Presumably as a stop-gap measure as states prepare to take an active
role in BSA enforcement and to enhance the capabilities of federal law
enforcement, the MLSA 94 also contains the requirement that all money
transmitting businesses in the nation register with the Secretary of the Trea-
sury. 464 The statute does not provide for any federal regulation of these
businesses beyond requirements under the BSA and IRS codes. Additional-
ly, no businesses are exempted from any existing or future state regulation
or licensing requirements. 465 The registration requires businesses to list
the names of all owners, directors, officers, and any others who "otherwise
participate[] in the conduct of the affairs of the business," and to maintain
a list of its agents.466 Upon registration, and annually thereafter, the
business must also include an estimate of the volume of business it will
conduct in the coming year.4 67 The statute provides for civil penalties of
$5,000 per day for each day that the business operates without a registration
or. with a registration containing false or incomplete information. 468 The
statute also provides for criminal penalties of up to five years imprisonment,
461. Pub. L. No. 103-325, § 407(a)(1), 108 Stat. 2160, 2247-48 (to be codified at 31
U.S.C. § 5311).
462. Id.
463. Id.
464. Pub. L. No. 103-325, § 408, 108 Stat. 2160, 2249-52 (to be codified at 31
U.S.C. § 5330). The law would require all money transmitting businesses to register 180
days after enactment of MLSA 94 or the date on which the business is established, whichever
is later. Id. The statute defines a money transmitting business as one which "engage[s] in
check cashing, currency exchange, or money transmitting or remittance services, or issuing
or redeeming money orders, travelers checks, and other similar instruments." Id.
465. 31 U.S.C. § 5330 (1994).
466. Pub. L. No. 103-325, § 408(b), 108 Stat. 2160, 2250-51 (to be codified at 31
U.S.C. § 5330). The statute also authorizes the Secretary of the Treasury to promulgate
regulations which would require certain agents to be treated as money transmitting businesses
under the statute, thus requiring them to register with the Treasury Department independently
of their parent institutions. Id.
467. Id.
468. Id.
218 TENNESSEE LA W RE VIEW [Vol, 63:143
as well as subjecting a violator to criminal forfeiture provisions."'

Though the statute called for implementation within 180 days of passage, as
of July, 1995, FinCEN was still conferring with private industry in an
attempt to develop reasonable implementation regulations.4"'
Administratively, MLSA 94 made several technical modifications to
reduce the burden on banks imposed by the CTR reporting requirements.
Amendments to the CTR reporting requirements establish a category of
businesses for which CTR reports "have little or no value for law enforce-
ment purposes," and require financial institutions to exempt those categories
of businesses from the CTR reporting requirements. 47 ' Additional modifi-
cations to the CTR reporting requirements require the Treasury Department
to establish objective criteria for banks to use in applying discretionary
exemptions to a business. 72 This protects a bank from any criminal or
civil penalties based on its decision as long as the decision is not made in
bad faith. 473 The Treasury Department has yet to publish amendments to
its regulations which would implement these changes, so it is impossible to
fully assess the impact of the regulations on the CTR reporting behavior of
banks. There are reports indicating that there will be a two-tiered exemption
system, with mandatory exemptions for certain government entities and
certain public utilities.474 The Treasury Department will reportedly
publish a list of large, well-known, well-established, commercial institutions
(which currently account for thirty to forty percent of the CTRs) which can
be exempted at the bank's discretion.475 Other requests for exemptions by
banks will be reviewed and approved individually by the Treasury Depart-
ment.476 Members of the American Banker's Association expect the
revamped exemption system to result in an estimated $40 million per year
savings to American banks. 477 Amendments to the BSA require the
Treasury Department to "streamline" BSA reports so that they take less time
to complete and contain only that information which is useful to law
enforcement.4 78 Another amendment calls for all reports of suspicious
469. Pub. L. No. 103-325, § 408(c), 108 Stat. 2160, 2252 (to be codified at 31
U.S.C. § 5330) subjects violators to criminal penalties pursuant to 18 U.S.C. § 1960.
470. PendingFinCEN Regulations, supra note 458, at No. 10.
471. Pub. L. No. 103-325 § 402, 108 Stat. 2160, 2242 (to be codified at 31
U.S.C. § 5313(d)).
472. Pub. L. No. 103-325, § 402, 108 Stat. 2160, 2244 (to be codified at 31
U.S.C. § 5313(e)).
473. Id. (to be codified at 31 U.S.C. § 5313(f)).
474. Telephone Interview with Rodger Weiner, Deputy Director, OFE, U.S. Dep't of
the Treasury (Nov. 22, 1994).
475. Id.
476. Id.
477. Telephone Interview with John Byrne, supra note 233.
478. Pub. L. No. 103-325, § 402, 108 Stat. 2160, 2245 (to be codified as amended at
31 U.S.C. § 5313).
transactions to be made to a single agency. 479 Subsequent to passage of

the MLCA 480
94, FinCEN was designated as the single agency to receive these
reports.
In a regulation concurrent with MLSA 94, the Treasury Department
eliminated the recordkeeping requirements regarding the sale of negotiable
instruments for $3,000 or more in currency.4 8' Previously, any financial
institution which sold such negotiable instruments had to verify the identity
of purchasers and maintain a chronological log of the sales. 482 After
consulting with both the banking industry and law enforcement, the Treasury
Department found that the cost of maintaining such records outweighed their
benefit to law enforcement.483
V. CONCLUSIONS
A. The Domestic Response to Money Laundering: What is Needed
The United States government's efforts to combat money laundering

should be applauded. While there are substantial issues of law and of
domestic and foreign policy associated with combating money laundering,
the steps taken by Congress and law enforcement have primarily been
timely, well measured, and well thought out. The attack on money
laundering is moving in new directions as the emphasis shifts from
placement in domestic banks to placement in non-bank financial institutions,
wire transfers, and international money laundering. Efforts to address
placement in non-bank financial institutions will place a premium on
federal-state cooperation and information sharing as well as on developing
cost-effective regulatory schemes at the state level. Regulation of wire
transfers, because of its importance to America's financial structure, needs
to be approached cautiously, from a cost-benefit standpoint, and be
integrated with efforts to combat international money laundering. The
emergence of "cyber-banking" and "smart cards" are so recent that the
government has yet to react-but the government is clearly aware of the
problems and is conferring with private industry to find workable solutions.
479. Pub. L. No. 103-325, § 403, 108 Stat. 2160, 2245 (to be codified as amended at
31 U.S.C. § 5318g).
480. See supra note 233.
481. 31 U.S.C. § 5325 (1994) required the Treasury Department to promulgate
regulations governing the verification and record-keeping requirements upon the sale of a
negotiable instruments for $3,000 or more in currency.
482. 31 C.F.R. § 103.29 (1994) (effective Aug. 13, 1990).
483. 59 Fed. Reg. 52,250 (1994) (amending 31 C.F.R. § 103.29). While the
amendment eliminates the need for a chronological log, it does not eliminate the need for
verification or that some type of record of the purchase be maintained. It is estimated that
this will mean a $1 million savings per year to banks, with the primary benefit going to small
banks. Telephone Interview with John Byrne, supra note 233.
TENNESSEE LA W REVIEW (Vol. 63:143
The fight against international money laundering is off to a promising start

but is very much in its infancy. It will require a dedicated and prolonged
effort involving statesmanship, effective foreign assistance programs, and the
selective application of pressure and force. In addition, because of the
intrusiveness of efforts to combat money laundering, the measures put in
place must be continuously re-evaluated in light of the changing directions
of money laundering and the goals of the regulations, with an eye to their
effectiveness and costs.
B. Evaluating the CurrentBSA Reporting Requirements
When the BSA was established, the money laundering threat came from
direct placement of cash into domestic banking institutions. This no longer
occurs-or at least it does not occur without a superficially acceptable
explanation from the launderer (cash deposits from a front company, for
example). However, it must also be noted that the future, continued non-use
of banking institutions for direct deposit is probably tied, in some form, to
the continued existence of the CTR/CMIR reporting requirements. Strict
enforcement of the BSA has driven money laundering from the mainstream
banks-at least prior to the integration phase-because money launderers do
not want to leave a paper trail which could generate suspicion or be used
against them.
Another valid justification for the continued existence of the BSA
reporting requirements is that law enforcement agencies find the BSA
reports "extremely useful in identifying, investigating, and prosecuting
money laundering operations" with the "data ... also [being] used to
identify and trace the disposition of proceeds from illegal activity for
possible seizure and forfeiture." 8 4 However, their use is primarily
reactive. Examination of particular reports normally begins when a suspect
has already been identified by law enforcement either on a tip from a
financial institution or as an outgrowth of other investigations.48 5 As it
now stands, the BSA reports are useful as tools in prosecution and to follow
leads once investigations have been initiated. But this same function could
be served by bank records in general, so there must be another justification.
The second goal of the BSA reports, to produce identifiable leads based
upon law enforcement analysis, is not working. It seems that the leads that
are generated are coming from banks examining the microcosm of their
world rather than from law enforcement microanalysis.486 To be fair, the
only serious attempt to produce proactive targeting data from the BSA
reports has been by FinCEN, and that was initiated only recently. FinCEN's
484. 1993 H.R. Hearings on Money Laundering,supra note 1, at 514 (statement of

Henry R. Wray, Director, Administration of Justice Issues, U.S. General Accounting Office).
485. Id. at 522.
486. See, e.g., Barrett, supra note 241, at A24.
efforts to provide targeting data using artificial intelligence are in the

infancy stage and may, in the long run, prove highly productive.487
The downside of the BSA reporting requirements is that they are very
expensive and cast an overly broad net, which catches a great deal of useless
data while missing some of the most important information.488 Banks are
currently in "hyper-compliance" with the BSA, in large part because of the
penalties associated with non-compliance, whether from negligence or
outright engagement in money laundering. In fact, banks make little use of
the exemptions available to them because of their concerns over the
penalties. Consequently, banks generate a tremendous number of CTR
reports. In 1992, there were 8.97 million CTR reports filed and it is
estimated that, by 1996, the number of CTR reports filed annually will
surpass 14 million.4 89 The Internal Revenue Service estimates that
between thirty and forty percent of these reports are "routine deposits by
large, well-established and well-recognized retail businesses, each with a
number of chain stores."4 90
Further, the reports which are actually made are costly, both to the
financial institutions and the government.49 ' In 1992, it was estimated that
the total cost to the nation's banks for insuring BSA compliance was $130
million dollars per year,492 with an itemized cost per CTR report between
three and fifteen dollars.493 The cost to the government to process and
store each report in 1992 was estimated at two dollars per report. 94 The
huge volume of reports, alone, makes "meaningful analysis [by law
enforcement] difficult." 495
Congressional and governmental response to this situation is very
promising. Congress has acted, with. the passage of MLSA 94, to force a
reduction in the number of reports by several means. First, Congress
487. See 1993 H.R. Hearingson MoneyLaundering,supranote 1,at 126-27 (questions

to Brian M. Bruh, Director, FinCEN, by Henry B. Gonzalez, Chairman, House Committee
on Banking, Finance & Urban Affairs).
488. 1993 H.R. Hearings on Money Laundering,supra note 1, at 518 (statement of
Henry R. Wray, Director, Administration of Justice Issues, U.S. General Accounting Office).
Between 1985 and 1992, the average number of CTR filings increased at an annual
percentage rate of 12.7%. Id.
489. Id.
490. Id.
of Sara R. Wilson, Senior Corporate Counsel, Signet Banking Corporation, on behalf of the
American Banker's Association).
492. Id.
493. Id. at 519 (statement of Henry R. Wray, Director, Administration of Justice
Issues, U.S. General Accounting Office).
494. Id.
495. Id. at 513.
requires that certain businesses be exempt.496 The Treasury Department

has not yet published the businesses that will be included, but indications are
that the exemptions will target the well-established businesses whose reports
account for thirty to forty percent of BSA reports submitted.4 97 This
should result in a more effective report, based on the government's ability
to process and use a significantly smaller number of reports, and should
mean a significant cost savings to banking institutions as well.
Second, Congress has mandated a safe-harbor for banks which allow
discretionary exemptions in good faith.49 Hopefully, this will add to the
cost savings which banks may achieve under the reports. It is unclear at this
time whether the discretionary exemptions will still include businesses at a
high risk of involvement in money laundering. Indications are that this
problem is recognized and will be addressed in future Treasury Department
regulations. 499 Third, the Treasury Department no longer requires banks
to maintain a "$3,000 log" of the purchase of negotiable instruments, which
also serves to reduce costs. 500
There is at least one other significant cost-effective adjustment to the
BSA which the government should take, in light of the changing face of
money laundering. The dollar amount required to trigger CTR reports-at
least for businesses-should be increased. Aggregate transactions of
$10,000 or more in a single day are still significant and unusual for the
average individual, so that threshold amount should remain at its current
level. The reporting threshold for businesses, however, could be conserva-
tively increased to $25,000. This would result in further significant savings
both to the banking industry and the government, while possibly increasing
the effectiveness of the BSA as a tool to combat money laundering. First,
the mere filing of a CTR generally does not lead to an investigation. The
investigations, to the extent that they arise because of the BSA, are initiated
almost wholly based on reports of suspicious transactions from banks.5 '
With numerous money launderers operating volume businesses and
laundering one million dollars or more per year, any laundering which falls
through the cracks because of the heightened reporting threshold, is likely
to be accomplished by small operations. With the amount of money being
laundered in the United States approaching $300 billionS° 2-and the
government's seizures totaling no more than a few percent of that amount

500. 59 Fed. Reg. 52250 (amending 31 C.F.R. § 103.29).
annually"° 3-law enforcement needs to be far more concerned with

identifying the large volume operators and attacking them. The emphasis
needs to be on creating fewer reports that will be easier to manipulate and
that will lead to meaningful, high-value targets, while maintaining the
psychological threat of danger to money launderers due to the report's very
existence and enforcement. Raising the reporting threshold for businesses
to $25,000 will accomplish both goals in the most cost-effective manner
possible.
C. Regulation of the Wire Transfer System
When evaluating the proposed changes to the BSA, great pause must be
taken when looking at government proposals for recordkeeping requirements
as regards wire transfers. This is primarily because of the tremendous
implications such regulations could have for the free flow of capital and the
continued viability of the United States wire transfer system as the medium
of choice for the world's merchants." 4
503. This estimate is based on total forfeitures reported in 1992 by the federal
organizations involved in fighting money laundering. See supra notes 224, 229.
504. The mechanics of the wire transfer system are superficially simple. See generallv
Benjamin Geva, Fedwire TransferofFunds,104 BANKING L.J. 412 (1987); Sarah J. Hughes,
PolicingMoney Laundering Through Funds Transfers: A Critiqueof Regulation Under the
Bank Secrecy Act, 67 IND. L.J. 283 (1992).
The majority of funds transfers are executed electronically on a "straight-through" basis,
which means they are received and processed electronically, thereby saving a significant
amount of time and, consequently, money on each transaction. J.P. Morgan officials
estimated that 80% of their transactions are conducted on a straight through basis. "This type
of automated processing is common to the industry and to large providers of these services.
It is one of the great strengths of the ... wholesale payments system and one reason that
U.S. dollar denominated funds transfers continue to be the settlement means of choice in
international commerce. The speed, accuracy, sophistication, security, and low cost to the
user of the U.S. payments systems contribute to maintaining this role for the U[nited]
S[tates] .... " Comment Letter from Morgan Guaranty Trust Co. of New York to the U.S.
Dep't of the Treasury 4-5 (Feb. 5, 1991).
With such an emphasis on speed and electronic interface, the payment orders sent by
wire transfer contain, as one would expect, only that information which is necessary for the
recipient of the order to conduct the transaction. In a typical transaction, an individual gives
a payment order to his bank. The bank formats the order, using only sufficient information
to allow the receiving bank to conduct and execute the payment appropriately. The original
order may or may not even contain the name of the originator or the person on whose behalf
the payment order was made.
If the payment order is routed through several intermediary banks before it reaches its
final destination, the order to the next bank in line is reformatted at each intermediate stop.
Again, only sufficient information to allow the next bank to carry out its tasks appropriately
is contained on the order. It is quite possible that, by the time the funds reach their final
destination, the receiving bank has no knowledge of the identity of the originator of the
In the United States, there are two main wire transfer systems, CHIPS
and Fedwire. °5 A third major operator, SWIFT, a Belgian based wire-
transfer system, operates internationally." 6 The growth of the use of wire
transfers to conduct domestic and global trade and the movement of funds
has been staggering. During 1993, in the United States alone, CHIPS and
Fedwire processed 400,000 funds transfers each business day, worth
approximately $1.5 trillion." 7 The average cost of a fund transfer was
eighteen cents, regardless of the size of the transaction.5 °8 Additionally,
the number of wire transfers by non-bank financial institutions reached 12.7
million annually.50 9 The growth of the wire transfer system has been
based not on statutory prodding, but on the search for financial efficiency,
driven by economics, technology, and the needs of the open market. 1 0
Until 1989, regulation of wire transfers in all countries, including the United
States, was primarily accomplished internally, by the banks and financial
institutions themselves.5 '
Under the current regulatory scheme, records of wire transactions
involving more than $10,000 are to be maintained at the originating and
beneficiary banks for a period specified by order of the Secretary of the
Treasury, but not more than five years. 5 12 The recent regulation of the
transfers, Uniform Commercial Code section 4A, does not require that this
beneficiary information be placed on the transfer order. 513 However,
because it places the risk of an erroneous or fraudulent payment order on the
receiving bank if certain security precautions are not met, the ultimate effect
of the regulation will probably drive the system toward retaining the
beneficiary information. 1 4 There are also very practical problems with
payment order. See Hughes, supra,at 293.

505. Hughes, supra note 504, at 288-89.
506. 55 Fed. Reg. 40,791 (1990) (to be codified at 12 C.F.R. pt. 210).
507. Id.
508. Wire TransferLaundering, supra note 14, at 14.
509. 60 Fed. Reg. 231, 232 (1995).
510. See generallvRaj Bhala, The InvertedPyramidof Wire TransferLaw, 82 KY. L.J.
347 (1993); Raj Bhala, Payingfor the Deal: An Analysis of Wire Transfer Law and
InternationalFinancialMarket Interest Groups, 42 KAN. L. REV. 667 (1994) [hereinafter
Bhala, Paving for the Deal].
511. Statutes governing wire transfers are very recent. In the United States, Uniform
Commercial Code Article 4A, governing wire transfers, was first adopted in 1989 by the
American Law Institute. See Hughes, supra note 504, at 285-86 n.16. It has since been
adopted by the fifty states and the federal government and is codified at 12 C.F.R. pt. 210
Regulation J) (1994). See Bhala, Payingfor the Deal, supra note 511, at 667.
512. 31 C.F.R. § 103.33 (1994).
513. See 12 C.F.R. § 210.26 (1995).
514. See Hughes, supra note 504, at 315-22; see generallyBhala,Payingforthe Deal,
supra note 511, at 667 (discussing in detail the risk factors addressed by U.C.C. § 4A and
their implications).
including this information. The Fedwire format does not have an input
section dedicated to this information. 15 The CHIPS and SWIFT formats,
however, do have the structural ability to contain the desired informa-
tion.5 16
At the start of the 1990s, it was apparent that government efforts to
attack the placement of funds into mainstream financial institutions had met
with relative success."' By 1992, the emphasis of law enforcement and
legislative initiatives was shifting from combating placement at banking 18
institutions to combating placement at non-bank financial institutions
and attacking the layering of funds.5 9 Law enforcement found itself
daunted by the task of following wire transfers of funds, given the records
as they existed (and continue to exist today).5 20 As it now stands, once
funds are successfully placed, numerous transfers of funds within the United
States can make the funds very difficult to adequately trace.5 21 Once the
funds are transferred outside of the United States, they can be run through
accounts in countries with strict bank secrecy laws. At any point thereafter,
the funds can be wired back into the United States in a non-traceable and,
thus, freshly laundered condition. 22
In an attempt to make it easier for law enforcement to trace funds
through the wire transfer system, Congress passed legislation in 1992
mandating that the Treasury Department, in conjunction with the Federal
515. See Hughes, supra note 504, at 301-02.

516. Id.
517. See 1992 Senate Hearingson casas de cambio, supra note 7, at 5 (statement of
Senator Roth). "As a result of [legislative initiatives and law enforcement efforts through the
1980's], a significant reduction in money laundering through traditional financial institutions
appears to have occurred." Id. See also id. at 207 (statement of Ronald K. Noble, Assistant
Secretary for Enforcement, U.S. Dep't of the Treasury). "We have reversed the situation...
where compliance with the Bank Secrecy [sic] and awareness of money laundering was
dismal. Today, banks have become our first line of defense against money laundering
through good compliance with the Bank Secrecy Act and alert reporting of suspicious
activity." Id.
518. See 1992 Senate Hearingson casas de cambio, supra note 7, at 8-9 (testimony
of Harold B. Lippman, Staff Investigator, Permanent Subcommittee on Investigations).
Money laundering, at least as pertains to placement, has moved out the highly regulated
banking industry and into businessesand "non-bank" financial institutions. Id. at 8. "Unlike
their traditional counterparts, these [non-bank] institutions operate essentially free of
meaningful Federal and State regulation and oversight." Id. at 8-9.
519. Wire Transfer Laundering,supra note 14, at 14.
520. See id. Theodore Greenberg, Chief of the Justice Department's Criminal
Division, Money Laundering, was quoted as saying that it was the intent of law enforcement
"to focus on layering in general and wire transfers in particular," which he referred to as an
"overwhelming problem." Id.
521. See supra text accompanying note 31.
522. See, e.g., Taylor, supra note 17, at A4.
Reserve Board, promulgate regulations requiring that financial institutions

maintain appropriate records of funds transfers when the Treasury Depart-
ment and Federal Reserve Board determine that those records would "ha[ve]
a high degree of usefulness in criminal, tax, or regulatory investigations or
proceedings ....523 In fact, the Treasury Department had already
initiated work on proposed regulations and distributed them for comment in
1990.524 Because of tremendous criticism by the financial industry of the
regulations which had been proposed through 1993, final regulations were
not approved until January 1995.525 The main issues, from the standpoint
of banks and the Federal Reserve Board, were summed up in a statement by
the Governor of the Board of Governors of the Federal Reserve System,
John P. LaWare:
The design of funds transfer recordkeeping requirements is a very
complex and technical undertaking. While the Board agrees that it may be
beneficial to use information from funds transfers for investigations of
money laundering activity, or to trace the proceeds of such activity, we
also have a continuing interest in ensuring the efficiency and integrity of
the payments system. It is important that the impact of any funds transfer
recordkeeping requirements be carefully weighed to ensure that they do not
result in a degradation in the efficiency and attractiveness of the large-
dollar payments system. More importantly, recordkeeping requirements
that are too onerous could have serious adverse consequences for the
competitive position of U.S. financial institutions.526
On January 3, 1995, the Board of Governors of the Federal Reserve

System and FinCEN, pursuant to Annunzio-Wylie Act,527 promulgated
final regulations regarding wire transfers of funds to become effective on
January 1, 1996.528 These regulations represent a practical compromise
523. Codified at 12 U.S.C. § 1829b(b)(l) (1994).

524. Proposed Amendment to the Bank Secrecy Act Regulations Relating to
Recordkeeping for Funds Transfers by Banks and Transmittals of Funds by Other Financial
Institutions, 55 Fed. Reg. 41,696 (1990) (proposed Oct. 15, 1990).
525. 60 Fed. Reg. 220 (1995) (to be codified at 31 C.F.R. pt. 103); 1993 H.R.
Hearingson Money Laundering,supra note 1, at 345 (answers to questions posed to Ronald
K. Noble, Assistant Secretary of the Treasury for Enforcement).
of John P. LaWare, Governor, Board of Governors of the Federal Reserve System).
527. Pub. L. No. 102-550, § 1515, 106 Stat. 4044, 4058 (codified as amended at 12
U.S.C. § 1829b).
528. 60 Fed. Reg. 220 (1995) (to be codified as amended at 31 C.F.R. §§ 103.11, -.25,
-.33). FinCEN published a companion rule which requires financial institutions acting as
intermediaries in wire transfers of funds to include in the follow-on transfer as much of the
information received in the original wire transfer order as possible. See id. at 234 (1995) (to
be codified as amended at 31 C.F.R. pt. 103).
between law enforcement, with its need to easily track transfers of funds
through the wire system, and the United States financial industry, with its
59
need to maintain an efficient, low-cost, large-dollar payment system. 2
The new regulations touch on both recordkeeping and verification require-
ments for banks and non-bank financial institutions alike. 530 Additionally,
the regulations are accompanied by a change to the Fedwire format to
accommodate
53
the expanded information requirements of the new regula-
1
tions.
The new regulations provide detailed but very flexible recordkeeping
and verification requirements for banks involved in wire transfers. When
a bank accepts a payment order and subsequently originates a wire transfer,
the new regulations require the originating bank to verify and retain records
of the identity of the individual submitting the payment order. 32 This
would normally only require reference to an established customer's account
number or name. When the individual presenting the payment order is not
an established customer, however, the bank must attempt to verify his
identity by an "identification document. 53 3 If no document is provided,
the bank is under no requirement to reject the payment order, though it must34
make a "note in the record" that the identification was not provided.1
Additionally, the originating bank is not explicitly required to retain
specific identifying information about the beneficiary, but is under a duty
to send what information it receives along with the wire transfer. 35 Upon
final transmittal to the beneficiary bank, that bank is also under a duty to
identify the ultimate beneficiary, to the extent possible, in the records it
maintains. Intermediary banks, which receive the transfer order from
Accompanying these regulations was an expansion in the Fedwire format to closely

duplicate the CHIPS format. This change will be phased in over a period of years with final
conversion scheduled for June 1997. See id. at 110, 111 (1995).
529. See 60 Fed. Reg. 220, 221 (1995) (discussing comments received concerning the
prior draft regulations and how they had been addressed in the final regulation).
530. Id.at 220, 229.
531. Id.at 110-11.
532. 60 Fed. Reg. 220, 229 (1995).
533. Id.at 230.
534. Id.at 229.
535. Id. at 230. This rule was designed to allow flexibility for banks on those rare
occasions where specific beneficiary information is not provided to the originating bank. It
is expected that, in such an instance, the specific identifying information will be available
from the beneficiary's bank. Id.at 223. The Treasury Department does not expect this
flexibility to become a loophole for money laundering because of rules that the Department
intended to issue for comment in 1995, requiring suspicious transaction reporting and "know
your customer" policies. Id. at 224.
536. Id.at 229. When funds are delivered to a beneficiary who is an established
customer, the beneficiary bank needs only to reference the identifying information it has
stored on that individual. Id.
the originating bank and then pass it along either to the beneficiary bank or
to another intermediary bank in the chain, are required to maintain complete
records of the payment orders they receive and to pass that information on
in its entirety. 37 The intermediary banks are under no duty to verify any
of the information."' These regulations also apply to non-bank financial
institutions which engage in the transmittal of funds.539 The
recordkeeping and verification requirements for banks and non-bank
financial institutions apply only to transmittals of funds equal to or in excess
of $3,000.540
The flexibility which the Treasury Department has built into the
recordkeeping and verification requirements make this system much less
intrusive and onerous than the financial industry initially feared. 4 ' One
of the major concerns the banking industry had was that the Treasury
Department would promulgate verification requirements which would
require a significant manual intrusion into the highly automated system of
electronic wire transfers.5 42 However, since the regulations only require
verification of beneficiary and originator information at those ends of the
transfer, and allow the wire transfer to continue in those cases in which the
information is not obtainable through a good-faith effort by the financial
institution, there should be little or no manual intrusion into the automated
system as a result of the regulations.5 43 The gradual and phased-in
When the beneficiary is not an established customer, and arrives in person to receive the
funds, the bank must attempt to verify the identity of the individual by means of an
"identification document," such as a driver's license. Id. at 229-30. When funds are sent
from the beneficiary bank to the beneficiary by check or any means other than in person, the
bank must retain a copy of the instrument it delivers to effect the payment, along with the
name and address of the person to whom it is forwarded. Id.at 230.
537. 60 Fed. Reg. 234, 235 (1995). The regulation allows for some variance when
using Fedwire until is fully upgraded in 1997. Id.
538. Id.
539. Id. at 234.
540. See id.
541. Under earlier proposed regulations, initial expected aggregate costs for compliance
by the banking industry was "estimated ...for the first year at $200,000,000." Hughes,
supra note 511, at 301 n. 106. As finally promulgated, larger commercial institutions
estimated the cost of compliance to be between $15,000 and $879,000 to implement the
regulations, with annual maintenance costs of $350,000 per year thereafter. 60 Fed. Reg.
220, 226 (1995).
542. See 1993 H.R. Hearingson Money Laundering, supra note I, at 506-07 (letter
from Malcom S. McDonald, President, Signet Banking Corporation, to Amy G. Rudnick,
Director, OFE, U.S. Dep't of the Treasury). Some commentators concluded that the
regulations, had they been adopted as originally promulgated, would have required an
immediate reworking of the software used for all electronic transfers in the United States and
would have created a question of how to handle foreign transfers which did not meet the
regulations. See id. at 507.
543. 60 Fed. Reg. 110, 111 (1995).
changeover to the expanded Fedwire format, accompanied by a recognition

in the new regulations of the reporting limitations under the current format,
should give the banking industry ample time to react and make the
appropriate modifications smoothly and with minimal expense. The
establishment of a $3,000 threshold was specifically implemented to prevent
the recordkeeping and verification requirements from becoming an onerous
burden upon small banks and non-bank financial institutions which do the
vast544majority of their business in small transfers under the $3,000 thresh-
old.
While most aspects of the new regulation appear to be extremely well
balanced, in light of the important interests at stake, one part of this new
regulation, the retrievability requirements, has the potential to be very
burdensome and expensive.5 45 The new rule does not specify a time in
which an institution must respond to a request from law enforcement for
wire transfer information,54 6 nor does it dictate that a particular type of
system, such as an automated system, be emplaced to access the informa-
tion. 547 Currently, most banks maintain customer records indexed by
reference to either the account number or the name of the primary account
holder.5 48 Under the new regulations, funds transfer records need to be
544. 60 Fed. Reg. 220, 226 (1995). Based on comments received by the Treasury
Department in response to its initial draft of the regulation, the $3,000 threshold will have
a major impact on lowering the expected costs of compliance with the regulation for small
institutions. One non-bank financial institution estimated its cost to implement the regulation,
without the threshold, to be $3.3 million. With the $3,000 threshold, the same provider
estimated implementation costs to be $710,000. Id.
545. In early 1995, when background interviews were being conducted for this Article,
the new regulations were only days old. As such, the banking industry had not yet reacted
to the new regulations. While the potential of the retrievability requirements to be
burdensome has been recognized by the bariking industry, it is unclear at this point how the
requirements will be treated from a regulatory perspective and, concomitantly, what the costs
of implementation will be. Telephone Interview with John Byrne, supra note 233.
546. As originally proposed by the Treasury Department in 1993, the rule required that
the information be "readily" available. That term was dropped from the final regulation. 60
Fed. Reg. 220, 225 (1995). The Treasury Department intends the time for response to a law
enforcement query be the same as the standard for other information requested by law
enforcement under the Bank Secrecy Act. This standard is found in 31 C.F.R. § 103.38(d)
which states that the recorded information should "be accessible within a reasonable period
of time, taking into consideration the nature of the record, and the amount of time expired
since the record was made." 31 C.F.R. § 103.38(d) (1994); 60 Fed. Reg. 220, 225 (1995).
547. See 60 Fed. Reg. 220, 225 (1995).
548. See id. Another aspect of the issue of executing retrievability requirements
concerns wire transfers involving an originator or beneficiary who is not an account holder
at the institution. The Treasury Department has noted the problems posed by this type of
situation and has suggested that banks "consider implementing a separate recordkeeping
system-either manual files or an automated database-containing only information related
to payment orders for originators or beneficiaries that are not established customers. ... ."
retrievable by name and account number at the time of the transaction.5 49

Additionally, the Treasury Department expects banks to be able to retrieve
funds transfer information when the name provided is one of a secondary
joint account holder.55 ° The Treasury Department included this multi-level
retrievability requirement based on an expectation that any law enforcement
queries would contain only one of several possible pieces of identifying
information. 55 Therefore, as is the case with numerous banks, when
information is requested based on identifying information not currently
cross-referenced in their automated systems, searching for appropriate wire
transfer records would involve either a major manual effort each time such
information is requested or a major retooling of each bank's automated
systems. 5 2
The expenses incurred in establishing an automated retrieval system with
the ability to retrieve wire transfer records in reference to any of several
possible pieces of identifying information, would be wholly regulatory, as
there is no business necessity for maintaining this type of extensive retrieval
system.553 In light of the practical necessities of law enforcement, it may
well be that there is little alternative to these retrievability requirements.554
However, to the extent that financial institutions are given a reasonable
amount of time to respond to requests for information and are not held to
maintaining a particular system by regulators, then each financial institution
Id. at 226.
549. Id. at 225.
550. Id. at 226.
551. Id. at 225-26.
552. See id. at 226.
553. See 1993 H.R. Hearingson Money Laundering,supra note 1, at 504 (letter from
Sara R. Wilson, Senior Corporate Counsel, Signet Banking Corp., to Henry B. Gonzalez,
Chairman, Committee on Banking, Finance & Urban Affairs).
The new regulations regarding retrievability are much like those proposed by the
Treasury Department in 1993. In response to that proposal, members of the banking industry
pointed out that the regulations would require development of databases at financial
institutions which have "no additional business need for wire transfer information handled
in this fashion," thus making all expenses associated with it "entirely regulatory." Id.
554. The Treasury Department has not published a cost-benefit analysis with this
regulation; therefore, it is not absolutely clearjust how useful this information will be to law
enforcement in light of the costs associated with the system. See 60 Fed. Reg. 220 (1995).
Given that the expenses associated with the retrievability system are potentially quite large,
the Treasury Department should, at a minimum, pay extremely close attention to the cost-
benefit calculus associated with this aspect of the regulation. Treasury has expressed its
intent to revisit the regulations in 36 months after receiving input from both law enforcement
and the banking industry. Id.
Should law enforcement find the system very useful and the banks find it very
burdensome, perhaps the government could develop a program to offset the costs of
implementing the regulations with forfeitures derived from money laundering offenses.
will be able to design a system which compliments its existing systems and
which contemplates the number of requests that the particular bank expects
to receive from law enforcement for wire transfer records. This would
minimize costs while maintaining reasonable accessibility to the information
by law enforcement. Given the important interest of minimizing costs
relative to the wire transfer system, this flexible, case by case approach
should be adopted by the Treasury Department and the regulatory agencies.
D. Regulation of Non-Bank FinancialInstitutions555
One of the great challenges facing law enforcement in the fight against
money laundering will be driving money launderers from the non-bank
financial system. The problems the government faces regarding non-bank
financial institutions seem exponentially greater than those faced by govern-
ment in 1985. In 1985, the government already had a huge, adequate
regulatory apparatus in place, which could easily address money laundering
as merely an additional function. With non-bank financial institutions, that
is not the case. The Internal Revenue Service is charged with the regulation
of the nation's non-bank financial institutions, vis-a-vis the BSA,556 but
adequate oversight has not occurred. 557 From the information available,
it seems that the primary reason for this is grossly insufficient manpower to
execute the function.558 The government recognized the enormity of the
problem in the MLSA 94 legislation, which enlists the states in the
regulation of nonbank financial institutions, and insuring their compliance
with federal laws. 559
The threshold issue is whether the expenses incurred would be worth the
effort. Assuming the issue of cost-benefits is answered affirmatively, the
second question becomes whether the problem is better handled at the state
or federal level. Obviously, the Internal Revenue Service has been unable
to handle the task. 560 Given the size and diversity of non-bank financial
institutions, the states are, realistically, in a better position to regulate money
transmitters in their states than is the federal government.5 6, This raises
555. This section will address only the generic problems associated with money
laundering through non-bank financial institutions. The effect of placement and layering in
specialized non-bank financial institutions, in particular brokerage houses, is beyond the scope
of this Article.
556. See 1992 Senate Hearingson casasde cambio, supra note 7, at 55 n.2 (prepared
statements of Kim L. Wherry, StaffCounsel, Permanent Subcommittee on Investigations, and
Harold B. Lippman, Staff Investigator).
557. See, e.g., Barrett, supra note 241, at A24.
558. See id.
559. See supra notes 461-63.
560. See Barrett, supra note 241.
561. Several states have shown continual concern with the regulation of money
transmitters, but this has been from the standpoint of assuring the integrity of the payment
two more issues: funding and training. These issues will have to be
addressed before a nationwide regulatory effort will coalesce.
Some of the states which border Mexico, such as Texas, Arizona, and
California, have been heavily involved in the fight against money laundering
for several years, due to its prevalence within their states. California's
experience is illustrative of some of the problems the states will face in
attempting to regulate money transmitters to prevent money laundering. In
1990, California passed a law making it a felony to operate as a money
transmitter without a license.' The law was primarily aimed at the
problem of the casas de cambio.563 But California ran into several
problems in the implementation of its law. In 1992, it was estimated that
there were more than 1,000 money transmitters operating in California.564
However, only 27 of these transmitters were actually licensed.565
The California law put the responsibility for regulating the money
transmitters on the state banking authority, which only had eight examiners
assigned to that function.5 66 By 1992, there had still been no prosecutions
in California under the money transmitter law because the "[s]tate [regulato-
ry agency] does not have enough manpower to effectively enforce the
regulations[]" and the regulatory scheme was not tied into the criminal law
enforcement structure.567 Attempting to enforce the BSA requirements
among non-bank financial institutions at the state level is difficult because,
as James D. Dutton, a California Deputy Attorney General put it, "[w]e just
don't have the manpower to really go out there and enforce compliance
568 by
nontraditional financial institutions with the Bank Secrecy Act.
systems, rather than the standpoint of combating money laundering. The Money Transmitter
Regulators Association, a "grass roots" organization of twenty-two states, was established in
the late 1980s to allow states to share ideas on how to regulate money transmitters within
their respective states. Telephone Interview with Greg Gonzalez, General Counsel, Dep't of
Financial Institutions, Tennessee (Dec. 1, 1994). This organization passed a model statute
in 1991 which several states are in the process of adopting. Id. Tennessee, for example,
recently passed the statute, which became effective in 1995. Id. It authorizes the state to
conduct inspections and to regulate the activities of money transmitters within the state, of
which there are some 40 licensees, with 4,000 agents. Id. Tennessee legislation does not
authorize the state regulators to inspect for BSA compliance. See TENN. CODE ANN. § 45-7-
201 to -206 (Supp. 1995).
562. 1992 Senate Hearingson casasde cambio, supra note 7, at 36-37 (testimony of
James D. Dutton, Deputy Attorney General, Special Prosecutions Unit, State of California).
563. See id.
564. Id. at 36.
565. Id. at 37. At least 1,900 agents were employed by the 27 licensed transmitters.
Id.
566. Id. at 37.
567. Id.
568. Id. at 38.
Most states probably have neither the manpower nor the regulatory
apparatus necessary to effectuate an immediately effective regulatory regime.
Thus, the first issue is how to pay for this federally imposed program.569
If the costs are merely to be imposed on the states with no concern for
payment, then it is doubtful such a program would pass a cost-benefit
analysis-at least not if put to a vote of overburdened taxpayers and state
officials. The states, if so forced, would probably pass the costs of the
programs on to the regulated industry. This, of course, would just be a
funnel to the ultimate payer, the state's consumers. A better solution, to the
extent possible, would be to fund the program through forfeitures. How to
arrive at the proper mix of federal/state and taxpayer/forfeiture-type funding
may require a situational, state-by-state approach and would probably
require some reworking of state civil forfeiture laws, with consideration
given to availability and use of federal adoptive forfeitures.
By and large, states probably do not have the training to recognize the
clues of money laundering which the federal government's regulators have
amassed over the years. It is therefore doubtful that, even with sufficient
manpower, a state administered enforcement regime would be immediately
effective.57 ° Probably the single greatest step the United States govern-
ment can take in this regard is to greatly improve coordination and
cooperation with state and local authorities. Anything and everything that
can be done to effectuate accessibility to information and training should be
done.
The federal government should consider developing regional task forces,
made up of the most experienced bank regulators and IRS agents, to be fully
employed in proactively assisting the states by training the states' regulators.
A federal organization could be established under the auspices of the Federal
Reserve Board to act as a further conduit of information and assistance to
states in the development of regulatory activities. Something as simple as
renewing publication of the FinCEN newsletter, Trends, which bankers
found highly useful in expanding their knowledge of money laundering,
would be a small but important step.57'
569. Tennessee, for example, does have a small regulatory team prepared to enforce
the new money transmitter laws. Telephone Interview with Greg Gonzalez, General Counsel,
Dep't of Financial Institutions, Tennessee (Dec. 1, 1994). However, the team is a small
organization faced with oversight of the state's 40 registered licensees and their 4,000 agents.
Id.
570. Id.
571. This generalized idea of coordination applies with equal force to coordination
with state and local law enforcement in their fight against money laundering. It seems that
state and local authorities will bear the brunt of this next generation push against non-
financial banking institutions and detection of superficially legitimate businesses used to
conduct laundering operations. Money laundering has been a federal crime since its
inception. Some states have become involved to a limited degree, data indicate. However,
states may become more involved when they have general on-line access to FinCEN's
E. PursuingAlternatives
To put the government's efforts to stamp out money laundering into

perspective, it seems, overall, that seizures from money laundering only take
one percent of the estimated revenues for United States money laundering
out of the pockets of the criminals.572 Perhaps that one percent has
significant impact, beyond its size, on the business of money laundering, but
one percent is still one percent, and it is not driving the drug barons or
organized crime out of business. The current tack in the United States
government is to increase the regulatory burden upon business and put more
money into enforcement, with the costs of both ultimately being paid by the
American taxpayer.
Indications are that, even as the United States begins to pay the costs of
increased regulations pertaining to enforcing the money laundering statutes
regarding non-bank financial institutions, between zero and fifty percent of
the drug money is being smuggled across American borders.573 This
effectively bypasses our most effective regulatory efforts and, given the
availability of international secrecy, renders our efforts, to a large extent,
useless.
There is probably one other highly cost effective way to get at a sizable
portion of the $300 billion per year that is being laundered from or in
America. It is axiomatic that the driving force behind crime in general, and
money laundering in particular, is greed.574 Indeed, for the class of
criminals involved in money laundering-educated professionals-this is
quite probably the sole motive. The one technique which has not been
seriously used is rewards. Under current law, a person not in law enforce-
ment, who gives information which leads to a recovery or fine exceeding
$50,000 to the government, is entitled to a reward of up to twenty-five
database. See, Ekstrand, supra note 238.

One area in which there is an obvious lack of coordination is with the IRS's 8300 forms,
which must be completed by businesses for cash transactions in excess of $ 10,000. This
information is currently available to no organization outside of the IRS, including FinCEN.
Telephone Interview with Sherri Wassenaar, supra note 238. As it stands today,
you need local access to 8300 Forms. Right now, the 8300 Form is classified as a tax
document. It is very difficult, if not impossible, for local law enforcement to obtain
8300 information, and this information is imperative for law enforcement to do their job
as far as detecting money laundering through trades and businesses.
1992 Senate Hearings on casas de cambia, supra note 7, at 39 (testimony of James D.
Dutton, Deputy Attorney General, Special Prosecutions Unit, State of California).
574. See 1993 H.R. Hearingson Money Laundering,supra note 1, at 386 (statements
of Donald K. Vogel, Assistant Commissioner (Criminal Investigation), and Michael L.
Killfoil, Acting Assistant Commissioner (Examination), IRS).
percent, not to exceed $150,000.175 A "smurf," who only earns two to

five percent for making structured deposits, can earn this much in a week.
For those with insufficient morals or ethics, there is a tremendous amount
of financial incentive to engage in money laundering.
With this in mind, one of the most effective ways to fight money
laundering, and to reach the drug barons receiving the profit, is to establish
a very liberal reward system. For example, a money launderer may pause
if the United States government were to offer a fifty percent reward of all
money seized pursuant to a money laundering investigation and attributable
to the information given. This should be coupled with a one time offer of
amnesty, and enrollment in the witness protection program, and the offer
should be made known with a great deal of fanfare and publicity. To the
extent that launderers are driven by greed, but are concerned with their long-
term futures, it may be possible to exploit their greed and circumstances to
have a major impact on laundering. The goal of attacking money launder-
ing is to get at the heads of the organizations and to destroy them economi-
cally, even if it can't be done physically. Second, there is a clear dividing
line between the lesser of two evils when the gain from money laundering
is balanced against the attack on the ultimate recipients of the launderers'
activities. Focusing on drugs, it becomes clear that there are no moral or
ethical limits upon the drug cartels.
Criminal organizations like the Cali Cartel are accumulating war chests
of billions of dollars each year from the sale of drugs in the United States.
This equates to power and their base of power continues to expand because
it has been difficult to adequately stem the flow of drug monies to them.
Colombian Cartels have blown up an airplane in flight, killing 108 people,
including 10 children ...assassinated a Colombian presidential candidate
and scores of Colombian Supreme Court Justices, and murdered hundreds
of innocent Colombian civilians and over 500 Colombian police officers.
The Cartels have paid for this carnage with billions of laundered dollars
from drug sales in the United States.576
Consider Pablo Escobar, who added to his already infamous reputation

toward inhumanity by having several of his opponents kidnapped and
skinned alive.5 77 In addition, there is the case of Enrique Camarena, a
DEA agent who was kidnapped, and subsequently killed, by drug lords in
Mexico, with the cooperation of corrupt members of the Mexican police and
government, who had been bought with revenues from the drug trade. The
drug dealers had a physician present during their interrogation of Mr.
575. 31 U.S.C. § 5323 (1994).

576. 1993 H.R. Hearings on Money Laundering, supra note 1, at 458 (statement of
John J. Coleman, Assistant Administrator for Operations, DEA).
577. William M. Carley, EvasiveManeuvers:A Lucky Bust Gives DrugAgents a Look
At Smugglers'Ploys, WALL ST. J., May 9, 1994, at Al, A6.
Camarena. The doctor administered drugs to Mr. Camarena to keep him

from passing out and dying of shock while they tortured him for informa-
tion.578
The bottom line: anything and everything that can be done to get at the
heads of these organizations should be done. If these people cannot be
destroyed through the application of force, which, Panama aside, we are
prevented by political considerations from doing, then using against them
the greed that they used to corrupt so many people seems acceptable, if not
somehow appropriate.
The United States government's response to money laundering,
internationally, has been, at least since the mid-1980s, very well measured
and appropriate. The international fight against money laundering is only
in its infancy, but great strides have been and continue to be made. The
development of the FATF and its regional offshoots in the Caribbean, and
now in Asia, are great successes for all involved. Equally, much can be
said about the United Nations Treaty and OAS efforts. Aside from the
coercive threats of the Kerry Amendment, the exercise of power in the Nova
Scotia cases, and the invasion of Panama, American efforts have been
directed at building an international awareness and consensus about how to
deal with money laundering. One of the realities seemingly infusing the
United States and the world in efforts in response to money laundering is
acknowledgment of the difficulties involved in surgically removing dirty
money from a system without detracting from a nation's legitimate
economy. The international search is for effective methods of regulation
that do not overburden the system. This is particularly true in small
countries which are heavily dependent upon their banking industries. These
countries have a system wholly founded upon the concept of being a tax
haven. Unfortunately, this encourages money laundering as well, and where
there is a great deal of corrupt money, there is a good chance that it will
corrupt those it touches. This concern is clearly evinced by the fact that the
Caribbean FATF was begun wholly on the initiative of the Prime Minister
of Aruba.
Second, not all countries have the resources or strong government
infrastructure necessary to effectively regulate their industries. Short of
invasion, there is little one can do in such cases, other than attempting to
assist them economically and politically so they can reach the level of
effectiveness necessary to do something about the problem. The problems
are complex.
578. Id.
1995] MONEY LAUNDERING 237
Good, long-term solutions are probably to be found only in continued

cooperation, coordination, and reasonable pressure to take steps based on
consensus. These efforts have begun, and hopefully will continue at the
same pace at which they transpired over their first few years.

63 Tenn LRev 143

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

63 Tenn LRev 143

Uploaded by

Copyright:

Available Formats

DATE DOWNLOADED: Fri Oct 28 10:59:55 2022

SOURCE: Content Downloaded from HeinOnline

Bluebook 21st ed.

ALWD 7th ed.

APA 7th ed.

Chicago 17th ed.

McGill Guide 9th ed.

AGLC 4th ed.

MLA 9th ed.

OSCOLA 4th ed.

1. BACKGROUND AND OVERVIEW ........................ 145

II. MONEY LAUNDERING SINCE 1986 ..................... 158

d.Section 1957: Engaging in Monetary

III. THE INTERNATIONAL RESPONSE TO MONEY LAUNDERING ..... 198

IV. RECENT UNITED STATES LEGISLATION REGARDING

V. CONCLUSIONS ............................. ...... 219

Money laundering is the process of taking the proceeds of criminalactivity

I. BACKGROUND AND OVERVIEW

This Article examines money laundering-how it is practiced in the

1. Federal Government's Response to Money Laundering: Hearings Before the

whose financial institutions engage in currency transactions involving significant

6. See INT'L NARCOTICS CONTROL STRATEGY REPORT, supra note 3, at 6.

business.' ° Money launderers work on a volume basis with their proceeds

B. The Mechanics of Money Laundering

The goal of money laundering is to lend legitimacy to illicit funds. This

18. MONEY LAUNDERING, supra note 11, at 4.

Because of the international scope and mechanics of global banking, the

investigating authorities have in tracing the proceeds of criminal activity

C. The Bank Secrecy Act of 1970 (BSA)

Historically, legislative initiatives and enforcement efforts directed to the

32. 1993 H.R. Hearingson Money Laundering,supra note 1, at 424-25 (statement

removing the cloak of banking secrecy in order to trace the movement of

in the aggregate, over $10,000. 4 9 Another major provision of the BSA

49. 31 U.s.c. § 5313 (1988); 31 C.F.R. § 103.22 (1994). A financial institution's

hoped to use the BSA as a weapon to prosecute money launderers by

D. Money LaunderingFrom the 1960s Through the Mid-1980s

The BSA had minimal impact on money laundering throughout the

Since some financial institutions occasionally complied with the

airport officials [grew] used to spotting couriers carrying Pampers or

Some of this smuggled cash went to offshore banks in the Caribbean74 or

The layering problem, particularly as it related to offshore banking, was

II. MONEY LAUNDERING SINCE 1986

A. The Money Laundering Control Act of 1986 (MLCA 86)

Several events coalesced to bring money laundering sharply into focus

structuring, upon the legality of which courts disagreed.8 6 In addition, the

2. The Criminalization of Money Laundering:

The heart of the new legislation was the criminalization of money

a. Section 1956(a)(1): Money Laundering

To establish a § 1956(a)(1) violation, the government must first show

94. Id. § 1957.

things as fraud, espionage, and environmental crimes."°1 To show this

101. 18 U.S.C.A. § 1956(c)(7) (1988 & Supp. 1994).

services, which themselves implicate interstate commerce, are considered to

b. Section 1956(a)(2): Money Laundering Involving the Transportation

The third element of section 1956(a)(2) requires a showing that a

125. 18 U.S.C. § 1956(c)(5).

on or promote an unlawful activity'; (2) the defendant acted with the

c. Section 1956(a)(3): Law Enforcement Sting Operations

The third category of money laundering offenses created by 18

criminalize financial transactions conducted with funds represented by law

d. Section 1957: Engaging in Monetary Transactions

Section 1957 greatly extends the potential reach of section 1956's

statute. The penalty for a section