Electronic Money Laundering in International Transactions

Electronic Money Laundering In International Transactions
Focusing on the U.S. Perspective

국제거래상 전자자금세탁에 관한 소고 - 미국법을 중심으로
저자 Kim, Sung-Jin
(Authors)
출처 법이론실무연구 2(1), 2014.04, 179-207(29 pages)

(Source) Legal Theory & Practice Review 2(1), 2014.04, 179-207(29 pages)
한국법이론실무학회
발행처
The Korea Society for Legal Theory and Practice Inc.
(Publisher)
URL http://www.dbpia.co.kr/journal/articleDetail?nodeId=NODE02406310
APA Style Kim, Sung-Jin (2014). Electronic Money Laundering In International Transactions. 법이론
실무연구, 2(1), 179-207
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Electronic Money Laundering In International Transactions / Kim, Sung-Jin
Electronic Money Laundering In International
Transactions
–Focusing on the U.S. Perspective-
97) Kim, Sung-Jin

＊
《 CONTENTS 》
Ⅰ. Introduction
Ⅱ. Money Laundering
Ⅲ. Electronic Money Laundering
Ⅳ. Anti-Money Laundering Legislation
z
Ⅴ. Possible Solutions to Minimi e Electronic Money Laundering
VI. Conclusion
【 ABSTRACT 】
The use of any payment system is associated with risks which can be physical
or electronic. It is difficult to evaluate the magnitude of risks involved in using
electronic money products owing to the scale and speed of the electronic
transactions and the lack of a large-scale, global electronic payment system. The
risks to be taken into account by consumers, financial institutions and governments
include money laundering, disclosure of personal information, and fraud and
counterfeiting. It is through money laundering that someone makes illegally acquired
:
❙접수일자 2014년 2월 1 일 9 ❙심사일자: 2014년 3월 18일 ❙게재확정: 2014년 4월 4일
＊ Assistant Professor Dr. jur., Department of Law, Jungwon University.
- 17 - 9
국세청 | IP:182.225.56.*** | Accessed 2021/10/13 00:21(KST)

법률실무연구 / 제2권 제1호
money appear as though it was lawfully earned. Individuals want and need to
conceal the sources of their unlawfully acquired money to allow them to use it
without restraint and the danger of loss or prosecution. Today’s emerging electronic
payment system with innovative technology helps to create a world where money
can be transferred without the aid, supervision, control, regulation, and limitations of
third party national borders. Electronic money laundering could become a major
crime if the government does not carefully monitor the situation. To minimize
electronic money laundering, firstly, the U.S. need to amend anti money laundering
laws to cover electronic money systems. However, amending laws alone is not
enough to control and exercise jurisdiction over electronic money launderers through
innovative electronic money systems. Under IMLA Act, the United States can
exercise jurisdiction over foreigners who commit money laundering in United States
or use U.S. financial institutions as long as international laws allow the United
States to do so. However, the IMLA Act failed to address the U.S. jurisdiction
over individuals who commit money laundering through the Internet and other
electronic payment systems. Therefore, International cooperation in fighting money
laundering is essential. The most effective method to fight against money
launderers is continuous international cooperation through the United Nations,
Treaties and other international organizations.
Key Words
Electronic Payment System, Money Laundering, E-commerce, Fraud &

Counterfeiting, Jurisdiction, International Cooperation.
I. Introduction
There are risks associated with the use of any payment system, be it
physical or electronic. However, it is difficult to measure the magnitude of
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risks involved in using electronic money products because of the scale and
speed of the electronic transactions and the lack of a large-scale, global
electronic payment system. Risks may also vary depending on electronic
money products. The risks to be taken into account by consumers, financial
institutions and governments include money laundering, disclosure of personal
information, and fraud and counterfeiting.
It is through money laundering that someone makes illegally acquired
money appear as though it was lawfully earned.1) Individuals want and need
to conceal the sources of their unlawfully acquired money to allow them to
use it without restraint and the danger of loss or prosecution.2) Today’s
emerging electronic payment system with innovative technology helps to
create a world where money can be transferred without the aid, supervision,
control, regulation, and limitations of third party national borders.3)
Electronic money laundering could become a major crime if the government
does not carefully monitor the situation.4) It is probably too early to
introduce legislation in this area, but the government should keep in mind
the possible increase of electronic money laundering.5)
This paper reviews some of the legal issues of electronic money
laundering, some of the policy challenges that policy-makers need to address,
and jurisdiction issues by especially focusing on the U.S. Perspective. In
detail, part II addresses money laundering. Part III discusses electronic
money laundering as an important issue for governments. Part IV discusses
1) Jonathan P. Straub, The Prevention of E-money Laundering: Tracking the Elusive Audit
Trail, 25 Suffolk Transnat’l L Rev. 515, 515 (2002).
2) Rajeev Saxena, Cyberlaundering: The Next Step For Money Launderers?, 10 St. Thomas
L. Rev. 685, 685 (1998): Robert Strokes, Anti-Money Laundering Regulation and
Emerging Payment Technologies, 32 No. 5 BNKFSPR 1 (2013).
3) Id. at 688-689.
4) Straub, supra note 1, at 515-516.
5) Sarah N. Welling & Andy G. Rickman, Cyberlaundering: The Risks, The Responses, 50
Fla. L. Rev. 295, 327 (1998); Jane Winn & Brian Bix, Diverging Perspectives on
Electronic Contracting in the US and the EU, 54 Clev. St. L. Rev. 175 (2006).
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anti-money laundering legislations. Lastly, part V set forth solutions to

minimize electronic money laundering and the U.S. Jurisdiction over electronic
money launderers.
Ⅱ. Money Laundering
1. Reasons for Eliminating Money Laundering
Money laundering is an attractive business. Money laundering is usually

a paperless crime that engages only figures and transactions and usually
leaves no physical path of evidence or individual victims.6) Because of these
reasons, the normal person has negligible personal knowledge, experience, or
contact with the crime of money laundering. However, the idea that money
laundering does not affect the normal person is not totally correct. Even
though there may be few overt effects on the regular person, money
laundering engages large amounts of money and influences the economy on a
worldwide scale.7) According to the Financial Action Task Force (FATF)8),
money laundering continues to increase in various areas of the world. An
increase in drug trafficking and organized crime is becoming a severe
problem in the international regime.9)
6) Fletcher N. Baldwin, Jr., Money Laundering and Wire Transfers: When the New
Regulations Take Effect Will They Help?, 14 Dick. J. Int’l L. 413, 421 (1996).
7) Id. at 413.
8) The Financial Action Task Force (FATF) is an organization of 33 nations formed by
G-7: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
FATF activates out of Office of Economic Cooperation and Development (OECD). The
primary purpose of the FATF is to coordinate the international effort to counter money
laundering. Financial Action Task Force on Money Laundering, Basic Facts About
Money Laundering [hereinafter FATF], available at
http://www1.oecd.org/fatf/AboutFATF_en.htm#What%20is.
9) Duncan E. Alford, Anti-Money Laundering Regulations: A Burden On Financial
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The most persuasive reason for the fight against money laundering is not
the act of money laundering itself but why money is laundered.10) Most
criminals launder money in order to freely spend the profits that their crimes
make. Organized criminals, drug traffickers, and many other criminals
engage in these types of activities for profit. These activities produce large
sums of money.11) To eliminate or significantly decrease criminal activity,
the law must remove the incentives at the root of these illegal activities.12)
It is the anti-money laundering strategy to attack the proceeds of criminal
activity and remove the incentive to commit these crimes. The continuous
decrease of money laundering will thus lead to a reduction in other crimes
since it will eliminate the incentive to work illegally.13) There are several
other reasons for abolishing money laundering. Money laundering contributes
to weaken the function of financial institutions.14) Also, money laundering
supplies a tool for backing terrorism and organized crime, and veiling taxable
earnings.15)
2. Money Laundering Process
Money laundering is the making of funds earned through criminal activity

appears as legitimate gains.16) Even though individual money launderers are
likely to have their own special techniques, their individual processes share
Institutions, 19 N.C. J. Int’l & Com. Reg. 437, 437 (1994); J. Liao, & A. Acharya,
Transshipment and Trade-Based Money Laundering, JMLC 79 (2011).
10) Saxena, supra note 2, at 686-687.
12) Saxena, supra note 2, at 687.
13) Id.
14) Baldwin, supra note 6, at 413.
16) George A. Lyden, The International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001: Congress Wears a Blildfold While Giving Money Laundering, 8
Fordham J. Corp. & Fin. L. 201, 205 (2003).
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three steps in common: placement, layering, and integration.17) Placement is

the process of depositing the money at a legitimate business or financial
institution.18) Uniting the money with a legal source facilitates obscuring its
origin in the next stage of layering.19) Layering is the process of
transferring the money between many financial institutions and shell legal
entities, making it difficult to trace it to an illegal source.20) “In a recent
case, for example, drug money was picked up in various U.S. cities and
deposited in different banks. The funds were wire-transferred from those
banks to a bank account in Florida and then wire-transferred via New York
to Luxembourg and London where they were converted to certificates of
deposit. The certificates were used as collateral for a Nassau bank loan.”21)
After sufficiently laying, the laundered money could be reintegrated into the
legitimate financial world.22)
Ⅲ. Electronic Money Laundering
1. Overview of Electronic Payments
(1) Stored Value Cards
Stored value cards are the physical cards that include the electronic
17) Straub, supra note 1, at 517.
18) Lyden, supra note 16, at 206.
19) Id.
20) Christopher D. Hoffman, Encrypted Digital Cash Transfers: Why Traditional Money
Laundering Controls May Fail without Uniform Cryptography Regulations, 21 Fordham
Int’l L.J. 799, 834-835 (1998); Francis J. Mootz III, After the Battle of the Forms:
Commercial Contracting in the Electronic Age, 4 ISJLP 271 (2008).
21) Id. at 835-836.
22) Lyden, supra note 16, at 208-209.
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money. Credit cards have magnetic strips that contain information. In
contrast, stored value cards can include value and process information.23)
Stored value cards are similar to cards commonly used for photocopying or
telephone calls.24) The most viable structure for stored value cards is to
attach a computer microchip to the card. Stored value cards are then called
smart cards that carry a value. They may or may not be rechargeable.25)
Stored value cards can be explained as part of a closed-loop or an open-loop
system.
A closed-loop system has only a few merchants or has many merchants
in a small geographic area. One kind of the closed-loop system is the
merchant-issuer model in which the card issuer and the merchant are the
same.26) The subway system in Washington, D.C. and university cards that
allow students to buy goods and services are examples of the
merchant-issuer model.27)
A good example of how electronic money works in a closed environment
is the subway system in Washington, D.C. If a consumer wants to ride the
subway he inserts some traditional cash in to a metro machine. The machine
will then issue a card with the equivalent cash value for use on the subway.
At this time, the consumer has bought a claim on the city and has accepted
electronic money in return.28) Because the city is both the issuer of the
metro card and the merchant this system is an example of the
merchant-issuer model. Whenever the consumer uses the subway the metro
machine records the transaction and lessens the value of the electronic
23) Welling and Rickman, supra note 5, at 302.
24) Robert F. Stankey, Internet Payment Systems: Legal Issues Facing Businesses,
Consumers and Payment Service Providers, 6 CommLaw Conspectus 11, 18(1998).
25) Welling & Rickman, supra note 5, at 302.
26) Id. at 303.
27) Gregory E. Maggs, New Payment Devices and General Principle of Payment Law, 72
Notre Dame L. Rev. 753, 757 (1997).
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money recorded on the metro card. The metro system in Washington, D.C.
is connected to the traditional payment system by the city’s relationship with
its bank. At regular intervals, the city checks out its metro machines by
collecting all the money that has been exchanged for electronic money and
saving it in the bank.29)
An open-loop system is one in which buyers can use their smart cards
at a lot of businesses over a wide geographical area. The basic structure
for an open system begins with a buyer exchanging traditional money for
electronic money at an issuing company. The buyer then gets the electronic
money and purchases goods and services from a participating seller.30) The
seller gets the electronic money and exchanges it for traditional money at the
bank. The seller’s bank transfers the electronic money to a clearinghouse,
which then sends the electronic money to the issuing company and gets
back an interbank balance.31) Mondex smart card is a good example of an
open-loop system.32)
In the end, all smart card systems can be categorized as closed systems
because they all rely on a set of merchants agreeing to accept the electronic
money as value. Even though the distinction between open-loop and
closed-loop systems is not very clear, it is made and it is helpful to describe
the systems.33)
9) Id.
2
) Id. at 304.
30
) Id.
31
) The Mondex cards are stored value cards that can replace cash by transfers of value
32
onto and off of the card. Unlike the DigiCash system as implemented by the Mark
Twain Bank, there is no requisite condition that transactions onto and off of a Mondex
smart card be cleared through a central system. This system reduces transaction costs
but entails risks such as forgery or money laundering. Since a smart card does not only
save data but can also carry out processing functions, the electronic cash function of
Mondex can be associated with other functions to enhance its appeal to consumers and
merchants, such as tracking loyalty program credits. Jane Kaufman Winn, Clash of the
Titans: Regulating the Competition between Established and Emerging Electronic
Payment System, 14 Berkeley Tech. L.J. 675, 693-694 (1999).
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(2) Network-Based Systems
Electronic money can be stored not only on a stored value card but also
on the hard drive of a personal computer. Buyers can pay using electronic
money to buy goods over the Internet. These network-based systems
provide consumers with global access.34) Digicash is a good example of a
network-based system.35)
(3) Hybrid Systems
Hybrid Systems are those that stored value cards and in which
network-based computers work together. The stored value cards and
network-based system are becoming more interoperable and compatible with
each other. Developers of electronic money are building stored value card
interfaces for personal computers that will allow value to be transferred back
and forth between stored value cards and personal computers in a twinkling.
This interrelationship thus makes it difficult to distinguish between them. 36)
34) Id. at 305.
35) In 1993, David Chaum established DigiCash, Inc. in the Netherlands, which developed
eCash, a system for anonymous electronic payments using digital coins. See David
Chaum Home Page, available at http://www.chaum.com/. Chaum made a contract with
Mark Twain Bank and other banks in foreign countries. Consumers who want to use
e-cash to make online purchases can draw on their account balances at the licensee
bank to download e-coins for safekeeping in an electronic wallet on the hard drive of
their personal computer. In case the consumer wishes to make a purchase, the software
deducts e-cash from the electronic-wallet and sends it to the merchant. Even though
this system is not premised on the use of a traditional system for clearing and
settlement to support it, the Mark Twain application allows the merchant to transfer the
e-cash back to confirm that it has not been double spent. DigiCash, however, failed to
survive as an Electronic payment system in the U.S. markets. DigiCash then petitioned
for Chapter 11 bankruptcy for reorganization in November 1998. Winn, supra note 32, at
692-693.
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Developers of electronic money predict that all computers will have

built-in chip-card interfaces so that computers will have a stored value card
reader built in. It will then be possible to do banking at home by having
electronic money sent from the bank’s main computer to the buyers’
computers.37) When the buyer receives the electronic money from the bank,
the buyer can purchase goods directly from the Internet or swipe a stored
value card across the computer interface, downloading the electronic money
from the personal computer to the smart card.38) Ultimately, this prediction
allows consumers to purchase bread and coffee with the stored value card in
the grocery.39)
2. Advantages of Electronic Money for Money Laundering
Methods of electronic money laundering are the same as those of money

laundering. There are advantages to using electronic money for money
laundering.40) The first advantage is the physical advantage. Electronic
money is not bulky like regular cash, and voluminous electronic cash can be
microscopic.41) Electronic money thus assists money launderers to handle the
problem of volume. Large amounts of electronic money can be transferred to
anywhere in the world fast and securely just touching keys on a computer
keyboard.42)
Second, electronic money is anonymous.43) Electronic money can be
transferred around the world without the two facing each other . In
) Id. at 305-306.
37
) Id. at 306.
38
9) Id.
3
) Straub, supra note 1, at 521.
40
) Id. at 520.
41
) Id. at 520-521.
42
) Id. at 521; D. Hollis, An e-SOS for Cyberspace,
43 52 Harvard Int'l L.J., 373 (2011).
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addition, anonymity is more pervasive because while traditional money can
be recognized by serial numbers, electronic money may not be separately
recognizable.44) Furthermore, anonymity may be increased because illegal
Internet financial institutions can hide their site by using a phantom
electronic forwarding addresses.45) The phantom sites of illegal Internet
financial institutions, along with moving easily from one location to another,
will make it difficult for law enforcers to track down money launderers.46)
Ⅳ. Anti-Money Laundering Legislation
1. International Organization
(1) United Nations
The U.N. Convention Against Illicit Traffic47), which was ratified in

Vienna in October 1990, indicates one of the earliest international efforts to
fight against money laundering. According to Article 3(1) of the U.N.
Convention, each country has to criminalize international money laundering
plans48) and adopts measures to allow law enforcement officers to seize drug
44) Welling & Rickman, supra note 5, at 311-312.
45) Id. at 312.
46) Straub, supra note 1, at 521; Welling & Rickman, supra note 5, at 312.
47) United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic
Substances, U.N. Doc. E/Conf.82/15 (1988), reprinted in 28 I.L.M. 493, 500 (1989)
[hereinafter U.N. Convention] (mandating that signatory nations cooperate in producing
financial institution records documenting suspect transactions).
48) Id. at 500. The relevant part of Article 3 states:
1. Each Party shall adopt such measures as may be necessary to establish as criminal
offences under its domestic law, when committed internationally:
... (b)(I) The conversion or transfer of property, knowing that such property is derived
from any offence [involving psychotropic substances as outlined in Art. 3(1)(a)] for the
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money.49) Furthermore, parties under the U.N. Convention need to afford

mutual work by maintaining communication and assisting in investigations,
prosecution and judicial proceedings.50) The U.N. Convention makes it
possible for signatories to place the burden of proof regarding the origin of
the allegedly illicit property on the property owner, and limits bank secrecy
and confidentiality laws.51)
(2) European Union
purpose of concealing or disguising the illicit origin of the property or of assigning

any person who is involved in the commission of such an offence or offences to evade
the legal consequences of his action;
(ii) The concealment or disguise of the true nature source, location, disposition,
movement, rights with respect to, or owner ship of property, knowing that such
property is derived from offences [involving psychotropic substances as outlined in
Art. 3(1)(a)].
49) Id. at 504. Article 5, paragraph 1 of the Convention mandates that:
Each party shall adopt measures as may be necessary to enable confiscation of:
(a)Proceeds derived from offences [involving psychotropic substances as out lined in
Art. 3(1)]; …
50) Id. at 508. The Convention outlines the extent to which the signatory nations must
cooperate in Article 7:
1. The parties shall afford one another, pursuant to this article, the widest measure of
mutual legal assistance in investigations, prosecutions and judicial proceedings in
relation to criminal offences [involving psychotropic substances as outlined in art. 3
par. 1].
2. Mutual legal assistance to be afforded in accordance with this article may be
requested for any of the following purposes:
(a) Taking evidence or statements from persons;
(b) Effecting service of judicial documents;
(c) Executing searches and seizures;
(d) Examining objects and sites;
(e) Providing information and evidentiary items;
(f) Providing originals or certified copies of relevant documents and records, including
bank, financial, corporate or business records;
(g) Identifying or tracing proceeds, property, instrumentalities or other things for
evidentiary purposes.
51) Id. at 506.
9
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In 1990, the Council of the European Union was held in Strasbourg.52)
Signatory nations rallied together to form a united front against money
laundering.53) The Council is in response to the U.N. Convention’s
requirement that nations cooperate with one another in examining and seizing
illicit property and prosecuting money launderers.54) The Council also
requests that nations actively detect telecommunications and minimize the
extent to which bank secrecy laws could disturb efforts to control money
laundering.55)
Another international effort to curb money laundering through financial
networks is Council Directive 91/308.56) Like the U.N. Convention, Council
Directive 91/308 notes that measures enacted to prevent money laundering
will work only if nations make a mutual effort and cooperate.57) According
52) Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the
Proceeds From Crime, 30 I.L.M. 148 (1991).
53) EC Ministers to Adopt Formally Money Laundering Law, Reuter Libr. Rep., Jun. 7,
1991.
54) Council of Europe Convention, supra note 52, at 152. Laundering offenses which the
Convention directs signatory nations to criminalize include:
(a) the conversion or transfer of property, knowing that such property is [economic
benefit derived from criminal activity], for the purpose of concealing or disguising the
illicit origin of the property ....
(b) the concealment or disguise of the true nature, source, disposition, movement, rights
with respect to , or ownership of, property, knowing that such property is [economic
benefit derived from criminal activity] ...
55) Id. at 151. Article 4 of the Council of Europe Convention states that:
1. Each Party shall adopt such legislative and other measures as may be necessary to
empower its courts or other competent authorities to order that bank, financial or
commercial records be made available or be seized in order to carry out [law
enforcement].
2. Each Party shall consider adopting such legislative and other measures as may be
necessary to enable it to use special investigative techniques facilitating the
identification and tracing of proceeds and the gathering of evidence related thereto.
Such techniques may include monitoring orders, observation, interception of
telecommunications, access to computer systems and orders to produce specific
documents.
56) Council Directive No. 91/308, art. 3, O.J. L 166/77 (1991).
9
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to Council Directive 91/308, Member States must require financial institutions

to keep records of customers conducting transactions involving 15,000 ECU
or more.58) In addition, Council Directive 91/308 requires financial institutions
to investigate any transactions that appear to involve illegal funds. Member
States must establish authorities responsible for fighting money laundering
and must establish laws providing that financial institutions shall cooperate
with the authorities by divulging relevant information and ceasing from
performing questionable transactions. Member States shall also ensure that
financial institutions establish adequate internal safe guards to identify and
report instances of obvious money laundering.59)
(3) Mutual Legal Assistance Treaties
To promote international cooperation in fighting money laundering, the

United States and other nations have ratified Mutual Legal Assistance
Treaties (MLATs).60) MLATs accelerate the process of uncovering and
prosecuting international money laundering by creating binding obligations
between nations to provide important evidence in spite of domestic privacy
laws.61) Generally, MLATs have provisions enabling the requesting state to
57) Lisa A. Babot, Comments: Money Laundering: An International Challenge, 3 Tul. J. Int’l
& Comp. L. 161, 179 (1995).
58) Council Directive No. 91/308, supra note 56, at 79-80.
59) Id. at 81. Article 11 of Council Directive 91/308 states that:
Member States shall ensure that credit and financial institutions:
1. Establish adequate procedures of internal control and communication in order to
forestall and prevent operations related to money laundering,
2. Take appropriate measures so that their employees are aware of the provisions
contained in this Directive. These measures shall include participation of their
relevant employees in special training programmes to help them recognize operations
which may be related to money laundering as well as to instruct them as to how to
proceed in such cases.
60) Hoffman, supra note 20, at 840.
61) Id.
9
- 1 2 -

secure appropriate documentation and immobilize assets gained through
alleged criminal activity.
(4) The Financial Action Task Force
The Financial Action Task Force (FATF) was established in 1989 at the
Economic Summit of Industrialized Countries in Paris (G-7 Paris Summit).62)
The primary purpose of the FAFT is to coordinate and supervise the
international effort against money laundering.63) The FATF works with
Inter-American Drug Abuse Control Commission (CICAD) of the
Organization of American States (OAS).
The FATF's seminal contribution may be considered to be the issuance
of a report of 40 recommendations for battling money laundering.64) While
these recommendations impose no legal obligations, they encourage national
governments to implement effective anti-money laundering programs.65) The
purpose of FATF is to encourage actions to be taken, an objective which is
a compromise between reaching the ultimate objective and respecting varied
domestic regulations, policies and ideals. These recommendations present the
basic framework for anti-money laundering efforts that are designed to be of
universal application and cover the criminal justice system and law
enforcement, the financial system and its regulation, and international
cooperation.66)
The FATF, in its 1997 report, emphasized on the methods of increased
use by money launderers including use of non-bank financial institutions,
62) See FATF, supra note 8; Straub, supra note 1, at 526.
65) Wendy J. Weimer, Cyberlaundering: An International Cache for Microchip Money, 13
DePaul Bus. L.J. 199, 218 (2000/2001).
9
- 1 3 -

especially bureaux de change, remittance businesses and non-financial

professionals.67) The FATF proposed creating rules requiring non-financial
institutions to identify customers and keep certain financial records in a
recent FATF report. According to Recommendation 13, countries need to
pay special attention to money laundering threats associated with new or
developing technologies that might favor anonymity, and take measures to
prevent their use in money laundering.68) Due to its economic strength, the
United States would be a natural forerunner to prevent such innovative
money laundering schemes.
2. The United States
The United States has developed a comprehensive system of regulation

designed to fight money laundering.69) The dominant regulation against
money laundering in the United States is the Bank Secrecy Act of 1970
(BSA).70) By enacting the BSA, the U.S. Government realized the
importance of maintaining a paper trail whereby law enforcement could trace
large transactions made by financial institutions.71) The BSA requires that
67) Bruce Zagaris, A Brave New World: Recent Developments in Anti-Money Laundering
and Related Litigation Traps for the Unwary in International Trust Matters, 32 Vand. J.
Transnat'l L. 1023, 1057 (1999).
68) Weimer, supra note 68, at 219.
69) Lyden, supra note 16, at 206-211.
70) The Bank Secrecy Act of 1970. Pub. L. No, 91-508, 84 Stat. 114 (1970) (codified as
amended at 31 U.S.C. 5311-5344).
71) Under the Bank Secrecy Act, financial institution means: (1) an insured bank, (2) a
commercial bank or trust company, (3) a private banker, (4) an agency or branch of a
foreign bank in the United States, (5) an insured institution, (6) a thrift institution, (7) a
broker or dealer registered with the SEC, (8) a broker or dealer in securities or
commodities, (9) an investment banker or investment company, (10) a currency
exchange, (11) an issuer, redeemer, or cashier of traveler's checks, (12) an operator of a
credit card system, (13) an insurance company, (14) a dealer in precious metals, stones,
or jewels, (15) a pawnbroker, (16) a loan or finance company, (17) a travel agency, (18)
9
- 1 4 -

financial institutions file an Internal Revenue Service ("IRS") Form 4789
Currency Transaction Report (CTR) for cash transactions of more than US$
10,000 within the United States.72) It also requires anyone carrying more
than US$ 10,000 in cash (including foreign currency) or any kind of financial
instruments into or out of the United States to report that fact to the
government at the border by filing a Currency and Monetary Instrument
Report (CMIR).73) The BSA also requires financial institutions to report
questionable transactions.74) BSA provision, however, do not impose record
keeping or reporting requirements on wire transfers not associated with the
physical transfer of currency.75)
After the enactment of the BSA, it did not take long for criminals to find
ways to evade the reporting requirements by smurfing or structuring
payments, which easily involved transferring an amount of less than US$
10,000 per transaction.76) To remedy this obvious weakness, Congress
a licensed sender of money, (19) a telegraph company, (20) a business engaged in car,
airplane, or boat sales, (21) persons involved in real estate closings or settlements, (22)
The U.S. Postal Service, (23) an agency of the U.S., state, or local government carrying
out a duty or power of a business described in 5312(a)(2), (24) any business that the
Secretary of the Treasury determines is an activity under 5312(a)(2), and (25) any other
business designated by the Secretary whose cash transactions have a high degree of
usefulness in criminal, tax, or regulatory matters. The Bank Secrecy Act, 31 U.S.C.
5312(a)(2) (1994).
72) 31 U.S.C. 5313 (1994).
73) 31 U.S.C. 5316(a)(1) (1994).
(a) Except as provided in subsection (c) of this section, a person or an agent or bailee of
the person shall file a report under subsection (b) of this section when the person,
agent, or bailee knowingly--
(1) transports, is about to transport, or has transported, monetary instruments of more
than $ 10,000 at one time
(A) from a place in the United States to or through a place outside the United
States; or
(B) to a place in the United States from or through a place outside the United
States; or
9
- 1 5 -

revised77) the BSA by introducing the Money Laundering Control Act of 1986
(MLCA).78) The MLCA included three money laundering activities as
criminal offenses: knowingly helping launder money derived from criminal
activity; knowingly engaging in transactions more than US$ 10,000 that
include property from criminal activity; and knowingly structuring
transactions to avoid BSA reporting.79) This regulation criminalized the act
of money laundering itself, separate from any CTR reporting violations.80)
The MLCA criminalized all forms of structuring, attempted structuring,
and any attempt to aid in structuring for purposes of avoiding the CTR
reporting requirements.81) In Ratzlaf v. United States, the U.S. Supreme
Court interpreted MLCA's section 5324.82) According to the Supreme Court’s
interpretation of the willfulness component of section 5324, the defendant
must have actual knowledge of illegal structuring activities in order to
convict.83) After the Supreme Court’s decision, Congress enacted the Money
Laundering Suppression Act of 1994 (MLSA).84) The MLSA removed the
willfulness requirement relating to civil penalties for structuring transactions.
The United States passed the USA Patriot Act85) drafted as a result of the
76) Id. at 524.
77) Baldwin, supra note 6, at 425. The BSA was amended by the Comprehensive Crime
Control Act of 1984, Pub. L. 98-473, Title II, Oct. 12, 1984, the Money Laundering
Control Act of 1986, 18 U.S.C. 1956-1957, the Anti-Drug Abuse Act of 1988, Pub. L.
100-690, Nov. 18, 1988, and the Annunzio-Wylie Anti-Money Laundering Act of 1992,
Pub. L. No. 102-550. Id.
78) Money Laundering Control Act, 18 U.S.C. 1956-57, 31 U.S.C. 5324-5326.
79) 31 U.S.C. 5324. These new offenses carry penalties of up to twenty years in prison,
fines of US$ 500,000, and forfeiture of assets. See Money Laundering Control Act of
1986, supra note 83.
80) Money Laundering Control Act of 1986, supra note 83.
81) 31 U.S.C. 5324.
82) Ratzlaf v. United States, 510 U.S. 135, 136 (1994).
83) Id.
84) Reigle Community Development Regulatory Improvement Act of 1994, 108 Stat. 2160,
2253 (1994) (codified as amended at 31 U.S.C. 5321(a)(4)(A)).
85) The Uniting and Strengthening America by Providing Appropriate Tools Required to
- 1 96 -

attacks on the World Trade Center that occurred less than two months
before.86) The USA Patriot Act includes anti money laundering provisions in
Title III.87) This Title III is named the International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001 ("IMLA Act").88)
Section 365 of the IMLA Act requires not only financial institutions but also
all businesses to file a CTR for every cash transaction more than $ 10,000.89)
Therefore, the IMLA Act included many businesses previously had limited or
no connection in the fight against money laundering.90)
V. Possible Solutions to Minimi e Electronic Money z

Laundering
1. Limitation of Regulations and Amending Law
Existing money laundering regulations do not completely cover electronic

money in stopping electronic money laundering because they did not consider
electronic money's existence or function.91) The BSA, MLCA, IMLA Act
require all financial institutions and other informal banking system to file
transactions more than US$ 10,000 and report any suspicious transaction.
These reporting requirements allow the government to track the money
through creating an audit trail behind each transaction.92) To detect and
Intercept and Obstruct Terrorism (USA Patriot Act) Act of 2001, Pub. L. No. 107-56,
115 Stat. 272 (2001).
87) USA Patriot Act 301-377.
88) Id.
90) Id.
92) Id. at 528-529.
9
- 1 7 -

prosecute money laundering, the government must be able to track transfers

of money.93) However, electronic money systems do not fall under obligatory
reporting requirements or create any audit trail under the regulations, thus
money launderers easily escape government’s detection through Internet
transactions.94)
To cover reporting requirements for electronic money transactions, the
BSA and MLCA should include innovative electronic money systems.95)
Theses amendments should continue to ban money-laundering activity itself
and also control the use of any means to help money laundering.96)
Legislators can control this trouble by revising subsection (a)(1) of the
MLCA that forbid conducting "financial transactions" with funds coming from
illegal source.97) The language of the regulation restricts a "financial
transaction" to “(A) [a] transaction in any way affecting interstate or foreign
commerce (i) involving the movement of funds by wire or other means or
(ii) involving one or more monetary instruments, or (iii) involving the
transfer of title to any real property, vehicle, vessel, or aircraft, or (B) [a]
transaction involving the use of a financial institution... ."98)
Money transactions related to electronic money stay outside of this
narrow classification of a "financial transaction."99) A possible solution is
revising section 1956(c)(5)(i)'s list of currently known types of monetary
means to cover the phrase "electronic currency in any form."100) With such
broad phrase, the regulation will stay inclusive since it will bring electronic
money under transactions requiring report filings, and the regulation will not
93) Id.
94) Lyden, supra note 16, at 234-235; Straub, supra note 1, at 528-529.
97) 18 U.S.C. 1956(a)(1); Straub, supra note 1, at 529.
98) 18 U.S.C. 1956(c)(4); Straub, supra note 1, at 529.
9
- 1 8 -

leave out new types of electronic money with its purposely-vague limiting
words.101)
Internet banks and electronic money facilitators previously fell outside the
BSA's classification of "financial institution."102) However, the IMLA Act
not only enlarges the duties of financial institutions in reporting high-risk
activities but also it significantly raises the stake for non-compliance with
money laundering legislation and increases the range of businesses now
required to join in anti-money laundering.103) Now, the U.S. government
may control Internet banks and electronic money facilitators under the IMLA
Act, but there still exist many difficulties to apply it to Internet payment
systems.
2. The United States Jurisdiction over Electronic Money
Laundering through International Transactions
(1) Long-Arm Jurisdiction Over Foreign Money Launderers
The MLCA Act classifies money laundering as a crime, but is unspoken

with regarding to jurisdiction over foreigners. Section 317 of the IMLA Act
grants U.S. courts "long arm" jurisdiction over foreigners and foreign
financial institutions that involve money laundering works that occur in the
United States, or, in the case of a financial institution, that keeps a bank
account at a financial institution in the United States.104) Service of process
must be governed under the Federal Rules of Civil Procedure or the laws of
the country in which the foreigner is found.105)
101 ) Straub supra note 1, at 529-530.
,
) U S C (a)(2).
102 31 . . . 5312
103 ) Lyden supra note 16, at 204-205.
,
104 ) USA Patriot Act 317.
105 ) Lyden supra note 16, at 219-220.
,
- 1 99 -

Section 317 provides two other important statutes. The first grants the
U.S. jurisdiction over foreigners who switch property to their own use after
the property has been ordered to be forfeited as a consequence of a violation
of U.S. money laundering regulations.106) The second permits U.S. courts to
issue restraining orders to maintain property in the U.S. and choose a
receiver to collect and take possession of assets "in satisfaction of criminal
or civil money laundering or forfeiture judgments."107) Therefore, the United
States can exercise jurisdiction over foreigners who commit money
laundering in United States or use U.S. financial institutions as long as
international laws allow the United States to do so. However, the IMLA
Act failed to address the U.S. jurisdiction over individuals who launder funds
through the Internet and other electronic payment systems.
(2) International Cooperation
Electronic money moves easily across borders. To exercise jurisdiction

over money launderers through electronic money system, international
cooperation is essential. Global economic integration benefits not only legal
business but also criminals as money can be laundered without the limit of
national borders.108) International cooperation in fighting money laundering is
important and inevitable. The Internet allows for the anonymous flow of
international money. The Internet and the global marketplace enable money
launderers to transfer funds to countries with weak money laundering laws.
Accordingly, the jurisdiction issue is one problem with the international
enforcement of money laundering. The legal system is based on existing
geographic and financial boundaries.109) International cooperation and
6) Id. at 220.
10
) Id.
107
) Welling & Rickman, supra note 23, at 325.
108
9) Id. at 325-326.
10
- 200 -

coordination is essential in preventing money laundering because borders of
countries are less important with modern technology. If one industrialized
country chooses not to regulate anonymizing technology, everyone will be
connected to have anonymous communications through the Internet. The
governments have to work out a way to coordinate their money laundering
laws to minimize global electronic money laundering.
VI. Conclusion
Electronic money will be the major part of the future market and financial
system. Even though there are many advantages with electronic money, it
causes several problems for the regulations of money laundering. The
emerging technology of electronic money in its state provides an ideal
environment for money launderers because it allows people to move cash
promptly and anonymously without reporting requirements under the
regulations. To keep new techniques from abusing by money launderers
while simultaneously promoting technological development, the government
should concentrate on regulating the transaction rather than the technology of
the electronic payment system.
To minimize electronic money laundering, firstly, the U.S. need to amend
anti money laundering laws to cover electronic money systems. However,
amending laws alone is not enough to control and exercise jurisdiction over
electronic money launderers through innovative electronic money systems.
Under IMLA Act, the United States can exercise jurisdiction over
foreigners who commit money laundering in United States or use U.S.
financial institutions as long as international laws allow the United States to
do so. However, the IMLA Act failed to address the U.S. jurisdiction over
individuals who commit money laundering through the Internet and other
- 201 -

electronic payment systems. Therefore, International cooperation in fighting

money laundering is essential. The most effective method to fight against
money launderers is continuous international cooperation through the United
Nations, Treaties and other international organizations.
- 202 -

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김용재, 「은행법원론」, 박영사, 2013

권오승, 「경제법, 법문사」, 2013.
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5권제2호, 2012.
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향 , 「무역보 연 응방 “ 험
구」, 제13권제1호, 2012.
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성 제고 및 우 할 효율
리나라 자금세 탁방지제도의 발전 향 , 사학위논문, 고려대학교 법무 방 ”석
대학원, 200 .9
조 택“
성 , 자금세 탁방
지 제도 현황 과 개선 안에 관한 연구 , 한국 안행정논집, 방 ” 치
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Carolyn A. DeLone & Spencer Gwartney, Financial Institutions Fraud, 46
AMCRLR 621 (2009)
Todd Doyle, Cleaning Up Anti-Money Laundering Strategies: Current FATF
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(2002)
Russell A. Hakes, According Purchase Money Status Proper Priority, 72 Or.
L. Rev. 323 (1993).
Christopher D. Hoffman, Encrypted Digital Cash Transfers: Why Traditional
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D. Hollis, An e-SOS for Cyberspace, 52 Harvard Int'l L.J., 373 (2011)
J. Liao, & A. Acharya, Transshipment and Trade-Based Money Laundering,
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While Giving Money Laundering, 8 Fordham J. Corp. & Fin. L. 201
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- 205 -

[국 문 초 록]
국제거 래상 전자자금 세탁에 관한 소고
- 미국법을 중심으로-
110) 김성진 *
물리적 지급시스템 또는 전자적 지급시스템 중에 어떠한 결제 시스템의 사

용한다하더라도 그에 따른 위험은 항상 존재한다. 전자거래의 규모와 속도 그리
고 대규모 글로벌 전자지급 시스템의 부족 때문에, 전자지급시스템과 관련한 위
험의 정도를 측정하는 것은 어렵다. 이러한 위험은 전자화폐의 종류에 따라서
다양하게 야기될 수 있다. 소비자, 금융 기관 및 정부에 의해 고려 될 수 있는
위험은 자금 세탁을 포함하여 개인 정보 유출, 사기 및 위조가 있다.
불법적으로 취득한 자금을 합법적으로 취득한 자금처럼 보이게 하는 것을
소위 자금세탁이라 한다. 이러한 자금세탁을 원하는 자들은 규제와 손실 및 형
사상 기소의 위험을 없애기 위해서 그들이 불법적으로 취득한 자금의 출처를
은폐할 필요가 있는 것이다. 혁신적인 기술에 의해 발전한 오늘날의 새로운 전
자지급 시스템은 다른 나라의 원조, 감독, 관리, 규제 및 국경의 제한 없이 자금
이 전송될 수 있는 세상을 만들었다. 전자자금세탁은 정부가 신중하게 그 상황
을 모니터링하지 않는다면 중대한 범죄로 발전할 수 있다. 전자자금세탁 분야에
법률적 규제를 마련하는 것이 조금 빠르다고 생각할 수도 있지만, 정부는 전자
자금세탁의 증가 가능성을 항상 예의주시하여야 한다.
이글은 특히 미국의 관점에 초점을 맞추어 정책 입안자가 고려해야할 전자
자금세탁의 몇 가지 법적 문제들을 검토한다. 구체적으로, 제2부는 자금세탁에
관하여 살펴본다. 제3부에서는 정부가 당면할 수 있는 전자자금세탁에 관한 중
요한 문제들을 논의한다. 제4부는 자금세탁 방지에 관련한 입법과 법령들을 검
* 법학박사, 중원대학교 법학과 조교수.
- 20 - 6

토한다. 마지막으로, 제5부는 전자자금세탁 자체를 최소화하고 전자자금 세탁자
들에 대한 미국의 관할권에 관한 해결책을 제안하면서 이글의 결론에 갈음한다.
주제어
급 탁
전자지 제도, 자금세 , 전자상거래, 사기와 위 , 재판관 권, 국제 력. 조 할 협
- 207 -

Electronic Money Laundering in International Transactions

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Electronic Money Laundering in International Transactions

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Electronic Money Laundering In International Transactions

Focusing on the U.S. Perspective

출처 법이론실무연구 2(1), 2014.04, 179-207(29 pages)

Electronic Money Laundering In International

–Focusing on the U.S. Perspective-

97) Kim, Sung-Jin

Ⅲ. Electronic Money Laundering

Ⅳ. Anti-Money Laundering Legislation

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Electronic Payment System, Money Laundering, E-commerce, Fraud &

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anti-money laundering legislations. Lastly, part V set forth solutions to

1. Reasons for Eliminating Money Laundering

Money laundering is an attractive business. Money laundering is usually

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Money laundering is the making of funds earned through criminal activity

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three steps in common: placement, layering, and integration.17) Placement is

Ⅲ. Electronic Money Laundering

1. Overview of Electronic Payments

(1) Stored Value Cards

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Developers of electronic money predict that all computers will have

Methods of electronic money laundering are the same as those of money

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Ⅳ. Anti-Money Laundering Legislation

(1) United Nations

The U.N. Convention Against Illicit Traffic47), which was ratified in

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money.49) Furthermore, parties under the U.N. Convention need to afford

purpose of concealing or disguising the illicit origin of the property or of assigning

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to Council Directive 91/308, Member States must require financial institutions

To promote international cooperation in fighting money laundering, the

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especially bureaux de change, remittance businesses and non-financial

The United States has developed a comprehensive system of regulation

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V. Possible Solutions to Minimi e Electronic Money z

1. Limitation of Regulations and Amending Law

Existing money laundering regulations do not completely cover electronic

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prosecute money laundering, the government must be able to track transfers

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Laundering through International Transactions

(1) Long-Arm Jurisdiction Over Foreign Money Launderers

The MLCA Act classifies money laundering as a crime, but is unspoken

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Electronic money moves easily across borders. To exercise jurisdiction

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electronic payment systems. Therefore, International cooperation in fighting

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김용재, 「은행법원론」, 박영사, 2013

Duncan E. Alford, Anti-Money Laundering Regulations: A Burden On

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