Chapter 6 Sample

6.01 Overview

One of the useful investigative techniques that federal agents have developed to conquer money laundering operations is the "money pickup." In such an operation, the federal agency poses as a money laundering organization and gains valuable evidence on trafficking organizations, making money to support investigations in the process. Similarly, an agent can pose as an individual who goes to the money launderer and asks the launderer to "clean money" that the agent represents to be proceeds from some unlawful activity. Since the money is not really criminal, many ask if this process is actually money laundering.

Title 18 U.S.C. § 1956(a)(3), commonly known as the "sting" provision, allows such undercover operations. A defendant who believes that the funds involved in the transaction are proceeds of a SUA from an undercover law enforcement officer or another person (such as an informant) working under the officer's control can be prosecuted under this statute. The officer or informant must specify that the property is the proceeds of a SUA or was used to conduct or facilitate a SUA.

6.02 Elements of § 1956(a)(3)

It is a violation of 18 U.S.C. § 1956(a)(3) when a person:

· conducts or attempts to conduct;

· a financial transaction;

· involving property which is represented by a law enforcement officer to be:

- proceeds of specified unlawful activity; or

- property used to conduct or facilitate specified unlawful activity; while either:

· While either:

A. Acting with the intent to promote the carrying on of specified unlawful activity; or See United States v. Santos, 20 F.3d 280 (7th Cir. 1994) (wiring money for an undercover person to supposed "drug runner" satisfied "intent to promote").

B. Acting with the intent to conceal or disguise the nature, location, source, ownership or control of property believed to be proceeds of the specified unlawful activity; or See United States v. Oliveros, 275 F.3d 1299 (11th Cir. 2001) (undercover agent's transfer of cash to target, and target's transfer of checks in return were both violations of § 1956(a)(3)(B)); United States v. Leslie, 103 F.3d 1093 (2d Cir. 1997) (exchange of cash, represented to be drug proceeds, for check drawn on defendant's account); United States v. Wolny, 133 F.3d 758 (10th Cir. 1998) ("conceal or disguise" means the same thing under §1956(a)(3)(B) as it does for §1956(a)(1)(B) insofar as the evidence probative of intent is concerned).

C. Acting with the intent to avoid a transaction reporting requirement under state or federal law. See United States v. Breque, 964 F.2d 381 (5th Cir. 1992) (defendant may be convicted of failing to file a CTR and laundering of sting money with intent to violate CTR requirement under § 1956(a)(3)(C)) and United States v. Santos, 20 F.3d 280 (7th Cir. 1994) (there is no willfulness requirement in § 1956(a)(3)).

Note. This sting provision does not include the specific intent to engage in tax evasion.

This offense is very similar to an offense under § 1956(a)(1) except that, instead of involving the proceeds of a SUA, the offense involves property which has been represented to be the proceeds of a SUA.

6.03 18 U.S.C. § 1956(a)(3)—the "representation" clause

The property must be represented to be the proceeds of a specified unlawful activity or property used to conduct or facilitate specified unlawful activity under 18 U.S.C. § 1956(a)(3). According to the statute, "the term 'represented' means any representation made by a law enforcement officer or another person at the direction of, or with the approval of, a federal official authorized to investigate or prosecute violations of this section."

Of primary concern is how adequately the law enforcement officer or other undercover agent represents that the proceeds involved in the financial transaction are from a specified unlawful activity.

The term "represented" does not require an explicit statement that the funds are proceeds of a SUA. United States v. Nelson, 66 F.3d 1036 (9th Cir. 1995). It is sufficient that a law enforcement officer make the defendant aware of circumstances from which a reasonable person would infer that the property was illicitly based. United States v. Kaufmann, 985 F.2d 884 (7th Cir. 1993). The court stated that "we do not believe that Congress intended for the term 'representation' to be narrowly read as requiring an explicit statement by government agents." Id. at 892.

Courts have liberally interpreted the statute in favor of the government, recognizing that a "real world" narcotics trafficker would not directly tell someone that he or she was in the narcotics business. United States v. Stark, 62 F.3d 1374 (11th Cir. 1995). Agents, therefore, usually rely on actions, speech, and demeanor in order to be recognized as a drug trafficker. If drug trafficking is the SUA, the agent does not need to directly state that he or she is involved in narcotics trafficking. United States v. Marbelt, 129 F. Supp. 2d 49 (D. Mass. 2000).

Other courts have also found sufficient evidence of representation when the undercover agent hints, but never specifically states, that the funds he needs laundered are the proceeds from specified unlawful activity. United States v. Castaneda-Cantu, 20 F.3d 1325 (5th Cir. 1994); United States v. Panaro, 266 F.3d 939 (9th Cir. 2001). As long as an agent's appearances, actions, and words convey to a person familiar with illicit activity that an undercover agent is engaged in a SUA and is seeking to launder income from that activity, the representation is sufficient.

Each of these cases presents a fact-specific inquiry as to whether agents' statements sufficiently convey that the laundered money has come from a SUA. Therefore, a number of general principles have been recognized by courts to deal with the representation requirement of the statute:

The representations may be implied. To satisfy the representation element of the statute, the government need only prove that the law enforcement officer or other authorized person made the defendant aware of circumstances from which a reasonable person would infer that the property was from SUA proceeds. United States v. Kaufmann, 985 F.2d 884 (7th Cir. 1993) (evidence sufficient to establish "representation" where agent told owner of dealership that the interested car purchaser was a marijuana dealer who wanted to purchase a Porsche for cash and title the car in a different name).

The representation is sufficient where "any person of ordinary intelligence would have recognized it." In United States v. McLamb, 985 F.2d 1284 (4th Cir. 1993), statements by an undercover agent were sufficient where the agent told the defendant that the prospective buyer "has problems...with the drug people.... [T]he money's not clean.... [H]e can't have a car in his name.... [O]ne of the problems is all the reporting stuff."

Courts have upheld convictions where the undercover agent "hinted" but never specifically stated that the funds he needed laundered were proceeds from SUAs. United States v. Arditti, 955 F.2d 331 (5th Cir. 1992) (rejecting argument that the officer must make an explicit statement); United States v. Jensen, 69 F.3d 906 (8th Cir. 1995) (undercover agent told defendant that he had made a lot of money selling marijuana and wanted to buy cars for cash); United States v. Castaneda-Cantu, 20 F.3d 1325 (5th Cir. 1994) (agent referred to his clients as "dopers" and stated that they dealt in weapons such as rifles and machine guns); United States v. Fuller, 974 F.2d 1474 (5th Cir. 1992) (recorded conversation describing consequences from "Colombians" if money is lost was held sufficient to establish necessary representation).

The representations do not have to be repeated for each transaction. Law enforcement agents involved in sting operations are not required to describe the source of the funds to be laundered before each money laundering transaction. "Legitimate criminals," whom undercover agents must imitate, would not make such recitations before each transaction. Thus, law enforcement officers involved in sting operations are not required under § 1956(a)(3) to describe the source of funds to be laundered each time they attempt a money laundering transaction.

The jury may consider the overall context in determining whether the funds were represented and understood to be from a specified unlawful activity. United States v. Arditti, 955 F.2d 331 (5th Cir. 1992) (where the undercover agent told the defendant that he was in the cocaine business when he delivered the

represented proceeds, the jury could have concluded that a cashier's check delivered later by the agent was also ostensibly drug-related funds); United States v. Starke, 62 F.3d 1374 (11th Cir. 1995); United States v. Castaneda-Cantu, 20 F.3d 1325 (5th Cir. 1994).

Ambiguous statements are sufficient if the defendant's responses reveal an understanding that the proceeds came from specified unlawful activity. United States v. Breque, 964 F.2d 381 (5th Cir. 1992) (enough if defendant's responses reveal that he understood undercover agent's comments to mean that cash came from drug dealing); United States v. Starke, 62 F.3d 1374 (11th Cir. 1995) (in aggregate, defendant's behavior and interaction with the agents, which included advice to agents on how not to attract attention and how to create appearance of legitimate source of income, and his lack of surprise when agents later proposed drug deal, supported inference that the agents effectively represented the money to be drug proceeds); United States v. Nelson, 66 F.3d 1036 (9th Cir. 1995); United States v. Velasquez, No. 91-50271, 1993 WL 117405 (9th Cir. 1993) (ambiguous statements concerning the drug-related nature of the proceeds are sufficient so long as agent suggests that he is involved in the drug trade).

Specialized knowledge of the defendant. A representation is sufficient where a person possessing certain specialized knowledge possessed by the defendant would infer that the property was SUA proceeds. When evaluating representations made by law enforcement agents, language which might be ambiguous to a person unfamiliar with illicit activity may not be ambiguous to a person involved in such activity. United States v. Castaneda-Cantu, 20 F.3d 1325 (5th Cir. 1994).

The test is objective, but the "reasonable person" is one possessing knowledge that the defendant possessed. United States v. Starke, 62 F.3d 1374 (11th Cir. 1995). Where the appearances, actions, and words of the agents would have conveyed to a person familiar with illicit activity that they were drug dealers and sought to launder drug income, the defendant's familiarity with drug dealing may be considered when evaluating the sufficiency of the representation. United States v. Jensen, 69 F.3d 906 (8th Cir. 1995) (defendant advised undercover agent how to structure transaction with cash and money orders to avoid filing a currency report).

The representations need not be repeated to each co-defendant who joins the scheme. See United States v. Arditti, 955 F.2d 331 (5th Cir. 1992); United States v. Castaneda-Cantu, 20 F.3d 1325 (5th Cir. 1994).

Deliberate ignorance may satisfy knowledge requirement. Deliberate ignorance or willful blindness is recognized in some jurisdictions in which a defendant claims a lack of guilty knowledge, but proof at trial supports an inference of deliberate indifference. A deliberate ignorance instruction may be proper where the evidence establishes that the defendant was subjectively aware of a high probability that the money was the proceeds of a specified unlawful activity, and that the defendant purposely contrived to avoid learning the source of the funds. United States v. Breque, 964 F.2d 381 (5th Cir. 1992); United States v. Fuller, 974 F.2d 1474 (5th Cir. 1992).

The context and circumstances surrounding the transactions may be considered in evaluating the representation. A representation may include any conduct capable of being turned into a statement of fact. United States v. Kaufmann, 985 F.2d 884 (7th Cir. 1993) (manner in which agent represented himself includes his demeanor vehicle—a late model Jaguar trimmed in gold, flashy jewelry, conduct, and hours kept. All were indicative of a drug dealer). Courts review the totality of circumstances surrounding the representation in determining whether the representation was legally sufficient. This includes the defendant's own efforts to make the money appear legitimate, setting meetings in secluded locations, and charging substantial fees for financial transactions.

Statements made by the defendant to the undercover agent as well as the defendant's behavior, may be considered and may support an inference that the defendant has been sufficiently informed that the money is ostensibly from a specified unlawful activity. United States v. Starke, 62 F.3d 1374 (11th Cir. 1995) (defendant advised agents how not to attract attention and how to create the appearance of legitimate sources of income. He also demonstrated lack of surprise when agents later proposed drug deal, even though agents never explicitly told defendant they were drug dealers).

Note. A defendant may be convicted under 18 U.S.C. § 2 for causing an undercover agent to launder money. United States v. Santos, 20 F.3d 280 (7th Cir. 1994) (defendant wired money to an undercover IRS agent posing as a "drug runner").

Practice note. An ordinary "buy/bust" case may be converted into a money laundering offense under § 1956(a)(3) if an undercover agent represents the purchase money to be proceeds of an earlier drug offense. United States v. Calva, 979 F.2d 119 (8th Cir. 1992). The Asset Forfeiture and Money Laundering Section, however, does not recommend this method of charging.

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