International Money Laundering Enforcement Will Rise—What GCs Need to Know

The next few years are expected to see a significant increase in international money laundering enforcement from a confluence of recent events.

First, the new Anti-Money Laundering Act, which took effect on Jan. 1, directs additional resources to combating money laundering, expands the Department of Justice’s authority to subpoena documents from foreign banks. It also promotes greater cooperation with foreign governments to attack money laundering, and requires beneficial ownership disclosures from shell companies that are often used in international money laundering.

Second, the Biden administration is likely to flex these new powers as part of an overall increase in white-collar investigations and prosecutions.

Third, the European Union Council of Finance Ministers committed in November 2020 to create a central anti-money laundering supervisor and significantly increase enforcement capabilities to investigate and prosecute financial crimes in Europe.

Finally, of course, the economic upheaval caused by the Covid-19 pandemic and the related massive government stimulus injected into the world economy on a rushed basis has created an environment highly conducive to international money laundering.

Most general counsel and senior in-house counsel can provide a solid working definition of domestic money laundering: Something along the lines of “engaging in transactions within the United States involving criminal proceeds that are designed either to disguise the illegal nature of the proceeds or to facilitate additional criminal activity.” This definition, however, encounters several problems when one turns to the topic of international money laundering.

Three Differences Between Domestic, International

There are three key differences between domestic and international money laundering that lawyers in a general counsel’s office should know.

Only a Slight Nexus to the U.S. Required

Lawyers often think of the “international” component of money laundering as requiring criminal proceeds to be imported into the U.S. or sent abroad from the U.S. In reality, however, while a connection between the U.S. and the funds being laundered is necessary, it can be minimal.

Funds that merely flow—even if only electronically—through a correspondent bank or an intermediary in the U.S. on their way to a foreign person abroad can be the basis for a money laundering charge.

The Second Circuit, for example, recently affirmed the money laundering conviction of a foreign national who bribed a Ugandan foreign minister to secure a business opportunity for a Chinese company in Uganda. The funds went electronically from a Hong Kong bank to a Ugandan bank but touched at least briefly into the accounts of two US. correspondent banks. That was enough to violate the federal money laundering statute, the court held.

Does Not Need to Involve Criminal Proceeds

Domestic money laundering requires transactions involving criminal proceeds, but at least one form of international money laundering does not: Anyone transferring funds from, to, or through the U.S. intending to promote any form of unlawful activity specified in the federal money laundering statute commits a federal offense, no matter how clean the funds were that are transferred.

The unlawful activity does not need to be separate and distinct from the money transfer. Courts have held that transferring funds to complete an illegal sale, or as part of a fraudulent scheme, satisfies the statutory requirement of promoting the “carrying on of specified unlawful activity.”

That means that knowing funds come from a clean source and that the recipient will subsequently use the funds for a legitimate purpose is not enough to shield an international transfer from potential money laundering exposure.

Covers Activity Not Criminal in the U.S.

One way or another, financial transactions do need some connection to criminal activity to constitute international money laundering—they have to either involve the proceeds of “specified unlawful activity” or promote “specified unlawful activity.”

But even then, companies need to be careful equating domestic and international money laundering. The relevant federal statute is not limited to crimes as defined by federal law. Rather, it extends to “offense[s] against a foreign nation” involving, for instance, fraud, bribery or extortion, as well as offenses where the U.S. would be obligated to extradite an offender under a multilateral treaty.

This means that the “unlawful activity” that forms the basis for an international money laundering charge need not be unlawful in the U.S. Indeed, federal courts have repeatedly rejected efforts by defendants to graft onto foreign law offenses various nuanced requirements of federal law. For example, another country’s extortion offense need not involve violence or the threat of violence, and another country’s bribery offense need not involve an “official act” or a “corrupt intent to be influenced” by a public official.

Given the high volume of international commerce in which U.S. companies are involved, in-house counsel—those who provide companies with their first line, and often last line, of legal advice—need to understand the significant differences between domestic and international money laundering. Only then can they better recognize the signs of international money laundering and effectively counsel their companies to avoid or minimize the risk of facilitating—or being investigated or prosecuted for—international money laundering transgressions.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Chris Pace is a litigation partner at Jones Day and a former Assistant U.S. Attorney. His practice includes representing clients in connection with money laundering investigations and prosecutions.