Most individuals convicted of federal money laundering charges face prison time. These prison sentences are often increased by the judge’s determination that certain sentencing enhancements unique to this crime apply. This post looks at two of those enhancements—those relating to defendants engaged in the “business of laundering funds” and those involved in “sophisticated laundering”—with a brief review of the relevant statutory guidance followed by analysis of recent cases addressing them. The importance of sentencing issues in money laundering cases is underscored by recent developments. Earlier this year, the United States Attorney General released a memorandum establishing the Department of Justice’s policy for charging and sentencing. In this memorandum, Attorney General Sessions placed renewed emphasis on sentencing and disclosure to the sentencing court of “all facts that impact the sentencing guidelines.” Even before this memorandum, however, sentencing data from the U.S. Sentencing Commission shows that in 2016, 78.6% of the individuals convicted of money laundering as their “primary offense” were incarcerated—a figure higher than the previous two years (see 2015 data here and 2014 data here). The mean prison sentence for these individuals was 41 months.
Guidelines for Money Laundering Offenses
While sentencing in federal criminal cases takes into account myriad complex factors that are not addressed here, a basic overview of certain aspects of sentencing in money laundering cases may be helpful. Sentencing in federal court is governed by the U.S. Sentencing Guidelines (“USSG”) and starts with the calculation of a defendant’s “guideline range”—a figure determined by the defendant’s Offense Level and his Criminal History. Section 2S1.1 of the USSG applies to violations of 18 U.S.C. §§ 1956 and 1957, the money laundering statutes. For many defendants convicted under these statutes, the Offense Level begins at “8” and is then increased based on the value of the laundered funds. To take a hypothetical example, if a defendant with no criminal history is convicted of laundering funds valued at $1,000,000, 14 points are added to the defendant’s Offense Level, totaling 22. The Sentencing Table provided by the United States Sentencing Commission calls for a 41-51 month prison sentence in this instance.
The guideline range calculation, however, may not end there. Under Section 2S1.1(2)(C), a defendant engaged in the “business of laundering funds” would then have his Offense Level increase by an additional 4 levels. Likewise, if a defendant is convicted of 18 U.S.C. § 1956 and the offense “involved sophisticated laundering,” Section 2S1.1(b)(3) provides that his Offense Level would increase by 2 levels. Taking the same example provided above, if this defendant were found to be in the “business of laundering funds,” the Sentencing Table would call for an increased prison sentence of 63-78 months. If engaged in the “business of laundering funds” and “sophisticated laundering,” the guideline range would rise further to 78-97 months. These enhancements can therefore present a serious obstacle to a money laundering defendant seeking to avoid significant (or any) incarceration.
The “Business of Laundering Funds” Enhancement
Application Note 4 to Section 2S1.1 provides a “non-exhaustive list of factors that may indicate the defendant was in the business of laundering funds” as follows:
(i) The defendant regularly engaged in laundering funds.
(ii) The defendant engaged in laundering funds during an extended period of time.
(iii) The defendant engaged in laundering funds from multiple sources.
(iv) The defendant generated a substantial amount of revenue in return for laundering funds.
(v) At the time the defendant committed the instant offense, the defendant had one or more prior convictions for an offense under [various money laundering statutes or statutes under the Bank Secrecy Act].
Two recent cases addressed this “business of money laundering” issue with somewhat similar approaches, but arrived at different conclusions about whether to apply the 2-level enhancement.
In this 2017 decision from the U.S. District Court for the Southern District of Texas, the Court upheld the longstanding principle that for this enhancement to apply, the money laundering business need not be the defendant’s only business activity or his “sole source of support.” Here, the defendant did vehicle stereo installation work, but also admitted to laundering money for a drug cartel. In applying the enhancement, the Court pointed to bank records, the testimony of co-conspirators and even defendant’s admissions during a proffer session to conclude that he helped launder more than $1.8 million over a two year period.
In this decision, the U.S. Court of Appeals for the Fifth Circuit found there was insufficient proof to support the District Court’s application of this enhancement. The defendant was caught during the early stages of his first and only alleged attempt to launder money for his co-defendants, as he deposited $45,000 of drug proceeds into his law firm’s bank account. As in Aguilar, the government looked to the defendant’s own statements to support the enhancement. Here, the defendant admitted to making numerous “sales pitches” to others touting his skill in laundering money and even set up a foreign “dummy corporation” to do so. What the government failed to show, however, was “any occurrence of successful money laundering” by the defendant. Thus, while the defendant made grand “promises” regarding “large sums of money” and “presented himself as an individual in the business of laundering funds,” there was insufficient proof to apply the “business of laundering funds” enhancement.
As these decisions demonstrate, the need for strong and skilled advocacy does not end at the trial stage of a money laundering case. Where a defendant has been convicted of money laundering, at what point does that activity constitute his “business”? Likewise, where all money laundering requires some degree of sophistication, at what level does it become “sophisticated money laundering” worthy of a sentencing enhancement?
The “Sophisticated Laundering” Enhancement
Application Note 5 to Section 2S1.1 provides some guidance as to what constitutes “sophisticated laundering,” stating it is “complex or intricate” conduct that “typically involves the use of”:
(i) fictitious entities;
(ii) shell corporations;
(iii) two or more levels (i.e., layering) of transactions, transportation, transfers, or transmissions, involving criminally derived funds that were intended to appear legitimate; or
(iv) offshore financial accounts.
Four recent cases examine this “sophisticated laundering” enhancement, shedding light on the somewhat divergent views expressed in various federal courts throughout the country.
Though analyzing a different potential sentencing enhancement, this 2016 decision from the U.S. District Court for the District of New Mexico presents another example of a court examining the significant difference between a defendant’s words and his actions. The government contended the defendant “bragged about how he could issue checks citing fraudulent work that, in light of his numerous businesses and holdings, would not raise any red flags.” While it was true that the defendant had multiple legitimate businesses and was found to have paid money to fictitious entities, he did not own, list or create the fictitious entities as part of the money laundering scheme. On these facts, the Court sustained the defendant’s objection to the “sophisticated laundering” designation, finding no probative value in defendant’s “bragging,” and determining the actions amounted to only a “garden-variety” money laundering scheme unworthy of the 2-level enhancement.
In this 2016 decision, the U.S. District Court for the Eastern District of Kentucky also rejected the government’s attempt to apply the “sophisticated laundering” enhancement, though with different reasoning than that of Eckstein. After looking to Note 5’s guidance, the Court acknowledged that the scheme employed fictitious entities and involved an “offshore” element, in that the defendant sent some money overseas, though not for the purpose of “cleaning” it. The Court also concluded there “was only one level of transfer that was intended to make the money seem like something it was not.” Based on these assessments, the Court found the enhancement inappropriate, stating the enhancement would lose meaning if applied to the defendant’s relatively unsophisticated activities in this case.
Although appellate courts necessarily apply a different standard than district courts – that is, a generally deferential standard of review of a district court’s findings of fact – this 2017 decision from the U.S. Court of Appeals for the Third Circuit appears to have taken a somewhat different approach to this enhancement than the two decisions addressed above. In U.S. v. Amaris-Caviedes, the Third Circuit noted that the defendant used offshore financial accounts—one of the factors provided in Note 5—and stated “the offshore aspect of the transactions would suffice to affirm” the district court’s application of the 2-level enhancement. The Third Circuit, however, then continued to identify other factors supporting application of the enhancement, including “transfers of money on multiple levels” and defendant’s use of “a plan to structure the transactions to avoid the attention of authorities.” Accordingly, the Third Circuit affirmed the sentence.
Finally, in United States v. Vela-Salinas the U.S. Court of Appeals for the Sixth Circuit affirmed the lower court’s application of the “sophisticated laundering” enhancement based only on its finding that one of Note 5’s factors was present in defendant’s scheme. After citing subsection (iii) of Note 5, referenced above, the Court described the defendant’s efforts to create the appearance of legitimate used car sale transactions while laundering money: “cash from drug sales was converted into used vehicles, which were then converted back into cash, which was then deposited into various personal and business bank accounts in ‘structured’ amounts, some of which was then transferred into other accounts.” The Sixth Circuit did not engage in any further analysis of other factors or a comparison to “garden-variety” money laundering schemes. As these decisions demonstrate, the need for strong and skilled advocacy does not end at the trial stage of a money laundering case. Where a defendant has been convicted of money laundering, at what point does that activity constitute his “business”? Likewise, where all money laundering requires some degree of sophistication, at what level does it become “sophisticated money laundering” worthy of a sentencing enhancement? If convicted, a money laundering defendant will often face critical, complex issues such as these, and the ability to successfully argue them may greatly reduce the sentence’s severity.