The U.S. Attorney’s Office for the Southern District of New York announced the unsealing of a superseding indictment charging Jennifer Shah and another person for conspiring to commit wire fraud and money laundering. Shah, described in promotional materials as having an “extravagant personality and sharp tongue,” is a star on the reality television series The Real Housewives of Salt Lake City. On the show, Shah throws lavish parties in her rented 9,420 square-foot home, which she refers to as the “Shah Ski Chalet.” She also has estimated that her monthly spending totals around $50,000. Adopting a different view, the government’s press release claims that Shah and her co-defendant “flaunted their lavish lifestyle to the public as a symbol of their ‘success.’ In reality, they allegedly built their opulent lifestyle at the expense of vulnerable, often elderly, working-class people.”
Although the charges may appeal to some of her fans’ taste for drama, the superseding indictment sets forth serious allegations that Shah ran a nationwide telemarketing fraud scheme which primarily victimized people over age 55, and then conspired to launder the scheme’s proceeds by concealing her involvement with the tainted funds and attempting to avoid Currency Transaction Reports (“CTRs”) required under the Bank Secrecy Act. As we describe below, the superseding indictment – however flashy its target – represents a good primer on some basics regarding federal money laundering charges.
The Wire Fraud Charge
The superseding indictment charges Shah and her co-defendant with one count of conspiracy to commit wire fraud and one count of conspiracy to commit money laundering, as well as a related notice of forfeiture. The charged wire fraud scheme, which generated the “specified unlawful activity” (“SUA”) funds underlying the money laundering charge, alleges that the defendants and others committed a “Business Opportunity Scheme” that trafficked in lists of potential victims, or “leads,” many of whom had made a prior investment to create an online business with other scheme participants. Sales floors operating in Arizona, Nevada, Utah and the New York and New Jersey area allegedly provided lead lists and assistance in fighting victims’ refund requests. Shah allegedly generated and sold leads to other scheme participants for use by the telemarketing sales floors, knowing that the identified “leads” would be defrauded, in exchange for a share of the fraudulent revenue. The superseding indictment further charges that victims were sold services purporting to make the management of their businesses more efficient or profitable, including tax preparation or website design services, even though many victims were elderly and did not own a computer. Shah allegedly never intended that any victims actually would earn any of the promised returns on their intended investments, and the victims allegedly never obtained those returns.
The Money Laundering Charge
Count Two of the superseding indictment charges conspiracy to launder the fraud scheme’s funds, in violation of 18 U.S.C. § 1956(h), through three alternative prongs of the federal money laundering statutes, each involving a different mental state requirement. As noted, the superseding indictment illustrates the flexibility of the money laundering statutes and several – not all – of the many ways that federal prosecutors can utilize them. When a money laundering charge alleges more than one alternative prong, then a defendant can be found guilty on the basis of any single prong. All of the prongs require proof of a “financial transaction” involving the “proceeds” of a SUA – here, the charged wire fraud scheme — and knowledge by a defendant that the proceeds were criminally derived.
The first prong relies on the “concealment” provision, 18 U.S.C. § 1956 (a)(1)(b)(i), and alleges that the defendants conspired to commit transactions designed in whole or in part to conceal the nature, location, source, ownership or control of SUA proceeds. Earlier in the wire fraud count, the superseding indictment alleges conduct that presumably constitutes the efforts at concealment:
SHAH and SMITH undertook significant efforts to conceal their roles in the Business Opportunity Scheme. For example, SHAH and SMITH, among other things, incorporated their business entities using third parties’ names and instructed other Participants to do the same, used and directed others to use encrypted messaging applications to communicate with other Participants, instructed other Participants to send SHAH’s and SMITH’s shares of certain fraud proceeds to offshore bank accounts, and made numerous cash withdrawals structured to avoid currency transaction reporting requirements.
This paragraph alleges some classic examples of “concealment” money laundering: the use of third-party nominees, offshore bank accounts, and structured cash transactions. Indeed, the effort alleged above to avoid the filing of required CTRs also forms the basis for the second prong, which relies on the “reporting” provision, 18 U.S.C. § 1956(a)(1)(b)(ii), and alleges that the defendants conspired to commit transactions designed in whole or in part to avoid the filing of a required transaction report (typically, either a CTR or a Suspicious Activity Report). This approach to charging illustrates the overlap between the different provisions of the money laundering statutes and how the same alleged conduct can support multiple paths to conviction.
Finally, Count Two alleges that the defendants conspired to violate 18 U.S.C. § 1957, which prohibits a financial transaction involving over $10,000 in SUA funds, when the defendant knows that the funds were criminally derived. Section 1957 is very broad and does not require the specific intents to conceal or avoid a required report described above – it merely requires knowledge, and a transaction involving over $10,000 in “dirty” money. Prosecutors therefore can employ Section 1957 to charge a wide variety of seemingly mundane financial transactions, without the need to prove efforts at secrecy or evasion, so long as the monetary threshold is satisfied. For example, fraudsters who purchase properties or vehicles — or simply make large bank deposits — using the proceeds of their schemes are often charged with money laundering under Section 1957, even if the transactions were conducted with complete transparency.