26-29 Reserved
TABLE OF CONTENTS 25.00 TAX MONEY LAUNDERING 25.01 26 U.S.C. § 6050I -- RETURNS RELATING TO CASH RECEIVED IN TRADE OR BUSINESS (FORMS 8300)
25.01[1] Statutory Language: 26 U.S.C. § 6050I
25.01[2] Treasury Regulations: 26 C.F.R.
25.01[3] Attorney Fee Reporting
25.01[4] Criminal Prosecution: Failing to File Correct Forms; Structuring to Evade Reporting
25.02 18 U.S.C. § 1956(a)(1)(A)(ii) -- LAUNDERING OF MONETARY INSTRUMENTS
25.02[1] Statutory Language: 18 U.S.C. § 1956(a)(1)(A)(ii)
25.02[4] Conduct Financial Transaction
25.02[6] Proceeds of Specified Unlawful Activity
25.02[7] Intent to Evade Tax or Commit Tax Fraud
25.00 TAX MONEY LAUNDERING
The focus of this chapter is primarily limited to tax-related money laundering involving 26 U.S.C. § 6050I -- Returns Relating to Cash Received in a Trade or Business -- and 18 U.S.C. § 1956(a)(1)(A)(ii) -- Laundering of Monetary Instruments. The Money Laundering Section of the Criminal Division has published a comprehensive two-volume reference guide, entitled Money Laundering: Federal Prosecution Manual (February 1992).
In addition, prosecutors interested in obtaining further information on money laundering in general, and authorization and consultation requirements in particular, should consult the United States Attorneys' Manual (USAM), section 9-105.000. With respect to procedures regarding money laundering prosecutions, particular attention is directed to the bluesheet to the United States Attorneys' Manual, dated August 4, 1993. Attention is also directed to Tax Division Directive No. 99, dated March 30, 1993, a copy of which is included in Section 3 of this Manual, providing that, in addition to the requirement in the August 4, 1993, bluesheet that Tax Division authorization is also required for any prosecution under 18 U.S.C. § 1956(a)(1)(A)(ii), Tax Division authorization is required before a money laundering charge may be brought where the specified unlawful activity is based on a violation arising under the internal revenue laws.
25.01 26 U.S.C. § 6050I -- RETURNS RELATING TO CASH RECEIVED IN TRADE OR BUSINESS (FORMS 8300)
25.01[1] Statutory Language: 26 U.S.C. § 6050I
Section 6050I. RETURNS RELATING TO CASH RECEIVED IN TRADE OR BUSINESS
(a) Cash Receipts of More Than $10,000.--Any person--
(1) who is engaged in a trade or business, and
(2) who, in the course of such trade or business, receives more than $10,000 in cash in 1 transaction (or 2 or more related transactions),
shall make the return described in subsection (b) with respect to such transaction (or related transactions) at such time as the Secretary [of the Treasury] may by regulations prescribe.
(b) Form and Manner of Returns.--A return is described in this subsection if such return--
(1) is in such form as the Secretary may prescribe,
(2) contains
(A) the name, address, and TIN (taxpayer identification number) of the person from whom the cash was received,
(B) the amount of cash received,
(C) the date and nature of the transaction, and
(D) such other information as the Secretary may prescribe.
(c) Exceptions.--
(1) Cash received by financial institutions.--Subsection (a) shall not apply to--
(A) cash received in a transaction reported under title 31, United States Code, if the Secretary determines that reporting under this section would duplicate the reporting to the Treasury under title 31, United States Code, or
(B) cash received by any financial institution (as defined in subparagraphs (A), (B), (C), (D), (E), (F), (G), (J), (K), (R), and (S) of section 5312(a)(2) of title 31, United States Code.
(2) Transactions occurring outside the United States.--Except to the extent provided in regulations prescribed by the Secretary, subsection (a) shall not apply to any transaction if the entire transaction occurs outside the United States.
(d) Cash Includes Foreign Currency and Certain Monetary Instruments.--For purposes of this section, the term "cash" includes--
(1) foreign currency, and
(2) to the extent provided in regulations prescribed by the Secretary, any monetary instrument (whether or not in bearer form) with a face amount of not more than $10,000.
Paragraph (2) shall not apply to any check drawn on the account of the writer in a financial institution referred to in subsection (c)(1)(B).
(e) Statements to be Furnished to Persons With Respect to Whom Information is Required.--Every person required to make a return under subsection (a) shall furnish to each person whose name is required to be set forth in such return a written statement showing--
(1) the name and address of the person required to make such return, and
(2) the aggregate amount of cash described in subsection (a) received by the person required to make such return.
The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made.
(f) Structuring Transactions to Evade Reporting Requirements Prohibited.--
(1) In general.--No person shall for the purpose of evading the return requirements of this section--
(A) cause or attempt to cause a trade or business to fail to file a return required under this section,
(B) cause or attempt to cause a trade or business to file a return required under this section that contains a material omission or misstatement of fact, or
(C) structure or assist in structuring, or attempt to structure or assist in structuring, any transaction with one or more trades or businesses.
(2) Penalties.--A person violating paragraph (1) of this subsection shall be subject to the same civil and criminal sanctions applicable to a person which fails to file or completes a false or incorrect return under this section.
25.01[2] Treasury Regulations: 26 C.F.R.
As referred to in 26 U.S.C. § 6050I, the Secretary of the Treasury has promulgated Treasury Regulations to implement the statute, as it is not self-executing. The regulations are composed of both a final and a temporary component, found at 26 C.F.R. § 6050I-1 and 26 C.F.R. § 6050I-1T, respectively.
The final regulations, filed in September of 1986, cover reporting requirements for the receipt of cash payments generally, as well as circumstances when cash is received for the account of another, by agents, or in the form of multiple payments. For amounts received prior to February 3, 1992, "cash" is defined by these regulations as "the coin and currency of the United States or of any other country" and expressly includes both United States notes and Federal Reserve notes. Treas. Reg. § 1.6050I-1(c)(1) (26 C.F.R.) (hereinafter "26 C.F.R. §"). In addition, "trade or business" (26 C.F.R. § 1.6050I-1(c)(6)), "transaction" (26 C.F.R. § 1.6050I-1(c)(7)(i)), "related transactions" (including a specific example involving a criminal attorney being paid in a criminal case) (26 C.F.R. § 1.6050I-1(c)(7)(ii)), and "recipient" (26 C.F.R. § 1.6050I-1(c)(8)) are defined in the regulations.
Exceptions to the reporting requirements are also included and cover cash received by certain financial institutions (as set out in the statute itself), as well as additional exceptions for casinos under various specified circumstances, cash receipts outside the course of a trade or business, and transactions that occur entirely outside the United States, Puerto Rico, or any U.S. possession or territory.
The regulations also prescribe the time, manner, and form of reporting. Form 8300, the reporting document completed by a payee in order to comply with section 6050I, must be filed within 15 days of the receipt of payment or within 15 days of the payment which causes the aggregate amount to exceed $10,000. (26 C.F.R. §1.6050I-1(e)(1).)
Further, payees required to file Forms 8300 with the Service must also furnish notices ("statements") to the payors named therein. The statement must be provided to the payor on or before January 31 of the calendar year following the year in which the Form 8300 was filed. (26 C.F.R. § 1.6050I-1(f).)
Payments Received After December 31, 1989:
The temporary regulations (26 C.F.R. §1.6050I-1T), enacted in July of 1990, pertain to cash payments received after December 31, 1989. They require persons obligated to make reports under the final regulations (above) to make additional reports each time subsequent cash payments are received within a one-year period for the same transaction or related transactions resulting in an aggregate amount over $10,000. Previously, an additional report was only required when a single subsequent payment exceeded $10,000. The temporary regulations also set forth the time period within which such a report must be made.
To the extent that they are not inconsistent with these temporary regulations, the final regulations remain applicable to cash payments received after 1989.
Payments Received On or After February 3, 1992:
In addition to the final and temporary regulations described above, all payments received on or after February 3, 1992, are also governed by final regulations which came into effect on that date. Under these regulations, the definition of "cash" for purposes of section 6050I is significantly broadened in particular instances to include cashier's checks, bank drafts, traveler's checks, and money orders, so long as they have face values of not more than $10,000. (26 C.F.R. § 1.6050I-1(c)(1)(ii).)
These specified monetary instruments are to be treated as cash only in retail sales of consumer durables, collectibles, in travel or entertainment activity, or in any transactions in which the recipient knows that the instrument is being used to avoid the reporting requirements of section 6050I. (26 C.F.R. §1,6050I-1(c)(1)(ii)(B).) The regulations also provide exceptions to treating the monetary instruments as cash when they are received in certain installment sales, certain down payment plans, or when documentation shows the instruments to be the proceeds of a bank loan. The new terms introduced into the reporting requirements, such as "consumer durable" (26 C.F.R. §1.6050I-1(c)(2)) and "retail sale" (26 C.F.R. §1.6050I-1(c)(5)), are defined by the regulations, as well.
25.01[3] Attorney Fee Reporting
Attorneys are not excepted from the reporting requirements of section 6050I. Neither the statutory exceptions nor the Treasury Regulations defining them provide any such exclusion. To the contrary, 26 C.F.R. 1.6050I-1(c)(3)(iii), example (2), illustrates, through the use of a hypothetical situation, a transaction in which the lawyer's obligation to file a Form 8300 would arise. In the hypothetical, an attorney represents a client in a criminal case, and ultimately, receives an aggregate fee of $12,000, which the client pays in cash. The regulations specifically state, at the end of example (2), that this "receipt of cash must be reported under this section."
Because the Treasury Regulations were promulgated pursuant to an express delegation of statutory authority, they are "legislative regulations" and are, therefore, entitled to considerable weight in the courts, and unless inconsistent with the statute, have the "force and effect of law." Maryland Casualty Co. v. United States, 251 U.S. 342, 349 (1920); Allstate Insurance Co. v. United States, 329 F.2d 346, 349 (7th Cir. 1964). See also United States v. Vogel Fertilizer Co., 455 U.S. 16, 24 (1982).
Despite their duty to file under section 6050I and the pertinent Treasury Regulations, some attorneys have either filed incomplete Forms 8300 or ignored the reporting requirement altogether. These attorneys claim that the mandated disclosures intrude upon an attorney-client relationship guaranteed by the Sixth Amendment and violate the client's Fifth Amendment rights, the attorney-client privilege, and the attorney's ethical obligations of confidentiality. The Department of Justice has concluded, however, that there is no legal or policy reason to justify an exemption for attorneys from the reporting requirements.
In response to incomplete Forms 8300 filed by law firms, the Internal Revenue Service has served summonses on numerous firms since early 1990, seeking the information necessary to complete the forms. In the first of these section 6050I summons enforcement cases, United States v. Goldberger & Dubin, P.C., 935 F.2d 501 (2d Cir. 1991), the Court of Appeals for the Second Circuit affirmed the district court's ruling to enforce summonses served on attorneys of two New York law firms who failed to comply with section 6050I.
The Second Circuit found that a client's Sixth Amendment right to counsel does not preclude the required disclosure of client identity and fee information on a Form 8300. Goldberger & Dubin, 935 F.2d at 503, 504. In the pre-indictment setting, the Sixth Amendment is not even implicated. Sixth Amendment rights do not attach until "the time that adversary judicial proceedings have been initiated." In re Grand Jury Subpoena Served Upon Doe, 781 F.2d 238, 244 (2d Cir. 1985) (en banc), cert. denied, 475 U.S. 1108 (1986) (quoting Kirby v. Illinois, 406 U.S. 682, 688 (1972)). Nor should the possibility that an attorney may ultimately be disqualified from representing a client as a result of making the required disclosures create a Sixth Amendment bar. The likelihood of disqualification, at the summons enforcement stage, is generally speculative. In similar cases involving grand jury subpoenas of attorneys who claim their testimony may later disqualify them from providing representation, courts have required a showing of "actual conflict" between attorney and client rather than "mere speculative assertions" to support a motion to quash. E.g., In re Grand Jury Subpoena for Attorney Representing Reyes-Requena, 913 F.2d 1118, 1130 (5th Cir. 1990); In re Grand Jury Subpoenas, 906 F.2d 1485, 1494 (10th Cir. 1990). See also In re Grand Jury Subpoena for Attorney Representing Reyes-Requena, 926 F.2d 1423 (5th Cir. 1991) (in a subsequent proceeding, existence of an actual conflict was established).
In the post-indictment stage, a client is protected by the Sixth Amendment from unnecessary or arbitrary disqualification of his or her counsel. Slotnick, 781 F.2d at 250. The Sixth Amendment, however, does not guarantee that an individual will be represented by counsel of his or her choice. Morris v. Slappy, 461 U.S. 1, 13-14 (1983). The risk of disqualification arising from an attorney's own testimony is determined at an in limine hearing by the trial judge who must weigh the probative value of the information which the government seeks against the loss of counsel of the client's choice. Thus, the Sixth Amendment guarantee against arbitrary or unnecessary disqualification is safeguarded. Slotnick, 781 F.2d at 250. See also Tornay v. United States, 840 F.2d 1424, 1430 (9th Cir. 1988). Importantly, section 6050I does not preclude a would-be client from hiring the attorney he or she prefers, since one may avoid the reporting of fees by simply paying the attorney through some means other than cash. Goldberger & Dubin, 935 F.2d at 504.
In addition, the strong governmental interest served by section 6050I in permitting taxation of otherwise hidden income and in tracing funds related to criminal activities may override any Sixth Amendment interest in keeping client identity and fee information confidential. Cf. Caplin & Drysdale, Chartered v. United States, 491 U.S. 617 (1989) (strong government interest in recovering forfeitable assets overrides defendant's Sixth Amendment interest in using the assets to pay for his legal defense).
A client's Fifth Amendment privilege against self-incrimination does not shield the client from the disclosure required by section 6050I either. The mere prospect that the disclosure of a client's identity and fee information could incriminate the client is insufficient to defeat the strong policies embodied by the statute. Cf. United States v. Dichne, 612 F.2d 632, 638-41 (2d Cir. 1979), cert. denied, 445 U.S. 928 (1980) (mere possibility of self-incrimination does not outweigh societal interest in the disclosure requirements of the Bank Secrecy Act). Further, section 6050I targets cash transactions regardless of their purpose and does not require disclosure of information that is necessarily criminal. Goldberger & Dubin, 935 F.2d at 503. In any event, there is no compulsion being exercised against the client, and hence, no basis for a Fifth Amendment claim on behalf of the client. Couch v. United States, 409 U.S. 322, 329 (1973).
Moreover, section 6050I does not conflict with the traditional attorney-client privilege. The identity of a client and information concerning attorneys' fees are generally not protected by the privilege, even if disclosure may incriminate the client. Goldberger & Dubin, 935 F.2d at 504-05; In re Shargel, 742 F.2d 61 (2d Cir. 1984); In re Grand Jury Matter, 926 F.2d 348 (4th Cir. 1991); In re Grand Jury Investigation, 723 F.2d 447 (6th Cir. 1983), cert. denied, 467 U.S. 1246 (1984); In re Osterhoudt, 722 F.2d 591 (9th Cir. 1983); In re Grand Jury Subpoenas, 906 F.2d 1485 (10th Cir. 1990). See also In re Grand Jury Subpoena for Attorney Representing Reyes-Requena, 913 F.2d 1118 (5th Cir. 1990). Some courts, however, have recognized the possibility of "special" or "exceptional" circumstances, such as when disclosure would also divulge confidential communications, which may, in rare cases, render such information privileged. E.g., Goldberger & Dubin, 935 F.2d at 505; In re Shargel, 742 F.2d at 62; In re Grand Jury Subpoena for Attorney Representing Reyes-Requena, 913 F.2d at 1123-27; In re Grand Jury Investigation, 723 F.2d 447 (6th Cir. 1983); Tornay, 840 F.2d at 1427-28; In re Grand Jury Subpoenas, 906 F.2d 1485.
In Goldberger & Dubin, 935 F.2d at 505, the court also stated that, even when the technical requirements of the attorney-client privilege have been satisfied, it should still yield in the face of section 6050I, a federal statute, which implicitly precludes application of the privilege.
Professional responsibility rules and bar association ethical opinions which require that an attorney maintain client confidences or which purport to compel an attorney to withhold information sought under section 6050I do not override the clear mandate of a statute enacted by Congress. In Caplin & Drysdale, 491 U.S. 617, the Court stated that: "[t]he fact that a federal statutory scheme . . . is at odds with model disciplinary rules or state disciplinary codes hardly renders the federal statute invalid." 491 U.S. at 632, n.10. Additionally, most professional responsibility codes allow or require an attorney to disclose client confidences when such disclosure is required by law. See, e.g., Model Code of Professional Responsibility DR 4-101(C)(2), DR 7-102(A)(3) (1981).
An IRS summons requesting information necessary to complete a Form 8300 is neither a "third-party recordkeeper" summons nor a "John Doe" summons within the meaning of 26 U.S.C. § 7609. Doe v. United States, 777 F. Supp. 590 (E.D. Tenn. 1991); In re John Wesley Hall, Jr., P.A., 90-2 U.S.T.C. (CCH) ¶ 50,442 (E.D. Ark. 1990).
In United States v. Leventhal, 961 F.2d 936 (11th Cir. 1992), attorney Leventhal reported on a Form 8300 that he had received fees for legal services, but declined to reveal required identification information. The attorney claimed that the information he withheld was privileged. The IRS issued a summons, and the district court ordered Leventhal to provide some, but not all, of the requested information. The government appealed this order. Following Goldberger & Dubin, P.C., the Eleventh Circuit found that disclosure of identification information would not violate the attorney-client privilege. Leventhal, 961 F.2d at 940-41. See also United States v. Ritchie, 15 F.3d 592, 601-02 (6th Cir. 1994) (rejecting claims of Sixth Amendment, Fifth Amendment, and Due Process raised in defense to an IRS summons by an attorney who had filed incomplete Forms 8300). (1)
25.01[4] Criminal Prosecution: Failing to File Correct Forms;Structuring to Evade Reporting
With regard to section 6050I, criminal charges may be brought against persons who willfully violate either the duty to file correct Forms 8300 or the statute's prohibitions against structuring transactions to avoid or frustrate reporting requirements. However, a failure to furnish a correct statement to a payor named in a Form 8300, as required by section 6050I(e), brings civil penalties only.
As originally enacted, section 6050I did not contain any prohibition against structuring. Effective November 18, 1988, section 6050I(f), as enacted in the Anti-Drug Abuse Act of 1988, expressly prohibits the structuring of transactions for the purpose of evading the statute's reporting requirements. It also makes explicit prohibitions against causing or attempting to cause a trade or business to fail to file a Form 8300, as required, and against causing or attempting to cause a trade or business to file an incorrect Form 8300. Originally captioned "Actions by Payors," the subsection was given its present caption ("Structuring Transactions to Evade Reporting Requirements Prohibited") on November 5, 1990, to ensure that both payors and payees are subject to the anti-structuring language. (2)
25.01[4][a] Duty To File Correct Forms 8300 -- WILLFULNESS
Since Forms 8300 are required under the Internal Revenue Code, failures to file and filings of incorrect forms are criminal tax offenses within Title 26. Specifically, typical prosecutions will be for failure to file Forms 8300 or for filing or aiding the filing of false Forms 8300, punishable under 26 U.S.C. §§ 7203, 7206(1) and 7206(2), respectively. Similarly, prosecutions for structuring will also be brought pursuant to these statutes as Section 6050I(f)(2) states that "[a] person violating this subsection shall be subject to the same civil and criminal sanctions applicable to a person which fails to file or completes a false or incorrect return under this section." Prosecutions for violations of section 6050I will involve the same elements as traditional tax violations using these statutes. Therefore, reference should be made to the appropriate discussions in Sections 10.00, 12.00, and 13.00 of this Manual.
A section 7201 tax evasion prosecution is not available for violations of section 6050I, since there is no tax involved in Form 8300 reporting. However, the filing of a false Form 8300 or structuring activities either with respect to nonfiling or false filing of Forms 8300 could constitute affirmative acts for purposes of a traditional tax evasion prosecution involving, for example, individual income taxes on Form 1040.
Successful prosecutions under sections 7203, 7206(1), or 7206(2) require a showing of "willfulness." Willfulness in the criminal tax statutes is defined as "a voluntary, intentional violation of a known legal duty." United States v. Bishop, 412 U.S. 346, 360 (1973). Willfulness is absent when the violation occurs because of a good faith misunderstanding of the law or a good faith belief that one is not violating the law, even if the belief or misunderstanding is not objectively reasonable. Cheek v. United States, 498 U.S. 192 (1991).
Because violations of section 6050I are prosecuted under the criminal tax statutes and because willfulness under those statutes requires a showing that the defendant knew of the legal duty he is charged with violating, there has never been much doubt that to establish a willful failure to file a Form 8300 or the willful filing of a false Form 8300, the government was required to prove that the defendant knew of the filing requirement. Until recently, however, there has been some doubt whether the government was required to show in a prosecution for structuring to avoid the Form 8300 filing requirements (26 U.S.C. § 6050I(f)), that the defendant knew structuring was prohibited. The language of section 6050I(f) is virtually identical to the language of the anti-structuring provision in Title 31 (31 U.S.C. § 5324) and a number of courts had held that in a Title 31 structuring case the prosecution need only prove that the defendant knew of the reporting requirements and acted to avoid the requirements. Knowledge that structuring was illegal was held to be unnecessary. United States v. Caming, 968 F.2d 232 (2d Cir.), cert. denied 113 S. Ct. 416 (1992); United States v. Rogers, 962 F.2d 342 (4th Cir. 1992); United States v. Beaumont, 972 F.2d 91 (5th Cir. 1992); United States v. Gibbons, 968 F.2d 639 (8th Cir. 1992); United States v. Pitner, 979 F.2d 156 (9th Cir. 1992). See also United States v. Hoyland, 914 F.2d 1125 (9th Cir. 1990).
In Ratzlaf v. United States, 114 S. Ct. 655 (1994), however, the Supreme Court rejected these cases and held that to establish a willful violation of the anti-structuring provision in Title 31, the government was required to prove that the defendant acted with knowledge that his conduct was unlawful. In other words, the government must prove that the defendant knew that structuring was illegal.
Given the similarity in language between the two anti-structuring provisions and the general requirement in tax cases that the government prove that the defendant was aware of the legal duty he is charged with having violated, it will be difficult to argue, following Ratzlaff, that the government is not required to prove that a defendant charged with violating section 6050I(f) knew that structuring was prohibited. The sort of proof which can be used to establish the element of knowledge is the same sort of proof which has traditionally been used in tax cases. Thus, knowledge may be shown by such evidence as a prior history of filing Forms 8300, testimony of a cooperating insider, undercover findings, or proof of affirmative efforts to structure receipts around the filing requirement.
In addition to traditional Title 26 prosecution options for violations of section 6050I, in limited situations, prosecutors may also want to consider alternative possibilities under Title 18, including aiding and abetting (18 U.S.C. § 2); conspiracy, both to commit substantive offenses and to defraud the United States, including Klein conspiracy (18 U.S.C. § 371); false statements (18 U.S.C. § 1001); or, if the factual circumstances are present, money laundering (18 U.S.C. §§ 1956, 1957) and/or RICO (18 U.S.C. §§ 1961-68) charges.
As indicated at the outset of this chapter, prosecutors must consult and follow procedures and policies set forth in the United States Attorneys' Manual -- in particular, section 9-105.110 and bluesheet, dated August 4, 1993. In addition, Tax Division Directive 99, dated March 30, 1993, (set out in Section 3, infra), should be reviewed and followed.
With respect to prosecutions under 26 U.S.C. § 7203 for willfully failing to file Forms 8300, the maximum permissible prison term for such offenses was changed from one year to five years by the Anti-Drug Abuse Act of 1988, effective November 18 of that year. The maximum fine is $250,000 ($500,000 for corporations). A willful failure to file Form 8300 is a felony offense, no longer a misdemeanor, pursuant to the Crime Control Act of 1990.
Violations of 26 U.S.C. § 7206 involving Forms 8300 are unaffected by the Anti-Drug Abuse Act and are still felonies punishable by up to three years' imprisonment and/or a fine of as much as $250,000 ($500,000 for corporations). Thus, in terms of Form 8300 offenses, a failure to file may be more severely punished statutorily than the filing of a false form. This is a noteworthy development because, in other areas, such as income tax reporting, false filings have traditionally been treated with greater severity than have failures to file. (3)
A conviction under 26 U.S.C. § 7206(1) or (2) for a filing completed after November 1, 1987, but before November 1, 1993, is sentenced under section 2T1.3 or section 2T1.4 of the Federal Sentencing Guidelines, respectively. A conviction under 26 U.S.C. § 7203 for failing to file a Form 8300 after November 1, 1987, however, is not sentenced under Part T ("Offenses Involving Taxation"). Rather, section 2T1.2(c)(1) expressly provides that the defendant is to be sentenced under section 2S1.3 ("Failure to Report Monetary Transactions") of the guidelines.
For offenses committed after November 1, 1993, the recent amendments to the Sentencing Guidelines provide that for violations based upon 26 U.S.C. § 6050I, prosecuted under either 26 U.S.C. §§ 7203 or 7206, sentence is to be imposed pursuant to new section 2S1.3. This new section has been entitled "Structuring Transactions to Evade Reporting Requirements; Failure to Report Cash or Monetary Transactions; Failure to File Currency and Monetary Instruments Report; Knowingly Filing False Reports."
Prosecutors should also be aware that both sections 7203 and 7206 provide for mandatory costs of prosecution.
Appropriate venue considerations will depend upon the statute (section 7203 or section 7206) pursuant to which the prosecution is brought. Reference should be made to the discussion of venue in the sections of this manual (Sections 10.00, 12.00, and 13.00, supra) addressing the pertinent offenses. Also, see Section 6.00, supra, for a general discussion of venue.
25.01[7] Statute of Limitations
For prosecutions under 26 U.S.C. § 7203 for willful failure to file a Form 8300, the statute of limitations is three years and begins to run from the date the form was due to be filed. With respect to prosecutions under 26 U.S.C. § 7206 for filing a false Form 8300 or aiding such filing, the statute of limitations is six years and runs from the date the false form was filed.
Reference should be made to the statute of limitations for tax offenses, 26 U.S.C. § 6531. For a general discussion of the statute of limitations, see Section 7.00, supra.
25.01[8] Policy and Procedure
Tax Division Directive No. 87-61, effective February 27, 1987, delegates the authority of
the
Assistant Attorney General of the Tax Division to authorize prosecutions of section 6050I
offenses
under 26 U.S.C. §§ 7203 and 7206. Under the limited delegation, the
Service may refer such
prosecution recommendations to United States Attorneys directly, so long as a copy of the
referral
is simultaneously sent to the Tax Division. This direct referral procedure obviates the usual
requirement of Tax Division review in many cases. Instead, under the Directive, such
prosecutions
may be authorized by the Assistant Attorney General of the Criminal Division, his or her
Deputies,
or his or her Section Chiefs; a United States Attorney; a permanently appointed First Assistant
United
States Attorney; or a Chief of criminal functions within a United States Attorney's Office.
There are, however, exceptions to the direct referral process. The Tax Division continues
to
review all contemplated section 6050I prosecutions which are coupled with other tax offenses
(e.g.,
a Klein conspiracy charge, which cannot be indicted without
Division approval). Moreover, the
delegation of authority does not include section 6050I prosecutions to be brought against:
accountants; physicians; attorneys (acting in their professional representative capacity) or their
employees; casinos or their employees; financial institutions or their employees; local, state,
federal
or foreign public officials or political candidates; members of the judiciary; religious leaders;
representatives of the electronic or printed news media; labor union officials; and, publicly-held
corporations and/or their officers.
The Directive notes that, notwithstanding the delegation, the designated official has the
discretion to seek Tax Division authorization of any proposed prosecution within the scope of the
delegation or to request the advice of the Tax Division with respect to any such proposed
prosecution.
The delegation of authority does not extend to any case in which a violation of section
6050I
is the basis, in whole or in part, for a charge under any statute other than 26 U.S.C.
§ 7203 or § 7206.
25.01[8][a] Tax Return
Disclosure
Forms 8300 are subject to the provisions of 26 U.S.C. § 6103, which
sets forth a general rule
of confidentiality for all returns and return information. Section 6103(h) allows disclosure
of returns
or return information to certain federal officers and employees (including employees of the
Departments of Treasury and Justice) for purposes of tax administration. Section 6103(i)(1)
provides
for disclosure of returns and return information pursuant to ex parte order for use in
criminal
investigations not relating to tax administration. Section 6103(i)(8) specifically provides for
disclosure of Forms 8300, following written request to the Secretary of the Treasury, to officers
and
employees of any federal agency whose official duties require such disclosure for the
administration
of federal criminal statutes not related to tax administration. Prosecutors involved in Form 8300
prosecutions or other criminal tax cases should keep the requirements of section 6103 in mind
and
adhere to its provisions.
25.02 18 U.S.C. § 1956(a)(1)(A)(ii) --
LAUNDERING OF MONETARY INSTRUMENTS 25.02[1] Statutory Language: 18 U.S.C.
§ 1956(a)(1)(A)(ii) (4)
This statute provides, in pertinent part:
§ 1956. Laundering of monetary instruments
(a)(1) Whoever, knowing that the property involved in a financial transaction
represents the proceeds of some form of unlawful activity, conducts or attempts to
conduct such a financial transaction which in fact involves the proceeds of specified
unlawful activity--
. . . .
(A)(ii) with intent to engage in conduct constituting a violation of
section 7201 or 7206 of the Internal Revenue Code of 1986;
. . . .
shall be sentenced to a fine of not more than $500,000 or twice the
value of the property involved in the transaction, whichever is greater,
or imprisonment for not more than twenty years, or both. * * * *
Sections 1956 and 1957 of Title 18 are the federal money laundering statutes created by
the
Anti-Drug Abuse Act of 1986. Their provisions describe four criminal offenses which may arise
from participation in certain transactions involving the proceeds of specified unlawful activities.
Specifically, the money laundering offenses are divided into the following categories: financial
transactions, transportation, financial institutions, and monetary transactions. Section
1956(a)(1)(A)(ii), the subsection which is of particular relevance to tax crimes and which is
addressed
in this Section of the Manual, is a financial transaction offense. It was not included, however, in
the
statute until the passage of the Anti-Drug Abuse Act of 1988 and did not become effective until
November 18, 1988.
To establish a violation of 18 U.S.C. § 1956(a)(1)(A)(ii), the following
elements must be
proved beyond a reasonable doubt:
1. defendant conducted or attempted to conduct a financial
transaction;
2. defendant knew that the property involved in the transaction
represented the proceeds of some form of unlawful activity;
3. the property did, in fact, represent the proceeds of "specified
unlawful activity;" and,
4. defendant took part in the transaction with the intent to
engage in conduct constituting tax evasion (under 26 U.S.C.
§ 7201) or tax fraud (under 26 U.S.C. § 7206).
The government must make an independent showing of participation, knowledge, and intent
for each
defendant tried as a party to the money laundering transaction. United States v.
Cota, 953 F.2d 753
(2d Cir. 1992).
25.02[4] Conduct Financial
Transaction
Section 1956 defines "financial transaction" very broadly. United States v.
Blackman,
904 F.2d 1250, 1257 (8th Cir. 1990). The term "transaction" is defined in section
1956(c)(3) to
include a purchase, sale, loan, pledge, gift, transfer, delivery, or other disposition of property.
When
involving a financial institution, "transaction" covers nearly all common banking transactions
and
includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension
of
credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument,
or
any other payment, transfer, or delivery by, through, or to a financial institution. The placing of
money in a safe deposit box was previously not a transaction within the meaning of the statute.
United States v. Bell, 936 F.2d 337 (7th Cir. 1991)
(court opined that the list of banking transactions
provided in the statute reveals Congress' intent to limit the meaning of "transaction" to activities
where the bank actually retains control over the funds). However, effective October 28, 1992,
this
was legislatively overruled by section 1527 of the Anti-Money Laundering Act which amended
section 1956(c)(3) to include the use of a safe deposit box in the definition of financial
transaction.
If the case involves a safe deposit box prior to October 28, 1992, in a circuit other than the
Seventh,
it is still worth pursuing, since the legislative history of the amendment suggests that it is only
codifying what was already the law.
In order to qualify as a "financial transaction" within the purview of the statute, the
transaction
must involve either (1) the movement of funds by wire or other means or (2) one or
more monetary
instruments, which in any way or degree affect interstate or foreign commerce. Alternatively, the
transaction must involve the use of a financial institution which is engaged in, or whose activities
affect, interstate or foreign commerce. 18 U.S.C. § 1956(c)(4). The term
"financial institution"
includes any such entity meeting the broad definition set forth in 31 U.S.C.
§ 5312(a)(2). 18 U.S.C.
§ 1956(c)(6).
Unlike 26 U.S.C. § 6050I, which only applies to transactions involving
more than $10,000,
there is no threshold amount of money which must be involved in the financial transaction to
constitute a violation of section 1956.
For the purposes of this statute, the term "monetary instruments" means the coin or
currency
of the United States or any other country, traveler's checks, personal checks, bank checks, money
orders, and investment securities or negotiable instruments which are in bearer form or such form
that
title thereto passes upon delivery. 18 U.S.C. § 1956(c)(5).
The term "conducts" includes initiating, concluding, or participating in initiating or
concluding
a transaction. 18 U.S.C. § 1956(c)(2). Moreover, the offense explicitly
includes attempts at
"conducting" such transactions, as well as completed offenses.
The requirement that the transaction have some effect on commerce is for jurisdictional
purposes and is derived from the Hobbs Act (18 U.S.C. § 1951). It is
intended to embrace the full
exercise of Congress' powers under the Commerce Clause of the United States Constitution. A
minimal or potential effect on commerce should be sufficient to satisfy the standard.
The defendant must have known that the property involved in the transaction or attempted
transaction represented, in whole or in part, the proceeds of some form of activity which
constitutes
a felony under state, federal, or foreign law. It is not necessary to show that the defendant knew
the
proceeds were derived from a particular federal, state, or foreign offense, just that the property
was
the proceeds of some felonious conduct. Nor is it necessary, if the defendant did, in fact, believe
that
the proceeds were the result of a particular felonious activity, that the activity be a "specified
unlawful
activity" (discussed infra) within the meaning of the statute. 18 U.S.C.
§ 1956(c)(1).
For offenses committed before November 29, 1990, the knowledge requirement may only
be
satisfied if the defendant knew that the proceeds were derived from an activity constituting a
felony
under state or federal law. The statute was not amended to include knowledge of activity
violative
of foreign law until that year. See Crime Control Act of 1990, Pub. L. No. 101-647,
section 106, 104
Stat. 4789, 4791 (1990).
Also, prior to November 29, 1990, the term "state" was not expressly defined in the
statute.
On that date, however, section 1956(c)(8) became effective and defined the term to include "a
State
of the United States, the District of Columbia, and any commonwealth, territory, or possession of
the
United States."
The statute's legislative history makes clear that the knowledge requirement of the statute
includes "willful blindness." The scant case law concerning the application of the willful
blindness
standard to section 1956 prosecutions, however, leaves judicial acceptance of the doctrine in this
context uncertain. In one of the few cases dealing with the issue, a federal district judge
interpreted
the willful blindness doctrine narrowly and overturned the conviction of a real estate agent
charged
with the violation of two federal money laundering laws, including 18 U.S.C.
§ 1956(a)(1)(B)(i).
United States v. Campbell, 777 F. Supp. 1259
(W.D.N.C. 1991).
In Campbell, the defendant sold a home to a drug dealer
and filed a false statement with the
Department of Housing and Urban Development, understating the house's selling price by
$60,000
(the under-the-table amount paid in cash by the drug dealer). The government relied on a theory
of
willful blindness to satisfy section 1956's knowledge requirement. The prosecution presented
evidence of the defendant's awareness of the drug dealer's flamboyant lifestyle and expensive
tastes
to prove her deliberate ignorance, but did not offer evidence that the realtor actually knew her
client's
illicit occupation.
In his instructions to the jury on willful blindness, the trial judge explained that the
government had to "prove beyond a reasonable doubt that . . . [the defendant] purposely and
deliberately contrived to avoid learning all of the facts;" mere proof that the defendant was
negligent,
reckless, or foolish in her ignorance would not be sufficient.
Despite the jury's subsequent finding of guilt, the trial judge entered a judgment of
acquittal,
holding that the government's evidence was insufficient to support an adequate finding of
knowledge.
In the court's opinion, the government was required to show more than the drug dealer's unusual
outward appearance or image to establish the defendant's willful blindness. The standard was not
whether the defendant "could've, should've, or would've known," but whether the defendant
knew
the transaction involved illegal proceeds. Campbell,
777 F. Supp. at 1226.
25.02[6] Proceeds of Specified Unlawful
Activity
The actual source of the funds or property involved in the transaction or attempted
transaction
must have been, in fact, one or more of the statute's "specified unlawful activities," enumerated
in
section 1956(c)(7). The list is comprised of both state and federal offenses which either generate
substantial economic proceeds or require substantial funds to commit. The list includes all
federal
offenses which are currently RICO predicates (other than Title 31 violations), all federal and
foreign
felony drug offenses, and an assortment of bribery, white collar, environmental, export control,
and
espionage crimes. (The list of specified unlawful activities has expanded each year. It is,
therefore,
recommended that the government attorney check the operative statute for the specific years
involved).
Tax crimes, however, in and of themselves, are not among the crimes listed in the statute
as
"specified unlawful activity." S.Rep. No. 433, 99th Cong. 2d Session, 11-12 (1986). Nor can
the
omission of tax crimes as "specified unlawful activity" be overcome by charging an internal
revenue
violation under some other provision of the United States Code which is included in the list of
"specified unlawful activity." United States v. Smith, No.
92-1612
(5th Cir. Aug. 11, 1993)
(unpublished opinion). See also Tax Division Directive No. 99 (March 30, 1993).
The source of the funds may be established through either direct or circumstantial
evidence.
United States v. Mickens, 926 F.2d 1323 (2d Cir.
1991), cert. denied, 112 S. Ct. 940 (1992). See
United States v. Blackman, 904 F.2d 1250, 1257
(8th Cir. 1990). The prosecution does not have
to trace the proceeds back to a particular criminal event (e.g., to a particular drug
sale) to show their
illicit origin; however, the government cannot rely solely on proof that the defendant has no
legitimate
source of income. Rather, the evidence must show, beyond a reasonable doubt, that the funds
were
derived, in whole or in part, from a specified unlawful activity.
Blackman, 904 F.2d at 1257.
The funds involved in the transaction need not be composed entirely of proceeds from one
or more specified unlawful activities. The intermingling of either legitimate income or the
proceeds
of unlawful enterprises not specified in the statute with the proceeds of a statutorily specified
crime
does not prevent a financial transaction involving these funds from satisfying this element of the
money laundering offense. United States v. Jackson,
935 F.2d 832, 839-40 (7th Cir. 1991).
25.02[7] Intent to Evade Tax or Commit Tax
Fraud
To establish a violation under 18 U.S.C. § 1956(a)(1)(A)(ii), the
prosecution must prove that
the defendant took part in the financial transaction with the intent to engage in conduct which
would
constitute a violation of 26 U.S.C. § 7201 or § 7206. The tax
involved need not be that of the
defendant. The legislative history shows that the prohibitions also apply to a person who intends
to
aid another in violating the tax laws. 134 Cong. Rec. S17367 (daily ed. Nov. 10, 1988). Thus,
the
defendant may have been a party on either side of the transaction and need not have been the one
seeking to launder criminally-derived money. In these circumstances, the defendant need not
have
shared the intent to commit either tax offense; he or she need only to have been aware that such
was
the purpose of the transaction.
Conduct constituting a violation of section 7201 involves attempted tax evasion (willful
attempt in any manner to evade or defeat any tax or payment thereof). See,
e.g., Spies v. United
States, 317 U.S. 492, 498-99 (1943). Section 1956 does not contain any
limitation on the type of
tax covered or the type of document submitted. Thus, one could act with the intent to evade
income
tax, excise tax, estate tax, gift tax, or any other kind of tax. For a more complete discussion of
section 7201 offenses, refer to Section 8.00, supra.
Conduct that will constitute a violation of section 7206 is manifold. The section may be
violated through various activities, including the following: (1) willfully making or
subscribing a false
return or document under penalties of perjury; (2) willfully aiding or assisting in the
preparation or
presentation of a false return, affidavit, claim, or document; (3) falsely or fraudulently
executing,
signing, procuring, or conniving the false execution of any bond, permit, entry, or other
document
required under the Internal Revenue Code or Regulations; (4) removal or concealment of
any goods
or commodities for or in respect whereof any tax is or shall be imposed or upon which levy is
authorized by 26 U.S.C. § 6331, with intent to evade or defeat the assessment
or collection of any
tax imposed under Title 26; or (5) concealing property or falsifying information in
connection with
any offer in compromise. For additional discussion of conduct violative of section 7206,
see Sections
12.00, 13.00, 14.00, and 15.00, supra.
Although the language of section 1956 requires that the defendant simply intend to engage
in conduct which constitutes a violation of sections 7201 and/or section 7206, conduct is not
truly
violative of either section unless the defendant is aware of the duty the tax laws impose and
voluntarily and intentionally violates that duty. Cheek v. United
States, 498 U.S. 192 (1991).
Therefore, it must be proved that the defendant knew the transaction in question was for the
purpose
of circumventing tax obligations.
Proof of a completed violation under section 7201 or section 7206, related to a financial
transaction, could be relied upon to prove that the defendant acted with the required intent;
however,
the language of section 1956(a)(1)(A)(ii) does not seem to require proof of a completed offense
under either section for a successful prosecution. Instead, it is enough to show that the
defendant's
objective was to engage in conduct which constituted a violation of either section. Thus, an
individual could be prosecuted under section 1956(a)(1)(A)(ii) for engaging in a prohibited
financial
transaction with the intent to violate section 7201, even when the tax year had not yet ended and
the
tax return was not yet due.
Clearly, proof that the defendant acted with the necessary intent will be easiest where the
defendant has stated that the purpose of the financial transaction was to avoid paying taxes or to
hide
income from the Internal Revenue Service. In the absence of an express statement, however,
care
must be taken in selecting the acts relied upon to prove that the defendant acted with the requisite
intent. Concealment may be undertaken for any number of reasons unrelated to noncompliance
with
the tax laws, e.g., to hide an illegal business from the government, to perpetuate a
fraud on business
creditors or third persons, or to conceal assets in a divorce proceeding.
Thus, proof that the defendant's actions concealed sources of income or the ownership of
assets might not be enough by itself to show an intent to act in violation of either section 7201 or
section 7206. See Ingram v. United States,
360 U.S. 672 (1959) (holding that defendants'
participation in conducting, and attempting to conceal lottery operations was insufficient to
convict
them of conspiring with others to evade and defeat the payment of the federal taxes imposed on
lottery operations, where they were merely employees who were not liable for the payment of
such
taxes and were not shown to have knowledge that the taxes had not been paid);
United States v.
Tarnopol, 561 F.2d 466 (3rd Cir. 1977) (holding that proof that
numerous sales were omitted from
the books of two corporations was insufficient by itself to sustain conviction for conspiring to
impede
the IRS in regard to the taxes of the two corporations or the controlling stockholder of the two
corporations); United States v. Krasovich, 819 F.2d 253
(9th Cir. 1987) (holding that proof of
defendant's purchase of a truck with funds provided by another and titling of the truck in his
name
were insufficient to show that he conspired to impede the IRS with regard to the other's taxes);
United States v. Pritchett, 908 F.2d 816, 821
(11th Cir. 1990) (when efforts at concealment are
reasonably explainable in terms other than a motivation to evade taxes, the government must
offer
independent proof that those who participated in the concealment intended to evade taxes).
In short, there must be some proof that the defendant was aware that the transaction
related
in some way to an intended violation of section 7201 or section 7206. In some cases, proof may
have
to be found outside the financial transaction itself. In other cases, the form of money laundering
transaction alone may provide proof that the transaction was undertaken for the purpose of tax
evasion or fraud, e.g., where taxable funds are laundered and returned through a
series of transactions
to the taxpayer in a nontaxable form, such as a purported loan or gift. See
Pritchett, 908 F.2d at
821-22.
A conviction under this subsection may bring a maximum prison sentence of
20 years and/or
a fine of up to $500,000 or twice the amount involved in the transaction, whichever is greater.
Offenses committed after November 1, 1987, are sentenced under section 2S1.1 of the
Federal
Sentencing Guidelines. In addition to a base offense level of 23, section 2S1.1 provides
an
increase
of three in the offense level if the defendant knew the proceeds involved in the transaction
derived
from narcotics trafficking. It also provides a one to thirteen level increase depending on whether
and
by how much the amount of money involved in the transaction exceeded $100,000.
Venue is proper in the district in which the offense was committed or in any district in
which
an act in furtherance of the crime was committed. 18 U.S.C. § 3237(a); Fed.
R. Crim. P. 18.
For a general discussion of venue, see Section 6.00, supra.
25.02[10] Statute of Limitations
Under 18 U.S.C. § 3282, the statute of limitations for violations of
section 1956(a)(1)(A)(ii)
is five years.
For a general discussion of the statute of limitations, see Section 7.00,
supra.
25.02[11] Policy and Procedure
On August 4, 1993, the Criminal Division of the Department of Justice issued a bluesheet
amending the United States Attorneys' Manual with regard to
review and prosecution of section
1956(a)(1)(A)(ii) cases which now has been incorporated in section 9-105.100. The bluesheet
explains that the subsection exists to facilitate prosecution of money launderers, not to displace
the
appropriate use of traditional Title 18 and Title 26 charges in criminal tax cases.
Prosecutors are to
continue to bring charges under these Titles when the evidence so warrants. See
Supplement to
United States Attorneys' Manual section 9-105.100, dated August 4, 1993.
Tax Division authorization is required before indictments under this subsection may be
sought,
if the indictment will also include charges for which Tax Division authorization is ordinarily
required
or if intent to engage in conduct constituting a violation of 26 U.S.C.
§§ 7201 or 7206 is the sole or
principal purpose of the financial transaction which constitutes the subject of the money
laundering
count. See USAM, section 9-105.100; Tax Division Directive No. 99, dated March
30, 1993.
Pursuant to normal procedure, IRS Regional Counsel review precedes such authorization by the
Tax
Division, except in Organized Crime Drug Enforcement Task Force cases.
In limiting the necessity of Tax Division authorization to the two circumstances set forth
above, it is assumed that, in situations where such authorization is not required, the following
facts
exist: (1) the principal purpose of the financial transaction was to accomplish some other
(non-tax
related) covered purpose, such as carrying on some specified unlawful activity; (2) the
circumstances
do not warrant the filing of substantive tax or tax fraud conspiracy charges; and, (3) the
existence of
a secondary tax evasion or false return motivation for the transaction is one that is readily
apparent
from the nature of the money laundering transaction itself.
Finally, prosecutors should bear in mind the Memorandum of Understanding (revised
August,
1990) between the Departments of Justice and the Treasury and the Postal Service regarding
authority to investigate money laundering violations. This Memorandum gives the Internal
Revenue
Service investigative jurisdiction over all violations of sections 1956 and 1957 where the
underlying
conduct is subject to investigation under Title 26 or the Bank Secrecy Act.
1. The Sixth Circuit also noted that the attorney had abandoned the
claim that disclosure of the
summoned information, including the name of client, would violate the attorney-client privilege.
Nevertheless, the court noted that virtually every court to consider the issue had concluded that
client
identity and payment of fees is not privileged information. 15 F.3d at 602.
2. Although the anti-structuring subsection was not included in the
statute until 1988, prosecutions
for such activity may have been permissible before its enactment. Referring to the amendment
that
added section 6050I(f), Congress declared in section 7601(a)(4) of Pub.L. 100-690 that "[n]o
inference shall be drawn from the amendment . . . on the application of the
Internal Revenue Code of 1986 without regard to such amendment." Thus, the addition of
the
subsection may simply have explicated prohibitions already implicit in the 1984 statute.
3. An anomaly, however, should be noted. Under 26 U.S.C.
§ 6531(4), the statute of limitations
for failure to file a Form 8300 is only three years. The statute of limitations for filing a false
Form
8300, on the other hand, is six years under 26 U.S.C. § 6531(5).
4. As earlier noted, the Money Laundering Section of the Criminal
Division has published a
comprehensive two-volume reference guide, entitled Money Laundering: Federal
Prosecution
Manual (February 1992).
Footnotes"
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