November 2017
A Message from Ted Gavin
We were planning our normal periodic newsletter when the news of the Paradise Papers broke and the indictments were handed down against foreign actors for having conspired to evade taxes and repatriation of funds. So what better time to take a deeper dive into the interesting world of money laundering? 

We hope you enjoy this three-part series by Anne Eberhardt, CFE, CAMS, leader of the firm's forensic accounting practice. It will be informative, entertaining, and offer you a glimpse into the high-flying world of oligarchs, kleptocrats, and even the common, everyday almost-smarter-than-the-averag e-bear crook.

The History and Enforcement of Anti-money Laundering Laws in the U.S.
by Anne Eberhardt, CFE, CAMS, Senior Director at Gavin/Solmonese
Part 1

The establishment of laws against money laundering is a relatively recent development in U.S. history and began as a response to various periods of crime waves. The first law that can be described as "anti-money laundering" was the Bank Secrecy Act, commonly known as the BSA. Passed in 1970 in response to the fact that criminals frequently deposited large volumes of currency into their bank accounts, the BSA essentially deputized financial institutions, requiring them to record and report the movement of currency and other monetary instruments. Its purpose was to help law enforcement officials build criminal cases by requiring banks to report cash transactions exceeding $10,000, to identify the individuals involved in those transactions, and to maintain sufficient records to provide law enforcement an adequate paper trail when required for prosecuting criminal cases. The BSA further required submission of a Report of International Transportation of Currency or Monetary Instruments, or CMIR, for individuals transporting more than $10,000 in currency across international borders.
In the early 1970s, the American Civil Liberties Union, along with the California Bankers Association and other interested parties, challenged the BSA, arguing that in addition to imposing unreasonable burdens on financial institutions, the law was an intrusion into the privacy of non-criminal American citizens. The case was ultimately heard by the Supreme Court in 1974, which ruled in a 6-3 decision that the benefits to law enforcement of the BSA's recordkeeping requirements outweighed the privacy and recordkeeping concerns raised by the plaintiffs. [1]
The target of the ironically-named BSA - which has more to do with revealing than concealing bank secrets - was third parties, namely financial institutions, not criminals. The focus of the law was to create a system of recordkeeping and reporting requirements. But several years after President Reagan declared a war on drugs, law enforcement sought additional tools to combat drug trafficking, and Congress passed the Money Laundering Control Act of 1986. This was the law that established money laundering itself as a federal crime. In addition to requiring financial institutions to develop procedures and monitor compliance with the requirements of the BSA, it directed them to report "structured" transactions, such as regular deposits of currency in amounts just below the $10,000 reporting threshold that would otherwise not be flagged under the requirements of the BSA.
So, sixteen years after the BSA was passed, money laundering itself was finally criminalized. But what exactly is money laundering, and perhaps just as interestingly, what is not? According to the Financial Crimes Enforcement Network, or FinCEN:
Money laundering is the process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean"). Typically, it involves three steps: placement, layering and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean." Money laundering can facilitate crimes such as drug trafficking and terrorism, and can adversely impact the global economy. [2]
Note the importance of the origins of the money. Imagine Jessica shows up to her branch with a pillowcase containing dozens of bundled $100 bills. The bank would be required to submit to FinCEN a Currency Transaction Report, or CTR, documenting the transaction. Similarly, if Jessica made three cash deposits of $9,900 in the space of twenty-four hours, the bank would likely prepare a suspicious activity report, or SAR, reporting the activity as "structuring." But Jessica has not committed a crime if the cash in these transactions was obtained legally. The bank's money laundering reporting requirements are in place to help law enforcement develop cases against criminals, not to prevent law-abiding citizens from using cash obtained legitimately.
Money laundering, in other words, is a crime that must be linked to another crime, such as trafficking in illegal substances, corruption, embezzlement, or tax evasion. It is not a crime to move legally obtained money through shell companies located in tropical paradises, or to wire money from Slovenia to Slovakia, then to Eastern Slavonia and onward to Lower Slobbovia. Nor is it a crime if Jessica carries suitcases full of currency on flights between New York and Novosibirsk, as long as she completes a CMIR. Unless there is a crime associated with the cash, none of these actions are laundering money.
After money laundering was criminalized in 1986, and through the end of the Twentieth Century, Congress and FinCEN passed a flurry of anti-money laundering laws and regulations, and nations began working together to combat international money laundering. In 1989, the Financial Action Task Force, or FATF, was established at the G-7 Summit held in Paris. "Recognizing the threat posed to the banking system and to financial institutions, the G-7 Heads of State or Government and President of the European Commission convened the Task Force from the G-7 member States, the European Commission and eight other countries...[FATF] was given the responsibility of examining money laundering techniques and trends, reviewing the action which had already been taken at a national or international level, and setting out the measures that still needed to be taken to combat money laundering." [3]
In 1992, Congress passed the Annunzio-Wylie Anti-Money Laundering Act, which strengthened sanctions for banks that violated their obligations under the BSA and required recordkeeping for wire transfers. In January of 1995, President Clinton declared to the United Nations that money laundering was a threat to national security and directed his cabinet to identify individuals and organizations involved in global financial crime and to seize their assets - that's right - seize their assets - both domestically and abroad.
While many of the laws and regulations implemented during this period were designed to reduce paperwork and streamline reporting requirements, others expanded the definition of financial institutions subject to cash reporting requirements to include non-bank entities that deal in cash and luxury goods, such as casinos, car dealerships, and real estate closing personnel.
Meanwhile, drug trafficking investigations identified significant money laundering activity associated with Colombia and the Dominican Republic, and in the late 1990s, FinCEN began assessing relatively large financial penalties against financial institutions for failing to comply with BSA reporting requirements.
Then came 9/11, and everything changed.   
[1]  California Bankers Association v. Schulz, 94 S. Ct. 1494 (1974)
[2] FinCEN website,
[3] FATF Website,

Based in New York City, Anne Eberhardt is responsible for furthering the firm's forensic investigation practice. As an expert witness and forensic accountant, Anne is experienced in conducting forensic analyses, building and testing financial models, resolving economic disputes, and leading teams in large-scale investigations.
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