The Money Laundering Control Act: Key Provisions

The Money Laundering Control Act of 1986 (MLCA) established money laundering as a distinct federal crime in the United States. Before its passage, prosecutors lacked a direct statutory tool to attack the financial lifeblood of criminal organizations, often relying on other charges to address the proceeds of illegal activities. The MLCA’s objective was to create a new federal offense targeting conduct that occurs after a crime is committed, specifically the hiding and reinvestment of illegal profits. By criminalizing the act of laundering money, the law aims to prevent criminals from enjoying the fruits of their illegal labor and to stop those profits from being used to fund further criminal operations.

Prohibited Financial Transactions

The core of the Money Laundering Control Act is in 18 U.S.C. § 1956, which outlaws financial transactions with funds known to be proceeds of criminal activity. The funds must originate from a “specified unlawful activity” (SUA), one of over 250 predicate crimes such as drug trafficking, wire fraud, racketeering, and certain offenses against foreign nations. Prosecutors only need to prove the defendant knew the funds came from felonious conduct, not that they committed the underlying crime.

The statute identifies four distinct intents that make a transaction illegal. A “financial transaction” is broadly defined and can include passing money between individuals without involving a bank, as long as one of these intents is present.

The first prohibited intent is conducting a transaction to promote an SUA. This provision targets the reinvestment of criminal profits back into the criminal enterprise, such as using drug sale proceeds to purchase more narcotics.

A second illegal purpose is to engage in conduct that constitutes tax evasion. This criminalizes using SUA proceeds in a transaction intended to commit tax fraud, like buying assets in another’s name to hide income from the IRS. Tax evasion only needs to be one of the intents.

The third intent involves knowing a transaction is designed to conceal or disguise the nature, location, source, ownership, or control of the proceeds. An example is funneling cash from a fraud scheme through shell corporations to purchase real estate, making the funds harder to trace.

The fourth intent is knowing a transaction is designed to avoid a reporting requirement, often called “structuring.” For instance, making multiple cash deposits under the $10,000 bank reporting threshold to avoid detection is an illegal act of structuring.

Engaging in Monetary Transactions with Unlawful Funds

A separate offense is codified in 18 U.S.C. § 1957, often called the “spending statute.” This law makes it a crime to knowingly engage in a monetary transaction with criminally derived property valued at more than $10,000. Unlike § 1956, this statute does not require the government to prove any specific intent to promote another crime, evade taxes, or conceal the funds. The prosecution must prove the defendant knew the property was derived from some form of criminal activity, but not the specific crime that generated it.

The statute defines a “monetary transaction” as a deposit, withdrawal, transfer, or exchange of funds through a financial institution. The transaction must exceed $10,000 to trigger the statute. For example, a public official who accepted a $50,000 bribe and then uses that money to make a down payment on a vacation home through a bank wire transfer would be in violation.

This provision criminalizes the final step of money laundering, where “cleaned” money is integrated into the legitimate economy. A person who knowingly sells a luxury item, such as a sports car, to a known criminal for over $10,000 in cash could also be prosecuted. The law aims to prevent legitimate businesses from becoming complicit in the laundering process by accepting large sums of illicit cash.

Compliance and Reporting Obligations for Financial Institutions

The Money Laundering Control Act and the broader Bank Secrecy Act (BSA) place compliance and reporting duties on financial institutions to prevent and detect money laundering. Banks, credit unions, and brokerage firms must establish anti-money laundering (AML) programs. These programs include internal controls, independent testing, a designated compliance officer, and ongoing employee training.

A central requirement is filing a Currency Transaction Report (CTR) with the Financial Crimes Enforcement Network (FinCEN). Financial institutions must file a CTR for any currency transaction exceeding $10,000 conducted by or on behalf of one person in a single business day. The report must be filed electronically within 15 days of the transaction.

Financial institutions must also report suspicious activities by filing a Suspicious Activity Report (SAR). A SAR is required for transactions of at least $5,000 that the institution suspects involve funds from illegal activities or are intended to hide funds. SARs are also filed for transactions designed to evade BSA regulations or that have no apparent lawful purpose, and are filed with FinCEN within 30 days.

Supporting these requirements are the principles of Know Your Customer (KYC) and Customer Due Diligence (CDD). Financial institutions must establish procedures to verify the identity of their customers and their beneficial owners. CDD involves understanding the nature and purpose of customer relationships to develop a risk profile, which helps identify transactions inconsistent with a customer’s known activities.

Penalties and Forfeiture

Violations of the Money Laundering Control Act carry criminal penalties. For offenses under the main laundering statute, 18 U.S.C. § 1956, an individual can face up to 20 years in prison. The financial penalty can be a fine of up to $500,000 or twice the value of the property involved in the transaction, whichever is greater.

The “spending statute,” 18 U.S.C. § 1957, carries a penalty of up to 10 years of imprisonment. The associated fine can be up to $250,000 for an individual or twice the value of the criminally derived property involved in the transaction. These penalties apply even without the specific intent to conceal or promote.

Asset forfeiture allows the government to seize property involved in or traceable to the money laundering offense. The MLCA provides for two types of forfeiture: criminal and civil. Criminal forfeiture is an action taken against a person as part of a criminal prosecution and requires a conviction, after which the court orders the defendant to forfeit assets connected to the crime.

Civil forfeiture is an action brought directly against the property itself, on the theory that the property was involved in illicit activity. This legal proceeding does not require a criminal conviction of the property owner. For example, the government can initiate a civil forfeiture action to seize a house purchased with drug trafficking proceeds, even if the owner is never charged with a crime.