Money Laundering Defense

Federal money laundering law reaches transactions involving proceeds of a specified unlawful activity, a list defined at 18 U.S.C. § 1956(c)(7). Tax offenses are not on that list, so a laundering charge in a tax case requires a separate route in. This page covers those routes, the elements, and the defenses, for anyone facing a laundering or structuring charge tied to a tax matter.

Why a tax case is not automatically a laundering case

Evasion under Section 7201, filing a false return under Section 7206, and failure to file under Section 7203 do not by themselves supply the predicate for laundering, and the IRS says as much in its own manual at IRM 9.5.5.2. Prosecutors have two ways around that gap.

The first is to charge a different predicate: Section 1956(c)(7)(A) incorporates every RICO predicate at 18 U.S.C. § 1961(1), including mail, wire, and bank fraud, and most schemes touch a wire or mailing somewhere. The second runs through intent under Section 1956(a)(1)(A)(ii), reaching a transaction conducted with intent to violate Section 7201 or 7206, though the money still has to come from a qualifying crime.

What the government must prove under 18 U.S.C. § 1956

A domestic laundering charge under Section 1956(a)(1) requires a financial transaction involving property that in fact represents proceeds of a specified unlawful activity, knowledge the property represented such proceeds, and one of four purposes: promoting the underlying crime, violating Section 7201 or 7206, concealing the funds, or avoiding a reporting requirement.

The knowledge element is narrower than it appears: Section 1956(c)(1) requires only that the defendant knew the money came from some felony, not which one, and willful blindness instructions are available in the Fourth and Third Circuits. The concealment prong is often where cases are won. In Cuellar v. United States, 553 U.S. 550 (2008), the Supreme Court held concealment requires proof the transaction's purpose was to hide the funds, not that concealment merely resulted from it.

What counts as proceeds was contested until United States v. Santos, 553 U.S. 507 (2008), read the word to mean profits, and the Fraud Enforcement and Recovery Act of 2009 added Section 1956(c)(9), defining proceeds as gross receipts. A merger problem survives where the charged transaction is only payment of an essential expense of the crime.

Section 1957 and structuring

Section 1957 is the easier charge, prohibiting a knowing monetary transaction over $10,000 in criminally derived property, with no concealment or promotion requirement. It carries up to ten years and fines that can reach hundreds of thousands of dollars, or twice the amount involved if that is more, and Section 1957(c) does not require proof the defendant knew the predicate qualified.

Structuring under 31 U.S.C. § 5324, breaking transactions into smaller amounts so a currency report is not filed, is charged far more often than most business owners expect, disproportionately against cash-intensive operations. Ratzlaf v. United States, 510 U.S. 135 (1994), once required proof the defendant knew structuring itself was unlawful, but Congress removed that requirement the same year. Structuring also triggers civil forfeiture under 31 U.S.C. § 5317 without any conviction.

Forfeiture exposure

A conviction under Section 1956 or 1957 triggers mandatory criminal forfeiture under 18 U.S.C. § 982(a)(1) of property involved in the offense, broader than property derived from it: where clean funds sat with tainted funds in one account, the government routinely argues the whole balance was involved.

The Eighth Amendment is the outer limit. United States v. Bajakajian, 524 U.S. 321 (1998), held forfeiture violates the Excessive Fines Clause when grossly disproportional to the offense, and Timbs v. Indiana, 586 U.S. 146 (2019), applied the clause to states.

Defenses to money laundering charges in tax cases

• No qualifying predicate: if the only underlying offense is a Title 26 tax violation, there is no specified unlawful activity and no laundering count
• Failure of concealment purpose: under Cuellar, transactions conducted openly, in the defendant's own name, through ordinary accounts, tend to defeat the theory
• Absence of knowledge that the funds came from a felony, including reliance on an accountant or counsel
• Merger, where the charged transaction is an essential expense of the predicate crime rather than a separate act
• Tracing and commingling, since legitimate revenue alongside disputed receipts creates proof problems for the prosecution

Limitations is an affirmative defense, waived if counsel does not raise it. The general period is five years under 18 U.S.C. § 3282, and a seven-year period applies under Section 1956(j) only where the predicate is one of the foreign offenses defined at Section 1956(c)(7)(B).

Parallel civil and criminal investigations

An IRS special agent carrying a badge is not conducting an audit. IRS Criminal Investigation opens cases and interviews subjects before charges exist, frequently at home and without notice. United States v. Kordel, 397 U.S. 1 (1970), permits civil and criminal tracks to run at the same time, and a due process problem arises only where the government uses civil process in bad faith to build a criminal case.

Answers given during a civil examination can end up in front of a grand jury, and a revenue agent who goes quiet, or an examination suspended without explanation, is a pattern worth discussing with counsel promptly.

Why Whiteford

Whiteford's tax team is active in eight jurisdictions with physical offices in seven, including Baltimore, Towson, Columbia, Washington, Richmond, Virginia Beach, and Wilmington. Laundering and structuring charges arising from tax matters are tried in federal district court, and the practice covers the District of Maryland, the Eastern District of Virginia, the District of Columbia, and the District of Delaware.

The firm has defended a civil forfeiture action brought under the Civil Asset Forfeiture Reform Act for the operating entities of several gas stations and their owner, where the government sought forfeiture of roughly $91,000 in currency on a structuring theory.

Whiteford also counsels banks, financial services companies, and cross-border enterprises on Bank Secrecy Act obligations, FBAR reporting, and anti-money laundering compliance. Michael March leads the firm's tax controversy and defense practice, including cases where laundering or structuring counts accompany a tax evasion charge. This page is part of Whiteford's criminal tax defense practice.