The Key Signs of Money Laundering, According to a Former Prosecutor

The news, report­ed in the Washington Post, that Donald Trump used cash for many of his real estate trans­ac­tions in the decade before he became pres­i­dent, has raised eye­brows. As David Fahrenthold, one of the reporters on the Post sto­ry, told Slate, “I don’t think that lenders have a lot of expe­ri­ence with peo­ple who are buy­ing huge things in cash.” At this point, we don’t know where the cash came from—this is what Fahrenthold says he and his team are look­ing into next. But with peo­ple spec­u­lat­ing (with­out evi­dence) about pos­si­ble mon­ey laun­der­ing, it’s worth try­ing to under­stand what exact­ly mon­ey laun­der­ing is, and what role it plays in the real estate world.

To find out, I recent­ly spoke by phone with Peter D. Hardy. He is a part­ner in the white-col­lar defense group at the law firm Ballard Spahr, a for­mer fed­er­al pros­e­cu­tor, and the cura­tor of Ballard Spahr’s blog Money Laundering Watch. An edit­ed and con­densed ver­sion of our con­ver­sa­tion is below.

Isaac Chotiner: Let’s start here: What is mon­ey laun­der­ing, and what makes a par­tic­u­lar trans­ac­tion illegal?

Peter D. Hardy: Money laun­der­ing involves a finan­cial transaction—which can be very, very broad—coupled with the source of the under­ly­ing funds being from what’s called a “spec­i­fied unlaw­ful activ­i­ty.” That’s a term of art from the statute, but to put it more col­lo­qui­al­ly, it has to be mon­ey from a crime. Basically, it is almost any crime that gen­er­ates pro­ceeds. So, the under­ly­ing crime is com­mit­ted; it gen­er­ates pro­ceeds; the pro­ceeds are used in a finan­cial transaction—which, again, is very, very broad—and then the key is, in terms of poten­tial crim­i­nal lia­bil­i­ty, and I am going to do a lit­tle foot­note to this, a lit­tle caveat because there are two statutes. There is 18 U.S.C 1956, and there is 18 U.S.C. 1957.

For 1956, you need knowl­edge that the trans­ac­tion is using pro­ceeds from a crime. You don’t even need to know nec­es­sar­i­ly what crime it is; just that it is dirty mon­ey, so to speak. And then that it is done with the req­ui­site intent. There are a cou­ple options in the statute: It includes an intent to pro­mote the under­ly­ing crime. So let’s say if you are a drug deal­er, it would be done to buy more drugs and fur­ther the drug con­spir­a­cy, for exam­ple. It could be done to con­ceal the source; I think that is what most peo­ple think of when they think of mon­ey laundering—funneling it through shell cor­po­ra­tions to dis­guise what is going on. It could be done to avoid a report­ing require­ment, like a cur­ren­cy trans­ac­tion report.

For 1957, here is the wrin­kle, which is why mon­ey laun­der­ing is so broad in a way that most peo­ple don’t real­ize how broad it is. The 1957 statute does not require any spe­cif­ic intent. All it requires is knowl­edge and a trans­ac­tion involv­ing over $10,000. It could be the most mun­dane, trans­par­ent trans­ac­tion in the world with everyone’s name up there: “Pablo Escobar is going to buy a Mercedes.” If it is dirty mon­ey, and over $10,000, and those involved know it, that’s mon­ey laundering.

And if it is under $10,000?

Not under 1957. The trade-off is that there is no spe­cif­ic intent, but the thresh­old is that it is over $10,000. For 1956, it can be under $10,000, but you need spe­cif­ic intent. Theoretically it could be a dol­lar, but there is no mon­e­tary requirement.

What if I get involved with peo­ple who have a shady rep­u­ta­tion, and I get mon­ey from them, and plead igno­rance? Is that a legal defense?

There are two things baked into your ques­tion. Dealing with shady peo­ple does not ipso fac­to mean that the trans­ac­tion involves dirty mon­ey. It has to actu­al­ly involve dirty mon­ey. Before we even get to knowl­edge, there is the pred­i­cate of: Is this the pro­ceeds of a spec­i­fied unlaw­ful activ­i­ty? And if the answer to that is no, even if you are deal­ing with shady peo­ple, then that is not mon­ey laun­der­ing. But let’s assume that it does in fact include dirty mon­ey. Then you get to knowl­edge. And this is the pri­ma­ry issue for pro­fes­sion­als, like lawyers or real-estate agents. The gov­ern­ment has the option, and they often use it in these sorts of sit­u­a­tions, of the will­ful blind­ness doc­trine. The will­ful blind­ness doc­trine is kind of com­pli­cat­ed, but to real­ly dumb it down …

I’m dumb on this, so that is helpful.

No, no, no. It is actu­al­ly real­ly complicate,d and you could spend hours talk­ing about its per­mu­ta­tions. If you read jury instruc­tions, what it is not sup­posed to be is woul­da coul­da shoul­da. It is not sup­posed to be, “You should have known, but you didn’t check.” It is sup­posed to be anoth­er way of prov­ing actu­al knowl­edge. That is hard for a lot of peo­ple, includ­ing sophis­ti­cat­ed judges and lawyers to hold in their heads because it is pret­ty slip­pery. So essen­tial­ly if you have rea­son to know of a fact and you take affir­ma­tive action to avoid being fur­ther con­front­ed by the exis­tence of that fact, that can con­sti­tute will­ful blindness.

How does mon­ey laun­der­ing usu­al­ly work in the real estate world?

I don’t know that there is any mag­ic for­mu­la. Kind of like Tolstoy, every mon­ey laun­der­ing trans­ac­tion is dif­fer­ent. There are a vari­ety of ways it can hap­pen. Certainly I know that [Treasury’s] Financial Crimes Enforcement Network is con­cerned about the use of enti­ties to shield what are called ben­e­fi­cial own­ers. So if per­haps one wants to do the tra­di­tion­al, lay-person’s ver­sion of mon­ey laun­der­ing, in terms of con­ceal­ing the source, you can try to set up a series of enti­ties the point of which is to dis­guise the ulti­mate source of the funds. That gets hard­er, or the gov­ern­ment is try­ing to make it hard­er to do, through a series of regulations.

But get­ting back to 1957, it doesn’t have to be quite so elab­o­rate. It could be mon­ey laun­der­ing even if it is com­plete­ly trans­par­ent if it is over $10,000 and dirty money.

What are things pros­e­cu­tors look for when seek­ing signs of mon­ey laundering?

It used to be if you didn’t want a mort­gage and it was all cash—by that I mean wire or check or whatever—that used to be sus­pi­cious. I am not say­ing that it is com­plete­ly free of sus­pi­cion, but that is more com­mon these days. Not hav­ing a mort­gage is per­haps not the red flag it used to be because there are a lot of rich peo­ple out there. But that’s still there. I do think that despite my going on about how mon­ey laun­der­ing is broad and doesn’t have to be about con­ceal­ment: Any effort at con­ceal­ment is def­i­nite­ly going to be latched onto by the government.

What do you mean by concealment?

Using nom­i­nee accounts, try­ing to dis­guise the own­er­ship or the source, whether it is set­ting up a com­pa­ny in the name of my great nephew and it is real­ly my mon­ey, or any efforts like that are going to be regard­ed by the gov­ern­ment and I think most peo­ple like your aver­age juror as an indi­ca­tor that there is laun­der­ing going on. But you still have to show at the end of the day that it is dirty mon­ey, because if it is not, it ain’t mon­ey laun­der­ing. But con­ceal­ment is def­i­nite­ly the hallmark.

Why is real estate seen as a fer­tile busi­ness for mon­ey launderers?

Because it is a tra­di­tion­al trans­ac­tion. Buying real estate is some­thing that a lot of peo­ple do and is regard­ed, gen­er­al­ly speak­ing, as a good invest­ment. The United States real estate mar­ket has been very, very hot. So from a pure eco­nom­ic stand­point it makes sense. And it’s a vehi­cle where if you have a lot of mon­ey, or a lot of pro­ceeds that you want to unload, it is a pret­ty good recep­ta­cle to do so. It is just kind of handy. And if you are asked, it is easy to pro­vide a seem­ing­ly innocu­ous expla­na­tion, which is, “I am invest­ing in real estate along with many oth­er people.”

By Isaac Chotiner

The Key Signs of Money Laundering, According to a Former Prosecutor

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