Money Laundering · Federal Charges
When Do Fraud Proceeds Become Proceeds for Laundering?
The answer depends on what property the fraud produced, when it was obtained, and which version of the money-laundering statute applies.
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Not every dollar in a fraud investigation is “proceeds.” That word is a statutory element, and the government has to prove it. In a federal charge under 18 U.S.C. § 1956(a)(1), prosecutors must connect the charged transaction to property that qualifies as proceeds. They also have to prove the knowledge and purpose that the particular subsection requires.
Start with the charged transaction and its source
Do not begin by subtracting a business’s expenses from its receipts. Gross receipts fall within § 1956(c)(9). The definition reaches property obtained, retained or derived through unlawful activity, directly or indirectly. The records still need to show where the money in this account came from; citing that definition does not do the tracing for the government.
Who got the money, by what act, and when did they control it? Which later transaction does the indictment charge? A statement credit can hide settlement, availability, holds and reversals.
Take a fraudulent-loan theory. The false application or draw that gets the money is one event. A later purchase, transfer or payment is another. Trace the bank’s disbursement, any account the money passed through, the date the funds became available, and every debit after that.
The government still has to prove each charged element. A transfer that came after a suspected fraud doesn’t, on that fact alone, involve proceeds or carry the purpose alleged.
Use the offense date when analyzing Santos
United States v. Santos dealt with the word “proceeds” in an illegal-lottery prosecution, and the Supreme Court’s decision was fractured. Congress then wrote a definition into § 1956(c)(9) that includes gross receipts.
Garland v. Roy, from the Fifth Circuit, discusses the post-Santos analysis. Whether it fits a given case depends on the predicate activity and the facts. And always work from the statute in force on the offense date, not a general rule about receipts versus profits.
Build a transaction chronology from records
Start with dates. A payment has an initiation date, a posting date and a settlement date, and they don’t always match. A bank record might show one date for the credit, another for settlement and a third for access to the funds.
Read past the credit entry. Was the money held, sent back or mixed with other deposits? Who could use the account? Match those entries to the purchase or transfer at issue. Counsel can then examine whether the debit used property already obtained or belonged to the conduct said to have produced it.
Keep the timing of proceeds apart from the laundering theory that’s charged. Section 1956 has separate branches, including promotion, concealment, and avoiding reporting requirements, and each one has its own elements. A complicated or unnecessary transfer doesn’t prove a particular purpose by itself.
The Santos merger concern isn’t an automatic defense, either. Whether the same conduct can support both the predicate offense and laundering depends on the statutory text, the offense date and the controlling decisions.
Read the entries in order
Identify the act said to have produced the money.
When did it post and settle? Look for holds or reversals.
Compare that debit with the source records and the charge.
What the records can clarify
Tie each count to one transaction and list what’s proved and what’s disputed on source, timing, control, knowledge and purpose. Test the government’s flow chart against the bank records. Don’t take the chart instead of them. A money laundering defense lawyer starts there, and our federal money laundering guide covers the rest of the statute.
Sources
- 18 U.S.C. § 1956, including subsections (a)(1), (c)(1), and (c)(9).
- United States v. Santos, 553 U.S. 507 (2008).
- Garland v. Roy, 615 F.3d 391 (5th Cir. 2010).
This is general information. To advise you about a charge, counsel needs the charging document, the dates of the alleged offenses and the records behind them. Reading this page does not create an attorney-client relationship; the firm must agree to represent you.
