Federal and Texas Money Laundering Defense

Transaction and source-of-funds map

1. Source records and account balance
2. Lawful funds and alleged proceeds
3. Identified transfer and timing
4. Recipient, purpose and authorization
5. Records supporting or disputing the allegation

This illustration is a guide to reviewing records. It does not determine the result of any case.

Money laundering charges: where to begin

Bring the charge to your lawyer before trying to explain an account history. Start with the provision cited: 18 U.S.C. § 1956, § 1957 or Texas Penal Code § 34.02. They raise different questions, so the records you gather need to address the actual allegation.

For example, a company might have received a loan and then made a payment to an affiliate. If the government alleges bank fraud in the application and laundering in the subsequent payment, there are two events to investigate. It will be necessary to establish the source of the money used for the payment, as well as what the person authorizing it knew. The same issue can arise when wire fraud is alleged as the source offense. Merely putting the two events next to each other in a chart does not establish the second offense.

Where an account has already been frozen, take the actual order to the lawyer. It may affect the ability to meet payroll or pay for representation, and there may be a deadline for asserting an interest in property quite apart from the criminal case. Section 1956 ordinarily allows imprisonment of up to twenty years, while § 1957 generally provides a maximum of ten. It is necessary to assess the counts, applicable guidelines and individual circumstances before estimating the sentence someone faces.

Practice area · Money laundering

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Reading the charge

In a domestic case under § 1956(a)(1), there must be a qualifying financial transaction involving proceeds from specified unlawful activity. The person accused must have known that the property represented proceeds of some felony activity, although it is not necessary to prove knowledge of the particular felony. There is a further requirement, depending on the branch charged, about promotion, specified tax conduct, concealment or avoidance of reporting.

The wording after the section number is therefore significant. Under the international provision, § 1956(a)(2), the promotion branch does not have the same proceeds requirement as the concealment and reporting branches. The undercover provision, (a)(3), can concern represented proceeds or property used to conduct or facilitate specified unlawful activity. An alleged agreement to launder may be charged under § 1956(h). All of these appear under the same general heading but call for different proof.

Which crime allegedly produced the money?

Look in § 1956(c)(7) for the source offense being alleged. This is where the statute identifies specified unlawful activity, including through references to other provisions. The next question is which receipts supposedly came from that offense. Bank fraud and wire fraud are possible sources. Although the government need not always obtain a separate conviction for the source crime, it still needs to establish the criminal source required for the laundering charge.

Consider a company with ten customers, of whom only one disputes the work. The allegation concerning that customer cannot simply be applied to all ten sets of receipts. The contracts, invoices and payments need to be kept together so it is possible to see which alleged offense is being connected to which money.

Related reading: When did proceeds come into existence?; wire fraud pillar.

When money becomes proceeds

Under the federal definition, gross receipts can count as proceeds. It would therefore be a mistake to assume the allegation must be limited to the profit left after expenses. It is still necessary to work out when the money became proceeds. The payment by which money was first obtained and a later use of that money can raise different legal questions.

This can be less straightforward with installments or repeated draws on a credit line. Use the bank's posting and settlement information and include any reversal. The date typed into the customer's ledger may not explain when the transfer actually took place.

What the accused knew

Records that may help establish what an employee knew include:

• The invoice supplied to the employee and the instruction authorizing payment.
• Questions the employee asked about the funds, with the answers still attached.
• Messages or meeting records showing who was involved in the underlying deal.

Access to the account does not establish that the clerk and manager had the same information.

There may be no admission in which someone says they knew the money was criminally derived. That does not end the inquiry, since knowledge can be proved circumstantially. If deliberate ignorance is alleged, ask counsel what evidence and instruction support it. The distinction from negligence needs to be addressed in the case being tried.

The original payment and the later transaction

Suppose the first payment in the records is a customer's payment against an allegedly false invoice. Mark it as the event said to have produced the proceeds. If the next entry is a purchase, look at the laundering count to see what is alleged about that purchase. Separate entries make it easier to check the elements instead of accepting an account in which fraud and laundering are treated as one undifferentiated event.

Issues sometimes referred to as merger require examination of the particular transaction and governing law. It is not safe to say that business expenses are always laundering, or that they can never be laundering.

Payments intended to advance unlawful activity

What activity was the payment intended to help continue? Spending on advertisements for an allegedly fraudulent business may raise a different question from paying an unrelated, legitimate debt. It is useful to see the instructions that went with the payment and what the recipient supplied, rather than rely only on the expense description.

The goods bought could be quite ordinary and still be intended for use in continuing unlawful activity. That purpose has to be established for the payment in question; it cannot simply be assumed for all expenditure once fraud is alleged elsewhere in the company.

What was allegedly concealed?

In a domestic concealment case, ask which feature of the proceeds the transaction was meant to hide. The statutory choices are nature, location, source, ownership and control. It is enough for concealment to be part of the design, but prosecutors must also establish the accused's knowledge of that design. Those are matters for proof, even where the account arrangement initially appears unusual.

Several accounts may have been used for an ordinary commercial reason. They may also have been used to disguise a source or owner. False invoices and misleading names can be relevant evidence, but the number of boxes in a diagram cannot resolve the issue.

Section 1957: transactions over $10,000

Use the charged transaction to work through § 1957:

• A qualifying monetary transaction.
• Criminally derived property exceeding $10,000, with a source that qualifies as specified unlawful activity.
• The required knowledge, financial-institution connection and jurisdictional basis.

An additional purpose to promote crime or conceal proceeds is not required under this provision.

The accused must know the property is criminally derived. Knowledge that the particular source offense falls within the statutory list is not required. With a mixed account, it is necessary to consider how the criminally derived amount is established; the fact that the overall balance exceeds $10,000 does not dispose of every tracing question.

The separate Texas charge

Texas § 34.02 sets out several alternatives. Check which one appears in the charge:

• Specified knowing dealings with criminal proceeds, such as possession or transfer.
• Transactions with proceeds which the accused conducted, supervised or facilitated.
• Specified investing, spending or receipt of proceeds or funds believed to be proceeds.
• Financing or investment involving funds believed intended to further criminal activity.

These are summaries; the actual statutory wording controls each alternative.

Under § 34.02(e), the value ranges begin at $2,500. A value below $30,000 is a state jail felony; from $30,000 to below $150,000, a third-degree felony; from $150,000 to below $300,000, second degree; and $300,000 or more, first degree. The offense date, aggregation and any other applicable provisions still have to be checked. Chapter 34 also contains knowledge rules and defenses which may be relevant to the alleged conduct.

Related reading: Texas and federal financial crimes hub.

Tracing money in a mixed account

It is possible for wages, a genuine loan and disputed trading receipts to arrive in the same account within a few days of each other. To assess a later withdrawal, obtain the statements for that whole period, including the balance beforehand. A single page showing the withdrawal may leave out the lawful money already present.

Find out which tracing method the analyst has used and why that method is appropriate. If another permissible approach produces a different result, explain the difference. Any gap in the records must be identified, particularly where an assumed opening balance affects all the later calculations.

Digital assets and identifying the user

You may be shown a chart linking two wallet addresses and naming a person next to each. Ask how those names were established. The blockchain entry can show that assets moved, whereas identification of the users may come from an exchange, a device or another source altogether. The basis for an analyst's label should be available for examination.

Keep the transaction hashes together with the valuation date and time zone. Using a price from the wrong day can materially change a dollar figure. The source, knowledge and other requirements of the charge still need to be established when digital assets are involved.

Transfers across the U.S. border

A foreign supplier's name on the invoice is not necessarily the answer to where the charged movement occurred. Obtain the records from the sending bank, receiving bank and any intermediary, so that the particular border-crossing event can be identified. The promotion branch of § 1956(a)(2) must then be distinguished from its concealment and reporting branches when checking what the government needs to prove.

Where records arrive in another language or currency, retain the originals. A translation and an exchange-rate calculation should allow the reader to check what was converted and when. An admissible foundation may also be required.

Cash and reporting obligations

For a reporting-avoidance allegation, identify:

• The report required and the person obliged to make it.
• The transaction said to avoid that requirement.
• Evidence of the knowledge or design required by the charge.

Reporting compliance and lawful source are different questions. Any separate structuring count has its own elements.

Keep the bank's reporting correspondence. The duty to comply continues during an investigation; do not change payment arrangements for the purpose of obstructing it.

Who controlled the account?

The registered account holder may not be the person giving day-to-day instructions about the money. Signature cards and ownership documents are a starting point, but approval records may be needed to find who made the particular decision.

For an allegation involving a shell company or nominee, useful records include:

• Formation and ownership papers.
• The financing papers and records of what the company actually did.
• Instructions showing who controlled the account.

Ask what the records show about the arrangement and what the accused understood about it.

Refunds, failed transfers and recoveries

Separate these events in the account history:

• An instruction rejected before the transfer completed.
• A completed payment refunded later.
• Funds recovered during an investigation.

Ask the bank to explain any entry that leaves the event unclear.

Keep the two dates. A rejected instruction may raise an attempt issue, while a refund after completion may affect the amount owed without removing liability.

An alleged agreement to launder

For the alleged § 1956(h) agreement, identify:

• The transaction said to be the subject of the unlawful agreement.
• The accused's alleged joining date and the evidence of knowing and intentional involvement.
• The instructions or communications supporting the claimed agreement.

Personal execution of the last payment is not required of every conspirator. A service invoice alone does not establish an unlawful agreement.

Messages sent before and after a meeting may help check a witness's account of what was agreed there. Consider when each person is said to have joined and the scope of the arrangement. Statements offered as co-conspirator evidence also need to meet the governing admissibility requirements.

Frozen accounts and forfeiture

Read the notice accompanying a frozen account. A temporary restraint, seizure and final forfeiture are different stages, and the available procedure for seeking relief depends on which stage has been reached. A response deadline may be running already.

Ask counsel to explain why the listed property is said to be forfeitable. In a laundering case the claimed basis may be property involved in the offense, which can be different from proceeds traced to the fraud. If the account or asset has another owner, that owner may need separate advice about asserting an interest rather than relying on the accused's defense alone.

Counting the victim's loss

Reconcile the victim's original payment with:

• Later movements of the same funds.
• Refunds and recoveries.
• The balance of the claimed economic harm.

Do not count the victim's loss again merely because the same funds reached another account.

Different rules govern restitution, forfeiture and guideline amounts. A credit in one calculation does not necessarily settle the other two. The proposed orders need to be considered together to determine how they interact and whether any economic harm has been counted more than once.

Working through the sentencing guidelines

Find out which Guidelines manual applies. Section 2S1.1 can require consideration of the underlying offense, the funds involved and the accused's role, among other matters. Simply naming the offense does not produce a guideline range.

If the presentence report uses an amount that is disputed, provide the source entries for the alternative amount. Criminal history, grouping, adjustments and the statutory sentencing factors also have to be considered. Multiplying the maximum term by the number of entries on a bank statement does not provide a useful forecast.

When more than one authority is involved

Bring the papers from any earlier Texas proceeding:

• The plea, settlement or other agreement.
• The resulting order or disposition.
• Correspondence identifying the authorities and matters covered.

Counsel can then assess what remains open, including a possible federal investigation.

Admissions need particular care because a statement made in one proceeding may be useful in another. If a coordinated resolution is being discussed, its terms should specify the proceedings and authorities it covers. Differences in procedure, punishment and forfeiture still need to be explained.

Responding to the first notice

At the outset, preserve:

• The subpoena or notice, including every attached schedule.
• The response date and correspondence about it.
• Information about automatic deletion affecting requested records.

Ask whether the company and individual need separate lawyers.

Original emails, devices and accounting files should be preserved. Do not overwrite an entry in order to correct or explain it; an explanation can be documented separately. Access only material you are entitled to obtain, and do not contact other witnesses to agree on a common version of events.

Obtaining the underlying records

A printout is helpful for reading figures, but it may be a poor substitute for the file when the dispute concerns how a total was calculated. Preserve the spreadsheet with its formulas and version history. The numbers in an analyst's transfer chart should likewise be capable of being checked against the records used to compile it.

Make a note whenever a month is missing from the statements or an entry lacks an explanation. Counsel can decide where to seek the gap in the records. A processor or intermediary sometimes holds the information needed; it may not be in the named bank's file. The number of pages produced is not a reliable way of assessing completeness.

Searches and interviews

Bring the warrant and inventory, then describe what investigators actually collected. Counsel will need to compare the two. Dates, account identifiers and potentially privileged material can all affect the inquiry. If a defect is found, the legal question is what remedy is available in the circumstances, rather than whether the search can simply be called improper.

Identify any recording or contemporaneous notes of an interview and who was present. If a later summary leaves out part of an answer, show counsel the difference. It can be investigated from the available record; witnesses should not be contacted to bring their memories into agreement.

What can a motion resolve?

Identify the issue a proposed motion can resolve:

• An inadequately alleged source offense: a possible defect in the pleading.
• Disputed testimony about knowledge: ordinarily a factual issue needing another procedure.

A pretrial attack on an indictment does not ordinarily resolve all contested trial facts.

The lawyer needs to distinguish that motion from an evidentiary objection or a trial sufficiency argument. Which procedure is available will depend on the subsection charged and the governing decisions. Saying only that the business was legitimate leaves the actual statutory issue unanswered.

The findings a jury must make

Check the proposed jury charge count by count:

• Concealment: what was designed to be hidden, and the knowledge attributed to the accused.
• Promotion: the intent required by that branch.
• Other alternatives: their own statutory findings.

A general explanation of suspicious transfers should not replace the findings required for each offense.

Charts should show their sources and make clear which connections are disputed. Where alternative theories will be submitted, counsel should consider whether there is a particular jury-agreement issue. Objections to unsupported theories need to be preserved through the appropriate procedure.

A loan, an email and an affiliate payment

Consider this hypothetical sequence:

• A company obtains a loan using an inventory certificate alleged to be false.
• An updated report is emailed later.
• The company then pays an affiliate.

The loan raises bank fraud issues. The email requires the wire fraud elements. A laundering count concerning the affiliate payment requires its own statutory proof about the funds and transaction.

There may have been genuine goods behind the affiliate invoice. That would be relevant, but it would not answer every possible laundering theory. Obtain the invoice and the instructions for payment. The financial crimes hub, federal bank fraud hub and bank fraud pillar can assist with the related charges; the wire fraud pillar deals with the communication separately.

Related reading: § 1956; § 1957; Texas Penal Code Chapter 34; § 2S1.1 guideline.

Reviewing the records and court filings

Checking an invoice against the books

For a disputed invoice, place the following records together:

• The order and delivery evidence.
• The invoice and payment entry.
• An explanation of how reference numbers were assigned.

Someone who used the books may be able to explain a mismatch. Note that explanation and any entry still unanswered.

Following funds through a property closing

The deed is only part of a closing file. There should also be records of escrow payments, the lender's advance and the source of the earnest money. The fact that a property was bought at a proper price does not explain where the purchase funds came from. If several people contributed, their contributions need to be considered individually, including any separate interest an uncharged owner may assert in forfeiture proceedings.

What the professional adviser was told

Find out what information was supplied to the accountant, attorney or closing agent when the transaction was handled. The professional may have been given a different account from the one investigators now allege. The engagement and instructions can help explain what was known. Valid privileges should be protected during that investigation; before relying on legal advice as a defense, discuss the possible waiver consequences with counsel.

After a bank closes an account

If the account has been closed, bring the bank's letters to counsel. A closure may be part of the background to the investigation, but it is not proof of each laundering element. Someone still needs to explain the transactions in the account. Counsel should also distinguish material available through ordinary lawful requests from bank material subject to particular reporting or confidentiality restrictions.

Checking an analyst's calculation

Choose a total in the analyst's report and ask to see how it was calculated from the source file. Were returns deducted? Was a formula applied to every row, and were there exceptions? A discrepancy needs to be explained before the figure is relied on. The same care is needed in a defense report. An expert can explain the accounting method without giving the jury a conclusion about the accused's intent.

Reconstructing cash sales

A cash business's source records may include:

• Register totals and individual receipts.
• Supplier purchases during the relevant trading period.
• Deposit slips and account statements.

Describe how an estimate was reached and which records are absent. The reader should be able to distinguish it from an entry in a surviving ledger.

Comparing tax returns with the books

For a discrepancy between returns and books, obtain:

• The return and records supplied to its preparer.
• An explanation of relevant timing or accounting treatment.
• Information about any separate tax investigation.

The § 1956(a)(1) tax branch concerns conduct under §§ 7201 or 7206. Discuss amendments or new factual submissions with counsel first.

Funds for legal representation

Before using restrained funds for fees, review:

• The restraint order and available procedure for relief.
• The narrow § 1957 provision concerning transactions necessary to preserve a person's Sixth Amendment right to representation.
• Any applicable Texas § 34.02 representation or bona fide fee provision, including its knowledge requirements.

These provisions do not generally authorize payment of legal bills from any available funds.

Cash declarations at the border

Bring the currency declaration as it was submitted, along with the travel documents. Counsel can then identify whether the allegation concerns reporting, a false statement or transportation of criminal proceeds. The amount found is only part of the evidence. Source records and evidence about ownership and knowledge may be needed to answer the laundering allegation, even if a reporting issue is also present.

Other alleged sources of proceeds

For receipts from healthcare or securities activity, find the particular source offense alleged in the charge and check that it qualifies as specified unlawful activity. An insurer's repayment demand may explain how a billing dispute began, but further proof is needed to establish a criminal source. A specialist familiar with the billing or trading rules may help counsel interpret those records.

Reading the proposed plea

Ask to read the proposed factual basis with the lawyer. If it refers to all the business's receipts, find out whether that is broader than the transactions you intended to admit. Identify the sums and source offenses that remain disputed. Restitution, forfeiture, guidelines and any appeal waiver need to be considered with the proposed count, as do consequences for other proceedings which may still be open.

Transaction dates and locations

The working chronology should identify:

• Each count's transaction date and known locations.
• The basis for any translation or currency conversion.
• Original timestamps and time zones.

Give counsel both the original and converted entries. With their dates and locations established, venue and any limitations or tolling issue can be researched.

A forfeiture notice without a criminal charge

Deal with a civil forfeiture notice as soon as it arrives, even if nobody has charged you with a crime. The notice has its own response procedure and deadline. Give counsel the ownership records and discuss the factual account you propose to submit. What is said in trying to recover property may also matter in a related criminal investigation.

Finding the records behind a payment app

The balance shown by an app may be backed by funds held with a different institution. Ask for records identifying the provider, custodian and settlement process, rather than rely only on the payment notification. The service's actual operation needs to be compared with the statutory definitions. Technical evidence may be necessary where the parties disagree about what transaction occurred or which institution was involved.

Showing transactions to the jury

A tracing diagram should distinguish:

• New receipts from movement of funds already counted.
• Returns from completed outgoing payments.
• Lawful deposits from disputed proceeds.

State the tracing assumptions and establish the appropriate foundation for an exhibit or summary.

Checking the case before a decision

Before deciding how to proceed, compare the current exhibits with the requirements of each count. A later production or ruling may have changed the position from the one described in an early report. The provisions in federal § 1956, § 1957, Texas Penal Code Chapter 34 and the § 2S1.1 guideline need to be checked separately. An amount used for one purpose should not simply be carried across to all the others.

Who approved this payment?

Check the approval for the particular payment. A director may have had authority to approve it without actually exercising that authority on this occasion. Shared credentials make the distinction especially relevant. The request, recorded approval and instruction to the bank should be compared with how the company handled payments at that time.

Reimbursements and overlapping claims

If the bank repaid the customer and an insurer then paid the bank, collect records of both transfers. Put each payment beside the loss it addressed and record what remains unpaid. Counsel needs that trail to identify the proper restitution recipients under the governing law and prevent recovery twice for the same injury.

Documents supporting a lawful source

For a claimed lawful deposit, locate:

• The loan, sale or distribution papers.
• The corresponding amount and date in the account.
• A custodian who may hold missing originals or copies.

If a record was reconstructed later, say so. It should not be passed off as the original.

The history behind an ownership arrangement

Evidence of an entity's ordinary purpose may include:

• Formation records predating the alleged crime.
• Financing agreements explaining why the entity held property.
• Records showing that a trading name was disclosed.

Include that history when discussing the alleged design with counsel. It may help explain the transaction, but the accused's knowledge remains a separate matter to investigate.

Preparing for the first restraint hearing

Prepare for the first hearing with:

• The restraint order and available account records.
• Ownership and source documents.
• A list of imminent payroll or other obligations.

Discuss any proposed admission about tainted funds and its effect elsewhere. Do not move restrained property without lawful authority. The criminal defense and Dallas bank fraud defense pages provide consultation information.

Related resources

• Texas and Federal Financial Crimes Defense
• Federal Bank Fraud Defense in Texas: Charges, Evidence, Wire Fraud, Money Laundering, and Trial
• Dallas Bank Fraud Defense Lawyer
• Wire Fraud Defense Lawyer in Texas
• Money Laundering Defense Lawyer in Texas

Continue exploring

• What Are the Elements of Federal Money Laundering Under Section 1956?
• What Is a Specified Unlawful Activity?

To discuss representation, contact Heath Hyde or call 903-439-0000. Representation begins only after the firm agrees to take the matter.