Proposed Expansion of Money Laundering to Cover Tax Crimes

UPDATE AS OF MAY 26 2009: The House version of this bill did not include the expansion of money laundering for tax crimes and the House prevailed in conference. The proposal is thus defeated for now. Senator Grassley, however, indicated that he will pursue this issue "at every available opportunity."

Original Post:

The transportation money laundering provision does not include tax evasion as a specified unlawful activity (SUA), so moving money around related to just tax evasion is not per se a crime. (All right, if the Government chooses to claim that the tax evasion is effected in part by the mails or by the wires (which it almost invariably is, the Government can claim that the tax evasion invokes the mail fraud and wire fraud predicate acts which are SUA). From an exercise of prosecutorial discretion, the Government has historically not charged mail fraud and wire fraud when just garden-variety tax evasion is involved (see Tax Division Directive No. 128), even though the Government has done just that in some prominent cases (e.g., United States v. Yusuf, 536 F.3d 178 (3d Cir. 2008), cert. pending by petition for cert filed 1/30/2009).

The Department of Justice has recommended to Congress that, given globalization and the use of off shore banking and financing, it is now time to expand the transportation money laundering crime to include tax evasion. I have not yet seen the proposal itself (I will update when I get it), but a summary of the proposal from the DOJ's statement to the Judiciary by Rita Glavin, Acting AAG, Criminal Division, on 2/11/2009 is:

Amending the Money Laundering statute to apply to tax evasion.
Sixth, subsection 2(g) of the Act would add a new provision to the international money laundering offense, section 1956(a)(2)(A) of Title 18, United States Code, to make it applicable to tax evasion. Due to the rapid globalization of the financial system in the last two decades and the development of offshore banking centers, we have seen the development of a troubling growth of income tax evasion that exploits the international funds transfer mechanisms and these offshore centers. In many cases, these tax evasion schemes utilize the same methods and mechanisms as money laundering schemes which involve criminal proceeds. In some, but not all cases, the offshore movement of funds for the purpose of evading income taxes can contribute to the development of offshore centers, and businesses operated by international criminal organizations, that facilitate the laundering of proceeds of drug trafficking and other serious offenses. These activities represent a threat to our financial system beyond the evasion of income taxes.

The proposed amendment to section 1956(a)(2)(A) will address this threat by criminalizing the transfer of funds into or out of the United States with the intent to engage in conduct constituting a violation of our income tax laws. The amendment will not only allow the government to bring civil forfeiture actions against tax evasion funds sent abroad, but will also help U.S. prosecutors enforce forfeiture orders for foreign tax offenses.