Chapter 14

Money Laundering

Money laundering, in a simple memorable phrase, is “doing sneaky things with dirty money.” The criminal, with ill-gotten gains from selling drugs or racketeering, disguises his ownership of these proceeds of crime in a series of obfuscating transactions using accounts whose true ownership is not known in which he places a series of transactions that are difficult to trace.1

In the 1960s in the United States, a number of forces converged that put money laundering into focus. The cost of the Vietnam War, coupled with the cost of funding President Lyndon Johnson's social reforms, drove the need for new tax revenues. Thus, the requirement for banks to report large cash transactions was born out of an attempt by tax authorities to learn of large sources of cash deposits. The idea was to ferret out large sources of cash under the assumption that the depositors were criminals who had not paid tax on their drug profits or racketeering proceeds. See 31 U.S.C. §§ 5311–5332 (now known as the Bank Secrecy Act).

Congress upped the ante in 1986 in President Reagan's war on drugs by criminalizing money laundering. See 18 U.S.C. §§ 1956, 1957.

The terrorist attacks on the World Trade Center and Pentagon on September 11, 2001, precipitated another change in the obligations of financial companies to detect and prevent money laundering and terrorist financing. By October, Congress passed and the President signed the sweeping legislation known as the USA PATRIOT Act.

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