25.00 TAX MONEY LAUNDERING

Updated June 2001

25.01 26 U.S.C. § 6050I -- RETURNS RELATING TO CASH RECEIVED IN 

TRADE OR BUSINESS (FORMS 8300)

25.01[1] Statutory Language:  26 U.S.C. § 6050I

25.01[2] Treasury Regulations:  26 C.F.R.

25.01[3] Attorney Fee Reporting

25.01[4] Criminal Prosecution: Failing to File Correct Forms; Structuring to 

Evade Reporting

25.01[4][a] Duty To File Correct Forms 8300 -- WILLFULNESS

25.01[5] Sentencing

25.01[6] Venue

25.01[7] Statute of Limitations

25.01[8] Policy and Procedure

25.01[8][a] Tax Return Disclosure

25.02 18 U.S.C. § 1956(a)(1)(A)(ii) -- LAUNDERING OF MONETARY INSTRUMENTS

25.02[1] Statutory Language: 18 U.S.C. § 1956(a)(1)(A)(ii)

25.02[2] Generally

25.02[3] Elements

25.02[4] Conduct Financial Transaction

25.02[5] Knowledge

25.02[6] Proceeds of Specified Unlawful Activity

25.02[7] Intent to Evade Tax or Commit Tax Fraud

25.02[9] Venue

25.02[10] Statute of Limitations

25.02[11] Policy and Procedure

---

      The focus of this chapter is limited to tax-related money laundering

involving 26 U.S.C. § 6050I -- Returns Relating to Cash Received in a Trade

or Business -- and 18 U.S.C. § 1956(a)(1)(A)(ii) -- Laundering of Monetary

Instruments.  The Asset Forfeiture and Money Laundering Section of the Criminal

Division has published a comprehensive reference guide on money laundering

entitled Federal Money Laundering Cases (January 1999).

      In addition, prosecutors interested in obtaining further information on

money laundering in general, and authorization and consultation requirements in

particular, should consult the United States Attorneys' Manual (USAM),

Sections 9-105.000, 9-105.300 and 9-105.750 (September 1997).  Attention is also

directed to Tax Division Directive No. 99, dated March 30, 1993, (a copy of which

is included in Section 3 of this Manual).  Tax Division authorization is required

before a money laundering charge may be brought where the specified unlawful

activity is based on a violation arising under the internal revenue laws.

---

       25.01  26 U.S.C. § 6050I -- RETURNS RELATING TO CASH

              RECEIVED IN TRADE OR BUSINESS (FORMS 8300)

25.01[1]  Statutory Language:  26 U.S.C. § 6050I

      Section 6050I.  RETURNS RELATING TO CASH RECEIVED IN TRADE OR

      BUSINESS

      (a)  Cash Receipts of More Than $10,000.--Any person--

      (1)  who is engaged in a trade or business, and

      (2)  who, in the course of such trade or business, receives more than

      $10,000 in cash in 1 transaction (or 2 or more related transactions),

      shall make the return described in subsection (b) with respect to such

      transaction (or related transactions) at such time as the Secretary [of

      the Treasury] may by regulations prescribe.

      (b)  Form and Manner of Returns.--A return is described in this

      subsection if such return--

      (1)  is in such form as the Secretary may prescribe,

      (2)  contains

            (A)   the name, address, and TIN (taxpayer identification number) of

                  the person from whom the cash was received,

            (B)       the amount of cash received,

            (C)       the date and nature of the transaction, and

            (D)      such other information as the Secretary may              

            prescribe.

      (c)  Exceptions.--

      (1)  Cash received by financial institutions.--Subsection (a) shall

      not apply to--

            (A)  cash received in a transaction reported under title 31, United

            States Code, if the Secretary determines that reporting under this

            section would duplicate the reporting to the Treasury under title

            31, 

United States

 Code, or

            (B)  cash received by any financial institution (as defined in

            subparagraphs (A), (B), (C), (D), (E), (F), (G), (J), (K), (R), and

            (S) of section 5312(a)(2) of title 31, United States Code).

      (2)  Transactions occurring outside the United States.--Except to

      the extent provided in regulations prescribed by the Secretary, subsection

      (a) shall not apply to any transaction if the entire transaction occurs

      outside the 

United States

.

      (d)  Cash Includes Foreign Currency and Certain Monetary

      Instruments.--For purposes of this section, the term "cash" includes--

      (1)  foreign currency, and

      (2)  to the extent provided in regulations prescribed by the Secretary,

      any monetary instrument (whether or not in bearer form) with a face amount

      of not more than $10,000.

      Paragraph (2) shall not apply to any check drawn on the account of the

      writer in a financial institution referred to in subsection (c)(1)(B).

      (e)  Statements to be Furnished to Persons With Respect to Whom

      Information is Required.--Every person required to make a return under

      subsection (a) shall furnish to each person whose name is required to be

      set forth in such return a written statement showing--

      (1)  the name, and address, and phone number of the person required to

      make such return, and

      (2)  the aggregate amount of cash described in subsection (a) received by

      the person required to make such return.

      The written statement required under the preceding sentence shall be

      furnished to the person on or before January 31 of the year following the

      calendar year for which the return under subsection (a) was required to be

      made.

      (f)  Structuring Transactions to Evade Reporting Requirements

      Prohibited.--

      (1)  In general.--No person shall for the purpose of evading the

      return requirements of this section--

            (A)   cause or attempt to cause a trade or business to fail to file

                  a return required under this section,

            (B)   cause or attempt to cause a trade or business to file a return

                  required under this section that contains a material omission

                  or misstatement of fact, or

            (C)   structure or assist in structuring, or attempt to structure or

                  assist in structuring, any transaction with one or more trades

                  or businesses.

      (2)  Penalties.--A person violating paragraph (1) of this

      subsection shall be subject to the same civil and criminal sanctions

      applicable to a person which fails to file or completes a false or

      incorrect return under this section.

25.01[2]  Treasury Regulations:  26 C.F.R.

      As referred to in 26 U.S.C. § 6050I, the Secretary of the Treasury has

promulgated Treasury Regulations to implement the statute, as it is not

self-executing.  The regulations can be found at 26 C.F.R. § 6050I-1 and

26 C.F.R. § 6050I-2, respectively.  

      The final regulations, filed in September of 1986, cover reporting

requirements for the receipt of cash payments generally, as well as circumstances

when cash is received for the account of another, by agents, or in the form of

multiple payments.  For amounts received prior to February 3, 1992, "cash" is

defined by these regulations as "the coin and currency of the United States or

of any other country, which circulate in and are customarily used and accepted

as money in the country in which issued."  For amounts received after February

3, 1992, the term "cash" also means (in addition to the language above) : "A

cashiers' check (by whatever name called, including 'treasurer's check'  and

'bank check'), bank draft, traveler's check, or money order having a face amount

of not more than $10,000."  Treas. Reg. § 1.6050I-1(c)(1) (26 C.F.R.)

(hereinafter "26 C.F.R. §").  In addition, "trade or business" (26 C.F.R.

§ 1.6050I-1(c)(6)), "transaction" (26 C.F.R. § 1.6050I-1(c)(7)(i)),

"related transactions" (including a specific example involving a criminal

attorney being paid in a criminal case) (26 C.F.R. § 1.6050I-1(c)(7)(ii)),

and "recipient" (26 C.F.R. § 1.6050I-1(c)(8)) are defined in the

regulations.  

      Exceptions to the reporting requirements are also included and cover cash

received by certain financial institutions (as set out in the statute itself),

as well as additional exceptions for casinos under various specified

circumstances, cash receipts outside the course of a trade or business, and

transactions that occur entirely outside the United States, Puerto Rico, or

any U.S. possession or territory. [FN1] 

      The regulations also prescribe the time, manner, and form of reporting. 

Form 8300, the reporting document required to be completed by a payee in order

to comply with section 6050I, must be filed with the Internal Revenue Service

within 15 days of the receipt of payment or within 15 days of the payment which

causes the aggregate amount to exceed $10,000. (26 C.F.R. §1.6050I-1(e)(1).) 

      Further, a payee required to file a Form 8300 with the Service must also

furnish a notice ("statements") to the payer named therein.  The statement must

be provided to the payer on or before January 31 of the calendar year following

the year in which the cash is received.  (26 C.F.R. § 1.6050I-1(f).) 

Payments Received After December 31, 1989:

      The temporary regulations (26 C.F.R. §1.6050I-1T), enacted in July of

1990, pertain to cash payments received after December 31, 1989.  They require

persons obligated to make reports under the final regulations (above) to make

additional reports each time subsequent cash payments are received within a

one-year period for the same transaction or related transactions resulting in an

aggregate amount over $10,000.  Previously, an additional report was only

required when a single subsequent payment exceeded $10,000.  The temporary

regulations also set forth the time period within which such a report must be

made. 

      To the extent that they are not inconsistent with these temporary

regulations, the final regulations remain applicable to cash payments received

after 1989.

Payments Received On or After February 3, 1992:

      As noted above, all payments received on or after February 3, 1992, are

governed by final regulations which came into effect on that date.  Under these

regulations, the definition of "cash" for purposes of section 6050I is

significantly broadened in particular instances to include cashier's checks, bank

drafts, traveler's checks, and money orders, so long as they have face values of

not more than $10,000. (26 C.F.R. § 1.6050I-1(c)(1)(ii).)  

      These specified monetary instruments are to be treated as cash only in

retail sales of consumer durables, collectibles, in travel or entertainment

activity, or in any transactions in which the recipient knows that the instrument

is being used to avoid the reporting requirements of section 6050I. (26 C.F.R.

§1,6050I-1(c)(1)(ii)(B).)  The regulations also provide exceptions to

treating the monetary instruments as cash when they are received in certain

installment sales, certain down payment plans, or when documentation shows the

instruments to be the proceeds of a bank loan.   However, certain specified

conditions must be met and examples are given. 

25.01[3]  Attorney Fee Reporting

      Attorneys are not excepted from the reporting requirements of section

6050I.  Neither the statutory exceptions nor the Treasury Regulations defining

them provide any such exclusion.  To the contrary, 26 C.F.R.

1.6050I-1(c)(3)(iii), example (2), illustrates, through the use of a hypothetical

situation, a transaction in which the lawyer's obligation to file a Form 8300

would arise.  In the hypothetical, an attorney represents a client in a criminal

case, and ultimately, receives an aggregate fee of $12,000, which the client pays

in cash.  The regulations specifically state, at the end of example (2), that

this "receipt of cash must be reported under this section."

      Because the Treasury Regulations were promulgated pursuant to an express

delegation of statutory authority, they are "legislative regulations" and are,

therefore, entitled to considerable weight in the courts, and unless inconsistent

with the statute, have the "force and effect of law."  Maryland Casualty Co.

v. United States, 251 U.S. 342, 349 (1920); Allstate Insurance Co. v.

United States, 329 F.2d 346, 349 (7th Cir. 1964).  See also

United States v. Vogel Fertilizer Co., 455 U.S. 16, 24 (1982).

      In response to incomplete Forms 8300 filed by law firms, the Internal

Revenue Service has served summonses on numerous firms since early 1990, seeking

the information necessary to complete the forms.  The Supreme Court has

specifically held that, because Congress has delegated the power to promulgate

all needful rules and regulations for the enforcement of the Internal Revenue

Code, the regulatory interpretations of the Code will be deferred to so long as

they are reasonable.  Treasury regulations and interpretations which have endured 

without substantial change, and which apply to unamended or substantially

reenacted statutes, are deemed to have received congressional approval and have

the effect of law.  Cottage Sav. Ass'n v. Commissioner, 499 U.S. 554, 560-

561, (1991); Jeppsen v. Commissioner, 128 F.3d 1410, 1417 (10th Cir.

1997).  See Maryland Casualty Co., 251 U.S. at  349 (A regulation

by a department of government has the force and effect of law if it is not in

conflict with an express statutory provision.); Allstate Insurance Co.,

329 F.2d at 349.  See also Vogel Fertilizer Co., 455 U.S.

at  24.

      Despite their duty to file under section 6050I and the pertinent Treasury

Regulations, some attorneys have either filed incomplete Form 8300 or ignored the

reporting requirement altogether.  These attorneys claim that the mandated

disclosures violate the attorney-client privilege, the First  Amendment, the

Fourth Amendment, the Fifth Amendment, and the attorney-client relationship

guaranteed by the Sixth Amendment.  The Department of Justice has concluded,

however, that there is no legal or policy reason to justify an exemption for

attorneys from the reporting requirements.  In response to incomplete Forms 8300

filed by law firms, the Internal Revenue Service has served numerous summonses

on law firms since early 1990, seeking the information necessary to complete the

forms.  Attorneys in some circuits have made the argument that this type of

summons constitutes a John Doe Summons because the IRS's purpose is to obtain

information about an unknown third party and should be required to follow the

necessary procedures to obtain such a summons.

John Doe Summons

      The IRS is empowered to serve a summons on any person from whom it seeks

information believed necessary to ascertain that person's tax liability.  26

U.S.C. § 7602(a).  If, however, the IRS seeks information regarding the

potential tax liability of an unnamed taxpayer, it may not summarily issue a

summons, but must follow the procedures laid out in 26 U.S.C. § 7609.  If

the unnamed taxpayer is known to the IRS, it must provide him or her with notice

and opportunity to intervene pursuant to 26 U.S.C. § 7609(a) and (b).  Where

the IRS does not know the identity of the taxpayer under investigation, it must

obtain judicial approval pursuant to § 7609(f) prior to issuing a summons. 

A summons issued pursuant to § 7609(f) is known as a "John Doe summons." 

To create a prima facie case for validating the summons, the IRS must show

that the investigation has a legitimate purpose, that the inquiry is relevant to

that purpose, that the information sought is not already in the possession of the

IRS, and that it followed all requisite administrative steps.  United States

v. Blackman, 72 F.3d 1418, 142 (9th Cir. 1995).

      Law firms in several circuits have challenged summonses requesting the Form

8300 information on the grounds that the IRS was required to obtain prior

judicial approval pursuant to § 7609(f).  Courts tend to look at the motive

behind the request to determine whether the IRS is requesting the information to

investigate the law firm, or whether the IRS is requesting the information to

investigate unknown third parties.  The circuits which have addressed this issue

have been split on whether or not to require a John Doe summons, but the courts

look at  the facts surrounding the investigation to make a determination.

      A district court in the First Circuit noted that omission of the identity

of the client on Forms 8300 was immaterial to the law firm's tax liability and,

therefore, the contention that the IRS was investigating the law firm was not

credible.  As a result, procedures for obtaining a John Doe summons were

required.  United States v. Gertner, 873 F. Supp. 729, 734 (D.Mass. 1995). 

In the Sixth Circuit, the court found that where the IRS had no bona fide

interest in the law firm's tax liability, but rather was interested in the

identity of the payer,  the summons was to be treated as a John Doe summons.  If

the IRS cannot demonstrate bona fide interest in investigating the tax liability

of the party summoned, it must comply with § 7609(f).  United States v.

Ritchie, 15 F.3d 599, 599-600 (6th Cir. 1994).

      The Ninth Circuit did not require a John Doe summons in United States

v. Blackman, 72 F.3d 1418, 1423 (9th Cir. 1995), despite the

respondent's argument that the IRS was not really seeking information about his

clients, and was not seriously investigating him or his law firm at all.  The

respondent contended that the information sought by the IRS did not have any

relevance to any legitimate investigation of him or the firm, and urged the court

to find that the IRS was required to follow John Doe procedures.  The Ninth

Circuit noted that in Tiffany Fine Arts v. United States, 469 U.S. 310,

316-317,  (1985), the Supreme Court held that, even where the IRS admits it has

a "dual motive" (where the investigation is aimed at unnamed as well as named

persons), a John Doe summons is not required so long as the trial court

determines as a matter of fact that the IRS's investigation of the named party

is legitimate.  Based on the holding in Tiffany, the court of appeals

affirmed the district court's decision and held that the investigation of the

firm was legitimate and, thus, did not require a John Doe summons. 

Blackman, 72 F.3d at 1422-1423.

      The courts have held that, except in a case of special circumstance

(discussed below), client identity and payment of fees are not privileged

information.  Gertner, 873 F.Supp. at 734.  United States v.

Goldberger, 935 F.2d 501, 505 (2d Cir. 1991) (Absent special circumstances,

the identification in Form 8300 of respondents' clients who make substantial cash

fee payments is not a disclosure of privileged information.); In re Grand Jury

Matter, 926 F.2d 348, 351 (4th Cir. 1991); Ritchie, 15 F.3d at 602;

United States v. Sindel, 53 F.3d 874, 876 (8th Cir. 1995) (attorney-client

privilege protecting confidential disclosures ordinarily does not apply to client

identity and fee information);  Blackman, 72 F.3d at 1424 (absent

extraordinary circumstances); In re Grand Jury Subpoenas (Anderson), 906

F.2d 1485, 1488 (10th Cir. 1990); United States v. Leventhal, 961 F.2d

936, 940 (11th Cir. 1992).

      An attorney in the Sixth Circuit made the argument that attorneys should

not be forced to comply with section 6050I because consultation with counsel

cannot constitutionally be used to establish a reasonable basis for believing

that a client has failed to comply with internal revenue laws.  The Sixth Circuit

rejected this argument and noted that the suspect act is paying over $10,000 in

cash for anything--in this case legal services.  The IRS's investigation has

nothing to do with the client's choice of attorney; it has everything to do with

how the client paid for the services of his attorney.  There is no reason to

grant law firms a potential monopoly on money laundering simply because their

services are personal and confidential; other businesses must divulge the

identity of their cash-paying clients in keeping with lawful revenue regulations

and law firms should not be an exception to this rule.  Ritchie, 15 F.3d

at 601.

      Some circuits have recognized exceptions to the general rule that client

identity and fee information are not privileged.  The three general exceptions

to this rule include the legal advice exception, the last link exception, and the

confidential communications exception.  Prosecutors should be aware that not all

circuits recognize these exceptions and that each circuit varies on what

circumstances justify a need for departure from the general rule.

      Several circuits have created an exception to the general rule that client

identity and fee information are not protected by the attorney-client privilege

where there is a strong possibility that disclosure would implicate the client

in the very criminal activity for which legal advice was sought.  The First

Circuit granted an exception where the defendant was charged in a narcotics case,

stating that there was a strong possibility that disclosure of a large

unexplained cash income could certainly be incriminating evidence in the pending

prosecution.  This court also noted that this exception is very narrow and

strongly fact driven.  Gertner, 873 F.Supp. at 735.  This exception was

also recognized in Sindel, 53 F.3d at 876; Baird v. Koerner, 279

F.2d 623 (9th Cir. 1960); In re Grand Jury Subpoenas (Anderson), 906 F.2d

at 1488.  This exception was specifically rejected in Lefcourt v. United

States, 125 F.3d 79, 87 (2d Cir. 1997).

      Several circuits have also recognized an exception where the disclosure of

the client's identity by his attorney would have supplied the last link in an

existing chain of incriminating evidence likely to lead to the client's

indictment.  This exception does not apply where the client who may be implicated

is not currently the subject of an ongoing investigation.  This exception has

been recognized in Gertner, 873 F.Supp. at 735 ; Sindel, 53 F.3d

at 876; Blackman, 72  F.3d at 1424; In re Grand Jury Subpoenas

(Anderson), 906 F.2d at 1488-1489; United States v. Leventhal, 961

F.2d at 40  (This exception extends the protection of the attorney-client

privilege to non-privileged information, thereby protecting other attorney-client

communications that are privileged, where the incriminating nature of the

privileged communications has created in the client a reasonable expectation that

the information would be kept confidential.).  The Sixth Circuit explicitly

rejected the last link exception in In re Grand Jury Investigation, 723

F.2d 447 (6th Cir. 1983).  

      The last exception the courts have recognized is an exception for

confidential communications.  This exception protects client identity and fee

information if, by revealing this information , the attorney would necessarily

disclose confidential communications.  This exception has been recognized in

Gertner, 873 F.Supp. at 735; Sindel, 53 F.3d at 876; Blackman,

72 F.3d at 1424.  Therefore, although generally speaking, a clients' identity

and source of payments for legal fees is not privileged, under certain

circumstances, where a disclosure of these facts would be tantamount to a

disclosure  of a confidential communication, this exception will apply.

    On the issue of penalties for non compliance, the Second Circuit

sanctioned a law firm that had refused to comply with a summons for Form 8300

information, based on its belief that the request violated the attorney-client

privilege.  The appellate court noted that client identity and fee information

are, absent special circumstances, not privileged, and that possible or even

likely client incrimination does not amount to a special circumstance.  The court

concluded that the failure to disclose was willful and an intentional disregard

of the law firm's obligation.  Accordingly, the court affirmed the district

court's refusal to order the refund of a $25,000 penalty assessed by the IRS

against the law firm for failing to disclose client identity on a Form 8300.

      An attorney in the Eighth Circuit argued that completion of Form 8300

constitutes 'compelled speech' which violates both his own and his clients' First

Amendment rights.  Sindel, 53 F.3d at 878.  The court stated that First

Amendment protection against compelled speech has been found only in the context

of governmental compulsion to disseminate a particular political or ideological

message.  The IRS summons requires the attorney only to provide the government

with information which his clients have given him voluntarily, not to disseminate

publicly a message with which he disagrees.  Therefore, the First Amendment

protection against compelled speech does not prevent enforcement of the summons.

      An attorney in the Second Circuit argued that the summons violated rights

provided by the Fourth Amendment.  This argument was rejected by the court in

United States v. Goldberger, 935 F.2d 501, 503 (2d Cir. 1991).

      Law firms have also made the argument that compelling an attorney to

provide evidence against his client violates the client's Fifth Amendment right

against self-incrimination.  This argument has also been rejected by many of the

circuits on the basis that the privilege against self-incrimination is a personal

privilege, and the client is not the one being compelled.  Couch v. United

States, 409 U.S. 322, 328 (1973);  Goldberger, 935 F.2d at 503; 

Ritchie, 15 F.3d at 602; Sindel, 53 F.3d at 877 (8th Cir. 1995);

Blackman, 72 F.3d at 1426.

      In Goldberger & Dubin, 935 F.2d at 505, the court also stated that,

even when the technical requirements of the attorney-client privilege have been

satisfied, it should still yield in the face of section 6050I, a federal statute,

which implicitly precludes application of the privilege.   

      Professional responsibility rules and bar association ethical opinions

which require that an attorney maintain client confidences or which purport to

compel an attorney to withhold information sought under section 6050I do not

override the clear mandate of a statute enacted by Congress.  In Caplin &

Drysdale, Chartered v. United States,  491 U.S. 617 (1989), the Court

stated that: "[t]he fact that a federal statutory scheme . . . is at odds with

model disciplinary rules or state disciplinary codes hardly renders the federal

statute invalid."  491 U.S. at 632, n.10.  And, most professional responsibility

codes allow or require an attorney to disclose client confidences when such

disclosure is required by law.  See, e.g., Model Code of

Professional Responsibility DR 4-101(C)(2), DR 7-102(A)(3) (1981).

      Several arguments have been made with respect to the Sixth Amendment.  The

first  is that "it interferes with the ability to citizens to retain counsel." 

This argument has been rejected by a number of circuits.  The Second Circuit has

noted that section 6050I does not preclude would-be clients from using their own

funds to hire whomever they choose.  To avoid  disclosure under section 6050I,

they need only pay counsel in some manner other than cash.  Goldberger,

935 F.2d at 504.  This argument was also rejected by Ritchie, 15 F.3d at

601; Sindel, 53 F.3d at 877 (A client is not prevented from communicating

with an attorney at will merely because the attorney must report large cash

transactions.).

      Another argument made is that the reporting requirement "discourages free

and open communication between client and attorney."  This argument has been

rejected in Ritchie, 15 F.3d at 601, and Sindel, 53 F.3d at 877. 

Law firms also argue that "it could destroy the attorney-client relationship

through disqualifications of counsel who is later called to testify as to the

form of payment."  Both Ritchie, 15 F.3d at 601, and Sindel, 53

F.3d at 877, also rejected this argument.  The Tenth Circuit has also held that

there is no right to counsel prior to indictment or after all appeals have been

exhausted and that a subpoena served on counsel during representation of a client

whose case is currently on appeal should be quashed only upon a showing that the

subpoena would create actual conflict between the attorney and client.  In re

Grand Jury Subpoenas (Anderson), 906 F.2d at 1488-1489.

      In addition, the strong governmental interest served by section 6050I in

permitting taxation of otherwise hidden income and in tracing funds related to

criminal activities may override any Sixth Amendment interest in keeping client

identity and fee information confidential.  Cf. Caplin & Drysdale,

Chartered, 491 U.S. at 631 (strong government interest in recovering

forgettable assets overrides defendant's Sixth Amendment interest in using the

assets to pay for his legal defense).

25.01[4]  Criminal Prosecution: Failing to File Correct Forms;

          Structuring to Evade Reporting

      Criminal charges with regard to section 6050I may be brought against

persons who willfully violate either the duty to file correct Forms 8300 or the

statute's prohibitions against structuring transactions to evade reporting

requirements.  However, a failure to furnish a correct statement to a payer named

in a Form 8300, as required by section 6050I(e), brings civil penalties only.

      As originally enacted, section 6050I did not contain any prohibition

against structuring.  Effective November 18, 1988, section 6050I(f), as enacted

in the Anti-Drug Abuse Act of 1988, expressly prohibits the structuring of

transactions for the purpose of evading the statute's reporting requirements. 

It also makes explicit prohibitions against causing or attempting to cause a

trade or business to fail to file a Form 8300, and against causing or attempting

to cause a trade or business to file an incorrect Form 8300.  Originally

captioned "Actions by Payers," the subsection was given its present caption

("Structuring Transactions to Evade Reporting Requirements Prohibited") on

November 5, 1990, to ensure that both payers and payees are subject to the

anti-structuring language. [FN2]

      25.01[4][a]  Duty To File Correct Forms 8300 -- WILLFULNESS

      Since Forms 8300 are required under the Internal Revenue Code, willful

failures to file and  willful filings of incorrect forms are criminal tax

offenses within Title 26.  Specifically, typical prosecutions will be for failure

to file Forms 8300 or for filing or aiding the filing of false Forms 8300,

punishable under 26 U.S.C. §§ 7203, 7206(1) and 7206(2), respectively. 

Similarly, prosecutions for structuring will also be brought pursuant to these

statutes as Section 6050I(f)(2) states that "[a] person violating this subsection

shall be subject to the same civil and criminal sanctions applicable to a person

which fails to file or completes a false or incorrect return under this section." 

[FN3] Prosecutions for violations of section 6050I will involve the same elements

as traditional tax violations using these statutes.  Therefore, reference should

be made to the appropriate discussions in Sections 10.00, 12.00, and 13.00 of

this Manual.

      A section 7201 tax evasion prosecution is not available for violations of

section 6050I, since there is no tax involved in Form 8300 reporting.  However,

the filing of a false Form 8300 or structuring activities either with respect to

nonfiling or false filing of Forms 8300 could constitute affirmative acts for

purposes of a traditional tax evasion prosecution involving, for the client,

individual income taxes on Form 1040.

      Successful prosecutions under sections 7203, 7206(1), or 7206(2) require

a showing of "willfulness."  Willfulness in the criminal tax statutes is defined

as "a voluntary, intentional violation of a known legal duty."  United States

v. Bishop, 412 U.S. 346, 360 (1973).  Willfulness is absent when the

violation occurs because of a good faith misunderstanding of the law or a good

faith belief that one is not violating the law, even if the belief or

misunderstanding is not objectively reasonable.  Cheek v. United States,

498 U.S. 192 (1991).

      Because violations of section 6050I are prosecuted under the criminal tax

statutes and because willfulness under those statutes requires a showing that the

defendant knew of the legal duty he is charged with violating, there has never

been much doubt that to establish a willful failure to file a Form 8300 or the

willful filing of a false Form 8300, the government was required to prove that

the defendant knew of the filing requirement.  Until recently, however, there has

been some doubt whether the government was required to show in a prosecution for

structuring to avoid the Form 8300 filing requirements (26 U.S.C.

§ 6050I(f)), that the defendant knew structuring was prohibited.  The

language of section 6050I(f) is virtually identical to the language of the

anti-structuring provision in Title 31 (31 U.S.C. § 5324) and a number of

courts had held that in a Title 31 structuring case the prosecution need only

prove that the defendant knew of the reporting requirements and acted to avoid

the requirements.  Knowledge that structuring was illegal was held to be

unnecessary.  United States v. Pinner, 979 F.2d 156 (9th Cir. 1992);

United States v. Beaumont, 972 F.2d 91 (5th Cir. 1992); United States

v. Gibbons, 968 F.2d 639 (8th Cir. 1992); United States v. Coming,

968 F.2d 232 (2d Cir.); United States v. Rogers, 962 F.2d 342 (4th Cir.

1992).  See also United States v. Holland, 914 F.2d 1125 (9th Cir.

1990).

      In Ratzlaf v. United States,  510 U.S. 135 (1994), however, the

Supreme Court rejected these cases and held that, to establish a willful

violation of the anti-structuring provision in Title 31, the government was

required to prove that the defendant acted with knowledge that his conduct was

unlawful.  In other words, the government must prove that the defendant knew that

structuring was illegal.

      Given the similarity in language between the two anti-structuring

provisions and the general requirement in tax cases that the government prove

that the defendant was aware of the legal duty he is charged with having

violated, it will be difficult to argue, following Ratzlaff, that the

government is not required to prove that a defendant charged with violating

section 6050I(f) knew that structuring was prohibited.  The sort of proof which

can be used to establish the element of knowledge is the same sort of proof which

has traditionally been used in tax cases.  Thus, knowledge may be shown by such

evidence as a prior history of filing Forms 8300, testimony of a cooperating

insider, admissions made to undercover operatives, or proof of affirmative

efforts to structure receipts around the filing requirement.

      25.01[5] Sentencing

      With respect to prosecutions under 26 U.S.C. § 7203 for willfully

failing to file Forms 8300, the maximum permissible prison term for such offenses

was changed from one year to five years by the Anti-Drug Abuse Act of 1988,

effective November 18 of that year.  A willful failure to file Form 8300 is a

felony offense, no longer a misdemeanor, pursuant to the Crime Control Act of

1990.

      Violations of 26 U.S.C. § 7206 involving Forms 8300 are unaffected by

the Anti-Drug Abuse Act and are still felonies punishable by up to three years'

imprisonment.  A conviction under 26 U.S.C. § 7206(1) or (2) for a filing

completed after November 1, 1987, but before November 1, 1993, is sentenced under

section 2T1.3 or section 2T1.4 of the Federal Sentencing Guidelines,

respectively.  A conviction under 26 U.S.C. § 7203 for failing to file a

Form 8300 after November 1, 1987, however, is not sentenced under Part T

("Offenses Involving Taxation").  Rather, section 2T1.2(c)(1) expressly provides

that the defendant is to be sentenced under section 2S1.3 ("Failure to Report

Monetary Transactions") of the guidelines. [FN4]

      For offenses committed after November 1, 1993,  amendments to the

Sentencing Guidelines provide that for violations based upon 26 U.S.C.

§ 6050I, prosecuted under either 26 U.S.C. §§ 7203 or 7206,

sentence is to be imposed pursuant to new section 2S1.3.  This section is

entitled "Structuring Transactions to Evade Reporting Requirements; Failure to

Report Cash or Monetary Transactions; Failure to File Currency and Monetary

Instruments Report; Knowingly Filing False Reports."

      Prosecutors should also be aware that both sections 7203 and 7206 provide

for mandatory costs of prosecution.

25.01[6]  Venue

      Appropriate venue considerations will depend upon the statute (section 7203

or section 7206) pursuant to which the prosecution is brought.  Reference should

be made to the discussion of venue in the sections of this manual (Sections

10.00, 12.00, and 13.00, supra) addressing the pertinent offenses.  Also,

see Section 6.00, supra, for a general discussion of venue.

25.01[7]  Statute of Limitations

      For prosecutions under 26 U.S.C. § 7203 for willful failure to file

a Form 8300, the statute of limitations is three years and begins to run

from the date the form was due to be filed.  With respect to prosecutions under

26 U.S.C. § 7206 for filing a false Form 8300 or aiding such filing, the

statute of limitations is six years and runs from the date the false form was

filed.

      Reference should be made to the statute of limitations for tax offenses,

26 U.S.C. § 6531.  For a general discussion of the statute of limitations,

see Section 7.00, supra.

25.01[8]  Policy and Procedure

      Tax Division Directive No. 87-61, effective February 27, 1987, delegates

the authority of the Assistant Attorney General of the Tax Division to authorize

prosecutions of section 6050I offenses under 26 U.S.C. §§ 7203 and

7206.  Under the limited delegation, the Service may refer such prosecution

recommendations to United States Attorneys directly, so long as a copy of the

referral is simultaneously sent to the Tax Division.  This direct referral

procedure obviates the usual requirement of Tax Division review in many cases. 

Instead, under the Directive, such prosecutions may be authorized by the

Assistant Attorney General of the Criminal Division, his or her Deputies, or his

or her Section Chiefs; a United States Attorney; a permanently appointed First

Assistant United States Attorney; or a Chief of criminal functions within a

United States Attorney's Office.

      There are, however, exceptions to the direct referral process.  The Tax

Division continues to review all contemplated section 6050I prosecutions which

are coupled with other tax offenses (e.g., a Klein conspiracy

charge, which cannot be indicted without Division approval).  Moreover, the

delegation of authority does not include section 6050I prosecutions to be brought

against: accountants; physicians; attorneys (acting in their professional

representative capacity) or their employees; casinos or their employees;

financial institutions or their employees; local, state, federal or foreign

public officials or political candidates; members of the judiciary; religious

leaders; representatives of the electronic or printed news media; labor union

officials; and, publicly-held corporations and/or their officers.  

      The Directive notes that, notwithstanding the delegation, the designated

official has the discretion to seek Tax Division authorization of any proposed

prosecution within the scope of the delegation or to request the advice of the

Tax Division with respect to any such proposed prosecution.

      The delegation of authority does not extend to any case in which a

violation of section 6050I is the basis, in whole or in part, for a charge under

any statute other than 26 U.S.C. § 7203 or § 7206.

25.01[8][a]  Tax Return Disclosure

      Forms 8300 are subject to the provisions of 26 U.S.C. § 6103, which

sets forth a general rule of confidentiality for all returns and return

information.  Section 6103(h) allows disclosure of returns or return information

to certain federal officers and employees (including employees of the Departments

of Treasury and Justice) for purposes of tax administration.  Section 6103(i)(1)

provides for disclosure of returns and return information pursuant to ex

parte order for use in criminal investigations not relating to tax

administration.  Section 6103(e)(15) specifically  provides that, upon written

request, the Secretary of  the Treasury may disclose to officers or employees of

any federal agency, any agency of a state or local government, or any agency of

the government of a foreign country, information contained on returns filed under

section 6050I.  Disclosures made under this provision are made on the same basis,

and subject to the same conditions, as apply to disclosure of information

contained on reports filed under 31 U.S.C. 5313 (Currency Transaction Reports). 

No disclosure under this provision may be made for the purposes of  the

administration of any tax law.  Prosecutors involved in Form 8300 prosecutions

or other criminal tax cases should keep the requirements of section 6103 in mind

and adhere to its provisions.

      For additional general information concerning section 6103 and the

disclosure of tax information, see section 42.00, a new section in this

edition of the Criminal Tax Manual. 

---

            25.02  18 U.S.C. § 1956(a)(1)(A)(ii) -- LAUNDERING

                   OF MONETARY INSTRUMENTS

25.02[1]  Statutory Language: 18 U.S.C. § 1956(a)(1)(A)(ii) [FN5]

      This statute provides, in pertinent part:

   § 1956.  Laundering of monetary instruments

      (a)(1)  Whoever, knowing that the property involved in a financial

      transaction represents the proceeds of some form of unlawful activity,

      conducts or attempts to conduct such a financial transaction which in fact

      involves the proceeds of specified unlawful activity--

      . . . .

      (A)(ii)  with intent to engage in conduct constituting a violation of

      section 7201 or 7206 of the Internal Revenue Code of 1986;

                  . . . .

      shall be sentenced to a fine of not more than $500,000 or twice the value

      of the monetary instrument or funds involved in the transportation,

      transmission, or transfer, whichever is greater, or imprisonment for not

      more than twenty years, or both. * * * *

25.02[2]  Generally

      Sections 1956 and 1957 of Title 18 are the federal money laundering

statutes created by the Anti-Drug Abuse Act of 1986.   Their provisions describe

four criminal offenses which may arise from participation in certain transactions

involving the proceeds of specified unlawful activities.  Specifically, the money

laundering offenses are divided into the following categories: financial

transactions, transportation, financial institutions, and monetary transactions. 

Section 1956(a)(1)(A)(ii), the subsection which is of particular relevance to tax

crimes and which is addressed in this Section of the Manual, is a financial

transaction offense.  It was not included, however, in the statute until the

passage of the Anti-Drug Abuse Act of 1988 and did not become effective until

November 18, 1988.

25.02[3]  Elements

      To establish a violation of 18 U.S.C. § 1956(a)(1)(A)(ii), the

following elements must be proved beyond a reasonable doubt:

      1.    defendant conducted or attempted to conduct a financial transaction;

      2.    defendant knew that the property involved in the transaction

            represented the proceeds of some form of unlawful activity;

      3.    the property did, in fact, represent the proceeds of "specified

            unlawful activity;" and,

      4.    defendant took part in the transaction with the intent to engage in

            conduct constituting a violation of 26 U.S.C. § 7201 or

            26 U.S.C. § 7206.

The government must make an independent showing of participation, knowledge, and

intent for each defendant tried as a party to the money laundering transaction. 

United States v. Cota, 953 F.2d 753, 755 (2d Cir. 1992).

25.02[4]  Conduct Financial Transaction

      Section 1956 defines "financial transaction" very broadly.  The term

"transaction" is defined in section 1956(c)(3) to include a purchase, sale, loan,

pledge, gift, transfer, delivery, or other disposition of property.  When

involving a financial institution, "transaction" covers nearly all common banking

transactions and includes a deposit, withdrawal, transfer between accounts,

exchange of currency, loan, extension of credit, purchase or sale of any stock,

bond, certificate of deposit, or other monetary instrument, or any other payment,

transfer, or delivery by, through, or to a financial institution.  The placing

of money in a safe deposit box was originally not a transaction within the

meaning of the statute.  United States v. Bell, 936 F.2d 337, 342

(7th Cir. 1991) (court opined that the list of banking transactions provided in

the statute reveals Congress' intent to limit the meaning of "transaction" to

activities where the bank actually retains control over the funds).  However,

effective October 28, 1992, this was legislatively overruled by section 1527 of

the Anti-Money Laundering Act which amended section 1956(c)(3) to include the use

of a safe deposit box in the definition of financial transaction.  If the case

involves a safe deposit box prior to October 28, 1992, in a circuit other than

the Seventh, it is still worth pursuing, since the legislative history of the

amendment suggests that it is only codifying what was already the law. 

      In order to qualify as a "financial transaction" within the purview of the

statute, the transaction must affect interstate or foreign commerce and involve

either (1) the movement of funds by wire or other means or (2) one or more

monetary instruments, or (3) the transfer of  title to any real property,

vehicle, vessel, or aircraft.  Alternatively, the transaction must involve the

use of a financial institution which is engaged in, or whose activities affect,

interstate or foreign commerce.  18 U.S.C. § 1956(c)(4).  The term

"financial institution" includes any such entity meeting the broad definition set

forth in 31 U.S.C. § 5312(a)(2).  18 U.S.C. § 1956(c)(6).

      Unlike 26 U.S.C. § 6050I, which only applies to transactions involving

more than $10,000, there is no threshold amount of money which must be involved

in the financial transaction to constitute a violation of section 1956. 

      For the purposes of this statute, the term "monetary instruments" means the

coin or currency of the United States or other country, travelers' checks,

personal checks, bank checks, money orders, or, lastly,  investment securities

or negotiable instruments which are in bearer form or such form that title to

them passes upon delivery.  18 U.S.C. § 1956(c)(5).

      The term "conducts" includes initiating, concluding, or participating in

initiating or concluding a transaction.  18 U.S.C. § 1956(c)(2).  Moreover,

the offense explicitly includes attempts at "conducting" such

transactions, as well as completed offenses.

      The requirement that the transaction have some effect on commerce is for

jurisdictional purposes and is derived from the Hobbs Act (18 U.S.C.

§ 1951).  It is intended to embrace the full exercise of Congress' powers

under the Commerce Clause of the United States Constitution.  A minimal or

potential effect on commerce should be sufficient to satisfy the standard.  

But see United States v. Aramony,  88 F. 3d 1369, 1386 (4th Cir. 1996).

25.02[5]  Knowledge

      The defendant must have known that the property involved in the transaction

or attempted transaction represented, in whole or in part, the proceeds of some

form of activity which constitutes a felony under state, federal, or foreign law. 

It is not necessary to show that the defendant knew the proceeds were derived

from a particular federal, state, or foreign offense, just that the property was

the proceeds of some unlawful conduct.  Nor is it necessary, if the defendant

did, in fact, believe that the proceeds were the result of a particular unlawful

activity, that that activity be a "specified unlawful activity" (discussed

infra) within the meaning of the statute. 18 U.S.C. § 1956(c)(1).  

      For offenses committed before November 29, 1990, the knowledge requirement

may only be satisfied if the defendant knew that the proceeds were derived from

an activity constituting a felony under state or federal law.  The statute was

not amended to include knowledge of activity violative of foreign law until that

year.  See Crime Control Act of 1990, Pub. L. No. 101-647, section 106,

104 Stat. 4789, 4791 (1990).

      Also, prior to November 29, 1990, the term "state" was not expressly

defined in the statute.  On that date, however, section 1956(c)(8) became

effective and defined the term to include "a State of the United States, the

District of Columbia, and any commonwealth, territory, or possession of the

United States."

      The statute's legislative history makes clear that the knowledge

requirement of the statute includes "willful blindness."   Several circuits have

expresssly adopted the doctrine in some form.  As stated by the Seventh Circuit:

"To support a conviction [under 18 U.S.C. § 1956], the prosecution must

demonstrate that the defendant had either actual knowledge of the tainted source

of funds, or consciously avoided obtaining actual knowledge, because '[i]t is

well settled that wilful [sic] blindness or conscious avoidance is the legal

equivalent to knowledge."' United States v. Rodriguez, 53 F.3d 1439, 1447

(7th Cir. 1996) United States v. Antzoulatos,  962 F.2d 720, 724 (7th Cir.

1992). The Third Circuit concurs: "[t]he element of knowledge may be satisfied

by inferences drawn from proof that a defendant may have deliberately closed his

or her eyes to what otherwise had been obvious to him or her."  United States

v. Anderskow, 88 F.3d 245, 252 (3d Cir. 1996).  

      Ultimately, two elements are necessary to warrant a separate jury

instruction for willful blindness in a money laundering prosecution: (1) the

defendant must have claimed a lack of actual knowledge; and (2) the evidence

presented by the government must support an inference that the defendant engaged

in a course of deliberate ignorance.  See United States v. Gabriele,

63 F.3d 61, 66 (1st Cir. 1995); see also United States v. Gonzales, 90

F.3d 1363, 1371 (8th cir. 1996).  

      However, prosecutors should be aware that certain circuits apply the

doctrine of willful blindness more narrowly.  What constitutes willful blindness

in one jurisdiction may not in another.  Thus, the "evidence sufficient to

support an inference of deliberate ignorance" standard  may be a significant

burden to overcome.  See, e.g., United States v. Campbell, 777 F.Supp.

1259, 1266  (W.D.N.C. 1991), aff'd in part, rev'd in part, 977 F.2d 854

(4th Cir. 1992) (standard for willful blindness is not whether the defendant

"could've, should've, or would've known," but whether defendant did know

the transaction involved illegal proceeds).  The scant case law concerning the

application of the willful blindness standard to section 1956 prosecutions,

however, leaves judicial acceptance of the doctrine in this context uncertain. 

In one of the few cases dealing with the issue, a federal district judge

interpreted the willful blindness doctrine narrowly and overturned the conviction

of a real estate agent charged with the violation of two federal money laundering

laws, including 18 U.S.C. § 1956(a)(1)(B)(i).  United States v.

Campbell, 777 F. Supp. at 1267.   

      In Campbell, the defendant sold a home to a drug dealer and filed

a false statement with the Department of Housing and Urban Development,

understating the house's selling price by $60,000 (the under-the-table amount

paid in cash by the drug dealer).  The government relied on a theory of willful

blindness to satisfy section 1956's knowledge requirement.  The prosecution

presented evidence of the defendant's awareness of the drug dealer's flamboyant

lifestyle and expensive tastes to prove her deliberate ignorance, but did not

offer evidence that the realtor actually knew her client's illicit occupation. 

25.02[6]  Proceeds of Specified Unlawful Activity

      The actual source of the funds or property involved in the transaction or

attempted transaction must have been, in fact, one or more of the statute's

"specified unlawful activities," enumerated in section 1956(c)(7).  The list is

comprised of both state and federal offenses which either generate substantial

economic proceeds or require substantial funds to commit.  The list includes all

federal offenses which are currently RICO predicates (other than Title 31

violations), all federal and foreign felony drug offenses, and an assortment of

bribery, white collar, environmental, export control, and espionage crimes.  (The

list of specified unlawful activities has expanded each year.  It is, therefore,

recommended that the government attorney check the operative statute for the

specific years involved). 

      Tax crimes, however, in and of themselves, are not among the crimes listed

in the statute as "specified unlawful activity."  S.Rep. No. 433, 99th Cong. 2d

Session, 11-12 (1986).  Nor can the omission of tax crimes as "specified unlawful

activity" be overcome by charging an Internal Revenue violation under some other

provision of the United States Code which is included in the list of "specified

unlawful activity." United States v. Smith, No. 92-1612 (5th Cir. Aug. 11,

1993) (unpublished opinion).  See also Tax Division Directive No. 99

(March 30, 1993). 

      The source of the funds may be established through either direct or

circumstantial evidence.  See United States v. Blackman, 904 F.2d

1250, 1257 (8th Cir. 1990).  The prosecution does not have to trace the proceeds

back to a particular criminal event (e.g., to a particular drug sale) to

show their illicit origin; however, the government cannot rely solely on proof

that the defendant has no legitimate source of income.  Rather, the evidence must

show, beyond a reasonable doubt, that the funds were derived, in whole or in

part, from a specified unlawful activity.  Id. at 1257.

      The funds involved in the transaction need not be composed entirely of

proceeds from one or more specified unlawful activities.  The intermingling of

either legitimate income or the proceeds of unlawful enterprises not specified

in the statute with the proceeds of a statutorily specified crime does not

prevent a financial transaction involving these funds from satisfying this

element of the money laundering offense.  United States v. Jackson,

935 F.2d 832, 839-40 (7th Cir. 1991).

25.02[7]  Intent to Evade Tax or Commit Tax Fraud    

      To establish a violation under 18 U.S.C. § 1956(a)(1)(A)(ii), the

prosecution must prove that the defendant took part in the financial transaction

with the intent to engage in conduct which would constitute a violation of

26 U.S.C. § 7201 or § 7206.  The tax involved need not be that of the

defendant.  The legislative history shows that the prohibitions also apply to a

person who intends to aid another in violating the tax laws.  134 Cong. Rec.

S17367 (daily ed. Nov. 10, 1988). 

      Conduct constituting a violation of section 7201 involves attempted tax

evasion (willful attempt in any manner to evade or defeat any tax or payment

thereof).  See, e.g., Spies v. United States, 317 U.S. 492,

498-99 (1943).  Section 1956 does not contain any limitation on the type of tax

covered or the type of document submitted.  Thus, one could act with the intent

to evade income tax, excise tax, estate tax, gift tax, or any other kind of tax. 

For a more complete discussion of section 7201 offenses, refer to Section 8.00,

supra.

      Conduct that will constitute a violation of section 7206 is manifold.  The

section may be violated through various activities including:  (1) willfully

making or subscribing a false return or document under penalties of perjury;

(2) willfully aiding or assisting in the preparation or presentation of a false

return, affidavit, claim, or document; (3) falsely or fraudulently executing,

signing, procuring, or conniving the false execution of any bond, permit, entry,

or other document required under the Internal Revenue Code or Regulations;

(4) removal or concealment of any goods or commodities for or in respect whereof

any tax is or shall be imposed or upon which levy is authorized by 26 U.S.C.

§ 6331, with intent to evade or defeat the assessment or collection of any

tax imposed under Title 26; or (5) concealing property or falsifying information

in connection with any offer in compromise.  For additional discussion of conduct

violative of section 7206, see Sections 12.00, 13.00, 14.00, and 15.00,

supra.

      Although the language of section 1956 requires that the defendant simply

intend to engage in conduct which constitutes a violation of sections 7201 and/or

section 7206, conduct is not truly violative of either section unless the

defendant is aware of the duty the tax laws impose and voluntarily and

intentionally violates that duty.  Cheek v. United States, 498 U.S. 192

(1991).  

      Proof of a completed violation under section 7201 or section 7206, related

to a financial transaction, could be relied upon to prove that the defendant

acted with the required intent; however, the language of section

1956(a)(1)(A)(ii) does not seem to require proof of a completed offense under

either section for a successful prosecution.  Instead, it is enough to show that

the defendant's objective was to engage in conduct which constituted a violation

of either section.  

      Clearly, proof that the defendant acted with the necessary intent will be

easiest where the defendant has stated that the purpose of the financial

transaction was to avoid paying taxes or to hide income from the Internal Revenue

Service.  In the absence of an express statement, however, care must be taken in

selecting the acts relied upon to prove that the defendant acted with the

requisite intent.  Concealment may be undertaken for any number of reasons

unrelated to noncompliance with the tax laws, e.g., to hide an illegal

business from the government, to perpetuate a fraud on business creditors or

third persons, or to conceal assets in a divorce proceeding.

      Thus, proof that the defendant's actions concealed sources of income or the

ownership of assets might not be enough by itself to show an intent to act in

violation of either section 7201 or section 7206.  See Ingram v. United

States, 360 U.S. 672 (1959) (holding that defendants' participation in

conducting and attempting to conceal lottery operations was insufficient to

convict them of conspiring with others to evade and defeat the payment of the

federal taxes imposed on lottery operations, where they were merely employees who

were not liable for the payment of such taxes and were not shown to have

knowledge that the taxes had not been paid);  United States v.

Pritchett, 908 F.2d 816, 821 (11th Cir. 1990) aff'd in part, rev'd

in part  (when efforts at concealment are reasonably explainable in terms

other than a motivation to evade taxes, the government must offer independent

proof that those who participated in the concealment intended to evade taxes);

United States v. Krasovich, 819 F.2d 253 (9th Cir. 1987) (holding that proof

of defendant's purchase of a truck with funds provided by another and titling of

the truck in his name were insufficient to show that he conspired to impede the

IRS with regard to the other's taxes); United States v. Tarnopol, 561 F.2d

466 (3rd Cir. 1977) (holding that proof that numerous sales were omitted

from the books of two corporations was insufficient by itself to sustain

conviction for conspiring to impede the IRS in regard to the taxes of the two

corporations or the controlling stockholder of the two corporations), rev'd

on other grounds sub.nom, Griffin v. United States, 502 U.S. 46, 56-7

(1991). 

      In short, there must be some proof that the defendant was aware that the

transaction related in some way to an intended violation of section 7201 or

section 7206.  In some cases, proof may have to be found outside the financial

transaction itself.  In other cases, the form of money laundering transaction

alone may provide proof that the transaction was undertaken for the purpose of 

tax evasion or tax fraud, e.g., where taxable funds are laundered and

returned through a series of transactions to the taxpayer in a nontaxable form,

such as a purported loan or gift.  See Pritchett,908F.2d at 821-22.

      In United States v. Zanghi, 189 F.3d 71, 79-80 (1st

Cir.1999), cert. denied, 528 U.S. 1097 (2000),  the First Circuit

upheld  Zanghi's 1956(a)(1)(A)(ii) money laundering convictions despite

concluding that the trial court's jury instructions incorrectly required the jury

to find that Zanghi's sole intent in making financial transactions with proceeds

of securities fraud was tax evasion.  The First Circuit also determined that

there was more than sufficient evidence for the jury to conclude that Zanghi

conducted the withdrawals at issue with sufficient tax evasive motive to meet the

willfulness standard of § 7201.  Defendant paid no personal income tax for

1991 and 1992 and minimal amounts in 1990.  His unreported income for the three

years totaled over $1,000,000, and he reported none of the funds he withdrew from

the accounts in 1990 through 1992 as personal income.  When his accountant

informed him of a substantial tax liability for 1992, defendant declared: "no

taxes, no taxes.  I can't pay any taxes."  Defendant also labeled the  checks at

issue as loan repayments.  Zanghi, 189 F.3d at 81.  The court determined

that a reasonable jury could have easily found beyond a reasonable doubt these

facts were evidence of Zanghi's intent to engage in conduct constituting a

violation of 26 U.S.C. Section 7201 and, thus, sufficed to support Zanghi's

convictions under 18 U.S.C. Section 1956(a)(1)(A)(ii).

25.02[8]  Sentencing

      A conviction under this subsection may bring a maximum prison sentence of

20 years and/or a fine of up to $500,000 or twice the amount involved in the

transaction, whichever is greater.

      Offenses committed after November 1, 1987, are sentenced under section

2S1.1 of the Federal Sentencing Guidelines.  In addition to a base offense level

of 23, section 2S1.1 provides an increase of three in the offense level if the

defendant knew the proceeds involved in the transaction derived from narcotics

trafficking.  It also provides a one to thirteen level increase depending on

whether and by how much the amount of money involved in the transaction exceeded

$100,000.

25.02[9]  Venue

      Venue is proper in the district in which the offense was committed or in

any district in which an act in furtherance of the crime was committed. 

18 U.S.C. § 3237(a); Fed. R. Crim. P. 18.  

      In United States v. Cabrales, 524 U.S. 1, 4-5 (1998), the

Supreme Court affirmed the Eighth Circuit's dismissal of counts involving 18

U.S.C. 1956 a(1)(B)(ii) and 1957 money laundering offenses on the basis of

improper venue.  The lower court had held that Missouri was not a proper venue

for the money laundering charges.  See  United States v.

Cabrales, 109 F.3d 471, as amended, 115 F.3d 621 (8th Cir. 1997).  Although

the funds had been generated by a Missouri cocaine distribution ring, the

laundering alleged in the case had taken place entirely in Florida.  Also, the

defendant was not alleged to have transported funds from Missouri to Florida; nor

was the defendant charged (in the counts before the Supreme Court) with

participation in the Missouri cocaine distribution ring which generated the

funds.  Therefore, while the Court acknowledged that, in some instances, money

laundering could be a continuing offense for venue purposes, it found that that

was not the case here where the defendant was charged with transactions which

continued and were completed in Florida.  See Cabrales, 524 U.S.

at 8.

      For a general discussion of venue, see Section 6.00, supra. 

25.02[10]  Statute of Limitations

      Under 18 U.S.C. § 3282, the statute of limitations for violations of

section 1956(a)(1)(A)(ii) is five years.

      For a general discussion of the statute of limitations, see Section

7.00, supra.

25.02[11]  Policy and Procedure

      Sections 9-105.300 and 9-105.750 of the  United States Attorneys'

Manual address the  review and prosecution of section 1956(a)(1)(A)(ii)

cases. Section 9-105.750 explains that the subsection exists to facilitate

prosecution of money launderers, not to displace the appropriate use of

traditional Title 18 and Title 26 charges in criminal tax cases.  Prosecutors are

to continue to bring charges under these Titles when the evidence so warrants. 

      Tax Division authorization is required before indictments under this

subsection may be sought, if the indictment will also include charges for which

Tax Division authorization is ordinarily required or if intent to engage in

conduct constituting a violation of 26 U.S.C. §§ 7201 or 7206 is the

sole or principal purpose of the financial transaction which constitutes the

subject of the money laundering count.  See USAM, sections 9-105.300 and 

Tax Division Directive No. 99, dated March 30, 1993.   

      In limiting the necessity of Tax Division authorization to the two

circumstances set forth above, it is assumed that, in situations where such

authorization is not required, the following facts exist:  (1) the principal

purpose of the financial transaction was to accomplish some other (non-tax

related) covered purpose, such as carrying on some specified unlawful activity;

(2) the circumstances do not warrant the filing of substantive tax or tax fraud

conspiracy charges; and, (3) the existence of a secondary tax evasion or false

return motivation for the transaction is one that is readily apparent from the

nature of the money laundering transaction itself. 

      Finally, prosecutors should bear in mind the Memorandum of Understanding

(revised August, 1990) between the Departments of Justice and the Treasury and

the Postal Service regarding authority to investigate money laundering

violations.  This Memorandum gives the Internal Revenue Service investigative

jurisdiction over all violations of sections 1956 and 1957 where the underlying

conduct is subject to investigation under Title 26 or the Bank Secrecy Act.

---

FN 1. In United States v. White, 237 F.3d 170, 173 (2d Cir. 2001), the

Second Circuit affirmed convictions for willfully failing to file Forms 8300

against Mohawk Indians conducting business within the Mohawk Indian Reservation,

holding that the portion of such reservations located within the territiorial

boundaries of the United States are not exempt from Section 6050I's reporting

requirement by the "foreign transaction exception" of Section 1.6050I-1(d)(4). 

FN 2. Although the anti-structuring subsection was not included in the statute

until 1988, prosecutions for such activity may have been permissible before its

enactment.  Referring to the amendment that added section 6050I(f), Congress

declared in section 7601(a)(4) of Pub.L. 100-690 that "[n]o inference shall be

drawn from the amendment . . . on the application of the Internal Revenue Code

of 1986 without regard to such amendment."  Thus, the addition of the subsection

may simply have made explicit prohibitions already implicit in the 1984 statute.

FN 3. Activities listed in Section 6050I(f)(1) might also be prosecuted as

violations of that subsection because those activities are specifically

prohibited therein. See United States v. McLamb, 985 F.  2d 1284,1287

(4th Cir., 1983).

FN 4. The 

United States

 Sentencing Commission has enacted and sent to Congress

substantial revisions to the money laundering sentencing guidelines, effective

November 1, 2001, absent prior Congressional action to the contrary.   Beginning

November 1, 2001, the money laundering guidelines are being consolidated into one

guideline that applies to convictions under 18 U.S.C. § 1956 or § 1957. 

The amendment to the money laundering guidelines ties offense levels for money 

laundering more closely to the underlying conduct that was the source of the

criminally derived funds.  

FN 5. As noted earlier, the Asset Forfeiture and Money Laundering Section of the

Criminal Division has published a comprehensive reference guide, entitled

Federal Money Laundering Cases (January 1999).