Topic:
FELONIES; CRIME; CRIMINALS;
Location:
CRIME AND CRIMINALS;
Scope:
Federal laws/regulations; Connecticut laws/regulations;

OLR Research Report


March 5, 1999

 

99-R-0319

ANTI-MONEY LAUNDERING RULES

 
 

By: Helga Niesz, Principal Analyst

You asked whether Connecticut has any anti-money laundering laws or rules and what they are.

SUMMARY

“Money laundering” is a method criminals use to hide the origins of money they make from drug trafficking or other criminal activities. They often do this by depositing cash in legitimate bank accounts; turning cash into money orders, bank checks, or traveler's checks; wiring funds from one bank to another; or wiring or physically transporting cash to another country.

Connecticut banking statutes do not contain specific anti-money laundering procedures for banks to follow, since they must already comply with extensive federal rules. The only specific references we found in the state banking statutes require certain entities to comply with federal anti-money-laundering laws.

But Connecticut's penal code makes money laundering a crime and, among other provisions, establishes a presumption that someone who has failed to report or record a transaction when a law requires him to do so has engaged in money laundering. This provision would also apply to banks and their employees.

Federal law and regulation requires both federal and state-chartered banks, as well as other financial institutions, to keep certain records on transactions over $3,000 and to report domestic and foreign currency transactions over $10,000 and suspicious transactions to federal authorities. Proposed changes in the rules would require financial institutions to establish methods to enable them to better “know their customer.”

STATE BANKING STATUTES

The state banking statutes specifically require check cashing licensees (CGS 36a-586), as well as money order, travelers' check, and electronic payment business licensees (CGS 36a-606a) to comply with the applicable provisions of the federal Currency and Foreign Transactions Reporting Act (31 U.S.C.A. 5311 et seq.).

STATE PENAL CODE

Connecticut statutes make “money laundering” a crime. A person is guilty of money laundering in the first degree when he exchanges or receives monetary instruments derived from felonious criminal conduct valued at more than $10,000 for other monetary instruments or equivalent property (CGS 53a-276). He must intend to conceal that the exchanged instruments or property is derived in whole or in part from the criminal sale of a controlled substance or to aid a person in such a criminal sale or to profit or benefit from such a sale. First degree money laundering is a class B felony.

The statute defines “monetary instrument” to include U.S. or foreign coin or currency, travelers' checks, personal checks, bank checks, money orders, negotiable investment securities, or negotiable instruments payable to the bearer or otherwise in a form so that title to the instrument passes on delivery (CGS 53a-275).

It is money laundering in the second degree (a class C felony) if the monetary instruments are derived from criminal conduct constituting a felony other than criminal drug sales. It is money laundering in the third degree (a class D felony) if the instruments are derived from criminal conduct constituting a felony and the person has knowledge that his action will conceal the exchanged instrument's criminal origin or that it will aid someone in engaging in or benefiting from the criminal activity. It is money laundering in the fourth degree (a class A misdemeanor) if the instruments' value is $10,000 or less and the person has knowledge that the exchange will conceal the instrument's criminal origin or aid someone to profit or benefit from the criminal activity (CGS 53a-276 to 53a-279).

When sentencing, courts can impose a fine, imprisonment, or both. Money laundering is subject to the usual prison sentences for the different classes of crimes indicated (1 to 20 years for a class B felony, 1 to 10 for a class C felony, 1 to 5 for a class B felony, and up to one year fo a class A misdemeanor). But instead of the usual fines for felonies (which cannot exceed $20,000), the court can impose a fine of up to $250,000 or twice the value of the criminally derived instruments, whichever is greater, for a first money laundering offense, and, for a second or subsequent offense, up to $500,000 or five times the instruments' value. These fines can be in addition to the special alternative fine allowed by CGS 53a-44, a fine of up to double the gain the person derived (CGS 53a-280). A corporation violating the money laundering law is subject to the same fines, but not the extra penalty (CGS 53a-281).

A person is presumed to know that the instruments are derived from criminal activity if he:

1. pays or receives substantially less than face value for instruments that are in fact derived from criminal activity;

2. knows or believes that the instruments, which are in fact derived from criminal activity, bear fictitious names;

3. fails to record or report a transaction involving one or more instruments that are in fact derived from criminal activity in circumstances under which the recording or reporting is either required by law or is done in the ordinary course of business; or

4. engages in such a transaction knowing that the instrument's physical condition or form makes it apparent that it is not the product of a bona fide business or financial transaction (CGS 53a-282).

Money laundering can also be prosecuted under the state's Corrupt Organizations and Racketeering Activity Act (CGS 53-394(a)(18)). In addition, CGS 54-36h allows forfeiture of property a corporation gains through money laundering.

FEDERAL REPORTING AND RECORDKEEPING REQUIREMENTS

Federal law authorizes the Secretary of the Treasury to require financial institutions to keep records and file reports that the Secretary determines may be of use in criminal, tax, or regulatory investigations or proceedings. The regulations require financial institutions (such as banks, casinos, securities brokers and dealers, and others) to keep records of and, in some cases, report transactions involving large amounts of cash or cash equivalents.

Reporting

Federal regulations require financial institutions to report each deposit, withdrawal, exchange of currency, or other payment or transfer by, through, or to a financial institution, that involves more than $10,000 in currency (in other words, in cash, a physical transfer of currency from one person to another). A transfer of funds by means of a bank check, draft, wire transfer, or written order does not have to be reported since it is not a physical transfer of currency (31 CFR 103.22(a)(1). The financial institution must file a Currency Transaction Report (IRS Form 4789) by the fifteenth day after the transaction occurs and keep a record of it for five years.

A bank does not have to report deposits or withdrawals of currency from an existing account by certain established U.S. business depositors or by federal or state government agencies or instrumentalities. To be exempt, these withdrawals must be in amounts the bank reasonably concludes are appropriate to the customary conduct of the customer's lawful business.

Recordkeeping

To help prevent money laundering through transactions of smaller amounts (known as “structuring”), federal law prohibits financial institutions from issuing or selling cashier's checks, traveler's checks, money orders, and bank checks of $3,000 or more in exchange for cash unless the purchaser's identity is verified and recorded (31 U.S.C.A. 5325)

Financial institutions must keep records for five years for each payment order of $3,000 or more that it accepts as an originator's bank and for fund transfers of $3,000 or more (31 CFR 103.33 (e)(1). They must also keep records of their own requests or instructions that result in the transfer of currency, monetary instruments, funds, checks, investment securities, or credit of more than $10,000 to a person, place, or account outside the U.S. (31 CFR Sec, 103.33(b) and (c)).

Suspicious Activity Reports

Financial institutions also have to file reports of suspicious transactions involving $5,000 or more with the Financial Crimes Enforcement Unit (FinCen), an office in the U.S. Department of the Treasury. The reporting requirement applies to activities that are relevant to a possible violation of law or regulation, even if they do not involve currency. Reportable suspicious activities include those that:

1. involve funds derived from illegal activity or attempt to hide or disguise funds derived from illegal activity,

2. are designed to evade the requirements of the Bank Secrecy Act, or

3. have no apparent lawful or business purpose or vary substantially from normal practice (31 U.S.C.A. 5311, 31 CFR 103.11(qq)).

The Suspicious Activity Reporting System (SARS) is a few years old. It was created by the five federal financial supervisory agencies and the Financial Crimes Enforcement Network. It is an electronic system that makes reports of suspicious activity available to federal and state bank regulators and law enforcement agencies.

Proposed Regulations

Proposed regulations issued in December, called “Know Your Customer” would apparently allow more reporting exemptions but require banks to know and record more information about their customers and their transactions (Federal Register, Vol. 63, No. 234, 12/7/98). They would require each bank to develop a program designed to determine the identity of its customers and their sources of funds. They would have to determine, understand, and monitor their customers' normal and expected transactions and report those that they determine are suspicious according to the existing rules. The proposals are apparently intended to reduce the likelihood that banks will become unwitting participants in their customers' illicit activities. The proposals have apparently received negative comments during the regulators' comment period, which ends on March 8.

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