Concealing and disguising criminal property

Abstract

Purpose - The language in respect of the money laundering offence of concealing or disguising criminal property is drawn from various international conventions. It is therefore surprising, given the number of jurisdictions, which have incorporated that language into their domestic legislation, that more foreign case law is not used to interpret and properly apply these offences. The purpose of this paper is to rectify that position. Design/methodology/approach - This paper uses case law from the USA, where there are frequent money laundering prosecutions, to throw light on the underlying concepts of the concealing or disguising offence and to provide examples of activity which may amount to its commission. Findings - The offence of concealing or disguising criminal property is drafted in broad terms. Many of the issues, which have been explored in the US jurisprudence are likely also to arise in criminal proceedings in the UK. Originality/value - The paper examines a number of issues, which have not yet been explored by the UK courts. It looks at the approach of the US courts to the differentiation between the mere spending of criminal proceeds and the spending, which is the doing of an act for the purpose of concealing proceeds. It looks at whether concealment must be intended by the defendant's actions or whether it is sufficient if it is an outcome of his actions. It considers how effective any concealment must be and explores the different attributes of criminal proceeds, which may be concealed.

Introduction

The UK's money laundering offences are set out in sections 327-329 of the Proceeds of Crime Act (POCA) 2002. Section 327 of POCA provides that it is an offence to conceal or disguise criminal property[1] . The terms "concealing" and "disguising" are not defined in POCA but section 327(3) provides that they include concealing or disguising the nature, source, location, disposition, movement, ownership or any rights with respect to criminal proceeds. This language is drawn from the 1988 United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances[2] which required parties to criminalise the intentional "concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property", knowing that such property was derived from certain drugs offences. The language was subsequently adopted in the 1990 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime[3] which required parties to criminalise the intentional "concealment or disguise of the true nature, source, location, disposition, movement, right with respect to, or ownership of, property" knowing that such property was criminal proceeds.

It is perhaps surprising, given the number of jurisdictions, which have incorporated the language from these conventions into their own domestic legislation, that more foreign case law is not being cited before the UK courts in relation to the interpretation and proper application of these money laundering offences. This paper seeks to use case law from the USA, where there are frequent money laundering convictions, to throw light on the underlying concepts of the offence and to provide examples of activity which may amount to its commission.

The US legislation on money laundering is of assistance because it uses very similar language to that in POCA. Title 18 of the US code makes it an offence, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, to conduct or attempt to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity, knowing that the transaction is designed in whole or in part to conceal or disguise the nature, location, source, ownership or control of the proceeds[4] . In United States v. Majors [5] , the court said that the offence was a provision structured to reach those types of money laundering activities designed to conceal or disguise the attributes of proceeds produced by unlawful activity. The activity that the offence seeks to prevent is the injection of illegal proceeds into the stream of commerce while obfuscating their source.

In order to prove the commission of the concealing or disguising offence in the UK, the prosecution essentially have to prove three elements. It is, however, important to note that the evidence, which is offered to prove one of the three elements may also be the evidence which is offered to prove the other two elements. First, it must be proved that the property was the proceeds of crime. In R v. Montila [6] , the House of Lords held it was an essential part of the actus reus of money laundering offences that the prosecution prove that the property was, as a matter of fact, criminal proceeds. Section 340(3) provides that property is criminal property if it constitutes a person's benefit from criminal conduct or it represents such a benefit (in whole or in part and whether directly or indirectly.) This will usually be proved by circumstantial evidence. Second, it must be proved that the defendant knew or suspected that the property was such. Section 340(3) provides that for property to be criminal property the alleged offender must know or suspect that it constitutes or represents such a benefit. Third, it must be proved that the defendant acted in such a way as to conceal or disguise the nature, source, location, disposition, movement or ownership or any rights with respect to the property[7] . It is this final element of the offence, which is the subject of this paper.

Even where these elements are proved, the UK legislation provides four statutory defences, which allow the avoidance of criminal liability. The first of these is where an individual has made a disclosure to the authorities and, if the disclosure is made before he does the act, he has the appropriate consent[8] . The second defence is where the person intended to make such a disclosure but had a reasonable excuse for not doing so[9] . The third defence is where the act was done in carrying out a function relating to the enforcement of any provision of POCA or of any other enactment relating to criminal conduct or benefit from criminal conduct[10] . The fourth defence provides that an offence is not committed if the person knows or believes on reasonable grounds that the behaviour which gave rise to the proceeds, while it would have been a criminal offence had it occurred within the UK, took place outside the UK; and at the time it occurred it was not illegal in that jurisdiction. This defence does not apply in respect of criminal conduct of a description prescribed in a statutory instrument[11] .

Conceal or disguise

The words "conceal" and "disguise" are not defined in POCA. When ordinary English words are used undefined in legislation, the courts assume that, in the absence of good reason to the contrary, they should be given their ordinary, natural meaning. The dictionary defines "conceal" as "to keep from the knowledge or observation of others" ([3] Oxford University Press, 1973) while "disguise" is defined as "to exhibit in a false light; to colour, to misrepresent" ([2] Little et al. , 1973). Although there may be a difference between the ordinary meanings of the words "conceal" and "disguise", there does not, however, appear to be a difference in the use of these words in a money laundering context. For example, in United States v. Beddow [12] , the court referred to the defendant using another person as "a 'front man' to disguise his ownership" of gemstones purchased with illegal drug proceeds when it could just have easily used the word "conceal". US indictments also tend to use "conceal or disguise" as a phrase rather than as separate terms with distinct meanings. In the UK, a similar practice may develop. Alternatively, the "concealment" offence may be frequently used and the offence of "disguising" criminal property may atrophy from lack of use.

In United States v. Sax [13] , the court stated that those things which could be concealed were listed in the disjunctive, and held that the money laundering statute was not aimed solely at commercial transactions intended to disguise the relationship of the item purchased with the person providing the proceeds; but rather was aimed broadly at transactions designed in whole or part to conceal or disguise in any manner the nature, source, ownership or control of the proceeds of unlawful activity. In United States v. Barber and Barber [14] , the defendants opened five joint accounts in various banks and deposited large amounts of cash into them, usually in small banknotes. Typically, a few days later they withdrew the cash in larger banknotes. Expert evidence was given explaining how the defendants' activities constituted concealment for purposes of money laundering. The expert testified, that by depositing cash into a bank account and then withdrawing it, the proceeds of drug sales could be concealed at several levels. First, because the deposit slip did not show the banknotes' denominations, it could not be determined later that a large number of small banknotes had been deposited. Second, because banknotes used for buying drugs often retain traces of drugs, the deposit eliminated the possibility of linking the money to the drug trade. Third, depositing drug money into an account that contained legitimate income lent credence or credibility to the drug proceeds. Fourth, withdrawals of large banknotes facilitated physical concealment because one large banknote was easier to conceal than several small ones.

In laundering criminal proceeds a defendant may, as the legislation implies, have a number of objectives. He may, for example, often simultaneously be seeking to conceal the nature, location and ownership of criminal proceeds. Thus, the drafting of indictments by prosecutors, and the findings of guilt by courts, may therefore often be in relation to multiple objectives without falling foul of the principle of duplicity. In United States v. Rahseparian and Another , a case of telemarketing fraud, the evidence showed that the defendant had income from a fraud sent to a mailbox where his father would collect it and deposit it into different bank accounts, none of which were connected with the company through which the defendants committed their fraud. The Court of Appeals held that jury could reasonably infer from this evidence that these transactions were designed to "conceal the nature, location, source, ownership or control of the proceeds" and did not feel the need to distinguish between these objectives[15] . The separate treatment in this paper of the different objectives is simply for the purpose of their elucidation.

Section 327(3) of POCA provides that the concealing and disguising offence includes concealing the features, which have already been referred to. The issue therefore arises as to whether concealing other features in relation to criminal property amounts to an offence. Concealing the value of criminal property would seem to be one matter, which might arise. However, this issue has not featured in US cases[16] .

Design

The "design requirement"[17] in US legislation separates the offence of money laundering from the mere act of spending criminal proceeds. The requirement that the transaction be designed to conceal implies that more than a trivial motivation to conceal must be proved[18] . The court in United States v. Garcia-Emanuel [19] , held that substantial proof of a design to conceal was required and behaviour that was merely suspicious, but did not evince a design to conceal, was insufficient (although the need to state this where there is a requirement to satisfy the criminal standard of proof is somewhat surprising). Similarly "the mere accumulation of non-concealing behaviour" was not sufficient to sustain a conviction for money laundering. The principle that emerges from United States v. Garcia-Emanuel is that, while evidence of simply spending money in one's own name will generally not be sufficient for a conviction, using a third party, for example a business entity or a relative, to purchase goods on one's behalf, or from which one will benefit, usually constitutes sufficient proof of a design to conceal. Evidence that the defendant commingled illegal proceeds with legitimate business funds has been held to be sufficient to support the design element[20] . Moving money through a large number of accounts has, in the light of other evidence, also been found to support the design requirement, even when all the accounts to which the defendant transferred the money and from which he withdrew it were in his own name[21] . These decisions identify the point that "something more" than mere transfer and spending is needed for money laundering, even if that "something more" is hard to articulate. The courts have held that that something more was present in, for example, United States v. Beddow [22] (where use was made of a "front man" and "convoluted financial dealings" to invest in emeralds and a charter boat, and where these elements were designed to disguise ownership) and in United States v. Lovett [23] (where there were convoluted financial transactions leading up to the purchase of a house, combined with misleading statements regarding the nature and source of the purchase money). These cases have in common the existence of more than one transaction, coupled with either direct evidence of intent to conceal or sufficiently complex transactions that such an intent could be inferred. In contrast, the cases in which money laundering charges have not succeeded are typically simple transactions that can be followed with relative ease or transactions that involve nothing but the initial crime. For example, in United States v. Olaniyi-Oke [24] (where there was fraudulent use of another's name and credit card to make a purchase) and in United States v. Rockelman [25] (where the purchase of a cabin was made with cash and the title to the property was simply made in the name of a company which the defendant owned)[26] the concealment element was held to be absent.

In the UK, a trivial motivation to conceal may also not satisfy a jury that intent existed. While the UK legislation contains no formal requirement of "design", it is probable that it does require the element of intent. During the passage of POCA, there was debate on whether the concealment had to be intentional. The government spokesperson in the Lords thought clarification on this issue was unnecessary, stating that it must be the case that, if a defendant knew or suspected that property represented a person's benefit from crime, he could not unintentionally go on to conceal or disguise that property. It must be implicit in the knowledge and suspicion and in the act itself that the defendant intended to carry out the act without informing the competent authorities ([1] The stationery office , 2002). An outcome of concealment will not therefore be sufficient; concealment must have been intended. The design requirement in the USA offence and the intention requirement in the UK offence therefore offer a significant degree of similarity, despite the difference in language.

Concealing vs spending

In one sense, the acquisition of any asset with criminal proceeds conceals those proceeds by converting them into a different and possibly more legitimate-appearing form. However, it is important to differentiate between mere money spending and doing an act for the purpose of concealment. To convict in circumstances where the defendant had simply spent criminal proceeds without having an intent to conceal would, in the language of the US courts, "turn the money laundering statute into a 'money spending statute'"[27] . Whenever a criminal uses his proceeds to acquire any asset, whether a house or a television, a jury might conclude that on some level he is motivated by a desire to convert illegally gained cash into a more apparently legitimate form. Whether this motivation amounts to an intent to commit the offence in section 327 of POCA will depend on the particular facts of the case. In United States v. Dobbs [28] , the court quashed a money laundering conviction where the defendant had deposited illicitly obtained funds into his wife's bank account, after which she used the money to pay ordinary household expenses, finding that this typical and straight forward banking transaction failed to demonstrate an intent to conceal the origin of the money.

In United States v. Sanders [29] , the defendant's convictions were based upon two car purchases. She argued that these purchases were ordinary commercial transactions. She contended that the fact that she and her husband were personally present when the cars were purchased and that they used the cars conspicuously after they were purchased undermined the element of concealment. She argued that although one car was registered in her daughter's name, there remained insufficient evidence of concealment because all three family members, including the daughter, had been present when the car was purchased and that, because the daughter shared the family's last name, her connection to Mr and Mrs Sanders would be obvious. She also argued that the money laundering law was not intended to apply to "ordinary commercial transactions" (albeit by alleged drug dealers) but rather was directed toward transactions designed to conceal the identity of the participants to a transaction (including, for example, those transactions where third parties are used to make purchases). The prosecution's basic position was that the money laundering statute should be broadly interpreted to include all purchases made by persons with knowledge that the money used for the transaction represents the proceeds of illegal activity. The Court of Appeals rejected the prosecution's argument that the money laundering statute should be interpreted to broadly encompass all transactions, however ordinary on their face, which involved the proceeds of unlawful activity. Nevertheless, because the UK proceeds of crime offences are broader than their US counterparts, knowingly spending money, which is or represents the proceeds of crime amounts to an offence of possession or use of criminal property under section 329 of POCA.

In United States v. Heaps [30] , a drug purchaser testified that she wired two money orders as payment for ecstasy. The defendant had instructed that the money orders be sent in his wife's name. The only witness who testified as to the purpose behind the arrangement was the defendant's wife. She testified that the defendant asked her to pick up the funds because he was going to be away. She also testified that, in order to collect the money orders, she needed to bring identification to prove that she was the person whose name was on the money orders. A taped telephone conversation between the defendant and the purchaser revealed that the defendant had told the purchaser that she did not need to send subsequent payments in this fashion. The court was persuaded that the conversation corroborated the defendant's wife's testimony that the first payment was sent in her name only because the defendant would be away and concluded that the wiring of the money to the defendant's wife was for the purpose of convenience and not concealment. As the court recognised in United States v. Corcado-Peralta [31] , a money laundering conviction may therefore turn on "judgments about relationships within families and about inferences that might be drawn in the community from certain patterns of working and spending".

Open payments?

A number of cases have examined the issue of whether, if transfers are conducted in a reasonably open manner, the court should conclude that there was therefore no intent to conceal. In United States v. Majors and Others [32] , the appellants claimed that there had been no intent to disguise or conceal inter-company transfers, that these had been "open and notorious", and that they were simply payments for reasonable and necessary business expenses. They argued that the prosecution's expert witness had based his opinion that concealment was present wholly on the sheer volume of inter-company transfers. The prosecution contended that it had proved the concealment element because, in "an elaborate shell game", the defendants had moved ill-gotten funds in and out of various corporate bank accounts, previously set up in multiple signatory names. These moves were designed to make the funds ultimately enjoyed by the defendants appear as "sanitised" income which had not been derived from one of the companies used as vehicles for fraud. The court agreed that the sheer volume of these transfers and the number of lies uttered by the defendants to investors, amounted to substantial evidence of concealment.

In United States v. Starke [33] , the defendant contended that there was insufficient evidence to support a finding that he had the intent to conceal or disguise the nature, location, source, ownership or control of the money involved in the case. Starke argued that the legislation applied only to situations in which the transaction was intended to conceal the identity of the participants. Starke contended that he personally purchased cashier's cheques, that the cheques were made payable to himself, and that they were restrictively endorsed. He argued, therefore, that he had no intent to conceal or disguise the identity of the participants in the transaction. The court disagreed, holding that a money laundering transaction need not conceal the identity of the participants in the transaction and finding that evidence that the transactions were designed to conceal the funds or the source of the funds was sufficient to support the conviction.

Less detectable

The US courts have also taken into account the effect of a defendant's activity. In US v. Blankenship and Others [34] , the court stated that one of the factors at which it looked in determining whether a defendant's behaviour constituted "concealment" was whether he had engaged in unnecessary transactions to add extra "degrees of separation" between himself and the source of the funds. Such transactions were regarded with an additional degree of scepticism when they involved accounts, which could not easily be linked to the defendant. The court stated that it would be misleading to consider that courts limited criminal liability for this money laundering offence to cases involving a long series of transactions; even one transaction could be enough. The crux of the issue was whether the money was better concealed after the transaction than before. In United States v. Willey [35] , the court concluded that a transfer from one third party to another supported a reasonable inference of a design to conceal because it "moved the money further away from the defendant than it was before the transfer". In United States v. Gabel [36] , the court stated that the concealing offence focused on the conversion of the fruits of earlier crimes into other, presumably less detectable, forms. In United States v. Polichemi and Others [37] , the court affirmed the defendants' concealment convictions were based, at least in part, on evidence presented by the prosecution that financial transactions were more difficult to investigate once funds had been moved through foreign accounts.

How effective must the concealment be?

Nevertheless, in looking at the effectiveness of the defendant's activity, the sophistication of the criminal and his enterprise requires to be taken into account. Hence, the money-laundering allegation needs to be seen within the relevant criminal context. Criminal enterprises, which are highly organised may be expected to have a sophisticated laundering phase. Where a criminal has sufficient resources (perhaps because he has committed lucrative crimes) he may employ specialists who can assist him to perform complex laundering techniques. A less enterprising or resourced criminal may not be able to perform such sophisticated laundering activity.

This principle is illustrated by United States v. McGauley [38] . Police searched the defendant's home where they discovered vast quantities of new clothing, which the defendant admitted to having stolen. Her practice had been to return stolen clothing to stores and obtain a "refund". Less than two weeks after the search, she closed a number of her bank accounts, resulting in the withdrawal of approximately $245,000. She deposited these funds into new accounts, held jointly with her parents, from which she then made substantial withdrawals. The court held that although there was no direct evidence of intent to conceal, the evidence was sufficient to support an inference of such intent. The defendant argued that the transfer of funds into accounts bearing her own name and the names of her parents should not be considered a transaction to conceal or disguise these funds. The court observed that she cited no authority for the proposition that one could not endeavour to conceal funds by means of a transfer between accounts bearing one's own name, or between accounts at the same bank. The Court of Appeals quoted with approval a statement by the trial judge who, in response to a similar argument by her counsel at the sentencing hearing, said "that's the traditional defence of, 'if I were a bank robber, I would have been better at it'". The court held that a reasonable jury could have found that the extensive series of transactions she initiated within two weeks of the search was designed, however ineffectively, to conceal or disguise the nature and source of the proceeds of unlawful activity.

Overall context

The US courts have recognised that, when considering whether there has been concealment of criminal proceeds, it is inappropriate to narrow the focus of attention too far. In United States v. Burns and Others [39] , the court held that a design to conceal in respect of a particular transaction may be imputed if the transaction, while innocent on its face, is part of a larger money-laundering scheme. The court said that, in examining whether a specific transaction was designed to launder money, it was not required to view that transaction in total isolation. A transaction must be viewed in context when determining whether it was designed to conceal. It was true that a particular $25,000 cheque transfer, when viewed in isolation, appeared to be nothing more than an ordinary transaction conducted in plain view between two bank accounts. However, when the court looked beyond the face of that transaction, and looked at the transactions, which immediately preceded it, it found strong and compelling evidence that the transfer was not an innocent transaction. The evidence gave rise to a strong inference that the transfer was the final step of a larger money-laundering scheme designed to give a defendant access to the illegal proceeds. Hence, the court concluded that there was sufficient evidence of a design to conceal. It may therefore be important to examine particular transactions within their relevant context since, viewed in isolation, many transactions which are, in reality, part of a money laundering process might not be perceived as "unusual" financial transactions[40] .

Over and above the crime?

Another issue which the US courts have examined is the relationship between the commission of the underlying crime and what more must be done before the defendant is also liable for a money laundering offence. In United States v. Esterman [41] , it was acknowledged that the courts had struggled to define precisely what amount of concealment must occur before mere use of ill-gotten gains becomes money laundering. It was recognised that one of the broad principles, which had emerged was that the courts had tried to maintain some separation between the initial transaction from which illegal proceeds were derived and further transactions designed to conceal the source of those proceeds. In other words, the transaction which created the criminally derived proceeds must be distinct from the money-laundering transaction since money laundering criminalises a transaction in proceeds, not the transaction that creates the proceeds.

In United States v. Edgmon and Edgmon [42] , the court considered the legislature's intent and concluded that Congress intended simply to add a new criminal offence to punish activity that was not previously punished criminally. It aimed the crime of money laundering at conduct that followed the underlying crime in time rather than affording an alternative means of punishing the prior specified unlawful activity.

In the UK, the position is different from the USA in this regard. Once a defendant knowingly commits a criminal offence which gives rise to any criminal proceeds, he will usually commit the offence of money laundering under section 329 of POCA by the possession and acquisition of those proceeds. Hence, prosecutors will invariably have the option of adding a money laundering offence where a defendant is charged with an offence involving obtaining an illegal financial gain.

Evidence of concealment

The US courts have drawn inferences from various types of evidence that defendants have concealed or disguised criminal property. These include: communications in coded language about the funds[43] ; avoidance of leaving a "paper trail"[44] ; transmission of cash by a highly complex and surreptitious process[45] ; unusual secrecy[46] ; use of a third party's name[47] ; use of nominee names[48] ; use of a safe deposit box[49] ; co-mingling of funds[50] ; investing funds in a business while falsely describing their origin[51] ; use of false names[52] ; use of fictitious business accounts[53] ; use of overseas accounts[54] ; use of sham trusts[55] ; movement of funds through a series of bank accounts[56] ; unnecessary transactions[57] ; use of false loan documents[58] ; transformation of proceeds into another form[59] ; conversion of proceeds into cash[60] ; statements by a defendant probative of intent to conceal[61] ; structuring of a transaction in a way to avoid attention[62] ; highly irregular features of the transaction[63] ; a series of unusual financial moves cumulating in the transaction[64] ; and expert testimony on practices of criminals[65] .

The US courts have described these factors above as "red flag events"[66] . Sometimes one of these red-flag events can occur even with lawfully derived income (for example, where its owner is attempting to evade tax or conceal income from a spouse). Where, however, there are "multiple" flags, experience indicates this is often due to active involvement in a money-laundering scheme[67] . It is the pattern of red flag events, which demonstrates an effort to launder illegally obtained proceeds. Nevertheless, the US courts are clear that the evidence of concealment must be "substantial" in order for a conviction to be sustained[68] . United States v. Esterman [69] noted that cases in which appeal courts have upheld money laundering convictions have in common the existence of more than one transaction, coupled with either direct evidence of intent to conceal or sufficiently complex transactions that such an intent could be inferred.

This is, of course, not an exhaustive list of "red flag" factors. Unfortunately the task of a jury concluding whether a defendant is guilty of money laundering is not similar to that of a doctor diagnosing a patient. For the latter, there may be a particular symptom, which is definitive of a patient having a particular disease. For a jury there is no one particular evidential factor, which is definitive and conclusive of money laundering. The most that can be said is that the factors, which have been listed above repeatedly feature in money laundering cases. It is a matter for a jury to draw such inferences as are appropriate from the evidential factors which appear in an individual case before it and reach a conclusion as to whether or not the offence has been proved beyond a reasonable doubt.

Attributes which may be concealed

Nature

"Nature" is defined in ordinary usage as "the essential qualities of a thing" ([3] Oxford University Press, 1973) and the essential quality of criminal property is its illegal origin. Concealing the "dirtiness" of "dirty money" is at the heart of all money laundering. Where a defendant carries out acts to cover up the commission of his underlying crime, what he does may also amount to the commission of a concealment offence if it also serves to conceal the illegal origin of the funds. United States v. Johnson and Others [70] concerned a telemarketing fraud on isolated, elderly individuals. In order to avoid detection, messages in relation to customers were destroyed, and all leads, pitch-books, and sales records were collected at the end of the day and removed from the office. In addition, sales orders were falsified by including fictitious business names, sales amounts were understated to hide the volume of sales and aliases were used by employees whenever contacting customers. The court held that the evidence was sufficient to convict the defendants of conspiracy to commit money laundering.

US courts have concluded that commingling unlawful and legitimate deposits supports the inference of an intent to conceal or disguise illegal proceeds. For example, in United States v. Jackson, Davis, and Gines [71] , the Reverend Davis deposited some of the cash he collected from the sale of crack cocaine in bank accounts maintained in a church development bank account. The court held that the commingling in this case was itself suggestive of a design to hide the origin of the ill-gotten gains.

Source

Although "source" is defined in ordinary usage as "the originating cause or substance of some material thing" ([3] Oxford University Press, 1973) US case law tends to use the term in two different senses. First, it is used in the sense of "illegal source" and in this way it is a synonym for "nature" to describe what is often referred to as "dirty money". For example, in United States v. Hall [72] , the defendant laundered his drug proceeds by making loans to innocent parties. He intentionally misled the borrowers about the source of his capital by telling them that he obtained the money from a family inheritance and such misstatement was probative of concealment. When the loans were repaid, he placed these funds in his bank account for a few days before moving them to an E*Trade investment account. Given the proof that the original loans were motivated by the defendant's desire to conceal the source of the funds, the jury could infer that his "continued shuffling of the money through accounts was an attempt to further separate the money from its illegal source". In United States v. Garcia-Emanuel [73] , the defendant presented a cashier's cheque, on which his restaurant was listed as the remitter, to pay for some land. The transaction not only created the false impression that the restaurant was his source of wealth, but also it created documentary evidence in support of that deception which could mislead an investigator. This furthered his goal of placing illicit cash into the economy, so that it became increasingly difficult to uncover the money laundering operation. This use of the attribute "source" may, however, become less frequent following the Supreme Court's observation that, of all the listed attributes, only "nature" is coextensive with the funds' illegitimate character[74] .

Second, the term "source" is used to describe who money has come from, prior to a particular transfer. For example, in United States v. Willey [75] , the court rejected the defendant's implicit argument that there could be no design to conceal because each cheque charged in the money laundering counts listed its true remitter or clearly indicated the account from which it came. The court held that, with respect to the immediate source of the money, this was obviously true, but that is not what the prosecution was seeking to prove. The prosecution's argument was that, with respect to each transaction, the ultimate source of the funds, i.e. the defendant, was concealed. This case is therefore an example of the important principle that the absence of the use of false names does not necessarily mean the absence of an intention to conceal.

In United States v. Abbell and Moran [76] , the defendants were lawyers whose client, Rodriguez-Orejuela, was one of the leaders of the Cali drugs cartel. The evidence proved that Rodriguez-Orejuela sought to avoid extradition to the USA by obtaining from any cartel employee who had been arrested an affidavit stating that they did not know who Rodriguez-Orejuela was. The defendants were involved in obtaining these affidavits and in return dispersed funds from Rodriguez-Orejuela to those employees. The court concluded that this evidence supported a jury finding that the transactions were designed to conceal that it was Rodriguez-Orejuela who was the source of payments to the arrested persons and their families. The facts of United States v. Abbell and Moran are also interesting from another perspective. The prosecution's evidence that, in the days before a search warrant was executed against Abbell's office, Abbell destroyed or altered his records of his bills to Rodriguez-Orejuela, including his bills for reimbursements for payments to third-parties on Rodriguez-Orejuela's behalf, would be sufficient under POCA for a conviction since the UK concealment offence, unlike the US offence, does not require the defendant to have been concerned in an actual financial transaction.

Location

Launderers will often seek to conceal the location of criminal property, especially when the property is still in the form of cash. In United States v. Walker and Others [77] , evidence was adduced that $1.25 million in cash was hidden in three safety deposit boxes. The location of criminal proceeds has also been concealed by hiding it in cars[78] , toilets[79] , and house walls[80] and buried in the ground[81] .

In United States v. Farese [82] , the court held that the concealment requirement was satisfied when the defendant exchanged large banknotes for small banknotes but did nothing else to conceal the illegal nature of the money, as the exchange facilitated concealment of the location of funds because one large-denomination note was easier to hide than several small-denomination notes of the same total value.

The location of criminal property may be concealed by a third party. In United States v. Elso [83] , the defendant was an attorney whose client had expressed a concern that police would discover and seize drug money that was hidden in a floor safe at his home. The defendant told the client he would take care of the situation, went to the client's home, retrieved $266,800 in cash from the floor safe, put it into his car, and attempted to drive back to his office. Police stopped him, searched the car and seized the money. The Court of Appeals rejected Elso's argument that there was no evidence of concealment because he was not trying to conceal the illegal nature of the funds. It was sufficient that he concealed the location of the drug money. In United States v. Graham [84] , a drug dealer testified he asked the defendant to hide some cash for him at her home. She was involved in a romantic relationship with him and agreed to do so. She collected $250,000 from him, packaged in $25,000 bundles and hid it in her bedroom closet.

Disposition

The term "disposition" is not defined in POCA but in ordinary usage is defined as "final arrangement; settlement; transfer of property" ([4] Procter, 1985). This term therefore is a suitable one to include an arrangement where money seems to have dealt with in one way but, in reality, has been disposed of in a different way. In US v. Castellini [85] , the defendant laundered money for an undercover agent in a sting operation after the agent said he wanted to conceal money from the bankruptcy court. Castellini made out a false invoice for management consulting fees in the amount of $30,000 and the agent gave him a cheque for $30,000, which was made out to RLC Management in "payment" for the invoice. Castellini deposited the $30,000 cheque into the RLC Management account and then transferred the money through banks in Austria, Costa Rica, the Isle of Man, and the Bahamas, then back (less a 25 per cent laundering fee) to an account in Chicago held by the agent. The funds appeared to have been spent on consulting services but in reality their disposition was different.

Similarly, in United States v. Hand [86] an accountant misrepresented in the firm's financial statement fraud proceeds transferred to the defendant as being a short-term investment in another company. The defendant then misrepresented to investors that the money was secure, concealing the fact that it had already been utilised by him for business and personal expenses.

Movement

Launderers will often seek to attempt to conceal the movement of criminal property. The purpose of this may be to move the money from one jurisdiction to another or simply be part of the classic "layering" phase of the money laundering process. In United States v. Bowman [87] the defendant, who had committed five bank robberies, deposited some of the proceeds into one of his safe-deposit boxes and then, within a very short interval, shifted at least some of that deposit into and out of various other boxes. The court held that the pattern and timing of the initial box rentals and all of the box visits, in association with each individual robbery, allowed a reasonable jury to infer that the defendant was deliberately moving the proceeds around so as to make tracking the money difficult.

Evidence of the deliberate avoidance of a documentary trail may amount to concealing the movement of criminal property. In United States v. Prince and White [88] , Prince directed victims to contribute money to a fraudulent scheme through a third party. He explained to the potential investor why it would be necessary to involve a third party, then solicited the assistance of a trusted third party, required the third party to go to their bank and obtain the money in cash, received the cash from the third party, and then transferred it to White. This elaborate arrangement protected the defendants from the creation of a potential paper trail and potentially hindered the ability of investigators to trace the movement of the funds.

It is clear, however, that not all concealments of the movement of criminal proceeds amount to the commission of an offence under US law. In Cuellar v. United States [89] , the Supreme Court agreed that the offence could not be committed where "the defendant carried money in a wallet or concealed it in some other conventional or incidental way". The court therefore approved the statement that there was a difference between concealing something to transport it, and transporting something to conceal it.

Ownership

The concealment offence may also be committed if an individual seeks to misrepresent who owns criminal property. This will often sought to be accomplished through the use of third party nominees. In United States v. Morgan and Morgan [90] , the court recognised that failing to look beyond a bare legal title would allow manipulation of ownership by those engaged in criminal activity. The evidence showed that while Mrs Morgan and her husband opened a joint bank account, the events leading up to the opening of the account and the manner in which the account was operated revealed that Mrs Morgan was no more than a mere name on the account, with no power over the disposition of the account's funds. She lacked any dominion, control or other indicia of true ownership over the funds. The account had been opened to facilitate the purchase of a property, which the court found, was purchased with Mr Morgan's illegally obtained funds. In United States v. Pizano, Pizano and Pizano [91] , a brother enlisted the assistance of his two sisters to launder drug money through a series of real property transactions. The evidence supported the conclusion that Jessica could not have saved enough funds from her personal income to make the sizable down payments. The prosecution produced evidence showing that Jessica was the purchaser and owner of two California properties in name only. Her brother Mathias, a drug dealer, was the one who actually selected the properties and negotiated their purchase. The evidence therefore supported the conclusion that Mathias, Jessica and Celia Pizano "had a tacit understanding to conceal that Mathias was the true owner" of the properties and that the proceeds used to purchase the properties were obtained from his drug dealing. In United States v. Nguyen [92] , the defendant was convicted of conspiracy to commit money laundering. A drug dealer named Ayala testified that the defendant purchased vehicles and corporate stock, using drug-trafficking cash Ayala had given him for that purpose. The defendant placed the assets in his name, with Ayala using and possessing them. In addition, there was evidence that, with cash obtained from drug sales, Ayala and Dominguez invested in the defendant's audio business in exchange for 50 per cent of the profits. Ayala testified he did not want his assets in his name because he wanted to hide his ownership from police, which the purchases by the defendant helped him do.

Ownership may be concealed by the use of false names. In United States v. Davis and Presley [93] , evidence was introduced showing that Presley, under the fictitious name of Tony Muhammad, rented a storage locker in which over $2 million in cash was found. The evidence also indicated that Davis was involved in the renting of this storage locker, as both a key to the locker and a rental receipt for it were found at his home. Similarly, in United States v. Magluta [94] , the defendant paid his lawyers with cheques written on an Israeli bank account held in a fictitious name. The transfers of cash between his associates, the movement of the cash from Miami to New York to Israel, and the use of a foreign account held in a false name were "a series of unusual financial moves" which culminated in the defendant writing the cheques. There was thus an air of "unusual secrecy surrounding the transactions". Magluta's use of his associates, as well as the fictitious name, demonstrated his use of "third parties to conceal the real owner" of the money in the foreign account. The transaction where Magluta wrote cheques on a foreign account held in a false name was "highly irregular".

Rights

The concealing offence is also committed if a person conceals "any rights with respect to" criminal property. As will be immediately obvious, there is clearly an overlap between the concepts of "ownership" and having "rights" with respect to property. The core thinking in both concepts concerns the relationship between the person and the property. This issue was recognised in United States v. Sanders [95] where the court overturned the defendant's convictions for money laundering in connection with the purchase of two cars. Although the defendant titled the cars in his wife's and daughter's names, the court found that his conspicuous involvement in the purchase negotiations and subsequent conspicuous use of the cars undercut the argument that the transactions were designed to conceal defendant's association with them. The decision is nevertheless notable for the court's observation that:

The purpose of the money laundering statute is to reach commercial transactions intended (at least in part) to disguise the relationship of the item purchased with the person providing the proceeds [...]

Similarly, in United States v. Willey [96] the court noted that a rational jury could infer that such a transaction was designed to conceal Willey's relationship to the proceeds, his involvement in the transaction, and his interest in the property.

Incohate offences

In addition to the substantive offences under section 327 of POCA, there are, of course, also inchoate offences. Often, a substantive offence may not have come to completion, but nevertheless an offence has been committed because of the actions or agreements in preparation for a substantive offence. Such will include conspiracy offences, attempts, and counselling and procuring the commission of a concealing offence. Where a third party agrees or attempts to undertake a financial transaction on behalf of a person which he knows is intended to conceal the nature, source, movement or disposition of criminal proceeds he will be criminally liable for an inchoate offence. The US case law is clear that a third-party defendant need not have personally intended to conceal or disguise the proceeds as it is sufficient for the third party merely to be aware of the principal perpetrator's intent to conceal or disguise the nature or source of his funds[97] . A similar approach would be adopted by the UK courts in respect of the law of conspiracy.

Such cases involving third parties may, of course, concern professionals. In United States v. Campbell [98] , a drug dealer wished to purchase a house for his parents through the defendant who was a real estate agent. The purchaser asked the sellers to accept $60,000 under the table in cash and to lower the contract price accordingly. The purchaser justified the secrecy of the arrangement by explaining that his parents had to remain unaware of the $60,000 payment because the only way he could induce their involvement was to convince them he was getting an excellent bargain on the house. It was clear that the defendant did not act with the purpose of concealing drug proceeds. Her motive was to complete the deal and collect her commission, without regard to the source of the money or the effect of the transaction in concealing a portion of the purchase price. However, the court concluded that her motivation was irrelevant. The relevant question was not her purpose, but rather her knowledge of the purchaser's purpose. It held that the sufficiency of evidence regarding her knowledge of his purpose depended on whether she was aware of his status as a drug dealer. If she knew that his funds were derived from illegal activity, then the under the table transfer of $60,000 in cash would have been sufficient, by itself, to allow the jury to find that she knew that the transaction was designed for an illicit purpose. As a result, the court found that, in this case, the knowledge components of the offence collapsed into a single issue: did she know that his funds were derived from an illegal source? The case illustrates the principle that, where a third party knows or suspects that property is criminal property and engages in any way in a financial transaction concealing it, it will be difficult to avoid criminal liability unless the third party has made a disclosure and can therefore avail himself of the statutory defence. Even if a UK defendant were found not guilty of a concealing offence on the basis that it had not been proved she had the necessary knowledge, nevertheless on the facts of Campbell, she would be likely to be found to have had suspicion and hence to be guilty of an arrangement offence under s 328 of POCA.

Conclusion

The offence of concealing or disguising criminal property contrary to section 327 of POCA is drafted in extremely broad terms. It can be anticipated that increasing use will be made of it by investigators and prosecutors in the future. Many of the issues, which have been explored in the US jurisprudence are likely also to arise in UK proceedings.

Footnote

1. The offence is broader than this, also criminalising the converting, transferring and removing from the jurisdiction of criminal property. This paper however focuses on the concealing and disguising offence.

2. Usually referred to as "the Vienna Convention".

3. Usually referred to as "the Strasbourg Convention".

4. Section 1956(a)(1)(B)(i) two distinctions are noticeable. First, the US legislation introduces the concept of "design". Second, it introduces a concept of "control".

5. 196 F.3d 1206 (11th Cir., 1999).

6. [2005] 1 Cr. App. R. 425. Montila concerned offences under the previous proceeds of crime legislation but undoubtedly applies to POCA.

7. The particular drafting of the US money laundering offence requires more than this for a conviction. In Cuellar v. United States 553 US (2008), the Supreme Court held that evidence that the defendant concealed the illegal proceeds during transportation was not sufficient to sustain a conviction. What the prosecution had to prove was that the defendant knew that taking the funds to Mexico was designed, at least in part, to conceal or disguise their nature, location, source, ownership or control. Concealing the movement of illegal proceeds would, however, be sufficient for a conviction under POCA.

8. Section 327(2)(a) of POCA.

9. Section 327(2)(b) of POCA.

10. Section 327(2)(c) of POCA.

11. Section 327(2A) of POCA. Currently, one such statutory instrument has been made: the POCA 2002 (Money Laundering: Exceptions to Overseas Conduct Defence) Order 2006.

12. 957 F.2d 1330 (6th Cir., 1992).

13. 39 F.3d 1380 (7th Cir., 1994).

14. 80 F.3d 964 (4th Cir., 1996).

15. 231 F.3d 1267(10th Cir., 2000).

16. The US legislation provides a definitive list of attributes which may be concealed and does not, unlike the UK Act, allow for the possibility of charging a defendant with concealing other attributes of the proceeds.

17. See for example, United States v. Burns and Others 162 F.3d 840 (5th Cir., 1998).

18. United States v. Garcia-Emanuel 14 F.3d 1469 (10th Cir., 1994).

19. 14 F.3d 1469 (10th Cir., 1994).

20. United States v. Jackson 935 F.2d 832, 842 (7th Cir., 1991).

21. United States v. Lovett 964 F.2d 1029, 1036 (10th Cir., 1992).

22. 957 F.2d 1330, 1334-35 (6th Cir., 1992).

23. 964 F.2d 1029, 1033-37 (10th Cir., 1992).

24. 199 F.3d 767, 770-71 (5th Cir., 1999).

25. 49 F.3d 418, 422 (8th Cir., 1995).

26. United States v. Esterman 324 F.3d 565 (7th Cir., 2003).

27. United States v. Garcia-Emanuel 14 F.3d 1469 (10th Cir., 1994).

28. 63 F.3d 391 (5th Cir., 1995).

29. 929 F.2d 1466 (10th Cir., 1991).

30. 39 F.3d 479 (4th Cir., 1994).

31. 318 F.3d 255 (1st Cir., 2003).

32. United States v. Majors and Another 196 F.3d 1206 (11th Cir., 1999).

33. 62 F.3d 1374 (11th Cir., 1995).

34. 382 F.3d 1110 (11th Cir., 2006).

35. 57 F.3d 1374 (5th Cir., 1995).

36. 85 F.3d 1217 (7th Cir., 1996).

37. 219 F.3d 698, 707 (7th Cir., 2000).

38. United States v. McGauley 279 F.3d 62 (1st Cir., 2002).

39. 162 F.3d 840 (5th Cir., 1998).

40. United States v. Willey 57 F.3d 1374 (5th Cir., 1995).

41. United States v. Esterman 324 F.3d 565 (7th Cir., 2003).

42. United States v. Edgmon and Edgmon 952 F.2d 1206 (10th Cir., 1991).

43. United States v. Gotti 459 F.3d (2nd Cir., 2006).

44. United States v. Prince 214 F.3d 740 (6th Cir., 2000).

45. United States v. Gotti 459 F.3d (2nd Cir., 2006).

46. United States v. Perdomo , 194 Fed. Appx. 905 (11th Cir., 2006). A witness testified that a transfer of $60,000, which was purportedly for the purchase of computer hardware, took place in a supermarket car ark and that the defendant used counter-surveillance techniques when he drove away with the money. Another police officer testified that these practices were consistent with those involved in money laundering.

47. United States v. Shepard 396 F.3d 1116 (10th Cir., 2005).

48. United States v. Davis and Presley 430 F.3d 345 (6th Cir., 2005).

49. United States v. Stephenson 183 F.3d 110 (2nd Cir., 1999).

50. United States v. Ward 197 F.3d 1076 (11th Cir., 1999).

51. United States v. Saget 991 F.2d 702 (11th Cir., 1993).

52. United States v. Omoruyi 260 F.3d 291 (3rd Cir., 2001).

53. United States v. Thayer and Others 204 F.3d 1352 (11th Cir., 2000).

54. United States v. Magluta 418 F.3d 1166 (11th Cir., 2005).

55. United States v. McBirney (US District Court for the Northern District of Texas, Dallas Division, 2006).

56. United States v. Dillman 15 F.3d 384 (5th Cir., 1994).

57. United States v. Pelullo 399 F.3d 197 (3rd Cir., 2005).

58. United States v. Goulding and Ushijima 26 F.3d 656 (7th Cir., 1994).

59. United States v. Nektalov and Another 461 F.3d 309 (2nd Cir., 2006).

60. United States v. Hairston 46 F.3d 1056 (11th Cir., 2001).

61. United States v. Garcia-Emanuel 14 F.3d 1469 (10th Cir., 1994).

62. Hollenback v. United States 987 F.2d 1272 (7th Cir., 1993).

63. United States v. Garcia-Emanuel 14 F.3d 1469 (10th Cir., 1994).

64. United States v. Garcia-Emanuel 14 F.3d 1469 (10th Cir., 1994).

65. United States v. Garcia-Emanuel 14 F.3d 1469 (10th Cir., 1994).

66. United States v. Rivera-Rodriguez and Trinidad-Rodriguez (1st Cir., 203) 318 F.3d 268. The expression is particularly used in the banking and compliance fields.

67. United States v. Turner 400 F.3d 491 (7th Cir., 2005).

68. United States v. Garcia-Emanuel 14 F.3d 1469 (10th Cir., 1994).

69. 324 F.3d 565 (7th Cir., 2003).

70. 297 F.3d 845 (9th Cir., 2002).

71. 935 F.2d 832 (7th Cir., 1991).

72. 434 F.3d 42 (1st Cir., 2006).

73. 14 F.3d 1469 (10th Cir., 1994).

74. Cuellar v. United States 553 US (2008).

75. 57 F.3d 1374 (5th Cir., 1995).

76. 271 F.3d 1286(11th Cir., 2001).

77. 25 F.3d 540 (7th Cir., 1994).

78. For example, see the civil forfeiture case of United States v. $99,990.00 at 69 Fed. Appx. 757 (6th Cir., 2003).

79. For example, see the civil forfeiture case United States v. $122,000 in US Currency 198 F. Supp 2d 106 (US District Court for the District of Puerto Rico, 2002).

80. For example, United States v. Apker 229 F. Supp 2d 948 (US District Court for the District of Nebraska, 2002).

81. United States v. Aguirre 108 F. 3d 1284 (10th Cir., 1997) where federal agents discovered $41.8 million in cash buried in the defendant's back yard.

82. 248 F.3d 1056, 1060 (11th Cir., 2001).

83. F.3d 1305 (11th Cir., 2005).

84. 125 Fed. Appx. 624 (6th Cir., 2005).

85. 392 F.3d 35 (1st Cir., 2004).

86. 76 F.3d 393 (10th Cir., 1995).

87. 235 F.3d 1113 (8th Cir., 2000).

88. 214 F.3d 740 (6th Cir., 2000).

89. 553 US (2008).

90. 224 F.3d 339 (4th Cir., 2000).

91. 421 F.3d 707 (8th Cir., 2005).

92. (Unreported) 2 February 2007 (5th Cir., 2007).

93. 430 F.3d 345 (6th Cir., 2007).

94. 418 F.3d 1166 (11th Cir., 2005).

95. 928 F.2d 940 (10th Cir., 1991).

96. 57 F.3d 1374 (5th Cir., 1995).

97. United States v. Perez and Another (unreported) 19 March 2007 (5th Cir., 2007).

98. 977 F.2d 854 (4th Cir., 1992).

References

1. The Stationery Office (2002), House of Lords Hansard, Vol. 635, 27 May, col. 1063.

2. Little, W., Fowler, H.W. and Coulson, J. (1973), Shorter Oxford English Dictionary, Clarendon Press, Oxford.

3. Oxford University Press (1973), Shorter Oxford English Dictionary, Oxford University Press, Oxford.

4. Procter, P. (1985), Longman Concise English Dictionary, Longman, Harlow.