Federal Money Laundering Charges and Defenses

Most people think money laundering means hiding cash in offshore accounts or funneling drug money through shell companies. That's what you see in movies. The reality is way worse. The federal government has two separate money laundering statutes, and one of them doesn't require you to hide anything at all. You can deposit money in your own bank account, under your own name, with your own social security number, and still face 10 years in federal prison for violating 18 U.S.C. § 1957. No concealment. No intent to promote crime. Just spending more than $10,000 of what prosecutors decided were "crime proceeds" through a financial institution.

The statute was designed to catch cartel operatives cleaning millions in drug money. Instead, it catches accountants who handled a client's embezzled funds. Lawyers who deposited a retainer that turned out to be from fraud. Business owners who didn't ask enough questions about where an investor's money came from. You're at Spodek Law Group, where we've defended federal money laundering cases for years, and the number one thing clients don't understand is this: the government doesn't need to prove you tried to hide anything. They just need to prove you spent it.

The Two Federal Statutes That Work Like a Pincer

There are two federal money laundering laws, and they work together like a trap. 18 U.S.C. § 1956 is the statute everyone thinks about - it criminalizes conducting financial transactions with the intent to conceal or disguise the nature, source, or ownership of illegal proceeds, or with intent to promote further criminal activity. Maximum penalty: 20 years per transaction.

But then there's 18 U.S.C. § 1957, which almost nobody knows about until they're indicted. This statute makes it a federal crime to knowingly engage in a monetary transaction of more than $10,000 involving criminally derived property. That's it. No requirement that you concealed anything. No requirement that you promoted crime. Just that you conducted the transaction, the amount exceeded $10,000, and the money came from "specified unlawful activity." Maximum penalty: 10 years.

Here's why this matters. Prosecutors get to choose which statute fits there evidence better. Can't prove you intended to conceal the money? Charge § 1957 - no intent required. Can't prove the transaction exceeded $10,000? Charge § 1956 - no minimum amount. Or charge both and let the jury decide. The same transaction - say, depositing $15,000 in your business account - can violate both statutes. It's openly spending the money (§ 1957) while also claiming it's legitimate income (concealment under § 1956). The dual-statute structure gives prosecutors flexability to match the charge to whatever evidence they happen to have.

According to U.S. Sentencing Commission data, 77.5% of money laundering convictions are under § 1956, but 13.6% are under § 1957. That smaller percentage represents people convicted of a felony not for hiding money, but just for spending it. Think about that. Your facing 10 years in federal prison not because you laundered money in the traditional sense, but because you made a deposit.

And the average sentence for money laundering? 62 months. Over five years. For some defendants, that's longer than the sentence for the underlying fraud or drug crime that generated the money in the first place. The transaction becomes worse than the crime.

What Prosecutors Must Prove (And What They Don't Have To)

Under § 1956, prosecutors must prove four elements beyond a reasonable doubt:

1. You conducted or attempted to conduct a financial transaction
2. You knew the property involved represented proceeds of some unlawful activity
3. The property was in fact derived from "specified unlawful activity"
4. You acted with one of four specific intents: (a) to promote the unlawful activity, (b) to conceal or disguise the nature/source/ownership of the proceeds, (c) to avoid a transaction reporting requirement, or (d) to evade taxes

That fourth element - the specific intent - is what makes § 1956 prosecutions harder. The government has to prove what you were thinking. That you weren't just spending money, but that you were trying to hide were it came from or use it to commit more crimes.

Under § 1957, prosecutors only need to prove three elements:

1. You knowingly engaged in a monetary transaction
2. The transaction involved criminally derived property worth more than $10,000
3. The property was in fact, derived from "specified unlawful activit.y"

Notice what's missing? Intent. You don't have to be trying to conceal anything. You don't have to be promoting crime. You just have to conduct the transaction. The statute doesn't care if you deposited the check in your own name at your local bank branch with your drivers license on the counter. If the money came from fraud and the amount exceeded $10,000, that's a federal felony.

Here's were it gets even worse. "Specified unlawful activity" includes over 250 federal crimes. Drug trafficking, obviously. Fraud, embezzlement, bribery - those make sense. But also wildlife trafficking. Passport fraud. Smuggling. Any RICO predicate offense. The list is so broad that almost any federal crime can serve as the predicate for a money laundering charge.

And the $10,000 threshold? It's per transaction, not aggregated. Deposit $9,999 of crime proceeds - probably no § 1957 charge. Deposit $10,001 - federal felony. The difference between avoiding prison and facing 10 years is literally two dollars. Of course, if you deliberately structure your deposits to stay under $10,000 to avoid reporting requirements, thats a seperate crime (structuring under 31 U.S.C. § 5324), and it also satisfies the intent element for § 1956. Damned if you do, damned if you don't.

The Ostrich Instruction - When Not Knowing Becomes Knowing

Both § 1956 and § 1957 require that you "knowingly" engage in the transaction with criminally derived property. You'd think that means actual knowledge - that you knew for a fact the money came from crime. But federal courts allow prosecutors to satisfy the knowledge element through something called "willful blindness" or "deliberate ignorance."

In jury instructions, this is known as the "ostrich instruction" - the idea that you can't stick your head in the sand to avoid learning the truth. Here's how it works.

If prosecutors can show that you (1) believed there was a high probability the money came from crime, and (2) took deliberate actions to avoid confirming that belief, then legally you "knew" the money was dirty. Even if you never actually confirmed it. Even if you never asked. Not asking becomes proof of guilt.

The case law is full of examples. United States v. Wert-Ruiz involved someone generating false receipts for remitting drug trafficking proceeds overseas. The defendant used code words for transactions, minimized dollar amounts, and recieved large amounts of cash in gym bags. The court said a jury could rationally conclude that those circumstances should of alerted the defendant to the possibility of money laundering, and that failing to inquire further showed willful blindness. Conviction upheld.

This doctrine has been used to convict some of the highest-profile white collar defendants in history - Bernard Ebbers, Ken Lay, Jeff Skilling. And it's increasingly used against professionals who handle other people's money.

Think about what this means if your a lawyer. A new client wants to hire you for a big case. Pays a $50,000 retainer in cash. You dont ask where the money came from because, well, attorney-client privilege and its not really your business. You deposit it in your trust account. Two years later, the client gets indicted for running a Ponzi scheme. Now the government is looking at you. They argue you should have known that a cash retainer that size was suspicious. That you deliberately avoided asking questions because you didn't want to confirm your suspicions. Under the ostrich instruction, that's enough. You "knew" the money came from fraud, even though you never actually knew.

Same thing happens to accountants. You handle bookkeeping for a client's "consulting business." You process invoices, make deposits, and file tax returns. Turns out the consulting business was a front for healthcare fraud. Every check you deposited was proceeds from submitting false Medicare claims. The government charges you under § 1957 for conducting monetary transactions in fraud proceeds. You say you didn't know about the fraud. Prosecutors respond: "You should have known. The billing patterns were suspicious. You deliberately didn't ask questions." Ostrich instruction. Guilty.

The constitutional concern is obvious - can you really convict someone of "knowingly" doing something when they didn't actually know? Courts have said yes, as long as the deliberate ignorance is proven beyond reasonable doubt. But as a practical matter, it means the knowledge element becomes: "Did you have reasons to be suspicious and fail to investigate?" That's a much lower bar than actual knowledge.

Who Gets Caught (It's Not Just Criminals)

If you think money laundering charges only hit drug dealers and cartel operatives, look at who actually gets prosecuted.

TD Bank (October 2024)

TD Bank became the first U.S. bank in history to plead guilty to conspiracy to commit money laundering. Not a regulatory fine. An actual criminal guilty plea. The bank failed to implement adequate anti-money laundering programs for nearly a decade and deliberately excluded certain transaction types from its monitoring systems. The penalty? $3 billion. The institution designed to prevent money laundering became the launderer.

Paul Manafort (2019)

Trump's former campaign chairman was convicted of laundering over $30 million through offshore accounts between 2006 and 2015. The money laundering conspiracy charge alone carried 20 years. He ultimately got sentenced to 47 months total, but forfeited $22 million in properties, bank accounts, and a life insurance policy. The sentence was light. The forfeiture was catastrophic.

Accountants and Bookkeepers

These are the people who end up in our office most often. They handled payroll or bookkeeping for a client who turned out to be running a fraud scheme. They deposited checks, transferred funds, paid vendors - all normal business activities. Then the client gets indicted. Suddenly, every transaction the accountant processed is potentially money laundering. The government argues the accountant should have noticed red flags. The accountant says "I was just doing my job." The government responds: "Your job was to launder the proceeds. You furthered the fraud. Your a co-conspirator."

That's the other trap. You can be charged as a co-conspirator to the underlying crime even if you never participated in it. Simply laundering the money is considered "furthering the criminal enterprise." So now your facing the fraud charges (which you didnt commit) PLUS the money laundering charges (for doing what you thought was legitimate work).

Lawyers face the same risk. You accept a retainer from a client. Later it turns out the client paid you with embezzled funds. Is depositing that retainer check money laundering under § 1957? Technically, yes - if it exceeded $10,000 and came from a specified unlawful activity. Does that mean every lawyer who ever represented a fraudster is a money launderer? Of course not. But it means your at risk if prosecutors decide you should have known.

Asset Forfeiture - The Penalty That Survives Acquittal

Money laundering charges unlock something worse than prison time: asset forfeiture.

Under federal law, property involved in money laundering is subject to forfeiture. That includes the "dirty money" itself, but also any property purchased with those proceeds. The house you bought. The car you drive. The business you built. If prosecutors can trace any of the purchase money back to criminal proceeds, they can seize it.

There are two types of forfeiture: criminal and civil.

Criminal Forfeiture

Criminal forfeiture happens as part of your criminal case. If you're convicted of money laundering, the court can order forfeiture of the property involved in the offense. This requires a criminal conviction. But once your convicted, the forfeiture is mandatory for any property that "facilitated" the crime or represents proceeds.

Civil Forfeiture

Civil forfeiture doesn't require a conviction. The government files a civil lawsuit against the property itself - literally "United States v. $22,000 in U.S. Currency" or "United States v. One 2022 Mercedes-Benz." The standard of proof is preponderance of evidence (more likely than not), not beyond reasonable doubt. So even if you beat the criminal charges, the government can still take your property in a civil proceeding.

This is were innocent spouses get destroyed.

Imagine this scenario. Your husband runs a business. Deposits revenue in a joint bank account. Uses that account to pay the mortgage on your marital home. Turns out the business was a healthcare fraud scheme. Every deposit was Medicare fraud proceeds. The government seeks forfeiture of the house because it was purchased with crime proceeds.

You had no idea about the fraud. You weren't involved. But the house is titled jointly. The government argues the house is forfeitable property. You claim the "innocent owner" defense - you didn't know about the conduct giving rise to forfeiture.

Courts are split on how this works. Some courts say the government can only forfeit your husband's 50% interest in the property, and you keep yours. Other courts say the entire property is forfeitable, and your only remedy is to get compensated for your share after the government sells it. Either way, you lose the house. Your children get displaced. Your credit is destroyed. And you did nothing wrong.

To prevail on the innocent owner defense, you must prove either (1) you didn't know about the conduct giving rise to forfeiture, or (2) upon learning of it, you did all you reasonably could to stop it. That's a hard burden. Prosecutors will argue you should have known that you benefited from the fraud. That you didn't ask questions because you didn't want to know the truth. Willful blindness, again.

Paul Manafort's case shows how devastating forfeiture can be. He forfeited $22 million in assets - multiple properties, three bank accounts, a life insurance policy. That's on top of the prison sentence. For some defendants, forfeiture is worse than incarceration. Prison sentences end. Losing your home, your retirement savings, your children's college fund - that destruction is permanent.

Defenses That Actually Work

Money laundering cases are not unwinnable. There are real defenses.

1. Challenge the "Specified Unlawful Activity" Predicate

Both § 1956 and § 1957 require that the money came from a "specified unlawful activity." If prosecutors can't prove the predicate offense, the entire money laundering charge collapses.

For example, if your charged with laundering proceeds from wire fraud, but the government can't prove the wire fraud actually occured, the laundering charge fails. This happens more often than you'd think. Prosecutors sometimes charge money laundering before they've fully proven the underlying crime. Attacking the predicate offense can kill the case.

2. Lack of Knowledge

Even with the ostrich instruction, prosecutors still have to prove you believed there was a high probability the money came from crime. If you had no reason to suspect anything, there's no willful blindness.

This defense works best for professionals who handled money in the ordinary course of business. If your an accountant processing payroll for what appeared to be a legitimate company, and there were no red flags, you didn't "know" the money was dirty. The government has to show what specifically should have alerted you.

3. The Money Wasn't Actually From Specified Unlawful Activity

Just because prosecutors say the money came from fraud doesn't make it true. Sometimes funds are co-mingled - part legitimate income, part illegal proceeds. If the specific transaction involved clean money, there's no violation. This requires tracing analysis, often involving forensic accountants.

4. Constitutional Violations

If the government obtained evidence through illegal searches, wiretaps without proper warrants, or other constitutional violations, that evidence can be suppressed. Money laundering cases often involve massive document production, financial records, emails. If any of that was obtained illegally, it can't be used at trial.

5. Insufficient Evidence

The government has the burden of proving every element beyond a reasonable doubt. If they can't meet that burden, you walk. This sounds obvious, but it's worth remembering - you don't have to prove your innocence. They have to prove your guilt.

In money laundering cases, tracing the funds is often the weak link. Prosecutors have to show a clear connection between the predicate crime and the specific transaction your charged with. If the money passed through multiple accounts, was co-mingled with legitimate funds, or the paper trail is incomplete, they may not be able to prove the connection.

6. Entrapment (In Rare Cases)

If government agents induced you to commit money laundering that you otherwise wouldn't have committed, that's entrapment. This is rare, but it happens in reverse sting operations where undercover agents pose as money launderers and approach targets.

Why You Need a Federal Defense Attorney Immediately

Money laundering investigations usually start long before charges are filed. The government subpoenas bank records. Interviews witnesses. Traces financial transactions. By the time you learn your a target, they've been building the case for months.

Here's what you need to understand: what you do in the first 72 hours after learning about an investigation determines the outcome.

If you talk to investigators without a lawyer, you will make statements that seem innocent but get twisted into evidence of knowledge or intent. They'll ask where money came from. If you say "I'm not sure" or "I didn't really ask," that becomes willful blindness. If you say "From my client's business," and it later turns out the business was a fraud, that statement proves you knew you were handling business proceeds - which the government will argue you should have known were illegal.

Asset preservation is the other issue. Once charges are filed, the government can freeze your accounts and seize property. If you act before charges are filed, you may be able to protect some assets - not by hiding them (which would be obstruction), but by securing loans against them, paying legitimate debts, or separating co-mingled funds. Once the freeze order comes, it's too late.

Every money laundering case is also a paper case. It's fought with financial records, transaction histories, emails, and documents. Your attorney needs to start building the defense file immediately - identifying which transactions are at issue, tracing the funds to show legitimate sources, finding exculpatory evidence that shows you didn't know about the predicate crime.

At Spodek Law Group, we've handled federal money laundering cases involving doctors accused of healthcare fraud, business owners charged with structuring violations, and professionals caught in the middle of someone else's crime. We understand how prosecutors build these cases, and we know how to take them apart. The average sentence is 62 months, over five years. But it doesn't have to be your reality.

Todd Spodek and our team focus on federal criminal defense because that's where the stakes are highest. Federal cases have a 93% conviction rate. That's not because defendants are guilty. It's because the federal government only brings cases it's confident it can win. Beating those odds requires experience, aggressive investigation, and a willingness to take the case to trial if necessary.

If your under investigation for money laundering, or if you've already been charged, call us at 212-300-5196. We'll review your situation, explain your options, and build a defense strategy that actually addresses the specific elements prosecutors have to prove.

The statutes are designed to trap you. The ostrich instruction turns not knowing into knowing. Asset forfeiture destroys families even when defendants beat the criminal charges. You can't navigate this alone. And you don't have to.

Federal money laundering charges are there way of doubling your prison time and seizing your assets. Understanding how the statutes actually work - not how you think they work - is the difference between losing everything and walking away. That's what we do.