I. What charges can the government use to allege money laundering?

18 U.S.C. § 1956: This is for laundering monetary instruments and carries a penalty of up to 20 years in prison and fines of up to $500,000 or twice the value of the funds involved, whichever is greater

18 U.S.C. § 1957: This applies to engaging in monetary transactions in property derived from specified unlawful activity and can result in up to 10 years in prison and fines up to twice the value of the property involved.

18 U.S.C. § 1956(h): criminalizes conspiracy to commit money laundering. It makes it illegal for two or more people to agree to conduct or attempt to conduct a financial transaction involving the proceeds of specified unlawful activity (money laundering). The crime is the agreement itself, regardless of whether the money laundering was ultimately successful.

Bulk cash smuggling (31 U.S.C. § 5332): knowingly concealing more than $10,000 in currency or other monetary instruments on the person of such individual or in any conveyance, article of luggage, merchandise, or other container, and transports or transfers or attempts to transport or transfer such currency or monetary instruments from a place within the United States to a place outside of the United States, or from a place outside the United States to a place within the United States

RICO Act- the Racketeer Influenced and Corrupt Organizations (RICO)

II. Drug traffickers are purported to utilize some of the following tactics to money launder

-Purchase and or title assets in fictitious names, aliases, or in the names of friends or relatives

-Create and maintain Bitcoin and other cryptocurrency accounts. These are utilized because of the anonymity associated with the use of Bitcoin and other cryptocurrency accounts and because cryptocurrency is decentralized.

III. Dark Net Explanation

The darknet is a part of the internet that requires special software, like the Tor browser, to access, and is not indexed by standard search engines. It uses layered encryption to make user activity anonymous

IV. Cryptocurrency

This is a type of virtual currency, that is a decentralized, peer to peer network based medium of value or exchange that may be used as a substitute for fiat to buy goods or services or exchanged for fiat currency or other cryptocurrencies. Examples of cryptocurrency are Bitcoin, Ethereum, Litecoin, Dogecoin, Monero, among others.

Most cryptocurrencies have a blockchain which is a distributed public ledger, run by the decentralized network, containing an immutable and historical record of every transaction. It is still difficult for a number of reasons for law enforcement to track.

Cryptocurrency is stored in a virtual account called a wallet. Crypto wallets are designed to store your private key, keeping your crypto accessible at all times. They also allow you to send, receive, and spend cryptocurrencies like Bitcoin and Ethereum. Crypto wallets keep your private keys – the passwords that give you access to your cryptocurrencies – protected and accessible, allowing you to send and receive cryptocurrencies like Bitcoin and Ethereum.

The Financial Crimes Enforcement Network (“FinCEN”) has issued many notices discussing the various issues with cryptocurrency including recent concerns over regulatory risks related to convertible virtual currency kiosks. This notice dates back to 2019! It’s worth a read as it describes dark net marketplaces and cryptocurrency really well.

V. Recent cases in the news

The recent “Fire bunny” case was a case that operated on the darknet from January 2019 to August 2022. It operated on multiple dark web marketplaces and described itself as an “old vendor with the best in QUALITY SPEED OF DELIVERY and STEALTH.” In total, the defendants allegedly received nearly $8 million in Bitcoin proceeds and investigators found nearly $900,00 worth of cryptocurrency on one of the defendant’s phone. Some of the money received was laundered by converting Monero – a form of anonymized cryptocurrency that is extremely difficult to trace or monitor – into Bitcoin. The Bitcoin would then enter cryptocurrency exchange accounts controlled by the defendants and others. At least $2.4 million in Bitcoin was sent to a foreign based cryptocurrency exchange and laundered in the form of Chinese Yuan.

Samourai CEO Keonne Rodriguez and Samourai CTO William Lonergan Hill were recently sentenced for knowingly transmitting over $237 million in alleged criminal proceeds, coming from, among other things, drug trafficking, darknet marketplaces, cyber-intrusions, frauds, sanctioned jurisdictions, murder-for-hire schemes, and a child pornography (“CSAM”) website.

It utilized a Bitcoin mixing service known as “Whirlpool,” and coordinated batches of Bitcoin exchanges between groups of Samourai users. Through this process, the original source of particular Bitcoin holdings became obscured within the blockchain’s transactional record, effectively preventing law enforcement agencies and cryptocurrency exchanges from tracing funds back to their origins.

The second service, called “Ricochet,” enabled users to introduce additional and unnecessary intermediate transactions—known as “hops”—between sending and receiving addresses. This feature served a similar obfuscation purpose, making it substantially more difficult for monitoring entities to establish connections between cryptocurrency transfers and potential illicit activities. The scale of these operations was considerable: from Ricochet’s launch in 2017 and Whirlpool’s inception in 2019, more than 80,000 Bitcoin—valued at over $2 billion at the time—passed through these services. Samourai collected fees for both services, estimated to have a total value of more than $6 million.

Finally, in Operation RapTor, participating law enforcement agencies in the U.S., Europe, South America, and Asia arrested 270 darknet vendors, buyers, and administrators. Recently, as part of that large takedown, in the Southern District of New York (which is a district we are licensed to practice in) Incognito Market owner Rui-Siang Lin pled guilty for operating an online narcotics bazaar that existed on the dark web. It is alleged that Incognito Market sold more than $100 million of narcotics to anyone using the Tor web browser on the “dark web” or “darknet.”

Conaway & Strickler, PC is licensed to practice in NY, GA and CA. We can “pro hac” into any federal district in the country and have represented clients in New Hampshire, Vermont, Georgia, New Jersey, New York, California, Iowa, Texas, Tennessee, Florida, Pennsylvania, among others. We have “first chaired” many jury trials and have represented clients charged with RICO, drug trafficking and cryptocurrency money laundering cases. Please contact us for additional information or if you have a case you want to discuss with us. Please see here for additional blogs on this subject.

Note if your asset has been SEIZED, that means the government has taken possession of your property, but it does not mean the government owns the property legally YET….See here for details on the most recent DOJ seizures and forfeiture manual.

Criminal Forfeiture

This is taken verbatim from DOJ website

In personam (against the person) action against a defendant that includes notice of the intent to forfeit property in a criminal indictment. A criminal conviction is required, and forfeiture is part of the defendant’s sentence. Criminal forfeiture is limited to the property interests of the defendant, including any proceeds earned by the defendant’s illegal activity. Criminal forfeiture is generally limited to the property involved in the particular counts on which the defendant is convicted. As part of sentencing, a court may order the forfeiture of a specific property listed in the indictment, a sum of money as a money judgment, or other property as substitute property. The government must establish by a preponderance of the evidence the requisite connection between the crime of conviction and the asset. After a preliminary order of forfeiture is entered, a separate, ancillary proceeding begins to determine any third-party ownership interests in the property the government seeks to forfeit. The court then will enter a final order of forfeiture

Civil Forfeiture

In rem (against the property) court proceeding brought against property that was derived from or used to commit an offense, rather than against a person who committed an offense. Unlike criminal forfeiture, there is no criminal conviction required, although the government is still required to prove in court by a preponderance of evidence that the property was linked to criminal activity. The proceeding allows the court to gather anyone with an interest in the property in the same case and resolve all the issues with the property at one time.

In a civil forfeiture case, the government is the plaintiff, the property is considered the defendant, and any person who claims an interest in the property is a claimant. Civil forfeiture allows the government to file cases against property that would not be reachable through criminal forfeiture, such as property of fugitives, terrorists, and other criminals located outside the United States. Civil forfeiture also permits recovery of assets of defendants who have died or where the wrongdoer cannot be identified.

Administrative Forfeiture In rem (against the property) action that permits personal property to be forfeited to the United States without filing a case in federal court. The administrative forfeiture process occurs before the agency that seized the assets when no one has filed a claim contesting the seizure. There are many procedural requirements, including strict time limits and noticing requirements, designed to protect the interests and rights of property holders. Any seizure of property subject to administrative forfeiture must be based on probable cause. The primary benefit of administrative forfeiture is to avoid burdening the courts with judicial actions when no one contests the forfeiture of the seized property.

This last one (administrative forfeiture) needs translated a bit. You need to first assert a claim to the property and then it goes to the civil forfeiture route.

A person who files an administrative petition is not contesting the forfeiture. The petitioner either wants his/her interest in the asset to be recognized or is a victim of the crime(s) underlying the forfeiture. If the asset is forfeited to the government, the petitioner wants to be compensated for his/her interest.

But, a person who files an administrative claim is contesting the seizure and is requesting to pursue the matter in court. The claimant believes the asset was not part of an illegal activity and was not purchased through ill-gotten gains. To contest forfeiture in federal court you must file a claim.

Once you file a timely claim, it will stop the administrative forfeiture proceeding and it is then forwarded to the U.S. Attorney’s Office for further proceedings.

Any time deadlines are missed, the assets may be forfeited to the government. In just ONE year, in just ONE district, the Northern District of Georgia was responsible for collections and forfeitures of over U.S. Attorney Ryan K. Buchanan announced that the Northern District of Georgia was responsible for collections and forfeitures of over $31 million in Fiscal Year 2023. $31 million in Fiscal Year 2023.

Please contact us so we can help you protect your assets.