United States v. Zarrab: international money laundering
20 Dec 2016

Stefan Cassella of Asset Forfeiture Law, LLC reports on United States v. Zarrab, in which it was decided that the United States may assert criminal jurisdiction over a foreign national operating a money service business that moves dollar-denominated funds between foreign bank accounts on behalf of sanctioned Iranian entities, in violation of US law.

That the foreign national was not physically present in the US was decided to be irrelevant; the nexus to the US is that the funds moved through correspondent bank accounts in the US. A person who moves funds through the US to a foreign country in violation of IEEPA may be charged with both the IEEPA violation and international money laundering based on the same conduct.

 

[United States v. Zarrab, 2016 WL 6820737 (S.D.N.Y. Oct. 17, 2016).]

 

S.D.N.Y. * Defendant, a foreign national, operated a money service business in Turkey and the United Arab Emirates that moved money between foreign bank accounts on behalf of Iranian entities. The only nexus between his activities and the United States was that the transactions were in US dollars which meant that the funds passed through US correspondent bank accounts as they moved between foreign banks.

Defendant was charged inter alia with conspiring to violate the International Emergency Economic Sanctions Act (IEEPA) and the Iranian Transactions and Sanctions Regulations (ITSR), and with conspiring to commit international money laundering in violation of 18 U.S.C. § 1956(a)(2)(A). He was arrested as he arrived with his family en route to Disney World in Florida, and moved to dismiss the indictment.

Defendant’s principal argument was that the United States was improperly asserting extraterritorial jurisdiction over a foreign national whose conduct occurred entirely outside of the United States and was legal where it occurred. The prosecution, he argued, represented an improper “effort to prosecute anyone in the world who engages in dollar-denominated transactions with Iran.”

The court overruled Defendant’s objection. The indictment, it held, did not involve the exercise of extraterritorial jurisdiction because the conduct in question – the movement of funds from one country to another via a correspondent account at a New York bank – occurred at least in part in the United States. Moreover, even if the indictment did involve extraterritorial jurisdiction, it is proper for the United States to exercise such jurisdiction over a foreign national when necessary to protect itself against Iran’s sponsorship of international terrorism, its frustration of the Middle East peace process, and its pursuit of weapons of mass destruction.

Turning to the international money laundering charge, Defendant argued that the Section 1956(a)(2)(A) violation merged with the IEEPA and ITSR conspiracy because they involved precisely the same conduct. This was improper, Defendant argued, because it is well-established that a money laundering transaction must be separate from the specified unlawful activity (SUA) that is alleged as the predicate offense.

The court did not agree. It is indeed well-established that a money laundering transaction must be distinct from the SUA that generated the proceeds being laundered if the Government is charging the defendant with laundering such proceeds.

But Section 1956(a)(2)(A) is a promotion money laundering offense that does not require proof that the money was the pro- ceeds of an SUA when the transaction occurred. To the contrary, Section 1956(a)(2)(A) requires proof only that the money laundering transaction was intended to promote an SUA, and there is no rule barring the merger of the money laundering offense with the SUA being promoted.

Accordingly, the court held that there was nothing wrong with the Government’s charging Defendant with both the IEEPA / ITSR conspiracy and the conspiracy to violate the international money laundering statute based on the same conduct, and denied the motion to dismiss.

 

Comment: There is indeed nothing wrong with charging the same conduct as both a violation of 1956(a)(2)(A) and a violation of the SUA that the transaction was intended to promote.

The “merger rule” bars the Government from charging the conduct that generated the funds being laundered as a money laundering offense because, for most money laundering offenses under §§ 1956(a)(1) and (2), the money must be the proceeds of an SUA before the money laundering transaction occurs. See, e.g., United States v. Butler, 211 F.3d 826, 830 (4th Cir. 2000) (“the laundering of funds cannot occur in the same transaction through which those funds first become tainted by crime”); United States v. Richard, 234 F.3d 763, 769 (1st Cir. 2000) (same; quoting Butler); United States v. Mankarious, 151 F.3d 694, 706 (7th Cir. 1998) (the acts that produce the proceeds being laundered must be distinct from the conduct that constitutes money laundering).

Once the proceeds element is satisfied, however, there is no reason why the money laundering transaction cannot constitute a subsequent step in the commission of the underlying SUA. See United States v. Kennedy, 707 F.3d 558, 566-67 (5th Cir. 2013); United States v. Greenidge, 495 F.3d 85, 100-01 (3rd Cir. 2007); United States v. Thomas, 451 F.3d 543, 548-49 (8th Cir. 2006). Accordingly, when an indictment charges a defendant with promotion money laundering, there is no reason why the money laundering transaction cannot constitute the SUA being promoted. See United States v. Burgos, 254 F.3d 8, 13 n.3 (1st Cir. 2001) (simple drug deal is violation of section 1956(a)(1)(A)(i) if purchase money is proceeds of earlier drug offense); United States v. Taylor, 239 F.3d 994, 999 (9th Cir. 2001) (paying for minor’s airline ticket to transport her from Arizona to Nevada for prostitution was both money laundering offense and violation of section 2423). There are numerous other cases on these points cited in Sections IX.A and X.K of the Money Laundering Case Outline.

The principle that there is no bar to the merger of the money laundering offense with the SUA being promoted applies to promotion money laundering under both the domestic money laundering statute, Section 1956(a)(1)(A)(i), and the international money laundering statute, Section 1956(a)(2)(A). That there is no merger is more obvious in the international context, however, because Section 1956(a)(2)(A) has no proceeds element. The offense is simply the transfer of funds into or out of the United States with the intent to promote an SUA. If there is no need to prove that the funds in question were derived from an SUA, there is no danger that the money laundering offense might merge with the offense that generated such proceeds.

For these reasons, it is fairly common for the Government to charge a defendant with international money laundering under Section 1956(a)(2)(A) and with the offense being promoted in the same indictment based on the same conduct. See United States v. Piervinanzi, 23 F.3d 670, 679-83 (2d Cir. 1994) (because section 1956(a)(2)(A) contains no proceeds requirement, there is no merger problem when the defendant wires money out of the United States to promote fraud against bank and the wire transfer constitutes both the money laundering offense and the bank fraud). Indeed, this is not the first case in which the Government charged both international money laundering and IEEPA in the same indictment based on the same conduct. See United States v. Anvari-Hamedani, 378 F. Supp. 2d 821, 832-33 (N.D. Ohio 2005) (wiring money from United States to Iran is both a section 1956(a)(2)(A) offense and an IEEPA offense; there is no merger, multiplicity, or double jeopardy problem; following Piervinanzi); United States v. Nazemzadeh, 2014 WL 310460, *12 (S.D. Cal. Jan. 28, 2014) (following Piervinanzi; wire transfer to U.S. did not merge with the IEEPA offense that it was intended to promote).

Stefan Cassella, Asset Forfeiture Law, LLC 

www.assetforfeiturelaw.us

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