Duke Law School

Civil Liberties Online

Financial Reporting: Enhancing Requirements Related to Financial Reporting and Financial Institution Cooperation with Law Enforcement

The PATRIOT Act significantly enhances the responsibilities of financial institutions to report certain financial dealings to law enforcement officials and to cooperate with investigations. Previously, individuals and financial institutions were required to file a report whenever transporting more than $10,000 in currency out of or into the United States. 31 U.S.C. ? 5332. Banks that failed to report such transactions were not required to forfeit the full amount of the transfer since failure to report was not a criminal offense. See United States v. Bajakajian, 524 U.S. 321 (1998) (upholding lower courts’ decisions to subject only a small percent of unreported currency to forfeiture since petitioner did not commit a criminal offense in failing to report). 

Because the smuggling of large quantities of currency is one of the most reliable warning signs of terror-related crimes, section 371 of the PATRIOT Act strengthens the reporting requirement in 31 U.S.C. ? 5332, making the knowing failure to report a criminal offense.  Sections 371 and 372 explicitly authorize forfeiture “to the United States, any property, real or personal, involved in the offense, and any property traceable to such property.”  These provisions presumably apply in all United States territories.  See United States v. Wray, 87 Fed. Appx. 285 (3d Cir. 2004) (holding that the anti-smuggling laws and amendments apply in all United States territories).

Two cases have addressed the forfeiture of property under sections 371 and 372. Both cases have limited the amount the government can claim, applying the general rule that the forfeiture should be proportionate to the gravity of the offense committed. See United States v. One Hundred and Twenty Thousand Eight Hundred and Fifty Six Dollars in United States Currency More or Less, 2005 U.S. Dist. LEXIS 109 (D.V.I. 2005) (using Eighth Amendment as a limit on the amount of forfeiture the government can claim pursuant to the PATRIOT Act); see also United States v. $293,316 in U.S. Currency, 349 F.Supp. 2d 638(E.D.N.Y. 2004) (noting that the amount of forfeiture should be considered in proportion to the gravity of the committed offense). 

The PATRIOT Act closed a loophole in federal law by denying an "ignorance" defense to the operators of unlicensed money transmitting businesses. Previously, people who operated unlicensed money transmitting businesses were allowed to defend themselves by proving that they had no knowledge of the applicable state licensing requirements.  18 U.S.C. ? 1960 (1992). Section 373 defines “unlicensed money transmitting business” as a business “operated without an appropriate money transmitting license in a State where such operation is punishable as a misdemeanor or a felony under State law, whether or not the defendant knew that the operation was required to be licensed or that the operation was so punishable." There has been some disagreement among district courts in interpreting section 373, especially because of the varying state law intent requirements related to registration of a money transmitting business.  See United States v. Barre, 324 F.Supp. 2d 1176 (D.Colo. 2004) (finding that federal law punishing unlicensed money transmitting businesses is applicable in all states despite the varying intent requirements for the violations pursuant to different state laws); but see United States v. Talebnejad, 342 F.Supp. 2d 346 (D. Md. 2004) (holding that defendants could not be convicted based on section 373 of the PATRIOT Act because Maryland law did not allow punishment without knowledge and willful avoidance of registration); see also United States v. Uddin, 365F.Supp. 2d 825 (E.D. Mich. 2005) (rejecting Talebnejad and following Barre in finding that section 373 requires no proof of the defendant’s knowledge of the federal registration or state licensing requirements).

The PATRIOT Act clarifies and broadens the appropriate venue for the prosecution of money laundering. Section 1004 amends 18 U.S.C. ? 1956 (the money laundering statute) to clarify that a prosecution for money laundering is permitted in “any district in which the financial or monetary transaction is conducted; or . . . any district where a prosecution for the underlying specified unlawful activity could be brought, if the defendant participated in the transfer of the proceeds of the specified unlawful activity from that district to the district where the financial or monetary transaction is conducted.”  The section also permits prosecution for an attempt or conspiracy in any venue appropriate for the complete offense, or in any district where an act in furtherance of the attempt or conspiracy took place. Section 1004 is derived from several Supreme Court venue opinions. See Hyde & Schneider v. United States, 225 U.S. 347 (1912) (holding that the federal crime of conspiracy, which consists of the agreement to commit a federal crime plus an overt act committed in furtherance of the conspiracy, may be tried wherever the agreement occurred or wherever an overt act in its furtherance was committed); United States v. Anderson, 328 U.S. 699 (1946) (finding that one district had jurisdiction over the defendant even though the crime may have begun in another district); United States v. Cabrales, 524 U.S. 1 (1998) (dismissing conspiracy charge for money laundering because the illegal money transactions had not be actively committed in the district where indictment was charged).

Finally, the PATRIOT Act expands the authority of various governmental agencies, especially the Department of the Treasury, to monitor financial institutions. Sections 311-330 gives various agencies long-term jurisdiction over foreign money matters and the power to oversee correspondent and private bank accounts. Sections 351-366 make it easier for federal agencies to examine and report suspicious activities by securities brokers and participants in "underground banking systems,” and to create more pervasive anti-money laundering schemes. These provisions have rarely been addressed by the courts, and thus far only for the purpose of clarifying a technical aspect of their application. See European Cmty. v. Japan Tobacco, Inc., 186 F.Supp. 2d 231 (E.D.N.Y. 2002) (clarifying that section 315 of the PATRIOT Act, which added money laundering as a predicate act under RICO, did not cause RICO to abrogate the “revenue rule” that prohibits suits to enforce foreign tax judgments and unadjudicated tax claims), vacated on other grounds, 355 F.3d (2d Cir. 2004). 

PATRIOT Act Provisons

  • Expands the authority of the secretary of the Treasury over reporting and record-keeping standards for financial institutions. (321, 351, 355, 356, 357)
  • Establishes other regulatory mechanisms directed at U.S. financial institutions and foreign individuals or institutions. (313, 325, 326)
  • Encourages financial institutions and law enforcement agencies “to share information concerning suspected money laundering and terrorist activities.” (314)
  • Requires financial institutions to provide governmental agencies with anti-money laundering records. (319(b))
  • Provides governmental agencies, especially the Department of the Teasury, long-term jurisdiction over foreign money matters and power to oversee correspondent and private bank accounts. (311-330)
  • Makes it easier for federal agencies to examine and report suspicious activities by securities brokers and participants in “underground banking systems” and to create more pervasive anti-money laundering schemes. (351-366)
  • Forbids concealing more than $10,000 in currency or other monetary instruments and transporting it out of or into the United States with the intent to evade relevant reporting requirements. (371)
  • Authorizes criminal and civil forfeiture for violations of the reporting requirements relating to monetary instruments and makes the criminal forfeiture procedures of 18 U.S.C. 981 (money laundering) applicable to criminal and civil forfeiture. (372)
  • Changes the law to eliminate the affirmative defense to unlicensed money transmission and also broadens the statute to make it illegal for a person to transmit or transport funds that are the proceeds of criminal activity or funds that are intended to be used for criminal activity. (373)
  • Addresses the problem of bulk cash smuggling into and out of the United States by terrorist cells. (374-377)
  • Clarifies appropriate venue for prosecution of money laundering.  (1004)

Other Relevant Provisions

  • Boosts authorizations for FinCEN, the Financial Crimes Enforcement Network at the Department of the Treasury, to improve technologies to combat money laundering. Intelligence Reform and Terrorism Prevention Act of 2004, Pub. L. No. 108-458, 118 Stat. 3638 (2004).
  • Calls for the establishment of an Office of Intelligence and Analysis in the Treasury Department. The unit would coordinate foreign intelligence gathering on financial flows to terrorist groups. Intelligence Authorization Act for Fiscal Year 2004, Pub L, No. 108-177, 117 Stat. 2599 (2003).
  • Broadens the definition of "financial institution" to include entities such as car dealerships, pawnbrokers, travel agencies and casinos because under previous law, the FBI, without a court or grand jury order, could demand financial records in terrorism cases only from banks, credit unions and other traditional financial institutions . Intelligence Authorization Act for Fiscal Year 2004, Pub L, No. 108-177, 117 Stat. 2599 (2003).

Cases