California Law: Money Laundering

If "money laundering" brings to mind someone running $100 bills through the washer, it's not far from the truth. Money laundering is the activity of taking money earned from illegal pursuits and hiding its origins by funneling it into legal bank accounts or businesses.

Under California money laundering laws, the prosecutor can charge the same person with both obtaining funds from the illegal activity and – if he deposits them in the bank – with money laundering. But often those who are charged with money laundering are not those who commit the illegal acts to get the money.

The Federal government enacted laws to make money laundering a crime in 1986, and the government of California followed suit. The legislature included the crime of money laundering in both the state's Penal Code and the Health & Safety Code to crack down on illegal drug trafficking.

Drug trafficking was already a crime in 1986 and had been for some years. Why would the state decide to also make it a crime to deposit the ill-gotten drug gains in the bank? The answer involves the structure of organized crime during that period.

The big drug bosses usually stayed far away from any hands-on drug activities like transporting or selling the drugs. Lower-ranking members of the drug families handled these, while the important people on the top of the crime ring were the ones to bank the profits. The California legislature made money laundering a state crime, allowing law enforcement to reach the crime bosses. However, given the language of the money laundering statutes, not everyone liable under these laws are involved in the initial crimes.

California Penal Code 186.10 sets out the legal definition of money laundering. Under Section 186.10, anyone conducting or attempting to conduct a bank transaction exceeding a certain amount of money if that person intends to promote a criminal activity or knows that the money involved came from a criminal activity may be charged with money laundering.

To fit within the money laundering definition, the minimum amount of the transaction must be $5,000 within a seven-day period or $25,000 within a 30-day period.

These balances are cumulative; the transaction amounts can be added together to meet the statutory amount as long as they are made within the time period specified in the statute. For instance, seven deposits of $1,000 each over a period of four days are sufficient to meet the $5,000 minimum within seven days.

Most types of bank transactions can constitute money laundering under the Penal Code. These include depositing money into an account, withdrawing it from an account or writing a check. For example, if the spouse of a drug dealer deposits $5,000 in drug earnings in the family bank account, the spouse can be charged with money laundering even if she played no role in the drug activity.

But the person to be charged must know that the money is involved in an illegal activity. If a parent gives an adult child money to take a vacation, and is unaware that the trip is actually being made to import drugs from Mexico, she cannot be charged with money laundering. She had neither specific intent to promote criminal activity nor knowledge that the money would be used for criminal activity.

The minimum money amounts are also important to charging the crime. If a crime boss deposits $4,999 of money from a drug deal in a bank account, every Monday for a month, she cannot be charged with general money laundering. The amount must be a total of $5,000 in seven days or a total of $25,000 in 30 days. Here, the amount in seven days would be $4,999 while the amount in 30 days would be $19,996.

While the California Penal Code contains the general provisions dealing with money laundering, there are specific provisions related to controlled substance money laundering, also called narcotics money laundering. The legal definition of this offense is found in California Health & Safety Code section 11370.9.

It is narcotics money laundering if a person received, acquired or engaged in a transaction involving money or property that he knew was derived from a controlled substances offense and he was involved in the transaction because he intended to conceal or disguise the source, ownership or control of the money. The total amount of money involved in the transaction must also have exceeded $25,000 in a 30-day period.

While the language of the Penal Code 186.10 and Health & Safety Code 11370.9 statutes may look quite similar, think of them as different size nets that, used together, can catch more criminals. For example, if a person takes $50,000 of drug money and tosses it into a bank account, she is guilty of general money laundering under the Penal Code.

However, imagine that instead of putting the money in a bank, she invests it all in a friend's restaurant, taking back a 50 percent ownership. This will not involve a bank transaction and therefore is not general money laundering. However, she made the investment to conceal and disguise drug money, so she would be guilty of narcotics money laundering under the Health & Safety Code provisions.

On the other hand, take the case of a drug trafficker who makes $20,000 from a drug deal. She deposits the money in her bank account. While she cannot be charged under the narcotics money laundering, since the sum is less than $25,000, she can be charged under the general money laundering provision.

California criminal charges usually take one of two forms: misdemeanors, which are the less serious offense, and felonies, the more serious type of offense.

A misdemeanor is defined as a crime for which the maximum penalty does not exceed one year in county jail and the maximum penalty does not exceed $1,000. A felony is a crime where the jail term and potential fines do exceed one year in jail and $1,000.

Money laundering, however, does not fit snugly in either category. Both types of money laundering (general money laundering and narcotics money laundering) are what California calls "wobbler" offenses. This means that the prosecutor can charge money laundering as either a misdemeanor or a felony. The decision of whether to charge as a misdemeanor or a felony is made based on the circumstances of the case as well as the prior criminal history of the person charged.

The maximum penalty for either Penal Code money laundering or Health & Safety Code money laundering charged as a misdemeanor is one year in county jail and/or a $1,000 fine. Someone convicted of this misdemeanor could also get a lesser sentence.

Someone charged with a felony under Penal Code 186.10 money laundering provisions risks more jail time and more of a fine. The potential penalties are 16, 24 or 36 months in county jail and/or a fine. For a first offense for money laundering, the fine can be up to $250,000 or twice the amount of the money laundered, whichever is greater. For those with a prior conviction for money laundering, the fine can increase, and if the amount laundered exceeds $50,000, the prison sentence can increase.

Someone charged with a felony for Health & Safety Code 11370.9 controlled substances money laundering may get a prison sentence of 24, 36 or 48 months in state prison. The fine is the same as for Penal Code felony money laundering.