Federal authorities are increasing their efforts to investigate and prosecute child pornography offenders. Agents are coordinating with state and local law enforcement to pursue individuals involved in the trafficking of child pornography, as well as those persons who only possess child pornography. This article is a brief summary of federal laws on possession of child pornography.

Congress has outlawed the possession of child pornography under Title 18, United States Code, Sections 2252 and 2252A.

18 USC 2252 provides that a person is guilty of a felony where he or she…

knowingly receives, or distributes, any visual depiction of a minor engaging in sexually explicit conduct.

See 18 USC 2252(a)(2).

This statute applies in cases where the subjects in the pornography are real individuals. However, where the subjects are computer-generated, then 18 USC 2252A applies. That statute covers a larger category of pornography because it is not limited to cases involving actual minors.

Section 2252A(a)(2) prohibits the possession of “child pornography,” which does not necessarily have to show actual minors.

“Child pornography” is defined as the following:

Any visual depiction, including any photograph, film, video, picture, or computer or computer-generated image or picture, whether made or produced by electronic, mechanical, or other means, of sexually explicit conduct, where-

(A) the production of such visual depiction involves the use of a minor engaging in sexually explicit conduct;

(B) such visual depiction is a digital image, computer image, or computer-generated image that is, or is indistinguishable from, that of a minor engaging in sexually explicit conduct; or

(C) such visual depiction has been created, adapted, or modified to appear that an identifiable minor is engaging in sexually explicit conduct.

See 18 USC 2256(8).

The element in any child pornography charge that gives federal courts jurisdiction is that the visual depiction or child pornography was transported through or had some relation to interstate commerce. This element can be shown by the fact that the visual depiction was downloaded over the internet at any point in time.

A “minor” is defined as any person who is under the age of 18. See 18 USC 2256(1).

Generally, “sexually explicit conduct” means:

• actual or simulated sexual intercourse, including genital-genital, oral-genital, anal-genital, or oral-anal, whether between persons of the same or opposite sex
• bestiality
• masturbation
• sadistic or masochistic abuse
• lascivious exhibition of the genitals or pubic area of any person.

See 18 USC 2256(2).

In cases where the defendant is charged with violating Section 2252 (real minors) or Section 2252A (computer-generated images), the maximum penalty on the first offense is 10 years in prison. See 18 USC 2252(b)(2) and 2252(A)(b)(2).

However, this maximum applies only in cases where the defendant has no prior offenses. Federal prosecutors can seek an enhanced penalty where the defendant has priors.

The mandatory minimum penalty for possessing child pornography is 10 years in prison, with a maximum of 20 years incarceration, where the defendant has any of the following prior offenses:

Chapter 110 of the criminal code relating to child pornography. 18 USC 2251-2260.

• 18 USC 2251. Sexual exploitation of children
• 18 USC 2251A. Selling or buying of children
• 18 USC 2252. Certain activities relating to material involving the sexual exploitation of minors
• 18 USC 2252A. Certain activities relating to material constituting or containing child pornography
• 18 USC 2252B. Misleading domain names on the Internet
• 18 USC 2252C. Misleading words or digital images on the Internet
• 18 USC 2257. Record keeping requirements
• 18 USC 2257A. Record keeping requirements for simulated sexual conduct
• 18 USC 2258. Failure to report child abuse
• 18 USC 2260. Production of sexually explicit depictions of a minor for importation into the United States

Chapter 71 relating to obscenity. 18 USC 1460-1470.

• 18 USC 1460. Possession with intent to sell, and sale, of obscene matter on Federal property
• 18 USC 1461. Mailing obscene or crime-inciting matter
• 18 USC 1462. Importation or transportation of obscene matters
• 18 USC 1463. Mailing indecent matter on wrappers or envelopes
• 18 USC 1464. Broadcasting obscene language
• 18 USC 1465. Production and transportation of obscene matters for sale or distribution
• 18 USC 1466. Engaging in the business of selling or transferring obscene matter
• 18 USC 1466A. Obscene visual representations of the sexual abuse of children
• 18 USC 1468. Distributing obscene material by cable or subscription television
• 18 USC 1470. Transfer of obscene material to minors

Chapter 109A concerning sexual abuse. 18 USC 2241-2248.

• 18 USC 2241. Aggravated sexual abuse
• 18 USC 2242. Sexual abuse
• 18 USC 2244. Abusive sexual contact
• 18 USC 2245. Offenses resulting in death

Chapter 117 involving transportation of minors for illegal sexual activity. 18 USC 2421-2428.

• 18 USC 2421. Transportation generally
• 18 USC 2422. Coercion and enticement
• 18 USC 2423. Transportation of minors
• 18 USC 2424. Filing factual statement about alien individual
• 18 USC 2425. Use of interstate facilities to transmit information about a minor

Any violation of the Uniform Code of Military Justice concerning rape, sexual assault or other forms of sexual misconduct. See 10 USC 920.

Any state crime related to aggravated sexual abuse, sexual abuse or other sexual misconduct involving a minor.

Prior conviction for child pornography of any kind.

This is only a summary of the penalties for possession of child pornography in federal court. The facts and circumstances in each case will determine the number of months in federal custody on conviction.

For example, the age of the depicted minor will enhance the penalty (prepubescent minor will result in a longer prison sentence).

In each case, qualified legal counsel should be consulted.

Federal law has two statutes that address the crime of identity theft. The first is 18 USC 1028. Congress passed this statute as part of the Identity Theft and Assumption Deterrent Act in 1998. This was the first federal statute concerning the crime of identity theft, which is a modern offense.

The offense of identity theft was established by section 1028(a)(7). That section provides that a person is guilty of identity theft if he uses the identifying information of another in connection with any federal crime or any state or local felony.

Thus, the federal crime of identity theft requires a predicate offense. This is to say that a person can only be charged with identity theft if he first commits another crime, and while doing so, he also commits identity theft.

Under section 1028(a)(7), a person is guilty of identity theft when he or she “knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, or in connection with, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony under any applicable State or local law.”

Federal prosecutions for identity theft under 18 USC 1028 are probably rare. The reason is this statute has been replaced by a more severe statute prohibiting identity theft, the second statute, 18 USC 1028A.

18 USC 1028A establishes the offense of aggravated identity theft. This statute became law in the United States in 2004. It prohibits the use of identifying information belonging to another in two instances: first, in regards to certain federal offenses; and second, in relation to terrorism offenses.

The Department of Justice prefers to prosecute offenders under section 1028A because the penalties far exceed those that are available under the earlier law, 18 USC 1028.

Aggravated identity theft has a mandatory two-year sentence in the Bureau of Prisons. This sentence must be served consecutively to any other sentence.

Most sentences for various crimes run concurrently. This means that a person found guilty of two or more crimes will serve the sentence imposed on each crime simultaneously. For example, if a person receives a sentence of one year on the first crime, and three years on the second, he will serve a total of three years.

Compare this situation to someone who serves sentences consecutively. A defendant who is sentenced to one year on the first crime and three years on a second crime will serve four years total. Consecutive sentencing means that the sentences run one after the other.

The consecutive nature of sentencing for aggravated identity theft under 18 USC 1028A is important because the case always involves two sentences. Recall that identity theft generally involves two elements: first, the defendant used identifying information that belonged to another person; and second, the use of this information occurred during the commission of another crime. In this respect, identity theft consists of identity theft combined with another crime.

18 USC 1028A requires federal courts to sentence the defendant to two years prison to be served after the sentence for the underlying crime. Section 1028(b) provides rules for sentencing in these cases. The statute prohibits the judge from allowing the sentences to run concurrently. Instead, the court must sentence the defendant consecutively. And so, whatever the sentences for the underlying crime, a person charged with aggravated identity theft must serve two years after that.

In addition, federal law prohibits the judge from reducing the sentence on the underlying crime to account for the two-year consecutive add-on. The only situation in which the court may sentence the defendant to concurrent sentences for aggravated identity theft is where there are multiple convictions for aggravated identity theft. In this instance, each two-year consecutive sentence for aggravated identity theft may be served at the same time, but always after the sentence on the underlying crime.

18 USC 1028A provides that a person is guilty of aggravated identity theft where he or she commits a crime and also “knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person.”

The crimes which trigger the aggravated identity theft statute are the following:

• 18 USC 641 (theft of public money or property)
• 18 USC 656 (theft, embezzlement, or misapplication by a bank officer or employee)
• 18 USC 664 (theft from employee benefit plans)
• 18 USC 911 (false personation of citizenship)
• 18 USC 922(a)(6) (false statements made in connection with the acquisition of a firearm)
• Any crime from Chapter 47 of the criminal code relating to fraud and false statements (e.g., 18 USC 1001)
• Any crime from Chapter 63 of the criminal code relating to mail, bank, and wire fraud (e.g., 18 USC 1341, 1343, and 1344)
• Any crime in Chapter 69 of the criminal code relating to nationality and citizenship
• Any offense in Chapter 75 of the criminal code relating to passports and visas
• 15 USC 6821 relating to obtaining customer information by false pretenses (see penalty provision at 15 USC 6823)
• Violations concerning willfully failing to leave the United States after deportation and creating a counterfeit alien registration card (e.g., see penalty provisions at 8 USC 1253 and 1306)
• Various immigration offenses (e.g., 8 USC 1321-1330)
• False statements relating to Social Security programs (e.g., 42 USC 408, 1011, 1307(b), 1320a–7b (a), and 1383a)

In order to get a conviction on tax evasion, the United States Attorney must prove beyond a reasonable doubt each of the elements of tax evasion.

The crime of tax evasion is found at Title 26, United States Code, Section 7201. The statute provides the elements of tax evasion are the following:

1. A tax deficiency.
2. An affirmative act of evasion or attempted evasion of tax.
3. Willfulness by the defendant.

If federal prosecutors cannot prove any one of the above elements, the defendant should be acquitted. The burden of proof is on the government, the defendant is presumed innocent, and the prosecution must prove each element beyond a reasonable doubt.

The offense of tax evasion is a felony, not a misdemeanor. The fact that the amount owed in taxes is small does not make the crime a misdemeanor.

Tax evasion can be punished by 5 years in prison and fines. The fines increase relevant to the amount that is owed, but this is determined by the Federal Sentencing Guidelines. The statute provides that the maximum fine is $100,000. If the defendant is a corporation rather than a person, the maximum fine can be $500,000.

In addition to fines, the offender will be required to pay restitution (eg, the tax that was owed).

Some federal judges have required that the government must prove that the tax deficiency, or amount owed, is substantial. However, the statute does not have a requirement of a substantial amount owed in taxes.

That being said, the Department of Justice is typically not interested in cases where the amount owed is small.

The fact that a person has unpaid taxes does not necessarily constitute tax evasion. The statute provides that a person with a tax deficiency is guilty of tax evasion only where that person committed some affirmative act to evade paying taxes. Moreover, the affirmative act must have been willful.

Federal courts have said that almost anything can constitute an affirmative act to evade taxes. For instance, keeping a double set of books, making false entries in records, altering records, generating false invoices or receipts, destroying records, concealing assets or sources of income, or handling business in a way to avoid any records may all constitute an affirmative, willful act of evasion.

Filing a false tax return can also constitute tax evasion.

A person who possesses a gun can be charged with a crime if he is disqualified from legally possessing the weapon. The charge can be based on state law where the gun is possessed within the boundaries of a state. Or the charge can be based on federal law whenever the gun travels interstate.

Federal law says it is a felony to possess a firearm if the person has been convicted of a felony offense. This law is Title 18, United States Code, Section 922(g).

One felony conviction makes it a crime to possess a firearm that has traveled interstate. The fact that the conviction relates to a non-violent offense does not matter. Even a conviction for driving with a suspended or revoked license (if that is a felony) causes that person to lose his right to possess a gun.

Felonies differ under the laws of each state. For example, where one state calls an offense grand larceny, another would say it is theft. The definition of a felony under federal law is any offense for which the penalty can be one year or more of imprisonment. If the defendant was sentenced to probation and no imprisonment, then he is still a convicted felon and disqualified from possessing a firearm.

The following people are disqualified from possessing a firearm and can be charged with a federal offense if the firearm or any of its parts travels interstate:

• Any person convicted of a felony.
• Any person who is a fugitive from justice (but the flight must be interstate).
• Drug addicts.
• Illegal aliens, as well as aliens without permanent resident status.
• Any person who is mentally ill or has been committed to a mental institution.
• A person who has renounced US citizenship.
• Former military who have been dishonorably discharged.
• Any person who is subject to a restraining order concerning a domestic relationship.
• Any person who has been convicted of a crime of domestic violence, even if it was a misdemeanor.

See 18 USC 922(g).

The penalties for possession of a firearm in violating of federal law are severe. The court can sentence the offender to 10 years in federal prison. See 18 USC 922(n). In some cases, the sentence is enhanced because of the offender’s background.

Where the person has a criminal history including 3 convictions for any felony crime of violence or drug trafficking, then the minimum sentence is 15 years prison. See 18 USC 924(e).

In any case where the US Attorney has charged someone with a federal firearms offense, the outcome can be devastating. It is crucial to consult with a criminal attorney whose practice emphasizes federal crimes.

A prosecution for making a false statement to the federal government is usually based on Title 18, United States Code, Section 1001. This is the false statement statute that makes it a crime to knowingly make a false statement to the United States government or an employee thereof. 18 USC 1001 is used to prosecute individuals who, in the course of a criminal investigation, lie to a federal agent.

In a false statement prosecution, the government has to prove the following elements beyond a reasonable doubt:

1. A statement.
2. Which is false.
3. That is material.
4. And was made knowingly and willfully.
5. Within the executive, legislative, or judicial branch of the US government.

The penalty for this federal crime can be 5 years in prison.

But the US Attorney has additional laws with which to prosecute people for making false statements. For example, Congress passed the Major Fraud Act in 1988 to address procurement fraud in government contracts. The offense is known has major fraud against the US, and it is codified at 18 USC 1031.

The statute requires the prosecution to prove a false statement in procuring a government contract in excess of $1,000,000 in value. Bascially it is intended to be used where the fraud occurs on a large scale.

Although the $1,000,000 threshold limits its application, 18 USC 1031 has advantages for federal prosecutors because the statute of limitations is 7 years as opposed to 5. Compare 18 USC 1031(f) and 18 USC 3282 (5-year period of limitations).

And more importantly, the potential penalties are greater. Major fraud against the federal government has a possible 10 year prison sentence (compared to 5 years for false statements). See 18 USC 1031(a).

Federal law also has a false claims statute at 18 USC 287. This statute prohibits knowingly making a false claim against the US government or any department thereof. The maximum sentence for this offense is 5 years incarceration.

Finally, defendants should beware the possibility of civil prosecutions for false claims or major fraud. Even if the US Attorney is not involved, a private plaintiff can assert a false claim suit under 31 USC 3730. This is known as the “qui tam” law that allows plaintiffs to bring actions on behalf of themselves, the public interest, and the federal government for violations of the False Claim Act.

Qui tam suits are called whistleblower lawsuits, and the plaintiff can recover 15 to 25 percent of the money that is the subject of the suit.

Any person or company who is under investigation for fraud should consult with a qualified federal criminal attorney immediately.

The Racketeer Influenced and Corrupt Organizations Act (RICO) is a powerful weapon in the arsenal of federal prosecutors. The statute is often used to prosecute organized crime.

Racketeering, basically, is engaging in criminal activity for the purpose of financial gain. A textbook example of RICO would be using violence to collect an unlawful debt (such as high-interest loans from the mob or payments to avoid repercussions from the mob). Generally speaking, a RICO prosecution involves a federal RICO charge and predicate offenses such as murder, extortion, etc.

The RICO statute is Title 18, United States Code, section 1962. The penalties in a criminal case for RICO include a possible 20-year sentence in federal prison. In some cases, the sentence can be life without parole if the predicate offense has a penalty of life without parole. See 18 USC 1963.

In addition to criminal prosecution, a person or organized accused of racketeering can be sued in civil court. A civil lawsuit for RICO violations is based on 18 USC 1964. Congress passed this statute to allow any person who has been injured by a RICO violation to sue. The person can ask the judge to order payment of damages and also to order injunctions (such as a restraining order) to prevent future violations.

The law says that the plaintiff can recover three times his monetary damages (also called treble damages), and also the costs of bringing the lawsuit:

Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee.

See 18 USC 1964(c).

This statute is a strong law for plaintiffs because it is not necessary for the defendant to have been already convicted of criminal RICO charges. In fact, the plaintiff does not have to prove the criminal violation beyond a reasonable doubt.

The reason is, a lawsuit under 18 USC 1964 is a civil case. It is not subject to the same burden of proof as the prosecution must face in a criminal case. The civil plaintiff only has to establish his case by preponderance of the evidence, which is like proving something is more likely true than not.

The elements of a civil RICO case are, generally, the following:

1. RICO violation.
2. Injury suffered by the plaintiff.
3. The violation was the proximate cause of the plaintiff’s injury.

A plaintiff cannot sue civilly for RICO concerning the sale of securities, however, unless the defendant is convicted of securities fraud.

The law also provides that if the plaintiff is the United States, and the court enters a final judgment against the defendant for a civil RICO claim, then the defendant can no longer contest the RICO violation for purposes of later lawsuits.

The federal statute on wire fraud is Title 18, United States Code, Section 1343. Congress passed the wire fraud statute in 1952 as part of the Communications Act Amendment. The law against mail fraud was already on the books at that point, but Congress wanted to extend the mail fraud provisions to cover new technology. In retrospect, Congress passed a law that would prove to be very adaptable to changing technology such as the technology used today.

Like the mail fraud statute, the law against wire fraud prohibits any scheme or artifice to defraud that uses wire, radio, or television communication in interstate commerce. Later in 1956, Congress broadened the scope of the wire fraud statute to include transmissions in foreign commerce.

The elements of wire fraud are the same as mail fraud. In order to convict the defendant, federal prosecutions have to prove all of the following beyond a reasonable doubt:

1. A scheme to defraud or obtain money or property by fraudulent pretenses.
2. Intent.
3. The making of materially false representations.
4. Transmission by wire, radio, or television communication in interstate or foreign commerce.

The United States Attorney is not required to establish that the wire, radio, or television transmission was critical to the scheme. Rather, the transmission element is more like a jurisdictional element. The transmission in interstate commerce is what gives federal court jurisdiction over the scheme. Without the transmission, the scheme would be prosecutable in state court.

The venue for prosecution under 18 USC 1343 is basically any district where either the transmission began or ended. The venue statute, 18 USC 3237, provides that venue is proper in any district in which the offense began, continued, or was completed.

Wire fraud is a felony offense under federal law. The penalty can be 20 years imprisonment. However, where the victim of the wire fraud was a financial institution (eg, bank), the sentence is enhanced. In these cases, the sentence can be 30 years in federal prison.

The wire fraud statute will eventually replace mail fraud in the coming decades because of the decline in use of regular mail. Wire fraud will remain important to federal prosecutors because it is adaptable in two ways: first, the statute does not define a scheme to defraud. In the absence of a specific definition, almost any scheme involving misrepresentation could be prosecuted under 18 USC 1343. Second, the language of the statute concerning transmission by radio, wire, or television is broad enough to apply to almost every new technology.

One scenario in which wire fraud is commonly charged nowadays is mortgage fraud. The reason is, the funds are usually transmitted to an account by wire transfer, which triggers federal jurisdiction. Another reason the federal government likes wire fraud is that the keeping of business and financial records makes it easier to prove the case.

The Department of Justice is increasingly using wire fraud in the prosecution of RICO, money laundering, fraud against financial institutions, and telemarketing fraud. In many instances, the sentencing range for a conviction for wire fraud will exceed the sentence available any other applicable offense.

The purpose of the grand jury is to decide whether criminal charges should be filed against an individual. Grand jurors are selected for duty in much of the same way as jurors who sit on criminal trials. Each juror receives a summons to appear for jury duty and then, after questioning on their impartiality, they are chosen to sit on the grand jury.

A grand jury may sit for up to 18 months. While the grand jury is not hearing evidence every day, it may hear evidence one day each week or more.

In federal criminal cases, the prosecution is authorized to press charges only by grand jury indictment. There is one exception, though. For misdemeanor offenses, where the penalty is one year or less imprisonment, the United States Attorney can file the charge directly, without the need for a grand jury. When this takes place, the charge is filed on an information. The information is an affidavit from the US Attorney asserting there is probable cause that the defendant committed a federal criminal offense.

Federal offenses are predominantly felonies. The penalty for a felony offense is more than one year imprisonment. For felony offenses, federal prosecutions must obtain a grand jury indictment. Occasionally, where the US Attorney has obtained a negotiated plea with the defendant, the defendant will waive indictment by the grand jury. The Federal Rules of Criminal Procedure still require this waiver to take place in court before a judge.

The grand jury is comprised of 16 to 23 people. These individuals sit as jurors during a hearing which is somewhat like a trial. They hear evidence from witnesses, view exhibits, and hear statements of law from the prosecution. After hearing the prosecution’s case, they decide whether to indict. The decision is based on probable cause. If the prosecution has demonstrated probable cause, then the grand jury will indict, saying they have a true bill. Where the evidence is not sufficient for probable cause, the grand jury will say they have no bill, or have not returned a bill.

The law requires that at least 12 grand jurors must agree for an indictment to issue.

Although the grand jury is supposed to be an independent body, it is lead by the prosecutor. The Department of Justice will assign an attorney to lead the grand jury through the indictment process. The federal prosecutor who leads the grand jury has almost exclusive control over what evidence is presented to the grand jury.

In fact, the prosecution can call a special grand jury for the purpose of investigating a particular crime. See 18 USC 3331.

The prosecution is not required to present all the evidence to the grand jury. In fact, the prosecutor may decline to present evidence that shows the defendant did not commit the crime. The prosecution has no obligation to show the grand jury proof that the defendant is innocent.

The US Attorney uses the grand jury for investigation just as much as for filing criminal charges. The reason is, the grand jury has advantages over investigation by law enforcement.

For example, the grand jury can issue subpoenas requiring the production of evidence. If the prosecutor wants access to business records or other bank and financial records, he can get it through a subpoena duces tecum. A subpoena duces tecum is a court order to produce records or other tangible things. Failure to obey a subpoena can result in contempt of court and possible incarceration.

Trying to obtain these records through law enforcement would require a complaint for search warrant before a magistrate and presentation of probable cause. In cases where the police do not have probable cause yet, the prosecution can use the grand jury to obtain the same evidence.

Federal prosecutors can also force witnesses to testify before the grand jury. For instance, the grand jury can issue a subpoena ad testificandum requiring a witness to appear and give sworn testimony.

If police or agents of the Federal Bureau of Investigation were to visit a person and request an interview, the person can refuse the interview. But where the federal grand jury has issued a subpoena, the person must appear. Failure to appear can result in contempt of court.

The witness who is subpoenaed before the grand jury may still be able to exercise his 5th Amendment privilege against self-incrimination and remain silent. But the federal prosecutor may decide to provide the witness with immunity from prosecution in exchange for testimony. Neither the police nor federal agents can make such promises of immunity. So in this way, the grand jury is an advantage over traditional police investigation.

The United States government keeps close watch on financial activity both for tax collection purposes and also for law enforcement. Tracking the flow of cash through small businesses has proven to be a useful tool for federal agents investigating large scale criminal organizations.

Money laundering, generally, is the practice of using a business to conceal cash or other assets that are the products of criminal activity. For example, a business would be established so that it appears legitimate. However, the cash deposits from this business would not come from business sales, but rather money generated through distribution of controlled substances.

The term, “money laundering,” is generally understood to mean washing dirty money to make it seem clean.

It is a federal offense to engage in money laundering, and the penalties can include a substantial prison sentence. The laws that make money laundering a criminal offense are found at Title 18, United States Code, Sections 1956 and 1957. These statutes were passed as part of the Anti-Drug Abuse Act of 1986.

18 USC 1956 is concerned with financial transactions involving proceeds of illegal activity. It prohibits anyone from conducting or attempting to conduct a financial transaction that involves the proceeds of specified unlawful activity either:

1. with the intent to promote the carrying on of specified unlawful activity; or
2. with intent to engage in conduct constituting avoidance of taxes (eg, violation of 26 USC  7201 or 26 USC 7206)…

…when that person knows that the transaction is designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or to avoid a transaction reporting requirement under State or Federal law.

See 18 USC 1956.

The penalty for federal money laundering can up either a fine up to $500,000, or double the amount of money that was laundered, whichever is greater. The court is also authorized to sentence the defendant to a term of 20 years in federal prison.

During the course of a prosecution for money laundering, the court may issue an injunction to freeze the assets of the defendant. See 18 USC 1956(3). The restraining order may also appoint a receiver to disburse the funds in the account(s).

The money laundering statute prohibits financial transactions where the source of the funds is from specified criminal activity. The term, “specified criminal activity” is broad and includes any state law crime that is a felony. See 18 USC 1956(c)(3).

In addition, the money laundering statute applies to financial transactions involving the proceeds from any of the following federal offenses:

• Any offense that can be the basis of an indictment for RICO, 18 USC 1962.
• Murder, kidnapping, robbery, extortion, destruction of property by means of explosive or fire, or a crime of violence.
• Fraud, or any scheme or attempt to defraud, by or against a foreign bank.
• Bribery of a public official, or the misappropriation, theft, or embezzlement of public funds by or for the benefit of a public official.
• Smuggling or export control violations.
• Any offense with respect to which the United States would be obligated by international treaty to extradite the alleged offender.
• Trafficking in persons, selling or buying of children, sexual exploitation of children, or transporting, recruiting or harboring a person, including a child, for commercial sex acts.
• Distribution of controlled substances, 21 USC 844.

Section 1957 has a lower penalty than Section 1956. The sentence for a violation of 18 USC 1957 can be no more than 10 years in prison.

The reason for the lesser penalty is that this offense has a lesser mental state. In order to prove the defendant guilty of money laundering under 18 USC 1957, the US Attorney does not have to show the defendant knew the money was coming from criminal activity.

By comparison, under 18 USC 1956, which has a possible 20-year sentence, federal prosecutors have to prove beyond a reasonable doubt that the defendant knew where the money was coming from.

A prosecution for money laundering under 18 USC 1957 may only take place where the sum of money exceeds $10,000.

Basically, 18 USC 1957 enables the Department of Justice to prosecute individuals who are willfully ignorant of the source of money.

The Supreme Court recently narrowed the application of the money laundering statutes. 18 USC 1956 and 18 USC 1957 by the language of the law apply to “proceeds” from specified unlawful activity. The Supreme Court ruled that the term, “proceeds,” means profits, not gross revenue. The reasoning for the court’s ruling was that the statute did not define “proceeds,” and that in the absence of a specific definition, due process required interpreting “proceeds” in a way that would protect the defendant. This is known in criminal law as the rule of lenity. See US v. Santos, 128 S.Ct. 2020 (2008).

The high court also issued a ruling in 2008 that hiding money during the course of international travel does not constitute money laundering under 18 USC 1956(a)(2). See US v. Cuellar, 128 S.Ct. 1994 (2008).

A person who is self-employed would probably always prefer cash payment from customers over credit cards or personal checks. But the self-employed should be wary of federal laws concerning reporting cash payments. Intentional violation of cash reporting laws can result in felony charges. The federal government watches small business closely in a number of ways.

The Internal Revenue Service monitors banking deposits in the United States. Pursuant to federal statute, financial institutions are required to report cash deposits in excess of $10,000 to the IRS.

Banks are required to make these reports pursuant to the Bank Secrecy Act of 1970. Recently amended by the Patriot Act of 2001, this federal law serves as an important tool for federal prosecutors investigating drug trafficking, money laundering, and terrorism.

The law placing responsibility on banks to report cash deposits in excess of $10,000 is found at Title 31, United States Code, 5313. It provides that the Secretary of the Treasury can make rules for which deposits must be reported. See 31 USC 5313(a). Financial institutions must make Currency Transaction Reports (CTRs) for these deposits. The reports provide the IRS with the identity of the person making cash deposits and other pertinent data, which can be used by law enforcement.

While banks are required by statute to report deposits, individuals and businesses who receive payments in cash in excess of $10,000 are also required to make reports to the IRS, regardless of whether the money is deposited. This law is part of the tax code at 26 USC 6050I.

26 USC 6050I provides that any person in trade or business who receives a cash payment in excess of $10,000 must file a return with the IRS. The return is Form 8300, which discloses the identity of the parties and the nature of the transaction. It must be filed within 15 days of the date the payment is received. See 26 CFR 1.6050I-1(e)(1).

The law reads as follows:

(a) Cash receipts of more than $10,000

Any person—

(1) who is engaged in a trade or business, and

(2) who, in the course of such trade or business, receives more than $10,000 in cash in 1 transaction (or 2 or more related transactions),

shall make the return described in subsection (b) with respect to such transaction (or related transactions) at such time as the Secretary [ie, the IRS] may by regulations prescribe.

See 26 USC 6050I.

Cash payments in excess of $10,000 must be reported. Cash is defined to include currency and coins. But under some circumstances, other forms of payment such as cashier’s checks, bank drafts, traveler’s check, and money orders may be considered cash subject to reporting requirements. Personal checks are not cash.

The law applies to almost all businesses, including the legal profession. A client seeking to keep his identity confidential should not use a cash payment in excess of $10,000 to retain counsel.

The United States Attorney has prosecuted lawyers for failure to file Form 8300. The lawyers argued that the law violates the attorney-client privilege by forcing disclosure of the client’s identity and the fact that he has retained counsel. The lawyers also argued Form 8300 violates the warrant requirement of the 4th Amendment (as an unreasonable search and seizure), the privilege against self-incrimination under the 5th Amendment, and the accused’s right to counsel of his choosing provided by the 6th Amendment to the Constitution.

Federal courts have rejected these arguments and permitted attorneys to be prosecuted for failure to file Form 8300. See US v. Goldberger & Dubin, PC, 935 F.2d 501 (2d Cir. 1991); US v. Blackman, 72 F.3d 1418 (9th Cir. 1995). Therefore, the identity of a client, existence of an attorney-client relationship, and fee structure are not confidential when cash payments of more than $10,000 are made.

Failure to file Form 8300 for cash payments in excess of $10,000 does not result in charges under that section. Rather, a guilty person would be prosecuted under the tax code, 26 USC 7203.

26 USC 7203 is the section used to prosecute individuals who fail to file tax returns. It applies to both personal and corporate tax returns. Failure to file a tax return is normally a misdemeanor offense. The maximum punishment is one year imprisonment and a fine.

However, failure to file Form 8300 is a felony offense with a special penalty. The maximum is 5 year sentence in federal prison. Specifically, the law says the following:

Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution. In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure. In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting “felony” for “misdemeanor” and “5 years” for “1 year”.

26 USC 7203.

Where a person willfully fails to file Form 8300 for cash payments larger than $10,000, he can be prosecuted for a felony. It is also illegal to structure payments in an attempt to avoid the Form 8300 rule, such as dividing the sum into parts. See 31 USC 5324. If the total payments equal more than $100,000 over a 12-month period, the sentence is enhanced to 10 years in prison. See 31 USC 5324(d)(2).

The US Attorney may also choose to charge a person who “cooks the books” in order to avoid reporting cash income under 26 USC 7206. This statute makes it a felony offense to withhold, falsify, or destroy financial tax records. The law says the following:

(B) Withholding, falsifying, and destroying rec­ords

Receives, withholds, destroys, mutilates, or falsifies any book, document, or record, or makes any false statement, relating to the estate or financial condition of the taxpayer or other person liable in respect of the tax;

shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.

See 26 USC 7206(B).

A person can be sentenced to 5 years in federal prison for maintain separate accounting records for the same business that do not count cash.