The esteemed Federal Tax Crimes blog has long discussed some of the transparency issues that have developed in the United States despite the implementation of Foreign Account and Tax Compliance Act (FATCA). While FATCA has ushered in an era of required disclosures for U.S. taxpayers holding or having signature authority over foreign assets and accounts and for foreign financial institutions (FFIs), the same cannot be said for those individuals holding assets within the United States. In particular, real estate is one area where foreign funds have flowed into the United States while wealthy investors and their agents make use of shell companies and other entities to shield the true identity of the foreign purchaser.
In early January 2016, the Federal Tax crimes also posted discussing steps to introduce greater transparency in luxury real estate transactions and other areas not covered by “know your customer” rules where potentially illicit money can come into the country through laundering techniques intended to conceal the illicit source of the income. At the time, the blog provided relevant excerpts from a New York Times article discussing some of the steps planned by Treasury Department officials to track secret buyers of luxury and high-end real estate properties to better identify illicit source income. The report states that new rules would require the disclosure of the true identity of purchasers making all cash purchases. The rules are slated to be introduced first in New York and in Miami.
According to the director of the Financial Crimes Network, Jennifer Shasky Calvery, “We are concerned about the possibility that dirty money is being put into luxury real estate.” A recent 60 minutes expose, also covered by the Federal Tax Crimes Blog, is likely to only fan the flames regarding concern over the use of illicit real estate transactions to launder illicit-source income. While one Manhattan attorney quickly turned down business citing the Foreign Corrupt Practices Act and furthermore refused to provide a referral once the term “bribe” was used in connection with African mining operations, other attorneys were more receptive. Another lawyer seemed highly receptive to the business claiming that “they don’t send the lawyers to jail” lawyers belong to a “privileged class…who make the laws in the country.”
U.S. Officials, Congress Take Steps to Crackdown on Businesses Facilitating Money Laundering In Los Angeles
However, concerns about money laundering are not limited to New York and Miami. In 2014, the Treasury Department implemented stricter rules impacting stricter rules on businesses in Los Angeles’ fashion district. The new rules were motivated by concerns stemming from money laundering by Mexican drug cartels. The 2014, raids authorized by warrants obtained by one thousand agents to search 50 L.A. businesses suspected of money laundering. The raids uncovered boxes of cash — $37 million at one location – and $90 million cash in total along with an additional $50 million in property and other assets. The chief source of the illicit funds: drug and ransom money.
Under the rules announced shortly after the raids, businesses located within the Los Angeles fashion district became obligated to report foreign cash transactions greater than $3,000. All businesses are required to report cash transactions greater than $10,000, however the new rules were instituted due to the risk and to deter other business from participating in similar schemes.
Concerns Renewed for California Lawyers & CPAs Who Assist or Facilitate Marijuana Dispensary Cash Transactions or Accept Funds Knowingly Derived from Income Illegal Under Federal Law
At the Tax Law Firm of David W. Klasing, we have long expressed concern regarding the potential criminal liability faced lawyers, CPAs, and other professionals who provide tax and other services for marijuana dispensaries and other businesses deriving income from activities that remain illegal under federal law. Furthermore, due to the nature of money laundering and related offenses as a crime of moral turpitude, the attorney or accountant’s license is also potentially in jeopardy. Consider that, despite guidance issued in 2014 by the Treasury and Justice Department, most banks have refrained from accepting cash and funds from marijuana dispensaries and stores in legal states. At the time of the federal guidance Frank Keating, president of the American Bankers Association, stated:
While we appreciate the efforts by the Department of Justice and FinCEN, guidance or regulation doesn’t alter the underlying challenge for banks. As it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions
Attorneys and accountants who nevertheless take steps to conceal the source of the income and facilitate industry access to the banking system may face criminal charges for money laundering.
Furthermore, consider the case United States v. Abbell where allegations against attorneys included “serving as conduits for legal fees, bail monies and support payments or ‘payoffs’ to the families of organization members arrested” and furthermore that the attorney’s “conduct crossed over the line drawn between vigorous advocacy on behalf of a specific client charged with a past crime and general protection of an illegal organization participating in ongoing criminal activity.” While the lawyers were charged with a significant number of other crimes, one thrust of the case against the attorneys was the laundering of the client’s proceeds from drug transactions. The court found that the commingling of “clean” and “unlawful” funds irrevocably taint the “clean” money for purposes of the money laundering statutes. The money laundering convictions of the involved attorneys was upheld by United States Court of Appeals for the Eleventh Circuit.
While the facts are, admittedly, not a perfect fit the renewed emphasis on identifying and pursuing professionals who facilitate and launder illicit source transactions is certainly cause for concern. For those professionals with connections to funds and income sourced from transactions illegal under federal law, this concern should be even greater.
Mexican Cartel Operations Continue Illicit Operations in Southern California
Furthermore, some have claimed that Mexican cartels have withdrawn from U.S. marijuana operations due to legalization and medical marijuana. However, an October 2015 discovery of a “super tunnel” along with 10 tons on marijuana with a street value of just under $6 million should result in a rethinking of this position. Officials believe the marijuana was traveling from Mexico into the U.S. and claim the tunnel is the 75th located over the past five years. These developments should make lawyers and CPAs think twice before getting involved in businesses where the cash nature of the business makes the source of income and liabilities more difficult to track. After all, activities of this type by organized foreign cartels are already on the federal enforcement radar.
Additionally, the recent 60 Minutes expose and the statements made by the attorneys regarding their perceived immunity are only likely to attract further attention from federal agencies and Congress. The potential link between dispensary products and/or sales to cartels also increases the risk for licensed professionals. While federal agents may currently refrain from engaging in enforcement actions against most dispensaries, that restraint is unlikely to continue if a link to a foreign cartel exists. The professional may find him or herself embroiled in a controversy and potential criminal liability before he or she fully understands the situation. Furthermore, in light of the upcoming election, statements by prominent Republican leaders evidencing a desire to rollback certain policies and initiatives regarding marijuana legal at the state level should also serve as a source of concern.
This brings us to the question, in light of increased illicit source enforcement: Is risking criminal liability and your license to practice truly worth the business?
