Transnational Money Laundering—Michigan to Yemen

Five Detroit-area men have been indicted by a federal grand jury on money laundering, cash smuggling, drug selling, and visa fraud charges.^[1] According to prosecutors, the individuals engaged in an “operation that allegedly moved millions of dollars between Michigan and Yemen.”^[2]

The charges largely relate to a “private, unlicensed banking system called a hawala,” which was “allegedly used to send money from Yemenis living in Metro Detroit to family back home”; the individuals are not accused of being linked to terrorism.^[3]

The hawala allegedly worked like this: “a person in Detroit who wanted to send $500 to a family member in Yemen would give $520 to someone in the hawala. … That person would keep a $20 commission and e-mail a co-conspirator in Yemen, who would write himself a $500 check on the hawala’s U.S. bank account, cash it, and give the money to the intended recipient in Yemen.”^[4] The transaction never gets recorded, and there is no way to determine whether “the funds originated with the first individual, or whether the money was generated from legal or illegal activity, or who received the money in Yemen, or the intended use of the money once it is in Yemen, or even that the money was ever transmitted out of the United States.”^[5]

In some ways, the allegations in that statement are incredible. If there is no proof that the cash was ever transmitted out of the country, how can an individual be indicted for smuggling money out of the United States? And if there are concerns about how the money might be spent, that raises the question of whose business is it to know that? In other words, wouldn’t an ATM transaction fall into that wording? Cash may come from an ATM, but the government doesn’t know to whom that money will be given, or for what purpose it was withdrawn.

Admittedly, part of the problem for the defendants comes from allegations that the hawala was funded partly through the sale of khat, a drug that is chewed and is similar to methamphetamine, and the sale of counterfeit cigarettes. Those two alleged criminal activities are enough to allow an indictment for money laundering, because it is illegal to structure monetary transactions or conceal proceeds, using criminally derived funds.

The other problem is that it is illegal to operate an unlicensed money transmitting business, the definition of which includes a business which involves the transportation of funds that are known to the defendant to have been derived from a criminal offense.^[6] It does not matter whether the money is transported domestically or abroad.^[7] The problem with the “structuring” charges brought by the government, is that the indictment seems to be internally inconsistent. Structuring is the activity of transmitting funds below the legal threshold of $10,000 so as to avoid filing the necessary paperwork required for transactions greater than $10,000.^[8] The indictment, in paragraph 25, states that the conspirators structured the cash transactions “by keeping the cash deposits into the accounts in the United States, and the withdrawals through the banks in Yemen, at $10,000 or less on all but a few occasions.”^[9] Just below that, however, in paragraph 27’s discussion of how a hawala operates, the government states “Although the conspirator’s usual practice was to bundle many individual transactions together and send tens of thousands of dollars at a time, the examples use a single transaction for the sake of clarity.”^[10] There are two problems with these two paragraphs. First, the government alleges that the individuals committed structuring on all but a few occasion, but then says that they rarely sent less than “tens of thousands of dollars.” So the indictment is internally inconsistent. The second problem is that if the individuals were sending more than $10,000 in a transaction, that can’t be prosecuted under the structuring statute.

This is the third structuring case we have seen involving Yemen; in September, we discussed Abad Elfgeeh, and more recently, we discussed 12 individuals who were indicted in New York.

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[1] Paul Egan, Feds Indict 5 in Drug Ring Case, Detroit News, Apr. 7, 2006.
[2] Id.
[3] Id.
[4] Id.
[5] Id.
[6] 18 U.S.C. § 1960(b)(1)(C).
[7] Id. § 1960(b)(2).
[8] See 31 U.S.C. § 5324. (A good question, of course, is why have a law stating that all transactions greater than $10,000 must be reported if a person can be prosecuted for conducting a transaction less than $10,000, but that is neither here nor there.)
[9] See United Sates v. No., 2:05-cr-80338, Indictment at ¶ 25 (E.D. Mich. 2006).
[10] Id. ¶ 27 (emphasis added).