Court Voids Convictions for Money Laundering

Making money hard to trace by keeping cash transactions at banks under $10,000 violates no federal law, a federal appeals court ruled Friday in reversing the “money-laundering” convictions of two Irvine businessmen and two Phoenix attorneys.

Federal law and Treasury Department regulations aimed at stopping the “laundering” of illicit funds by organized crime and drug dealers require banks to report all cash transactions of $10,000 or more to the government.

The U.S. 9th Circuit Court of Appeals, however, ruled that a financial institution’s customers are not required to report deposits under $10,000, even if their purpose was to evade the law and move money out of the country without a trace.

The unanimous ruling, released simultaneously in Los Angeles and San Francisco, overturned the convictions of Larren Schmidt and Robert J. Bryan, of U.S. Tax Planning Services Ltd. in Irvine, and Phoenix attorneys Duane N. Varbel and Roy Osborn.

Undercover Agents

The four men were convicted of helping undercover federal agents, who posed as cocaine dealers, launder money by funneling it through a corporation set up in the Cayman Islands in the Caribbean.

Tape-recorded conversations between the defendants and the undercover agents revealed that Varbel and Osborn helped set up the corporation in the Caymans for the bogus drug dealers, and that Schmidt and Bryan helped transfer funds to the corporation’s account by purchasing cashier’s checks for under $10,000, the decision said.

That money would then be returned to this country as a bank loan.

“Even though money laundering furthers the goals of those who may be engaged in criminal activity, it is not our function to rewrite the law or the implementing currency reporting regulations,” Judge Robert Beezer wrote for a three-judge panel.

Federal law authorized the secretary of the treasury to require financial institutions and any other participant in cash transactions of at least $10,000 to report those transactions to the government, the decision said.

It added, however, that Treasury Department regulations require only financial institutions to make such reports, “and then, only when they participate in currency transactions involving more than $10,000.”

As a result, the defendants had no duty to inform the banks of the nature of their currency transactions, Beezer said.

The judge cited an earlier federal appeals court decision dismissing an indictment on the grounds that the defendant had no duty to inform the bank of the “structured” nature of his transaction converting $100,000 in cash to cashier’s checks under $10,000.

He noted that decisions from the U.S. 10th and 11th circuit courts have held that “structured” cash transactions “constitute an illegal evasion” of federal law, but disagreed with those decisions as they applied to the case before the 9th Circuit.

“We conclude that the reporting law and its regulations did not impose a duty on appellants to inform the banks involved of the nature of their currency transaction,” Beezer wrote. “We believe that the application of criminal sanctions against appellants here would violate due process.”

No Culpability

The decision also freed the banks of any culpability in failing to report the transactions “since there is no evidence in the record that the banks had any knowledge of the manner in which the cashier’s checks were purchased.”

Beezer added that if Congress or the secretary of the treasury “wish to impose a reporting duty on financial institution customers, they must do so in clear, unambiguous language. We cannot impose the duty by implication.”