Criminal Defense Lawyers

What is Money Laundering Tax Fraud

What is Money Laundering Tax Fraud

Money laundering tax fraud is when you hide the source of illegally obtained money AND fail to pay taxes on it. But here’s what most people don’t understand: money laundering is often punished MORE severely than the original crime. Tax evasion carries a maximum of 5 years in federal prison. Money laundering carries up to 20 years per COUNT. If the government charges you with 10 separate money laundering transactions, you’re looking at a potential 200 years. The crime of hiding dirty money can destroy your life far worse than whatever you did to get the money in the first place.

Welcome to Spodek Law Group. We’re putting this information on our website because most people have no idea how these cases actually work – and that ignorance gets people destroyed. The IRS has an official position on money laundering that should terrify anyone who thinks they can hide income. They call money laundering “tax evasion in progress.” That’s a direct quote from IRS Criminal Investigation. They view the act of concealing money’s origin as evidence that you’re actively evading taxes on that money. One crime becomes two.

Todd Spodek has handled cases where clients thought their biggest exposure was a tax problem. Then they discovered the money laundering charges carried penalties that dwarfed the original tax case. You can owe $100,000 in back taxes and face 5 years maximum. But if the government can show you moved that same money through accounts to hide it, you’re looking at decades. That’s the reality nobody explains until it’s too late.

The Crime Behind the Crime

Heres the paradox that traps people. Money laundering isnt just about hiding dirty money. Its about what happens AFTER you hide it. Every transaction you make to conceal the source of funds is a separate federal offense under 18 USC 1956. Twenty years maximum. Per count.

So you commit tax evasion – thats bad, but its capped at 5 years. Then you move the money to hide it. Now each transfer, each deposit, each wire is a potential 20-year count. Prosecutors dont have to choose. They stack. They charge the underlying crime AND every money laundering act that followed.

The fine is equally brutal. $500,000 or twice the amount laundered – whichever is GREATER. If you laundered $2 million, your looking at a $4 million fine on top of prison time. This isnt a slap on the wrist. This is designed to destroy you financially even if you somehow avoid prison.

How the IRS Actually Sees This

The IRS Criminal Investigation division – IRS-CI – is the only federal law enforcement agency with jurisdiction over violations of the Internal Revenue Code. When they investigate money laundering, there looking at it through a tax lens. Every dollar laundered is a dollar not reported. Every hidden account is evidence of tax evasion.

IRS-CI has 2,077 special agents. They spend about 70% of there time on tax crimes and 30% on money laundering. But heres the thing – those categories overlap completly. A money laundering investigation IS a tax investigation. Theres no seperating them.

The Bank Secrecy Act data alone led IRS-CI to uncover $21.1 billion in tax fraud from 2022 to 2024. Thats not a typo. Twenty-one billion dollars discovered through banking data. The financial system itself is the surveillance mechanism. Every time you think your being clever about moving money, your actualy creating a record that investigators will eventualy follow.

In fiscal year 2022 alone, IRS-CI identified over $31 billion in tax and financial crimes. They initiated more then 2,550 criminal investigations. There 2,077 special agents arent sitting around waiting for tips – there activly mining banking data for patterns that indicate fraud. If you have unreported income moving through the banking system, the question isnt IF they find it. Its when.

The Three Stages That Build Your Conviction

Money laundering happens in three stages. Each stage feels like your getting farther from the crime. In reality, each stage creates more evidence.

Stage one is placement. This is when you first introduce dirty money into the legitimate financial system. Maybe you deposit cash. Maybe you buy something expensive. Maybe you move it into a business. This is actualy the most dangerous stage – your most exposed to detection here – but its were people feel safest becuase “the money is in.”

Stage two is layering. This is the complex part. Wire transfers between accounts. Moving money through shell companies. Sending it overseas and bringing it back. Layering is designed to create so many transactions that investigators cant follow the trail. But heres the irony: every transaction is documented. Every wire has a record. Every bank has to report suspicious activity. Your not obscuring the trail – your creating a detailed map of your crimes.

Stage three is integration. This is when the money comes back to you looking clean. You buy property. You invest in businesses. You live a lifestyle that appears legitimate. By now the funds look like they came from legal sources.

The prosecution uses all three stages against you. Placement proves you had dirty money. Layering proves you knew it was dirty and tried to hide it. Integration proves you benefited from the scheme. What felt like moving away from crime was actualy building the case for your conviction.

Your Bank Is Already Talking

Heres what people dont understand about modern banking: your bank reports you automaticaly. Any cash transaction over $10,000 triggers a Currency Transaction Report. Theres no human decision involved. Its automatic. The report goes straight to FinCEN – the Financial Crimes Enforcement Network.

But it gets worse. Banks also file Suspicious Activity Reports when ANYTHING looks unusual. Multiple deposits just under $10,000. Large cash withdrawals. Transfers to shell companies. Unusual patterns in business accounts. The bank dosent need to prove anything. They just report suspicion.

So when you think “the IRS dosent know about this account” or “nobody is watching this transaction” – your probly wrong. The question isnt IF the IRS finds out. The question is what has your bank already told them. Investigations often begin from SAR filings that happened months or years before anyone knocks on your door.

Think about that for a second. The government may have been building a case against you for years before you knew anyone was looking. There collecting bank records. There interviewing your accountant. There subpoenaing your business partners. All while you go about your life thinking everythings fine.

The Structuring Trap

This is were people really destroy themselves. They learn about the $10,000 reporting threshold. They think there being smart by breaking up deposits into smaller amounts. $8,000 today. $7,500 tomorrow. $9,000 next week.

This is called structuring. Its also called “smurfing.” And its a SEPERATE federal crime that has nothing to do with what the underlying money was for. You can structure perfectly legal income and still face federal charges. The act of avoiding the reporting requirement IS the crime. It dosent matter if the money was clean. It dosent matter if you had a legitimate reason. Structuring is criminalized independantly of whether you were hiding anything wrong.

So now instead of one problem, you have two. Your facing whatever charges relate to the original money PLUS structuring charges. You tried to be clever. You created additional counts.

Todd Spodek has seen this pattern destroy clients. They thought they were flying under the radar. They were actualy triggering more SARs becuase banks are trained to look for exactly this pattern. Multiple deposits just under $10,000? That looks like structuring. SAR filed. Investigation opened. Charges stacked.

The Conviction Machine

IRS-CI has a 90.6% conviction rate on cases they accept for prosecution. Read that number again. Ninety point six percent. If they charge you, your almost certainly going to prison. They dont bring cases they might loose. By the time you see charges, theyve already built an airtight case.

For Bank Secrecy Act violations specificaly, the conviction rate is even higher – 97.3%. With an average prison sentence of 37 months.

Money laundering convictions carry an average sentence of 62 months. Thats over five years in federal prison. Federal prison has no parole. You serve 85% of your sentence minimum. Five years means over four years behind bars.

The median tax fraud case involves losses around $300,000. But money laundering cases often involve much more becuase prosecutors look at total transactions, not just tax loss. Move $2 million through various accounts? Thats your money laundering exposure even if the actual tax due was a fraction of that.

When They Take Everything

Asset forfeiture is were money laundering cases become truely devastating. The government can seize:

• Any property involved in the money laundering offense
• Any property traceable to the offense
• Any proceeds from the offense

This means your house. Your car. Your business. Your bank accounts. Your investment portfolio. Your retirement savings if they can show the contributions came from laundered funds. If prosecutors can connect any asset to the laundering – even partialy – they can take it. They dont need to prove the asset was entirely dirty. They just need to show a connection.

Heres how forfeiture actualy works in practice. You bought a house ten years ago. Some of the down payment came from money that prosecutors now say was laundered. They can seize the entire house – not just the portion attributable to dirty money. The whole thing. Your familys home. Gone.

The cascade looks like this: One suspicious deposit leads to an SAR. The SAR triggers an investigation. The investigation uncovers patterns. Subpoenas reveal bank records. Search warrants expose documents. A grand jury indicts. Prosecutors convict. Then forfeiture takes everything left.

Civil forfeiture can actualy happen BEFORE your convicted. The government files a seperate action against the property itself. Thats not a typo – they sue the property, not you. Youve probably seen case names like “United States v. $50,000 in Currency” or “United States v. One 2019 Mercedes Benz.” The property is the defendant. And the burden of proof is lower in civil forfeiture then in criminal cases.

You can fight forfeiture seperately from the criminal case. But if your convicted, the forfeiture case becomes nearly impossible to win. The conviction itself establishes that crimes occured. Everything connected to those crimes becomes government property. Weve seen clients loose there homes, there businesses, there savings – everything they built over decades – becuase of transactions that happened years ago.

People Who Thought They Were Smarter

Lets look at what happens to people who thought there schemes were too clever to detect.

Mark Scott was a lawyer who laundered approximately $400 million from the OneCoin cryptocurrency fraud. He set up fake private equity funds in the British Virgin Islands to move the money. He thought the offshore structures would hide everything. He got 10 years in federal prison.

Jack Fisher was a CPA. James Sinnott was an attorney. Together they sold over $1.3 billion in fraudulent tax deductions through a conservation easement scheme. They were professionals who knew tax law. They got 25 and 23 years respectively. Combined 48 years in prison for two professionals who thought they understood the system.

Roman Sterlingov operated Bitcoin Fog, a cryptocurrency mixing service designed to make bitcoin transactions untraceable. He processed 1.2 million bitcoin – roughly $400 million. The whole point of his service was anonymity. He got 12 and a half years. The cryptocurrency that was supposed to be untraceable was traced.

Changpeng Zhao founded Binance, one of the largest cryptocurrency exchanges. He got 4 months in prison – relatively light. But Binance paid $4.3 billion in penalties. Billion with a B. And Zhao is now banned from involvement in the company he created.

HSBC, one of the worlds largest banks, paid $1.9 billion in fines for allowing drug cartels to launder money. Wachovia paid $110 million for handling an estimated $350 billion in Mexican drug money. Even massive banks with armies of lawyers cant protect you when the government decides to investigate.

The Count Stacking Problem

Heres were sentencing gets absolutly terrifying. Each money laundering transaction can be a seperate count. The statutory maximum is 20 years per count. Prosecutors dont have to consolidate.

So you make 10 wire transfers to hide money. Thats potentialy 10 counts. 200 years maximum. Obviously no one serves 200 years. But the sentencing guidelines still calculate based on all counts. The more transactions, the higher your guideline range. And federal judges have much less discretion then state judges – they have to follow the guidelines or explain why they didnt.

Conspiracy charges make it worse. Under 18 USC 1956(h), conspiracy to launder money requires NO overt act. Just agreeing to do it is enough. So now your facing the underlying crime, the money laundering counts, AND conspiracy. You dont have to actualy DO anything for conspiracy. Talking about it with another person is enough.

The way prosecutors actualy use this in practice is brutal. They file a superseding indictment with every possible count. Twenty, thirty, forty counts. Your facing centuries on paper. Then they offer a plea deal: plead guilty to three counts, recommend 8 years. Compared to whats on the table, it sounds reasonable. This is how the leverage works.

One bad decision – maybe tax evasion – cascades into dozens of potential charges. Five years for the original tax crime becomes irrelevant when your facing 15 money laundering counts plus conspiracy. Prosecutors use this leverage. Plead guilty to something or face everything. Very few defendants actualy go to trial – they cant afford the risk.

What This Means For You

If your reading this becuase you think you might have a problem, understand whats at stake beyond prison.

A money laundering conviction means your barred from any affiliation with an FDIC-insured institution for at least 10 years. Any bank. Any credit union. You cant work there. You cant have an ownership stake. You cant serve on a board. If you work in finance, your career is permanantly over.

The fine – $500,000 or twice the amount – follows you even after prison. Asset forfeiture may have already taken your property. Now you owe massive fines on top of having nothing.

Restitution gets added to the tax owed, penalties, and interest. Supervised release after prison means federal monitoring for years. Your travel is restricted. Your finances are watched. Any violation sends you back.

And the conviction itself never goes away. Every background check. Every job application. Every apartment rental. Every professional license. Money laundering is a federal felony that marks you for life. You cant expunge it. You cant seal it. Its there forever, affecting every opportunity you might have had.

The Only Path Forward

Clients come to Spodek Law Group when there facing these situations. Sometimes there already under investigation. Sometimes theyve recieved a target letter. Sometimes there just realizing that what they did years ago might be catching up to them.

The worst thing you can do is nothing. The second worst thing is trying to handle it yourself. Money laundering investigations involve multiple agencies – IRS-CI, DOJ, sometimes FBI and DEA. The cooperation between agencies is seamless. Your one attorney needs to understand how all of them operate.

What actualy happens when you come to us early: We can sometimes intervene before charges are filed. We can make presentations to prosecutors explaining why certain theories dont apply. We can negotiate cooperation agreements that genuinly help – not just agreements that make the government happy while you still get crushed at sentencing. We can identify problems with there evidence before trial. We can challenge SARs and CTRs that were filed improperly.

What happens when you wait to long: The grand jury has already returned an indictment. Your arrested. Your assets are frozen. You cant afford the defense you need becuase the government has seized your money. Your negotiating position is nearly zero becuase they already have everything.

Spodek Law Group understands that the governement builds these cases for months or years before you know your a target. By the time you see signs of investigation, they may already have everything they need. The question becomes how to limit damage – how to keep a 15-count indictment from becoming a 30-count indictment, how to negotiate cooperation that actualy helps, how to challenge evidence before trial.

If your reading this becuase you think there might be a problem – theres probly already a problem. Dont wait untill the agents knock on your door. By then its to late for many options that could have helped.

Call us at 212-300-5196. The consultation is free. The cost of waiting while the government builds there case isnt.