Facing Crypto Money Laundering Charges?

Cryptocurrency money laundering is the process of disguising the origin of illegally obtained funds by utilizing the decentralized and pseudonymous nature of digital assets (cryptocurrencies) to make the funds appear legitimate.

It follows the three general stages of traditional money laundering, but utilizes unique features of the crypto ecosystem:

1. Placement: Illicit funds (e.g., from drug trafficking, ransomware, or fraud) are first introduced into the cryptocurrency ecosystem, often by purchasing crypto with cash or transferring funds to a crypto wallet.
2. Layering: This is the most complex stage, involving multiple transactions designed to obscure the money trail. Techniques can include:
   
   1. Using mixers or tumblers to split and recombine funds from many sources.
   2. Chain-hopping (moving funds between different cryptocurrencies/blockchains).
   3. Transacting through unregulated or non-compliant decentralized finance (DeFi) platforms or over-the-counter (OTC) brokers.
3. Integration: The "cleaned" funds are converted back into fiat currency (like USD) through exchanges, or used to purchase goods, services, or assets, making the money look like it came from a legitimate source (like a profitable crypto investment).

Applicable Federal Statutes

18 U.S. Code § 1956 - Laundering of monetary instruments

Any person or business executive can commit money laundering if they intentionally and knowingly

• promote carrying on illegal activity, such as avoid paying taxes or transaction reporting requirements
• conceal the nature, ownership, location, source of funds
• conduct or attempt to conduct a financial transaction involving money they know was derived from unlawful activity
• transport, transfer or transmit (or attempt to do so) funds to or from a foreign country for unlawful purposes
• carry out (or attempt to carry out) a financial transaction involving money represented to be proceeds of unlawful activity or property used to conduct unlawful activity.

18 U.S. Code § 1957 - Engaging in monetary transactions in property derived from specified unlawful activity

Any person or business executive can commit money laundering when they knowingly engage or attempt to engage in a monetary transaction in criminally derived property of a value greater than $10,000.

18 U.S.Code § 1956(h) - Money laundering conspiracy

Allows prosecutors to target the planners of such schemes. Conviction requires proving a defendant's agreement with others to launder money, their knowledge of the unlawful objective, and their willful intent to join the plot. Notably, this offense is complete upon the formation of the illegal agreement, as it does not require proof of an overt act.

How Do Prosecutors Investigate Crypto Money Laundering Charges?

The investigation typically begins when authorities are alerted to suspicious activity. Key sources include:

• Suspicious Activity Reports (SARs): Centralized cryptocurrency exchanges (like Coinbase or Kraken) and banks are legally required to file these reports with the Financial Crimes Enforcement Network (FinCEN) when they detect unusual or high-risk transactions from their users.
• Victim Reports: People who have been defrauded or scammed often report the addresses where they sent their crypto, providing initial leads.
• Informants and Undercover Operations: Traditional law enforcement methods lead to criminal intelligence about illicit crypto activities on the dark web or in organized crime rings.

This is the core of the investigation. The goal is to strip away the "pseudonymity" of the crypto and link the wallet addresses to real-world people or entities.

• Tracing the Flow: Investigators use specialized blockchain analysis software (often called "Chainalysis" or "Reactor") to map the path of the suspicious funds. They can see where the money came from, which addresses it moved through, and where it ended up.
• Cluster Analysis: The software doesn't just look at one address; it identifies clusters—groups of addresses that are highly likely to be controlled by the same person or criminal organization. This helps them track the entire enterprise.
• Demixing Techniques: Criminals use tools called "mixers" or "tumblers" to blend illicit funds with clean funds. Investigators use advanced forensic techniques to try and "de-mix" these transactions, following the trail that the criminal thought they had obscured.

The blockchain only provides a wallet address, not a name. To build a prosecutable case, investigators must link the digital address to an actual person using traditional law enforcement tools:

• Subpoenas and Warrants: They issue legal demands (subpoenas) to centralized cryptocurrency exchanges, which, under "Know Your Customer" (KYC) rules, hold the real names, email addresses, phone numbers, and IP addresses associated with a user's account.
• IP Address Tracking: By seizing records from exchanges or internet service providers, they can often pinpoint the geographical location (and sometimes the device) used to initiate the transactions.
• Off-Chain Evidence: They collect evidence outside the blockchain, such as email records, chat logs, computer hard drives, or traditional bank records, to definitively connect the suspect to the identified crypto addresses.

Once prosecutors are confident they have traced the illicit funds and identified the suspect:

• Restraining Orders: They work quickly to obtain court orders to freeze the crypto assets held at an exchange or other financial institution so the suspect cannot move them.
• Forfeiture: If a conviction is secured, or sometimes even before, the government will ask the court to permanently seize or forfeit the funds, which can then be returned to victims or placed in government funds.

By combining the transparency of the blockchain with aggressive legal and forensic methods, prosecutors turn the seemingly anonymous world of crypto into a powerful tool for criminal investigation.

What to Do If You’re Under Investigation

1. Immediately, contact an experienced attorney. This is the most critical action. Do not delay. Federal agencies have often spent months or years building a case before they contact you. You need a lawyer who specializes in federal white-collar crime and, ideally, has experience handling cryptocurrency and blockchain evidence.
2. Let Your Lawyer Intervene: Your attorney can contact the agent or prosecutor in charge to find out your status, such as if you’re a witness, a subject, or a target. They’ll immediately begin protecting your rights and influencing the direction of the investigation.
3. Do Not Speak to Agents: The single greatest mistake people make is believing they can talk their way out of a problem. If federal agents approach you (e.g., your home, office, or anywhere else), remain polite and calm, but do not answer any questions. Simply and clearly state: "I am happy to cooperate, but I must speak with my attorney first."
4. Do Not Make Promises: Do not promise to speak to them later. Simply state your need for counsel. Agents are trained to extract information, and even seemingly innocent statements can be used to prove "knowledge" or "intent" later.
5. No "Off-the-Record" Discussions: Assume that every communication with law enforcement, even casual conversation, is being recorded or will be used against you.
6. Do Not Delete Anything: Obstruction of justice is a serious, separate felony that can result from destroying documents or tampering with devices. Do not delete emails, text messages, chat logs (Telegram, Signal, etc.), or social media posts related to the investigation.
7. Secure Digital Assets: Preserve all records related to your cryptocurrency activities:
   
   1. Wallet addresses and keys.
   2. Transaction IDs (Hashes).
8. Stop All Communication Related to the Investigation: Communication with co-workers or associates who may also be involved can lead to charges of witness tampering or conspiracy.
9. Avoid Discussion: Only discuss the investigation with your attorney. Do not talk to friends, family, business partners, or co-workers about the facts of the case.
10. Stay Off Social Media: Do not post anything online, even vague or philosophical comments, related to the investigation or cryptocurrency in general. Assume all public (and many private) online communications are monitored.

How We Fight Crypto Money Laundering Charges

When defending cryptocurrency money laundering cases, we deploy sophisticated strategies that exploit the unique challenges prosecutors face in proving knowledge, intent, and the authenticity of blockchain evidence.

Here are some of our core defense approaches:

1. Challenge the Knowledge Requirement: "You Didn't Know It Was Dirty Money"
   
   1. Attack circumstantial evidence: The government often relies on "red flags" like large cash transactions, use of mixers/tumblers, or dealing with darknet markets. We argue these circumstances are equally consistent with legitimate privacy concerns in the crypto space.
   2. Establish legitimate belief: Present evidence that you believed the crypto came from legal sources mining operations, legitimate trading, ICO investments, or payment for legal services.
   3. Cross-examine government experts: Challenge blockchain analysis that purports to "trace" funds to criminal activity, highlighting the pseudonymous nature of crypto and the difficulty of definitively linking wallets to specific illegal acts.
2. Defeat "Willful Blindness" Instructions: "Deliberate Ignorance Requires More Than You Think"
   
   1. Distinguish negligence from willfulness: Mere failure to investigate or ask questions is insufficient.
   2. Show you did investigate: Present evidence that you asked questions, conducted due diligence, or relied on representations from counterparties.
   3. Object to improper instructions: Fight any instruction suggesting you can be convicted based on what you "should have known" or mere carelessness.
3. Suppress Digital Evidence: "They Violated the Fourth Amendment"
   
   1. Challenge warrant affidavits: File motions to challenge false or misleading statements in search warrant affidavits. If material falsehoods exist, the warrant may be invalidated and evidence suppressed.
   2. Argue expectation of privacy: Digital wallets and private keys stored on personal devices or in encrypted form carry a high expectation of privacy. Warrantless searches or overly broad warrants violate the Fourth Amendment.
   3. Attack digital forensics: Challenge the chain of custody for digital evidence. Was the device properly imaged? Were hash values documented? Can the government prove the evidence wasn't tampered with?
4. Challenge Blockchain Evidence Authentication: "Prove That's Really My Transaction"
   
   1. Demand expert testimony: Require the government to produce qualified experts who can explain how blockchain analysis tools work and their error rates.
   2. Challenge "clustering" assumptions: Blockchain analysis relies on heuristics to group addresses controlled by the same entity. These assumptions are often wrong. We expose false positives.
   3. Attack transaction claims: Just because crypto moved from Address A to Address B doesn't prove you controlled either address or authorized the transaction. Private keys could be stolen, shared, or compromised.
   4. Highlight mixing/privacy tech: If mixers or privacy coins were used, argue the government cannot reliably trace the funds or prove they're the "same" bitcoins from the alleged crime.
5. Prove Legitimate Source of Funds: "Show Me the Crime"
   
   1. Document legitimate income: Produce records showing the crypto was purchased with legal income, earned through mining, received as payment for legal services, or obtained through legitimate trading.
   2. Challenge the predicate offense: If the government can't prove the underlying crime that generated the "dirty" crypto, the money laundering charge collapses. We attack weak or speculative claims about the predicate offense.
   3. Exploit the $10,000 threshold (§ 1957): For charges under 18 U.S.C. § 1957, if the transaction was under $10,000, the statute doesn't apply. We scrutinize transaction amounts carefully.

Possible Sentencing & Penalties in New York

18 U.S.C. § 1956 (Money Laundering)

• Maximum Prison: 20 years
• Maximum Fine: $500,000 or twice the value of the property involved in the transaction, whichever is greater
• Supervised Release: Up to 3 years
• Forfeiture: Property involved in the offense is subject to confiscation

18 U.S.C. § 1957 (Monetary Transactions in Criminally Derived Property)

• Maximum Prison: 10 years
• Maximum Fine: $250,000 ($500,000 for organizations) or twice the amount involved in the transaction, whichever is greater
• Supervised Release: Up to 3 years
• Forfeiture: Property involved is subject to confiscation

Conspiracy (18 U.S.C. § 1956(h))

Conspiracy to commit money laundering carries the same penalties as the substantive offense

Base Offense Level

For many defendants convicted under these statutes, the Offense Level begins at "8" and is then increased based on the value of the laundered funds.

Value-Based Enhancements

If a defendant with no criminal history is convicted of laundering funds valued at $1,000,000, 14 points are added to the defendant's Offense Level, totaling 22.

Additional Enhancements

• Conviction Under § 1956 vs. § 1957: Subsection (b)(2)(B) provides a two-level increase if the defendant was convicted under 18 U.S.C. § 1956. The one-level difference between these two enhancements reflects the fact that 18 U.S.C. § 1956 has a statutory maximum penalty (20 years' imprisonment) that is twice as long as the statutory maximum penalty for violations of 18 U.S.C. § 1957 (10 years' imprisonment).
•  "Business of Laundering Funds" Enhancement (+4 levels): Under Section 2S1.1(2)(C), a defendant engaged in the "business of laundering funds" would then have his Offense Level increase by an additional 4 levels.
• "Sophisticated Laundering" Enhancement (+2 levels): If a defendant is convicted of 18 U.S.C. § 1956 and the offense "involved sophisticated laundering," Section 2S1.1(b)(3) provides that his Offense Level would increase by 2 levels.

Impact of Enhancements

If a defendant laundering $1 million were found to be in the "business of laundering funds," the Sentencing Table would call for an increased prison sentence of 63-78 months. If engaged in the "business of laundering funds" and "sophisticated laundering," the guideline range would rise further to 78-97 months.

Examples and Related Cases

Our office has defended individuals charged with money laundering, specifically as it relates to the cryptocurrency market. This has become a more common charge in recent years and we only expect to see federal prosecutors continue investigating this specific area in the years to come.

Recently, our office defended an individual charged with money laundering and who was alleged to have used “sophisticated means” vis-a-vie a cryptocurrency “wallet.” Untangling the government’s theory and evidence, our office was able to push back against several enhancements that the government was seeking and ultimately land a lenient sentence for our client well below the initial federal sentencing guidelines.

Your Defense Begins Now

If you're being investigated or have been charged with crypto money laundering, you need an experienced criminal defense attorney who understands both the complexities of blockchain technology and the serious consequences of federal financial crime allegations.

Early action can make all the difference. Contact The Law Offices of Jason Goldman for a confidential consultation.