The Department of Justice's ("DOJ") commitment to expanding the scope of criminal enforcement of the money laundering statutes was shown in a recent indictment targeting FedEx Corporation.
On August 15, 2014, a federal grand jury in the Northern District of California issued a superseding indictment against FedEx, adding three counts of conspiracy to commit money laundering to a fifteen-count indictment issued July 17 arising out of the shipper's alleged role in facilitating illegal online pharmacy sales. All together, the superseding indictment charges eighteen counts of distribution of controlled substances and conspiracy to distribute controlled substances, under 21 U.S.C. § 841 & 846, conspiracy to distribute misbranded drugs in interstate commerce, under 18 U.S.C. § 371, and conspiracy to launder money, under 18 U.S.C. § 1956.
The indictment highlights efforts by DOJ to bring cases under the money laundering statutes targeting, as crimes in themselves, actions that facilitate the introduction of ill-gotten gains into the financial system. The money laundering charges – which are unusual against a large corporate defendant like FedEx – have the added benefit of providing the government with the ability to sustain charges against FedEx, even if the underlying drug distribution and conspiracy charges fail. FedEx is charged under 18 U.S.C. § 1956(h) with conspiracy to violate § 1956(a)(1)(A)(i), which criminalizes the knowing participation in any financial transaction that involves the proceeds of a specified unlawful activity, with the intent to promote the carrying on of that specified unlawful activity. To sustain this charge, the government does not need to demonstrate that FedEx was guilty of underlying drug trafficking charges alleged. The crime can be established based merely on a showing that FedEx had knowledge that the funds it accepted from its online pharmacy customers were tainted and that, based on accepting the payments and delivering the packages, it intended to promote the illegal business activities.
The indictment alleges that FedEx knew the payments from the identified pharmacies represented the proceeds of the sale of controlled substances, and cites to internal communications among FedEx employees, managers and officers discussing methods and practices FedEx could employ to ensure the corporation would be paid for its services in the event the pharmacies' operations were shut down by law enforcement. According to the indictment, the DEA, FDA, and members of Congress and their staffs informed FedEx that illegal Internet pharmacies were using their shipping services to distribute controlled substances, that FedEx knew its co-conspirator customers were shipping prescription drugs and were likely illegally selling controlled substances, and that FedEx identified internet pharmacy customers and subjected them to a special account credit policy that would better ensure that FedEx would receive payments due from these customers, in the event the companies were shut down as a result of their illegal operations. See United States v. FedEx Corporation, No. 3:14-cr-00380-CRB (N.D. Cal. Aug. 14, 2014)(Indictment ¶¶ 4-21). In other words, the Government charged that FedEx knew of a risk that its customers' activities were illegal, but responded only by taking steps to ensure that it would continue to be paid in the event the illegality was charged.
The position taken by the Justice Department could impact all companies that do business in situations where there are sufficient "red flags" to indicate that the companies are knowingly accepting payments they believe may likely be derived from unlawful activities. Under the federal money laundering statute, a party to a financial transaction can violate §1956 by accepting payments that it knows were derived from "some illegal activity," even if the party does not know the actual source of the money. See United States v. Turner, 400 F.3d 491, 496 (7th Cir. 2005). Knowledge that the money used for payments for services is derived illegally can be demonstrated by circumstantial evidence, such deviation from customary business practices in processing or recording payments, accepting payments in the form of large sums of cash, and statements by the defendant suggesting knowledge that the customer was involved in unlawful activity, such as drug trafficking. See United States v. Wynn, 61 F. 3d 921, 924-25 (D.C. Cir. 1995); United States v. Golb, 69 F. 3d 1417, 1423-24 (9th Cir. 1995).
FedEx is not the first courier service to be targeted in the Justice Department's investigation into illegal drug distribution through online pharmacies. UPS entered into a Non-Prosecution Agreement last March with the U.S. Attorney's Office for the Northern District of California in which the courier service agreed to forfeit $40 million in payments it has received from illegal online pharmacies. UPS also agreed to implement a compliance program designed to ensure that illegal online pharmacies will not be able to use UPS's services to distribute drugs. The FedEx indictment is another example of federal prosecutors targeting illegal activity indirectly—here, attacking illegal drug sales by eliminating the seller's ability to fill its orders. The means by which this policy has been implemented, though, is heightened enforcement of money laundering statutes and their application in industries that had not previously recognized that money laundering risks existed. Further, the indictment demonstrates a situation where the government has charged FedEx with both assisting in the underlying activity that generated the illegal proceeds as well as with accepting the resulting illegal proceeds as payment. U.S Attorney for the Northern District of California, Melinda Haag, said that this indictment "highlights the importance of holding corporations that knowingly enable illegal activity responsible for their role in aiding criminal behavior."