“Sting” Money Laundering Scheme and Cooperating Client Ensnares Attorney

by Ballard Spahr LLP

The District Court for the Eastern District of New York has denied motions for acquittal and new trial by a Florida attorney convicted at trial of assisting in an undercover money laundering “sting” operation.

Although the sting operation was orchestrated by an undercover FBI agent, it was modeled on a similar, uncharged and actual scheme to launder the proceeds of fake stock certificates in which the attorney allegedly had participated previously, and which had been run by the defendant’s former client – who introduced the attorney to the undercover FBI agent.  As is typical for money laundering prosecutions of third-party professionals, the key issue was knowledge.

In United States v. Flom, the defendant challenged the sufficiency of the evidence underlying his conviction under 18 U.S.C. § 1956(a)(3), the “sting” provision of the criminal money laundering statutes, and further requested a new trial.  According to the court’s memorandum and opinion, the evidence at trial was that Flom received over $141,000 in checks and wire transfers into his bank account, believing them to be the proceeds of fraudulent stock sales, and then transferred these funds – minus a 5% fee – into an account secretly controlled by the FBI.  Flom’s former client, Speight, previously had committed a similar fraud in which he solicited potential investors by offering them high-yield (but in fact bogus) investments and instructed the investor victims to send their money to bank accounts maintained by attorneys, such as Flom, in order to lend an air of legitimacy to the transactions.  The attorneys then would take a cut of the proceeds and transfer to rest of the funds to accounts controlled by Speight.  After he was approached by FBI agents, Speight agreed to cooperate against Flom and introduced him to an undercover FBI agent, who purported to use the name Larsen and who supposedly was running a similar scheme.

The key issue for the purposes of the motions for acquittal or new trial was the sufficiency of the evidence of Flom’s knowledge – really, subjective belief, because this was a sting case – that the funds being transacted represented the proceeds of a (concocted) fraud. According to the court, the government’s evidence introduced at trial was sufficient; it included evidence that 1) Flom, after being warned by a bank that his pattern of moving money for Speight was consistent with the illegal sale of bogus securities, simply opened up a new account and continued the same conduct for both Speight and then Larsen; 2) recorded conversations between Flom and Larsen, who expressed concerns about “red flags” arising with banks and described the securities being peddled as “bogus” and “completely fictitious;” 3) Larsen telling Flom that he was getting a higher cut of the proceeds because Flom was “taking a risk”; 4) Flom telling Larsen that they had to get their “stories straight”; and 5) Flom signing false opinion letters for Speight in regards to a separate but similar stock certificate fraud. Flom, who commented at one point that the letters of his name stood for “For Love of Money,” never questioned any of the arrangements or expressed any discomfort.

The facts alleged in the Flom case are relatively egregious.  However, even if the case represents an outlier situation, the general attention applied to attorneys’ roles in money laundering schemes appears to be increasing, both in the U.S. and abroad. Even large law firms can get caught up in allegations of facilitating the alleged proceeds of significant money laundering schemes, either wittingly or unwittingly, as reflected by certain allegations in the DOJ’s civil complaints seeking the forfeiture of more than $1 billion in assets associated with an alleged international conspiracy to launder funds misappropriated from a Malaysian sovereign wealth fund.

Finally, a related issue in Flom was the contested decision of the trial court to instruct the jury on “conscious avoidance.” This doctrine, otherwise known as the “willful blindness” doctrine, allows the government to obtain a conviction based on evidence that a defendant purposefully took action to avoid learning relevant facts that would have produced guilty knowledge.  The government’s use of this doctrine to convict Flom underscores how the willful blindness doctrine can ensnare professionals and executives of all stripes – lawyers, bankers, accountants, real estate agents, etc. – when they did not commit the alleged crime directly, but assisted in related financial transactions and obtained knowledge that the funds represented the proceeds of crime.  Indeed, the evidence at trial in Flom included a recorded conversation in which the defendant emphasized to the undercover agent that “I don’t have ta [sic] you know everything that you do I DO NOT . . . DO NOT have to know everything that you do, when you do it, why you do it[.]”  Under the willful blindness doctrine, such sentiments enhance, not impair, the government’s case.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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