18 U.S.C. § 1956 punishes financial transactions involving proceeds of "specified unlawful activity" — including federal tax crimes — with up to 20 years imprisonment per count. § 1956(a)(1)(A)(ii) reaches transactions designed to evade tax. Routinely charged alongside tax evasion to stack exposure.
Money laundering is a force multiplier in federal tax cases. Once tax fraud creates "proceeds," every subsequent financial transaction designed to conceal the source — moving funds between accounts, paying personal expenses through business accounts, withdrawing in structured amounts — supports a separate 20-year count. Defending these cases requires breaking the link between the underlying tax offense and the alleged laundering activity.
The Three Subsections
Section 1956 contains three principal offenses:
§ 1956(a)(1) — Domestic Money Laundering
Conducting a financial transaction with proceeds of specified unlawful activity, with intent to:
- (A)(i) Promote the carrying on of specified unlawful activity, OR
- (A)(ii) Engage in conduct constituting tax evasion, OR
- (B)(i) Conceal the nature, source, ownership, or control, OR
- (B)(ii) Avoid a reporting requirement.
§ 1956(a)(2) — International Transfers
Transferring funds to or from the United States with similar intents.
§ 1956(a)(3) — Stings
Conducting transactions involving funds represented by law enforcement to be proceeds of specified unlawful activity.
Tax-Specific Application
§ 1956(a)(1)(A)(ii) reaches financial transactions specifically designed to evade tax on the proceeds. Common patterns:
- Moving fraud proceeds through multiple accounts to disguise source from IRS;
- Investing untaxed income in a way that obscures its origin;
- Using nominee accounts to avoid IRS levy;
- Structuring withdrawals to avoid currency transaction reports.
The "tax evasion purpose" element distinguishes ordinary commerce from criminal laundering — but the bar is low. Almost any movement of fraud proceeds creates an inference of tax evasion intent.
Specified Unlawful Activity Includes Tax Crimes
Federal tax crimes under 26 U.S.C. § 7201, § 7206, and certain wire fraud cases are "specified unlawful activity" under § 1956(c)(7). Once the government proves the underlying tax offense, the proceeds become legally tainted.
This is why money laundering counts proliferate in tax indictments — every dollar moved after the false return becomes a potential laundering count.
The Concealment Element
For § 1956(a)(1)(B)(i) — concealment laundering — the government must prove the transaction was designed in whole or in part to conceal "the nature, the location, the source, the ownership, or the control of the proceeds." Important Supreme Court limitations:
- Cuellar v. United States, 553 U.S. 550 (2008): merely transporting cash is not concealment laundering — the design must be to conceal, not just to move funds.
- United States v. Santos, 553 U.S. 507 (2008): "proceeds" means profits, not gross receipts — narrows the reach of the statute in many cases.
These cases provide significant defense leverage in laundering prosecutions.
Sentencing Under § 2S1.1
USSG § 2S1.1 governs money laundering sentencing:
- Base offense level: same as the underlying specified unlawful activity, OR offense level 8, whichever is greater;
- Plus enhancements:
- +1 if defendant knew funds were proceeds of unlawful activity (vs. believed);
- +2 if conviction under § 1956 (rather than § 1957);
- +1 to +4 for value of laundered funds (over $1.5 million = +4).
The grouping rules under USSG § 3D1.2 typically merge laundering counts with the underlying offense — but the laundering enhancement of 2-3 levels above the base offense is real.
Defenses
No Specified Unlawful Activity
If the underlying tax offense fails, the laundering counts fail. Defending the substantive tax case is the foundation of laundering defense.
No Concealment Purpose
Routine commercial transactions — paying suppliers, payroll, bills — are not laundering even when funded with tainted proceeds, unless the design was concealment.
Cuellar Defense
Mere transportation or transfer of funds, without concealment design, is not laundering.
Santos "Proceeds" Defense
"Proceeds" means profits, not gross receipts. In some cases, no profits exist — the entire scheme operated at a loss.
Statute of Limitations
5 years under § 3282 — but laundering can extend liability for older underlying tax offenses.
What to Do If You Are Under Investigation or Charged
- Do not speak with IRS Criminal Investigation (CI) agents without an attorney — even informally. Special agents are not auditors; they investigate crimes.
- Do not destroy or alter records — destruction can become obstruction under 18 U.S.C. § 1519 with a 20-year maximum.
- Locate and preserve all bank records, returns, ledgers, emails, and accountant correspondence.
- Discontinue the conduct — but do not amend returns or take corrective action without counsel; both can be used against you.
- Engage federal tax defense counsel immediately — call L and L Law Group at (214) 466-1398, available 24/7.
Frequently Asked Questions
How is money laundering different from tax evasion?
Tax evasion is concealing income from the IRS. Money laundering is conducting financial transactions with proceeds of an underlying crime. They are related but distinct — and routinely charged together.
Can a single transaction support multiple laundering counts?
Generally no — but sequential transactions with the same funds can each be counts. Layered transactions are common in indictments.
What is the difference between § 1956 and § 1957?
§ 1956 requires specific concealment or evasion intent — 20 years per count. § 1957 only requires a transaction over $10,000 with criminally derived property — 10 years per count, easier to prove.
Can I be acquitted of tax fraud but convicted of laundering?
Theoretically yes if the underlying SUA was a different offense (e.g., wire fraud). But laundering tied solely to tax fraud requires the underlying tax offense to be proven.
Does paying personal expenses with business funds always count as laundering?
No — only when the funds are proceeds of specified unlawful activity AND the transaction is designed to conceal source or evade tax. Routine commingling without concealment design is not laundering.
Speak With a Frisco Criminal Defense Attorney
If you or a loved one is facing federal tax crimes charges in Frisco, Collin County, or anywhere in the Dallas-Fort Worth metroplex, the time to act is now. L and L Law Group attorneys are available 24 hours a day, 7 days a week. Call (214) 466-1398 for a free, confidential consultation, or submit your case online and a licensed attorney will contact you directly.
This article is general information, not legal advice. Texas and federal criminal law are complex and fact-specific — please consult a licensed attorney about your particular situation. Past results do not guarantee future outcomes.