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Shrimp-Boy's Conviction: A Lesson in Federal Investigations - Use of Federal Undercover Agents

Money Laundering:    The process of concealing the existence, source, or application of income, or the disguising of its source to give it the appearance of legitimacy.   


My criminal law professor would hold his hands together and sensationally announce, 'today, let's talk about murder.'   Well, although this case does involve a murder, today, let's talk about the use of federal undercover agents in a financial crime investigation - money laundering, here; but the same federal investigation techniques can and are applied to all sorts of financial crimes:   tax evasion, structuring, and fraud. 


Case history:  Who is Raymond Shrimp Boy Chow?  What is The Tong? 

Ghee Kung Tong is a 150 year-old, multifaceted organization that functions as a kind of Chinese Freemason Society. Founded during the Gold Rush to assist newly arrived Chinese immigrants to America, the Ghee Kung Tong currently serves as a fraternal association that provides mutual aid for its members and/or handles administrative and judicial matters for the community, including the settling of disputes. 

In 2014, a federal undercover operation brought the illegal activities of some high-ranking members of the Ghee Kung Tong to the public’s attention, particularly those of Raymond “Shrimp Boy” Chow Kwok-cheunh. Chow, leader of the organization since 2006, had apparently been running a subgroup (“tong”) of the Ghee Kung Tong organization for organized crime.  

A federal undercover agent spent five years gathering information for an enormous racketeering case against Chow (who had already spent 10 years in prison for gang activity - a 20 years sentence reduced to 10 years because he testified against his former associates), California State Senator Leland Yee, and 24 others. After pleading guilty to charges of money laundering, public corruption, and bribery, Yee was suspended as senator and on February 24, 2016 was sentenced to five years in federal prison. In early January 2016, Chow was found guilty of all 162 counts against him, including the conspiracy and the murder of his predecessor and husband and wife marijuana growers, and money laundering. He faces a life sentence in federal prison. 

Chow’s defense team focused its energies trying to discredit the undercover agent and the tactics utilized by the federal government, which they claim spent millions luring Chow into criminal activity.


Controversy surrounding the use of federal undercover agents

Undercover work is now conducted by nearly every federal agency - including the IRS.   Every year at the annual tax conferences, tax and financial crimes defense attorneys are reminded that the IRS considers their agents the best financial crimes investigators in the world.   It seems IRS-CI agents are often requested for use in multi-agency investigations.   And, I have to say these agents are not only skilled at the investigations level, but they make for compelling witnesses against the targeted taxpayer.   

The Internal Revenue Manual outlines IRS investigation processes and techniques in Part 9: Criminal Investigations. The IRS rules clarify that:

  • Undercover operations and agents may lawfully be used to detect and investigate “tax fraud, political corruption, organized crime, money laundering, narcotics trafficking, questionable return preparers, and other priority areas related to tax crimes.”
  • Undercover agents may pose as attorneys, physicians, clergymen, or members of the news media (although no attorney-client relationship or other privileged relationship may be established with a third party for investigative purposes).
  • Undercover agents may engage in many activities, including felonies and other serious crimes (except for certain false representations and illegal gambling).

The increasing use of undercover agents has led to more prosecutions, but has also raised concerns of entrapment as claimed by the defense in the Shrimp Boy case.  The current state of an entrapment defense law has tilted in favor of law enforcement in that their inducement may be negated by the targets predisposition to commit the crime.   

Other problems raised by critics include insufficient oversight of undercover agents. The effectiveness of undercover agents cannot be evaluated since these operations are not publicly disclosed.

In preparing this post I spoke with the former head of IRS - CI who stated, our agents are trained to obtain the response they are seeking from a target.   Yikes !  

Important to note:  The brilliant Tony Serra did his best to expose the tactics of the government during the trial.

Money Laundering: An Overview

In our white collar crime/financial crime defense practice, we often see money laundering schemes.  Money laundering is a term used for the criminal practice of moving illegally-acquired funds through various transactions so that the money ends up “looking” like it came from some legal activity.  Money launderers attempt to hide the truth when it comes to the nature, location, source, ownership or control of funds.  Or they may move funds in order to avoid a transaction reporting requirement under State or Federal law (further concealing the funds).

Money laundering can be done with cash in hand, cash in accounts or any other type of fund or monetary instrument.  It may involve transferring funds between the United States and another country or it can be started and finished all within the same city.  It may involve terrorist activity or simple business people.

Elements

The U.S. Office of Comptroller of the Currency describes money laundering as involving three independent steps that may occur all at the same time:

1.      Placement: unlawful proceeds are placed into the financial system

2.      Layering: proceeds of criminal activity are separated from their original source by putting them through complicated transactions

3.      Integration: additional transactions, such as asset purchases, are used to make the funds appear legal 

Penalties

The penalties for money laundering are high.  The United States Code sets the criminal penalty for some types of money laundering to be a fine of the greater of $500,000 or twice the amount of money laundered in addition to imprisonment for up to twenty years.  Civil penalties in the amount of the money laundered or $10,000, whichever is greater may also be imposed.

Money Laundering: Who Has Done It?

Many people remember the rise and fall of Enron, a huge energy company that claimed revenues of almost $101 billion in 2000.  It turns out that certain executives and others in the business were actually employing a very complicated scheme of accounting fraud.  Enron officials pled guilty or were convicted of money laundering counts in addition to other felony charges.  Money laundering was an essential part of their “elaborate scam” of hiding debts, lying about profits and other illegal dealings.

In March of 2009, Bernard (“Bernie”) Madoff pled guilty to eleven felony counts, three of which were money laundering.  Madoff is a former stock broker and investment advisor that pulled off one of the biggest Ponzi schemes in history, with losses to his clients in the billions of dollars.

U.S. House Representative William Jefferson was convicted last summer on eleven of the sixteen corruption charges against him, including three counts of money laundering.  Federal agents found $90,000 cash in his freezer and the accusations centered on using his political office to solicit and receive more than $400,000 in bribes in connection with brokering business deals in Africa.  He could have spent up to 150 years in prison but was sentenced to thirteen.

Former House Majority Leader Tom DeLay was convicted on November 24, 2010 of money laundering and conspiracy to commit money laundering.  He was charged with illegally funneling $190,000 of corporate money through the Republican National Committee to help elect GOP candidates to the Texas legislature.  DeLay pled not guilty to the charges but now could face up to life in prison.  DeLay’s former associates were also charged in the case and their trials will be held later.

The amount of money being laundered in the world was estimated more than a decade ago to be  between 590 billion and 1.5 trillion dollars.  As a result, banks, federal and world officials are continually working together to implement more controls and methods for detecting money laundering. 

Money Laundering:  Trends and Common Schemes

·         Casinos:

The government is increasing security and reporting requirements as authorized by the Bank Secrecy Act.

·         Horse Racing

·         Securities Accounts:   Use of margin accounts, smaller deposits

·         Trade based Money Laundering:   invoice manipulation, front companies,

·         Trade Based – Other: Use of restaurants and bars, cash discounts,

·         Mortgages,

·         Insurance,

·         Shell Corporations,

·         Virtual Money Laundering

Our law firm brings particular strengths when representing the accused that face criminal and related civil enforcement proceedings.  We have over thirty years of experience contesting government allegations.     Our years of experience provide you with extensive criminal defense with your case in chief and related matters such as civil tax consequences of criminal investigations that arise in these types of cases.   As a result of our wide-ranging legal practice, we have the experience you need to represent you before the US Department of Justice, State of California, and a variety of regulatory agencies. We understand that the best result is to avoid any prosecution, and our significant government experience helps our clients navigate the difficult and frightening process of investigation. Our extensive experience with compliance programs helps us advise on the best practices to prevent criminal problems from developing. But if you face criminal charges, we have the extensive trial experience to mount a vigorous defense on your behalf.

Our law firm's broad range of substantive experience permits us to offer an integrated approach to a full range of tax, criminal and civil situations. Criminal and government enforcement activity usually does not appear in isolation; they are often accompanied by parallel proceedings, civil litigation, and/or other governmental agency investigations. Our legal team enables an efficient and comprehensive defense.    We invite you to contact our law firm to discuss your legal questions including criminal tax defense.   Please feel free to use our contact form or phone us at (415) 394-7200.