Academic journal article ABA Banking Journal

When Money Laundering Law Meets Environmental Risks

Academic journal article ABA Banking Journal

When Money Laundering Law Meets Environmental Risks

Article excerpt

When the environmental stain on society is too tough for traditional remedies, what cleanser does Congress reach for? The perceived cleans-all solvent, the Money Laundering Control Act (MLCA).

The Crime Control Act of 1990 added the money laundering law's remedies to the arsenal the Justice Department and the Environmental Protection Agency can use to attack environmental violators.

Commercial lenders and their attorneys have largely ignored this application of the money laundering law. It is wrongly perceived as only an anti-drug measure.

In fact, the stringent law has always covered a broad spectrum of criminal activity, and recent amendments expand the range. In the environmental area, coverage now includes felony violations of the Federal Water Pollution Control Act, the Safe Drinking Water Act, the Resources Conservation and Recovery Act, and similar statutes. With the pressure on Washington to address environmental issues, one can only assume that the MLCA may soon be regularly used in connection with environmental prosecutions.

Section 1956 of the MLCA, in general, makes it a criminal offense to knowingly engage in a financial transaction involving "proceeds of specified unlawful activity."A banker can be convicted under Section 1956 if he or she knows that the transaction is being done to: promote unlawful activity; conceal or disguise the proceeds of unlawful activity; or avoid a state or federal transaction reporting requirement. The act's section 1957 makes it unlawful to knowingly engage in monetary transactions involving criminally derived proceeds of a value greater than $10,000.

How might EPA and Justice use their MLCA authority in the environmental arena? Consider the following example.

A "routine" request.

Rust Belt Bank has been asked to modify a revolving loan commitment with Green Valley Mills. Green Valley requires additional funds to improve an anti-pollution system installed with the original loan proceeds. The system isn't working satisfactorily and it is probable that hazardous chemicals have been released in excess of federal standards.

Green Valley management proposes to continue operating during the four months it will take to install the improvements. Shutting the plant down would likely drive the loan into default. At the same time, Green Valley assures the bank that any release in excess of federal standards won't likely be significant and is unlikely to be detected.

The bank, though concerned, doesn't see that it has much choice but to extend the additional credit.

Nine months later, the EPA investigates Green Valley. A year later the firm pleads guilty to charges that it violated the Clean Water Act.

Subsequently, EPA widens its investigation and it isn't long before the bank is subpoenaed by a federal grand jury investigating potential violations of the Money Laundering Control Act's sections 1956 and 1957.

It turns out that Green Valley officials testified that the company told the bank that releases could exceed federal standards.

EPA intends to demonstrate that loan payments received by the bank while Green Valley was polluting constitute receipt of proceeds of specified unlawful activity. This would put the bank under the MLCA's Section 1957.

Furthermore, EPA will attempt to make a case under Section 1956 as well. …

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