The Dynamic Aspects of Criminal Act and Criminal Liability in Money Laundering Practices

The criminal conduct and mental elements are two components required for establishing a criminal conviction. The question arises, however, how these two components ought to be applied to the complicated and sophisticated process such as money laundering. It is demonstrated that money laundering crime may be conducted by, through, or under the cover of corporate entities raising difficult issues over the proof of these two components. This article applies an analytical approach on how theoretical studies and court practices encounter these problems. This article then argues the interest of developing models and theories use to justify imposing criminal liability of money laundering on individuals as well as corporations. Three models of corporate liability that were elaborated in this article are adaptation or imitation model, aggregation or collective knowledge model, and the faulty organization model.


Introduction
A criminal act, also known in Latin as actus reus which translate to 'guilty act' or 'wrongful act', can be described as a physical act or movement that is part of the body. A criminal act consists of one or more elements which are required to determine whether or not a crime has been committed. Meanwhile, criminal liability otherwise known as mens rea which means 'guilty mind', refers to the mental element of state of mind existing when the crime is conducted. This element is required to establish a defendant's culpability at the time the forbidden conduct took place. Both components of criminal act and criminal liability are essential conditions before imposing criminal penalties to the perpetrator of a crime. In other words, the criminal must have committed his act in a culpable mental state.

The Problems
Regardless of the type of money laundering, the above two components should also be proven in examining the liability of the perpetrator conducting the crime. The problem is that money laundering has been moving from conventional to more sophisticated method.
Within this context, money laundering has significantly increased following the development of technology that offers complicated, sophisticated, and professional approaches used in conducting this type of crime. These conditions raise difficult issues over the proof of the criminal act and criminal liability. The question that will be elaborated in this article is how theoretical studies and court practices encounter this problem.

The Purposes
This article discusses the dynamic aspects of criminal act and criminal liability in money laundering practices. The key idea developed shows the evolution of criminal act and criminal liability in the sphere of theoretical studies and court practices. This article argues the importance of developing models and theories use to justify imposing criminal liability of money laundering on individuals as well as legal persons. This article sketches out the theoretical context of criminal act and criminal liability (section VA), examines the elements of criminal acts in the laundering process (section VB), and discusses the development of criminal liability of the laundering process which details the liability of individuals and legal persons (section VC). The paper ends with conclusions.

Research Methods
By using a normative legal approach, sources of data used in this study are primary 1 and secondary 2 legal resources. Primary legal resources involve conventions, agreements, regulations, and leading cases. Secondary legal resources include textbooks, journal articles, periodicals, working papers, and commentary of cases. This article reviews extensive literatures, court practices, and databases of the legal and regulatory framework. To analyze the focus of the problem, it engages and weaves in the constitutional elements of money laundering crimes and some aspects of law enforcement in the realm of criminal justice systems.

Discussions Theoretical Context of Criminal Act and Criminal Liability
The term criminal act can be defined as 'the physical act involved in the commission of a crime or offence', 3 or 'a willed movement or act as bodily movement whether voluntary or involuntary'. 4 Criminal acts can be differentiated into a positive act or an act of commission, and a negative act or an act of omission. It is an act of commission if there is a physical conduct that is prohibited by a law. An act of omission, on the other hand, occurs when a person fails to do something that is required by law. As such, in the act of omission, any crime can occur without criminal action actually being committed.  Oxford, 1993, p. 190. Another matter that is concerned with criminal action is the distinction between mala in se 5 and mala prohibita crimes 6 . The phrase mala in se stems from the Latin and means 'wrong in itself'. In contrast, mala prohibita, addresses a conduct that is wrongful not because of its intrinsic nature but because it is prohibited by statutes which are manifested into public welfare offences 7 or regulatory crimes 8 . Mala prohibita crimes are not naturally evil or wrong but have been deemed unacceptable acts by society.
The term mala in se and mala prohibita can also be used to draw the distinction between 'morally and legally proscribed offences'. 9 With regard to money laundering, the types of conducts as formulated in the Drugs Vienna Convention and other statutes can be categorized as a mala prohibita crime. In this context, money laundering is illegal because laws define them as such. The criminalization of money laundering, which is categorized as a recent phenomenon, indicates a shift of criminal actions in the scope of mala in se to the mala prohibita. This phenomenon also indicates what Karen called the changing face of criminal law from its classic version to a modern one. 10 The term mens rea or 'guilty mind', which means morally wrong, refers to the subjective element of a particular crime. A defendant is guilty if his or her conduct is criminal and if they are in a culpable mental state. These states of mind consist of four levels of culpability: 'intention or purpose', 'knowledge', 'recklessness or willful blindness', and 'negligence'. The early conception of mens rea has been described as 'a general notion of moral blameworthiness' 11 , an 'evil-meaning mind' 12 , or a 'vicious will' 13 .
These conceptions are based on consideration that people can control their behavior and 5 Mala in se in this context is 'evil in itself, behavior that is universally regarded as criminal'. See http://www. abanet.org/ publiced/glossary_m.html 6 Mala prohibita is 'behavior that is criminal only because society defines it as such', or it is specifically defined as unlawful by statutes or regulations. See http://www.abanet.org/ publiced/glossary_m.html. Davis points out that the distinction between Mala in Se and Mala Prohibita aims to differentiate between legally proscribed moral offences. See Mark S. Davis, "Crimes Mala in Se: An Equity-Based Definition", Criminal Justice Policy Review, Vol. 17, No. 3, 2006, 270-289, p. 270. 7 Paul Rozenzweig, "The Over-Criminalization of Social and Economic Conduct", Legal memorandum #7, see at http://www.heritage.org/Research/LegalIssues/lm7.cfm 8 The act is wrong because it is created by a legislative body to serve some perceived public good. See Paul Rosenzweig, Ibid., See also Eli Lederman, "Models for Imposing Corporate Criminal Liability: From Adaptation and Imitation Toward Aggregation and the Search for Self-Identity", Buffalo Criminal Law Review, Vol. 4:641, 2000, p. 665, 667. This kind of offence does not require proof of will. 9  acts or omissions of individuals who act on behalf or for the benefit of the corporation.
The imposition of criminal liability on the corporation was introduced based on the consideration that it would be unjust to only punish individual corporate actors for criminal punishment when it is the corporate culture that is the origin of the criminal behavior. Without corporate liability, many crimes would be insufficiently punished because the size and structure of many corporations make it impossible to adequately allocate responsibility to individuals.

Elements of Criminal Acts in the Laundering Process
As mentioned before, the formulation of money laundering crimes, as stated in various international legal instruments, comprises of a criminal act (actus reus) and a criminal liability (mens rea). With respect to the criminal act, the offence of money laundering involves a set of actions: the first conduct is the conversion or transfer of property; the second is the concealment or disguise of the true nature, source, location, disposition, movement, or rights with respect to, or ownership of property; The third is the acquisition, possession, or use of property; finally, the fourth conduct is the participation in, association to commit, attempts to commit, and aiding, abetting, facilitating, and counseling the commission of such actions.
The first type of conduct in the laundering process is conversion or transfer of property. Conversion is 'the act or process of changing something from one form, purpose, or system to a different one'. 23 The idea of conversion is to transform the illegal cash into other types of assets or currencies for portability purposes. For example, the perpetrator uses the illicit funds for purchasing expensive goods, resells them with payment by traveler cheques, bank drafts, or letters of credit, and then places the illegal funds into a financial institution. These activities aim to convert money from an illegitimate (dirty money) to a legitimate (clean money) state. In the meantime, transfer refers 'the process by which someone or something moves or is moved from one place to another'. 24 With regard to money laundering, transfer concerns the movement of illicit funds through a series of complex financial transactions in order to obscure the origin of the funds. In the money laundering cycle, this kind of conduct is well known as 'layering'. was derived from criminal activity. Although these typical types of conduct do not cover the author of the predicate offence, they are categorized as money laundering.
Finally, the fourth type of conduct is participation in, association to commit, attempt to commit, and aid, abet, facilitate, and counsel the commission of such actions. These types of conduct refer to the doctrine of complicity which provides the theoretical groundwork for holding criminally liable those who aid, assist, and encourage others in committing a crime. These conducts are independent and separated from the author of the predicate offence. However, authors are subject to criminal prosecution if they knowingly associate with money laundering. Lawyers, accountants, or notaries, for example, who create the scheme of money laundering either willingly or accidentally, are involved in the commission of this crime. Due to these circumstances, they are exposed to criminal prosecution as aider or abetter.
Beside the four laundering categories as elaborated above, money laundering activities have extended to the diversification of these conducts, which involve failure to file a report 31 that is required by laws and tipping off or smurfing. The first conduct involves failure to file customer identifications, failure to keep transaction records, and failure to report suspicious transactions. In the meantime, tipping off or smurfing is breaking a large sum of money into smaller sums and depositing them into banking account(s) to avoid the limited reporting requirement of currency. Both conducts are actually categorized as regulatory offences, but in the context of money laundering, they are similar to the predicate crimes that generate the illegal proceeds. Even the punishment of money laundering could be more severe than the offences that underlie the offences.

Criminal Liability of the Laundering Process Criminal Liability of Individuals
With respect to mens rea, the mental element of a money laundering offence in various legal instruments involves 'knowledge' 32 , 'intent', 33 and 'purpose'. 34 According to the general principles of criminal justice, the prosecutor must prove that the launderer knew the money was derived from drug offences. The prosecutor must also prove that by manipulating the funds, the launderer intended to hide its origin, nature, location, ownership, or any other aspect thereof as described in the definition of money laundering. Therefore, 'intent' and 'knowledge' in this provision must be proven in order to establish a willful violation.
However, considering the complexity of money laundering operations, such proof of intent might be very difficult to obtain. As such, the Vienna Convention and subsequent international conventions consider that 'knowledge, intent, or purpose required as element of the offence may be inferred from objective factual circumstances'. 35 This means that the criminal liability may be proven if the objective factual circumstances indicate that the perpetrator has the 'knowledge' to commit the crime in question. Thus, the laundering offences might be committed while the defendant either knew or reasonably ought to have known that the proceeds were derived from specified unlawful activities.
In other words, this kind of liability is called 'wilful blindness'.
Wilful blindness is 'a term used in law to describe a situation in which an individual seeks to avoid civil or criminal liability for a wrongful act by intentionally putting himself in a position where he will be unaware of facts which would render him liable'. 36 Simply put, This standard provides that a 'defendant deliberately closed his/her eyes to what would otherwise have been obvious to him/her'. 39 In the case of United States v. Jewell, the rationale of this standard is that 'an individual should not be able to ignore the obvious and thereby ensure that she is ignorant of criminal activity'. 40 This means that as long as the participant knows the money is dirty, or is wilfully blind to the criminal source of the money, there is a money laundering violation. 41 By applying this kind of guilty mind, it is easier for the prosecutor to prove the element of criminal liability.  In general, these theories can be categorized into three models. The first model is the adaptation and imitation model, the second one is the aggregation or collective knowledge model, and the last one is the faulty organization model. The following provides critical analyses of these three models and examine the reforms promoted by the anti-money laundering regime regarding this issue.

Adaptation and Imitation Models
The models of adaptation and imitation originated from the law of torts, which transferred from the civil sphere to the criminal arena. These models actually reflect an anthropomorphic conception of the corporation. 49 Anthropomorphism is 'a concept 46 "Systems rejecting corporate criminal liability are usually justified not by policy analysis but, rather, by formal doctrinal theory.... These theories affirm that mankind alone is the focus of criminal law; only individuals have the capacity of self-determination and the capacity of moral choice, and the essence of criminal liability relies upon a sum of physio-psychic factors unique to individuals". See C. de Maglie, "Models of Corporate Criminal Liability in Comparative Law", Washington University Global Studies Law Review, Vol. 4, 2005, p. 548. 47 "The scope of criminal liability has been extended to include corporations in reponding the development of corporate liability which has moving into three things: from ommision to active behavior' from absolute liability to criminal intet, and from vicarious liability to the direct liability". See E. Lederman, "Models for Imposing Corporate Criminal Liability: From Adaptation and Imitation, Toward Aggregation and Search for Self Identity", Buffalo Criminal Law review, Vol. 4, 2000, p. 642-3. 48 In this context, Brent Fisse and John Braithwaite pointed out: We find no single theory of how organizations make decisions to break the law, and how they hold actors accountable for them, or sufficient generality and explanatory power to be a practical guide to the design of a corporate criminal law appropriate to all types of organizations. See Brent Fisse and John Braithwaite, Corporations, Crimes, and Accountability, Cambridge University Press, England, 1993, p. 122. 49 Kris Hinterseer, Criminal Finance: The Political Economy of Money Laundering in a Comparative Legal Context, Kluwer Law International, The Hague- London-New York, 2002, p.p. 112, 120, 121. ("the effect is to anthropomorphise the company, which means to attribute some, but not all, human traits to the corporate entity… Anthropomorphism is useful to the extent that it enables the law to 'breathe life' into an entity that exist only on paper, so that its actions can be controlled, regulated, measured against social standards embodied in the law and, where appropriate, sanctioned for improper conduct").
whereby human characteristics or behaviour are attributed to inanimate objects or natural phenomena'. 50 In the context of a corporate mental state, an anthropomorphic model measures corporate mens rea by using the standard applied to individual liability. 51 By relying on ideas of adaptation and imitation models, the law attempts to ensure that the existence of human characteristics might apply to a corporation as well. 52 Two different theories of corporate mental state, which are manifested into various domestic legal systems across the world, involve vicarious liability and identification liability.
The first theory is vicarious liability. 53 This theory was used for the first time in the realm of tort law where there is automatic liability for the offences committed by officers, employees, and agents acting within the scope of their employment and for the benefit of the corporation. 54 Under this theory, the act and the knowledge of the agent are those of the corporation. 55 In other words, a corporation may become criminally liable for the conduct of its employees. 56 This theory is significant on three counts: firstly, an individual employee commits a crime and the liability of the individual is then imputed to the corporation; secondly, the employee must have acted within his or her employment; and thirdly, the employee must have intended to benefit the corporation. 57 In the case R. v. McNamara, the judge had charged the jury that: A company may be responsible for the criminal acts of its servant in two situation: (1) if the servant has authority, express or implied, to do the act, or (2) if the servant is virtually its directing mind in the sphere of duty assigned to him so that his actions and intent are the very actions and intent of the company itself… This proposition is subject to the proviso that in performing the acts in question the agent was acting within the scope of his authority, either express or implied. 58 The second theory of the corporate mental state is the identification liability theory.
Identification liability relies upon the notion of personification and identification of 50 See http://www.thefreedictionary.com/ anthropomorphic; 51 C. de Vol. 27, 1984Vol. 27, -1985 the legal body. 59 Under this theory, activities committed by a leading employees, such as directors and high-level managers acting on behalf and for the benefit of the corporation, can be attributed to the corporation. 60 The functions of the leading employees in this context are to control and manage the affairs of the corporation. In the case of H.L. Bolton (engineering) Co. Ltd vs. T.J. Graham & Sons Ltd., it was Lord Denning who adopted the 'directing mind and will' theory of corporate liability. 61 In his verdict, Lord Denning argued that the corporation, like a human body, has a brain, nerve centre, and hands. The decision reads as follows.
A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such. 62 Some commentators argue that the identification liability is a modified form of vicarious liability. 63 In comparison with vicarious liability, the identification liability narrows the scope of corporate liability by restricting the range of persons who can make the corporation liable. In the case of Tesco Supermarket, the House of Lord restricted the persons with whom the corporation is identified. Normally the board of directors, the managing director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company. Their subordinates do not. They carry out orders from above and it can make no difference that they are given some measure of discretion. But the board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them. 64 There is no question of the company being vicariously liable. He [the directing mind] is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company? 65 It is at this point that questions arise about whether the individual who makes a corporation liable is also personally liable. Multiple liabilities are accepted that penalize both corporation and individual, although it is not easy to reconcile this solution with the merger theory. With respect to money laundering, the first national case to impose a criminal liability on a corporation was the Bank of Boston case. 66 In this case, the Bank of Boston was indicted for its failure to report a series of cash transactions, undertaken with a group of mostly Swiss banks, and involving more than $1.2 billion.
The Bank of Boston pleaded guilty and was fined $500,000.

The Aggregation or Collective Knowledge Model
Considering With regard to money laundering, a well-known illustration of collective knowledge liability is the United States vs. Bank of New England. The bank was charged of 65 Tesco Supermarkets, Ltd. v. Nattrass, 1972App. Cas. 153, 170, 1971 The indictment took place in February 1985. 67 Some scholars assume that the doctrine of identification liability is 'unsuited to modern de-centralized corporations where considerable responsibility may be delegated to middle-management. See J. Clough, Op. Cit, 2007, p. 273. 68 & Econ, 1989, p.538. See also Kirk W. Munroe, Op.Cit., 1995-96, p.510. ('Under the U.S. law, a corporation may be criminally liable for the acts or ommission of its agents and employees who are acting within the scope of their authority so long as the acts are intended to benefit the corporation. This rule can be summarized as follows: A corporation may be convicted for the criminal acts of its agents, under a theory of respondeat superior. But criminal liability may be imposed on the corporation only where the agent is acting within the scope of his employment. That in turn, requires that the agent be performing acts of the kind which he is authorized to perform, and those acts must be motivated -at least in part -by an intent to benefit the corporation').
willfully failing to file reports relating to currency transactions exceeding a certain statutory amount. The case reads as follows: From May 1983 through July 1984, bank customer James McDonough engaged in thirty-one separate transactions with the Bank of New England, each in excess of $10,000. On each occasion, McDonough would present several counter checks to the teller; each check was for less than $10,000, with the aggregate total exceeding $10,000 in cash in exchange for the counter checks. The bank did not file a CTR on any of these transactions until after it had received a grand jury subpoena. The bank was convicted on thirty-one felony counts and appealed on several alternative grounds, including the trial court's instructions with respect to willful violation. 71 The problem in the above case lies in proving the criminal intent of the corporation.
It is apparent that the corporation can act only through its employees. This means that the prosecutor must prove some degree of willful violation by individual employees of the corporation. When the question of the bank's knowledge and intent to commit the offence was raised, in light of its obligation to report a transaction that follows from the aggregation of several checks, the judge in the lower court referred to the subject of collective knowledge and instructed the jury as follows: You have to look at the bank as an institution. As such, its knowledge is the sum of all the knowledge of all its employees. proven that the corporation is guilty in its failure to comply with the law. In this case, the aggregation or collective knowledge model can be implemented.

The Faulty Organization Model
The faulty-organization model, otherwise known as a realist model, seeks to reflect the corporation as an entity with 'its own distinctive goals, its own distinctive culture, and its own distinctive personality'. 74 The central assumption of the faulty organization model is 'the idea of an original responsibility of the corporate entity' 75 . While in the identification and aggregation theory, the conduct is based on a representative of the corporationan employee, agent, or officer -which is attributed to the corporation. In the fault-organization model, the prosecution is based on the corporation's failure to act in its own right. 76 C. de Maglie differentiates four theories using this model: corporate policy, corporate culture, preventive-corporate fault, and reactive-corporate fault. 77 These theories focus on the organization's structure, practices, and policies. In her own words, she points out: (1) Under corporate policy, corporate liability may attack under any corporate policy that intentionally or foreseeable enables illegal actions. First, corporate crime may be found where the policies are illegal because they compel and or authorize criminal conduct. Second, illegal action may be found where the policies and practice, although lawful in themselves, encourage a crime in a foreseeable way.
(2) Under corporate culture, a finding of culpability rests upon the assumption that the personality of the corporation encourages its agents to commit crimes. (3) The preventive-fault of criminal liability finds liability when a corporation fails to take reasonable steps to prevent or detect criminal conduct. (4) The reactive-fault exists when a corporation fails to react satisfactorily to the actus reus of an offence. Failure to undertake effective preventive and corrective measures in response to the discovery of an external element of a crime in a force of corporate fault. 78

Conclusion
In money laundering practices, a criminal act refers to one or more elements required for determining whether or not the crime has been committed. Meanwhile, criminal liability refers to the state of mind element which is required to establish a defendant's culpability at the time the forbidden conduct took place. Both components are essential conditions that have to be met before imposing criminal penalties to the money laundering perpetrator.
However, in its development, money laundering, as a complicated and