AB 76: Money laundering: blockchain technology.
- Session Year: 2023-2024
- House: Assembly
- Latest Version Date: 2023-05-25
Current Status:
Failed
(2023-09-01: In committee: Held under submission.)
Introduced
In Committee
First Chamber
In Committee
Second Chamber
Enacted
Existing law makes it a crime to engage in money laundering, defined as conducting a transaction involving a monetary instrument of specified value through a financial institution with the specific intent to promote or facilitate criminal activity or knowing that the monetary instrument represents the proceeds of or is derived from the proceeds of criminal activity. Existing law defines a monetary instrument to include, among other things, United States currency and coin and the currency, coin, and foreign bank drafts of any foreign country.
This bill would expand money laundering to include conducting a transaction involving a monetary instrument of specified value using blockchain technology, as defined. The bill would expand the definition of a monetary instrument to include virtual digital assets that use blockchain technology, including, but not limited to, nonfungible tokens and cryptocurrencies. technology. By expanding the scope of a crime, this bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Existing law makes it a crime to engage in money laundering, defined as conducting a transaction involving a monetary instrument of specified value through a financial institution with the specific intent to promote or facilitate criminal activity or knowing that the monetary instrument represents the proceeds of or is derived from the proceeds of criminal activity. Existing law defines a monetary instrument to include, among other things, United States currency and coin and the currency, coin, and foreign bank drafts of any foreign country.
This bill would expand money laundering to include conducting a transaction involving a monetary instrument of specified value using blockchain technology, as defined. The bill would expand the definition of a monetary instrument to include virtual assets that use blockchain technology, including, but not limited to, nonfungible tokens and cryptocurrencies. By expanding the scope of a crime, this bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Existing law makes it a crime to engage in money laundering, defined as conducting a transaction involving a monetary instrument of specified value through a financial institution with the specific intent to promote or facilitate criminal activity or knowing that the monetary instrument represents the proceeds of or is derived from the proceeds of criminal activity. Existing law defines a monetary instrument to include, among other things, United States currency and coin and the currency, coin, and foreign bank drafts of any foreign country.
This bill would expand money laundering to include conducting a transaction involving a monetary instrument of specified value using blockchain technology, as defined. The bill would expand the definition of a monetary instrument to include virtual assets that use blockchain technology, including, but not limited to, nonfungible tokens and cryptocurrencies. By expanding the scope of a crime, this bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
As used in this chapter:
(a)Conducts includes, but is not limited to, initiating, concluding, or participating in conducting, initiating, or concluding a transaction.
(b)Financial institution means, when located or doing business in this state, any national bank or banking association, state bank or banking association, commercial bank or trust company organized under the laws of the United States or any state, any private bank, industrial savings bank, savings bank or thrift institution, savings and loan association, or building and loan association organized under the laws of the United States or any state, any insured institution as defined in Section 401 of the National Housing Act (12 U.S.C. Sec. 1724(a)), any credit union organized under the laws of the United States or any state, any national banking association or corporation acting under Chapter 6 (commencing with Section 601) of Title 12 of the United States Code, any agency, agent or branch of a foreign bank, any currency dealer or exchange, any person or business engaged primarily in the cashing of checks, any person or business who regularly engages in the issuing, selling, or redeeming of travelers checks, money orders, or similar instruments, any broker or dealer in securities registered or required to be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 or with the Commissioner of Financial Protection and Innovation under Part 3 (commencing with Section 25200) of Division 1 of Title 4 of the Corporations Code, any licensed transmitter of funds or other person or business regularly engaged in transmitting funds to a foreign nation for others, any investment banker or investment company, any insurer, any dealer in gold, silver, or platinum bullion or coins, diamonds, emeralds, rubies, or sapphires, any pawnbroker, any telegraph company, any person or business regularly engaged in the delivery, transmittal, or holding of mail or packages, any person or business that conducts a transaction involving the transfer of title to any real property, vehicle, vessel, or aircraft, any personal property broker, any person or business acting as a real property securities dealer within the meaning of Section 10237 of the Business and Professions Code, whether licensed to do so or not, any person or business acting within the meaning and scope of subdivisions (d) and (e) of Section 10131 and Section 10131.1 of the Business and Professions Code, whether licensed to do so or not, any person or business regularly engaged in gaming within the meaning and scope of Section 330, any person or business regularly engaged in pool selling or bookmaking within the meaning and scope of Section 337a, any person or business regularly engaged in horse racing whether licensed to do so or not under the Business and Professions Code, any person or business engaged in the operation of a gambling ship within the meaning and scope of Section 11317, any person or business engaged in controlled gambling within the meaning and scope of subdivision (f) of Section 19805 of the Business and Professions Code, whether registered to do so or not, and any person or business defined as a bank, financial agency, or financial institution by Section 5312 of Title 31 of the United States Code or Section 103.11 of Title 31 of the Code of Federal Regulations and any successor provisions thereto.
(c)Transaction includes the deposit, withdrawal, transfer, bailment, loan, pledge, payment, or exchange of currency, or a monetary instrument, as defined by subdivision (d), or the electronic, wire, magnetic, or manual transfer of funds between accounts by, through, or to, a financial institution as defined by subdivision (b).
(d)Monetary instrument means United States currency and coin; the currency, coin, and foreign bank drafts of any foreign country; payment warrants issued by the United States, this state, or any city, county, or city and county of this state or any other political subdivision thereof; any bank check, cashiers check, travelers check, or money order; any personal check, stock, investment security, or negotiable instrument in bearer form or otherwise in a form in which title thereto passes upon delivery; gold, silver, or platinum bullion or coins; diamonds, emeralds, rubies, or sapphires; and virtual digital assets that use blockchain technology, including, but not limited to, nonfungible tokens and cryptocurrencies. technology. Except for foreign bank drafts and federal, state, county, or city warrants, monetary instrument does not include personal checks made payable to the order of a named party which have not been endorsed or which bear restrictive endorsements, and also does not include personal checks which have been endorsed by the named party and deposited by the named party into the named partys account with a financial institution.
(e)Criminal activity means a criminal offense punishable under the laws of this state by death, imprisonment in the state prison, or imprisonment pursuant to subdivision (h) of Section 1170 or from a criminal offense committed in another jurisdiction punishable under the laws of that jurisdiction by death or imprisonment for a term exceeding one year.
(f)Foreign bank draft means a bank draft or check issued or made out by a foreign bank, savings and loan, casa de cambio, credit union, currency dealer or exchanger, check cashing business, money transmitter, insurance company, investment or private bank, or any other foreign financial institution that provides similar financial services, on an account in the name of the foreign bank or foreign financial institution held at a bank or other financial institution located in the United States or a territory of the United States.
(g)Blockchain technology means a distributed digital ledger of cryptographically signed transactions that are grouped into blocks, where each block is cryptographically linked to the previous one after validation and undergoing a consensus decision.
(h)Digital asset means any asset that is purely digital or is a digital representation of a physical asset.
SEC. 2.Section 186.10 of the Penal Code is amended to read:186.10.(a)Any person who conducts or attempts to conduct a transaction or more than one transaction within a seven-day period involving a monetary instrument or instruments of a total value exceeding five thousand dollars ($5,000), or a total value exceeding twenty-five thousand dollars ($25,000) within a 30-day period, through one or more financial institutions or using blockchain technology (1) with the specific intent to promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on of any criminal activity, or (2) knowing that the monetary instrument represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity, is guilty of the crime of money laundering. The aggregation periods do not create an obligation for financial institutions to record, report, create, or implement tracking systems or otherwise monitor transactions involving monetary instruments in any time period. In consideration of the constitutional right to counsel afforded by the Sixth Amendment to the United States Constitution and Section 15 of Article I of the California Constitution, when a case involves an attorney who accepts a fee for representing a client in a criminal investigation or proceeding, the prosecution shall additionally be required to prove that the monetary instrument was accepted by the attorney with the intent to disguise or aid in disguising the source of the funds or the nature of the criminal activity.
A violation of this section shall be punished by imprisonment in a county jail for not more than one year or pursuant to subdivision (h) of Section 1170, by a fine of not more than two hundred fifty thousand dollars ($250,000) or twice the value of the property transacted, whichever is greater, or by both that imprisonment and fine. However, for a second or subsequent conviction for a violation of this section, the maximum fine that may be imposed is five hundred thousand dollars ($500,000) or five times the value of the property transacted, whichever is greater.
(b)Notwithstanding any other law, for purposes of this section, each individual transaction conducted in excess of five thousand dollars ($5,000), each series of transactions conducted within a seven-day period that total in excess of five thousand dollars ($5,000), or each series of transactions conducted within a 30-day period that total in excess of twenty-five thousand dollars ($25,000), shall constitute a separate, punishable offense.
(c)(1)Any person who is punished under subdivision (a) by imprisonment pursuant to subdivision (h) of Section 1170 shall also be subject to an additional term of imprisonment pursuant to subdivision (h) of Section 1170 as follows:
(A)If the value of the transaction or transactions exceeds fifty thousand dollars ($50,000) but is less than one hundred fifty thousand dollars ($150,000), the court, in addition to and consecutive to the felony punishment otherwise imposed pursuant to this section, shall impose an additional term of imprisonment of one year.
(B)If the value of the transaction or transactions exceeds one hundred fifty thousand dollars ($150,000) but is less than one million dollars ($1,000,000), the court, in addition to and consecutive to the felony punishment otherwise imposed pursuant to this section, shall impose an additional term of imprisonment of two years.
(C)If the value of the transaction or transactions exceeds one million dollars ($1,000,000), but is less than two million five hundred thousand dollars ($2,500,000), the court, in addition to and consecutive to the felony punishment otherwise imposed pursuant to this section, shall impose an additional term of imprisonment of three years.
(D)If the value of the transaction or transactions exceeds two million five hundred thousand dollars ($2,500,000), the court, in addition to and consecutive to the felony punishment otherwise prescribed by this section, shall impose an additional term of imprisonment of four years.
(2)(A)An additional term of imprisonment as provided for in this subdivision shall not be imposed unless the facts of a transaction or transactions, or attempted transaction or transactions, of a value described in paragraph (1), are charged in the accusatory pleading, and are either admitted to by the defendant or are found to be true by the trier of fact.
(B)An additional term of imprisonment as provided for in this subdivision may be imposed with respect to an accusatory pleading charging multiple violations of this section, regardless of whether any single violation charged in that pleading involves a transaction or attempted transaction of a value covered by paragraph (1), if the violations charged in that pleading arise from a common scheme or plan and the aggregate value of the alleged transactions or attempted transactions is of a value covered by paragraph (1).
(d)All pleadings under this section shall remain subject to the rules of joinder and severance stated in Section 954.
SEC. 3.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
As used in this chapter:
(a)Conducts includes, but is not limited to, initiating, concluding, or participating in conducting, initiating, or concluding a transaction.
(b)Financial institution means, when located or doing business in this state, any national bank or banking association, state bank or banking association, commercial bank or trust company organized under the laws of the United States or any state, any private bank, industrial savings bank, savings bank or thrift institution, savings and loan association, or building and loan association organized under the laws of the United States or any state, any insured institution as defined in Section 401 of the National Housing Act (12 U.S.C. Sec. 1724(a)), any credit union organized under the laws of the United States or any state, any national banking association or corporation acting under Chapter 6 (commencing with Section 601) of Title 12 of the United States Code, any agency, agent or branch of a foreign bank, any currency dealer or exchange, any person or business engaged primarily in the cashing of checks, any person or business who regularly engages in the issuing, selling, or redeeming of travelers checks, money orders, or similar instruments, any broker or dealer in securities registered or required to be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 or with the Commissioner of Financial Protection and Innovation under Part 3 (commencing with Section 25200) of Division 1 of Title 4 of the Corporations Code, any licensed transmitter of funds or other person or business regularly engaged in transmitting funds to a foreign nation for others, any investment banker or investment company, any insurer, any dealer in gold, silver, or platinum bullion or coins, diamonds, emeralds, rubies, or sapphires, any pawnbroker, any telegraph company, any person or business regularly engaged in the delivery, transmittal, or holding of mail or packages, any person or business that conducts a transaction involving the transfer of title to any real property, vehicle, vessel, or aircraft, any personal property broker, any person or business acting as a real property securities dealer within the meaning of Section 10237 of the Business and Professions Code, whether licensed to do so or not, any person or business acting within the meaning and scope of subdivisions (d) and (e) of Section 10131 and Section 10131.1 of the Business and Professions Code, whether licensed to do so or not, any person or business regularly engaged in gaming within the meaning and scope of Section 330, any person or business regularly engaged in pool selling or bookmaking within the meaning and scope of Section 337a, any person or business regularly engaged in horse racing whether licensed to do so or not under the Business and Professions Code, any person or business engaged in the operation of a gambling ship within the meaning and scope of Section 11317, any person or business engaged in controlled gambling within the meaning and scope of subdivision (f) of Section 19805 of the Business and Professions Code, whether registered to do so or not, and any person or business defined as a bank, financial agency, or financial institution by Section 5312 of Title 31 of the United States Code or Section 103.11 of Title 31 of the Code of Federal Regulations and any successor provisions thereto.
(c)Transaction includes the deposit, withdrawal, transfer, bailment, loan, pledge, payment, or exchange of currency, or a monetary instrument, as defined by subdivision (d), or the electronic, wire, magnetic, or manual transfer of funds between accounts by, through, or to, a financial institution as defined by subdivision (b).
(d)Monetary instrument means United States currency and coin; the currency, coin, and foreign bank drafts of any foreign country; payment warrants issued by the United States, this state, or any city, county, or city and county of this state or any other political subdivision thereof; any bank check, cashiers check, travelers check, or money order; any personal check, stock, investment security, or negotiable instrument in bearer form or otherwise in a form in which title thereto passes upon delivery; gold, silver, or platinum bullion or coins; diamonds, emeralds, rubies, or sapphires; and virtual assets that use blockchain technology, including, but not limited to, nonfungible tokens and cryptocurrencies. Except for foreign bank drafts and federal, state, county, or city warrants, monetary instrument does not include personal checks made payable to the order of a named party which have not been endorsed or which bear restrictive endorsements, and also does not include personal checks which have been endorsed by the named party and deposited by the named party into the named partys account with a financial institution.
(e)Criminal activity means a criminal offense punishable under the laws of this state by death, imprisonment in the state prison, or imprisonment pursuant to subdivision (h) of Section 1170 or from a criminal offense committed in another jurisdiction punishable under the laws of that jurisdiction by death or imprisonment for a term exceeding one year.
(f)Foreign bank draft means a bank draft or check issued or made out by a foreign bank, savings and loan, casa de cambio, credit union, currency dealer or exchanger, check cashing business, money transmitter, insurance company, investment or private bank, or any other foreign financial institution that provides similar financial services, on an account in the name of the foreign bank or foreign financial institution held at a bank or other financial institution located in the United States or a territory of the United States.
(g)Blockchain technology means a decentralized data system in which the data stored is mathematically verifiable and that uses distributed ledgers or databases to store specialized data in the permanent order of transactions recorded. a distributed digital ledger of cryptographically signed transactions that are grouped into blocks, where each block is cryptographically linked to the previous one after validation and undergoing a consensus decision.
SEC. 2.Section 186.10 of the Penal Code is amended to read:186.10.(a)Any person who conducts or attempts to conduct a transaction or more than one transaction within a seven-day period involving a monetary instrument or instruments of a total value exceeding five thousand dollars ($5,000), or a total value exceeding twenty-five thousand dollars ($25,000) within a 30-day period, through one or more financial institutions or using blockchain technology (1) with the specific intent to promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on of any criminal activity, or (2) knowing that the monetary instrument represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity, is guilty of the crime of money laundering. The aggregation periods do not create an obligation for financial institutions to record, report, create, or implement tracking systems or otherwise monitor transactions involving monetary instruments in any time period. In consideration of the constitutional right to counsel afforded by the Sixth Amendment to the United States Constitution and Section 15 of Article I of the California Constitution, when a case involves an attorney who accepts a fee for representing a client in a criminal investigation or proceeding, the prosecution shall additionally be required to prove that the monetary instrument was accepted by the attorney with the intent to disguise or aid in disguising the source of the funds or the nature of the criminal activity.
A violation of this section shall be punished by imprisonment in a county jail for not more than one year or pursuant to subdivision (h) of Section 1170, by a fine of not more than two hundred fifty thousand dollars ($250,000) or twice the value of the property transacted, whichever is greater, or by both that imprisonment and fine. However, for a second or subsequent conviction for a violation of this section, the maximum fine that may be imposed is five hundred thousand dollars ($500,000) or five times the value of the property transacted, whichever is greater.
(b)Notwithstanding any other law, for purposes of this section, each individual transaction conducted in excess of five thousand dollars ($5,000), each series of transactions conducted within a seven-day period that total in excess of five thousand dollars ($5,000), or each series of transactions conducted within a 30-day period that total in excess of twenty-five thousand dollars ($25,000), shall constitute a separate, punishable offense.
(c)(1)Any person who is punished under subdivision (a) by imprisonment pursuant to subdivision (h) of Section 1170 shall also be subject to an additional term of imprisonment pursuant to subdivision (h) of Section 1170 as follows:
(A)If the value of the transaction or transactions exceeds fifty thousand dollars ($50,000) but is less than one hundred fifty thousand dollars ($150,000), the court, in addition to and consecutive to the felony punishment otherwise imposed pursuant to this section, shall impose an additional term of imprisonment of one year.
(B)If the value of the transaction or transactions exceeds one hundred fifty thousand dollars ($150,000) but is less than one million dollars ($1,000,000), the court, in addition to and consecutive to the felony punishment otherwise imposed pursuant to this section, shall impose an additional term of imprisonment of two years.
(C)If the value of the transaction or transactions exceeds one million dollars ($1,000,000), but is less than two million five hundred thousand dollars ($2,500,000), the court, in addition to and consecutive to the felony punishment otherwise imposed pursuant to this section, shall impose an additional term of imprisonment of three years.
(D)If the value of the transaction or transactions exceeds two million five hundred thousand dollars ($2,500,000), the court, in addition to and consecutive to the felony punishment otherwise prescribed by this section, shall impose an additional term of imprisonment of four years.
(2)(A)An additional term of imprisonment as provided for in this subdivision shall not be imposed unless the facts of a transaction or transactions, or attempted transaction or transactions, of a value described in paragraph (1), are charged in the accusatory pleading, and are either admitted to by the defendant or are found to be true by the trier of fact.
(B)An additional term of imprisonment as provided for in this subdivision may be imposed with respect to an accusatory pleading charging multiple violations of this section, regardless of whether any single violation charged in that pleading involves a transaction or attempted transaction of a value covered by paragraph (1), if the violations charged in that pleading arise from a common scheme or plan and the aggregate value of the alleged transactions or attempted transactions is of a value covered by paragraph (1).
(d)All pleadings under this section shall remain subject to the rules of joinder and severance stated in Section 954.
SEC. 3.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
As used in this chapter:
(a)Conducts includes, but is not limited to, initiating, concluding, or participating in conducting, initiating, or concluding a transaction.
(b)Financial institution means, when located or doing business in this state, any national bank or banking association, state bank or banking association, commercial bank or trust company organized under the laws of the United States or any state, any private bank, industrial savings bank, savings bank or thrift institution, savings and loan association, or building and loan association organized under the laws of the United States or any state, any insured institution as defined in Section 401 of the National Housing Act (12 U.S.C. Sec. 1724(a)), any credit union organized under the laws of the United States or any state, any national banking association or corporation acting under Chapter 6 (commencing with Section 601) of Title 12 of the United States Code, any agency, agent or branch of a foreign bank, any currency dealer or exchange, any person or business engaged primarily in the cashing of checks, any person or business who regularly engages in the issuing, selling, or redeeming of travelers checks, money orders, or similar instruments, any broker or dealer in securities registered or required to be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 or with the Commissioner of Financial Protection and Innovation under Part 3 (commencing with Section 25200) of Division 1 of Title 4 of the Corporations Code, any licensed transmitter of funds or other person or business regularly engaged in transmitting funds to a foreign nation for others, any investment banker or investment company, any insurer, any dealer in gold, silver, or platinum bullion or coins, diamonds, emeralds, rubies, or sapphires, any pawnbroker, any telegraph company, any person or business regularly engaged in the delivery, transmittal, or holding of mail or packages, any person or business that conducts a transaction involving the transfer of title to any real property, vehicle, vessel, or aircraft, any personal property broker, any person or business acting as a real property securities dealer within the meaning of Section 10237 of the Business and Professions Code, whether licensed to do so or not, any person or business acting within the meaning and scope of subdivisions (d) and (e) of Section 10131 and Section 10131.1 of the Business and Professions Code, whether licensed to do so or not, any person or business regularly engaged in gaming within the meaning and scope of Section 330, any person or business regularly engaged in pool selling or bookmaking within the meaning and scope of Section 337a, any person or business regularly engaged in horse racing whether licensed to do so or not under the Business and Professions Code, any person or business engaged in the operation of a gambling ship within the meaning and scope of Section 11317, any person or business engaged in controlled gambling within the meaning and scope of subdivision (e) (f) of Section 19805 of the Business and Professions Code, whether registered to do so or not, and any person or business defined as a bank, financial agency, or financial institution by Section 5312 of Title 31 of the United States Code or Section 103.11 of Title 31 of the Code of Federal Regulations and any successor provisions thereto.
(c)Transaction includes the deposit, withdrawal, transfer, bailment, loan, pledge, payment, or exchange of currency, or a monetary instrument, as defined by subdivision (d), or the electronic, wire, magnetic, or manual transfer of funds between accounts by, through, or to, a financial institution as defined by subdivision (b).
(d)Monetary instrument means United States currency and coin; the currency, coin, and foreign bank drafts of any foreign country; payment warrants issued by the United States, this state, or any city, county, or city and county of this state or any other political subdivision thereof; any bank check, cashiers check, travelers check, or money order; any personal check, stock, investment security, or negotiable instrument in bearer form or otherwise in a form in which title thereto passes upon delivery; gold, silver, or platinum bullion or coins; and diamonds, emeralds, rubies, or sapphires. sapphires; and virtual assets that use blockchain technology, including, but not limited to, nonfungible tokens and cryptocurrencies. Except for foreign bank drafts and federal, state, county, or city warrants, monetary instrument does not include personal checks made payable to the order of a named party which have not been endorsed or which bear restrictive endorsements, and also does not include personal checks which have been endorsed by the named party and deposited by the named party into the named partys account with a financial institution.
(e)Criminal activity means a criminal offense punishable under the laws of this state by death, imprisonment in the state prison, or imprisonment pursuant to subdivision (h) of Section 1170 or from a criminal offense committed in another jurisdiction punishable under the laws of that jurisdiction by death or imprisonment for a term exceeding one year.
(f)Foreign bank draft means a bank draft or check issued or made out by a foreign bank, savings and loan, casa de cambio, credit union, currency dealer or exchanger, check cashing business, money transmitter, insurance company, investment or private bank, or any other foreign financial institution that provides similar financial services, on an account in the name of the foreign bank or foreign financial institution held at a bank or other financial institution located in the United States or a territory of the United States.
(g)Blockchain technology means a decentralized data system in which the data stored is mathematically verifiable and that uses distributed ledgers or databases to store specialized data in the permanent order of transactions recorded.
SEC. 2.Section 186.10 of the Penal Code is amended to read:186.10.(a)Any person who conducts or attempts to conduct a transaction or more than one transaction within a seven-day period involving a monetary instrument or instruments of a total value exceeding five thousand dollars ($5,000), or a total value exceeding twenty-five thousand dollars ($25,000) within a 30-day period, through one or more financial institutions or using blockchain technology (1) with the specific intent to promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on of any criminal activity, or (2) knowing that the monetary instrument represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity, is guilty of the crime of money laundering. The aggregation periods do not create an obligation for financial institutions to record, report, create, or implement tracking systems or otherwise monitor transactions involving monetary instruments in any time period. In consideration of the constitutional right to counsel afforded by the Sixth Amendment to the United States Constitution and Section 15 of Article I of the California Constitution, when a case involves an attorney who accepts a fee for representing a client in a criminal investigation or proceeding, the prosecution shall additionally be required to prove that the monetary instrument was accepted by the attorney with the intent to disguise or aid in disguising the source of the funds or the nature of the criminal activity.
A violation of this section shall be punished by imprisonment in a county jail for not more than one year or pursuant to subdivision (h) of Section 1170, by a fine of not more than two hundred fifty thousand dollars ($250,000) or twice the value of the property transacted, whichever is greater, or by both that imprisonment and fine. However, for a second or subsequent conviction for a violation of this section, the maximum fine that may be imposed is five hundred thousand dollars ($500,000) or five times the value of the property transacted, whichever is greater.
(b)Notwithstanding any other law, for purposes of this section, each individual transaction conducted in excess of five thousand dollars ($5,000), each series of transactions conducted within a seven-day period that total in excess of five thousand dollars ($5,000), or each series of transactions conducted within a 30-day period that total in excess of twenty-five thousand dollars ($25,000), shall constitute a separate, punishable offense.
(c)(1)Any person who is punished under subdivision (a) by imprisonment pursuant to subdivision (h) of Section 1170 shall also be subject to an additional term of imprisonment pursuant to subdivision (h) of Section 1170 as follows:
(A)If the value of the transaction or transactions exceeds fifty thousand dollars ($50,000) but is less than one hundred fifty thousand dollars ($150,000), the court, in addition to and consecutive to the felony punishment otherwise imposed pursuant to this section, shall impose an additional term of imprisonment of one year.
(B)If the value of the transaction or transactions exceeds one hundred fifty thousand dollars ($150,000) but is less than one million dollars ($1,000,000), the court, in addition to and consecutive to the felony punishment otherwise imposed pursuant to this section, shall impose an additional term of imprisonment of two years.
(C)If the value of the transaction or transactions exceeds one million dollars ($1,000,000), but is less than two million five hundred thousand dollars ($2,500,000), the court, in addition to and consecutive to the felony punishment otherwise imposed pursuant to this section, shall impose an additional term of imprisonment of three years.
(D)If the value of the transaction or transactions exceeds two million five hundred thousand dollars ($2,500,000), the court, in addition to and consecutive to the felony punishment otherwise prescribed by this section, shall impose an additional term of imprisonment of four years.
(2)(A)An additional term of imprisonment as provided for in this subdivision shall not be imposed unless the facts of a transaction or transactions, or attempted transaction or transactions, of a value described in paragraph (1), are charged in the accusatory pleading, and are either admitted to by the defendant or are found to be true by the trier of fact.
(B)An additional term of imprisonment as provided for in this subdivision may be imposed with respect to an accusatory pleading charging multiple violations of this section, regardless of whether any single violation charged in that pleading involves a transaction or attempted transaction of a value covered by paragraph (1), if the violations charged in that pleading arise from a common scheme or plan and the aggregate value of the alleged transactions or attempted transactions is of a value covered by paragraph (1).
(d)All pleadings under this section shall remain subject to the rules of joinder and severance stated in Section 954.
SEC. 3.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
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Date
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Status
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|---|---|
| Sep 1, 2023 | In committee: Held under submission. |
| Aug 14, 2023 | In committee: Referred to APPR suspense file. |
| Jul 12, 2023 | From committee: Do pass and re-refer to Com. on APPR with recommendation: To Consent Calendar. (Ayes 4. Noes 0.) (July 11). Re-referred to Com. on APPR. |
| Jun 14, 2023 | Referred to Com. on PUB S. |
| Jun 1, 2023 | In Senate. Read first time. To Com. on RLS. for assignment. |
| May 31, 2023 | Read third time. Passed. Ordered to the Senate. (Ayes 80. Noes 0. Page 1963.) |
| May 25, 2023 | Read third time and amended. Ordered to third reading. (Page 1746.) |
| May 18, 2023 | From committee: Do pass. (Ayes 15. Noes 0.) (May 18). |
| May 18, 2023 | Read second time. Ordered to third reading. |
| Mar 22, 2023 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| Feb 14, 2023 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 8. Noes 0.) (February 14). Re-referred to Com. on APPR. |
| Feb 7, 2023 | Re-referred to Com. on PUB. S. |
| Feb 6, 2023 | From committee chair, with author's amendments: Amend, and re-refer to Com. on PUB. S. Read second time and amended. |
| Jan 26, 2023 | Referred to Com. on PUB. S. |
| Jan 4, 2023 | Read first time. |
| Dec 15, 2022 | From printer. May be heard in committee January 14. |
| Dec 14, 2022 | Introduced. To print. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Aug 14, 2023 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
|
| Jul 11, 2023 | Do pass, but first be re-referred to the Committee on [Appropriations] with the recommendation: To Consent Calendar | Senate Standing Committee on Public Safety |
Passed |
|
| May 31, 2023 | AB 76 Davies Assembly Third Reading | Assembly Floor |
Passed |
|
| May 18, 2023 | Do pass. | Assembly Standing Committee on Appropriations |
Passed |
|
| Feb 14, 2023 | Do pass and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Public Safety |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Arcadia Police Officers' Association | ** Support | |
| Burbank Police Officers' Association | ** Support | |
| California Coalition of School Safety Professionals | ** Support | |
| California District Attorneys Association | ** Support | |
| California State Sheriffs' Association | ** Support | |
| CLAREMONT POLICE OFFICERS ASSOCIATION | ** Support | |
| Conference of California Bar Associations | ** Support | |
| Corona Police Officers Association | ** Support | |
| Culver City Police Officers' Association | ** Support | |
| Dapper Labs | * Against | Feb 14, 2023 |
| District Attorney of Santa Clara County | * Support | Feb 14, 2023 |
| Fullerton Police Officers' Association | ** Support | |
| Inglewood Police Officers Association | ** Support | |
| Los Angeles County Sherriff's Department | * Support | Feb 14, 2023 |
| los angeles school police officers association | ** Support | |
| Newport Beach Police Association | ** Support | |
| Palos Verdes Police Officers Association | ** Support | |
| Placer County Deputy Sheriffs' Assocation | ** Support | |
| Pomona Police Officers' Association | ** Support | |
| RIVERSIDE POLICE OFFICERS ASSOCIATION | ** Support | |
| Riverside Sheriff's Association | * Support | Feb 14, 2023 |
| Santa Ana Police Officers Association | ** Support | |
| So Rare | * Against | Feb 14, 2023 |
| Sorare | ** Against | |
| Upland Police Officers Association | ** Support |
SENATE COMMITTEE ON APPROPRIATIONS
Senator Anthony Portantino, Chair
2023 - 2024 Regular Session
AB 76 (Davies) - Money laundering: blockchain technology
Version: May 25, 2023 | Policy Vote: PUB. S. 4 - 0 |
Urgency: No | Mandate: Yes |
Hearing Date: August 14, 2023 | Consultant: Matthew Fleming |
Bill Summary:
AB 76 would expand anti-money laundering statutes to cover virtual assets using blockchain technology.
Fiscal Impact:
- Unknown court workload cost pressures to adjudicate money laundering offenses that may not be covered by existing law (Trial Court Trust Fund, General Fund).*
- Unknown incarceration costs to the Department of Corrections and Rehabilitation as money laundering is punishable as a felony, and depending on a defendant’s criminal history they may be required to serve their sentence in state prison (General Fund).*
*See Staff Comments for additional details.
Background:
Money laundering may refer to the process by which criminals try to disguise illegally-gained financial assets in a manner such that the assets appear to come from a legal source. However, California’s anti-money laundering laws prohibit more than just trying to conceal the nature of ill-begotten assets. State laws prohibit certain transactions simply if a person knew the assets were derived from criminal activity or if they conducted the transaction with the intent to facilitate a criminal activity. Currently, state law specifies that US and foreign currency, checks, money orders, gold, emeralds, stocks, investment security, and other types of financial assets are “monetary instruments” and prohibits a person from laundering those items. This bill would include digital assets, as defined, into California’s anti-money laundering statutes.
Over the past several years, virtual assets such as bitcoin and non-fungible tokens (NFTs) have risen in use for both legitimate and illegitimate purposes. The rise of virtual assets in general has left governments playing catch-up to try and regulate this new technology. Although the use of virtual assets for money laundering remains far below traditional methods in volume, law enforcement agencies in the U.S. have recently detected an increase in virtual assets being used to pay for online drugs or to launder proceeds of drug trafficking, fraud, and cybercrime, among other offenses.
Proposed Law:
- Expands the prohibition on money laundering to cover digital assets that use blockchain technology.
- Defines “digital asset” as any asset that is purely digital or is a digital representation of a physical asset.
- Defines “blockchain technology” as a “distributed digital ledger of cryptographically signed transactions grouped into blocks, where each block is cryptographically linked to the previous one after validation and undergoing a consensus decision.”
Related Legislation:
- AB 39 (Grayson), would provide for regulatory oversight for digital financial asset businesses. AB 39 is pending in this Committee.
- AB 2269 (Grayson), of 2021-22 Legislative Session, would have provided for regulatory oversight for digital financial asset businesses. AB 2269 was vetoed by the Governor.
- AB 1489 (Calderon), of 2019-20 Legislative Session, would have established a regulatory framework and licensing requirement for virtual currency business activity based on a model law put forward by the Uniform Law Commission. The bill failed passage in the Assembly Banking Committee.
- AB 1123 (Dababneh), of 2017-18 Legislative Session, would have established a regulatory framework and licensing requirement for virtual currency business activity. The bill failed passage in the Assembly Banking Committee.
- AB 1326 (Dababneh), of 2015-16 Legislative Session, would have established a regulatory framework and an enrollment program for persons engaged in digital currency business activity. The bill failed passage in the Senate Banking Committee.
Staff Comments:
- Court costs: It is unknown how many additional prosecutions will be brought as a result of SB 78. However, money laundering is punishable as a felony. Felony charges carry the potential for lengthy terms of incarceration, therefore certain defendants’ rights are attached to the proceedings. These include the right to a jury trial and the right to counsel at public expense if the defendant is unable to afford the costs of representation. Invocation of these rights can lead to lengthier and more complex court proceedings. It generally costs about $1,000 to operate a courtroom for one hour. Although courts are not funded on the basis of workload, increased staff time and resources may create a need for increased funding for courts from the General Fund (GF) to perform existing duties. Numerous trial court operations are funded through the imposition and collection of criminal fines and fees. However, the Legislature has reduced and eliminated criminal fines and fees over the past decade. As a result, the 2023-24 budget includes an ongoing annual allocation of $105.1 million from the GF to backfill declining revenue to the Trial Court Trust Fund.
- Incarceration costs: Money laundering is generally punishable as a realigned felony, meaning that most sentences will be served in county jail rather than in a state prison. Nonetheless, some defendants may have strike priors, meaning that if they are convicted of any new felony, they will have to serve their time in state prison, and will receive a sentence that is double what would otherwise apply to the base offense. The estimated per capita rate for housing a person in state prison is $127,877 annually, with a marginal rate of approximately $12,000.
-- END --
SENATE COMMITTEE ON PUBLIC SAFETY
Senator Aisha Wahab, Chair
2023 - 2024 Regular
Bill No: AB 76 Hearing Date: July 11, 2023
Author: | Davies | ||
Version: | May 25, 2023 | ||
Urgency: | No | Fiscal: | Yes |
Consultant: | MK | ||
Subject: Money laundering: blockchain technology
HISTORY
Source: CA Conference of Bar Associations
Prior Legislation: None relevant
Support: California District Attorneys Association; California State Sheriffs Association; Los Angeles County District Attorney's Office; Los Angeles County Sheriff’s Department; Peace Officers Research Association of California (PORAC)
Opposition: None known
Assembly Floor Vote: 80 - 0
PURPOSE
The purpose of this bill is to expand anti-money laundering statutes to cover virtual assets using blockchain technology.
Existing federal law prohibits a person, in part, from conducting certain financial transactions knowing that the property contains proceeds of unlawful activity if they did so to facilitate such unlawful activity or to disguise the illicit origins of the proceeds. (18 U.S.C. § 1956 (a)(1)(A)(i) & (a)(1)(B)(i).)
Existing federal law prohibits a person, in part, from conducting certain financial transactions involving property represented by law enforcement to be derived from illicit activity, as specified. (18 U.S.C. § 1956 (a)(3)(A) & (a)(3)(B).)
Existing federal law defines, a “financial transaction,” in part, as a transaction which in any way or degree affects interstate or foreign commerce, or involves the movement of funds by wire or any other means. (18 U.S.C. § 1956 (c)(4).)
Existing federal law defines “specified unlawful activity,” as certain racketeering offenses, certain offenses related to controlled substances, certain extraditable offenses, among other things. (18 U.S.C. § 1956 (c)(7).)
Existing law prohibits a person from conducting, through a financial institution, one or more transactions of specified amounts of monetary instruments over certain periods of time, in order to facilitate criminal activity or knowing that the monetary instruments are derived from criminal activity. (Penal Code § 186.10 (a).)
Existing law defines a “financial institution” to include, when located or doing business in this state, a national bank, state bank, savings and loan association, foreign bank, brokers or dealers in registerable securities, businesses dealing with money orders, investment bankers, insurers, gold or other specified mineral dealers, pawnbrokers, persons involved in transferring titles of real estate and certain other properties, and specified gambling establishments, among other things. (Penal Code § 186.9 (b).)
Existing law defines “monetary instrument” as, among other things, any currency or coin, bank check, cashier’s check, money order, stock, investment security, gold and other specified minerals. Excepts personal checks under certain circumstances. (Penal Code § 186.9 (d).)
Existing law defines “criminal activity” as a criminal offense punishable by death, state prison, imprisonment in county jail pursuant to criminal justice realignment, or an offense committed in another jurisdiction punishable by death or a term of imprisonment exceeding one year. (Penal Code § 186.9.)
Existing law states that money laundering is punishable by as an alternate misdemeanor or as a felony under realignment, unless the transaction exceeds certain amounts, in which case additional terms of imprisonment will be imposed. (Penal Code § 186.10 (c).)
Existing law prohibits a person from possessing money or negotiable instruments exceeding a specified amount, knowing that the moneys are the result of illicit controlled substance-related activity. (Health & Saf. Code § 11370.6)
Existing law prohibits a person from engaging in a specified type of transaction involving proceeds known to derive from certain controlled substance-related violations, with the intent to disguise the source of the proceeds. (Health & Saf. Code, § 11370.9.)
This bill expands the prohibition on money laundering to cover digital assets that use blockchain technology.
This bill defines “digital asset” as any asset that is purely digital or is a digital representation of a physical asset.
This bill defines “blockchain technology” as a “distributed digital ledger of cryptographically signed transactions grouped into blocks, where each block is cryptographically linked to the previous one after validation and undergoing a consensus decision.”
This bill makes technical, non-substantive updates.
COMMENTS
1. Need for This Bill
According to the author:
California is a leader in consumer protection and ensuring our laws reflect the growing and innovative technology used for day-to-day transactions. This technology has continued to evolve to now include cryptocurrency. AB 76 is a common-sense measure to strengthen our state’s money laundering statutes and close the current loophole that permits the laundering of assets using cryptocurrency. It should also be noted that as we have seen a rise in drug trafficking, nefarious organizations are using this type of currency to escape detection and continue their illegal activities in the underground markets. California law must evolve to keep up with the digital operating methods of financial criminal organizations.
2. Money Laundering and the Rise of Virtual Assets
Most individuals generally think money laundering refers to the process by which criminals try to disguise illegally-gained financial assets in a manner such that the assets appear to come from a legal source. However, California’s anti-money laundering laws prohibit more than just trying to conceal the nature of ill-begotten assets. (Penal Code § 186.10 (a).) State laws prohibit certain transactions simply if a person knew the assets were derived from criminal activity or if they conducted the transaction with the intent to facilitate a criminal activity. (Id.) Currently, state law specifies that US and foreign currency, checks, money orders, gold, emeralds, stocks, investment security, and other types of financial assets are “monetary instruments” and prohibits a person from laundering those items. (Penal Code § 186.9 (d).) This bill would include digital assets, as defined, into California’s anti-money laundering statutes.
The author and supporters believe this update is needed because over the past few years, virtual assets such as bitcoin and non-fungible tokens (NFTs) have risen in use for both legitimate and illegitimate purposes. The rise of virtual assets in general has left governments playing catch-up to try and regulate this new technology. (Department of Treasury. National Money Laundering Risk Assessment. (Feb. 2022) (hereafter ML Risk Assessment) https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf [as of Feb. 7, 2022] at pg. 40-41.) Although the use of virtual assets for money laundering remains far below traditional methods in volume, law enforcement agencies in the U.S. have recently detected an increase in virtual assets being used to pay for online drugs or to launder proceeds of drug trafficking, fraud, and cybercrime, among other offenses. (ML Risk Assessment at 41.) For example, the US Government Accountability Office (GAO) found that 15 of the 27 online commercial sex marketplaces they examined accepted virtual currencies. (GAO. As Virtual Currency Use in Human and Drug Trafficking Increases, So Do the Challenges for Federal Law Enforcement. (Feb. 24, 2022) https://www.gao.gov/blog/virtual-currency-use-human-and-drug-trafficking-increases-so-do-challenges-federal-law-enforcement [as of Feb. 9, 2023].)
One of the first issues in discussing virtual assets is conceptually understanding and using the appropriate terminology. A virtual asset can include bitcoin and similar digital coins, which are regarded as “cryptocurrency” and are generally defined as a digital asset/unit within a system, which is cryptographically sent from one blockchain network user to another by using digital signatures. (U.S. Dept. of Commerce National Institute of Standards and Technology (NIST) Glossary: Cryptocurrency. https://csrc.nist.gov/glossary/term/cryptocurrency [as of Feb. 7, 2023].) Most cryptocurrencies rely on a “blockchain” to conduct their transactions. (LA Times. A beginner’s guide to cryptocurrency. (Dec. 24, 2021) (hereafter Crypto Beginner’s Guide) https://www.latimes.com/business/technology/story/2021-12-24/a-beginners-guide-to-cryptocurrency [as of Feb. 8, 2023].) A blockchain is essentially a network of computers that
store and update permanent digital records of every transaction on the network. (Id.) Blockchain uses cryptography, a mathematical technique that turns information into unbreakable codes, to ensure bitcoins are not spent more than once and allow for the computers on the network to keep identical and immutable records. (Id.) That being said, the future of cryptocurrency may not always be tied to the blockchain system, alternative cryptocurrencies using Directed Acyclic Graphs or Cloud services are already in existence. (TechTarget. 6 alternatives to blockchain for businesses to consider. (May 25, 2021) https://www.techtarget.com/searchcio/feature/6-alternatives-to-blockchain-for-businesses-to-consider [as of Feb. 6, 2023].)
Although cryptocurrencies are the most prominent of virtual assets, a virtual asset can also, although not always, include an “NFT.” (FATF Update at pg. 24; US Internal Revenue Service. Digital Assets. https://www.irs.gov/businesses/small-businesses-self-employed/digital-assets#:~:text=A%20digital%20asset%20that%20has,to%20as%20convertible%20virtual%20currency. [as of Feb. 7, 2023].) An NFT is generally defined as a virtual asset that is unique, rather than interchangeable, and in practice is used as a collectible, however, its classification can vary depending on the circumstances of its use. (Id.)
As such, a “digital” asset has been defined in various ways depending on the government or agency involved, but one of the most prevalent definitions is, “a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes… [not including] digital representations of fiat currencies…” (FATF Update at 109.) This bill would expand California’s money laundering statutes to cover instances where criminals conduct transactions using digital assets based on blockchain technology, if they knew that the digital assets are derived from the proceeds of criminal activity or if they intended to facilitate a criminal activity.
3. Argument in Support
The Los Angeles District Attorney’s Office supports this bill stating:
AB 76 would modernize California’s money laundering statutes to cover instances where criminals conduct transactions using virtual assets based on blockchain technology, if they knew that the virtual assets are derived from the proceeds of criminal activity or if they intended to facilitate a criminal activity. AB 76 would also update California’s money laundering statute to cover a transaction that uses virtual assets to go through a financial institution, and so would cover P2P transactions.
Given the rise of illegal cryptocurrency transactions that can bypass the traditional scrutiny of more traditional financial institutions, it is important that California’s money laundering statutes be updated to take this new technology into account. It is estimated that last year there was over $20 billion in criminal cryptocurrency transactions. Given this rise there is no legal or policy reason not to close the loophole in existing law that allows criminal activity to take place. Why should California’s money laundering statute cover government-backed currencies, checks, money order, and certain kinds of transferable assets, such as precious metals, gems, and securities but not include digital assets, like cryptocurrencies and NFTs?
Because AB 76 closes loopholes in our money laundering statutes our Office is pleased to support AB 76.
-- END –
ASSEMBLY THIRD READING
ATR Bill Id:AB 76
Author:(Davies)
As Amended Ver:May 25, 2023
Majority vote
SUMMARY
Expands anti-money laundering statutes to cover digital assets using blockchain technology.
Major Provisions
- Expands the prohibition on money laundering to cover use of blockchain technology.
- Defines "monetary instrument" to include digital assets that use blockchain technology.
- Defines "blockchain technology" as a "distributed digital ledger of cryptographically signed transactions grouped into blocks, where each block is cryptographically linked to the previous one after validation and undergoing a consensus decision."
- Defines "digital asset" as "any asset that is purely digital or is a digital representation of a physical asset."
- Makes technical, non-substantive updates.
COMMENTS
Money Laundering and the Rise of Digital Assets: Most individuals generally think money laundering refers to the process by which criminals try to disguise illegally-gained financial assets in a manner such that the assets appear to come from a legal source. However, California's anti-money laundering laws prohibit more than just trying to conceal the nature of ill-begotten assets. (Penal Code, Section 186.10, subd. (a).) State laws prohibit certain transactions simply if a person knew the assets were derived from criminal activity or if they conducted the transaction with the intent to facilitate a criminal activity. (Ibid.) Currently, state law specifies that US and foreign currency, checks, money orders, gold, emeralds, stocks, investment security, and other types of financial assets are "monetary instruments" and prohibits a person from laundering those items. (Penal Code, Section 186.9, subd. (d).) In part, this bill would include digital assets, as defined, into California's anti-money laundering statutes.
This update is needed because over the past few years, digital or virtual, assets such as bitcoin and non-fungible tokens (NFTs) have risen in use for both legitimate and illegitimate purposes. The rise of digital assets in general has left governments playing catch-up to try and regulate this new technology. (Department of Treasury. National Money Laundering Risk Assessment. (Feb. 2022) (hereafter ML Risk Assessment) https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf [as of Feb. 7, 2022] at pg. 40-41.) Although the use of digital assets for money laundering remains far below traditional methods in volume, law enforcement agencies in the U.S. have recently detected an increase in digital assets being used to pay for online drugs or to launder proceeds of drug trafficking, fraud, and cybercrime, among other offenses. (ML Risk Assessment at 41.) For example, the US Government Accountability Office (GAO) found that 15 of the 27 online commercial sex marketplaces they examined accepted virtual currencies. (GAO. As Virtual Currency Use in Human and Drug Trafficking Increases, So Do the Challenges for Federal Law Enforcement. (Feb. 24, 2022) https://www.gao.gov/blog/virtual-currency-use-human-and-drug-trafficking-increases-so-do-challenges-federal-law-enforcement [as of Feb. 9, 2023].)
Although cryptocurrencies are the most prominent of digital assets, a digital asset can also, although not always, include an "NFT." (FATF. Updated Guidance for a Risk-Based Approach: Virtual Assets and Virtual Asset Service Providers. (Oct. 2021.) (hereafter FATF Update) https://www.fsb.org/2021/10/updated-guidance-for-a-risk-based-approach-to-virtual-assets-and-virtual-asset-service-providers/ [as of Feb. 7, 2023] at pg. 24; US Internal Revenue Service. Digital Assets. https://www.irs.gov/businesses/small-businesses-self-employed/digital-assets#:~:text=A%20digital%20asset%20that%20has,to%20as%20convertible%20virtual%20currency. [as of Feb. 7, 2023].) An NFT is generally defined as a virtual asset that is unique, rather than interchangeable, and in practice is used as a collectible, however, its classification can vary depending on the circumstances of its use. (Ibid.)
As such, a "virtual" or "digital" asset has been defined in various ways depending on the government or agency involved, but one of the most prevalent definitions is, "a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes… [not including] digital representations of fiat currencies…" (FATF Update at 109.) This bill would expand California's money laundering statutes to cover instances where criminals conduct transactions using digital assets based on blockchain technology, if they knew that the digital assets are derived from the proceeds of criminal activity or if they intended to facilitate a criminal activity.
According to the Author
"California is a leader in consumer protection and ensuring our laws reflect the growing and innovative technology used for day-to-day transactions. This technology has continued to evolve to now include cryptocurrency. AB 76 is a common-sense measure to strengthen our state's money laundering statutes and close the current loophole that permits the laundering of assets using cryptocurrency. It should also be noted that as we have seen a rise in drug trafficking, nefarious organizations are using this type of currency to escape detection and continue their illegal activities in the underground markets. California law must evolve to keep up with the digital operating methods of financial criminal organizations."
Arguments in Support
According to the bill's sponsor, The Conference of California Bar Associations, "Last year, illicit cryptocurrency transactions reached an all-time high of $20.1 billion… Given their use in conducting near-instant transactions that can bypass the scrutiny of financial institutions, nonfungible tokens and cryptocurrencies have become major conduits for money laundering…
"Currently, Penal Code section 186.10 provides that the crime of money laundering involves transactions of 'monetary instruments' in amounts greater than $5,000 that are facilitated by a 'financial institution,' with either the intent to facilitate criminal activity or the knowledge that the funds are derived therefrom. Under Penal Code section 186.9, the current definition of 'monetary instrument' includes government-back currencies, checks, money order, and certain kinds of transferable assets, such as precious metals, gems, and securities. But it does not include digital assets, like cryptocurrencies and NFTs…
"…As transactions involving cryptocurrency and non-fungible tokens continue to grow in volume and in commercial acceptance, we must ensure that existing laws that prohibit money laundering are updated to reflect these trends…"
Arguments in Opposition
According to Sorare and Dapper Labs, "Dapper Labs and Sorare are the world's leading digital collectible NFT companies. They sell modern-day digital versions of baseball, basketball and other sports cards. These digital collectibles are stored on the blockchain, which makes it easy for consumers to confirm their ownership and provenance. But digital baseball cards are not the same as cryptocurrency or digital monetary instruments, and should not be regulated as such. As digital versions of traditional consumer products, NFTs are subject to traditional federal and state consumer protection, anti-fraud, and false advertising laws, and also to federal and state cybercrime and data protection laws that extend to digital products.
"Dapper Labs and Sorare support the author's intention to update California's money laundering law to reflect technological advances and ensure that money laundering with cryptocurrency does not escape law enforcement jurisdiction. However, as written, the bill's definition of "monetary instrument" explicitly includes NFTs and other virtual assets regardless of their financial or monetary utilization and risks. We propose instead that AB 76 be limited to virtual assets that are used as monetary instruments in the traditional sense.
"We encourage the Committee to consider the U.S. Treasury Department's February 2022 report that examined money laundering in the digital art market. On page 26, the report distinguishes between financial and non-financial NFTs. The report states, "Digital assets that are unique, rather than interchangeable, and that are used in practice as collectibles rather than as payment or investment instruments, depending on their characteristics, are generally not considered to be virtual assets under the FATF definition. NFTs or other digital assets, however, that are used for payment or investment purposes in practice may fall under the virtual asset definition, and service providers of these NFTs could meet the FATF definition of a VASP. "We urge the Committee to adopt our proposed simple fix that aligns with the U.S. Treasury analysis, and thereby ensure that digital collectibles are not captured in AB 76's definition of 'monetary instrument.'
FISCAL COMMENTS
According to the Assembly Appropriations Committee:
- Cost pressure (Trial Court Trust Fund (TCTF)) possibly in the hundreds of thousands of dollars to trial courts in increased workload. This bill expands an existing crime to include the use of blockchain technology to illegally launder money, which may increase the number of money laundering cases filed. Money laundering is an alternate felony-misdemeanor and any criminal case may be resolved by jury trial. If 15 new money laundering charges are filed annually statewide and proceed to trial resulting in two days of court time, at an estimated cost of approximately $8,000 for an eight-hour court day, the approximate annual cost to the courts is $240,000. Although courts are not funded on the basis of workload, increased pressure on the TCTF and staff workload may create a need for increased funding for courts from the General Fund (GF) to perform existing duties. This is particularly true, given that numerous court functions are funded through the imposition and collection of criminal fines and fees. However, the Legislature has eliminated almost all criminal fines and fees over the past several years. The 2023-24 Governor's Budget proposes $109.3 million dollars annually to backfill the loss of funding resulting from the near elimination of criminal fines and fees.
- Possible annual costs (GF) in the hundreds of thousands of dollars to the California Department of Corrections and Rehabilitation (CDCR) resulting from increased incarceration. Money laundering is subject to a state prison term of up to three years depending on the person's criminal history. Additionally, a person may be subject to additional enhancements of one to four years depending on the amount laundered. The average annual cost to house an inmate in a CDCR facility is approximately $110,000. If two people convicted of laundering using blockchain technology are sentenced to state prison for an average of three years, the total cost would be $660,000.
- Possible non-reimbursable annual costs in the hundreds of thousands of dollars to counties for increased incarceration costs. The average annual cost to incarcerate a defendant in county jail is approximately $30,000. If 10 defendants statewide are sentenced annually to an average of one year in county jail for money laundering using blockchain technology, the total cost to counties would be $300,000. California county jails are seriously overcrowded – particularly since the enactment of the Realignment Act in 2011. Jail overcrowding since 2011 has resulted court-mandated population caps and increased rates of inmate violence and death. It has also resulted in significant state funding for additional jail construction. Establishment of a new crime is not considered a reimbursable state mandate, pursuant to Proposition 30 (2012) and Government Code section section17556, subdivision (g); however, overcrowding in county jails creates cost pressure on the GF because the state has historically granted new funding to counties to offset overcrowding, particularly that caused by the 2011 Realignment Act.
VOTES
ASM PUBLIC SAFETY: 8-0-0
YES: Jones-Sawyer, Alanis, Bonta, Bryan, Lackey, Ortega, Santiago, Zbur
ASM APPROPRIATIONS: 15-0-1
YES: Holden, Megan Dahle, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Sanchez, Weber, Ortega
ABS, ABST OR NV: Robert Rivas
UPDATED
VERSION: May 25, 2023
CONSULTANT: Mureed Rasool / PUB. S. / (916) 319-3744 FN: 0000995
ASSEMBLY THIRD READING
ATR Bill Id:AB 76
Author:(Davies)
As Amended Ver:February 6, 2023
Majority vote
SUMMARY
Expands anti-money laundering statutes to cover virtual assets using blockchain technology.
Major Provisions
- Expands the prohibition on money laundering to cover use of blockchain technology.
- Defines "monetary instrument" to include virtual assets that use blockchain technology.
- Defines "blockchain technology" as a "distributed digital ledger of cryptographically signed transactions grouped into blocks, where each block is cryptographically linked to the previous one after validation and undergoing a consensus decision."
- Makes technical, non-substantive updates.
COMMENTS
Money Laundering and the Rise of Virtual Assets: Most individuals generally think money laundering refers to the process by which criminals try to disguise illegally-gained financial assets in a manner such that the assets appear to come from a legal source. However, California's anti-money laundering laws prohibit more than just trying to conceal the nature of ill-begotten assets. (Penal Code, Section 186.10, subd. (a).) State laws prohibit certain transactions simply if a person knew the assets were derived from criminal activity or if they conducted the transaction with the intent to facilitate a criminal activity. (Id.) Currently, state law specifies that US and foreign currency, checks, money orders, gold, emeralds, stocks, investment security, and other types of financial assets are "monetary instruments" and prohibits a person from laundering those items. (Penal Code, Section 186.9, subd. (d).) In part, this bill would include virtual assets, as defined, into California's anti-money laundering statutes.
This update is needed because over the past few years, virtual assets such as bitcoin and non-fungible tokens (NFTs) have risen in use for both legitimate and illegitimate purposes. The rise of virtual assets in general has left governments playing catch-up to try and regulate this new technology. (Department of Treasury. National Money Laundering Risk Assessment. (Feb. 2022) (hereafter ML Risk Assessment) https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf [as of Feb. 7, 2022] at pg. 40-41.) Although the use of virtual assets for money laundering remains far below traditional methods in volume, law enforcement agencies in the U.S. have recently detected an increase in virtual assets being used to pay for online drugs or to launder proceeds of drug trafficking, fraud, and cybercrime, among other offenses. (ML Risk Assessment at 41.) For example, the US Government Accountability Office (GAO) found that 15 of the 27 online commercial sex marketplaces they examined accepted virtual currencies. (GAO. As Virtual Currency Use in Human and Drug Trafficking Increases, So Do the Challenges for Federal Law Enforcement. (Feb. 24, 2022) https://www.gao.gov/blog/virtual-currency-use-human-and-drug-trafficking-increases-so-do-challenges-federal-law-enforcement [as of Feb. 9, 2023].)
Although cryptocurrencies are the most prominent of virtual assets, a virtual asset can also, although not always, include an "NFT." (FATF Update at pg. 24; US Internal Revenue Service. Digital Assets. https://www.irs.gov/businesses/small-businesses-self-employed/digital-assets#:~:text=A%20digital%20asset%20that%20has,to%20as%20convertible%20virtual%20currency. [as of Feb. 7, 2023].) An NFT is generally defined as a virtual asset that is unique, rather than interchangeable, and in practice is used as a collectible, however, its classification can vary depending on the circumstances of its use. (Id.)
As such, a "virtual" or "digital" asset has been defined in various ways depending on the government or agency involved, but one of the most prevalent definitions is, "a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes… [not including] digital representations of fiat currencies…" (FATF Update at 109.) This bill would expand California's money laundering statutes to cover instances where criminals conduct transactions using virtual assets based on blockchain technology, if they knew that the virtual assets are derived from the proceeds of criminal activity or if they intended to facilitate a criminal activity.
According to the Author
"California is a leader in consumer protection and ensuring our laws reflect the growing and innovative technology used for day-to-day transactions. This technology has continued to evolve to now include cryptocurrency. AB 76 is a common-sense measure to strengthen our state's money laundering statutes and close the current loophole that permits the laundering of assets using cryptocurrency. It should also be noted that as we have seen a rise in drug trafficking, nefarious organizations are using this type of currency to escape detection and continue their illegal activities in the underground markets. California law must evolve to keep up with the digital operating methods of financial criminal organizations."
Arguments in Support
According to the bill's sponsor, The Conference of California Bar Associations, "Last year, illicit cryptocurrency transactions reached an all-time high of $20.1 billion… Given their use in conducting near-instant transactions that can bypass the scrutiny of financial institutions, nonfungible tokens and cryptocurrencies have become major conduits for money laundering…
"Currently, Penal Code section 186.10 provides that the crime of money laundering involves transactions of 'monetary instruments' in amounts greater than $5,000 that are facilitated by a 'financial institution,' with either the intent to facilitate criminal activity or the knowledge that the funds are derived therefrom. Under Penal Code section 186.9, the current definition of 'monetary instrument' includes government-back currencies, checks, money order, and certain kinds of transferable assets, such as precious metals, gems, and securities. But it does not include digital assets, like cryptocurrencies and NFTs…
"…As transactions involving cryptocurrency and non-fungible tokens continue to grow in volume and in commercial acceptance, we must ensure that existing laws that prohibit money laundering are updated to reflect these trends…"
Arguments in Opposition
According to Sorare and Dapper Labs, "Dapper Labs and Sorare are the world's leading digital collectible NFT companies. They sell modern-day digital versions of baseball, basketball and other sports cards. These digital collectibles are stored on the blockchain, which makes it easy for consumers to confirm their ownership and provenance. But digital baseball cards are not the same as cryptocurrency or digital monetary instruments, and should not be regulated as such. As digital versions of traditional consumer products, NFTs are subject to traditional federal and state consumer protection, anti-fraud, and false advertising laws, and also to federal and state cybercrime and data protection laws that extend to digital products.
"Dapper Labs and Sorare support the author's intention to update California's money laundering law to reflect technological advances and ensure that money laundering with cryptocurrency does not escape law enforcement jurisdiction. However, as written, the bill's definition of "monetary instrument" explicitly includes NFTs and other virtual assets regardless of their financial or monetary utilization and risks. We propose instead that AB 76 be limited to virtual assets that are used as monetary instruments in the traditional sense.
"We encourage the Committee to consider the U.S. Treasury Department's February 2022 report that examined money laundering in the digital art market. On page 26, the report distinguishes between financial and non-financial NFTs. The report states, "Digital assets that are unique, rather than interchangeable, and that are used in practice as collectibles rather than as payment or investment instruments, depending on their characteristics, are generally not considered to be virtual assets under the FATF definition. NFTs or other digital assets, however, that are used for payment or investment purposes in practice may fall under the virtual asset definition, and service providers of these NFTs could meet the FATF definition of a VASP.
"We urge the Committee to adopt our proposed simple fix that aligns with the U.S. Treasury analysis, and thereby ensure that digital collectibles are not captured in AB 76's definition of 'monetary instrument.' "
FISCAL COMMENTS
According to the Assembly Appropriations Committee:
- Cost pressure (Trial Court Trust Fund (TCTF)) possibly in the hundreds of thousands of dollars to trial courts in increased workload. This bill expands an existing crime to include the use of blockchain technology to illegally launder money, which may increase the number of money laundering cases filed. Money laundering is an alternate felony-misdemeanor and any criminal case may be resolved by jury trial. If 15 new money laundering charges are filed annually statewide and proceed to trial resulting in two days of court time, at an estimated cost of approximately $8,000 for an eight-hour court day, the approximate annual cost to the courts is $240,000. Although courts are not funded on the basis of workload, increased pressure on the TCTF and staff workload may create a need for increased funding for courts from the General Fund (GF) to perform existing duties. This is particularly true, given that numerous court functions are funded through the imposition and collection of criminal fines and fees. However, the Legislature has eliminated almost all criminal fines and fees over the past several years. The 2023-24 Governor's Budget proposes $109.3 million dollars annually to backfill the loss of funding resulting from the near elimination of criminal fines and fees.
- Possible annual costs (GF) in the hundreds of thousands of dollars to the California Department of Corrections and Rehabilitation (CDCR) resulting from increased incarceration. Money laundering is subject to a state prison term of up to three years depending on the person's criminal history. Additionally, a person may be subject to additional enhancements of one to four years depending on the amount laundered. The average annual cost to house an inmate in a CDCR facility is approximately $110,000. If two people convicted of laundering using blockchain technology are sentenced to state prison for an average of three years, the total cost would be $660,000.
- Possible non-reimbursable annual costs in the hundreds of thousands of dollars to counties for increased incarceration costs. The average annual cost to incarcerate a defendant in county jail is approximately $30,000. If 10 defendants statewide are sentenced annually to an average of one year in county jail for money laundering using blockchain technology, the total cost to counties would be $300,000. California county jails are seriously overcrowded – particularly since the enactment of the Realignment Act in 2011. Jail overcrowding since 2011 has resulted court-mandated population caps and increased rates of inmate violence and death. It has also resulted in significant state funding for additional jail construction. Establishment of a new crime is not considered a reimbursable state mandate, pursuant to Proposition 30 (2012) and Government Code section section17556, subdivision (g); however, overcrowding in county jails creates cost pressure on the GF because the state has historically granted new funding to counties to offset overcrowding, particularly that caused by the 2011 Realignment Act.
VOTES
ASM PUBLIC SAFETY: 8-0-0
YES: Jones-Sawyer, Alanis, Bonta, Bryan, Lackey, Ortega, Santiago, Zbur
ASM APPROPRIATIONS: 15-0-1
YES: Holden, Megan Dahle, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Sanchez, Weber, Ortega
ABS, ABST OR NV: Robert Rivas
UPDATED
VERSION: February 6, 2023
CONSULTANT: Mureed Rasool / PUB. S. / (916) 319-3744 FN: 0000671
Date of Hearing: March 22, 2023
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Chris Holden, Chair
ABPCA Bill Id:AB 76
Author:(Davies) – As Amended Ver:February 6, 2023
Policy Committee: | Public Safety | Vote: | 8 - 0 |
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Urgency: No State Mandated Local Program: Yes Reimbursable: Yes
SUMMARY:
This bill expands the money laundering statutes to include use of virtual assets in the form of blockchain technology.
FISCAL EFFECT:
- Cost pressure (Trial Court Trust Fund (TCTF)) possibly in the hundreds of thousands of dollars to trial courts in increased workload. This bill expands an existing crime to include the use of blockchain technology to illegally launder money, which may increase the number of money laundering cases filed. Money laundering is an alternate felony-misdemeanor and any criminal case may be resolved by jury trial. If 15 new money laundering charges are filed annually statewide and proceed to trial resulting in two days of court time, at an estimated cost of approximately $8,000 for an eight-hour court day, the approximate annual cost to the courts is $240,000. Although courts are not funded on the basis of workload, increased pressure on the TCTF and staff workload may create a need for increased funding for courts from the General Fund (GF) to perform existing duties. This is particularly true, given that numerous court functions are funded through the imposition and collection of criminal fines and fees. However, the Legislature has eliminated almost all criminal fines and fees over the past several years. The 2023-24 Governor’s Budget proposes $109.3 million dollars annually to backfill the loss of funding resulting from the near elimination of criminal fines and fees.
- Possible annual costs (GF) in the hundreds of thousands of dollars to the California Department of Corrections and Rehabilitation (CDCR) resulting from increased incarceration. Money laundering is subject to a state prison term of up to three years depending on the person’s criminal history. Additionally, a person may be subject to additional enhancements of one to four years depending on the amount laundered. The average annual cost to house an inmate in a CDCR facility is approximately $110,000. If two people convicted of laundering using blockchain technology are sentenced to state prison for an average of three years, the total cost would be $660,000.
- Possible non-reimbursable annual costs in the hundreds of thousands of dollars to counties for increased incarceration costs. The average annual cost to incarcerate a defendant in county jail is approximately $30,000. If 10 defendants statewide are sentenced annually to an average of one year in county jail for money laundering using blockchain technology, the total cost to counties would be $300,000. California county jails are seriously overcrowded – particularly since the enactment of the Realignment Act in 2011. Jail overcrowding since 2011 has resulted court-mandated population caps and increased rates of inmate violence and death. It has also resulted in significant state funding for additional jail construction. Establishment of a new crime is not considered a reimbursable state mandate, pursuant to Proposition 30 (2012) and Government Code section section17556, subdivision (g); however, overcrowding in county jails creates cost pressure on the GF because the state has historically granted new funding to counties to offset overcrowding, particularly that caused by the 2011 Realignment Act.
COMMENTS:
- Purpose. According to the author:
AB 76 is a common-sense measure to strengthen our state’s money laundering statutes and close the current loophole that permits the laundering of assets using cryptocurrency. It should also be noted that as we have seen a rise in drug trafficking, nefarious organizations are using this type of currency to escape detection and continue their illegal activities in the underground markets. California law must evolve to keep up with the digital operating methods of financial criminal organizations.
- Money Laundering. Money laundering means converting funds derived from an illegal source into legitimate income, usually by funneling the funds through a financial institution or through use of a monetary instrument. Existing law defines a monetary instrument as any US or foreign currency, checks, money orders, gold, emeralds, stocks, investment security, or other types of financial assets considered monetary instruments and prohibits using any of those assets to launder money. However, virtual assets have been used for years by criminal organizations to convert funds to legitimate income. Bitcoin and other cryptocurrencies are often used to facilitate criminal activity because they are decentralized.
Additionally, non-fungible tokens (NFTs) are being used at an increasing rate. According to the U.S. Department of the Treasury, law enforcement agencies in the U.S. have recently detected an increase in virtual assets, such as NFTs, being used to pay for online drugs or to launder proceeds of drug trafficking, fraud, and cybercrime, among other offenses. This bill proposes to update California’s money laundering statute to ensure cases may be brought against an individual accused of laundering through the use of virtual assets. In many cases, these individuals are prosecuted by federal agencies. - Argument in Support. According to the California District Attorneys Association:
AB 76 would amend Penal Code sections 186.9 and 186.10 to include virtual assets that use blockchain technology within the definition of a “monetary instrument” that can be used to commit money laundering. This will provide law enforcement with an important tool to ensure that individuals and businesses that facilitate cryptocurrency transactions, such as operators of cryptocurrency ATMs and cryptocurrency exchanges, can be held accountable if they conduct cryptocurrency transactions with the intent to promote or facilitate criminal activity or with knowledge that they are derived from the proceeds of criminal activity.
- Argument in Opposition. According to Dapper Labs and Sorare:
Dapper Labs and Sorare support the author’s intention to update California’s money laundering law to reflect technological advances and ensure that money laundering with cryptocurrency does not escape law enforcement jurisdiction. However, as written, the bill’s definition of “monetary instrument” explicitly includes NFTs and other virtual assets regardless of their financial or monetary utilization and risks. We propose instead that AB 76 be limited to virtual assets that are used as monetary instruments in the traditional sense.
Analysis Prepared by: Kimberly Horiuchi / APPR. / (916) 319-2081
Date of Hearing: February 14, 2023
Counsel: Mureed Rasool
ASSEMBLY COMMITTEE ON
Reginald Byron Jones-Sawyer, Sr., Chair
ABPCA Bill Id:
Author:() – As Ver:
SUMMARY:
Expands anti-money laundering statutes to cover virtual assets using blockchain technology. Specifically, this bill:
- Expands the prohibition on money laundering to cover use of blockchain technology.
- Defines “monetary instrument” to include virtual assets that use blockchain technology.
- Defines “blockchain technology” as a “distributed digital ledger of cryptographically signed transactions grouped into blocks, where each block is cryptographically linked to the previous one after validation and undergoing a consensus decision.”
- Makes technical, non-substantive updates.
EXISTING LAW:
- Prohibits a person from conducting, through a financial institution, one or more transactions of specified amounts of monetary instruments over certain periods of time, in order to facilitate criminal activity or knowing that the monetary instruments are derived from criminal activity. (Pen. Code § 186.10, subd. (a).)
- Defines a “financial institution” to include, when located or doing business in this state, a national bank, state bank, savings and loan association, foreign bank, brokers or dealers in registerable securities, businesses dealing with money orders, investment bankers, insurers, gold or other specified mineral dealers, pawnbrokers, persons involved in transferring titles of real estate and certain other properties, and specified gambling establishments, among other things. (Pen. Code § 186.9, subd. (b).)
- Defines “monetary instrument” as, among other things, any currency or coin, bank check, cashier’s check, money order, stock, investment security, gold and other specified minerals. Excepts personal checks under certain circumstances. (Pen. Code § 186.9, subd. (d).)
- Defines “criminal activity” as a criminal offense punishable by death, state prison, imprisonment in county jail pursuant to criminal justice realignment, or an offense committed in another jurisdiction punishable by death or a term of imprisonment exceeding one year. (Pen. Code § 186.9.)
- States that money laundering is punishable by as an alternate misdemeanor or as a felony under realignment, unless the transaction exceeds certain amounts, in which case additional terms of imprisonment will be imposed. (Pen. Code § 186.10, subd. (c).)
- Prohibits a person from possessing money or negotiable instruments exceeding a specified amount, knowing that the moneys are the result of illicit controlled substance-related activity. (Health & Saf. Code, § 11370.6.)
- Prohibits a person from engaging in a specified type of transaction involving proceeds known to derive from certain controlled substance-related violations, with the intent to disguise the source of the proceeds. (Health & Saf. Code, § 11370.9.)
FEDERAL LAW:
- Prohibits a person, in part, from conducting certain financial transactions knowing that the property contains proceeds of unlawful activity if they did so to facilitate such unlawful activity or to disguise the illicit origins of the proceeds. (18 U.S.C. § 1956, subds. (a)(1)(A)(i) & (a)(1)(B)(i).)
- Prohibits a person, in part, from conducting certain financial transactions involving property represented by law enforcement to be derived from illicit activity, as specified. (18 U.S.C. § 1956, subds. (a)(3)(A) & (a)(3)(B).)
- Defines, a “financial transaction,” in part, as a transaction which in any way or degree affects interstate or foreign commerce, or involves the movement of funds by wire or any other means. (18 U.S.C. § 1956, subd. (c)(4).)
- Defines “specified unlawful activity,” as certain racketeering offenses, certain offenses related to controlled substances, certain extraditable offenses, among other things. (18 U.S.C. § 1956, subd. (c)(7).)
FISCAL EFFECT:
Unknown
COMMENTS:
- Author's Statement: According to the author, ““California is a leader in consumer protection and ensuring our laws reflect the growing and innovative technology used for day-to-day transactions. This technology has continued to evolve to now include cryptocurrency. AB 76 is a common-sense measure to strengthen our state’s money laundering statutes and close the current loophole that permits the laundering of assets using cryptocurrency. It should also be noted that as we have seen a rise in drug trafficking, nefarious organizations are using this type of currency to escape detection and continue their illegal activities in the underground markets. California law must evolve to keep up with the digital operating methods of financial criminal organizations.”
- Money Laundering and the Rise of Virtual Assets: Most individuals generally think money laundering refers to the process by which criminals try to disguise illegally-gained financial assets in a manner such that the assets appear to come from a legal source. However, California’s anti-money laundering laws prohibit more than just trying to conceal the nature of ill-begotten assets. (Pen. Code, § 186.10, subd. (a).) State laws prohibit certain transactions simply if a person knew the assets were derived from criminal activity or if they conducted the transaction with the intent to facilitate a criminal activity. (Id.) Currently, state law specifies that US and foreign currency, checks, money orders, gold, emeralds, stocks, investment security, and other types of financial assets are “monetary instruments” and prohibits a person from laundering those items. (Pen. Code, § 186.9, subd. (d).) In part, this bill would include virtual assets, as defined, into California’s anti-money laundering statutes.
This update is needed because over the past few years, virtual assets such as bitcoin and non-fungible tokens (NFTs) have risen in use for both legitimate and illegitimate purposes. The rise of virtual assets in general has left governments playing catch-up to try and regulate this new technology. (Department of Treasury. National Money Laundering Risk Assessment. (Feb. 2022) (hereafter ML Risk Assessment) https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf [as of Feb. 7, 2022] at pg. 40-41.) Although the use of virtual assets for money laundering remains far below traditional methods in volume, law enforcement agencies in the U.S. have recently detected an increase in virtual assets being used to pay for online drugs or to launder proceeds of drug trafficking, fraud, and cybercrime, among other offenses. (ML Risk Assessment at 41.) For example, the US Government Accountability Office (GAO) found that 15 of the 27 online commercial sex marketplaces they examined accepted virtual currencies. (GAO. As Virtual Currency Use in Human and Drug Trafficking Increases, So Do the Challenges for Federal Law Enforcement. (Feb. 24, 2022) https://www.gao.gov/blog/virtual-currency-use-human-and-drug-trafficking-increases-so-do-challenges-federal-law-enforcement [as of Feb. 9, 2023].)
One of the first issues in discussing virtual assets is conceptually understanding and using the appropriate terminology. A virtual asset can include bitcoin and similar digital coins, which are regarded as “cryptocurrency” and are generally defined as a digital asset/unit within a system, which is cryptographically sent from one blockchain network user to another by using digital signatures. (U.S. Dept. of Commerce National Institute of Standards and Technology (NIST) Glossary: Cryptocurrency. https://csrc.nist.gov/glossary/term/cryptocurrency [as of Feb. 7, 2023].) Most cryptocurrencies rely on a “blockchain” to conduct their transactions. (LA Times. A beginner’s guide to cryptocurrency. (Dec. 24, 2021) (hereafter Crypto Beginner’s Guide) https://www.latimes.com/business/technology/story/2021-12-24/a-beginners-guide-to-cryptocurrency [as of Feb. 8, 2023].) A blockchain is essentially a network of computers that store and update permanent digital records of every transaction on the network. (Id.) Blockchain uses cryptography, a mathematical technique that turns information into unbreakable codes, to ensure bitcoins are not spent more than once and allow for the computers on the network to keep identical and immutable records. (Id.) That being said, the future of cryptocurrency may not always be tied to the blockchain system, alternative cryptocurrencies using Directed Acyclic Graphs or Cloud services are already in existence. (TechTarget. 6 alternatives to blockchain for businesses to consider. (May 25, 2021) https://www.techtarget.com/searchcio/feature/6-alternatives-to-blockchain-for-businesses-to-consider [as of Feb. 6, 2023].)
Although cryptocurrencies are the most prominent of virtual assets, a virtual asset can also, although not always, include an “NFT.” (FATF Update at pg. 24; US Internal Revenue Service. Digital Assets. https://www.irs.gov/businesses/small-businesses-self-employed/digital-assets#:~:text=A%20digital%20asset%20that%20has,to%20as%20convertible%20virtual%20currency. [as of Feb. 7, 2023].) An NFT is generally defined as a virtual asset that is unique, rather than interchangeable, and in practice is used as a collectible, however, its classification can vary depending on the circumstances of its use. (Id.)
As such, a “virtual” or “digital” asset has been defined in various ways depending on the government or agency involved, but one of the most prevalent definitions is, “a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes… [not including] digital representations of fiat currencies…” (FATF Update at 109.) This bill would expand California’s money laundering statutes to cover instances where criminals conduct transactions using virtual assets based on blockchain technology, if they knew that the virtual assets are derived from the proceeds of criminal activity or if they intended to facilitate a criminal activity.
Virtual Assets and the Circumvention of Financial Institutions: One of the increasingly prevalent methods of transferring virtual assets is through Peer-to-Peer (P2P) transactions. (ML Risk Assessment at 41.) P2P transactions in the money laundering context have generally been defined as virtual asset transfers conducted without the involvement of a virtual asset provider (VASP) or other obliged entity. (FATF. Updated Guidance for a Risk-Based Approach: Virtual Assets and Virtual Asset Service Providers. (Oct. 2021.) (hereafter FATF Update) https://www.fsb.org/2021/10/updated-guidance-for-a-risk-based-approach-to-virtual-assets-and-virtual-asset-service-providers/ [as of Feb. 7, 2023] at pg. 18.) A VASP is a person or business that will exchange virtual assets for fiat currencies or for other types of virtual assets. (FATF Update at 24.) In the United States, VASPs have been determined to be “money transmitters,” and so they have to comply with numerous registration and reporting requirements designed to prevent money laundering. (ML Risk Assessment at 40-41.)
In essence, a P2P transaction means one individual can electronically transfer a virtual asset from their “wallet” directly to another individual’s “wallet” without going through a financial institution like a VASP. Money launderers are increasingly using P2P transactions in order to avoid the registration and reporting requirements that apply to VASPs. (Id.) As more and more companies begin accepting virtual assets as payment for goods or services, it can be easier for money launderers to use their virtual assets without ever going through a VASP. In terms of NFTs in the money laundering context the US Treasury has stated, “NFTs can be used to conduct self-laundering, where criminals may purchase an NFT with illicit funds and proceed to transact with themselves to create records of sales on the blockchain. The NFT could then be sold to an unwitting individual who would compensate the criminal with clean funds not tied to a prior crime. It is also possible to have direct peer-to-peer transactions of NFT-secured digital art without the involvement of an intermediary, and these transactions may or may not be recorded on a public ledger.” (US Dept. of Treasury. Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art. (Feb. 2022) https://home.treasury.gov/system/files/136/Treasury_Study_WoA.pdf at pg. 26 [as of Feb. 9, 2023].)
Apart from certain transactions involving controlled substances, California’s money laundering statutes require that the transaction go through a financial institution, as specified. (Pen. Code, § 186.10, subd. (a); Health & Saf. Code, § 11370.9.) This bill would not require a transaction that uses virtual assets to go through a financial institution, and so would cover P2P transactions.- Argument in Support: According to the bill’s sponsor, The Conference of California Bar Associations, “Last year, illicit cryptocurrency transactions reached an all-time high of $20.1 billion… Given their use in conducting near-instant transactions that can bypass the scrutiny of financial institutions, nonfungible tokens and cryptocurrencies have become major conduits for money laundering…
“Currently, Penal Code section 186.10 provides that the crime of money laundering involves transactions of ‘monetary instruments’ in amounts greater than $5,000 that are facilitated by a ‘financial institution,’ with either the intent to facilitate criminal activity or the knowledge that the funds are derived therefrom. Under Penal Code section 186.9, the current definition of ‘monetary instrument’ includes government-back currencies, checks, money order, and certain kinds of transferable assets, such as precious metals, gems, and securities. But it does not include digital assets, like cryptocurrencies and NFTs…
“…As transactions involving cryptocurrency and non-fungible tokens continue to grow in volume and in commercial acceptance, we must ensure that existing laws that prohibit money laundering are updated to reflect these trends…” - Argument in Opposition: According to Sorare and Dapper Labs, “Dapper Labs and Sorare are the world’s leading digital collectible NFT companies. They sell modern-day digital versions of baseball, basketball and other sports cards. These digital collectibles are stored on the blockchain, which makes it easy for consumers to confirm their ownership and provenance. But digital baseball cards are not the same as cryptocurrency or digital monetary instruments, and should not be regulated as such. As digital versions of traditional consumer products, NFTs are subject to traditional federal and state consumer protection, anti-fraud, and false advertising laws, and also to federal and state cybercrime and data protection laws that extend to digital products.
“Dapper Labs and Sorare support the author’s intention to update California’s money laundering law to reflect technological advances and ensure that money laundering with cryptocurrency does not escape law enforcement jurisdiction. However, as written, the bill’s definition of “monetary instrument” explicitly includes NFTs and other virtual assets regardless of their financial or monetary utilization and risks. We propose instead that AB 76 be limited to virtual assets that are used as monetary instruments in the traditional sense.
“We encourage the Committee to consider the U.S. Treasury Department’s February 2022 report that examined money laundering in the digital art market. On page 26, the report distinguishes between financial and non-financial NFTs. The report states, “Digital assets that are unique, rather than interchangeable, and that are used in practice as collectibles rather than as payment or investment instruments, depending on their characteristics, are generally not considered to be virtual assets under the FATF definition. NFTs or other digital assets, however, that are used for payment or investment purposes in practice may fall under the virtual asset definition, and service providers of these NFTs could meet the FATF definition of a VASP.
“We urge the Committee to adopt our proposed simple fix that aligns with the U.S. Treasury analysis, and thereby ensure that digital collectibles are not captured in AB 76’s definition of ‘monetary instrument.’ ” - Related Legislation: AB 39 (Grayson), would provide for regulatory oversight for digital financial asset businesses. AB 39 is pending hearing in the Assembly Banking and Finance Committee.
- Prior Legislation:
- AB 2269 (Grayson), of 2021-22 Legislative Session, would have provided for regulatory oversight for digital financial asset businesses. AB 2269 was vetoed by the Governor.
- AB 1489 (Calderon), of 2019-20 Legislative Session, would have established a regulatory framework and licensing requirement for virtual currency business activity based on a model law put forward by the Uniform Law Commission. The bill failed passage in the Assembly Banking Committee.
- AB 1123 (Dababneh), of 2017-18 Legislative Session, would have established a regulatory framework and licensing requirement for virtual currency business activity. The bill failed passage in the Assembly Banking Committee.
- AB 1326 (Dababneh), of 2015-16 Legislative Session, would have established a regulatory framework and an enrollment program for persons engaged in digital currency business activity. The bill failed passage in the Senate Banking Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
Arcadia Police Officers' Association
Burbank Police Officers' Association
California Coalition of School Safety Professionals
California District Attorneys Association
California State Sheriffs' Association
Claremont Police Officers Association
Conference of California Bar Associations
Corona Police Officers Association
Culver City Police Officers' Association
Fullerton Police Officers' Association
Inglewood Police Officers Association
Los Angeles School Police Officers Association
Newport Beach Police Association
Palos Verdes Police Officers Association
Placer County Deputy Sheriffs' Assocation
Pomona Police Officers' Association
Riverside Police Officers Association
Riverside Sheriffs' Association
Santa Ana Police Officers Association
Upland Police Officers Association
Opposition
Dapper Labs
Sorare
Analysis Prepared by:
Discussed in Hearing
50SEC
Senate Standing Committee on Appropriations
1MIN
Assembly Floor
31SEC
Assembly Floor
1MIN
Assembly Floor
8MIN
Assembly Standing Committee on Public Safety
11MIN
Assembly Standing Committee on Public Safety
Bill Author
Bill Co-Author(s):