Creativity keeps criminals awash in laundered money

0 Comments | Insight on the News, June 10, 1996 | by Leslie Alan Horvitz

About $3 billion in cash is `cleaned' annually in the United States. But with increasing vigilance at home and abroad, money launderers have been forced to invent more devious schemes.

With or without controls, money moves -- much of it illegally. According to some estimates, money launderers wash as much as $500 billion dollars worldwide every year.

"Money launderers no longer simply walk into banks with duffel bags stuffed with cocaine cash and put money into their account," says Michael Zeldin, a former money-laundering section chief at the Department of Justice. While large sums of laundered money originate in drug trafficking, criminals use the cash to commit a variety of other crimes that involve the manipulation of financial markets and infiltration of legitimate businesses.

Recently, for example, law-enforcement authorities shut down what looked like a modest check-cashing company in West New York, N.J. Their suspicions were aroused by the armored car the company used to haul its cash to the bank: An assistant U.S. attorney noted that check-cashing services usually obtain money from banks, not the other way around. The company, it turned out, was a front for Colombian drug dealers who had sent some $60 million in ill-gotten gains back to Cali.

Interestingly, Colombia is one of the cheapest places in the world to buy scotch; drug cartels purchase it at retail and sell it at a loss to launder money. And Colombian cash smuggling -- money brought clandestinely into the United States to take advantage of sophisticated stateside operations -- is so pervasive that it has affected the balance of trade. Ten years ago, the United States had a $5 billion trade deficit with Colombia; last year, it had a $5 billion trade surplus. Much of the difference is due to illicit money, according to Zeldin, now the general counsel of Decision Strategies International, a Washington-based investigative agency.

Ironically, as a result of the U.S. embargo imposed on high-technology exports to the Soviet Union, customs agents began to examine more cargo leaving the United States. Although little illegally exported technology was discovered, they frequently turned up cartons of $100 notes. Nonetheless, with up to 10 million cargo containers entering and leaving the United States every year, it is virtually impossible to carry out more than spot checks.

It wasn't until the early 1980s that the authorities began to think of money laundering as a significant problem. Before then, banks seldom bothered to file currency transactions with the government as required by law. Today, bank regulations for reporting transactions of $10,000 or more are so strict that critics fear they are too broad. Under the new regulations, banking institutions must report a transaction that "has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage."

The Money Laundering Control Act of 1986 provided both a criminal and a civil forfeiture provision. Under this legislation, laundered money can never be clean -- equity from the sale of a house whose purchase was facilitated by drug money is subject to forfeit. In 1995, an executive order made it possible for law-enforcement officials to target businesses such as car dealerships, drug stores, chemical companies and import-export firms implicated in money laundering by blocking assets that may have been obtained with illicit funds. Such forfeiture acts are being challenged in court.

The responsibility for keeping track of currency movements in the United States falls mainly on the Financial Crimes Enforcement Network, or FinCEN, a Treasury Department agency. Every year, FinCEN receives 11 million reports covering everything from casino earnings to citizen accounts maintained abroad.

The only other country with a reporting system so elaborate is Australia, according to John Evans, a professor at the International Centre for Criminal Law Reform and Criminal Justice Policy at the University of British Columbia. Unlike the United States, which has more than 50,000 banks, many of them regional or local, Australia has a highly centralized and efficient banking system that electronically flags suspicious transactions. In spite of this advantage, Evans says, "The Australian system so far has managed mostly to catch small fry -- welfare cheats -- and not big drug dealers."

Of course, money laundering is an international problem. "On paper there is some progress in gaining the support of other countries," says Fletcher Baldwin, a professor of law and director of the Centre for International Financial Crimes Studies at the University of Florida. Cooperation, however, has been uneven. Germany will allow a U.S. agent with a court order to seize illicitly obtained money from a bank on its soil, but the agent can't touch hot money in a German bank based in Luxembourg -- of which there are several.

A number of countries are known to be "fiscally tolerant," including Malta, Uruguay, Japan, Ireland and Belgium. "Suspicious banking activity" also is growing in Eastern Europe and the former Soviet Union. And as more offshore banks in the Cayman Islands and the Bahamas fall into compliance with U.S. banking regulations (although U.S. citizens continue to use them as tax havens), new ones are springing up in the Pacific. Baldwin asserts that many banks in remote sites such as Vanuatu and Western Samoa are well beyond the reach of U.S. law.