Modus Operandi (30 page)

The most common trend identified is
structuring.
Structuring is the act of making frequent multiple cash deposits, under $10,000, at one or more financial institutions with the intent to avoid the STR reporting requirements. Another red flag is when companies make deposits and/or withdrawals of unusually high sums of money not commensurate with their usual earnings or deposit and withdrawal patterns. Suspect wire transfer activity, primarily to overseas locations, has also been reported. It is not uncommon, especially in the inner cities, to find concentrations of specific nationalities or ethnic groups in particular neighborhoods or communities with ties to countries that export drugs.

Key Industries in Money Laundering Schemes

There are several industries that are particularly vulnerable to being used for money laundering activity. These tend to be cash intensive businesses that disguise large sums of illicit cash by mingling it with legitimate business proceeds. Bulk cash represents a problem for many criminals, especially drug dealers. Financial institutions used include banks, money transmitters and securities markets. The commercial business being used for money laundering includes the precious metals industry, travel agencies and both licensed and unlicensed couriers. Other cash intensive businesses such as liquor stores, automobile rental and convenience stores are also being used.

High-dollar retail businesses, such as exclusive clothiers, auto dealerships and high-volume cash businesses, such as service stations and convenience stores, are particularly vulnerable to use by money launderers. Criminals may use these businesses as legitimate sources of income or employment to justify large sums of cash or conspicuous material wealth. In some cases a seemingly legitimate business can serve as a base from which to operate illegally. As a laundering vehicle, seemingly legitimate companies can cloak the criminally derived profits as well as the identity of the owner of the illicit capital. Criminals can then establish new businesses for the purpose of laundering funds or they may attempt to corrupt an existing business.

The center of the diamond jewelry and precious metals industry for the United States is in New York City. The traditional secrecy and large amounts of money of this industry makes it particularly vulnerable to infiltration by money launderers. These industries have been the focus of three major drug money laundering indictments returned in the last five years.

The travel and transportation industries including freight forwarders and shipping companies are also particularly vulnerable to exploitation by money launderers.

Banks.
We have found that a financial institution and its employees play a major role in money laundering activity, either wittingly or unwittingly. Investigations have disclosed that bank officers and other employees accepted bribes from criminals for receiving and processing large amounts of money without filing the appropriate government forms or by filing false reports. Numerous bank officials have been indicted for facilitating money laundering activities.

Wire transfers are believed to be a significant avenue for money launderers to move large sums of money. The Clearinghouse for Interbank Payer Systems (CHIPS) is located in New York City and handles over 90 percent of all United States dollar payments moving between countries around the world, including foreign trade payments and currency exchanges. Fedwire, the wire transfer system operated by the federal reserve, and the Society for Worldwide Interbank Financial Telecommunications (SWIFT) also conduct a substantial amount of wire transfer activity.

Securities Market.
The Financial Securities Market is another area in which money laundering occurs. Our experience has shown that a good portion of all drug proceeds are laundered by this means. Currently, investigations in New York City indicate that drug dollars are being laundered through stocks and bonds. A recent study revealed the relative ease with which an investor can place currency into the system. This obviously means that some bank personnel are re-arranging the paperwork so that the proper forms are not being filed for deposits over ten thousand dollars.

Nonbank Financial Institutions.
With the success of the Bank Secrecy Act (BSA), which requires all deposits of more than $10,000 be reported to the IRS, money launderers have begun to turn to alternatives other than the established traditional financial institutions. These alternative or nonbank institutions take the form of services labeled as money transmitters, check cashing services, courier services, travel agencies or currency exchange houses. The term
nonbank financial institution
has been used to loosely refer to:

1. Those persons or entities that receive money for the purpose of transmitting it, domestically or internationally, through courier, telegraph, computer networks, telex or facsimile.

2. Those persons or entities that convert money into traveler's checks or money orders from the currency of one country to the currency of another, and from personal checks, business checks, money orders or bank checks into currency.

These businesses or nonbanks have proliferated in recent years throughout the United States especially in densely populated areas and within the inner-city ethnic communities. These nonbanks are usually fairly diverse and provide services and opportunities that may assist the money laun-derer in creating anonymity: Little if any paper trails exist, and illicit funds are consolidated or co-mingled with legally gained funds or profits, thus concealing the true source or owner. These nonbanks may be operated independently in store fronts or within other businesses, such as liquor stores or travel agencies. These multifaceted establishments deal almost exclusively in cash received from the consumer in exchange for services.

Our knowledge of these types of launderers reveals that a substantial number of these nonbanks are active in the New York City area. Using a threshold of $100,000 in cash transactions reported via STRs over a two-year period, they produced approximately one hundred entities nationwide. Of these one hundred businesses, twenty-three, or about 25 percent, were located in the New York City area. A large portion of these were in Jackson Heights, Flushing and Queens. A majority of these New York businesses were owned by or employed ethnic groups such as Dominicans, Colombians, Haitians and Nigerians. Almost half of these businesses have been investigated by law enforcement, and some are suspected of or have been arrested for money laundering of cocaine trafficking proceeds.

Businesses operating as money transmitters are required to be licensed in the state of New York. These businesses are required to apply and post a bond to protect the consumer. The applications are subject to an investigation, which determines the suitability of the applicant. However, as best as we can determine, criminal background checks are not conducted. The number of unlicensed transmitters by far outweighs those businesses that are licensed by the state.

Jewelry and Precious Metals.
The jewelry and precious metals industries (including diamonds and gold) for the

United States are centered in New York with wholesale dealers concentrated in the famous diamond district of Manhattan. The traditional secrecy and confidential business relationships surrounding these industries, the high value of the commodities, and the traditional cash nature of many transactions all combine to make these industries particularly vulnerable to money laundering activity. In fact, several law enforcement officials named the 42nd Street Diamond District as the single hottest spot in New York City for money laundering. The consensus was that no single ethnic group was involved but that almost all the legitimate businesses in the area had been approached by money launderers.

Some of the most important money laundering cases in New York involved these industries. The success of prosecutions involving hundreds of millions of dollars appears to have made a serious dent in the operations of these organizations. However, there is general agreement that outside of the financial industries the jewelry and precious metal industries continue to be the highest risk business for money laundering in New York and other states.

Retail Industry.
An industry that is increasingly vulnerable to use by money launderers is the retail industry, specifically, high-dollar luxury stores that attract clients who have large sums of money. These clients have to launder or otherwise spend the money without attracting the attention of authorities, so they either make the purchases with cash or they enlist criminal associates or otherwise law-abiding citizens to make purchases. Retailers seduced by large cash payments, cash that they suspect came from illegal activity, feel that they have done nothing wrong or committed no crime when they accept this money. They fail to realize however, that the Money Laundering Control Act of 1986 expanded the definition of money laundering to make it illegal for people to accept cash knowing that it comes from illegal activities, especially if the deal itself is intended to hide the source of the money.

There sometimes exists an unholy alliance between certain businesses and drug dealers that fuels the fire of drug trafficking. Some business strapped for cash are enticed by the opportunity for easy money, even if the cash has a dubious history. In some communities drug dealing is a career that people start while in their teens and childhood friendships between street kids often later turn into tempting situations for both the drug dealer and the legitimate retailer.

For the purposes of this discussion let's give a fictitious example of how an expensive clothing
store, John's Clothing Boutique,
in New York City might be used by money launderers.

John's is incorporated as J & A Inc., with two partners: John Linn and Adam Kurrocka. They deal primarily in imported Italian suits and shoes priced from $1,000 to $2,000. In reality Linn was selling thousands of dollars worth of clothes to the Raymond Edwards drug gang and to drug king pin Don Lewis through his New York Store. The narcotics traffickers purchased the expensive clothes with small bills and spent as much as $41,000 in a single day.

Linn began as a legitimate retailer, but the store was frequented by a childhood friend who had become one of New York City's biggest drug dealers. Linn eventually assisted the drug dealer in disposing of his illicit cash by selling him as much as $32,000 in clothes in one month, by purchasing luxury automobiles for the drug dealer registered in John's name, and by listing the criminal as an employee of the store. At the height of this partnership, the drug dealer and his associates spent as much as $457,995 at the store, and Linn registered, in his own name, six luxury cars, costing $234,371. All of this from a store that reported a total income of $85,600 during 1987 and 1988.

While Kurrocka, a master tailor from Turkey, escaped prosecution, Linn was recently convicted on thirty-four of sixty-seven counts of money laundering.

Convenience stores, liquor stores, restaurants and similar businesses are attractive to money launderers and provide an excellent legitimate cover. Since these are commonly cash heavy concerns, licit and illicit funds are easily co-mingled. Some drawbacks are that it requires the maintenance of a legitimate business, leaves an audit trail, filings have to be made with the state, county, and city and normal business records must be kept. And, there are limits to the amount of money that can be channeled through without attracting too much attention.

So how do these criminals operate? Someone with criminal intent has the option of either establishing a new business or purchasing an existing one. Money launderers will often seek out businesses under financial stress due to changing economic conditions. The purchase of an existing business is an advantage because the business pattern is already established and, as long as the business's cash flow does not dramatically shift, changes would not appear unusual. In any event the person attempting to use the business as a front for money laundering would tailor his activity to ensure that the business fits the norm and avoids
attract
ing attention.

We cannot specifically state that a particular group or groups could be singled out for money laundering activities, and it could be that any ethnic group in an illegal activity could be involved. For example, Russian criminal groups are involved in gasoline tax and merchandise fraud as well as narcotics; Italian organized crime is involved in a myriad of criminal enterprises; Asian organized crime groups are involved in gambling and narcotics; and the criminal elements of the Dominican community are involved in narcotics. The Chinese as an ethnic group are not heavily involved in the drug trade, however, one Chinese group holds over 3,200 companies that have earned more than $1.3 billion yearly for the past seven years.

Money Orders

One way to launder money is to transfer currency into money orders. Money orders can be purchased from many different locations, not just banks — retail stores, pharmacies and post offices are just a few. Money orders can be made payable to anyone at any location worldwide. One can even list fictitious persons and addresses on these money

orders, and have them cashed with little or no problem.

Narcotics dealers use the money orders mainly to reduce the volume of small denomination currency they receive in selling their wares. When a narcotics dealer sells his drugs on the street, most purchases are twenty dollars or less, which results in large piles of small bills. Drug dealers must relieve themselves of this currency and will do so by purchasing money orders.