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Big deals at small store raise flags

A small gas station in Tampa is home to the only money center in Florida fined over breaking the Bank Secrecy Act.

By SCOTT BARANCIK
Published June 2, 2006

Frosty Food Mart hardly seems like a bank.

The Tampa gas station, one of two at the corner of Gunn Highway and Linebaugh Avenue, sports a no-name brand of fuel, bars on its windows and scant food other than some room-temperature candy. No teller is in sight.

But last month, the down-at-the-heels store became the only money center among 2,300 in Florida to be fined over allegations of violating the federal Bank Secrecy Act, a 1970 law designed to fight money laundering by turning financial services companies into informers.

Owners Jose and Zoila Balda, who declined to be quoted for this report, had to take out a second mortgage on their Tampa home to help pay the $10,000 penalty. If not for their finances, they might have been fined more, authorities said.

Federal authorities say that during the 18 months that ended in July 2004, the Baldas failed to report 80 transactions in which customers cashed checks totaling $10,000 or more, a total of $1.25-million. Federal law requires financial services businesses to report cash transactions of $10,000 or more because the money might be linked to a criminal enterprise, such as drug trafficking.

Twelve of the 80 transactions the Baldas did not report fit the pattern of "structuring," a strategy criminals use to avoid detection. In those cases, a customer cashed multiple checks within a single day - each less than $10,000, but together totaling more than $10,000.

Though it looks like a small gas station from the outside, inside Frosty Food runs a busy operation as one of 2,334 Florida check cashers, money transmitters or money order issuers that have registered for mandatory regulation under the Bank Secrecy Act. Such businesses have been subject to the Bank Secrecy Act and its requirements for years, but Congress ratcheted up scrutiny of their financial transactions after the 9/11 terrorist attacks. Hundreds of thousands of financial services companies from Citigroup to the corner pharmacy must comply because of the Patriot Act.

Performing banking services for customers who don't have bank accounts - cashing paychecks, issuing money orders to pay gas or phone bills, wiring money to family overseas - can be lucrative. At the industry standard of about 2 percent, for example, Frosty Food would have earned $25,000 in fees from those 80 unreported transactions.

Eileen Mayer, director of the Internal Revenue Service division in charge of ensuring Bank Secrecy Act compliance among money-service businesses, said similar businesses regularly have cash delivered by armored truck.

"I have been in stores where in one week they will go through $1-million in cash," she said.

Yet complying with the complex regulations can be costly. Companies must develop a detailed, written anti-money-laundering plan; appoint and train an employee to monitor it; get an independent test verifying the plan will work; and report cash transactions of $10,000 or more, as well as "suspicious" transactions of $2,000 or more. The form Frosty Food was supposed to file for each transaction of more than $10,000 has 49 line items.

Not surprisingly, the law has its critics.

Charles Intriago, publisher of Moneylaundering.com of Miami and a leading figure in the field, said the Financial Crimes Enforcement Network, or FinCEN, has proved to be toothless. He said the agency has fined one broker-dealer nationwide since its inception, and just one money center in Florida.

David Landsman, executive director of the National Money Transmitters Association, said the government should focus its enforcement efforts on unlicensed businesses. A Florida Office of Financial Regulation official said Thursday that Frosty Food Mart does not appear to have the necessary state license to cash checks and that the matter is under review.

But for businesses like Frosty Food, the worst part of the anti-money-laundering system may be that it is persuading some banks to close their accounts.

Intriago said law enforcement officials and prosecutors prefer going after money-service businesses and the criminals who abuse them because the transactions are easy to track. And that, he said, has "scared the bejeebers out of banks," which fear taint by association.

FinCEN is trying to address the problem. It is seeking public comment on a draft regulation that would encourage banks not to overreact. As for claims that the agency's regulation of businesses like Frosty Food is excessive, spokeswoman Kelly disagrees.

"Certainly, we don't expect them to have a program like a Citigroup," she said. "But we do believe that compliance is critical for all financial institutions, no matter what size they are."

Whether the big checks the Baldas cashed were the fruit of criminal activity is unclear.

A spokeswoman for the Hillsborough County Sheriff's Office said it has no record of problems with Frosty Food or the Baldas: Jose, 62, and Zoila, 55. A spokesman for the U.S. Attorney's Office in Tampa said that there is no record of any action against the couple but that the office could neither confirm nor deny a pending investigation.

Times staff researcher Lea Iadorola contributed to this report. Scott Barancik can be reached at barancik@sptimes.com or (727) 893-8751.

[Last modified June 2, 2006, 06:00:09]