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Cleaning up
By JEFF HARRINGTON © St. Petersburg Times, published January 7, 2001 TAMPA -- Adedeji Okubanjo, a 24-year-old Nigerian citizen, was already under scrutiny by Secret Service agents here when a local SouthTrust Bank branch questioned his plans to wire $175,000 to New York. The bank reported its suspicions to regulators and blocked the wire transfer. Instead of catching a plane to New York to collect more than a half-million dollars in cash from a counterfeit check scheme, Okubanjo wound up in prison on a two-year sentence for bank fraud. Chalk up one successful battle against money laundering. The problem for regulators: Sentencing Okubanjo in 1998 was like picking off a single enemy soldier as thousands more continue to pour over the hill. "I don't think we can win the war," said David Vogt, a Treasury Department official who helps spearhead anti-money laundering efforts. "In all honesty, the best we can do is make the cost of (laundering money) higher . . . to cause them some pain." Despite new federal regulations, deepening international cooperation and unprecedented voluntary cooperation by banks to spot and report suspicious behavior, money laundering is flourishing. The International Monetary Fund estimates that laundering accounts for 3 percent to 5 percent of the world's annual gross domestic product, or about $1.5-trillion. The Financial Crimes Network has hired a contractor to develop a model for measuring the magnitude of laundering. But to some experts, putting a price tag on the problem is a futile exercise. "You sit in these rooms and government people will just laugh at some of the numbers tossed around," said John Byrne, senior counsel and compliance manager for the American Bankers Association. "I don't know how you can estimate it." The practice of filtering ill-gotten money through the financial system to make it "clean," or legitimate, owes its moniker to the days of Al Capone. The Chicago mobster reputedly used coin-operated laundries to hide his gambling revenue. Crooks have come a long way from the self-service laundries of the Windy City. Today's money launderers trade cash for chips at casinos, wait a few minutes and then cash out. They wire funds through a U.S. financial institution from a foreign country and then withdraw the cash in a third country using ATMs. They move money around through check-cashing outlets and other so-called money remitters that are less tightly regulated than banks. They pump money through brokerage firms, insurance companies and unsuspecting legitimate businesses. They pay millions to export outdated computer chips or equipment as a way to get U.S. dollars into the system. The Internet has helped, too. Electronic cash and online clubs that let people use debit credit cards for transactions have great potential for misuse. So do stored-value or "smart" cards that can be used to tap into bank accounts and other sources to download funds. Internet gaming has burgeoned into a $10-billion industry, with many of its more than 600 sites linked to countries known to be lax on money laundering, such as Antigua. Of course, there are always wire transfers, off-shore accounts, shell companies and the old-fashioned smuggling of dollars out of the country. "You're only limited by your imagination," said Ken Rijok, a former Miami lawyer who knows the money-laundering process from the inside. In the 1980s, Rijok briefly specialized in helping set up ways to launder money. After a prison sentence and disbarment, he joined the lecture circuit, offering tips on how to stop his former livelihood. "Frankly, I think it's infinitely worse than it was before," Rijok said. "It looks like we have twice the amount of tax havens than we had before, not just in the Caribbean. And now we have to deal with Russian organized crime." Indeed, the growing presence of Russian crime bosses was one of the trends highlighted by the Bank Secrecy Act Advisory Group this fall in the industry/government group's first-ever comprehensive report looking at the effectiveness of money-laundering laws. One of the report's co-authors was Vogt, the Treasury Department official who acts as assistant director of the Financial Crimes Enforcement Network, better known as FinCEN. Among Vogt's biggest concerns is that entrenched criminal organizations have begun cooperating in complicated wire transfers, making it tougher to follow dirty money. Russian organized crime will have one piece of the laundered funds, the classic Italian Mafia has another, Asian Mafia will have a third, and a drug cartel yet another. "We're not talking about Aunt Emma in her garage," Vogt said. "We're talking about large-scale criminal activity, the globalization of organized crime and what it means to us." Bankers and regulators have heard the wake-up call. The Treasury Department went on the offensive last year with a warning list of 15 foreign countries that have "serious deficiencies" in money laundering controls, including the Bahamas, Cayman Islands, Panama, Israel, Russia and the Philippines. The Feds identified New York, Los Angeles, the Texas border and San Juan as high financial crime areas that are prone to money laundering. (South Florida recently submitted an application to join the list and is expected to be added this year along with Chicago and the San Francisco Bay area.) Two years ago, FinCEN briefly floated the idea of making banks compile detailed financial portraits of their customers in search of suspicious behavior. But supportive bankers and legislators quickly abandoned the so-called Know Your Customer proposal after a public outcry that it would make banks spy on their customers for the government. Nevertheless, a growing number of big banks now are embracing Know Your Customer principles internally, whether or not they become formal regulations. The regulatory enthusiasm has rolled into 2001. Republicans on the House Banking Committee have pledged to make anti-money laundering one of their top agenda items with the new Congress. Gradually, over the next several years, FinCEN wants to make check-cashing companies, brokers and insurance companies follow similar requirements as banks in filing reports of suspicious activity. Aggressiveness of crooks and prosecutors and the wide definition of "money laundering" has resulted in some big headlines over the past couple of years. Rogue U.S. financier Martin Frankel allegedly used a sophisticated money-laundering scheme to bilk insurance companies of $200-million. The founder of the International Boxing Federation was convicted on money-laundering charges in August, the same month onetime football star Art Schlichter was indicted on similar charges. Democrats have even accused Rep. Tom DeLay, the House majority whip, of money laundering in raising funds for Republican candidates and causes. Closer to the Tampa Bay area, the eclectic roster of people accused of money laundering ranges from the former longtime mayor of Belleair Beach to the former executive director of the Tampa Housing Authority to leaders of the Tampa-based church Greater Ministries International. The tales that have garnered the most attention, though, center on major banks burned by laundering scandals. The Bank of New York had to explain how a corrupt employee helped funnel more than $7-billion of supposed Russian Mafia money through the bank in more than 160,000 electronic transactions over four years. And Citigroup chief executive John Reed had to explain to Congress why his company's private banking roster is filled with such dubious international clients as Asif Ali Zardari, husband of a former prime minister of Pakistan who is in jail for corruption; Omar Bongo, president of the African nation of Gabon and the subject of a French corruption inquiry; the sons of a former military leader of Nigeria, Gen. Sani Abacha, one of whom has been charged with murder; and Jaime Lusinchi, a former president of Venezuela. One such Citibank customer, Raul Salinas, the brother of former Mexican President Carlos Salinas de Gortari, allegedly moved up to $100-million around in secret accounts in the mid-1990s. Defenders of the banks say the high-profile cases were anomalies traced to rogue employees who didn't follow the rules. "It's much more difficult now to launder money tried-and-true through an American bank unless you have someone in the inside," insists Byrne of the American Bankers Association. As Byrne points out, banks are more likely than ever to file a report with regulators whenever they suspect criminal activity. They also have more safeguards at their disposal. John Daly, owner of Americas Software in Miami, has signed deals with more than 50 financial institutions to buy his anti-money laundering software during the past four years. The latest version of his software can be customized to flag suspicious patterns in how transactions move in and out of an institution. The intensified scrutiny has had an impact, said Michael Matossian, director of regulatory risk management at First Union Corp. "There have been some visible failures, but banks . . . day in and day out, are remarkably adept at identifying potential instances of criminal activity," he said. Charles Intriago, publisher of Money Laundering Alert, a Miami-based newsletter, isn't about to let banks off the hook that easy. Intriago, a former federal prosecutor, contends there are egregious holes in the American line of defense against launderers, from the banks on down. He accuses government regulators of picking on easy targets, such as small check-cashing companies in Miami and out-of-country banks, while giving large U.S. financial institutions a free ride. Many U.S. banks have been fined from $20,000 to several million dollars but none has been indicted in the past 12 years on money-laundering charges; over the same period, the United States has sanctioned almost two dozen foreign banks from Yugoslavia, Israel Pakistan, Mexico and other countries. "There seems to be a double standard in this country," Intriago said. "The ugly American beats up on everyone and is not swallowing its own medicine." Intriago also challenges the Treasury Department to back up tough talk of enforcement. Regulators in 1996 said that by year-end, check-cashing companies would have to abide by the same filing requirements as banks when they suspect suspicious activity. The latest timetable for check-cashing companies to comply is January 2002, according to Vogt. It's unclear when and how other financial institutions, such as brokerage firms, will follow suit. Vogt acknowledges there are gaps in enforcement. But he is encouraged that the anti-money laundering campaign is hurting felonious financiers where they notice it most: the bottom line. Ten years ago, he said, criminals had to spend about 10 percent of their ill-gotten money just to launder the funds. Today, as launderers have been forced to become more sophisticated, the cost is closer to 20 percent of the total. "You're taking a bite out of the proceeds. You're making it more difficult," Vogt said. "But to eliminate money laundering, you'd have to eliminate crime, which isn't likely." -- Information from Times files was used in this report.
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From the Times Business report
From the AP
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