TESTIMONY OF WILMER "BUDDY" PARKER, III
My name is Wilmer Parker. I am known by my nickname Buddy Parker. I am presently a partner in the law firm of Kilpatrick Stockton LLP where my practice consists of both criminal and civil litigation. Prior to my entering into private practice in May 1997, I was a United States prosecutor for approximately 19 years; first as a trial attorney for the Criminal Section of the Tax Division of the U. S. Department of Justice here in Washington, D.C. from 1978 to 1983 and then as an Assistant United States Attorney ("AUSA")for the Northern District of Georgia in Atlanta. I served on the staff of many United States Attorneys', including that of the Honorable Bob Barr, now a current Member of this Committee.
I appear here today not only as a former prosecutor familiar with the enforcement of the Bank Secrecy Act, but also as a partner in a law firm which represents financial institutions. I have experience and insight into law enforcement interests in the current Bank Secrecy Act regime. I also have experience and insights from the financial institutions' perspectives regarding the Bank Secrecy Act. For the record, I have attached to my brief opening remarks a paper I previously prepared as an AUSA and one which I used in making a presentation of the evolution of drug money laundering prosecutions beginning in the 1970's with the enforcement of the Bank Secrecy Act. I request that my prepared remarks along with this paper be received as if read into the record.
Generally, I support the current statutory and regulatory aspects of the Bank Secrecy Act which collectively are the lynch pin to money laundering prosecutions of wealth derived from the underground economy. This economy which includes not only drug trafficking, but fraud, tax evasion, computer crime, racketeering and all other crimes motivated by greed, requires its participants to surface, this is to launder, their wealth (usually cash) from the underground economy to the above ground economy. This surfacing or placement of wealth brings the cash into contact with the financial system of the United States. That is, the cash is converted from dollars into an intangible property right reflected by an accounting entry of a credit (a deposit) on a bank statement. Once converted the illegal wealth may then be transported anywhere in the world at the speed of electricity via an electronic funds transfer or wire transfer from one bank account to another bank account.
Because the surfacing of wealth derived from specified unlawful activity via the world's financial system is so critical to effective money laundering, it is an appropriate activity for government to scrutinize. Further, it is perfectly reasonable for government to require financial institutions to report suspicious activities by customers which are inconsistent with lawful commerce. To suggest that access to banking records by government would only be permissible if probable cause of criminal activity is shown, is too extreme to protect reasonable expectations of customers' privacy. Our nation's financial system is not based on strict banking confidentiality. The financial data per se is not so sensitive that its disclosure to government constitutes a violation of an individual's privacy interests. I thank the Committee for its time. I will be glad to respond to any questions by the Members.
A SYNOPSIS OF MAJOR U. S. NARCOTICS
MONEY LAUNDERING PROSECUTIONS
(Circa 1978 - 1997)
Beginning in the late 1970's and with continued emphasis in the early 1980's, federal law enforcement agencies (principally the Internal Revenue Service and the U.S. Customs Service) initiated investigations based on the prevailing perception that the South Florida economy was awash in drug dollars. There was so much cash being used to conduct business transactions (both legal and illegal) that literally some customers of banks were having to use handcarts to assist in carrying the boxes full of currency into the banks. Together with the Treasury agencies, the U.S. Department of Justice assigned prosecutors to assist in the investigations and subsequent prosecutions of individuals and financial institutions who were identified as criminally violating the Bank Secrecy Act of 1970, Pub. L. 91-508, (codified at 12 U.S.C. 1829b, 12 U.S.C. 1951, et. seq., and 31 U.S.C. 5311-5326).(1) This task force was code-named Operation Greenback. Their efforts and others in the federal courts constitute the historical linchpin for today's current major narcotics prosecutions involving not only the BSA but more importantly the Money Laundering Control Act of 1986, Pub. L. 99-570 (principally codified at 18 U.S.C. 1956-1957 and hereinafter referred to as "MLCA").
There are only two ways facts or events can be discovered, historically or contemporaneously. In the area of law enforcement, and especially U.S. federal law enforcement, "cops" (law enforcement officers) are hired and trained based on "traditional" investigative methods for the specific criminal conduct the officer lawfully is empowered to investigate. Within the U.S. federal government prior to 1986 the officers who were recognized as having the greatest expertise in investigating financial crimes were by design agents of agencies empowered to enforce laws which regulated and controlled the flow of money; i.e., Internal Revenue Service (IRS) as to taxes (income, excise, inheritance, etc); the Federal Bureau of Investigation (FBI) (bank fraud, racketeering, etc.); (SEC) the Securities and Exchange Commission (securities fraud, stock market manipulation, etc.); U.S. Customs (imports and export duties). Congress empowered only IRS and Customs to investigate violations of the BSA. Consequently as IRS and Customs agents were traditionally trained to investigate historical facts, the initial BSA prosecutions of narcotics related money laundering involved in large part circumstantial theories of evidence. Because the evidence was premised on an analysis of the so called "paper trail", prosecutors sought to have greater jury appeal by charging not only any financial institution or its employees, but also the "customers" who caused the violations of the BSA.(2) As the U.S. Justice Department's narcotics related BSA prosecutions intensified, federal courts throughout the nation increasingly found inconsistent legal support for the government's theories of criminality.
The majority of BSA cases established that "customer" defendants may be criminally charged with violating the BSA when causing a financial institution to fail to file a CTR. United States v. Tobon-Builes, 706 F.2d 1092 (11th Cir. 1983), (defendant and companion together bought two $9,000 cashier's checks at each of ten banks during a six-hour period; actions by a customer that cause a financial institution to fail to file a CTR are criminal under 18 U.S.C. 2 and 1001); United States v. Puerto, 730 F.2d 627 (11th Cir. 1984), cert. denied, 469 U.S. 847 (1984); United States v. Heyman, 794 F.2d 788 (2nd Cir. 1986), cert. denied, 479 U.S. 989 (1986), (defendant employee of financial institution convicted of causing institution to fail to file CTR's, although defendant had no legal duty to file CTR's himself; liable under 31 U.S.C. 5313); United States v. Cure, 804 F.2d 625 (11th Cir. 1986), (bank customer guilty under 18 U.S.C. 371 of conspiring with bank not to file CTR's; guilty under 18 U.S.C. 2 and 1001 of causing bank to fail to file CTR's; multiple transactions at same bank, or different branches of same bank, on same day); United States v. Valdes-Guerra, 758 F.2d 1411 (11th Cir. 1985) (Operation Greenback prosecution); United States v. Giancola, 783 F.2d 1549 (11th Cir. 1986), cert. denied, 479 U.S. 1018 (1986), (same day, different branches of same bank; customer can be proximate cause of a bank's failure to file a CTR and thus liable); United States v. Thompson, 603 F.2d 1200 (5th Cir. 1979), (actions by a bank officer that causes a financial institution to violate its duty to file a CTR are criminal); United States v. Enstram, 622 F.2d 857 (5th Cir. 1980), cert. denied, 450 U.S. 912 (1981), (defendants, who participated in money laundering scheme to disguise drug proceeds are guilty of conspiracy to obstruct the IRS' tax collecting function and can be prosecuted for criminal conspiracy). Other cases established glaring loopholes in prosecuting drug money launderers vis-a-vis the BSA.
The First Circuit found in United States v. Anzalone, 766 F.2d 676 (1985) that the BSA reporting requirements applied only to the financial institution and the customer had no duty to disclose information and therefore was not liable under 18 U.S.C. 1001 or 31 U.S.C. 5313. Other cases which negated the government's ability to use the BSA in prosecuting narcotics money launderers included the following: United States v. Reinis, 794 F.2d 506 (9th Cir. 1986), (bank customer had no duty to report, thus no concealment and could not aid or abet a bank's failure to report CTR's; no duty on banks to aggregate multiple transactions under $10,000); United States v. Larson, 796 F.2d 244 (8th Cir. 1986), (the BSA imposed no duty to customer to disclose to bank that his multiple currency transactions aggregated over $10,000; thus the customer was not guilty of concealing such information from the government); United States v. Denemark, 779 F.2d 1559 (11th Cir. 1986), (the customer was not guilty of the BSA as there was no duty on any financial institution which was involved in only one sub-transaction of what was a multiple transaction in excess of $10,000); United States v. Dela Espriella, 781 F.2d 1432 (9th Cir. 1986), (multiple transactions, each under $10,000 and each at a different bank, do not trigger duty to file a CTR; however, one defendant, a kingpin of an intricate money laundering operation who delivered cash in excess of $10,000 to his couriers, qualified as a "financial institution" and therefore had a duty to file a CTR); United States v. Mastronardo, 849 F.2d 799 (3rd Cir. 1988), (pre-1986 statutes and regulations did not afford "fair notice" to bank customer that "structuring" violated the BSA - defendants were charged with engaging in a multimillion dollar bookmaking and money laundering operation).
As prosecutors faced greater uncertainty in the use of the BSA to prosecute drug money launderers, a welcomed policy shift occurred within the government. Not only would IRS and Customs investigate potential BSA violations from a historical perspective, but they would also engage in covert or undercover investigations. Furthermore, in the ever increasing commitment to fight the "war on drugs" the U.S. Department of Justice, by and through its lead drug agency, the U.S. Drug Enforcement Administration (DEA), and the FBI would also orient their undercover investigative efforts to identifying and prosecuting narcotics money launderers.
Pizza Connection Case
One of the most revealing cases concerning the magnitude of the narcotics money laundering problem was documented in the government's investigation and prosecution of the so-called Pizza Connection case. Not only was this case significant in terms of its scope, but it also highlights the cooperation between Italian and U.S. law enforcement officers. The U.S. trial involved some twenty-one defendants who were tried in the Southern District of New York over a seventeen month period. On October 11, 1989, the Second Circuit upheld the convictions of sixteen defendants in its opinion cited at 887 F.2d. 1941 as United States v. Casamento, et al. In-the-main the facts proven at trial reflected that a drug trafficking and money laundering conspiracy existed among individuals supplying morphine base from Turkey via Sicily to cities in the United States. In addition to the transportation function, the conspiracy also had a distribution function which was staffed by members of the American Mafia. As cash was received in exchange for the drugs, the evidence reflected that the conspiracy caused the proceeds to be accumulated in pizza parlors and then either smuggled out of the country in suitcases or, "... laundered through a maze of bank accounts". The smuggled currency was deposited into Swiss bank accounts and then wire transferred to Italian banks. It was absolutely clear from the evidence that the narcotics violations had as an integral part of their success the laundering of the cash.
In the early 1980's a DEA Special Agent of the New York Division developed a confidential informant who introduced him (the special agent) as a banker to suspected narcotics money launderers. The facts discovered and developed by the DEA in its two year covert drug money laundering investigation resulted in a significant development of the law under the traditional drug conspiracy statute, 21 U.S.C. 846; in United States v. Orozco-Prada, 732 F.2d 1076, 1080 (2nd Cir.), cert. denied, 469 U.S. 845 (1984).
The government documented that Mr. Orozco headed a purported business called Cirex International which between 1978 and 1982 laundered more then $150 million in cash. Through the undercover efforts of the DEA agent posing as a bank officer of a major New York bank, the government discovered that once the cash was received from various cities in the United States it was deposited into different bank accounts maintained by Mr. Orozco in his own name, in the names of others and in the names of purported Panamanian "shell corporations". "The money was then rapidly transferred into other accounts and ultimately outside the country", Orozco, supra, at 1079.
The government charged Eduardo Orozco not only with conspiracy to defraud the United States by causing CTR's not to be filed, but also with violating the general drug conspiracy statute; 21 U.S.C. 846. In upholding the legal ability to prosecute Mr. Orozco under the drug statutes for his role as a money launderer the court stated;
The indictment alleges that the means used by Eduardo Orozco and others to further the conspiracy was to provide "a money laundering service involving currency deposits and check and wire transfers." Eduardo Orozco argues that simply dealing in the cash proceeds of transactions involving controlled substances is not a violation of Section 841 and that, therefore, Count One fails to charge a conspiracy to violate this provision.
We find that this argument, on this record, has no merit.
As we stated in United States v. Barnes, 604 F.2d 121, 154-55 (2d Cir. 1979), cert. denied, 446 U.S. 907, 100 S. Ct. 1833, 64 L. Ed. 2d 260 (1980),
Importers, wholesalers, purchasers of cutting materials, and persons who "wash" money are all as necessary to the success of the venture as is the retailer. They can all be held to have agreed with one another in what has been called a "chain" conspiracy.
Similarly, in United States v. Perry, 643 F.2d 38, 44 (2d Cir.), cert. denied, 454 U.S. 835, 102 S. Ct. 138, 70 L. Ed. 2d 115 (1981), the majority held that defendants who "agreed to distribute diluents with the intent that they be mixed with heroin and distributed by one or more heroin networks" could be convicted "under 21 U.S.C. §846 of conspiring to violate 21 U.S.C. §841 by aiding and abetting the distribution of heroin." The court stated that "the knowing supply of a raw material necessary for the commission of a crime by another constitutes aiding and abetting that crime." And, in United States v. Rush, 666 F.2d 10, 11 (2d Cir. 1981) (per curiam), we held that an individual who "supplied the cash which made the illegal venture possible" could be convicted of conspiring to import marijuana into the United States with intent to distribute it. Read in conjunction, these cases stand for the proposition that an agreement to engage in actions that are integral (sic) to the success of a drug venture prohibited by 21 U.S.C. §841 - such as laundering proceeds, or supplying cash or raw materials - violates 21 U.S.C. §846 as a conspiracy to aid and abet the distribution of controlled substances.
Orozco, supra at 1080.
The Orozco-Prada theory of prosecution of money launderers for drug violations was further extended in a Los Angeles based prosecution of a Harvard educated entrepreneur, Oscar Cuevas, who was convicted of conspiracies to possess and distribute cocaine and to violate federal currency reporting laws, as well as 13 substantive counts of causing the failure to file CMIR's in violation of 18 U.S.C. 1001. The facts presented at trial indicated that between 1983 and 1985 Mr. Cuevas had assisted Los Angeles based co-conspirators in removing approximately 123 million dollars from the United States to England and Switzerland. CMIR's were not filed with Customs as the currency was physically transported by couriers flying commercial flights to Zurich and London.
The U.S. government proved that the currency was drug dollars derived from a U.S. based narcotics conspiracy. Mr. Cuevas' central role involved his meeting the money couriers in London and Zurich, receiving the cash and causing it to be deposited into banks from which wire transfers redirected the money to Miami bank accounts. As noted by the Ninth Circuit, "[b]etween June and November 1984, Cuevas deposited at least $19 million in small denominations U.S. currency at Citibank, London; [i]n November 1984, believing that Cuevas' deposits were illegally obtained, Citibank terminated the relationship with him[;] [t]hereafter, Cuevas deposited $4.4 million in cash at Republic National Bank, London." United States v. Cuevas, 847 F.2d 1417, 1420 (9th Cir. 1988), cert. denied, U.S. , 109 S. Ct. 1122 (1989).
On appeal Mr. Cuevas did not contest that the government had proved a narcotics conspiracy, only that the government failed to prove that he knew that the cash he was handling was derived from the narcotics conspiracy. As noted, however, the Ninth Circuit found that "[o]nce the government has proved that a narcotics conspiracy exists, `evidence of only a slight connection (sic) is necessary to convict a defendant of knowing participation in it,' United States v. Arbelaez, 719 F.2d 1453 (9th Cir. 1983) (citing United States v. Kenny, 645 F.2d 1323, 1335 (9th Cir.), cert. denied, 452 U.S. 920, 101 S. Ct. 3059, 69 L. Ed. 2d 425 (1981) (emphasis added)," Cuevas, supra at 1422-1423. The court thereafter detailed a litany of facts which it cited as providing the "slight connection". Such facts included inter alia activities which the 1984 President's Commission on Organized Crime found provided strong indicia of narcotics-related money laundering.
The court cited with favor the Commission's finding:
The President's Commission on Organized Crime observed:
Narcotics traffickers ... often seek to change large amounts of cash received from `street level' sales into an ostensibly legitimate form, such as business profits or loans, before using those funds for personal benefit or reinvesting them in new narcotics purchases and distribution ... Law enforcement agencies recognize that narcotics traffickers, who must conceal billions of dollars in cash from detection by the government, create by far the greatest demand for money laundering schemes.
The Cash Connection: Organized Crime, Financial Institutions, and Money Laundering, at 7 (Interim Report, Oct. 1984).
The Commission further observed that, "a narcotics trafficker who wishes merely to increase the immediate portability of his cash receipts can simply exchange smaller-denomination bills (e.g., one-, five-, and ten-dollar bills) for repeatedly larger-denomination bills. [O]rganized crime today uses banks and other financial institutions as routinely, if not as frequently, as legitimate businesses." Id. at 8. Finally, the Commission has noted that, "[s]ome $5-$15 billion of the $50-$70 billion in illegal drug money earned in the United States probably moves into international financial channels each year." Id. at 13. Other indicia of narcotics trafficking identified by the Commission include setting up "shell corporate entities," using couriers to avoid filing currency reports, and converting small-denomination bills into larger-denomination bills. Id. at 37. Cuevas' activities include all of those mentioned.
Cuevas, supra at 1424, fn. 19.
Thus, the Cuevas court judicially recognized a narcotics money laundering profile based on the activity described by the President's Commission on Organized Crime. The President's Commission on Organized Crime Report cited by the Cuevas court was published in 1984. It's findings however as to modus operandi of international drug money laundering are by and large still accurate as evidenced by the C-Chase and Polar Cap investigations and prosecutions, infra.
Hernando Ospina Case
The narcotics money laundering profile documented on the U.S. West Coast in the Cuevas case was confirmed through an Operation Greenback undercover investigation conducted in 1984 by U.S. Customs and IRS in Miami. The undercover agents posed as persons who had a "connection" with a banker and could cause large sums of cash to be deposited in a Miami based bank without any CTR's being filed. Mauricio Lehrer who owned Velez Tours, a travel agency, agreed to use the agents' services. The government agents received the cash from Lehrer, bought cashier checks in excess of $10,000 from Flagship Bank identifying themselves as government agents (no CTR's were filed), and delivered the checks to Lehrer who then caused them to be deposited into a Miami bank. The bank then wire transferred the proceeds to a Grand Cayman branch of the Costa Rican bank, BAC International.
In upholding Mr. Lehrer and others' convictions for violating 18 U.S.C. 1001, the Eleventh Circuit in United States v. Hernando Ospina, 798 F.2d 1570 (1986) stated,
The evidence is clear that Flagship did not file CTR's because Velasco and Abalia identified themselves as government agents and, therefore, from Flagship's perspective they thought it was an exempt transaction. However, regardless of what Flagship may have thought, the transactions were not exempt because they were conducted by the agents on behalf of the appellants, not the government. The money did not belong to the government, nor did the government make these transactions in the normal course of government business, which we find is the type of transaction this exception applied to. Id. at 1579.
This legal reasoning was later relied on by the Tampa District Court in the C-Chase prosecution, infra in denying a motion to dismiss a MLCA prosecution which argued that once government undercover agents took control of the drug "proceeds" the dollars lost their factual character of being "proceeds of specified unlawful activity" and therefore there was no MLCA violation. As noted in the Hernando Ospina case, by 1984, Greenback agents were involved in undercover work. DEA and the FBI consequently shifted their drug investigative emphasis to include money launderers based in large part on the Orozco-Prada theory of narcotics prosecution, i.e., conspiracy to violate the drug laws.
As the U.S. Justice Department Agencies continued their efforts in developing expertise in investigating drug money launderers, Congress passed the MLCA explicitly granting jurisdiction to the Justice Department to investigate violations of 18 U.S.C. 1956 and 1957. This jurisdictional "hurdle" having been "cleared", by 1986, the government's four premium law enforcement agencies (DEA, FBI, IRS and Customs) were equally empowered to fight the "war on drugs" by not only investigating the importation and distribution of narcotics, but also by "working the money end" of the business. Examples of subsequent narcotics investigative efforts by the U.S. officials are best exemplified by the prosecutions undertaken pursuant to Operations Pisces, Expressway, C-Chase, Polar Cap, Green Ice, Primero and Dinero.(3)
Operation Pisces was an investigation conducted by the Los Angeles and Miami offices of the DEA. Pursuant to authorization from the Attorney General, DEA was allowed to further its undercover investigative efforts by actually "laundering" drug dollars. The investigation determined that large amounts of currency would be delivered by "runners" to undercover government agents posing as money launderers. The undercover government agents had been introduced by confidential informants to Colombian narcotics traffickers who had negotiated a percentage of the currency laundered with the DEA agents. The government agents were selling their services of being able to deposit the currency into the American banking system in a manner which avoided the filing of CTR's. The owners of the money (the Colombian narcotic smugglers) contracted with Colombian money launderers who in turn caused the "runners" to deliver the cash to the Los Angeles and Miami based agents. The cash had been derived from the importation and wholesale transfer of multiple kilograms of cocaine by Colombian narcotic traffickers to American distributors. The government undercover agents, pursuant to instructions from the Colombian drug money launderers, caused the cash to be deposited into U.S. banks and then wire transferred to bank accounts located in Panama. These accounts were maintained in "shell corporation" names. Prosecutions of the MLCA violators were brought in both Miami (United States v. Lopez-Chacon et al., 886 F.2d 1324 (1989) and Los Angeles (United States v. Escobar, et al., 87-216-CR (C.D. Cal. 1987)).
The FBI likewise initiated a similar investigation in their Operation Expressway. Posing in an undercover capacity, FBI agents in 1986 and 1987 assisted Colombian drug money launderer Carlos Restrepo in laundering millions of drug dollars by and on behalf of the notorious Medellin drug cartel. Mr. Restrepo was lured to Miami during the summer of 1987 where he was arrested. His prosecution occurred in New Haven, Connecticut and involved using RICO (the Racketeer Influence Corrupt Organization) statutes (18 U.S.C. 1961 et seq.), by using Section 1956 of the MLCA. United States v. Restrepo, et al., 1989 W.L. 4292. The evidence at trial indicated that, at Mr. Restrepo's direction, over $16 million in a seven month period was delivered to FBI agents who in turn laundered the money. As found in Pisces, the currency was at Restrepo's direction wire transferred to bank accounts in Panama. These accounts were again accounts of "shell corporations". Following his convictions, Mr. Restrepo appealed to the Second Circuit which in an unpublished opinion upheld his 40 year sentence by finding, inter alia, that the 1956 convictions were constitutional and supported by sufficient evidence that the cash was "proceeds of drugs", United States v. Restrepo, No. 89-1163, unpublished opinion (filed August 21, 1989), citing United States v. Kimball, 711 F. Supp. 1031, 1034-35 (D. Nev. 1989); United States v. Mainieri, 691 F. Supp. 1394, 1397 (S.D. Fla. 1988).
In late Fall of 1986, Tampa U.S. Customs undercover agents met Gonzalo Mora, Jr., a resident of Medellin, Colombia. The purpose of the meeting was to arrange for the undercover agents to collect drug proceeds and cause them to be deposited into a financial institution where they would be wire transferred. The drug dollars were to be collected in Los Angeles, Miami and New York. The money laundering scheme was designed to use the Tampa office of BCCI, Bank of Credit and Commerce International, then one of the ten largest banks in the world. The continuing investigations lead the U.S. government agents to Los Angeles, Detroit, New York, Miami, London, Paris, Panama City and elsewhere. Law enforcement authorities in the United Kingdom, France and Italy cooperated with U.S. authorities. In October 1988, pursuant to a grand jury indictment, Operation C-Chase was made known to the public.
The government charged numerous bank officers and BCCI with MLCA violations, conspiracy to violate the MLCA and with 21 U.S.C. 846 - conspiracy to aid and abet a narcotics conspiracy vis-a-vis the laundering of the drug dollars. United States v. Awan, 966 F.2d 1415 (11th Cir. 1992). The government based the narcotics conspiracy on the Orozco-Prada theory, supra. BCCI Tampa's office was seized pursuant to forfeiture orders under 21 U.S.C. 853, which provides for criminal forfeiture of property of defendants who violate the drug laws, including the drug conspiracy statute. In exchange for the "unseizing" of the bank, $14 million was posted as a bond (the amount of money laundered during the undercover operation). In January of 1990, BCCI entered into a negotiated plea agreement with the government and pled guilty to MLCA violations. Despite an agreement which called for the bank to forfeit the $14 million plus interest, (the largest "fine/forfeiture" ever of any bank convicted of money laundering) certain members of Congress criticized the plea as being a "sweetheart deal". Trial of the BCCI bankers from Panama City, Paris and Tampa started on January 22, 1990. The jury received the case on July 19 and returned its guilty verdicts on July 29, 1990. The bankers received fifteen year sentences.
Although the prosecution was noteworthy in many respects, Judge Hodges in a pre-trial order found and ruled that since the passage of the MLCA, an Orozco-Prada theory of money laundering prosecution was no longer available to the government. Specifically, the court held,
The Government is put on notice, however, that this Court does not intend to allow it to prove a conspiracy under 21 U.S.C. §846 solely by evidence adduced at trial that defendants may have laundered drug proceeds. While it is true that a line of cases has permitted the prosecution of money laundering under the guise of conspiracy to aid and abet narcotics activity, those cases cited by the parties predate the enactment and/or effective date of the money laundering statute or are otherwise factually distinguishable. The Court finds no suggestion in the statutory language or the legislative history of the Act to indicate that Congress intended to permit money laundering (without additional narcotics activity) to be punished under both Title 21 conspiracy law and the Act.
True to his word, Judge Hodges dismissed the drug conspiracy count following the government resting its case.
Operation Polar Cap
On March 29, 1989, then U.S. Attorney General Thornburgh announced the unsealing of an Atlanta indictment which charged Pablo Escobar, Jorge Ochoa, Gustavo Gaviria, Gerardo Moncada and others collectively referred to as the Medellin Cartel (hereinafter Cartel) with federal drug and money laundering violations. The indictment alleged that the Cartel used Banco de Occidente (Panama) S.A., a Panamanian subsidiary of Banco de Occidente (Cali) S.A., with aiding and abetting the Cartel in laundering millions of dollars of drug proceeds, i.e., an Orozco-Prada theory of prosecution. This announcement was presented as the "culmination of `Operation Polar Cap' a lengthy federal investigation into a billion dollar money-laundering ring with direct link to the Colombian Medellin Cartel."
General Thornburgh also in announcing the Atlanta indictment indicated that the U.S. Attorney for the Southern District of New York had filed a civil suit ... "asking the court to freeze money from Phase I of the investigation and return that money to the United States for purposes of civil forfeiture." Previously on February 22, 1989, General Thornburgh and Secretary Brady of the U.S. Treasury Department, announced the " ... culmination of the largest drug money-laundering investigation ever conducted by United States law enforcement agencies ... ," Phase I of Operation Polar Cap. The investigation was jointly conducted by all four major federal agencies, FBI, U.S. Customs, DEA and IRS, without any agency being designated the lead agency.
Phase I represented the arrests of defendants in Los Angeles, New York, Miami and Houston and the seizure of millions of dollars of assets. Two prosecutions were filed in the Central District of California against these defendants, United States v. Andonian, et. al., No. Cr. 89-190-WDK (C.D. Cal.) and United States v. Koyomejian, et. al., 970 F.2d 536 (9th Cir. 1992). As reflected in the Atlanta indictment, United States v. Escobar, et. al., No. Cr. 89-086-WCO (N.D. Ga.), the Los Angeles defendants were collectively referred to by the Colombians as "LA MINA" - the Mine.
As noted by General Thornburgh, the drug money laundering organization was "... allegedly controlled and directed primarily from two wholesale jewelry companies, Ropex Corporation and Andonian Brothers Manufacturing Company, both located in the Los Angeles Jewelry Mart on South Hill Street in Los Angeles." Further, according to court documents, over a two to three year period, large shipments of currency totaling hundreds of millions of dollars were delivered to Andonian Brothers, Inc., and Ropex on a regular basis from purported gold and jewelry businesses located in Los Angeles, New York and Houston.
The purported gold and jewelry businesses were "fronts" whose primary purpose was to take in enormous sums of drug-generated cash. The cash deliveries to the "store fronts" were boxed and shipped cross-country via armored car to Andonian Brothers, Inc., and Ropex. One such shipment of $4.8 million was seized by federal agents in New York City in January, 1989.
In addition to receiving cash from around the country, both Ropex and Andonian Brothers, Inc., reportedly accepted sizeable amounts of "walk-in" cash from local drug traffickers. As alleged in the criminal indictments returned in Los Angeles, the money was counted by their employees and then deposited in bank accounts around the country. The money was ultimately wire transferred to bank accounts in South America and Europe under the guise of legitimate business transactions.
Phase II of Operation Polar Cap resulted in arrests and seizures in the San Jose, California area. These defendants were directly linked to the Los Angeles La Mina defendants.
With the announcement of Phase III of Operation Polar Cap, U.S. correspondent bank accounts of Atlanta defendant Banco de Occidente (Panama) S.A., (hereinafter BOP) were "frozen". The "freezing" of the accounts was made pursuant to an ex parte application of the government under 21 U.S.C. 853(e) seeking pretrial restraint of "substitute assets" of defendant BOP. Within a 48 hour period, approximately $20 million was "frozen".
Also, DEA agents discovered information which identified additional liquid assets of BOP located in Canada, Switzerland and Germany. With assistance from these governments an additional $60 million of BOP funds had been "frozen" by the end of April, 1989. As a result, and in order to avoid bankruptcy, BOP negotiated guilty pleas with Atlanta. On August 14, 1989 General Thornburgh announced the first international sharing of seized drug trafficking profits.(4)
Phase IV - Following the Los Angeles indictments, Letters Rogatory were issued by the California U.S. District Court to the judicial authorities in Uruguay seeking the production of bank account records of Letras, S.A./Cambio Italia, entities created by the La Mina organization to facilitate its drug money laundering activities. The accounts in Montevideo were maintained at six banks all of which were the subjects of the New York civil suit.
On October 17, 1989, the Colombian government seized records from a ranch owned by Cartel member Rodriguez Gacha. These records were released to the U.S. An analysis of these records led to the eventual seizure of $121 million in bank accounts located in Switzerland, the United Kingdom, Luxembourg, Austria, the United States and Panama, together with currency seizures in Colombia. The monies maintained in these accounts were in nominee names. Further, DEA determined that that $40 million of Gacha's drug money was laundered through La Mina.
The U.S. obtained bank records of La Mina from Panama. The records of BOP accounts traced directly to the Ronel accounts were analyzed. These accounts were controlled by Eduardo Martinez and others on behalf of the Cartel. Based on these records, freezing orders were issued against 1,035 U.S. domestic bank accounts which received from the Panama BOP accounts the laundered drug proceeds. That is, a portion of the drug money was directly traced from the New York Ronel accounts into the Panama BOP accounts only to return to the U.S. into yet new accounts. Later, the U.S. government dismissed its freezing actions based on determinations that the owners of the U.S. bank accounts had unknowingly purchased the drug dollars through the underground black/parallel market for currency exchange. See United States v. Eighty-Eight (88) Designated Accounts Containing Monies Traceable To Exchanges For Controlled Substances, 740 F.Supp. 842 (S.D. Fla. 1990).(5)
Phase V - As a result of leads developed through previous phases of Polar Cap, in November 1991, RICO and drug money laundering charges were brought against Stephen Saccoccia and others in Providence, Rhode Island. Additional indictments were returned in Los Angeles, Miami and Atlanta. The evidence indicated that Saccoccia was responsible for laundering over $137 million from late 1986 until his arrest in Switzerland in November 1991. As the de facto owner and manager of several corporations ostensibly engaged in the business of buying, selling, and refining gold and other precious metals in Rhode Island, New York and California, Saccoccia managed a sophisticated money laundering scheme.
In-the-main, large volumes of cash would be delivered by courier to Saccoccia in New York City. In accordance with faxed instructions, much of the cash would then be shipped by armored car or private vehicle, to either of two companies owned by Saccoccia in Cranston, Rhode Island: Trend Precious Metals (Trend) and Saccoccia Coin Company. These two companies together constituted the headquarters for the Rhode Island branch of the organization. In 1990 and early 1991, such shipments occurred almost daily and would typically contain hundreds of thousands of dollars in small denominations. Once in Rhode Island, the money would be counted on an automatic counting machine and sorted. Pursuant to Saccoccia's instructions, it would then be taken to area banks and used to purchase cashier's or treasurer's checks. These transactions were frequently "structured" so that the amounts were less than $10,000 - a device designed to avoid the filing of a Currency Transaction Report. On other occasions, when the purchases exceeded that amount, the defendants caused false reports (or no reports at all) to be filed. The checks were made payable to Trend or other dummy companies controlled by Saccoccia businesses ostensibly engaged in such trades as gold or jewelry that would be expected to generate large quantities of cash. The checks would be deposited in those companies' accounts, and the funds later transferred to a central account maintained by Trend at a Providence bank. From there, the money would be wired to bank accounts in Colombia and elsewhere, including Europe. Saccoccia was convicted and sentenced to 660 years in prison and ordered to pay a fine of $15,700,000.
Operation Green Ice
On September 28, 1992, law enforcement authorities from the United States, Colombia and Italy announced the arrests of over 165 individuals, the seizure of multiple kilograms of cocaine, and the seizure of millions of drug tainted dollars, all related to the laundering of money from sales of cocaine by the Sicilian Mafia and the Colombian Cali Cartel. Operation Green Ice was yet another coordinated effort among law enforcement authorities to bring to justice narco-traffickers and their money launderers. As reported, the investigation involved undercover penetration by DEA agents and others of drug money laundering organizations servicing both the Sicilian and Colombian criminal organizations. As with Operation Polar Cap, the modus operandi of DEA penetration resulted from drug money "pick ups" in the United States and the subsequent monitoring of the "laundered" proceeds. The prosecution of Green Ice cases in the United States is pending in San Diego, California.
In late June, 1994, U.S. authorities in Atlanta, together with French authorities in Paris, announced the arrests of over 70 people involved in the laundering of Colombian Cali Cartel's drug proceeds. Initiated by Atlanta U.S. Customs agents, Operation Primero involved a two year investigation which led law enforcement authorities from the drug money centers of the U.S. (Miami, Houston, Los Angeles and New York) to Madrid, Rome, Milan and Paris. In addition to confiscating over $15 million in drug proceeds, multiple kilograms of cocaine were also seized.
On December 16, 1994, DEA Administrator Thomas Constantine and IRS Commissioner Margaret Richardson announced Operation Dinero, the culmination of a two-year joint enforcement drug money laundering operation coordinated among DEA, IRS, FBI, INS and international law enforcement counterparts in the United Kingdom, Canada, Italy and Spain. Operation Dinero resulted in 88 arrests, the seizure of approximately 9 tons of cocaine, as well as over $50 million in cash and other property, including masterpieces of art by Peter Paul Reubens, Pablo Picasso and Sir Joshua Reynolds. The investigation, which started in Atlanta, involved the first use of an undercover bank authorized by the United Kingdom and operated by Atlanta DEA and IRS personnel.
The first phase of the operation focused on undercover money pickups that identified the connection between drug trafficking and drug cell money groups in the United States. The second phase focused on the operation of a private "Class B" bank established in Anguilla, British West Indies. Once the bank became operational, DEA worked undercover to promote the bank's services within the international criminal community, including the Cali Mafia in Colombia and the Italian Mafia.
As a result of opening accounts for various Colombian drug trafficking and money laundering organizations, DEA gained a wealth of knowledge concerning methods used by the traffickers. Through a review of the documentation surrounding the monies coming into the account and orders for disbursements, DEA gained intelligence that led to related investigations in other jurisdictions throughout the United States and abroad.
Two European investigations were also initiated as a result of Operation Dinero. First, Dinero targeted the criminal network of the Locatelli organization which operated in France, Romania, Croatia, Spain, Greece, Italy and Canada. This Italian Organized Crime Organization head by Pasquale Locatelli was directly linked to the Cali Mafia. Locatelli was serving a 20 year sentence for drug distribution in a French prison, when he escaped by helicopter in a dramatic shootout with French officials. On September 6, 1994, however, Locatelli was arrested in Spain. In addition, the Italian and Spanish investigation of this organization resulted in the arrest of numerous mafia organized crime subjects in Italy, as well as key individuals in Spain.
The Locatelli organization used ships off the coast of Colombia to pick up drugs that were transported near the coast of North Africa, where smaller boats were sent out from Southern Europe to intercept the shipments. Further, a vessel tied to the organization was intercepted by NATO forces suspecting that the ship was smuggling arms in violation of the United Nations arms embargo. The ship was then taken to an Italian port and searched. Two of the eighty-one containers seized were opened and small arms and ammunition were discovered.
The second Italian investigation involved the Severa organization which delivered approximately $1 million in drug proceeds to undercover operatives. Investigations also uncovered three supermarkets and a car rental business in Rome used to launder drug money.
DEA Administrator Constantine stated the laundering of illegal drug profits is essential to a drug trafficking organization. The worldwide achievements of Operation Dinero have assured the Cali Mafia and other drug trafficking groups that it will not be business "as usual." "This serves as a warning that DEA and our law enforcement colleagues have the will and the investigative expertise to attack the most sophisticated and ruthless drug trafficking organization--wherever they exist," said Administrator Constantine. - wide underground economy.
1. The Bank Secrecy Act of 1970 imposes a current duty on financial institutions to file with the IRS a Currency Transaction Report (CTR) whenever a customer conducts a financial transaction involving in excess of $10,000. Also, a person entering or departing the territory of the United States and transporting in excess of $10,000 has to file a similar report (Currency Monetary Instrument Report or CMIR) with the U.S. Customs Service declaring the transportation of such currency. Under the BSA, Congress delegated to the Secretary of Treasury the responsibility of imposing rules and regulations on financial institutions to maintain records and file reports of financial transactions that the Secretary determines to have a high degree of usefulness in criminal, tax and regulatory matters. The Secretary has promulgated the record and reporting rules in 31 CFR Part 103.
2. The legal duty to file a CTR is on the financial institution, not the "customer" who caused the currency transaction to be consummated. California Bankers Association v. Schultz, 416 U.S. 21 (1974).
3. The MLCA created criminal sanctions for money laundering of proceeds from a "specified unlawful activity," a term of art which includes not only narcotics trafficking, but almost all felony violations of U.S. law; e.g., fraud, racketeering, illegal arms trading, extortion, bribery, etc. It is the "specified unlawful activity" (the predicate offense) that generates the proceeds of the putative defendant's primary criminal conduct which later is "laundered." See G. Richard Strafer, Money Laundering: The Crime of the 90's, 27 Am. Crim. L. Rev. 149 (1989).
4. Various defendants charged in Los Angeles and Atlanta either pled guilty or were tried and convicted. The Andonian brothers were convicted and sentenced each to 500 years imprisonment.
5. At least one commentator criticized the unprecedented freezing order sought by the U.S. government. Alan S. Fine, Of Forfeiture, Facilities and Foreign Innocent Owners: Is A Bank Account Containing Parallel Market Funds Fair Game?, 16 Nova L. Rev. 1125, 1160 (1992). However, in other Polar Cap initiated bank account seizures, the U.S. government was successful in confiscating the drug proceeds despite the bank account owners' claims that they innocently purchased the drug proceeds on the parallel market. United States v. All Funds, 801 F. Supp. 984 (E.D. N.Y. 1992) and United States v. All Monies, 754 F. Supp. 1467 (D. Hawaii 1991).