September 2007 - cypherpunks-legacy

ATMs Become Handy Tool For Laundering Dirty Cash
by R.A. Hettinga 21 Sep '07

21 Sep '07

<http://online.wsj.com/article_print/SB119033266947734601.html> The Wall Street Journal PAGE ONE WASH CYCLE ATMs Become Handy Tool For Laundering Dirty Cash With Small Deposits, Couriers Outwit Banks; Bag of Money in Queens By MARK SCHOOFS September 21, 2007; Page A1 At 8:50 a.m. on March 15, 2006, Luis Saavedra and Carlos Roca began going from bank to bank in Queens, New York, depositing cash into accounts held by a network of other people, according to law-enforcement officials. Their deposits never exceeded $2,000. Most ranged from $500 to $1,500. Around lunchtime, they crossed into Manhattan and worked their way up Third Avenue, then visited two banks on Madison Avenue. By 2:52 p.m., they had placed more than $111,000 into 112 accounts, say the officials, who reconstructed their movements from seized deposit slips. Confederates in Colombia used ATM cards to withdraw the money in pesos, moving quickly from machine to machine in a withdrawal whirlwind, the officials say. "The organization at its height was moving about $2 million a month," estimates Bridget Brennan, Special Narcotics Prosecutor for New York City. Messrs. Saavedra and Roca were arrested in June and charged under state money-laundering laws. Officials say they were moving money for a Colombian drug-trafficking organization that sells cocaine and the club-drug Ecstasy. Prosecutors say the two men engaged in a laundering practice called "microstructuring," a scheme notable for its simplicity. To evade suspicion by banks, they always made small deposits. In Colombia, getting at that money was as easy as pushing buttons on an ATM. Microstructuring has emerged as a vexing challenge for law-enforcement officials charged with stanching the illegal movement of money by drug traffickers, terrorists and organized-crime rings. The deposits and withdrawals are so small they can pass for ordinary ATM transactions. It's an extreme variation of a practice sometimes called "smurfing" -- the breaking down of large transactions into many smaller ones to evade detection by financial regulators. That activity was criminalized by Congress in 1986. When the money deposited by Messrs. Saavedra and Roca was withdrawn in Colombia, it was effectively laundered. It was in local currency, cash that was virtually impossible to trace. New York officials decline to identify the drug-traffickers connected to the case because their investigation is continuing. This month, Mr. Saavedra, 41 years old, pleaded guilty to second-degree money laundering and faces prison time. Mr. Roca, 20, has pleaded not guilty. His former attorney, Alex Grosshtern, says he lived with his parents until his arrest. "If anything," says Mr. Grosshtern, "he's a very small cog in a potentially very big scheme." Immigration and Customs Enforcement agent Salvatore Dalessandro estimates that the El Dorado task force, a multiagency anti-money-laundering unit that he runs out of New York, has indicted or convicted about 25 people this year alone for using microstructuring schemes to launder money. "We're talking millions and millions of dollars" laundered through microstructuring, he says. Linked networks of ATMs have made it easier than ever to move money around the globe. The number of ATMs in Colombia, for example, more than doubled between 1995 and 2000, rising from 2,238 to 5,520, according to the Banking Association of Colombia. The International Monetary Fund has estimated that between 2% and 5% of the world's gross domestic product -- between $962 billion and $2.4 trillion based on 2006 GDP data from the IMF -- is laundered world-wide every year. Experts say much of it flows through the U.S. financial system. Law enforcement has been hard pressed to keep up with money-laundering schemes, which criminals use to make proceeds from illegal activities appear legitimate. Authorities rely heavily on banks, which are required to report all cash transactions larger than $10,000 and to institute "know your customer" procedures to ferret out money laundering and other suspicious activity. Drug dealers, in particular, have lots of cash they want to slip surreptitiously into the banking system. Colombian traffickers want much of their money in Colombian pesos, so the cash they collect in the U.S. and Europe has to be converted. Many money-laundering schemes are complex, employing layers of transactions to move money through multiple countries to obscure the trail. In the past, bank officials used the government-mandated $10,000 cash threshold, among other things, to trigger reviews. But over the years, and especially after Sept. 11, 2001, the industry has turned to computer programs designed to detect unusual patterns of activity by individual customers. Money launderers now appear to be trying to avoid detection by moving money in ever smaller chunks. "Where it used to be six-, seven-, eight-thousand-dollar deposits to avoid the $10,000 limit, now I see" deposits of less than $1,000, says Frank Di Gregorio, a veteran money-laundering investigator with the Queens district attorney and the El Dorado task force. "Within the last two years is when I started to see...the amounts go down into the hundreds." The small transaction amounts constitute "the ingenuity of this particular enterprise," says Ms. Brennan, whose office is prosecuting Messrs. Saavedra and Roca. "Even if you pick up on it, here's a guy who made three $800 deposits. So what?" Banks are catching on. Because microstructuring usually involves deposits in the U.S. and withdrawals overseas, it isn't hard for banks to program their anti-money-laundering software to detect it. Withdrawals often follow distinctive patterns, such as occurring just before and just after midnight to outwit daily withdrawal limits. Agents with the El Dorado task force say financial giant Citigroup Inc. raised red flags early and aggressively by filing suspicious-activity reports in 2003 and 2004 with the Treasury Department's Financial Crimes Enforcement Network, or FinCEN. Citigroup, which was one of the banks apparently used by Messrs. Saavedra and Roca, declined to comment. The two men also allegedly made deposits at Commerce Bancorp Inc. That bank's vice president for anti-money-laundering, Vincent Auletta, a former FBI agent, says the bank didn't know microstructuring "was as rampant as it was" until a meeting called by law-enforcement officials last October to alert banks to the problem. That meeting, says Mr. Auletta, "was the genesis to tweak our software" for detecting suspicious activity. But even if an individual bank alerts law-enforcement officials to suspicious transactions, it isn't easy to unravel schemes involving lots of accounts at numerous banks. In late 2004, Astoria Federal Savings, a regional savings-and-loan association in New York, alerted authorities that a single individual -- he turned out to be Mr. Saavedra -- was making cash deposits into a variety of accounts. But the accounts were not associated with Mr. Saavedra because they had been opened under other names, according to an official close to the case. So authorities were unable to use that tip to unravel the network of more than 380 accounts in six states that officials now believe Mr. Saavedra used. It wasn't sophisticated data-mining that ultimately snared Mr. Saavedra, but old-fashioned police work. Agents from the New York Drug Enforcement Task Force -- a unit led by the federal Drug Enforcement Administration that includes city and state police officers -- got a tip in March 2006 about an illicit exchange that was about to go down. At a McDonald's restaurant in Queens, undercover agents saw a bag being handed to Messrs. Saavedra and Roca. Agents followed the two men to the Metro Motel, a down-market establishment in Queens where the front-desk clerks work behind bulletproof glass. There, the agents found $283,000 lying on a bed and a table in rubber-banded bundles, as well as deposit slips from the six-hour, 112-account deposit spree that the two men had allegedly finished that afternoon. Agents also found a notebook that investigators dubbed the "Rosetta stone." It contained a list of more than 100 accounts with such key information as account numbers, mothers' maiden names, and personal-identification numbers, which were often easy-to-remember sequences such as 1234. The notebook had an extensive list of branch addresses in New York for many major banks. They arrested the two men, but figuring they had stumbled onto something unusual, the investigators hatched a plan: They released Messrs. Saavedra and Roca, trying to leave them with the impression they'd been arrested by "a regular Joe Schmo detective who doesn't know anything about financial crimes," says one law-enforcement official. Agents even returned the notebook, although they kept a photocopy. Sure enough, Mr. Saavedra resumed his deposit excursions, and authorities monitored him and his associates. Yet it still wasn't easy to unravel the web of transactions. Doing so, Ms. Brennan says, required three assistant district attorneys, a financial analyst, and a "terrific" DEA agent armed with an accounting and military-intelligence background. This June, the two men were picked up again and indicted for money laundering. Mr. Saavedra, a Colombian citizen apparently in the U.S. illegally, lived the life of a typical struggling immigrant. Until late last year, when he moved to Florida, he resided in a working-class neighborhood of Queens, occupying one room in a two-bedroom apartment rented by a Colombian family with two daughters, law-enforcement officials say. The head of that family, Juan Velasco, appeared stunned when told that his family's former boarder had been indicted for money laundering. Mr. Velasco says Mr. Saavedra never brought people to the apartment, and that he never saw him with multiple ATM cards, deposit slips, large amounts of cash, or drugs. Mr. Saavedra drove a nondescript van and didn't wear expensive clothes, he says. Mr. Saavedra worked nights putting up advertising posters in the subway and elsewhere. Effective microstructuring schemes require many accounts, and opening them can be a labor-intensive process. Law enforcement officials say they don't know all the details of how Mr. Saavedra arranged access to the accounts. It appears that he relied on people from Colombia, some of whom may be related to him or his associates, officials say. These people used foreign passports, visas to the U.S., major credit cards or similar documents to open the accounts, then passed on the account documents and ATM cards to Mr. Saavedra or his associates, investigators say. Some of the account holders apparently filled out forms allowing them to temporarily maintain the accounts without a tax ID number or proof of residency. The banks were supposed to follow up to make sure the required documentation was eventually filed, but that sometimes "fell through the cracks," says Ms. Brennan. The banks cooperated with the investigation, she says. In other microstructuring cases, investigators say, money-laundering rings have offered people free vacations to the U.S., on the condition that they open numerous accounts. Or they simply pay people a fee, perhaps $500 to $1,000. One current investigation involves a suspect who uses a laptop to keep track of more than 1,000 accounts, says Mr. Dalessandro, head of the El Dorado task force. Suspicious ATM withdrawals aren't just happening overseas. Last October, customers "emptied" several of Astoria Federal's ATM machines in Brooklyn, according to Charles Judson, who heads security and anti-money-laundering at the thrift. They used two ATM cards issued by the Savings Bank of the Russian Federation, or Sberbank, which imposed no limit on the amount these customers could withdraw, he says. Over three consecutive days, Oct. 26 to 28, they withdrew more than $122,000, he says. Because Astoria Federal imposes a limit of $1,000 per transaction, the customers swiped their ATM cards 130 times. On March 9, a customer using an ATM card from the Russian Commercial Fuel and Energy Interregional Bank for Reconstruction and Development, or TEMBR Bank, swiped his card 20 times to withdraw $20,000 from an Astoria Federal ATM in Brooklyn. In written responses to questions about the incidents, Sberbank and TEMBR Bank said they obeyed anti-money-laundering laws. TEMBR Bank also said that it guarantees its clients' privacy. Mr. Judson says that while the transactions may be legitimate, he strongly suspects foul play. He has notified authorities, he says. (1) http://online.wsj.com/documents/atm-indictment-09212007.pdf -- ----------------- R. A. Hettinga <mailto: rah(a)ibuc.com> The Internet Bearer Underwriting Corporation <http://www.ibuc.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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