ATMs Become Handy Tool For Laundering Dirty Cash

[R.A. Hettinga]

<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 Saavedra and Roca was withdrawn in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


-- 
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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
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