Looking for clues when there are none: Part I – Obstacles faced by the financial crime investigator

Lost in all the headlines and stories about the Federal government’s deferred prosecution agreement with Wachovia Bank was the fact that, with the hundreds of millions of alleged drug dollars that came into the bank’s coffers from Mexico, none of those dollars could be tied to the true owners.  There was some money that was tied to aircraft purchases that had been seized or crashed with drugs on board; but, the money was never tied to a particular owner.  Was an ultra-sophisticated money laundering scheme the reason?

Yes and no.  While the scheme did involve the multiple layering of transactions through international banking channels, its core scheme depended on a simple theory: You can’t testify to what you don’t know. In peeling back the layers of transactions in the Wachovia case, the initial placement of the funds always seemed to originate with nominees who had no connection to the drug organizations. These nominees were recruited and paid a small amount, most likely by individuals they did not know or knew only by a first name, to carry out large cash transactions at Mexican exchange houses, or “casas de cambio,” using their true identities.

Herein lays the simplistic, yet effective, nature of this money laundering technique. Those who make the transactions can carry them out using their true identities and credentials; however, when, if ever, the transactors would be questioned by law enforcement, they would have no information to offer as to the identities of the people who gave them the cash, and much less as to whom the true owners of the cash were. Could the true owners ever be discovered?

Possibly, but only with complex, time consuming, multilateral investigations. However, given the time it took to uncover this scheme, investigate it, and bring it to a conclusion in the criminal courts — just against the US defendants and the bank – followed by the time it took for the regulators to order the look-back of suspicious transactions, and the actual completion of the look back and filing of the SARs, the statute of limitations on the money laundering and underlying criminal activity was long gone.  So, the likelihood of an investigation into this activity and the hunt for recoverable assets is virtually non-existent.

This is not a new scheme, and certainly not in Mexico where the Ruta de Dinero (Money Route) is a well-established method used by drug trafficking organizations (DTOs) to transfer smaller amounts of money from border towns in Northern Mexico States, to interior states by exploiting the bank accounts of individuals such as housewives, students and low income workers to deposit illicit US currency in amounts that can aggregate up to hundreds of thousands of dollars per transactor.

Criminal organizations and the money launderers who service their needs go to great lengths to develop methodologies that assure anonymity.  Many times these methodologies will exploit systems and industries that are completely legal and whose purpose is to serve the greater good.  However, their structure may offer an opportunity to these criminal organizations to use them for the purpose of moving and concealing their illicit wealth.

Examples of this could be money transmitters and prepaid cards, which offer essential financial services to the unbanked; however, prior to regulatory changes, they also offered means of transferring funds with less scrutiny than traditional financial institutions. Criminal organizations and money launderers also exploit informal systems that have developed for both legitimate reasons, such as Hawala, and illegitimate reasons, such as foreign exchange black markets.  Encrypted internet systems that were designed to bring freedom of speech and the press to repressed societies are also exploited by criminal organizations to conceal their illicit communications.

In our next installment, we will examine the practices of using unrelated nominees to conduct financial transactions on behalf of individuals attempting to conceal their wealth from government authorities and civil lawsuits, and the problems that this causes for the officers, agents, prosecutors, and asset recovery specialists in tracking down their hidden wealth. We will also discuss some of the methods that these individuals have available to them to conceal their connection to these schemes and their hidden assets through covert communications.  Finally, the paper will discuss techniques for overcoming or working around these schemes, so that the investigator or asset recovery specialist can by successful in accomplishing their goal of identifying, documenting, and recovering their subject’s illicit wealth.

Don Semesky is a member of the ACFCS Advisory Board and the former Chief of the Drug Enforcement Administration’s Office of Financial Operations in Washington, DC.