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Illicit Finance

Drug traffickers in the W/B HIDTA region use various money laundering techniques in order to conceal drug proceeds and finance their operations. The means of transferring illicit funds vary by group and include bulk cash smuggling, wire transfers, the structuring of bank deposits and money order purchases, the commingling of drug proceeds with funds generated at legitimate businesses, purchases of real estate and vehicles, front businesses, smart cards, automated teller machines (ATMs), prepaid stored value cards, and the use of hawalas.2

Colombian, Dominican, and Mexican DTOs and criminal groups transport drug proceeds primarily in bulk from the HIDTA region, across the U.S.-Mexico border, and into Mexico, Central America, or South America for eventual repatriation. In transporting bulk cash, these traffickers use private vehicles, commercial vehicles, freight transportation companies, shipping containers, and package delivery services. Additionally, Mexican DTOs launder drug proceeds by structuring bank deposits into multiple accounts to avoid the Currency Transaction Report (CTR) filing threshold.

Vietnamese DTOs and criminal groups often use cash-intensive front businesses, such as travel agencies or car washes, to launder illicit drug proceeds. They also transport drug proceeds in bulk, in the form of cash and money orders, to Canada. Once the proceeds are in the country, they deposit them into Canadian bank accounts and then electronically wire-transfer the proceeds to source countries. Vietnamese DTOs and criminal groups also launder drug proceeds by structuring bank deposits and participating in real estate fraud.

Middle Eastern and Pakistani DTOs and criminal groups launder illicit heroin proceeds through front businesses, such as used car dealerships, and through the use of hawalas. In September 2007 a federal grand jury in Maryland indicted 39 defendants for using a hawala to transfer money purportedly obtained through drug trafficking between Maryland, Canada, Spain, and Belgium. Nigerian DTOs favor bank fraud schemes as well as bulk currency smuggling. West African groups often purchase cars or other legal assets to ship back to Africa as a method of payment.

Most retail-level drug dealers launder drug proceeds through the purchase of consumer goods (clothing, jewelry, and vehicles) and real estate, and through the use of front businesses. Some retail-level dealers also launder money through recording studios and businesses that promote rap music concerts. Drug traffickers use other techniques to launder illicit drug proceeds that involve money orders, stored value cards, ATMs, the precious metals and gems trade, and casinos as well as schemes involving real estate and the insurance industry. For example, the leader of a cocaine distribution organization operating in Maryland was convicted of conspiracy to commit money laundering by purchasing and refinancing several homes through submission of false loan applications in Forestville, Oxon Hill, and Fairmont Heights. The subject would purchase a home and refinance the mortgage several times for larger amounts, each time submitting falsified loan documents. He then took the cash obtained through refinancing and invested in other homes. The amount of laundered funds exceeded $400,000.

Stored value cards are increasingly used by traffickers to launder money because they are an easily transportable and virtually anonymous way to store and access cash. Stored value cards physically resemble traditional credit or debit cards and can be used to access both global debit and ATM networks. Stored value card programs often accept applications without face-to-face verification of cardholder identity, taking applications online or by fax. Funds can be prepaid by one person and withdrawn by another through ATMs anywhere in the world; multiple cards can be issued for a single account.

 
E-Gold Indictment

On April 27, 2007, a federal grand jury in Washington, D.C., indicted two companies operating a digital currency business and their owners. The indictment charges E-Gold Ltd., Gold and Silver Reserve, Inc., and their owners with one count each of conspiracy to launder monetary instruments, conspiracy to operate an unlicensed money transmitting business, operating an unlicensed money transmitting business under federal law, and one count of money transmission without a license under Washington, D.C., law. According to the indictment, persons seeking to use the alternative payment system were required to provide only a valid e-mail address to open an E-Gold account--no other contact information was verified. The indictment was the result of a 2½-year investigation by the U.S. Secret Service in cooperation with the Internal Revenue Service, the Federal Bureau of Investigation, and state and local law enforcement agencies. According to the U.S. Attorney for the District of Columbia, "The defendants operated a sophisticated and widespread international money remitting business, unsupervised and unregulated by any entity in the world, which allowed for anonymous transfers of value at a click of a mouse. Not surprisingly, criminals of every stripe gravitated to E-Gold as a place to move their money with impunity."

Source: U.S. Department of Justice.
 

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Outlook

Mexican DTOs, operating primarily out of transshipment centers in Georgia and North Carolina, will most likely increase their wholesale distribution of cocaine, heroin, marijuana and, to a lesser extent, methamphetamine, in the HIDTA region in the coming year. These organizations have well-established transportation and distribution networks which will enable them to supply wholesale quantities of illicit drugs to the region.

Indoor cannabis cultivation, particularly at hydroponic grow sites in the HIDTA region, will most likely increase over the next year. The rising demand for high-potency marijuana and the high profit potential will quite likely entice more traffickers in the region to become involved in indoor cannabis cultivation.

The abuse of diverted pharmaceutical drugs, particularly prescription narcotics, will continue to increase in the HIDTA region in the coming year, especially among young adults. These drugs are readily available to abusers through family, friends, or doctor-shopping, and abusers do not perceive them to be as dangerous as heroin or cocaine.

Declining local methamphetamine production and the growing presence of Mexican DTOs in the HIDTA region may lead to increased availability of Mexican ice methamphetamine. Mexican DTOs already dominate the transportation and wholesale distribution of other illicit drugs in the region, using well-established routes and methods that would easily allow them to increase the flow of ice methamphetamine to the region should demand increase.


End Note

2. Hawala is a fairly anonymous form of banking that has been used in the Middle East for centuries. Hawala money transfers are made outside the formal banking sectors and are virtually undetectable. Transfers are made primarily from one location to another without physically moving funds and, in many cases, with little or no recordkeeping. Any records that are kept are usually in an unrecognizable form of shorthand or are encoded.


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