Remarks As Prepared for Delivery by U.S. Attorney Neil H. MacBride for the ABA/ABA Money Laundering Enforcement Conference
Thank you for that kind introduction. It’s a pleasure to be here, and I want to thank the American Bar Association and the American Bankers’ Association for a valuable opportunity to address this group of compliance, fraud and anti-money laundering professionals in one setting.
As the United States Attorney for the Eastern District of Virginia, this has been a busy few years. My prosecutors work on some of the most significant cases the Justice Department has tackled, both here at home and around the globe. EDVA has had cases involving Al Qaeda-inspired terrorists and internet jihadists, state sponsored and economic espionage, Mexican drug cartels and Colombian narco-traffickers, Swiss bankers and Somali pirates, organized crime and sex trafficking rings, and massive financial frauds ranging from beyond our shores to the main streets of our smallest communities. A common denominator here is that crime has changed in the 21st Century: the world is flat and terrorists and organized crime on the far side of the globe pose threats to our national and economic security.
We recently charged Ayman Joumaa who is alleged to be one of the world’s biggest money launderers, earning him the Treasury Department’s kingpin designation. Joumaa, who reputedly laundered funds for Hezbollah, has been charged in EDVA with allegedly laundering hundreds of millions of dollars for Mexican drug cartels.
We also have indicted on charges of money laundering Ezio Figueroa, another designated kingpin and, for more than a decade, one of the largest traffickers in the world of precursor chemicals used to manufacture methamphetamine.
These are but a few examples and the nature of the criminal activity varies, but what ties these prosecutions together and is indeed central to our enforcement approach is that all of these transnational criminal organizations rely on the strength and credibility of the United States financial system to facilitate their illegal activity and enjoy the profits from it. They seek to exploit our financial system and use it for their own illicit purposes, and in doing so, they threaten to undermine that system.
In EDVA we see ourselves as part of a broader effort which includes the Treasury Department, and you, the private financial institutions, working collectively to identify these groups and use all of the tools at our disposal to target their illicit activity and defend the U.S. financial system from abuse at their hands.
Money laundering is often at the heart of financial and white collar crime. EDVA has a rich history of being at the forefront of aggressive prosecutions targeting money laundering, Ponzi schemes, mortgage fraud, identity theft and Bank Secrecy Act (BSA) violations. In the last three years, we have prosecuted numerous corporate and securities cases with national impact – cases which go to the very heart of protecting our financial markets and those who invest their life savings. EDVA also had one of the first specialized units targeting terrorist financing.
In a real way, however, our success depends in part on your vigilance in complying with the vast array of statutes and regulations under the Bank Secrecy Act and many other reporting laws. The key pillar of EDVA’s money laundering enforcement is the Suspicious Activity Reports (SAR) made by financial institutions to the Financial Crimes Enforcement Network (FinCEN). As each of you know, he goal of SAR filings is to help the Federal government detect and disrupt individuals, groups and organizations involved in fraud, terrorist financing, money laundering, and other crimes. A great deal of criminal activity that would go undetected, unpunished and undeterred without the diligence and cooperative spirit of the banking industry.
I’d like to spend a few minutes talking about how EDVA is utilizing BSA data and the results we’ve been able to achieve.
Experience tells us that financial penalties have a strong deterrent impact on would-be criminals. Taking the profit out of crime is an essential component to what we do as prosecutors. The infamous bank robber Willy Sutton famously quipped that he “robbed banks because that is where the money is.” We want to hit criminals in their wallet every time, and in the case of BSA violations, the law provides both civil and criminal enforcement tools to do so.
EDVA has two very active and longstanding Financial Compliance teams in the district which review hundreds of SARs every month.
The Northern Virginia Financial Investigations Team -- formed shortly after the 9-11 terrorist attacks -- was one of the first organized teams of law enforcement dedicated solely to mining the leads and intelligence from SARS. In 2012, the team is averaging 650 SARs reviewed each month and has executed over 30 civil seizure warrants.
The Richmond-Tidewater Financial Compliance Team covers the rest of the district. This reviews an average of 350 SARs each month and has produced a number of prosecutions for structuring, tax evasion and other offenses.
EDVA teams have two objectives: 1) identify and disrupt criminal activity; and 2) promote compliance with the BSA by bringing criminal charges where the evidence calls for it, or at least seeking the civil forfeiture of assets. We are concerned not just about illegal proceeds, but also the structuring of cash deposits period. What some may refer to as “clean money structuring,” we have learned is more likely tied to some illicit purpose. It’s in fact structuring to evade taxes or done for some other nefarious purpose.
At the other extreme, we have defendants those who insist on doing business this way and have structured hundreds of thousands of dollars while fully aware they were violating the law.
Let me quickly mention some other priorities for the EDVA SAR teams. We have a banking outreach program where members of our teams go out and speak to compliance officers and fraud investigators about their practices and concerns. We solicit feedback on the trends they are seeing and share insights.
We have also sought to increase involvement with Joint Terrorism Task Forces (“JTTFs”). Traditionally, we have de-conflicted with the JTTF on cases that might warrant further action. It is our practice now to circle back with our JTTF colleagues and make sure that, even when there is insufficient evidence of a terrorist connection, we nevertheless pursue the BSA violation as a matter of deterrence.
Finally, we are participating in a data matching program with FinCEN that will allow us to run our internal database - with the names and identifiers of targets for all of our open cases - with information maintained by FinCEN and look for hits. Our increased capabilities with technology are allowing us to do more in less time with the information you are reporting. And in terms of what we are doing with the information, I’d next like to highlight some recent cases that originated from BSA data.
As I mentioned, EDVA is aggressive in utilizing all the tools in our tool kit to protect financial institutions and investors from criminals who cheat, deceive and defraud. It takes many forms. As Lanny Breuer noted two years ago, EDVA and the Fraud Section prosecuted Lee Farkas, the former chairman of Taylor Bean & Whitaker Mortgage Corporation for perpetrating a massive $2.9 billion fraud scheme which led to the collapse of Colonial Bank, one of the 50 largest banks in the United States before its collapse in 2009. Mr. Farkas was sentenced to 30 years in prison and Judge Brinkema ordered $38.5 million in forfeiture.
EDVA also prosecuted Edward Okun for financial fraud and money laundering, stemming from the loss of more than $126 million in client funds. (Last year the Fourth Circuit upheld his 100 year sentence.)
This year we prosecuted the hedge fund managers of A&O Life Funds on money laundering and securities fraud charges that arose from their scheme that defrauded more than 800 investors out of more than $100 million of their retirement funds.
It is a sad testament to today’s environment that only fraud cases measured in the hundreds of millions or billions of dollars garner press attention. But it is often the smaller cases, growing out of the SAR program, which show how BSA compliance can serve as the critical “early warning systems” and “trip wires” which ensure that anyone – whether a terrorist, a would-be criminal, or any otherwise legitimate business – plays by the structuring rules every time.
Very often, it is not the single SAR filing that makes a case, but the collective of SARs from multiple banks. We had a significant case this past year in Northern Virginia where SARs filed by six different financial institutions allowed us to identify a money services business operating without a license. The targets opened business accounts for shell corporations and there was a pattern of cash being structured into those accounts and then wired overseas to Asia. Although the business was incorporated in Texas and based in California, they maintained bank accounts here in Virginia.
After piecing together information and records from multiple banks, we determined that a small storefront in Falls Church was responsible for wiring $11 million overseas in one year. The reason he did it without a license was because he had, in fact, applied for one and was denied. We negotiated a global resolution that included the forfeiture of $1 million, a felony plea to making false statements by the business owner, and a corporate plea to felony structuring.
I mentioned that we have a wide array of law enforcement agencies on our teams, and this includes the Metropolitan Washington airport police. The Northern Virginia team recently obtained a conviction when cash that was structured into multiple accounts was later intercepted at the Dulles airport. Airport authorities at Dulles stopped a woman trying to board an international flight and determined she had concealed approximately $74,000 in her clothes. DEA was involved in the seizure and investigating a possible connection to drugs. The woman’s son came in to claim the money, armed with bank records showing that he had the deposited the cash into a business account. Meanwhile, the SAR team had already identified the son as a target based on structuring activity which was clearly detailed in the bank records. In short, in an effort to prove the money was not drug proceeds, the son ended up admitting to structuring the cash deposits which he claimed came from a landscaping business. Upon further investigation, the investigators learned that the son also had a pending bankruptcy petition, which was problematic given the $74,000 he had given to mom. He pled guilty to felony structuring and agreed to forfeit the seized cash.
In the Richmond-Tidewater region, we see a high volume of SARs filed on convenience stores, where account holders are structuring large amounts of cash into business and personal accounts. The concern here is that it is hard to determine the source of the cash. Most businesses of this kind are selling gasoline, but only making cents on the dollar in terms of those sales. So when we see large amounts of cash being deposited we are definitely concerned about the potential for money laundering.
We handled a significant case involving a convenience store located in a small town north of Richmond with a population of less than 1,000 people. We knew from experience that the gas sales were mostly by credit card, and the only other legitimate source of proceeds for this business would have been the soft drinks, snacks and cigarettes sold inside the store. The store was over 10 miles off of route 95, and yet the team observed an alarming amount of cash deposits under the circumstances; over $1 million in structured cash deposits in less than one year.
We executed seizure warrants on the store’s bank accounts and only a total of $32,000 remained in the accounts being used to structure. We also executed search warrants and located large amounts of cigarettes in black trash bags, indicative of cigarette trafficking to the New York City area where the taxes are about ten times higher than in Virginia. We also found pamphlets published by FinCEN explaining BSA reporting laws that the particular banking institution at issue had given the business account holders as a part of their regular practice.
We learned that the individual responsible for the structuring only recently became a US citizen and soon thereafter filed for bankruptcy, wiping out debts to multiple creditors. He had failed to file tax returns, or pay taxes of any kind, for three years. Soon after his money was seized, but before he could be charged with criminal structuring, the target left the United States and traveled to his native country located in a particularly volatile part of the world. Two years later, he has yet to return, making it clear that he may have had more to lose from a prosecution than we know.
The take-away here is that you may not always hear about these cases, and you won’t necessarily see a headline for a sophisticated terrorist financing prosecution. But the BSA data does protect the integrity of the banking system by ferreting out those who would rather stay below the radar. Transparency in banking, coupled with an awareness by the public at large that BSA violations will be pursued both civilly and criminally, prevents the misuse of our nation’s financial institutions and is an important component of our domestic response to terrorism.
While we look to develop criminal cases from the BSA data, I also wanted to mention other ways that the information complements the work we do as federal prosecutors. The data is useful to us for identifying trends in our jurisdiction. This is particularly true in the area of trade-based money laundering, and we have used the information proactively to identify specific industries where illegal proceeds are being laundered through the purchase of goods.
As an illustration of that point, let me mention one other case where a reporting violation enhanced a major wire and mail fraud prosecution. In the course of investigating a Ponzi scheme that cheated victims out of more than $100 million, agents learned that the target, while on a vacation in the Caribbean, ordered an assistant to Fed Ex him over $10,000 in cash because he wanted some “walk around” money. Of course, as you know, sending or causing someone to send more than $10,000 of currency outside the country without filing the required Currency Monetary Instrument Report is a felony, and we added this charge to the various other crimes that were charged as part of the fraud scheme. It may have seemed trivial in comparison to the larger fraud, but it was important for the jury to see just how this defendant callously disregarded a host of laws, including the Currency and Money Interest Report (CMIR) requirement.
The BSA data also serves as background intelligence. Our teams include officers from local departments who want a better understanding of their jurisdiction, and the information serves as an “archive of intelligence” as to businesses and individuals who may be involved in criminal activity. In addition, BSA data helps us to identify assets for forfeiture. Very often we will come across SARs being filed on individuals who have been, or are about to be, charged with a federal crime. They may be attempting to hide assets, or perhaps withdraw money so they can flee and your compliance and reporting helps us detect that activity. All of the points that I’ve just mentioned are based on real-world scenarios. They are difficult to quantify, but they are nonetheless crucial benefits of the BSA data to the law enforcement community.
The largest numbers of SARs we review are for BSA violations and, more specifically, for structuring. The greatest challenge we face in investigating structuring activity is determining the true motive - why do people do it? Sometimes it’s obvious money laundering or tax evasion, but very often it’s more difficult to determine. And we don’t get much help from those making the deposits. The following are real excuses made to law enforcement officers, which one of our team leaders fondly refers to as the “two beer excuse”:
1. “I’m afraid I’ll get robbed.” (Is it more likely if you have over $10K?)
2. “My Dad told me to do it and I didn’t want to be disrespectful.”
3. “It’s my accounting method.”
4. “The bank told me to do it.” (Bank says we to need to see ID; they somehow hear . . . . or you can just structure)
5. “$9,999 . . . . I just don’t like five digit numbers.”
While these excuses really don’t help us much, what does help is learning everything we can about the business involved so we can determine where the cash is coming from. Is it a cash intensive business? Who opened the accounts and what proof did they provide of a legitimate business? How do the cash receipts compare to other similarly situated businesses?
Is this cash coming in atypical for the account holder? Where does it go once it gets deposited?
All of these questions closely mirror the “Know Your Customer” and due diligence requirements of the Patriot Act (Section 326). This aspect of your compliance program not only serves to protect your institution, but can later become valuable information.
The biggest “asks” from my prosecutors to financial institutions are 1) providing records in electronic format, 2) providing them as quickly as possible, before the assets disappear, and 3) a designated point of contact with the BSA or anti-money laundering compliance officer.
It’s been said that banking institutions are the gatekeepers of our financial system. Indeed, bank employees who generate SARs are a class of “first responders” in a post 9-11 world.
It is not an exaggeration to say that your observations of suspicious activity, however small, have the potential to expose a terrorist cell, an identity theft ring, or an ongoing Ponzi scheme. While some want to measure the success of our joint efforts purely by the number of convictions or the amount of money seized, I would suggest that it is difficult to balance costs against benefits because the stakes are so high. The criminal activity that we miss could be one with serious consequences.
I want to conclude by thanking you for your partnership and for all the work that you do which ultimately assists us in our fight against crime and threats to our nation’s security. Rest assured that in EDVA we are reviewing the suspicious activities which you detect and report. We quite literally could not do our jobs without you.