Jack L. Chestnut, chairman of the 1972 Humphrey presidential campaign, was found guilty of willful violation of the corporate campaign statute and was sentenced by a federal judge in New York to four months in jail.

Former President Nixon's lawyer, Herbert Kalmbach, who pleded guilty to violating the corrupt practices act and promising a federal job in return for a campaign contribution, got 6 to 16 months in prison from a federal judge here.

[From the Los Angeles Times, June 6, 1976]

THE DEAK CASE: MONEY AND INTERNATIONAL INTRIGUE

(By Ronald L. Soble)

Nicholas Deak has an unabashed hatred of exchange controls, the national laws of many countries which restrict the international flow of currency. "They are moraly wrong and economically wrong," says the 70-year-old president of New York-based Deak-Perera Group, one of the world's leading currency traders.

Deak's position goes a long way toward explaining why more than $1.2 million was recently secretly transferred from the Philippines to the United States through the Deak system.

The transaction has triggered a Justice Department investigation to determine whether Deak's firm violated the Bank Secrecy Act; has caused the suspension of two veteran Swiss-born Deak office managers; and has gotten a Deak contact in Manila in hot water with authorities in the Philippines, a country with strict exchange controls.

The simple fact of the matter is, Deak told The Times in a telephone interview from his New York office, that he has led his firm in a two-decade effort to help nationals of other countries break exchange controls when they cannot legally get their savings out of their home countries.

Moreover, Deak candidly revealed how he helps foreigners circumvent exchange controls, often through the use of undercover agents in countries where Deak doesn't have offices. Although the countries in question see red, no U.S. laws are broken, says Deak. (That's true, say Treasury and bank regulatory officials in Washington.)

Deak won't specifically comment on the pending Philippine case. But he strongly suggests that's what happened there, too.

Such sub rosa activity is not unusual in the financial and business communities and among wealthy individuals who are looking for ways to move their funds through underground channels into countries with no exchange controls, he says.

Maybe so. But Edward P. Davis Jr., the assistant U.S. attorney in San Francisco coordinating much of the investigation into the Deak affair, still is intrigued with the case.

"It's all very suspicious," says the 25-year-old Davis, who was part of the U.S. Attorney's staff on the Patricia Hearst case. "There are some strange occurences involved."

Davis says he and Stanley Tabor, the assistant U.S. attorney in Honolulu, and several U.S. Customs Service agents are continuing to dig for information. Thus far, no criminal charges have been filed against the Deak firm and none may be, Davis adds.

Actually, it was a random check by Customs agents that triggered the whole affair.

According to U.S. District Court documents filed in San Francisco, $1,205,338 was forwarded from Manila to Deak offices in Honolulu, San Francisco and Los Angeles, between April 14, 1975, and March 3, 1976.

Handling the funds on the Manila side was a resident of the Philippines who asked that his name not be used in this story.

The funds, according to court documents, were shipped in large paper envelopes through the mail and delivered by private courier to the three U.S. Deak offices. Customs agents, looking for dutiable merchandise, found the cash during a random check.

Usually, the envelopes contained less than $20,000 in U.S. currency, according to the documents, were addressed to Deak employes in the three offices and were marked "business documents" (so as not to arouse suspicion that they contained cash, says a Deak employe).

A check by Customs disclosed that the Deak Honolulu and San Francisco offices had failed to file federal form 4790, a report to the U.S. government whenever more than $5,000 in cash is shipped into or out of the United States.

The intent of the requirement under the Bank Secrecy Act, enacted in 1972, is to keep track of previously unrecorded international traffic in cash used to finance criminal activities. The one-page form with 27 questions is to be filed with Customs before the cash leaves or enters the United States, according to a government official.

"There is no doubt that Deak should have known about this law," says the government source. The form asks for the names of parties sending and receiving the funds.

Failure to file the form, in this case, under the law, can carry a maximum penalty of forfeiture of the funds in question, a $500,000 fine plus imprisonment of up to five years for anyone convicted, observes a Customs official.

Upon learning of the possible violation, and armed with search warrants, teams of Customs agents in groups of 10 swooped down on the California Deak offices at midday this past May 5.

Willi Beusch, the San Francisco office manager and a Swiss-born Deak employe for 18 years, claimed in a court document that he was "intimidated and overwhelmed" by the federal agents who came to the three-story Deak office on Geary St. near the city's financial district.

(Deak says that both Beusch and Robert C. Meier, another Swiss native with 20 years experience with the firm and its Honolulu manager, have been suspended while his company cooperates with the government investigation.)

Vincent J. Mullins, Deak's San Francisco attorney and a former assistant district attorney for that city, snaps that the government was heavy-handed in the way it searched for ledgers and documents related to the case.

"This procedure is used when someone's life is in danger, or when weapons are present," says the lawyer. "Even Watergate Judge John Sirica issued subpoenas first."

Mullins argues that Customs violated constitutional protections against unwarranted search and seizure by law enforcement officials.

U.S. Atty. Davis says Mullins' charges are "completely false." He says the agents were polite and that there was a reason for not going the subpoena route first.

Davis contends that an examination of 4790 forms prepared by a Deak office manager showed they were apparently post-dated-that is, prepared by the manager after authorities had made an inquiry. He says he moved swiftly with the California office searches to prevent a recurrence of this alleged incident or any other possible coverup.

Meanwhile, the Philippine contact who sent the money to Deak in the first place, indicated he is facing heat from his government.

In a telephone interview from Manila, he said, "I might get into trouble."

No doubt he was referring to the stringent Philippine law requiring permission of the government's central bank to carry more than $500 in U.S. dollars out of the country.

"The authorities have talked to me," he said. "They asked me all kinds of questions."

He confirmed that he did business with Deak but added "I don't want to make any comment about this thing."

Nicholas Deak observes that the Philippine contact was familiar with the Deak system and personally visited Deak offices in Guam, Hong Kong, Macao, Hawaii and California.

Sources close to the case say he communicated by cable with Deak's California offices, for example, to forward the cash shipments to about a dozen banks, some based in the United States, others in the Far East.

The Filipino involved in the current probe is not Deak's only contact in that country, Nicholas Deak admits. Thus, suggests Deak, the more than $1.2 million U.S. Customs detected was only the tip of the iceberg that has moved from the Philippines to the United States in recent years.

"That is a constant trend in the Philippines," says Deak. "The wealthy sector of the Philippines by tradition maintains a certain percentage of their funds outside the country, mostly in U.S. dollars or Swiss francs (Swiss bank subsidiaries also help nationals break exchange control laws, adds Deak).

How did the dollars get to the Philippines, a country whose basic currency is the peso (valued at about 7.27 to the dollar)?

"American tourists brought them," says Deak. "The shop owners eventually turn them over to a person who deals in black market currency or to a foreign exchange broker." Some of these individuals are Deak agents.

The Deak chief says "we have a lot of people we work with in the Philippines. We are very well known in the Philippines."

Deak says that helping others break exchange controls can, of course, only occur where Deak doesn't have an office. Otherwise, the host government would soon close Deak's doors.

Controls on currency movements were common in the political uncertainty following World War II, Deak recalls. Countries needed dollars for trade purposes and they wanted to prevent speculation against their own currencies.

Some of these controls have since been removed. But in the past few years they have again proliferated, says Deak, and more than half of the world's nations now have some sort of controls against currency movements. For example, he says, most developing nations such as many of those in Africa and Asia have controls. In Europe, Great Britain, France, Italy, Spain and Portugal are among the countries which control the flow of funds across their borders.

The United States, Germany, the Netherlands, Denmark and Belgium are among countries which don't have controls, he points out.

"Once you introduce controls, you establish a bureaucracy of people," says Deak. “And if things develop favorably in the economy they will not want to relinquish their power. They continue the controls even when it's not necessary."

How are the controls broken?

Commonly, an individual would inform Deak, posibly by mail, that he has a certain amount of local currency that he wants to exchange for dollars and that he also wants Deak to help him remove the dollars from his country—in violation of the controls.

Deak will then quote a rate of exchange and instruct the individual whom to contact in his country. The contact or broker-in effect, a Deak agent-makes money by discounting or marking up the rates and so does Deak.

Also, adds Deak, if the currency profit is small, Deak will charge a commission for the deal, generally not to exceed 1% of the total amount of money to be exported, Deak will then act as the transfer agent and open a dollar account in any bank designated by the individual moving the cash out of the host country.

Is there anything wrong with helping people sneak their funds out of a country?

"If a nation reaches a stage where exchange controls become necessary," says Deak, "it is due to mismanagement by the government. Because of this the people of the country will suffer. In no case will exchange controls cure the ills of the country.

"The result of exchange controls is always a flight of capital in violation of the regulations because every regulation opens up a new loophole somewhere." Does the atmosphere created by exchange controls mean that Deak contacts throughout the world have to work quietly?

"Yes," says Deak.

Is that like undercover work?

"You could call it that," he says.

Deak is no stranger to undercover operations.

Nicholas L. Deak, a native of Hungary with a doctorate in economics from a Swiss university, is an urbane man who is as at home with heads of state as he is in the complex and often secretive world of international banking.

Following stints in the foreign departments of European banks, he started his first money changing business in New York in 1939.

At the outset of World War II, Deak closed his business and used his knowledge of Europe and his linguistic abilities to the advantage of the Office of Strategic Services (OSS), the forerunner to the Central Intelligence Agency. Deak claims, however, it was his skill as a paratrooper, not a banker, which helped win him OSS acclaim.

One story had the OSS recruiting Deak and several other Americans in a plot to sabotage the German-held Ploesti oil fields in Romania. Deak and the others were to be dressed as Romanian firemen. But the operation never materialized. Later, Deak served with the OSS in its Cairo headquarters, and still later in Indochina. In August 1945, in charge of an OSS unit in Rangoon, Burma, he accepted on behalf of the United States the surrender of the Japanese forces there. Following the war, Deak left the OSS to resume his financial activities in New

York. But until this day stories persist in government circles that Deak has retained his intelligence community ties, now with the CIA.

When asked whether the CIA uses his financial network to finance its international operations, Deak responded: "I won't talk about that business. Don't search in those areas."

In 1953, Deak purchased his major U.S. competitor, Perera Co. Inc., the foreign exchange firm. This made Deak, far and away the largest foreign exchange dealer in the Western Hemisphere.

Today, Deak's worldwide financial empire includes an assortment of moneyrelated services. More than 50 Deak & Co. offices worldwide are a source of foreign currency for Americans and foreigners traveling abroad. Its profits off of currency sales to individuals range from one-eighth of 1% to about 2% of the total deal, says a spokesman. It also acts as a currency clearing house for banks and is considered a world leader in doing business in the currencies of Latin America and Asia (the Swiss banks, however, dominate the European currency market).

Indeed, Deak also owns banks, including two small New York state banks and one bank each in Austria and Switzerland, the latter of which supplies the Deak currency network with much of its foreign exchange.

American corporations also use Deak's international connections to do business. Deak says he can give a company better service and exchange rates than many commercial banks.

One of the companies to utilize Deak's services was Lockheed Aircraft Corp. of Burbank which used Deak's Los Angeles and Hong Hong offices to forward payoff cash into Japan, according to receipts on file with Senate Investigators. Deak had no idea what the money was being used for, says a Deak employe here. American-based multinational firms also use Deak's foreign contacts to free "frozen" or "blocked" funds in a country where they are operating. Deak says that these are funds which firms can't bring out because, again, of exchange controls.

So Deak will find other customers for the blocked funds within the country in question. Deak will then buy the funds from the company that wants dollars and resell the local currency to a firm that needs the local cash to continue its operations in that country. And, again, Deak makes its profit off the currency transaction the same way it would with an individual.

Deak's firm is privately held and he doesn't like to discuss earnings. But those associated with the multimillion-dollar operation say business is very healthy and that earnings have increased 5% to 10% in each of the past five years. Most profitable, says Deak, is his tourist business, part of which involves the preparation of individual currency packets.

How confident is Deak that his firm can continue helping people throughout the world break the exchange controls of their countries? Deak replied with an anecdote.

He recalled that a few years back he received a call from a consul general of India who relayed a message from the Indian government complaining that Deak was violating India's foreign exchange restrictions.

"I knew the consul general," says Deak with a chuckle. "I said 'What would you tell your government if you were in my chair?'"

Deak says the consul general replied: "I would tell them to go to hell."

[Saturday, Dec. 13, 1975]

U.S. INVESTIGATING EXCHANGES OF CASH

SMALL BILLS TURNED IN FOR LARGE ONES AT CHEMICAL BANK IN HARLEM AND BRONX

(By Terry Robards)

Federal investigators are looking into the exchange of hundreds of thousands of dollars in small bills for large bills at branches of the Chemical Bank of New York in Harlem and the Bronx to determine whether violations of Federal law occurred.

The bank, one of the largest in New York, disclosed that 24 employees who were either directly involved in the transactions or who knew about them have been discharged. At least one vice president was understood to have been let go.

At issue is whether the Chemical employees violated the Bank Secrecy Act, which requires that transactions involving $10,000 or more in cash be reported to the Internal Revenue Service. One purpose of the law is to assist the Government in uncovering the flow of large sums of money arising from criminal activities.

DETAILS UNAVAILABLE

Spokesmen for the bank declined to provide details of the transactions, except to reveal that "certain personnel were engaged in exchanging substantial amounts of five-dollar, 10-dollar and 20-dollar bills for 100-dollar bills without making required reports."

The bank also said that other employees who bcame aware of the transactions "failed to take action to halt the practice or to bring the problem to the attention of senior management." The bank added that the exchanges did not result in any financial loss.

Rumors have circulated that a Federal grand jury was looking into the transactions, but this could not be confirmed either at Chemical or at the offices of the United States Attorney for the Southern District of New York, who would prosecute such a case.

LONG-STANDING ACTIVITY

Banks are required to report suspected violations of Federal law to Federal authorities, which Chemical is understood to have done. But Thomas Cahill, the United States Attorney here, declined to say whether evidence was being gathered for, or presented to, a grand jury in an effort to obtain indictments.

One banking source said the problem of exchanging, or "washing" funds obtained through illicit activities was long-standing and cropped up repeatedly at major banks here. "It was fairly routine a few years back," he said.

The purpose for such exchanges was said to be "transportability," or the facilitation of the movement and hising of funds. "You can't do much with a suitcase full of cash," said one source.

A Chemical spokesman said the 24 employees were dismissed in October. "Nobody is before a grand jury, to our knowledge," he said. However, sources suggested that grand jury interrogations could have occurred since the dismissal of the employees.

Under the Federal law, which went into effect only last year, banks are required to obtain proof of the identity of persons who make deposits or try to exchange cash in amounts totaling $10,000 or more and report the data to the Government.

The law refers specifically to the purpose of assisting authorities in investigations of criminal activities as well as income-tax evasion.

Banking sources suggested that the exchanges that occurred at the Chemical branches may have involved criminal activities because the branches were in or near high-crime areas. But Chemical declined to specify the locations of the branches, except to confirm that they were in "upper Manhattan and the Bronx."

COURT DECISIONS-CITED 75-2 USTC

US. v. Leonard

[19695] United States of America, Appellee v. Jackson D. Leonard, Appellant. U.S. Court of Appeals, 2nd Circuit, Docket No. 75-1153, 8/28/75. Affirming unported District Court decision.

[Code Sec. 7206(1)]

Criminal penalties: False returns: Jury instructions: Objections to mail watch: Fraud case procedures: Miranda warnings: Miscellaneous assertions of error.-Taxpayer's conviction by a jury on two counts of filing false tax returns with respect to omissions from income was affirmed on appeal. The trial court's instructions to the jury were complete and accurate, and the court was not in error for declining to grant a proffered charge since it asked for more than was deserved. The court rejected the argument that the IRS conducted a constitutionally invalid mail watch when it examined the writing appearing on the outside of envelopes sent from Switzerland to determine if the taxpayer had a secret

77-169 O 76 - 15