CURRENT PROBLEM OF MONEY LAUNDERING THURSDAY, JUNE 13, 1985 HOUSE OF REPRESENTATIVES, Washington, DC. The subcommittee met at 10:07 a.m., in room 2237, Rayburn House Office Building, Hon. William J. Hughes (chairman of the subcommittee) presiding. Present: Representatives Hughes, McCollum, Smith, Gekas, Feighan, Morrison, Shaw, and Lungren. Staff present: Hayden Gregory, chief counsel; Eric E. Sterling, and Edward O'Connell, assistant counsel; Theresa Bourgeois, research/writer; and Charlene Heydinger, associate counsel. Mr. HUGHES. The Subcommittee on Crime will come to order. The Chair has received a request to cover this hearing in whole or in part by television broadcast, radio broadcast, still photography or by other similar methods. In accordance with committee rule 5(a), permission will be granted unless there is objection. Is there objection? [No response.] Hearing none, permission will be granted. This morning the Subcommittee on Crime is holding its fifth hearing in a little more than a year to examine the many aspects of the complex problem of money laundering. Our hearing today is going to be divided into two parts: First, we're going to get a guided tour inside a money laundering operation from one of its key operatives; second, we'll discuss with leaders of the banking industry the provisions of the two different bills introduced earlier this year, one by Bill McCollum, the ranking Republican on this committee, and one I introduced, to address some of the problems of money laundering and to provide tools to prevent it. Today we're going to be able to look inside a money laundering operation that washed at least $10 million and perhaps as much as $20 million in profits from the sale of cocaine. The technique that this ring used is called "smurfing." Our guide this morning, a Federal prisoner serving a multiyear sentence for his crimes, started as a smurf and was promoted to a position of management in the smurfing organization. Smurfing is the process of using numbers of people to go from bank to bank with hundreds of thousands of dollars in cash to buy cashier's checks and money orders. These monetary instruments are a purchase in denominations of several thousand dollars each, well below the $10,000 threshhold required for reporting cash 65-227 0 - 87 - 5 transactions under the Bank Secrecy Act. Thousands of these monetary instruments are obtained by the smurfs, using every effort to avoid attracting attention. These monetary instruments are then collected and deposited into foreign bank accounts controlled by the money launderers via agencies of foreign banks or through edge-act banks in the United States. The money launderers then transmit pesos directly to the drug kingpins in Colombia. Our witness may be called to testify against the organizer of the operation, who fled to Colombia when the investigation was compromised near its conclusion. As a consequence we've taken steps to conceal his identity, to prevent reprisals against him. I'm sure that the news organizations here today will cooperate with us in not trying to expose our witness' identity. Later this morning, we'll examine the pending legislation and the specific changes we make in Federal law to make money laundering a crime and to prevent the use of other techniques of money laundering. We'll also discuss what banks are now doing to prevent money laundering and what other steps they can take to keep money launderers away from their tellers' windows. It should be an interesting and useful hearing, and I look forward to hearing the testimony this morning. The Chair recognizes the gentleman from Florida. Mr. MCCOLLUM. Thank you very much, Mr. Chairman. I commend you for holding this series of hearings on the problem of money laundering and the proposals that we've initiated to address this crime, or what should be a crime, but in many ways is not. Laundering the profits from illegal ventures helps the criminals spend their ill-gotten gains with a false air of legitimacy. The motivation for these crimes is economic, and it seems to me that we can reduce the motivation by severely limiting the ability to spend those profits without detection. This is the purpose of my bill, H.R. 1367, just as I know it is the purpose of yours. We must stop the laundering of ill-gotten gains and provide the tools that law enforcement officials need to detect this activity. Mr. Chairman, today's hearings provide us an opportunity to study and further understand the money-laundering phenomenon. We will also have the opportunity to better appreciate the special impact of this crime and potential solution on the banking community, which often serves as an unwitting conduit to this wrongful activity. I believe this subcommittee has assumed a noble and a challenging task to craft legislation to severely restrict and deter money laundering. It is no less onerous than the deadly activities it hides and supports. We must continue these efforts with diligence, and I look forward to this morning's hearing. Mr. HUGHES. Does the gentleman from Pennsylvania have an opening statement? Mr. GEKAS. I thought you'd never ask. Thank you, Mr. Chair man. I, too, am eager to hear the testimony of the witness, who is serving time in prison, so that we can understand more fully how the internal mechanism of money laundering occurs. We also are going to be fortunate in hearing from the other side, from the laundry, itself, it being the bank. If, indeed, the laundering takes place in the bank or money institution, then we have to learn what, why it occurs. Is it a bank teller? Is it the lack of training or inadequate training? How is the "detergent"-applied to the money in the first place, so that it enters the laundering process and, thereby, eludes the authorities? So, I'm looking forward to this testimony. Thank you, Mr. Chair man. Mr. HUGHES. Does the gentleman from Florida have an opening statement? Mr. SMITH. Yes, Mr. Chairman. I am very grateful to you as chairman and the committee for showing the interest in this particularly perplexing problem which affects not only the society in which we live through the use of the drugs which are the basis of this, but how it affects the upper levels of society beyond that in the economic community, like an epidemic spreading its tentacles to the point where so many people who would ordinarily be outside the scope of crime are sucked in, so to speak. And I am very grateful, because, as you know, Florida unfortunately has been one of those States that has been prone to this kind of problem. And I'm also grateful that this is being highlighted here as one of the reasons why white-collar crime in this country is more important than ever to be investigated in terms of the impact that it has on the rest of society. So, let me commend you for bringing the witness here today, someone who, hopefully, will be able to shed additional light on some of the problem and help us effectively formulate new laws to control the problem. Mr. HUGHES. I thank the gentleman. Our witness this morning, a convicted money launderer who is cooperating with the Government, is appearing before the subcommittee voluntarily. As I indicated earlier, it is necessary to protect his identify from disclosure to the public in order to protect him from reprisals for his cooperation. We've given the witness the code name "Mario." Mario is a South American national who is now serving a multiyear Federal prison sentence for his role in a smurfing operation. Över time he was promoted to a position of management in the organization. He has traveled all over the United States in the course of these activities. Mario, on behalf of the Subcommittee on Crime we welcome you this morning. We appreciate very much your cooperation in volunteering to appear and share some insights into the operation with us. We do look forward to your testimony. Please proceed. STATEMENT OF "MARIO," A CONVICTED MONEY LAUNDERER, ACCOMPANIED BY FRED MEYERS, INTERNAL REVENUE SERVICE AGENT, AND WILLIAM VELASCO, U.S. CUSTOMS AGENT, MIAMI, FL "MARIO." Thank you. Good morning. Mr. HUGHES. Good morning. "MARIO." First of all, my name here is Mario. I am a Colombian national. I have lived in the States for many, many years. I'm what they considered college educated, as most of the money launderers are; different from the drug dealers, which are two identities completely apart. The drug dealers of Colombia, and, I think, of every part of the world, tend to have a low education, while the money launderers in general are well educated, well dressed, mainly in order to fit into the business world here in the States. I was introduced to the money-laundering scheme in Colombia, on one of my occasions that I visited Colombia, by an individual who was about my age, and, at this moment, has fled the country since our arrest. He asked me if I would be willing to buy checks in different banks, in different States, different cities, of different denominations, but specifying, firsthand, that no check or no money order could be purchased for over $10,000. The initial question was, Why? Because in the states or any bank in the United States, when you deposit, or to purchase or to deposit or to withdraw money over $10,000, that has to be reported to the IRS. The main idea of smurfing-is what they call it is having people of different, you could say, not really nationalities, different aspects, going around to different types of banks, acquiring cashier's checks, money orders, bank checks; they have different names for them, but mainly it's negotiable documents that can be deposited abroad, mainly in Panama. Now, the smurf, typical smurf, will be a person, as I've mentioned before, well educated, of good appearance, mainly for the purpose of mingling, for the people who are the regular customers of different banks. The person who recruited at this time always specified that not always the English language was very essential but it had to be a working-on a working status. On different occasions we had problems with the cashiers, and all depending on the accent they had. On a certain occasions down South, with the southern drawl, some of our Colombian nationals did have a problem communicating. As I mentioned before, the organizer was looking for people who could mingle into the business area. We traveled widely throughout the States. I, myself, traveled like a typical businessman, with an attaché case, a suitcase-sort of like a hanging type, always well dressed. When people went out smurfing, mostly men, but I believe, in other organizations, they do tend to use women, according to the city where we were we had to dress accordingly. Places in California, in small towns, small areas, vicinities of San Diego, San Francisco, people usually don't use ties, so we would avoid that. New York City, Chicago, Fort Worth, Texas, we would always dress according to how the people of the area dressed. A typical assignment was, when I was living in the SouthernEastern part of the country, I'd be waiting for a call on a beeper. I think they have another name for that, "page caller." At that time I would get a call with a code number, I would go out to a public phone, never trying to use, even in our travels, the hotel number or our home numbers. From there on, I would get instructions to travel to a different city. At certain occasions we had beepers from the cities that we were going to go. In the case-we have the case if we went up to New York, and we wanted to communicate with some people up there, we would purchase under anonymous name, or somebody would purchase, a beeper. When we'd get to New York, San Francisco, different cities, we'd just turn the beeper on and I'd be communicated with somebody else with different codes, everybody using nicknames. A typical example, I would get to a city, I would register in a hotel, turn the beeper on. In the average of about 12 to 24 hours I would get a call. I would answer it through a public phone, identify just with my first name—somebody, the person who originally had given me the contact, also gave me a nickname—and we would meet in a bar, any public place, the most unusual places that you can think of. I believe, because of TV and the movies and everything, there is a wide conception that everything is done in back yards or in back alleys. No, it isn't. We'd do it in the most conspicuous places, such as a laundromat. Somebody walks in with dirty laundry, comes out with money. In public places-typical, parking lot of a five-star hotel. I had some occasions to just meet somebody in a bar, probably identifying yourself with a certain color of shirt, and that person would be identified with the same color shirt or vice-versa, with a pen in his pocket, and just a glance-"hello"-"hello". Turn the keys over to the other person. You would have the ticket stub to the parking lot. They would only indicate, "The money is such place, there is so much." There was never any receipts. There is no use for receipts in this. This is an old, traditional—I mean, in the old days these would do it just with a handshake. I believe none of you are aware of the grandiose amount of money. At one time anybody could pick up a car: the car would be worth $15,000, there would be $5 million in the trunk of the car. Now, the only aspect that differs, of course, from regular business, one thing is cash and complete trustworthy, just say $5 million, $2 million, occasionally it would be $500,000, and by the time I would get back with some of my associates and we start counting the money-first, not only for the honesty of how much money there was, but because of counterfeit money. I have been asked how much counterfeit appeared in these bills; very little. I believe drug dealers and money launderers are very skeptical about any kind of counterfeit bill. In our case, we would be very stupid to go into a bank with $5,000 all in $50's or $100's, and all of a sudden having the whole operation stop just because of one $20 counterfeit bill. As I mentioned to you before, the amount of money is incredible. I, personally, and some of my associates, we would get to a point in which we would not see that as money, it was just like invoice, just a commodity. The places, also-let me go back a little bit-the places that we exchanged the handshake and we received the money went from all the aspects of everyday life that you can imagine: parking lots, I believe I mentioned laundromats, hotels, hotel lobby, airports-any place that you can imagine. At certain occasions if we had to travel to another city, the first thing we would do is look at the population of the city. I would |