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Attorney Was Early Government Target
One of the government's first targets was Robert Schwind, whose name had turned up on a list of USTPS associates.
Schwind knew the banking business: he had supervised 350 banks in Georgia, Florida and South Carolina as regional counsel for the Comptroller of the Currency in the 1970s. He is also an old friend of Bert Lance, President Jimmy Carter's first budget director.
In 1980, Schwind became enmeshed in the controversy involving Carter's brother Billy and his ties to Libya. The Atlanta attorney tried to strike an agricultural export deal with Libya that could have brought Billy Carter huge commissions.
After attending a USTPS seminar, Schwind started working on offshore tax shelters from his Peachtree Street office, where he was later joined by David Hill, an Atlanta tax expert.
On March 15, 1984, IRS undercover agent James P. Lewis met with Schwind and Hill in Atlanta on behalf of a fictional client. Schwind and Hill told him about the malpractice insurance plan and other offshore ventures, according to tape recordings later cited by Lewis in an affidavit.
Hill said he and Schwind had a close relationship with a Cayman Islands bank that "can't be blackmailed at all." Schwind said one of their clients was an Alabama doctor who earns $800,000 a year.
"A big key is the secrecy of it.... It ain't for big talkers," Hill said.
Schwind assured Lewis that his client's money would be safe. "With some of our clients, I think that if we stole from them, you might just end up in the trunk of a car at the airport," he said.
Lewis gave them $5,000 to open an offshore account, but the investigation was aborted, the IRS says, when Schwind and Hill apparently became suspicious and returned the check.
Meanwhile, another IRS sting was unfolding in Missouri. The agency had recruited a businessman, known as Mr. A, to pose as a wealthy developer. Agent One, a flamboyant IRS veteran from the St. Louis office, pretended to be his son-in-law.
At a resort hotel in Osage Beach, Mo., they made contact with two Missouri real estate men, Galen Heritage and Pat McNally, who said they were working with USTPS. The March 1984 conversations were recorded and later described in an IRS affidavit.
Schwind said he typed correspondence himself because "you never know en [a] secretary might leave, might attempt to intimidate you or extort money out of you."
At a meeting with McNally the next day, Schwind and Hill said they would charge a 12 percent fee to launder $100,000 offshore, and another 4 percent to bring the money back into the United States as a loan.
Two days later, Schwind and Hill met with their newest customers at Atlanta's Rita-Carlton Hotel. The IRS men handed over the $116,000.
They agreed that the funds would be wired to Agent One's bank account in Houston after an offshore firm called MEAK Realty Co. was set up. "We're the attorneys for the corporation," Hill said. "But if someone subpoenas us, we say, 'Hey, we don't know who the shareholders are."
In the following days, Schwind put the agent's money in an Atlanta bank account in the name of Escrow Services Inc. He incorporated MEAK Realty Co. in the Turks and Caicos Islands. And to create the appearance of a foreign transaction, he generated fictitious loan papers showing a $100,000 debt to a Cayman Islands bank. This would make the laundered money look like a legitimate loan to Agent One.
The $100,000 was then wired from Atlanta to the agent's account in Houston. On April 20, the transac tion was complete.
Three weeks later, armed IRS agents with search warrants raided the offices of Schwind and Hill and other USTPS promoters across the country. The probe was now out in the open.
James R. Wyrsch, an attorney representing Heritage and McNally, said that "the two of them deny that they thought they were doing anything illegal." He said the. IRS' taped excerpts "failed to disclose things that Heritage and McNally said that we said were favorable to them and showed a lack of criminal intent."
David W. Russell, Wyrsch's partner, said that McNally "was a sales agent involved in the selling of some programs. He relied on the expertise of others and says he hasn't done anything wrong." Federal Investigation Continues
Schwind and Hill pleaded guilty last May. Prosecutors said the pair had also laundered $766,000 through a Cayman Islands company for a Georgia cocaine trafficker, John Robert Jones.
On Sept. 3, Schwind was sentenced to one year in jail, Hill to four months. Both were disbarred as lawyers.
The investigation is far from over. In Atlanta, assistant U.S. attorney James E. Fagan Jr. has given a federal judge the names of 25 affluent businessmen who worked with Schwind and Hill; the clients are suing to keep their names secret.
In Washington, IRS officials are pressing legal action against several USTPS promoters.
And in the Cayman Islands, Lynford Evans sits at his desk in the half-empty building near the airport that once housed 30 USTPS employes. He and his attorney complain that the IRS has been using "Gestapo tactics."
Evans said he knew nothing of the money-laundering by Schwind and Hill. Like many of his American associates, he said, "They just wanted to know what we were doing and to do it themselves. They simply plagiarized us. Most of these guys met with us and then started their own deal."
Evans said the IRS is "wasting their time and the taxpayers' money by continuing the investigation. Pointing to a box full of metal stamps, each emblazoned with a different corporate seal, he said: "That's all that's left of USTPS."
"We can eliminate your tax liability pretty much completely from this day forward," McNally told the prospective clients.
Heritage described a medical malpractice plan, saying that "you can dump about all the money you want in that thing. It's just simply an overfunding of some insurance."
McNally said the client can tap his offshore funds through a Gold Mastercard with a $100,000 credit limit. He said the client would serve as a "consultant" to the offshore company holding his money. 'Consultant' Would Decide on Loans
That money, McNally said, "can be loaned out based on recommendation of the client, or the consultant .... If the consultant recommends that foreign corporation loan that money to Howdy Doody, that foreign corporation's, by God, gonna make a loan available to Howdy Doody."
They soon got down to business. Agent One said he had $150,000 in cash from a real estate deal; McNally said he knew someone who could handle it. "As a matter of fact," he said, "the attorney will fly here to get it. Anytime I want."
He called Schwind in Atlanta.
On April 8, 1984, Schwind and Hill met in Missouri with McNally and his two clients. Schwind said they liked to ensure a "double layer of secrecy" by forming a company with offices and directors in the Cayman Is lands, but registered in the Turks and Caicos Islands, another Caribbean tax haven.
Their fee was the same whether they were moving $100,000 or a much larger sum, Schwind said, because "we are putting our necks on the chopping block each time."
He would not say how they moved money out of the country, but noted it was "nothing as romantic" as flying it out on a small plane.
IR Tracks Offshore
RAND CAYMAN, Cayman Islands-Millions of dollars change hands each day in this slowpaced speck of a country, whose 450 banks have turned it into the fastest-growing tax haven in the Caribbean.
There are 18,000 foreign corporations registered here, more than one for every resident of the Cayman Islands. Many are lured not by the warm sun and quiet beaches, but by the tax-free environment and business secrecy laws that make it easy for wealthy Americans to avoid income taxes.
The kind of companies Americans invest in is illustrated by the directory of a modest two-story building here. There are 201 corporate names in all-from Ascot Trading Co. to Zeus Ltd.-but they have no offices inside. Most of the building belongs to the Bank of America.
Such companies provide a financial lifeline for this British colony 460 miles southwest of Miami, which lives off tourism and tax avoidance. Its only other industry plummeted after the United States banned turtle imports in 1978, yet it has more banks per capita than anywhere in the world.
"Cayman has become the Switzerland of the Caribbean," said Orren Merren, a Cayman attorney who has represented the islands in Washington. "It's a British colony without a lot of social tension, it's a good location and the banks themselves may get some tax benefits."
Cayman officials dislike their reputation as a money-laundering center for drug dealers and agreed to cooperate with U.S. narcotics investigations last year. However, anyone caught disclosing financial transactions here without official sanction faces a two-year prison term.
Merren noted that tax evasion is not a crime here and that "one country is not obligated to help another country supervise the collection of its revenues. The fact that people are evading taxes... that's between them and their government, or them and their conscience."
A British Embassy spokesman said that Britain is concerned about abuses of Cayman banks and has been discussing the problem with Cayman and U.S. officials.
U.S. authorities say the flow of illicit cash hereup to $10 billion a year, by some estimates-would not be possible without the cooperation of major banks. Most of the Canadian, British and Swiss banks in Grand Cayman will accept large deposits from Americans with few questions asked.
post office box and a local lawyer to answer your mail.
"I could have this space and cover a thousand companies," Walker said.
Some American tourists are intrigued by local magazine ads touting "All You Need to Know About Tax Havens. They come to the videotaped seminars held three times a day at the Holiday Inn for a tax-deductible fee of $25.
Although the film was produced by the United States Tax Planning Service (USTPS), which is under investigation by the Internal Revenue Service, it is still a popular draw.
The curtains are drawn in a small room, and USTPS founder James G. Bryan appears on the television screen. "Welcome to the fourth largest financial center in the world," he says. "... I'm Jim Bryan, and I'm the author of the U.S. Tax Planning Concept."
Music rises and an eagle's-head logo flashes on the screen as a narrator intones: "The U.S. Tax Planning Concept-dedicated to the preservation of wealth and private property."
"The U.S. was born because of a tax rebellion." says Bryan, an avuncular, white-haired man whose current whereabouts are unknown. "When the government gets aggressive and oppressive with their taxes as they are doing today, many people look for a refuge."
hen Germans put their money in Swiss banks in the 1930s, he says, "The Gestapo put on a great move to try to crack the bank secrecy laws in Switzerland. Today, there are new forms of Gestapo, and those new forms of Gestapo in most countries are called tax collectors."
Bryan describes how someone earning $200,000 could cut his $68,500 tax bill to zero by setting up an offshore corporation and investing in such things as diet plans and oil wells. He draws boxes and arrows to show how a taxpayer can put his money in a Cayman company, under foreign directors and trustees, and still direct its flow.
After the showing, viewers are offered a free consultation at International Services Group Ltd.. which operates out of the same office once used by USTPS. The company, which puts out a booklet called "Tax Haven Journal," also has the same phone number, post office box and eagle's-head logo as USTPS.
Lynford R. Evans, director of International Services Group, said his new company, unlike USTPS, does little tax work. He said he uses the seminars to attract potential clients.
Evans, a thin, bearded man who laughs easily. said he was still using the Bryan videotape because he couldn't afford a new one. The only thing we have that's making any money is the Holiday Inn seminar, so why chuck it?" he said.
Evans said the IRS has singled out his former company for practices that are common in his native country.
"That's how the Cayman Islands survives," he said. "We're a tax haven.... Do you want to do business with someone down here, or do you want to give 50 percent of your income to the IRS?"
"If it's $50,000 or $100,000, we figure people are just bringing the money here and trying to evade taxes," she explained. But she added, "If you go through a lawyer and form a Cayman corporation, then it's all right."
That can be done in a day at the Registrar of Corporations, where the walls are adorned with 20 pages listing newly formed companies, including such ventures as Garmi, Garmo and Garmu. All you need, Carol Walker explains from behind the counter, is a list of shareholders and a registered office here. But that can be nothing more than a
Bankers Face Trial Today for Aiding
BY MARTHA BRANNIGAN
MIAMI-A federal trial is set to begin today in what is believed to be the first case that charges bankers with helping drug smugglers acquire control of a financial institution.
Ray L. Corona, suspended chairman of Sunshine State Bank, and his father. Rafael L Corona, the suspended managing director, are accused of helping Jose Antonio Fernandez, a convicted drug smuggler. and a partner to buy control of the Miami bank, using a nominee to hide ownership.
The trial. which is expected to last three months, marks the culmination of a bitter battle between the Coronas, who are Cuban immigrants, and federal authorities, who have long been trying to wrest control of the small bank from the Coronas.
Mr. Fernandez plans to testify as the star witness for the U.S. Attorney's office. Last week, he was sentenced to 50 years in federal prison after pleading guilty in March to all 17 counts charged in the indictment.
He admitted to importing some 635,000 pounds of Colombian marijuana into Florida. Texas and Louisiana; setting up phony businesses to launder drug money; and buying a lavish beachfront estate. horse farm, and other real estate to hide the profits of his marijuana business.
The key charge in the indictment, however, is that the Coronas helped Mr. Fer nandez and his partner-Gerardo Jorge Guevara, Mr. Fernandez's brother-in-law. who is also accused in the case-acquire a 51% stake in Sunshine State.
Mr. Fernandez and his partner alleg edly used Alma Robles Chiari, a granddaughter of a former Panamanian president, as a front. Ms. Robles Chian was granted immunity for her cooperation in the case.
Specifically, the Coronas are charged with conspiring with Mr. Fernandez and Mr. Guevara to arrange for them to buy the bank's stock through a nominee. Ms. Robles Chiari, and also with hiding the ownership of the bank from state and federal banking authorities by falsifying books and records at the bank.
Federal authorities also allege that af ter Mr. Fernandez became a federal fugitive, the Coronas helped him dispose of his hidden stake in the bank by purchasing it from him.
The Coronas allegedly received management jobs in the bank in exchange for their illicit aid.
The government hasn't alleged that the bank was used to launder drug profits. However, it claims that at one point Ray Corona provided $250.000 from the bank for a manjuana transaction. Coronas' Defense
Ray Corona, 37 years old, is a flamboyant boxer-turned-banker known among MIami banking circles for his ostentatious style and conspicuous consumption.
The Coronas' attorneys say they will assert in their defense that the Coronas never knew that Ms. Robles Chian was
acting as a front for Mr. Fernandez.
I. Barry Blaxberg, general counsel to the bank, asserts the Coronas are the subject of a government vendetta. The gov ernment is letting the big fish off and going after the guys they say did the fronting. We think it's to get the Coronas out of banking."
Last year, before the indictment, the Coronas succeeded in getting a federal judge to overturn an order from the Federal Deposit Insurance Corp. that had sus. pended them from their bank jobs on grounds of mismanagement.
Separate from the criminal case, the FDIC's board is currently considering an administrative-law judge's confidential recommendation on whether the Coronas should be allowed to hold-those posts.
Also charged in the case are Mr. Guevara, accused of drug smuggling, racke teering, and conspiracy in buying an inter est in the bank: Manuel Lopez-Castro, a Miami attorney charged with laundering money through vanous Panamanian corporations; and William Vaughn, a business associate of Mr. Fernandez, charged with money laundering.
Anticrime Attack Pays Dividends
U.S. Seeks to Put a Stop Payment on Money Laundering Schemes
By Mary Thornton
gion Post Stall Writer
The federal assault on money laundering is hitting pay dirt.
Nearly three years after warning that a crackdown was coming, the government is striking hard against the use of banks to shield the profits of organized crime and drug trafficking:
Early this year the Bank of Boston was fined $500,000 after pleading guilty to failing to report $1.22 billion in cash transactions with foreign banks some for companies owned by a local Mafia family.
In a case that will go to trial soon, New York heroin traffickers are accused of using accounts at &F. Hutton & Co. to launder $15.6 million, much of it cash stuffed into gym bags. The brokerage house has not been charged with wrongdoing.
On the West Coast, a group of elderly women recently laundered $25 million in a "smurfing" operation-going from bank to bank depositing just under $10,000, the amount at which a currency transaction form must be filed with the Treasury Department.
More than 100 other money laundering investigations are under way across the nation, according to a high-ranking Treasury Department official.
Treasury Secretary James A. Baker III disclosed this week that his department may create an office of financial investigation to attack money laundering and other crime in the banking industry.
U.S. officials say their increased priority on money laundering investigations pays double dividends: The seizure of illegal assets can cripple a criminal organization and mob kingpins who are well insulated from their illegal activities can often be linked to the profits.
A typical money laundering scheme allows an individual to transform cash into funds that can
not be traced. It can provide a legitimate cover for large profits from, for example, drug trafficking, prostitution, gambling and other illegal enterprise, that he otherwise cannot account for.
The money launderer might secretly transport the funds, by courier or bank wire, to a corporate account in a foreign country where taxes are low and banking records are secret. His corporation, which probably would exist only on paper, could then lend the money back to him, and he might even take a U.S. tax writeoff on imaginary interest payments.
In 1982, U.S. Customs Commissioner William von Raab warned the banking industry of the coming crackdown on money laundering in what is now known as his "fire and brimstone" speech to the Florida Bankers Association.
Von Raab says he believed then that some Florida bankers were "complicit, not just fellow travellers," with drug dealers seeking to launder their profits and that the bankers' compliance with federal law requiring them to report large cash deposits was "lousy."
As the television cameras rolled, von Raab told the bankers he was "ashamed" of them. Then, when I told them that there were a lot of sleazy bankers in Florida, all hell broke loose. Guys leapt up and started screaming and yelling." The convention, scheduled through the next day, was quickly adjourned.
The speech was an abrupt signal that the federal government was about to get serious about the 1970 Bank Secrecy Act, which was amended in 1980 to require financial institutions to notify the Treasury Department of cash transactions of $10,000 or more. Staring this month, gambling casinos also must notify Treasury of such transactions.
Many federal law enforcement officials view the Bank Secrecy Act
as one of the government's top weapons against organized crime and drug trafficking.
"Investigating money laundering is an indirect way to get at the mob," said James Harmon, executive director of the President's Commission on Organized Crime. "We recognized pretty early that you've got to figure out a way to get at the economic benefits of organized crime. Narcotics, labor pay. offs, payoffs to public officials-the problem for them is always how to get rid of the cash. The common denominator is always cash.”
John M. Walker Jr., assistant treasury secretary for enforcement, toid a congressional committee recently, "If we can trace the money, the trail will often lead to high-level criminals. The leaders in any criminal enterprise usually take great pains to distance themselves from the illegal source of their income. But they can usually be found close to the money."
No one knows for certain how many US dollars are laundered each year, but law enforcement officials agree that most of the flow comes from drug trafficking and that the volume is astounding.
One Treasury Department official said money laundering by American banks is "a situation that occurs hundreds of times, if not thousands of times, each day. Many major cities have gambling, horses, prostitution. It's a daily business. There has to be some means of laundering that flow of money."
Walker said estimates indicate $50 billion and $65 billion a year is laundered from drug trafficking alone.
"We know that a single money laundering enterprise can wash $300 million or more in crime proceeds in less than a year's time," he said.
Rep. Charles B. Rangel (D-N.Y.). chairman of the House Select Committee on Narcotics Abuse and Con
-because of the New York pizza parlors accused of serving as fronts for a $1.65 billion heroin trafficking operation in the early 1980s-launderers allegedly made deposits of $4.9 million at Merrill, Lynch, Pierce, Fenner & Smith Inc. before officials there became suspicious and closed its accounts and $15.6 million into accounts at E.F. Hutton & Co.
U.S. Attorney Rudolph W. Giuliani, whose New York office is handling the "pizza connection" case, said, "People were walking into E.F. Hutton with a million or one and a half million dollars in cash that was eventually going into Swiss ac
Giuliani said that when federal investigators subpoenaed records from E.F. Hutton and asked Hutton employes specifically not to mention it to their client, Hutton "tipped the suspect.... It made it impossible to go forward with the investigation at that time. When the customer was notified, he ceased all transactions."
A year later, by chance, investigators developed additional information involving the same suspects and were able to proceed with the case, Giuliani said.
A spokesman for E.F. Hutton said the investment firm refused further cash deposits from the suspect after it was informed that the money might be coming from organized crime. He said the custom er was informed of the decision before the federal investigators made their request for secrecy. It's a very unfortunate misunderstanding
We had no intention of aiding crime," the spokesman said.
As for accepting the large cash deposits, the E.F. Hutton spokesman said all required reporting forms were filed with the Treasury Department.
Federal investigators say largescale money laundering operations use both U.S. and foreign banks, particularly those in such traditional tax havens as Switzerland, Panama, the Cayman Islands and the Baha
Law enforcement officials say their successes have forced crim
inals to turn to cruder methods of laundering cash.
Some simply fly it out of the country. But von Raab points out that a suitcase with $1 million in $20 bills weighs more than 100 pounds.
Other launderers deal in smaller sums to avoid the reporting equirements. In the "Grandpa Mafia" case, a group that included several grandmothers was accused of running a $25 million cocaine operation from Florida to Los Angeles and then laundering the money through California banks. Several people have been convicted in the continuing case.
But there have been problems. Federal law enforcement officials complain that authority for examining banks, credit unions and savings and loans is scattered among five agencies, depending on the type of financial institution. In addition, they say, there are no uniform qualifications required for the See LAUNDER, E7, Col 1
WILLIAM VON RAAB ... gave bankers "fire and brimstone"
trol, recently estimated that drug profits reach as much as $110 billion annually.
Richard Mangan, a money laundering expert in the Drug Enforcement Administration, warns, "They all are ballpark figures. Drug organizations are not posting year-end profit statements."
With its new emphasis on the Bank Secrecy Act, Walker says that the Treasury Department has seized $81.8 million in currency and $34.3 million in property since 1980 but he believes those numbers will grow dramatically in the future.
The most prominent investigation is the ongoing federal grand jury probe of the Bank of Boston, whose chairman, William L. Brown, has said, "Through confusion and error, we failed to incorporate [the 1980 change in the reporting law] into our operating procedures."
Brown has also said that two companies controlled by members of the Gennaro Angiulo organized crime family were placed on a special "exempt list of special bank customers-usually reserved for large cash-producing retail operations-that are not required to file the Treasury Department forms.
In a case known as the "pizza con
"ladirect way to get at the mob"
examiners, and many are not
Mangan adds that money laun-
"We used to go in with search
In Florida, you're talking about
Despite problems, federal enforc-
And in the end, officials say, the strongest push may come from the public. After all, they reason, who wants to do business with a bank that has been exposed as having been used for money laundering by some criminal enterprise?
For example, a recent bankruptcy filing by a Deak-Perera subsidiary was precipitated in part by customers withdrawing deposits after the President's Commission on Organized Crime reported that a 1982 Internal Revenue Service investigation had discovered that a convicted Colombian drug trafficker had laundered about $97 million through Deak-Perera.
Giuliani says he hopes that banks have learned a lesson from the federal spotlight on money laundering. "An institution with any self-respect wouldn't want to be used for furthering criminal activities," he said.
"Banks and financial institutions should follow the know-your-customer rule. They should know what business the customer is in. If not, they should check it out. If you write down that you're a baker, and then come in with $1 million every two or three weeks, then either you're the biggest baker in the United States or you lied."