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Attorney Was Earty 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 super. vised 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 clieat. Schwind and Hib told him about the malpractice insurance plan and other offshore venturea, 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 stort for big talkers, Hill said.

Schwand 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 rust end up in the trunk of a car at the airport," he said.

Lewis gave them $5,000 to open an attabore account. but the investigation was aborted, the IRS saya, where Schwind and Hill apparently became suspicious andro turned the check

Meanwhile, another IRS sting was untoketing in Maio sour. The agency had recruited a businessman, Ionown as Mr. A, to pove as a wealthy developer. Agent One, a Namboyant IRS veteran from the St. Louis office, pre tended to be his son-in-law.

At a resort hotel in Osage Beach, Mo., they made contact with two Missouri real estate mea, Galen Her. itage and Pat McNally, who said they were wortung with USTPS. The March 1984 conversations were recorded and later described in an IRS affidavit.

"We can eliminate your tar liability pretty much com pletely from this day forward, McNally told the pro spective cheots.

Heritage described a medical malpractice plan, say ing that you can dump about all the money you want in that thing. It's just simply an overtunding of some in surance.

McNally said the client can tap his offshore funds through a Gold Mastercard with a $100.000 credit line it. He said the chient vould serve as a consultato the otfsbore company holding his moncy. Consultant Would Decide on Lasas

That money, McNally said, can be launed out bound on recommendation of the client, a the consultant .... If the consultant recommends that foreign corpo ration loan that money to Howdy Doody, that foreign corporation's, by God, gonna make a lour available to Howdy Doody"

They soon got down to businesa Agent One said be 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 thy here to gee 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 Turtos and Caicos Islande another Canbbean 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.

Schwind said he typed a correspondence himself because you never know .en (al secretary right leave, might attempt to intimidate you or extort money out of you."

Af a meeting with McNally the next day, Schwind and Hið 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 neer est 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 Houstod after an offshore firma called MEAK Realty Co was set up. We're the attor neys 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, Schwiad put the agent's money in an Atlanta bank account in the name of Escrow Ser. rices lac. He incorporated MEAK Realty Co. in the Turks and Caicos Islands And to create the appearance of a foreign transaction, be generated fictitious loan papers showing a $100.000 debt to a Cayman Lalands bank. This would make the laundered money look like a legitimate loan to Ageat One.

The $100,000 was then wired from Atlanta to the agent's account in Houstoo On April 20, the transaction was complete.

Three weeks later, armed IRS agents with search warrants raided the offices of Schwind and Hill and och er USTPS promoters across the country. The probe was now out in the open

James R Wyrach, 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 "ailed to disclose things that Her itage and McNally said that we said were favorable to them and showed a lack of criminal intent."

David W. Russell, Wyrach'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 Him pleaded guilty last May. Proseco tors said the pair had also leandered $766,000 through a Cayman Islands compray for a Georpia cocaine tralficker, John Robert Jones

On Sept. 3. Schwind was sentenced to one year in jail, Hip to four months. Both were disbarred a lam yert.

The barrestigation is far from over. In Atlanta, assistant U.S. attorney James E. Fagan Jr. has given a federal judge the names of 25 affluent businesanen who worked with Schwind and Hill; the clients are suing to keep their nama 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 boused 30 USTPS employes. He and his attorney complain that the IRS has been using "Gestapo tactica

Evans said be mew nothing of the money-laundering by Schwind and Hill. Like many of his American asso ciates, he said, They just wanted to know what we were doing and to do it themselves. They simply pla giarized 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 stampo, each emblazoned with a different corporate seal, he said: That's all that's left of USTPS."

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IRS Tracks Offshore Money Laundering Schemes

Caymans Lure
Business With
Tax-Free Secrecy
G

W

RAND CAYMAN, Cayman Islands Millions post office box and a local lawyer to answer your
of dollars change hands each day in this slow- mail.

speck of a country, whose 450 banks "I could have this space and cover a thousand
have turned it into the fastest-growing tax haven in companies," Walker said.
the Caribbean

Some American tourists are intrigued by local There are 18,000 foreign corporations registered magazine ads touting “All You Need to Know About here, more than one for every resident of the Cay. Tax Havens." They come to the videotaped semiman Islands. Many are lured not by the warm sun nars held three times a day at the Holiday Inn for a and quet beaches, but by the tax-free environment tax deductible fee of $25. and business secrecy laws that make it easy for Although the film was produced by the United wealthy Americans to avoid income taxes.

States Tax Planning Service (USTPS), which is unThe kind of companies Americans invest in is il- der investigation by the Internal Revenue Service, lustrated by the directory of a modest two-story it is still a popular draw, building here. There are 201 corporate names in

The curtains are drawn in a small room, and all-irom Ascot Trading Co. to Zeus Ltd.-but USTPS founder James G. Bryan appears on the they have no offices inside. Most of the building television screen. "Welcome to the fourth largest belongs to the Bank of America.

financial center in the world," he says. "... I'm Jim Such companies provide a financial lifeline for this Bryan, and I'm the author of the U.S. Tax Planning British colony 460 miles southwest of Miami, which Concept." lives of tourism and tax avoidance. Its only other Music rises and an eagle's-head logo flashes on industry plummeted after the United States banned the screen as a narrator intones: The U.S. Tax turtle imports in 1978, yet it has more banks per Planning Concept-dedicated to the preservation of capita than anywhere in the world.

wealth and private property. Cayman has become the Switzerland of the The U.S. was born because of a tax rebellion." Canbbean," said Orren Merren, a Cayman attorney says Bryan, an avuncular, white-haired man whose who has represented the islands in Washington. current whereabouts are unknown. “When the gov"It's a British colony without a lot of social tension, ernment gets aggressive and oppressive with their it's a good location and the banks themselves may taxes as they are doing today, many people look for get some tax benefits."

a refuge." Cayman officials dislike their reputation as a mon hen Germans put their money in Swiss ey-laundering center for drug dealers and agreed to

banks in the 1930s, he says, "The Gestapo cooperate with U.S. narcotics investigations last

put on a great move to try to crack the bank year. However, anyone caught disclosing financial

secrecy laws in Switzerland. Today, there are new transactions here without official sanction faces a

forms of Gestapo, and those new forms of Gestapo two-year prison term.

in most countries are called tax collectors." Merren noted that tax evasion is not a crime here Bryan describes how someone earning $200,000 and that one country is not obligated to help anoth- could cut his $68,500 tax bill to zero by setting up er country supervise the collection of its revenues.

an offshore corporation and investing in such things The fact that people are evading taxes . that's

as diet plans and oil wells. He draws boxes and ar. between them and their government, or them and rows to show how a taxpayer can put his money in a their conscience."

Cayman company, under foreign directors and A British Embassy spokesman said that Britain is

trustees, and still direct its flow. concerned about abuses of Cayman banks and has After the shoving, viewers are offered a free been discussing the problem with Cayman and U.S. consultation at International Services Group Lid., officials.

which operates out of the same office once used by U.S. authorities say the flow of illicit cash here USTPS. The company, which puts out a booklet up to $10 billion a year, by some estimates-would called Tax Haven Journal," also has the same phone not be possible without the cooperation of major number, post office box and eagle's head logo 26 banks. Most of the Canadian, British and Swiss USTPS. banks in Grand Cayman will accept large deposits Lynford R. Evans, director of International Ser. from Americans with few questions asked.

vices Group, said his new company, unlike USTPS, t the Bank of America's subsidiary here, an

does little tax work. He said he uses the seminars to officer told a visiting American that he could attract potential clients.

Evans, a thin, bearded man who laughs easıly, "If it's $50,000 or $100,000, we figure people are said he was still using the Bryan videotape because just bringing the money here and trying to evade

he couldn't afford a new one. The only thing we taxes,' she explained. But she added, "If you go

have that's making any money is the Holiday Inn through a lawyer and form a Cayman corporation,

seminar, so why chuck it?" he said. then it's all right."

Evans said the IRS has singled out his former That can be done in a day at the Registrar of Cor. company for practices that are common in his nauve porations, where the walls are adorned with 20 country. pages listing newly formed companies, including

That's how the Cayman Islands survives," he such ventures as Garmi, Garmo and Garmu. All you

said. "We're a tax haven .... Do you want to do need, Carol Walker explains from behind the

business with someone down here, or do you want counter, is a list of shareholders and a registered to give 50 percent of your income to the IRS? office here. But that can be nothing more than a

-Howard Kurtz

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Bankers Face Trial Today for Aiding Smugglers in Getting Control of Bank

acting as a front for Mr. Femandez.

1. Barry Blaxberg. general counsel 10 the bank, asserts the Coronas are the subject of a government vendetta. The gov. emment is letung the big fish off and going after the guys they say did the fronung. We think it's to get the Coronas out of banking."

Last year, before the indictment, the Coronas succeeded in getung a federai judge to overturn an order from the Fed. eral Deposit Insurance Corp. that had suspended them from their bank jobs on grounds of mismanagement.

Separate from the cominal case, the FDIC's board is currency considering an administrative law judge's confidenual recommendation on whether the Coronas should be allowed to hold those posts.

Also charged in the case are Mr. Gue vara, 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 corpo radons; and willam Vaughn, a business associate of Mr. Fernandez, charged with money laundering.

By MAKTHA BRANNIGAN Staff Reporter of THE WALL STREET JOURNAL

MIAMI - A federal lnal is set to begin today in what is believed to be the first case that charges bankers with helping drug smugglers acqure control of a finan. cial institution.

Ray L. Corona, suspended chairman of Sunshine State Bank, and his father, Ra. fael L Corona. the suspended managing director, are accused of helping Jose Anto nio 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 authondies, who have long been trying to wrest control of the small bank from the Como nas.

Mr. Fernandez plans to tesuty 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 indicunent Colombian Marijuana

He admitted to importing some 35.000 pounds of Colombian manjuana into Flor ida. 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, how ever, 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. Fernanda and his partner alles 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 conspinng with Mr. Fernandez and Mr. Guevara to arrange for them to buy the bank's stock througti a nominee, Ms. Rooies Chiar, and also with hiding the ownership of the bank from state and lederal banking authorities by falsifying books and records at the bank.

Federal authorides also allege that it ter Mr. Fernandez became a federal fue gave, the Coronas helped him dispose of his hidden stake in the bank by purchasing it from him.

The Coronas allegedly received man agement jobs in the bank in exchange for their illicit ud.

The government hasn't alleged that the bank was used to launder drug profits. However, it clams that at one point Ray Corona provided $250.000 from the bank for a manjuana transacton. Coronas' Detense

Ray Corona, 37 years old, is a gamboy ant boxer turned-banker onown among M. ami banking circles for his ostentadous style and conspicuous consumption.

The Coronas' attorneys say they will as. sert in their defense that the Coronas never knew that Ms. Robles Chuan was

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Anticrime Attack Pays Dividends

U.S. Seeks to Put a Stop Payment on Money Laundering Schemes

By Mary Thornton

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 Bor too was fined $500.000 after pleading guilty to failing to report $1.22 billion in cash transactions with foreiga banics- some for companies owned by a local Mafia family. . ln a case that will go to trial soon, New York heroin traffickers are accused of using accounts at

F. Huttoo & Co. to launder $15.6 million, much of it cash stuffed into om begs. The brokerage bouse has sol 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 de pouiting just under $10,000, the amount at which a currency trans action form must be Sled with the Treasury Department. . More than 100 other money Laundering investigations are under may 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 ocher crime in the banking industry.

U.S. officials say their increased priority od money laundering inves tigacions pays double dividende: The seizure of Degal assets can Cripple a criminal organization and mob icingpins who are well insulated from their illegal activities can often be linked to the profits.

A typical money laundering scheme allows an individual to transtorm cash into funds that can

not be traced. It can provide a le gitimate 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 se cretly transport the funds, by counier 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 writeott on imaginary interest payments.

In 1982, U.S. Customs Commis sioner 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 banker were "complicit, not just fellow travet lers," 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, vaa Raab told the bankers he was

ashamed of them. Then, when I told them that there were a lot of sheasy bankers in Florida, all hell broke loose. Guys leapt up and started screaming and yelling. The convention, scheduled through the next day, nas quickly adjourned.

The speech was an abrupt signal that the federal government was about to get serious about the 1970 Bank Secrecy Act, which va amended in 1980 to require financial institutions to notity the Treas ury Department of cash transactions of $10,000 or more. Staring this month, gambling casinos also must nouity Treasury of such trans actions

Many federal law enforcement otficiais 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 or. ganized crime. Narcotics, labor pay offs, payotts to public officials—the problem for them is always how to get nd of the cash. The common denominator is always cash."

John M. Walker Jr., assistant treasury secretary for enforcement, toid a congressional committee re cently, 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 of ficials agree that most of the now comes from drug trafficking and that the volume is astounding.

One Treasury Department offidal 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 lazandering 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

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net --because of the New York
pizza parlors accused of serving as
fronts for a $1.65 billion heroin
trafficking operation in the early
1980-launderers allegedly made
deposits of $4.9 million at Merrill,
Lynch, Pierce, Fenner & Smith Inc.
before officials there became sus
picious and closed its accounts and
$15.6 million into accounts at EF.
Hutton & Co.

U.S. Attorney Rudolph W. Giu-
liani, wbone New York office is han-
dling the pica 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-
counts."

Giuliani said that when federal investigators subpoenaed records

from E.F. Hutton and asked Hutton WILLIAM VON RAAB employes specifically not to men

JAMES HARMON ... gave bankare "fire and brimstone" tion it to their client, Hutton "tipped "Indirect way to get at the mob"

the suspect .... It made it impoo trol, recently estimated that drug sible to go forward with the inves examiners, and many are not profits reach as much as $110 bil- tigation at that time. When the cus trained accountants or auditors. lion annually.

tomer was notified, he ceased all Mangan adds that money launRichard Mangan, a money launtransactions

dering schemes are growing more dering expert in the Drug Enforce- A year later, by chance, investi- elaborate. ment Administration, warns, They gators developed additional infor- We used to go in with search all are ballpark figures. Drug organ- mation involving the same suspects warrants and seire notebooks and izations are not posting year-end and were able to proceed with the ledgers. Now, we go in and get profit statements." case, Giuliani said.

computers and Doppy disks," he With its new emphasis on the A spokesman for E.F. Hutton said, adding that trafficking and Bank Secrecy Act, Walker says that said the investment firm refused laundering methods vary in differthe Treasury Department has further cash deposits from the sus eat parts of the country. seized $81.8 million in currency and pect after it was informed that the 2 Florida, you're talking about $34.3 million in property since money might be coming from or- cocaine and Panamanian bank ac1980 but he believes those num- ganized crime. He said the custom- counts ....Lo New York, it's the bers will grow dramatically in the er was informed of the decision be Chinese heroin traffic out of Thaifuture.

fore the federal investigators made lead and Hong Kong. There's much
The most prominent investiga- their request for secrecy. It's a less we of the traditional banking
tion is the ongoing federal grand very unfortunate misunderstanding system and a great deal of use of
jury probe of the Bank of Boston, .... We had no intention of aiding wederground banking systems,
whose chairman, William L. Brown, crime,' the spokesman said. pold skopa, family connections ....
has said, Through confusion and As for accepting the large cast the paper trail is far less obvious,
error, we failed to incorporate the deposits, the EF. Hutton spokes the track is much more difficult to
1980 change in the reporting law] man said all required reporting follow," he said.
into our operating procedures, forms were filled with the Treasury
Brown has also said that two

Despite problems, federal enfore.
Department

er believe there has been prog
companies controlled by members Federal investigators say large tesa Von Raab estimate that since
of the Gennaro Angiulo organized scale money laundering operations 1980 bank compliance in reporting
crime family were placed on a spe use boch U.S. and foreign banks,
cial "exempe list of special bank

cash transactions has jumped from particularly those in such traditional customers-usually reserved for tax havens as Switzerland, Panama,

about 10 percent to 80 or 90 perlarge cash-producing retail opera- the Cayman Islands and the Baha

ceat today, and several bills are tions-that are not required to file

pending in Congress to ease the the Treasury Department forms, Law enforcement officials say

federal access to records of finanIn a case known as the pizza con- their successes have forced crim

cial transactions.

And in the end, officials say, the inals to turn to cruder methods of

strongest push may come from the
laundering cash

public. After all, they reason, who
Some simply fly it out of the wants to do business with a bank
country. But von Raab points out that has been exposed as having
that a suitcase with $1 million in been used for money laundering by
$20 bills weighs more than 100 some criminal enterprise?
pounds.

For example, a recent bankrupto
Other launderers deal in smaller q filling by a Deak-Perera subsid-
sums to avoid the reporting te

iary was precipitated in part by cusquirements.

tomers withdrawing deposits after the "Grandpa

the President's Commission on Or. Mafia case, a group that included

ganized Crime reported that a 1982 several grandmothers was accused

Internal Revenue Service investiof running a $25 million cocaine

gation had discovered that a conoperation from Florida to Los An

victed Colombian drug trafficker geles and then laundering the mon

had laundered about $97 million ey through California banks. Sev.

through Deak-Perera. eral people have been convicted in

Giuliani says he hopes that banks the continuing case.

have learned a lesson from the fedBut there have been problems. eral spotlight on money laundenng.

Federal law enforcement officials "An institution with any self-respect complain that authority for exam- wouldn't want to be used for fur. ining banks, credit unions and sav- thering criminal activities," he said. ings and loans is scattered among Banks and financial institutions five agencies, depending on the

should follow the know-your-custype of financial institution. In ad- tomer rule. They should know what dition, they say, there are no uni

business the customer is in. If not, form qualifications required for the

they should check it out. If you

write down that you're a baker, and
See LAUNDER 87, Coli

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."

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