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Cash surge in West Coast banks linked to shift in US drug dollars

From Miami to California, nine border cities collect most of nation's dirty cash

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Money Laundering

Continued from Page 1

The Globe study also shows that
some Bay area businesses - especially
auto dealerships and real estate agen-
cies are handling millions of dollars
In cash each year. Their willingness to
accept cash payment – even in
amounts over $10.000- primes them
for the same exploitation by launderers
that their counterparts in other cities
have already experienced.

The study's conclusions are based on a computer analysis of 80.000 reports of large cash transactions filed by San Francisco area banks since 1980. The records were among 2.5 million cash reports and 15 years of cash surplus figures obtained by the Globe under agreements with the US Treasury Department and the Federal Reserve.

Government officials say that cash statistics can be used to pinpoint laundering, saving time and manpower. Since criminals do almost all of their business in cash, currency build-ups in certain cities or banks can tip off investigators to where launderers are operatIng.

However in San Francisco, authorities have barely started using the statistics. They have been so slow to take up the numbers that they admit it will be several years before they can put them to much use.

"We're beginning to realize that to hurt (criminals we've got to get their bucks, but the realization is coming slow here." admitted Richard Jarrett. an intelligence officer with the Drug Enforcement Administration's San Francisco office. "We're going to have a tough time for a couple of years."

Sources: US Treasury Department. Federal Reserve Board, state trade associauons.

The Boston Globe



10 cash hot spots

San Francisco's surplus puts it in a group of only 10 US cities that officials now consider the nation's money laundering hot spots because they draw in more cash from the economy than they pump out. The ten absorbed more than 90 percent of the extra $11.7 billion in cash that the Federal Reserve poured into the economy last year.

Nine of the 10- San Francisco, Los Angeles. Denver. El Paso, San Antonio, New Orleans. Nashville. Jacksonville and Miami - are within a two-hour flight of the nation's southern border. which officials say can serve as a jumpoff point to laundering havens in the Caribbean and Latin America. The - tenth city. Philadelphia, whose Federal Reserve handles cash from the Atlantic City casinos, did not run a surplus until gambling was legalized in New Jer sey in the early 1980s.

Three cities San Francisco. Los Angeles and Miami have 1985 surpluses that had crossed the billion-dollar mark by June. "These are the ones that bear close scrutiny," said John M. Walker Jr., until recently an assistant US Treasury secretary.

While cash is flowing into these cities, it apparently leaving New England communities. The Boston Federal Reserve has sent more cash to New England banks than it has collected from them every year since 1970. Last year, it distributed $2.2 billion more in cash than it received. To investigators. these figures suggest that New Eng land's drug cash is going elsewhere to be laundered.

One of those places, they say, is San Francisco. The first official to notice the surplus of cash there was David Christerson, head of the currency department at the city's Federal Reserve. But Christerson was so preoccupied with how to fit all of the extra cash in his overfilled vaults that he failed to ask where it was coming from or why. He did not even tell Federal Reserve bank regulators who might have started looking for answers as they inspected the region's banks.

"Our concern was the sheer volume of it." Christerson said in a recent interview. "It posed a real problem for us. 1 don't know what's causing it. Wedon't get down to looking at patterns."

The first concerted effort to look for an explanation did not come until a rainy morning last March at a confer ence called by the US Attorney's office in San Francisco following publicity about the Bank of Boston's violation of the Bank Secrecy Act. According to several of those who attended, investigators with Customs, DEA and IRS drew up a list of possible sources for the surplus. The Globe's findings bolster their theories.

Miami still tops

Florida. particularly Miami, was high on the investigators' list of sources for illicit cash. That area has recorded the largest cash surplus of any in the nation every year since 1970, climbing to $5.3 billion in 1984, and it is the target of one of the federal government's largest financial probes. As a result. dozens of people previously convicted on drug and laundering charges in Miami have moved their operations to San Francisco.

One criminal connection between the two cities involved the case of MIami accountant Ramon Milan-Rodriquez. In one of their biggest busts to date, federal agents arrested Milan-Ro

driquez in May 1983 for laundering
hundreds of millions of dollars in drug
money. Five days later, when they tried
to question one of his San Francisco
partners. Ivan Cuartas, they found
Cuartas had packed up his family and
disappeared. Left behind were carbon
copy receipts that officials said indicate
Cuartas had been receiving blocks of
cash from Miami and converting them
into cashiers checks at Bay area

The man who left $6 million in the
rented car also had Florida ties. Accord-
ing to a federal affidavit, he gave an
allas Stephen R. Harrison, when he de-
posited $5.000 at State Street Bank and
Trust and received his VISA card in
February 1984.

Soon after. charge slips show, he turned up in Florida. From then on, he made several cross-country trips before abandoning the car in San Francisco. He then returned to Miami, where authorities believe he lives today.

Government statistics support what cases such as these suggest, that part of San Francisco's excess cash is coming from Miami.

Federal Reserve figures. for instance. show that the two cities' surpluses have moved in counterpoint to each other for the last 15 years - when one has grown. the other has shrunk. The figures show that excess cash in Miami Increased fivefold from 1970 through 1980 while San Francisco consistently ran a deficit. Then in 1981. the tables were turned. Miami's sur plus, though still huge, shrank $200 million while San Francisco found itself for the first time in a decade with an extra $500 million. Since then, the surplus in Miami has resumed its growth. but at a modest four percent, while the San Francisco surplus dipped and then doubled.

The same kind of counterpoint movement has occurred with large cash transactions in the two areas during the last five years, according to Treasury Department statistics. The figures show. for example. that the amount of money Florida banks reported collecting in large cash deposits dropped 25 percent during the early 1980s and then resumed its growth. but only at a modest rate until very re cently. By contrast, large cash deposits In the San Francisco area banks have jumped fivefold during the 1980s.

"I'd say there are shifts (of cash] from traditional areas like Miami to the San Francisco Bay area, said William Ferris. DEA's financial investiga tions chief.

San Francisco is also attracting un-
told millions in cash from foreign lands
like Mexico. the Philippines and Hong
Kong, Although there are more legiui-
mate reasons for cash coming from
some of these areas than from Miami.
investigators still suspect that part of
the money is illegal.

By far, the biggest cash source is
Hong Kong..

Treasury figures show that in the
last five years alone the amount of cash
flowing from the British protectorate to
the United States has jumped tenfold to
more than $1.7 billion. Almost 70 per-
cent of that amount has gone directly
Into the Bay area.

Because Hong Kong's secrecy laws block their attempts to obtain bank records. US analysts cannot easily deter mine how much of this cash is illicit. But they say that the recent expansion of the Far Eastern heroin trade has attracted illegal dollars to Hong Kong and turned the city into an international center for drug money. According to the President's Commission on Organized Crime. 65 percent of the currency that is then sent from Hong Kong to the United States is in the small denominations typical of drug traffic.

As one top legal official in Hong Kong put it: "We're the third largest flnancial center in the world, and at least that large of a laundering center."

US Justice Department officials say they see increasing links between Hong Kong banks and American drug traf fickers. "It's obvious to us we'll be doing a lot more business with Hong Kong." said Philip White, who is in charge of collecting information from foreign countries for US criminal investigations.

Government officials raised suspicions about laundering connections between Hong Kong and the Bay area when they announced a $2.25 million fine last month against Crocker National Bank of San Francisco. Crocker was penalized for failing to report $3.4 billion worth of cash transactions with six Hong Kong banks. Two of those six banks collapsed recently: the manager of one of them was caught trying to leave Hong Kong with $154.000 in US dollars and $1.4 million in securities in his briefcase.

Crocker executives were "outraged" by the allegations of laundering. They and other US bankers who do business with Hong Kong say they only take cash from correspondent banks there and cannot be responsible for the original source of the money. The US bankers say they cannot be blamed if their correspondent bank accepted drug


"This is not a business that we talk about. It's something we feel that is part of our business, and not something we want to be advertising." said Thomas Robards, treasurer of Republic Bank of New York. Republic deposited $760 million with the San Francisco Federal Reserve last year, almost all of It from correspondent banks in Hong Kong.

These cash flows from Miami and Hong Kong sources explain where much of San Francisco's excess cash is coming from. But they don't explain why launderers and others are attracted to the Bay area. Investigators cite three reasons: the structure of Califor nia's branch banking system, the failure of Bay area banks to report all large cash transactions, and the willingness. of some Bay area businesses to accept payments in cash, even in large amounts.

The region has so many bank branches that it is easy for money launderers to hide large cash transactions by spreading them among branches. California's commercial banks alone have more than 4,500 branches, three times the number in Massachusetts. So launderers find it easy to break up large blocks of cash into smaller amounts and buy cashiers checks under $10,000 at many branches. This technique, known as smurfing, enables them to avoid the government's cash reporting requirement.

Incidence of smurfing is on the rise In the Bay area, according to investigators. In one case, for example, authori ties broke up a ring of 35 Colombians who went from bank to bank buying cashiers checks for just under $10,000. then stuck them inside the covers of stereo records and mailed them to their homes in Colombia. Investigators said one member. Reynaldo Suavita, escaped but was recaptured last July in Boston: he is now awaiting trial.



The sale of cashiers checks is also growing, according to the Globe study. Bay area banks reported a 30 percent increase in sale of checks over $10,000 between 1980 and 1984. By contrast. Florida banks reported a 30 percent drop.

If bank branching helps smurfers. banks failure to report their large cash transactions helps all types of launderers. Bay area banks often fail to report cash transactions above $10.000. according to the Globe study, Investigators say that this is the single biggest problem they face in trying to stop laundering

The Globe's analysis shows that Bay area banks did not report one quarter of all their large cash transac tions in 1984. leaving government probers without any information about the source or use of roughly $1 billion in cash.

The reporting record of Bay area banks was considerably worse than that of banks in other major financial centers, especially Miami. Government officials believe their crackdown on money laundering in Miami has caused banks there to do a better job reporting their large cash transactions than anywhere else in the nation.

According to the latest statistics. Miami banks filed reports on 70 percent of all the cash available in their region. Banks in several other regions flied reports on about 35 percent of the available cash. By contrast, banks in San Francisco have filed reports on only 25 percent of the cash in their area.

Without cash reports, the government cannot identify which businesses are involved in major cash transac tions, or whether they are being used by criminals and drug traffickers to launder money.

However, a Globe study shows that several Bay area business groups. whose counterparts in other cities have been susceptible to money laundering are conducting large cash transactions with increasing frequency. For example:

Lawyers in San Francisco received $2.7 million in cash fees last year, nearly 70 percent more than they collected

In 1980.

"It's not at all unusual or uncom mon for defense attorneys to be paid in cash," said Thomas J. Nolan, a Palo Alto lawyer and secretary of a California association of defense attorneys. "I don't go around questioning the people who pay me.

Not all of the cash that lawyers receive comes in the form of fees. Several weeks ago, a Berkeley attorney was indicted for allegedly helping dispose of the cash profits of a drug ring that smuggled 113 tons of marijuana.

Bay area auto dealers collected almost $7 million in cash for car sales last year and another $3.4 million early this year. Their large cash use, the fig ures show, has climbed almost 80 percent annually for the last five years.

William Graham. an executive of one of San Francisco's largest dealerships. recalled selling a car for $13.000 cash in 1984 to a man he suspected of being a drug trafficker. The sale produced an unusual aftermath: one of his employees noticed the payment. followed the buyer home, tied him up and stole another $40.000 in cash from him. The buyer untied himself and shot the employee, who subsequently disappeared. Graham said. No charges were filed

Real estate brokers in San Francisco received $7 2 million in cash in 1984 and another $1.2 million by March of this year. One Chinatown real estate dealer. for example, said he received $400,000 in cash from a recent Immigrant from Hong Kong as down payment on an apartment building. To hide his wealth. the immigrant had stored the money in three safety deposit boxes rather than placing it in an interest-bearing account.

The widespread use of cash. typical of San Francisco's Oriental and Filipino communities, complicates the gov ernment's task of keeping tabs on the

US Justice Department officials say they see increasing links between Hong Kong banks and American drug traffickers.

business world. Businesses with whom these communities deal are becoming so accustomed to taking huge amounts of cash that they rarely ask questions about their source.

Some companies go so far as to advertise their clients cash wealth in the Yellow Pages. "We have Chinese Buyers with large amounts of cash to invest in income properties. large and small. states one real estate agency's ad. They seek Commercial Buildings. Shopping Centers. Apartments. Flats and Homes, locally and nationwide.

These transactions should come to the government's attention when they are reported by the financial Institu tions where the businesses bank. Then. Investigators could determine whether they involved money laundering.

But. because Bay area banks are failing to report so many cash transac tions. Investigators know that they could miss cases of laundering. So their first priority is to track down banks that are failing to file the reports. They are planning to borrow a tactic from the Bank of Boston case: zeroing in on banks that file few cash reports but then make huge dollar deposits with the Federal Reserve.

However. Investigators admit that it will be a year or more before they can target those institutions. They must wait until the Federal Reserve improves its record-keeping. Currently, the Fed only knows that it is receiving billions more in cash than it used to. But it can't figure out how much each bank is contributing to the excess because its only records are deposit tags from the bags in which the money is brought in.

As the cash was piling up in the vaults this spring, the Federal Reserve tried to sort out the deposit silps into piles for each bank. But, its top examIner said. "We looked at the slips and decided we could count all day long and couldn't do anything with what we had.

NEXT: Bank of Boston

This report was prepared by The Globe Spotlight Team, which consists of editor Stephen A. Kurkjtan, report. er Daniel Golden, economics reporter Peter G. Gosselin, and researcher M.E. Malone. Also contributing was Chris Mayer of the Globe's Information Ser vices department.


P91/12 род

More cars, houses, legal services

being bought with cash


Money Laundering

Dick Conway of Sea Crest Cadillac-Pontiac Inc. in Lynn has noticed the upswing: more people are paying for cars with large amounts of cash.

A few weeks ago when a customer plunked down $13.000 in bills as down payment on a fleet of limousines. Conway took it but was worried. Where would he put it for safe-keeping until he could take it to the bank?

Worried or not. Conway and executives like him across the Commonwealth and the country report they are dealing in ever larger blocks of cash. Last year alone. American businesses reported handling $29.2 billion in amounts over $10,000.

That figure is based on a computer analysis of more than five years of cash statistics obtained by The Boston Globe under agree ment with the US Treasury De partment and the Federal Reserve Board.

These statistics are of growing Interest to federal investigators who hope to use them to catch money laundering and to state revenue officials who see them as a means to track tax evasion. They also intrigue some economists who think they can be used to study the effect of cash on Inflation and on the nation's overall economic performance.

in Massachusetts, businesses' use of cash since 1980 has climbed at a pace that even surprises some industry spokesmen. But the cash record of Bay State businesses is dwarfed by that of their counterparts in Florida and California. Businesses in those two states reported depositing or withdrawing $8.4 billion in large cash blocks last year, up 60 percent from 1980. They alone ac count for almost one-third of large cash transactions by businesses nationwide.

Huge cash increase

Some of this increased cash re porting is the result of improved compliance with the 1970 Bank Secrecy Act. which requires banks to file reports on transactions over $10.000 with its customers. But much of it reflects a real rise in the amount of currency paid to bust


The Globe examined large cash use by three types of businesses and professions in Massachusetts - auto dealers. lawyers and real estate brokers and compared it to use by similar groups in Florida. California and the United States.

The study found that Bay State auto dealers reported collecting $8.7 million in more than 400 cash transactions last year. Although that was less than one percent of their total sales for the year. It was still a 20-fold increase over what they reported collecting In 1980. Figures for 1985 show that the amount is still increasing: by the end of March. It had already reached $5.9 million.

Conway and his colleagues were surprised by these figures. "We don't normally get many oneperson. over-$10,000 transactions." the Sea Crest executive said. "We much prefer bank or certifled checks."

But Conway said he has to ac cept cash. Otherwise, he said, the customer "will go next door and purchase it there."

Massachusetts lawyers reported receiving $2.9 million in 110 cash transactions last year - less than one percent of the almost $1 billion they collected in fees. Their use of large blocks of cash increased about 11⁄2 times between 1980 and 1984 and has continued to rise this year. By the end of March, they reported receiving another $750,000.

Lawyers said in interviews that clients who would usually pay cash include husbands and wives in divorce cases, and grandparents who dig out their life savIngs to pay for counsel for grandchildren accused of crimes. But they acknowledged that in recent years, most of their cash has come from another brand of client - the accused drug dealer..

"It's drug defendants paying cash. no question about it." said Beryl W. Cohen, a veteran Boston attorney, "but drug defendants have a right to be represented in

court too."

Cohen said some lawyers offer lower rates to clients who pay cash. "It's almost as if the duffel bags (of cash] are being passed straight to the lawyers." $2.5m in real estate

Massachusetts real estate brokers reported being paid $2.5 million in cash last year. That was a small percentage of their $12.4 billion 'inrevenues for the

year. Still, their use of large blocks of cash has more than doubledsince 1980. By March of this year. they had reported another $1.4 million in cash payments.

Real estate industry leaders seemed nonplussed by the cash figures. "If somebody paid currency for a house. word of it would go through this company in 10 seconds." said John Bond. an executive with Jack Conway & Co.. a Massachusetts real estate firm. "In 15 years I've never heard of it happening.

We don't deal in cash in any transaction." said Joseph L. De laney, a Milton Realtor. "Most brokers do not have the necessary security" to deal with it.

The use of cash in Florida and California is far more common than in Massachusetts. The real estate brokers, lawyers and auto dealers in these two states ac count for one-third to one-half of all large cash transactions that their occupational groups reported conducting nationwide last year.

Florida auto dealers reported receiving $160.7 million in large blocks of cash last year, or nearly two percent of their sales. Califor--. nia dealers collected another $54 million.

Auto dealers in both states ac knowledged accepting some cash payments for cars. Morry B. Markowitz, an executive with one of Miami's largest dealerships. Braman Inc.. said his firm "sees a fair amount (of cash), a little more perhaps than elsewhere." He said the reason was that Braman's customers are older people with large amounts of disposable In


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colleagues received another $18.9 million in almost 1.000 deals.

Among these professions. the lawyers do the largest portion of their business in cash. Last year. Florida lawyers reported collecting $68.9 million or six percent of the estimated $1.1 billion they made-of their fees in cash. Callfornia lawyers collected $10.5 mil lion in cash fees. The combined cash use by lawyers in the two states accounted for more than 45 percent of large cash transactions reported by lawyers nationwide.

Neal R. Sonnett, vice president of the National Association of Criminal Defense Lawyers, said that Florida attorneys are paid in cash more often than lawyers in other states because 60 percent of defendants in federal cases in southern Florida are suspected drug dealers. "For active criminal practitioners...being paid in cash certainly doesn't surprise me." he said.

**1 never thought there was any Impropriety in accepting cash for anything in America." said Richard A. Sharpstein, president of the Florida Criminal Defense Attor

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neys Association. "When people come to hire me, I assume them to be innocent."

But investigators believe that many of the large cash transac tions by businesses in Florida and California include illicit money. Even in Massachusetts, where such transactions are less com

mon, a top Revenue Department official said he thinks some businesses may be using cash to evade taxes and underwrite elaborate criminal schemes.

Latest scams here

"Massachusetts has the economy of the future," said Revenue Commissioner Ira A. Jackson. "It is only logical to believe that the latest and more sophisticated of scame with money would be taking place here."

Some economists are also showing concern about the fig ures. Until recently, economists paid little attention to currency because Americans pay for their most of their goods and services with checks and credit cards, not cash. Cash makes up only about 28 percent of the money supply.

But the cash statistics now being assembled under the Bank Se-crecy Act indicate that Americans use cash very differently than economists had assumed.

Traditionally. It was thought that people only used cash to pay for smaller items like groceries and newspapers. It was also thought that when people had cash in their pockets, they spent it right away, because it is readily accepted as payment.

However, the government's figures suggest that Americans hoard a lot of their cash. And when they do spend it, they often Pay for big items such as attor neys' fees, cars and houses.

Economists say that trying to explain these trends is important in order to design policies to keep the economy healthy and growing A study by former Boston Federal Reserve economist Ralph C. Kimball concluded. "Recent trends in currency usage have made the formulation of monetary policy more difficult and created uncertainty about the spending habits of Americans.

The Boston Globe

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