Shawmut probed

In one case now being investigated by the US Attorney's office in Boston. a South Shore affiliate of the Shawmut Bank of Boston did not ask enough tough questions. The investigation centers on an attempt last fall to ship more than $1 million worth of munitions to the Irish Republican Army aboard a Gloucester-based vessel. the Valhalla.

The bank received $550.000 in cash deposits from a Braintree man during a week in March 1984, but it failed to file reports on $250.000 of the money, according to sources familiar with the case. Shawmut-Needham's Braintree branch accepted the deposits without further inquiries after a regu lar customer assured a bank supervisor that the Braintree man was a "good guy."

In fact, the Globe has learned, at least $77.500 of the money deposited In the branch wound up with a convicted drug dealer whose brother is under investigation for allegedly mas terminding the munitions shipment. The US Attorney's office, according to sources, is seeking to determine if any of the cash that went into the bank was ultimately used to buy the weap

ons.

In the same case, investigators are exploring why that Shawmut-Needham branch did not report other deposits totaling several hundreds of thousands of more dollars into the Braintree man's corporate account. Since none of these deposits exceeded $10.000, the branches may not have violated the law, but because they were made with such frequency over a few months in 1964, investigators contend that the bank should have be come suspicious and reported the activity to authorities.

Investigators in the case have also subpoenaed records from Patriot Bank, Braintree Savings Bank and Bank of Boston.

One official, who though familiar with the case asked not to be identifled, said he doubted the investigation would show that any bank officials had willfully failed to report the transactions. These things took place be fore the Bank of Boston was pubilcized." he said. "No one was paying proper attention then."

Corrupted bankers

Still, because criminals can pay them so much money, there have been some cases where bank officers have been bribed to avoid reporting cash transactions.

Earlier this year, an FBI sting oper ation led to charges against 14 current and former bank officials in Puerto Rico for conspiring to launder drug money. Among those indicted was Raul Enrique Pengaricano-Soler, prestdent of the Caribbean Federal Savings Bank, who failed to disclose a deposit of $385.000 in cash by an FBI agent posing as a money launderer. Pengartcano-Soler is also a member of the federal board that oversees all savings and loan institutions in New York. New Jersey and Puerto Rico.

While many banks have security officers to check for compliance with the Bank Secrecy Act. these officers must monitor a wide range of other regulations as well. In practice, responsibility for enforcing the act is often up to tellers who have not been adequately instructed in its provisions. The President's Organized Crime Commission reported last year that banks usually devote less than one hour to teller training on compliance with the

act.

Even when trained, tellers may not report cash transactions properly. bankers said. For one thing, they have many other responsibilities, from

counting money to scrutinizing check endorsements. They are badly paidusually between $8.000 and $20.000 per year. They change jobs frequently. one banker estimated that turnover among tellers is 20 percent a year.

The Bank of Boston case drew bankers' attention to the cash reporting law. Since then, the number of transactions reported to the federal government has doubled. More than 40 other banks nationwide have informed the Treasury Department that they too had accepted millions of dotlars in cash without reporting the transactions. They include Shawmut and Bank of New England..

Bank of Boston's audit department reviewed its compliance with the law in 1977. Although it identified only one transaction where the bank failed to file a report, deputy auditor Perley A. Swasey Jr. sounded an ominous note.

"The prevalent weakness...was that tellers and teller trainees at the branches we reviewed had not been informed of Operational Procedure.. Although Branch Management was aware of the Bank Secrecy Act. and possessed written procedures in the new Retail Banking Operating Manual. It appears that tellers weren't aware of proper procedures."

Swasey's report was sent to Robert L. Stearns, vice president of Banking, Offices Administration, which oversees the bank's branch offices. A short time later. Stearns responded to Swasey's criticisms in a memorandum to his boss, John F. Stucke, vice prestdent in charge of the bank's audit de partment. Stearns said a new manual being drafted for tellers would include Instructions for complying with the

act.

Stearns declined to be interviewed.

Two months later, on June 1, 1977. Stucke informed Hill, the chairman of the board, and Brown, the president. that his division had examined compil ance with the Bank Secrecy Act "Overall, everything appeared to be satisfactory." Stucke wrote. "and tellers and managers were aware of and conforming to the provisions of the

act

In July 1980. Congress authorized
the Treasury Department to tighten
the Bank Secrecy Act. One of the ma-
jor changes in the law was that cash
transactions with foreign banks now
had to be reported.

That year. Daniel M. Dormer took
over as vice president in charge of
Bank of Boston's Coin and Currency
division, which was shipping hun-
dreds of millions of dollars to and from
European banks each year. Dormer
was notified of the change in the Bank
Secrecy Act, but did not recognize its
significance because he was so new in
the job. This oversight would prove
critical in the bank's failure to report
$1.2 billion worth of transactions with
Surias banks between 1980 and 1984.

Nearly two years later. Dormer re
ceived a notice from the bank's Sys
tems Research Department updating
procedures for reporting domestic cash
transactions. But the memo did not
mention the reporting requirement for
shipments of money to and from for
eign banks.

Dormer did not learn until 1983
that the bank had been supposed to
report the transactions. US officials
initially thought that the bank had
been laundering dirty money overseas.
but later acknowledged that the re
porting failure had been an innocent
mistake.

As it turned out, the bank was
more deeply embarrassed by revela-
tions about its relationship with two
companies controlled by Gennaro An-
glulo and his brothers. The Angiulos
had begun commercial banking with
the bank's North End branch in 1964.
Between 1979 and 1983, Huntington
Realty Co. Inc. and Federal invest-
ments Co. obtained more than $7 mil-
lion worth of cashiers checks from the
bank. More than $2 million worth of
the checks were purchased with cash
in amounts above 310.000 apiece and
should have been reported to the IRS.
The conversion of cash into cashiers
checks is a favorite laundering device
of organized crime figures, exactly the
type that the Bank Secrecy Act was
enacted to monitor.

But the bank did not report any of
the transactions: it had placed both
companies on its exempt list. Argu-
ably, the exemption for Angiulo's two
companies was technically approprt-
ate under the law's original language.
which permitted exemptions for any
bank customers who regularly dealt in
large amounts of cash.

However, the tightened Bank Secre
cy Act in 1980 included a restriction
on the types of companies eligible for
exemption. They could only be retail-
ers, and even then they could only be
exempted if the size of their business

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justified the amount of their cash transactions.

News of the change reached Bank of Boston in July 1980, and within days the Banking Administration division sent a memo to the branches. "Each office should submit new letters listing customers who are exempt from filing large currency transaction re ports stated the memorandum from Stoddard G. Colbert, vice president in charge of the division. To coordinate the effort, he placed his assistant Hubert W. Cox in charge.

11 on North End list

Two weeks later, North End branch manager Gloria Cushing sent Cox a Hist of 11 companies she considered ellgible for exemption. They included Anguio's companies, plus Caiola Travel Agency. European Restaurant. Francesca's Restaurant, Home Savings Bank, Mike's Pastry Shop, Modern Pastry Shop. the Social Service Credit Union and Louis Triuizi's jewel ry store, all of the North End and A Pellegrino & Son's produce center in Chelsen. Only three of these companies were still on the list after the Treasury Department's review in 1983.

Cushing, who retired from the bank in January, refuses to be interviewed. In a statement released by her attorney in April, she said she believed that the two Angulo companies qualified for the exemptions. In testimony before Congress earlier this year. Brown criticized her for using "poor judgment" in the matter.

Although Cox compiled a central exempt list from the names submitted by the different branches, he did not

screen the companies to see if they qualified under federal guidelines.

In addition to finding that one fourth of the companies on the bank's exempt list should have been ruled ineligible, the Treasury Department's 1983 review also indicated that many companies on the list were given cash limits that exceeded their normal business needs- or that had no limits at all. The bank had given 22 companies authority to deposit any amount of cash without a report being filed to the federal government, in violation of the haw.

After the Treasury Department's 1983 review, the bank would set new limits for exempt transactions for many companies on the Bank of Boston's list. For example, the Union Oyster House went from unlimited cash deposits to $20,000: Lord and Taylor. from unlimited to $120,000: Brigham and Women's Hospital, from unlimited to $17,000: Arthur D. Little, from unlimited to 340.000; and Mike's Pastry Shop, in the North End, from $60,000 to $20.000. The ceiling on unreported cash transactions by The Boston Globe, which is also on the exempt list, was reduced from unlimited to $600,000.

These new limits marked an end to the bank's casual treatment of its exempt list. Until 1983, according to Interviews, the bank's priority was the convenience of its regular customers. not the investigative needs of the federal government.

As one businessman explained when asked why the bank had granted unlimited status to his company: "I may have said, 'Listen, I don't want a Hamit if I can avoid it. They probably said. 'He's a good customer. As a ser vice, we won't put a limit.""

Two companies controlled by reputed crime boss Gennaro J. Angiulo and his brothers were not the only ones improperly placed on the Bank of Boeton's exempt list.

The bank had to drop as many as 30 of the 102 companies on its list in 1983 after the US Treasury Department found that they had wrongly been given exemptions from a law requiring cash transactions over $10,000 to be reported to the government.

Late last year, the Boston Globe has learned, the principals of several companies that had been removed from the exempt list were called to testify before a federal grand jury. Like the Angiulo controlled firms, these companies had accounts at the Bank of Boston's North End branch.

According to several sources, prosecutors in the case were trying to deter mine if any of the companies had gotten on the list through illegal means, or whether they had laundered any illicit cash through their transactions at the bank. No indictments were returned.

Bank of Boston spokesman Barry Allen refused to say recently whether two probes done by the bank itself had found if any companies on the exempt Het besides the Angiulos' Federal Investments and Huntington Realty may have been laundering money. "That's an interesting question." Allen said late last month. "Unfortunately all of the companies on the exempt list were our customers, and their business with us is confidential."

However, the Globe Spotlight Team has obtained copies of documents showing the bank's exempt list at var lous times between 1972 and 1983. At least five companies appear particularly unsuited to the list. Bank officials were supposed to grant exemptions only to companies that regularly had cash transactions above $10,000, yet

these five firms are not generally considered retail or cash businesses.

In addition, their owners either de nied dealing in large amounts of cash. or would not reveal the sources of the money. Some of these companies have had associations with white-collar criminals or organized crime figures. The five were:

STABILE TRAVEL AGENCY: Stabile and Co. Travel Agency Inc. on Hanover Street was on Bank of Boston's exempt list from 1977 to 1979. Travel agencies usually conduct business by check. but John Grossi, owner of Stabile, had a sideline: a currency exchange business.

Groast told his customers that he could send their dollars to an Italian bank. The money would be converted to lira at an advantageous exchange rate and earn high rates of interest. while being shielded from American

taxes.

Although Bank of Boston must have regarded Grossi's service as legitimate. It was in fact a hoax. Grossi kept the money instead of forwarding it. After allegedly stealing $500.000 from his customers, he fled to Italy in 1979. He also left behind debts of $24,000 to Bank of Boston, which had loaned him $50,000 that summer, and $37.000 to airlines that he had not reimbursed for ticket sales.

A warrant was issued for Grossi's arrest on charges of larceny by false pretense. He has never returned to stand trial. Today, Stabile Travel re mains closed. Through its windows can be seen outdated travel brochures and maps.

F. LEE BAILEY: The only law firm on the Bank of Boston's exempt list in 1982 was the office of F. Lee Bailey, whose clients have included Patty Hearst and Albert DeSalvo, the "Boston Continued on next page

Continued from preceding page Strangler." The bank permitted the firm to make unlimited depos its without any reports being filed to the federal government. The firm was struck from the list in 1983 by the US Treasury Depar ment because it does not consider law firms as retail businesses that customarily deal in cash.

Bailey has defended several clients, including Joseph Barboza and Peter Limone, who have been described in court records as associates of Gennaro Angiulo, reputed head of organized crime in Boston. Angiulo, who controls two real estate firms that were on the bank's exempt list, was reported to have met with Bailey in 1983 to discuss hiring him as counsel. Angiulo is currently on trial in Boston on federal racke teering charges, but Bailey is not representing him.

But a member of Bailey's law firm recently represented Angiulo in a real estate transaction. Mario Misci aided Angiulo in gaining control of a Revere marina and protecting it from forfeiture by the federal government.

Bailey refused to answer numerous calls to his office. His partner. attorney Kenneth Fishman, said the firm was probably placed on the list in 1975, when it opened an account at Bank of Boston. He said Bailey had not been aware of the firm's exempt status, but was not surprised by

Fishman said that Bailey only received "fee-related" cash from his cilents. But he declined to state exactly how much cash the firm deposits each year or to name clients who paid cash.

If Bailey's firm had not been on the exempt list. Fishman said. bank reports on its deposits over $10.000 might have aided law enforcement efforts. "If a lawyer enters an appearance in a case in a certain week, and he shows sig nificant cash deposits in that week, it might be a step in the investigative process." he said.

A. PELLEGRINO & SON: The last time that A. Pellegrino & Son did a significant cash business was when it sold wine grapes in the 1950s, according to former owner Joseph Pellegrino. Yet the wholesale firm in the New Eng land Produce Center was on Bank of Boston's exempt list from 1979 to 1982. allowed to deposit 350.000 in cash without any reports being filed.

Pellegrino, who ran the bustness from 1977 until this year. said he had no knowledge of the firm's exempt status until he was

F. Lee Bailey

The new vice president and comptroller had a long record of white-collar crime, according to documents filed in US District Court. Karger had pleaded guilty In 1970 to receiving and dispos ing of stolen Treasury certificates valued at more than $1 million. and served four years in prison. He later spent another year be hind bars after being convicted of passing bad checks. Pellegrino said he and Karger met at some point after 1980 when Karger was on work release from Suffolk County jail and had a job at another produce company.

A. Pellegrino & Son filled for Chapter 11 reorganization in November 1983. A year later, the court approved a plan in which Karger's brother Peter, who runs a North Shore vending company. would lend $500.000 to the firm on the condition that Karger remain as one of its executives.

During the proceedings. A. Pel legrino & Son filed this affidavit: "Many law enforcement authorities consider Mr. Karger to be a notorious white-collar criminal with connections to organized crime. Since joining the company. management believes that Mr. Karger has made several significant contributions and has succeeded in bringing weekly operat ing cost under tighter control."

SHARKEY'S MEAT PACKING: A small meat market that catered to a few local restaurants is how long-time North End residents remember Frank Calabraro's Sharkey's Meat Packing Co. Inc. Since Calabraro closed down his storefront operation around 1973. he has run his business out of his West Quincy home, selling meat that he had bought wholesale to selected customers.

"He's a small meat jobber." said one competitor. "I think he has one truck and he does a little business that way, adding a few cents onto every pound he delivers."

Documents filed by Calabraro with the secretary of state's office also reflect the modest size of the business. The company's total assets ranged between $35,000 and $87,000 in the mid-1970s. The last two financial reports the company filed, in 1977 and 1978. did not list any figures for its assets or liabilities.

The landlord of the building that Sharkey's occupied in the North End said he was surprised to hear that its cash business would have been large enough to Justify inclusion on the bank's list of large cash customers. "He was one of a several [butchers] in this area. everybody scraped by. nobody got rich," said Carl Gaeta.

Yet Bank of Boston considered the company one of its largest cash customers. According to 1982 documents. Sharkey's was authorized to deposit as much as $40,000 at a time, without having the transactions reported to the federal government. The Treasury Department ordered Sharkey's dropped from the list in

1983 because it was considered a wholesale company.

Neither bank officials nor Calabraro would explain Sharkey's presence on the list. "I have nothing to say." Calabraro said recently. "Go to work."

TRIULZI JEWELRY STORE: Located two doors away from the Bank of Boston's North End branch, this store was authorized to deposit $25,000 in cash regularly, according to the bank's 1982 exempt list. Yet owner Louis Triul said in a recent interview that he sells only $150 to $300 worth of jewelry per week.

"I don't sell any gold. I'm wasting " he said. "My store's closed almost a the time! Jon't even have jewelry. the window."

Triul said he did not know he had been placed on the exempt list. "Gloria Cushing was a friend of mine, and she must have put me on." he said.

State Police searched Triulz's store in 1980 because they suspected that his safe contained a stack of stolen $20 bills. No such bills were found. "Somebody said I had bank robbery money." Triulzi said. "That was nothing but a hoax.... Somebody was just trying to break my testicles."