School of Law in Los Angeles, and we are just delighted to have him here today. We apologize for taking this long to get to you Mr. Perry. We have your statement and it will be made a part of the record in full and you may proceed.

STATEMENT OF ROBERT J. PERRY, ATTORNEY AT LAW

Mr. PERRY. Thank you, Mr. Chairman and members of the committee. It is indeed a pleasure to be here today to share with you my views on the subject of money laundering and why I believe that money laundering is a lurking danger for the financial institutions of our country.

I am going to be talking today about two cases that we prosecuted when I was an assistant U.S. attorney in Los Angeles. I am going to be using charts to help demonstrate these cases and I think these cases are illustrative of how money launderers can corrupt, or there is a potential for corruption, of our financial institutions.

The first case that I am going to discuss is the case that we call the Garfield Bank case. And let me just say that neither one of these cases would have been successfully investigated and prosecuted had it not been for the joint combined efforts of the IRS, the DEA and the U.S. Customs Service, working together to develop the facts that we determined were necessary to bring these prosecutions.

In 1980, we learned that an attorney named Nathan Markowitz, in Beverly Hills, was providing a money laundering service for major narcotic traffickers. We were able to run some IRS undercover agents into Mr. Markowitz. They were able to get an introduction and they were able to represent to Mr. Marowitz that they, too, were in the narcotic business and that they wanted somebody to launder their money. By secretly tape recorded contact with Mr. Markowitz, we learned how he did his money laundering operation and it is demonstrated here on the chart.

The money would come from the clients who were, as I said, narcotics traffickers. It would always be in currency because, I think everyone knows that illegal activity such as narcotics is a currency business. The currency would end up at Mr. Markowitz's office and he had an arrangement with the Garfield Bank, a small four branch bank in Los Angeles, to accept large currency deposits and not file the required currency transaction reports. Once the money was placed in the Garfield Bank, Mr. Markowitz caused it to be wire transferred to trusts in the Bank of Bermuda, set up in Bermuda because of Bermuda's bank secrecy laws. I am sure the committee members are well aware that this is one of the many countries that have this tax haven.

Mr. MAZZOLI. Mr. Chairman, as I said earlier, I really don't have much knowledge about this whole subject. I know Mr. McCollum serves on this committee and the chairman is very knowledgeable. But when you say "wire transferred," what actually happens? Mr. PERRY. The currency ends up in the bank. The currencyMr. MAZZOLI. So you have a pile of $10 bills that go into the Garfield Bank. And then what happens?

Mr. PERRY. What happens is Markowitz would contact the bank and instruct the bank to do a wire transfer, to take the money-Mr. MAZZOLI. Not the $10 that came in?

Mr. PERRY. No, not the currency itself but, for instance, in your example you bring a $100,000 in currency to the bank and the bank puts it in an account, maybe your account or maybe another account but an account that you have control over. At that point you come to the bank and tell me, I am the banker, you tell me that I want this wire transferred to wherever, be it New York, be it Bermuda or be it some place else and the bank either does it directly-

Mr. MAZZOLI. What is a wire transfer? Does a telegram go out, a telex, a letter, what is it?

Mr. PERRY. Yes, my understanding of what it is is a device for giving credit. It is in the essence of a telegram except it is not necessarily a telegram.

Mr. MAZZOLI. So in effect, Garfield tells the banker to please credit to your account a hundred thousand dollars?

Mr. PERRY. That is right.

Mr. Mazzoli. And when does the Bank of Bermuda get their

money.

Mr. PERRY. The Bank of Bermuda works through its corresponding banks to get the credit. There is a vast flow of international monetary movement by wire transfer.

Mr. MAZZOLI. Unless the Bank of Bermuda got something that would be worth $100,000, unless they were totally legal, they would not be wiring it back to a California corporation.

Mr. PERRY. That is correct. What you see is a vast flow in the billions of dollars every day, of wire transfers around the world. This is so a corporation doing business here can get credit in Paris and a Paris corporation can get credit here and instead of the money physically moving, it is just a credit basis. In this case the Fist Interstate Bank of California, a very large bank, was the Garfield Ba's corresponding bank.

In this matter First Interstate had a corresponding bank in the East that had a relationship with the Bank of Bermuda Trust. It was through working the credit arrangements that the money ended up being credited to the Bank of Bermuda Trust.

Mr. Markowitz also went to the trouble to establish trust-investment advisers for the Bermuda Trust that he would establish in the country of Liberia. He used Liberia because you can register corporations over there in the name of "bearer." Whoever holds the stock owns the stock and so the client ended up being the investment adviser to the trust. The client, or Markowitz, could then call the trust and instruct the money to be wire transferred back to a California corporation set up for the client by Mr. Markowitz.

You can see the line here of documentation. Mr. Markowitz had what he called shelf corporations. They were on the shelf in his office. He would pluck them off and say, "This is one of the corporations that you will be." So, the client became the president or the secretary or the vice president or whatever for the ABC California corporation, a sham. The money would be wire-transferred in, documentation would be prepared to make the money when it came into the country, appear to be a loan to the corporation from some

offshore interest. The corporation would dutifully pay interest payments on the loan to itself, thereby developing a way to have a deduction on its tax returns.

By doing this operation, Mr. Markowitz was able to effectively shield his clients from the scrutiny of law enforcement. Imagine, if you will, being someone in law enforcement. You hear that the client, from an informant source, is possibly involved in narcotics. You go to check him out and he is the president of the ABC Corp. and you go to check further and you find out that the money is coming from offshore. That is the end of the ball game. There is an imaginary block here because of the bank secrecy laws that surround Bermuda, Cayman Islands, and the other offshore tax haven countries.

But rather than hear from me, let me quote to you what Mr. Markowitz said about his money laundering operation. I am quoting, and this is what he told one of the undercover agents:

This is what we want to do. So that each of you can file a tax return at the end of the year saying you got paid $25,000, or $50,000, or $90,000 or whatever dollars, we decide each of you should be paid. And now each of you is Mr. John Q. Public. You have a job, you have a company, you have an income, you pay taxes and you are lovely.

Mr. Markowitz went on to explain how they would fix the books on a California corporation so that the money coming into the corporation would end up being expensed out. He said, "We can work it out so that all of the money that we bring into Hobo"-that is the name of one of the California corporations that he set up for the undercover agent-"that all the money will go to salaries, expenses, travel, automobiles, and pension or profitsharing plans. So it winds up being," if you will forgive me, "shit for the Government."

Mr. Markowitz also had an accountant on his payroll. And there is a very interesting meeting that I had particular pleasure in listening to, involving the accountant telling the undercover IRS agent how you start at the bottom of the income tax return and plug in the figures on the way up. He did that at a time that he was counting $140,000 in currency for the IRS agent. Just to quote a little bit from that exchange.

ACCOUNTANT. As far as the Government knows, you're maybe spending $60,000 or $70,000 a year.

AGENT. Yes.

ACCOUNTANT. As far as what they can prove, you got an automobile, you got a home or a condo, you are paying interest, whatever, so we know we need 60 or 70 net. So, we start at the bottom of the tax return and then we plug in all the numbers going up.

AGENT. I see.

ACCOUNTANT. Instead of starting at the top and coming out with the numbers, we start at the bottom after tax number of $60,000.

Well, after we had heard enough, we decided to expose the investigation. We went forward with serving warrants simultaneously on two branches of the Garfield Bank and Mr. Markowitz's office, in January 1981.

At that time, agents searching those locations seized 24 boxes of documents. No one was arrested because we were very interested in finding out how many trusts Mr. Markowitz had set up and if

we would be able to determine who the holders of the trusts were when we executed the search warrants.

We were able to determine that Mr. Markowitz, in the course of about 3 years, had caused more than $3 million in currency to be deposited at the Garfield Bank. We also determined that he had set up approximately 50 Bermuda trusts.

A couple of months after we served the search warrants, Mr. Markowitz came in to see me and some of the other agents, with his attorney, to inquire about possibly cooperating with the Government. A week later, he was found shot to death in the stairwell of the Century City Industrial Complex. He had $56,000 on his body at the time that he was found, and it has been concluded by those of us close to the investigation that this was a contract killing designed to ensure his silence. It underscores that this is a big league game, this game of money laundering.

In July 1981, we obtained an indictment against the Garfield Bank, its president and chairman of the board, a past senior vice president, a vice president, and three of Mr. Markowitz's associates. The bank ended up pleading guilty to a felony violation for failing to file currency reports and was fined, pursuant to a plea agreement, $309,106.00. This was an amount equal to its entire 1980 net earnings.

We also obtained a plea agreement from the president and he was forced to resign his position. He was elderly and in bad health and we did not seek a jail sentence. He paid a fine of $100,000 and he also pleaded guilty to two felony income tax evasion counts and agreed to pay $1,890,000 in back taxes, fines, and penalties. All total, the Government as a result of this prosecution, collected $2,290,106.

We later went against the others who did not plead guilty. We obtained convictions after a trial, and received prison sentences from a few months in jail up to 4 years.

While we were in the midst of prosecuting that trial, we received information from a banker that led us into the next case I am going to be talking about. That is the case that we call the Grandmother Mafia case.

A banker at a one-branch bank, in Manhattan Beach, CA, was approached by a middle-aged lady from Florida in late 1981. The lady asked the banker if he would take large quantities of currency in his bank and not file the desired reports. The banker contacted the IRS and we asked the banker to play along and pretend that he was agreeing to do this. The banker said sure, and we were in business. In October, the lady opened an account with a $20,000 deposit. A month later she came in with $285,000, the next day $565,000. Within 3 months she brought in, she and her associates, approximately $5 million in currency. The currency was delivered out of suitcases, usually pulled behind the little old lady as she walked into the bank.

The woman explained to the banker that she was very concerned that Federal agencies might detect these large sums of currency going through the bank, and she asked the banker if he had someone else in a larger institution that could handle her currency business, because it was on the upswing. That gave us an opportunity

to pull the banker out of the picture and to put in two undercover IRS agents who set up an office in Hollywood, CA.

The woman started bringing money to the IRS agents in February 1982. The first delivery was $400,000. Over the next 5 months, she and her associates delivered more than $20 million in currency. In total, the agents working on the case and the banks, received currency deposits of $25.8 million in a period of 82 months.

Here are photographs of some of the currency deposits that were received during the investigation of what came to be called the "Grandmother Mafia" case, so named because as we got into the investigation, we found out that Barbara Mouzin, one of the lead defendants, her close associate, a woman in San Francisco, and another friend, were all middle aged women with no prior criminal record and three of them were grandmothers. One of them a grandmother three or four times over.

Here is the money. The largest delivery is not even pictured here. The biggest one we show is $1.6 million and on one occasion they brought in $1.8 million. While we were handling the money, we were trying to determine it's likely source. We knew it was narcotics. In those days you couldn't wiretap for currency violations. Thanks to the good work of this committee and the passage of the Omnibus Crime Control Act of 1984, you can now wiretap for currency violations. But, back in those days we had to find a narcotics violation. We were able to find enough probable cause to get on telephones.

One of the telephones that we wiretapped was the phone in residence in Beverly Hills, which the head grandmother, Barbara Mouzin, rented for $8,000 a month. We were successful in also getting some undercover DEA agents in to talk to Barbara Mouzin and she introduced them to some major Colombia narcotic traffickers who were causing the money to be delivered. She was also involved in the narcotics business herself.

It is my experience, that narcotics trafficking on such a largescale is a very fast track. I think what happened here was a woman got involved in money laundering and it was just a matter of time before she got into large-scale narcotics trafficking.

On a day in May, we executed a search warrant based on the wiretap information that led to the seizure of 37 pounds of cocaine from the residence of the 60-year-old grandmother of three, who was a member of this organization.

We also had other successful narcotics efforts. One of them being the fact that Barbara Mouzin, the main grandmother as we called her, introduced a major narcotics trafficker to our undercover agents and the trafficker gave the undercover agents, literally gave the agents, 20 kilograms of cocaine worth $1 million and said, pay me next week.

At that point we took the case down, by making simultaneous arrests and executing search warrants in Miami, Los Angeles, and in San Francisco. The chart that I am displaying now shows how complex these money laundering cases can be. These people in Miami, Sam and Susie Schuster, directed through these telephone calls, the flow of currency in San Francisco, which was being picked up by Mouzin and her sidekick Hackett. They would fly up to San Francisco, meet in hotels with Castano and others, receive the cur