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As well as there are ordinary people who are just merely trying to hide their assets for one reason or another, whether it's a divorce proceeding, whether it would be some type of proceeding in which they don't want their business partner to find out, whatever it is, there are a large segment in our society that are seeking to move substantial amounts of cash and to do it in a way to avoid Government attention.
And, one of the ways in which they do it is to exchange it, to exchange street money for clean money.
They want to exchange money which has the taint of illegal activity, and get back clean money. One of the ways that they traditionally did it in the past was through banks, and other related financial institutions.
But, since there has been a crackdown on the banking community, and much more so in recent years, and our office has worked very closely with the Internal Revenue Service on this in the past 2 years, since there has been this crackdown, now it's becoming more attractive to do it through the casinos because the casinos are presently exempt from the CTR regulations.
Now, some of the techniques that we believe are being used are large sums of street money are being taken into the casinos, and accounts are being opened, and these sums are being deposited without appropriate identification, and then the individual or individuals proceed to gamble a little bit, and then proceed to withdraw the money, but to do it in large bills.
This is money laundering. And, the primary purpose of the depositor is not to gamble, but, rather, to launder the funds, and is using the casino for that purpose, is using the casino like he used to use the banking institutions.
He would bring in the street money and exchange it for clean money. That's one way. Another way is to buy chips with the smaller bills and then, of course, to redeem them for the larger bills. Similar situations.
And, then, finally, and something that really needs to be stressed here, we have the individual who is seeking to move his money to an offshore account. We have the individual who is seeking to interrupt the paper trail, and what he does is he brings the money into the casino, he deposits a large sum, and then he has the casino wire it to an offshore account, and this offshore account is controlled by the depositor or by one of his bogus corporations, which can be easily set up, especially in the islands, the Bahamas, the Grand Cayman, Switzerland, and other places where the privacy of the depositor is strictly protected by the law of that particular country.
It was reported recently by an IRS Commissioner in Washington that there is $100 billion a year flowing between the United States and the Cayman Islands, and the relationship between onshore accounts and offshore accounts is a tremendous one, and tremendous amounts of money are flowing between the two.
This gets the illegitimate or the unreported dollars out of their hands and then back into their hands, but, again, in a form whereby the money can be spent without attracting government attention.
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The money goes out to the offshore account, and the corporation which they control in that location then lends the money back to them, and they have interrupted the paper trail.
Well, now, we know that wire transfers are not covered by the CTR provisions, but if we did have casinos covered, as financial institutions, under title 31 of the United States Code, what this would do is it would show us who the large depositors are. With that information, we could then trace it to the casinos or casinos that are involved, and presumably they would have internal records of what happened to this money, if it was wired to an offshore account.
And, in that fashion, through the use of our subpoena power and our investigative power, we could at least investigate what happened to this particular income, which would be tremendously valuable to us.
So, those are the various techniques involved, and we see the casinos as a channel for laundering illicitly obtained funds.
Obviously, there are many people that are there with legitimate funds, that are not there to launder it, and we're not seeking to make life miserable for them. We're not seeking to put an intolerable burden on the casino industry. We do not feel that it will be that substantial a burden in relation to the law enforcement value which will be obtained.
When we balance the two interests, we feel that our interest is the paramount one, and, therefore, there is a need and a necessity for this particular regulation.
Now, as I've indicated, laundering is not new. It's existed for a long time in the banking community. But, the recent crackdown by the Treasury Department, I think, has done a good deal to deter this activity away from banks and into the casinos.
We've heard a number of cases mentioned this morning, and I'm not going to seek to repeat those, but I do want to point out a few on the banking side which I believe are significant, because this has led to, I believe, a deterrence of this activity at the banking level.
In the Navarro case, which I pointed out on page 4 of our statement, the president of a Miami bank pleaded guilty to conspiracy in connection with evading the filing of the CTR's.
And, in connection with this scheme, $6 million was laundered over a 3-month period.
In the Straub case, the executive vice president of a bank in Chicago was involved in a scheme whereby $2.5 million in drug profits was laundered through his bank. The bank, as well as the executive, were both sentenced.
A case which our office prosecuted during 1983 involved the First National Bank & Trust Co. of Kearny and one of its branches, where over $3 million was laundered during an 18-month period by a depositor who was the victim of an organized crime hit during the investigation.
Those are just some of the cases which have to deal with the banking community, but the crackdown has been much more intensive in recent years.
I know that this has been a priority of the Internal Revenue Service, and we have tried to work closely with them in this particular area.
And, I can assure you that if we had this particular regulation covering casinos, we would work equally close with the agencies which are involved in order to come to grips with this particular problem.
And, let me point out that one of the very popular schemes that has been used, has been to come in with a large sum of money, say $90,000, and to have 10 $9,000 deposits in order to evade the CTŘ requirement. But, where there is evidence of such a scheme, and where there is collusion between a banking official and the depositor, we can come up with that type of proof, and we can prosecute that type of case.
So, the fact that they come in under $10,000 doesn't mean that they are going to escape detection and escape prosecution. We have seen this scheme occur, and we are ready, willing and able to prosecute it, and we will.
Now it's already been stated, so I won't belabor it, but I believe that the present regulations in the casinos with respect to the deposits of money and the fact that there is a lack of appropriate identification at the time these deposits are made, is the type of thing which has to be cured.
The CTR requirement will go a long way toward obtaining a more valid identification. It will go a long way because the Social Security number or the passport number of the depositor will be obtained. You may even want to consider some type of regulation whereby the depositor would be photographed, much as he is when he's at a teller's cage at a bank.
So that there would be a photograph as well as appropriate identification by the depositor at the time of the deposit.
Now, one of the problems that's raised here is that if this particular requirement only pertains to the cages or the windows where these deposits are made, what is going to happen at the table? Will this take the depositor who is depositing the large sum at the cage or the window and send him to the table where he can then display large sums of cash and do it with relative impunity? And, in the process, seek to launder his street money?
We don't want to put an intolerable burden on the casinos. We don't want to deter the gambling activity, but at the same time, it seems to me that there may be a loophole if we don't cover the situations at the table where there are large sums of cash being played.
I don't have an answer to this, but I raise it because it is of concern to us. We may end up deterring the large sums that are deposited at the window, but then force this activity to the table where they can circumvent the CTR requirement.
So, possibly, the CTR should apply as well to the tables, but to be done in such a way so that it doesn't deter the heavy gambler, the heavy roller, which I know is a concern of the gaming industry, at least from what I've read.
Now, various cases have been referred to in connection with the money laundering. We've heard about the case of U.S. v. King, which was prosecuted in January of 1983, in Baltimore, by the U.S.
attorney's office, and that's a classic case where a drug dealer used the Atlantic City casinos to launder money. And, there were two types of laundering there; he was washing street money, but in addition to that, he was also depositing large sums of money, and then having checks made out to third parties in connection with the withdrawal of the money.
And, then that money went out toward the renovation of legiti. mate businesses. So, in the process, the paper trail has been interrupted.
So, two of the techniques that I refer to were used in this one case, and that's a significant case for that reason.
In U.S. v. Sanders, which I cited in our statement, the defendant, a known drug dealer, had $26,000 in $100's with casino wrappers around them, when he was arrested, and the testimony at a hearing, a suppression hearing, which preceded his trial, indicated that he had washed money through the casinos on many occasions, and in one point, he was using his girlfriend to deposit the money so that there wouldn't be any detection of him doing it.
With respect to investigations which are currently ongoing, I can't be as specific, but I can assure you that I didn't just pull these cases out of thin air. In one, I referred to the fact that half a million dollars in small bills was deposited in one casino on 1 day, which was a part of $2 million in drug profits.
In another, a drug dealer made cash deposits of over $1 million in two casinos in 1982. There were three separate deposits over $150,000 on one occasion. Gambled a small amount, and withdrew the rest.
The U.S. attorney in one of the districts in Alabama recently advised us that when a search warrant was executed on a known narcotics dealer, $200,000 in credit memoranda was found belonging to this defendant.
These credit memoranda were issued by Las Vegas as well as offshore casinos, and represented the laundering of drug proceeds.
And, of course, I refer again to the case cited by Attorney General Kimmelman, referring to the kidnapping in which part of the $150,000 ransom turned up in Atlantic City-$11,000 in reported $100 bills in one casino, while the defendant was playing with $7,900 in recorded bills in another.
What is the extent of the problem? That's presently unknown. But, we do know that there is a problem. How extensive it is is something that we still have to uncover.
We have had a task force in existence since 1982, composed of certain Federal agencies, the U.S. Customs Service, the Internal Revenue Service, and the Federal Bureau of Investigation. They have worked closely with the State police and the division of gaming enforcement.
But, we're still at the point where we're trying to obtain the records and look at the information which will reveal the extent of the problem of money laundering.
But, just again, referring to the month of September 1983, the figures of which were revealed by General Kimmelman, we know that $43 million in cash was deposited, and this represents cash deposits of over $10,000.
Well, you might ask what does this have to do with casinos? The answer is that certain people are unlawfully attempting to hide huge sums of money from government scrutiny and casinos are one place where they do it. In certain segments of our society, there is a high value placed on the ability to exchange “clean” money for that which has been tainted by connection with illicit activity. With the extremely large amounts of cash which are exchanged daily, casinos present an optimal channel for the laundering of illicitly obtained funds. The purpose is either tax evasion or avoiding the detection of illegal activity, such as narcotics trafficking, which generates substantial amounts of cash.
Several techniques are employed by money launderers at the casinos. The standard one is to deposit large sums of cash, normally in small bills (street money)— fives, tens and twenties-and later withdraw the balances in larger, more convenient bills. Another ploy is to buy chips with small bills and later redeem them for large bills. Finally, for those money launderers interested in interrupting the "paper trail,” they deposit their ill-gotten riches in the casino and then have the casino wire the monies to an offshore account where the laws protect the privacy of depositors. In this manner they get the illegitimate or unreported money out of their hands and later back into them in a form whereby the money can be spent or invested without leaving an incriminating trail.
Money laundering is not new and has existed in all areas where currency can be easily exchanged. It was in part responsible for the enactment of the Bank Secrecy Act. Recently, the Treasury Department has been cracking down on violations of the Act within the banking community. By way of example, in United States v. Navarro, the president of a Miami bank pled guilty last November to conspiring to not file currency transaction reports. The scheme involved laundering of over six million dollars during a three-month period in 1978.
In United States v. Straub, a former executive vice president of a Chicago bank was sentenced to jail in relation to charges of laundering two and one-half million dollars in drug profits for others. The bank itself was sentenced to five years' probation and a fine of $15,000 as a result of its role in the money laundering scheme involving its executive.
In New Jersey, the First National Bank and Trust Company of Kearny and one of its officers were successfully prosecuted by our office in 1983 for having assisted in the laundering of over three million dollars in an eighteen month period for a depositor who was the victim of an organized crime "hit" during the investigation. This was one of several successful prosecutions of banks and their officials which we achieved during the year for currency reporting violations.
In 1983, five persons were arrested as a result of a scheme to hide $16 million in illicit narcotics profits by utilizing the Royal Casino in Las Vegas and foreign bank accounts. The investigation which has already led to the conviction of three of the participants revealed that undercover agents were able to launder three hundred ninety thousand dollars of money using phony names.
New Jersey casinos provide a facility for their patrons which would appear to facilitate laundering in large amounts. As explained to me, under the Commission's present regulations (Casino Control Commission Regulation 19:45–1.24.) the casino will, upon request a patron, open an account into which the patron may deposit cash, cash equivalents, or chips and plaques. At that time, a Customer Deposit Form is created which is required to have the patron's name and the date, the total amount deposited, the signature of the general cashier or other individual within the casino who accepts the deposit, and the nature of the amount received, that is whether it is cash or cash equivalents, chips or plaques.
While the patron is required to sign the duplicate copy of the customer deposit form, the casino is not required to verify his identification and indeed the customer is not even asked for identification until such time as he attempts to “draw down” against his account. Then and only then is he required to produce identification sufficient to satisfy the casino.
Although the patron may use all or part of the moneys held in his account to gamble, he is not required to do so and may, at any time, seek a refund of any unused balances in his account. At the time that the patron receives his refund, the casino prepares a Customer Receipt which simply indicates the amount refunded and the type of refund. It does not even require the patron's signature.
Thus, an individual may bring in large amounts of street money to a casino, open an account, gamble or not for a period of time, and then seek withdrawal from the casino either in large bills or in the form of checks payable either to himself or to third persons.
This is precisely what happened in the case of United States v. Maurice "Peanuts" King. King was convicted of federal drug charges in Baltimore in January 1983. He