Once transferred, the receiving casino can issue credit in the appropriate amount to whomever controls the account; in this case, the source of a drug shipment.

Now, while the necessity of ongoing investigations and secrecy of grand jury testimony is going to keep me from providing details in most instances, we have three cases that I will discuss briefly to further illustrate the methods of casino money laundering which DEA has encountered in its investigations.

First, as a followup to a major investigation in St. Louis, information was developed during undercover conversations concerning the use of a well established Las Vegas casino to launder drug money.

The branch manager of the casino indicated that he could wash all money earned by the trafficking group from the sale of narcotics in the United States.

According to the casino official, the client would set up an account with the casino in Las Vegas for a line of credit to be utilized as a bank. There would be no interest drawn on the line of credit, and a 10-percent cut would be taken off the top for washing the funds.

Should the client need clean money from this account, the casino would arrange to show that the client had won the money at the gaming tables.

Therefore, the client could pay his taxes and have legitimate money if he so desired.

In addition, once the client's cash deposits reached a certain amount, the client could request the casino to arrange to have funds transferred to Switzerland to be deposited in a numbered account.

A second example involved the use of another Las Vegas casino, especially for the purpose of converting small denominations of currency into larger denominations. After this process was completed, the money was transported by the defendants to the Grand Caymans where it was deposited into a trust account in the name of a Netherlands Antilles company. The money was then wire transferred to Luxembourg, and back into the United States, using a front corporation which had been established in Florida.

A third method was identified during an extensive cooperative investigation by DEA, FBI, IRS and U.S. Justice. An account was established by a casino and undercover agents under a fictitious name. In a 2-month time period, the undercover agents gave the casino $200,000 in small denominations and on each occasion, several days later, the money was returned in $100 denominations.

For this service, a 4-percent fee was charged. The owner of the casino told undercover agents that all casinos in Las Vegas washed money generated from the illegal activities.

Documented use of casinos for laundering drug money is not limited to Vegas, as we have heard here today. A recent DEA investigation of a group that you've heard about in Baltimore revealed that the use of Atlantic City casinos was involved in the laundering process. In that case, the three primary suspects were arrested, and the search warrant resulted in the seizure of financial records and over $300,000 in cash. The cash was found in bundles in wrappers

which were later identified as coming from a casino in Atlantic City.

Through a study of the financial records in a followup investigation in cooperation by the casino, DEA was able to determine that the defendants frequently visited the casino in Atlantic City during the period 1980 to 1981.

Of course, they would go to the gaming tables, exchange cash for $100 chips, and then play. At the end of each day, each would turn his chips in and request a check to be sent to the individual's account in an investment firm near Baltimore.

And from the investment firm, a large portion of the money was used to invest in legitimate businesses. The defendants attempted to legitimize a certain amount of this by declaring it as gambling winnings for tax purposes.

In addition to documenting the use of casinos by drug traffickers, information in DEA's files is noteworthy in one other respect; it demonstrates that the money laundering practices of criminal enterprises are being influenced by existing laws.

First, many drug traffickers persist in the high risk smuggling of currency to avoid a paper trail, which could lead to detection, documentation of their illicit activities as well as probably forfeiture of their assets.

Second, the legitimation of the illicit proceeds often includes paying taxes on part of the proceeds to avoid violation of tax laws, and, of course, it shows some income to support their lifestyles.

Finally, the use of the casinos by drug traffickers for money laundering processes is clearly based upon the fact that financial transactions by casinos are not subject to the reporting and the recordkeeping requirements of the Bank Secrecy Act.

Given the extent of the crime problem in this country and the proven impact of the law, it makes little sense to wage a full-scale national attack on the many aspects of our drug trafficking and organized crime while at the same time ignoring an important correctable flaw in the system.

We recognize that money laundering is very similar to smuggling of contraband in that there are not just one or two ways to do it. As with smuggling, the only limitations are the limitations of an individual's ingenuity.

Nevertheless, we need to close all possible loopholes, especially those which we can document as facilitating the drug traffic.

In this regard, the designation of the casinos as financial institutions under the Bank Secrecy Act or substantially increasing State reporting requirements would provide law enforcement with another essential weapon in its fight against drug traffickers and organized crime.

Thank you, Mr. Chairman, for the opportunity to make a few comments on this important matter.

[Complete statement of Mr. Liming follows:]

STATEMENT OF GARY D. LIMING

Chairman Hughes and Members of the Subcommittee on Crime, I appreciate the opportunity to appear before you today in Atlantic City to discuss the use of casinos for the laundering of profits from illicit activities. The Drug Enforcement Administration is seriously concerned about this and other methods of money laundering

which allow criminal organizations to conceal the profits from their illicit drug activities and to continue these activities with virtual impunity. Indeed, the illicit drug traffic is a multi-billion dollar enterprise and accounts for a large proportion of organized crime revenue. Casinos deal in cash, they perform a wide range of financial services, and they are able to offer complete anonymity for customers. As a result, casinos are susceptible to exploitation by organized criminal elements for the laundering of illicit drug proceeds. It is DEA's position that the casino industry's vulnerability to the influences of organized crime would decrease without an adverse impact for legitimate casino customers if casinos, which perform many of the same services as banks, were designated as financial institutions under the Bank Secrecy Act.

The Currency and Foreign Transactions Reporting Act of 1970 (Title 31, U.S.C. 5311-5322 et seq.), sometimes referred to as the Bank Secrecy Act, is one of several important tools the government has to fight the traffic in illicit drugs, which is not only the most serious crime problem facing the United States today but a major international problem as well. Enforcement of the Bank Secrecy Act, which is under the jurisdiction of the Department of the Treasury, has proven its effectiveness in both deterring and prosecuting drug-related criminal activities, especially when utilized in concert with other Federal felony statutes such as those included in the Controlled Substances Act.

DEA's interest in the use of casinos to launder and transfer illicit drug proceeds lies in its mandate to enforce the Controlled Substances Act (Title 21, U.S.Č. 801 et seq.) Casinos, or for that matter, financial institutions, may or may not violate the Bank Secrecy Act when handling drug proceeds. For example, a violation of the Bank Secrecy Act does not occur when drug-related currency transactions are made in amounts less than those which require reporting, when currency transactions are actually reported, or when money in any amount is wire transferred. However, the laundering of any drug proceeds through casinos or financial institutions may constitute evidence of conspiracy under the Controlled Substances Act (21 U.S.C. 846). Additionally, the documentation of these proceeds may well constitute proof to satisfy the "substantial profit" element required in a continuing criminal enterprise prosecution under 21 U.S.C. 848. In this regard, the designation of casinos as financial institutions under the Bank Secrecy Act and the resulting reporting requirements would substantially assist DEA in its investigations of the laundering of illicit drug money.

The Subcommittee is well aware of the complexity of the drug traffic and of the comprehensive attack on all aspects of the illicit drug problem called for in the 1982 Federal Strategy for Prevention of Drug Abuse and Drug Trafficking. The Strategy includes international cooperation to eliminate the production and transshipment of illicit drugs in foreign countries; effective interdiction to intercept drug shipments before they enter the United States; vigorous law enforcement to destroy those criminal organizations responsible for producing, transporting and distributing illicit drugs; and the fullest possible support to help reduce the demand for illicit drugs. Fundamental to the overall drug abuse issue, and certainly to the immobilization of drug trafficking organizations, is the intricate relationship between drug trafficking and vast quantities of money which are generated from this illicit enterprise.

The financial aspects of the illicit drug traffic must be addressed with the same concern and commitment as the drugs themselves. The multi-billion dollar illicit drug trade breeds corruption, undermines economies and plagues society with unacceptable levels of crime. The massive profits earned over a short time frame have allowed individual trafficking groups to develop sophisticated organizational and technical resources, frequently beyond those of various law enforcement agencies. In addition, traditional and emerging organized crime elements exploit the market for illicit drugs to finance an array of legitimate and illegitimate business activities, tightening their grip on our society and the economy. While we have had successes against major drug organizations, there are always new organizations ready to replace those dismantled by law enforcement because the enormous profits outweigh the perceived risks. In fact, we must remove the profits from the drug traffic if we are to break the drug supply chain and reduce drug-related crime.

Our strategy is to capitalize on the techniques of money laundering, making drug trafficking organizations vulnerable to enforcement and prosecutive activity. Thus, these vast financial assets can become a liability for the drug trafficker and especially for high echelon criminal elements who are isolated from the actual distribution of drugs but who direct, control and profit from the drug traffic.

First, we exploit the investigative opportunities created by the physical movement of conspicuous amounts of currency, often in small denominations, which result from drug transactions. This currency must be laundered, i.e., processed so as to

appear to have come from a legitimate source, which frequently requires movement of money across international boundaries. Second, the laundering and movement of illicit funds often results in a paper trail which provides documentation for prosecutions and ultimate forfeiture of the assets. Finally, it is essential that we seize and forfeit the assets upon which drug trafficking organizations depend if we are to immobilize these organizations and provide an effective deterrent to future trafficking activity.

The Drug Enforcement Administration and the Federal Bureau of Investigation exploit the financial aspects of drug investigations by utilizing the criminal forfeiture provisions of the Racketeer Influenced and Corrupt Organizations Act or RICO (18 U.S.C. 1963) and the Controlled Substances Act, Continuing Criminal Enterprise Offense or CCE (21 U.S.C. 848), as well as the administrative forfeiture provisions authorized under the Controlled Substances Act (21 U.S.C. 881). These laws are among the most powerful tools the government has for combatting organized crime and drug trafficking. In the past three years, the number of CCE prosecutions have increased from 29 cases in fiscal year 1981 to 67 cases in fiscal year 1983. Most of these cases involved multiple defendants.

The Department of the Treasury adds important additional resources to this effort. The Internal Revenue Service investigates violations related to the tremendous untaxed profits generated by the illicit drug traffic. This includes violations of the reporting and recordkeeping provisions of the Bank Secrecy Act which require financial institutions to report all cash transactions of more than $10,000 and to maintain certain records of their business dealings for a specified period of time. The U.S. Customs Service enforces the provisions of the Bank Secrecy Act which require that a report be filed each time that in excess of $5,000 in currency or other monetary instruments is transported across U.S. borders.

The immobilization of major drug trafficking organizations often requires the coordinated pursuit of several statutory jurisdictions, including the various statutes involving the financial aspects of illicit drug trafficking activities. Cooperative drug investigations which rely upon the teamwork of the various law enforcement agencies, including DEA, FBI, IRS, U.S. Customs, and state and local law enforcement, have become the order of the day, enabling law enforcement officials to take advantage of the complete range of legal sanctions and penalties available for prosecution. In increasing large numbers, both domestic and international drug investigations are centering around the tremendous sums of money generated by the illicit drug trade. The terms "drug investigations” and “financial investigations" have become nearly synonymous, as agents attempts to trace the movement of billions of dollars through the maze of international banking in an effort to identify and remove profits.

The more sophisticated the government's efforts have been at tracing illicit proceeds, the more effective trafficking organizations have become at moving their money to offshore jurisdictions, especially those offering financial privacy through banking and corporate secrecy laws. Even the most sophisticated organizations, however, are still faced with the initial high-risk problem of concealing conspicuous amounts of cash until they can be put into a form which will decrease the risk of movement and laundering.

For example, DEA estimates that the Isaac Kattan organization, which moved drug proceeds for major Colombian cocaine traffickers, handled approximately $200 to $250 million per year in gross proceeds during the early 1980's. Surveillance of the Kattan group revealed that the proceeds, concealed in cardboard boxes, were moved from a central collection point in Miami to various financial institutions. The mere weight of the money required the use of luggage dollies to transport the funds. This scenario was repeated almost daily, with deposits and purchase of cashier checks ranging from $500,000 to $1 million per day.

More recently, DEA's Panama Country Office developed information that unknown subjects were transporting large quantities of U.S. currency from South Florida to the Republic of Panama. Further development of this investigation by Miami's operation Greenback led to the arrest of a Cuban-American and the seizure of his Lear jet during May 1983. Information available to DEA indicates that the defendant was not only in the business of moving narcotics proceeds for various traffickers, but he also was preparing fraudulent U.S. tax returns. On the day of his arrest, the defendant was in possession of over $5 million in U.S. currency. It is estimated the defendant was responsible for the movement of over $145 million in an eight-month period by simply smuggling the proceeds out of the country, thereby circumventing the filing of U.S. Customs Form 4790 required by the Bank Secrecy

Act.

A third investigation initiated by DEA in New York also highlights the problem posed to drug violators in managing large amounts of drug generated proceeds. Information developed by DEA in conjunction with IRS and U.S. Customs determined that Eduardo Orozco, a Colombian businessman allegedly involved in the coffee trade, controlled 18 separate bank accounts. Orozco had deposited more than $150 million in the accounts, approximately 60 to 70 percent of which was generated from drug trafficking, and had imported $42 million into the United States without proper notification to U.S. Customs.

Recent cases under active investigation indicate a trend in the use of casinos to aid in the laundering process which was not revealed in past investigations. We believe that the increasing involvement of casinos is caused, in large part, by the vigorous enforcement of the Bank Secrecy Act which has occurred during the past three years. Casinos have a unique ability to move such money with total anonymity. Casinos are not designated as "financial institutions," yet they perform many of the same services. Casinos can take in huge sums of currency; exchange small bills for large bills, travelers' checks or money orders; wire transfer money overseas to associate casinos; provide safety deposit boxes; and make loans back to the trafficker without being required to report the transactions to the Department of the Treasury. In addition, casino gambling provides a ready-made explanation for the acquisition of large sums of ostensibly legitimate funds.

The use of casinos for the laundering of illicit drug proceeds should not be confused with the expenditure of drug proceeds by drug traffickers for casino gambling, although the two are often related. For example, Jamiel Chagra, a major drug trafficker from San Antonio who was convicted in 1979 under the CCE statute and who was later involved in the murder of Federal Judge John Wood, Jr., was a prolific gambler who paid off a gambling debt with over $900,000 in cash. In 1978, Chagra earned an estimated $25-50 million from his marijuana trafficking activities and was reportedly considering the purchase of a Las Vagas casino to "shelter" the proceeds from his illicit drug operations. Although most of Chagra's involvement with casinos appears to have been for gambling rather than money laundering purposes, the reporting of his cash transactions at casinos through the requirements of the Bank Secrecy Act would have been of considerable assistance to law enforcement in the investigation of Chagra's illegally gained assets.

We are only beginning to understand the extent to which casinos are used for the various aspects of the illicit money laundering process. The fact that casinos are not covered by the reporting and recordkeeping requirements of other financial institutions hinders our documentation of this activity. However, as we pursue the financial aspects of drug investigations, we are discovering the involvement of casinos in the illicit money laundering process with increasing frequency. It is significant to note that cooperating individuals closely associated with the casino money laundering process indicate that such laundering is not limited by any means to drug proceeds, but includes profits derived from all types of criminal activities. In addition, reliable cooperating individuals from five different cities indicate that the use of casinos for laundering illicit funds is widespread. Undercover conversations of DEA Agents with casino managers substantiate this information. In all case examples, the use of casinos in the laundering and movement of drug proceeds is predicated on the fact that they are not covered by the recordkeeping and reporting requirements of the Bank Secrecy Act.

A review of 13 DEA investigations reveals similar methods which have been or are being used to launder illicit drug money through casinos. One method simply involves the exchange of small denomination bills, commonly obtained through drug transactions and other illegal activities, for larger denominations. In this way, cash proceeds can be converted into a less conspicuous and more easily manageable form. A second method, somewhat more intricate, involves using the casino as a banking operation. The client gives money to a casino official, who in turn invests the money, retains the money for safekeeping, wires the money to offshore accounts, or provides loans back to the client. A third_method involves the use of two or more casinos to transfer funds between clients. For example, the recipient of a drug shipment in the United States can give money to a casino in Las Vegas or Atlantic City for transfer to a designated account in an affiliated casino outside the United States. Once transferred, the receiving casino can issue credit in the appropriate amount to whomever controls the account, in this case the source of the drug shipment. In many instances, money which has been passed through a casino can later be declared as gambling winnings for tax purposes.

While the sensitivity of ongoing investigations and the secrecy of grand jury testimony prevent me from providing details in most instances, I will provide three