Money Laundering The more sophisticated drug trafficking organizations have laundered money for years. In some cases, they purchase service-oriented businesses which are losing money and then deposit their drug money in the bank under the guise of legitimate business profits. They sometimes smuggle enormous amounts of currency out of the country for deposit in foreign banks. Then, to get their money back to the United States where they can use it, traffickers might set up a phony corporation in still another country. This offshore shell corporation draws on the funds deposited in the first country and wire transfers them to the traffickers' U.S. bank accounts, with the transactions disguised as legitimate loans. Or, using the simplest approach of all, traffickers can bribe a dishonest bank employee to let them deposit unlimited cash without any CTR's being filed. To give you just a few examples of how successful these enterprises can be, consider money launderer Eduardo Orozco, who was convicted, along with half a dozen others, in May 1983 on drug conspiracy charges. Over a four-year period, Orozco deposited $150 million in cash in some 18 bank and currency exchange accounts, mostly in New York City. He then transferred these funds to other accounts in the U.S., Panama, the Bahamas and the Cayman Islands. Orozco was a well-educated, sophisticated, highly intelligent professional, with all the trappings of a legitimate businessman. In a 1983 Miami conspiracy case, DEA arrested 36 individuals, two of whom were bank officials--a vice president of the Great American Bank and a vice president of the Bank of Miami. The defendants had negotiated with undercover DEA agents to recruit clients for money laundering and investment services. Approximately $45 million in drug money had been laundered through these banks for various cocaine traffickers. In another case, Isaac Kattan was arrested by DEA in February 1981. He had on him at the time $18,000 in cash and $365,000 in checks. The next day search warrants were executed and a bank account worth almost $1 million was seized, along with an international telex machine, several money counting machines, and thousands of financial documents. Analysis of the seized documents showed that Kattan's organization had handled gross proceeds estimated at $200-$250 million per year. During the four-month period prior to Kattan's arrest, his two money couriers transported $61 million in cash to a brokerage firm. This money was the proceeds from cocaine sales in New York, Los Angeles, and Miami and movement of the funds was facilitated by Kattan's travel agency in Cali, Colombia, which was also licensed to conduct business as a money exchange. These examples are dated for obvious reasons. There are certainly many more among our still-open investigations. Our agents, acting undercover, are being approached on a routine basis by traffickers who are looking to launder enormous sums of money. Traffickers have claimed to have as much as $200 million to launder and we can easily suspect that if they have $200 million to place with one money launderer, there is even more being handled by others. Rarely do these people put all of their eggs in one basket. To cope with these approaches to our undercover agents, DEA has developed techniques designed to ultimately forfeit as much as possible of these monies to the government. However, it would be inappropriate to discuss the details of these investigative approaches in open session. As DEA becomes more and more proficient at locating and seizing drug trafficker assets and seeing these assets forfeited to the government, two things are likely to happen. First, traffickers will go to greater lengths to move their profits out of the country; and second, they will develop more and more complex schemes to launder their money. Our investigative techniques and our laws must stay one step ahead if we are to have any truly meaningful impact on the availability of drugs in this country. Mr. Chairman, I appreciate this Subcommittee's interest in the role of money laundering in drug trafficking. I will be pleased to answer any questions you may have. Thank you. On April 23, 1986, the Subcommittee on Financial Institutions Supervision, Regulation and Insurance will continue its hearings on proposals to protect against financial institutions becoming havens for tax evaders, drug traffickers and launderers of funds derived from criminal activity. As the lead Federal agency in enforcing narcotics and controlled substances laws and regulations and whose primary responsibilities include investigation of major narcotics violators (interstate and international), your testimony would be extremely helpful to the Subcommittee in its efforts to better understand the devastating effects that drug trafficking and money laundering have on the economic and social fabric of this nation. It is requested that you or your designee appear and testify before the Subcommittee on Wednesday, April 23, 1986, at 10:00 a.m., in Room 2128 Rayburn House Office Building. Please provide the Subcommittee with 175 copies of your testimony no later than 24 hours in advance of your appearance. Please have your staff contact Earl F. Rieger, Counsel of the Full Committee staff, if there are any questions. 60-672 0 - 86 - 28 Sincerely, Fernand J.St Germain |