Pubdate: Sun, 26 Nov 2000 Source: Blade, The (OH) Copyright: 2000 The Blade Contact: 541 North Superior St., Toledo OH 43660 Website: http://www.toledoblade.com Author: Homer Brickey MOUNDS OF LAUNDERED FUNDS CHURN THROUGH AREA REGULARLY That nightclub whose parking lot is jammed every Saturday night might be a front for a drug ring. The vending-machine operator who stocks your company' s pop and candy machines could be funneling illegal gambling receipts through his bank account. The fancy condo you rent in the Caribbean may be owned by a white-collar criminal who has invested his ill-gotten gains into a legitimate business. In recent years, money laundering has grabbed headlines in numerous high-profile cases - including a federal investigation into an alleged operation at Bank of New York that prosecutors say helped a Russian bank launder $7 billion. Former Toledoan Marty Frankel sits in a German prison accused of defrauding U.S. insurance companies of more than $200 million. He faces numerous charges, including money laundering. Toledo itself has had some high-profile money-laundering cases in recent years; the biggest sent William Harris, owner of Harris Medical Supply, Inc., to prison for 70 months for defrauding Medicare of $42 million. In the 1990s, the Harris case made Internal Revenue Service history for the largest number of pieces of real estate every seized by the IRS. The IRS confiscated and sold his apartments and condos in Toledo and the Cayman Islands for about $29 million in the last year. In another high-profile case, James Anderson, owner of Central Trux & Parts and several other firms, and his son, Mark, got prison sentences last year on a variety of federal charges, including laundering $1.5 million for Colombian drug dealers. But, beyond the cases that make headlines, money laundering is an everyday occurrence. "There are more money launderers than there are pregnant chads in the state of Florida," Tom Matuszak, head of the Organized Crime Task Force for Lucas County, said somewhat facetiously. The Toledo area has relatively few "Hollywood variety" money launderers, the kind who run shell companies in the Caribbean and "who have money moving all over the place," Mr. Matuszak said. But he and other local and federal officials say the scope of illegal money transactions is huge, and thousands of people in northwest Ohio have done financial transactions that could violate provisions of federal and state money-laundering laws. Investigations often involve a paper trail through banks, corporations, tax records, credit histories, subpoenas, grand juries, and sometimes even trash cans. Sometimes money laundering is the only way to get a conviction of a criminal, said Mr. Matuszak. Often the question is: "How can this guy be living high on the hog with no substantial income?" Nationally and globally, money laundering is said to be a monumental problem. The International Monetary Fund estimates that laundered money amounts to 3 to 5 per cent of the world's economic output, and the Group of Seven nations estimate $300 billion to $500 billion is illegally hidden annually. Domestic organizations have put the U.S. money-laundering figure at $50 billion to $400 billion annually. No estimates exist for the Toledo area alone. However, Denise Dolish, public affairs officer with the IRS's criminal division for northern Ohio, said the agency has had "some significant" money-laundering investigations in the area. Perhaps 90 per cent of crimes are committed for profit, so almost all involve money laundering of some sort, law enforcement officials said. That means that nearly every drug deal, forgery, robbery, or embezzlement probably carries some tinge of money laundering. The Toledo area has both simple and sophisticated money-laundering schemes, said Dave Bauer, assistant U.S. attorney in Toledo. He estimated about 10 indictments a year are handed up for money laundering, calling it a big problem. At its simplest, money laundering can mean that a drug dealer or gambler buys cars or luxury items with the ill-gotten revenue, Mr. Bauer pointed out. The more sophisticated schemes, using multiple layers of entities, perhaps even offshore companies, plow the money back into what appears to be a legitimate enterprise, he said. The problem can affect many businesses and Americans because of the way money is washed, said Dean Boyd, spokesman for the U.S. Customs Service in Washington. Restaurants financed by drug money can afford to sell food cheaply, and auto-parts shops don't need to make money on the parts if they are subsidized by illegal money, he explained. Some criminals have turned to smuggling money out of country. One Customs crackdown in the summer netted 262 currency seizures totaling $11.3 million in a period of several weeks. In one case, an airline passenger ingested 46 pellets, each containing seven $100 bills, a total of $32,200. Although money laundering has been around forever, probably, its name dates only to 1973, during the Watergate hearings, according to the Oxford English Dictionary. William Safire, author of Safire's New Political Dictionary, agrees, but he cites earlier references to "washing" or "cooling" of money by mobsters, gamblers, and bootleggers. Congress has tackled money laundering numerous times in the last three decades, beginning with the Bank Secrecy Act of 1970. Other federal laws include the Money Laundering Act of 1986, the Anti-Drug Abuse Act (1988), the Annunzio-Wylie Anti-Money-Laundering Act (1992), and the Money Laundering Suppression Act (1994). Ohio's statute went into effect four years ago, and Mr. Matuszak said it has some provisions that help prosecutors more than the federal laws. The most recent federal money-laundering initiative failed in Congress this fall because a number of lawmakers felt it was too intrusive and gave federal agencies too much power - even though U.S. officials complained that 15 nations, including Russia and Israel, are not cooperating to stem the flow of illicit money. Ron Dunbar, vice president of compliance for Fifth Third Bank of Northwestern Ohio, agreed with the lawmakers. "It's not banks' obligation to track every customer," he said, adding that the requirements are tolerable. Among the requirements are a transaction report for deals involving more than $10,000 in currency, IRS form 8300 for business cash payments over $10,000, and various other reports for foreign transactions and foreign bank accounts. Plus, there's a suspicious-activity report. "We tell our people if it doesn' t look right, smell right, or feel right, notify us," said Mr. Dunbar. Federal guidelines list dozens of clues: a customer whose business or residence is outside the area; a business that differs from the normal banking pattern for its industry; wire transfers for no apparent reason; a customer purchasing a number of cashier's checks or money orders for large amounts; someone who frequently deposits musty or extremely dirty bills. Michael Williams, executive vice president for Mid Am Bank, said computers as well as tellers can spot suspicious activity, particularly if multiple transactions occur in one day. Paul Bauer, an economist with the Federal Reserve Bank of Cleveland, characterizes attempts to stop money laundering as "needle-in-a-haystack efforts" because more than $2 trillion courses daily through the U.S. economy. A recent Cleveland Fed report, Understanding the Wash Cycle, co-written by Mr. Bauer, noted that money laundering, even though not specifically outlawed until 14 years ago, figured in prominent criminal cases in the past. "Two of the century's most notorious criminals were undone by failure to cover their financial tracks," he wrote in the report. Al Capone was finally convicted of tax evasion, not racketeering, and Bruno Richard Hauptmann, who kidnapped Charles Lindberg's son in 1932, was caught because he did not launder the ransom money thoroughly, Mr. Bauer wrote. Experts say money laundering involves three steps: placement, or getting funds into the financial system; layering, or obscuring the paper trail; and the payoff, or the final stage, in which the ill-gotten money appears to originate from legitimate businesses. The Fed's Mr. Bauer pointed out that, in the placement phase, the form of the funds must be converted to hide its illicit origins, and that often includes changing small bills into large denominations. It's easy to understand why criminals prefer $100 bills. The Department of Justice calculates that, for example, $1 million in $5 bills would weigh 440 pounds, but the same amount in $100 bills would weigh just 22 pounds. Converting to large bills, cashier's checks, and other instruments is often accomplished using cash-intensive businesses like restaurants, hotels, vending-machine companies, casinos, and car washes as fronts, Mr. Bauer said in his Fed report. Another placement technique is called "smurfing" - using couriers to take cash to banks to exchange for cashier's checks and money orders. It was used by Alberto Barrera-Duran, a Colombian whom the United States accused of running a group of 15 couriers, laundering as much as $1 million a day in a number of U.S. cities in the mid-1980s. Greg Arndt, a certified fraud examiner with the Maumee accounting firm of William Vaughan Co., said, "Cash businesses can hide illegal money by overstating reported revenue and expenses - by reporting payment for supplies never received, professional services never rendered, or wages for fictitious employees. "A favorite type of purchase is real estate because it increases in value. Also, rental income can be altered to launder more funds." - --- MAP posted-by: Kirk Bauer