Pubdate: Sun, 23 Dec 2007 Source: Toronto Star (CN ON) Copyright: 2007 The Toronto Star Contact: http://www.thestar.com/ Details: http://www.mapinc.org/media/456 Author: Tony Van Alphen, Business Reporter Bookmark: http://www.mapinc.org/topic/money+laundering HOW THE RCMP BOTCHED A STING Force Used Known Fraudster to Set Up Fake Money Laundering Operation Aimed at Organized Crime Inter Maritime looked just like any other nondescript company with an office on Howe St. in Vancouver's rough-and-tumble financial district in 2003. The firm told prospective clients that it ran a big international money-management business based in Belgium and had around $5 billion in assets. It said about 95 per cent of its dealings involved legitimate money management in offshore jurisdictions. But it was the other 5 per cent of the business that Inter Maritime really promoted. Money laundering. The firm sought only select clientele like Canadian and U.S. drug traffickers who needed assistance in cleaning huge amounts of dirty money through bank accounts and shell companies. That prospective list included Cosimo Commisso, whom police claim to be the head of an organized crime family in Toronto, and the Hells Angels motorcycle gang. Inter Maritime said it charged 6 per cent of the value of funds to be laundered, and guaranteed all money against seizure, theft or loss. But this operation, according to the RCMP's own version of events, was different. Organized criminals and crooked financiers weren't pulling the strings. The RCMP was. In affidavits filed in support of search warrants - and whose allegations are untested in court - the RCMP itself paints a sensational saga with twists and turns befitting a Hollywood thriller. Combined with Mountie transcripts of internal interviews, letters filed in court, National Parole Board reports and interviews with people familiar with the RCMP's operations, the affidavits provide a rare glimpse into the secret world of the force's operations. By its own admission, the RCMP conducted this sting operation with the help of a notorious fraudster, Michael Lee Mitton, who was hired to go undercover to meet and offer money-laundering services to potential Canadian and American clients. The goal, according to the affidavits, was to lure Commisso and others under the operation, which was code-named Project Elden and ran between 2003 and 2005. In fact, a source involved in the investigation says Mitton ended up paying more than $100,000 in "commissions" to Commisso, although he noted Mitton may have kept some of that money. But the sting operation ultimately fizzled and never led to any charges against him or anyone else. Lawyer Joseph Bloomenfeld, who represents Commisso, said suggestions that the RCMP paid his client "commissions" through one of the force's agents "are completely unfounded and untrue." "The references to Cosimo Commisso contained in these affidavits are based largely on information from one Michael Mitton who was determined by the RCMP to be untrustworthy," Bloomenfeld added yesterday in a statement to the Star. For its part, the RCMP believed that Mitton, now 49, had been an acquaintance of Commisso, a long-time police target, and hoped that connection would help Mitton build his credibility in the Vancouver underworld. Commisso, now about 62, had spent time in prison with two of his brothers during the 1980s for conspiring to murder three people and cripple a fourth person. His criminal record also included the bombing of a building and possession of stolen goods. The RCMP says in affidavits that it focused on Commisso who, along with his group, had been under investigation since 2001 "for their alleged involvement in murder, extortion, drug trafficking, gambling and fraud." Project Elden involved about 25 investigators from Vancouver and Toronto in a special unit that included local police specialists. While it was running, Mitton paid Commisso for what the RCMP calls, in one affidavit, "assurances and support." The RCMP does not elaborate on what that "support" entailed. But the force says in the same affidavit that Mitton used his relationship with Commisso to get introductions to a number of people of interest to authorities in Vancouver. There are still extensive blacked-out sections in the court filings that prevent some details of Commisso's alleged participation in the money-laundering operation from becoming public. The court documents also contain information on a second project that eventually prompted the RCMP to charge Mitton with fraud, after he quit Project Elden because of fears for his life. The charges involved a post-Elden, multi-million-dollar stock-manipulation scheme in the Toronto area. That case resulted in police blowing Mitton's original cover. Mitton found himself in the uneasy position - after actively working against the alleged Commisso organized crime group - of becoming exposed for that role to co-defendants in the stock fraud. Among the co-defendants was Aneillo (Neil) Peluso, whom the RCMP describe in the affidavits as being "a high-ranking member of Cosimo Commisso's organized crime group." Peluso's lawyer, Alan Gold, has said that allegations about his client's ties to Commisso are groundless. "They're not worth the search warrant paper they're written on." Mitton is now in prison for the stock fraud scheme that followed Project Elden. It is extremely unusual for details of RCMP operations to emerge publicly. Without commenting specifically on the two operations, former senior RCMP officials say privately these types of investigations can be legally complex, financially daunting and fraught with danger. One RCMP official said that although such investigations might not lead to charges, they can be successful in gathering intelligence on organized crime. However, another senior officer added that exposure of probes could also make criminals more cautious. Senior RCMP officials would not provide any information on how much Commisso was allegedly paid, compensation for Mitton, any profits from laundering money, the operation's costs, other targets or why Project Elden eventually wound down in 2005 without any criminal charges being laid. Mitton, a diminutive, soft-spoken career con man with curly hair and hazel eyes, was the son of a Christian fundamentalist and 3M salesman in suburban Montreal. By his late teens, the kid with the sweet face had left home and moved to the bright lights, fast money and gangs of the city's downtown. The RCMP and the courts knew him well. He had built up a record of fraud and bad debts that would make Charles Ponzi, the legendary American swindler, smile. But the Mounties thought Mitton could be useful. He had potential. The force had pulled him from the shackles of prison life in Kingston during the mid-1980s to work as an agent on various projects. It eventually promoted him to a sting operation targeting possibly corrupt federal politicians and mobsters in Montreal. Mitton worked there for a year until the RCMP abruptly ended the project without a charge. He fled to Abbotsford, B.C., minus RCMP protection, and thought angry mobsters from Montreal would soon catch up to him. But the cagey con man survived and turned to Vancouver's fast and loose stock exchange to exploit his talents. Mitton prospered. Money came easy. It fuelled the needs of a growing family of three children and his high-rolling lifestyle. He jetted across the continent, zipped around in expensive cars, drank pricey cognac and dined in fancy restaurants. By the end of 2000, he had racked up 103 fraud-related convictions. There was also an outstanding arrest warrant for him in the U.S. in connection with a swindle that crippled brokerages there. One judge described Mitton as "a consummate liar, fraudster and rogue of the first order." A securities regulator called him a "serial fraudster." Over the years, trading bans, fines, restitution orders and prison time couldn't slow him down. There was never much remorse. When Mitton gained freedom from jail, he would always gravitate back to another scheme to fleece investors, banks and brokerages. Sometimes, he'd be working on the intricacies and timing of his next project while on parole. He was behind bars again in 2000 for a multi-million-dollar stock fraud that included a charitable organization among the victims. It was his biggest operation yet and netted him a four-year prison term and multi-million-dollar restitution order. But he didn't spend much time at B.C.'s minimum-security Ferndale Institution. Eight months later, authorities gave him a work release. It didn't last long. Within a few weeks, the National Parole Board had cancelled the release after hearing he had negotiated the purchase of a shell company, organized a secret bank account and left his employer without permission. Despite his record and no sign of rehabilitation, the RCMP surprisingly hired the career con man in 2002 for a second stint, this time as an agent on the Project Elden sting. Corrections Canada played along with the idea by removing a condition that prevented Mitton from contacting former "business associates." U.S. authorities co-operated too by delaying extradition on a 1993 arrest warrant for fraud. In addition to being well-connected in the underworld and an acquaintance of Commisso, Mitton could think fast on his feet and had a flair for figures. He was bold and cocky. His five-foot-three frame and soft voice evoked a harmlessness that could disarm the shrewdest criminals. He would need all his street smarts and powers of deception to make the operation work - and survive himself. The Project Elden assignment was fraught with danger because it allegedly involved some of the biggest and most violent criminals in the country. Police said it could drag for several months or perhaps three or four years. Mitton knew the dangers, and raised them in an interviews with police, the transcripts of which were also filed in court. "If something really goes wrong, I'll get popped," Mitton said. "If anything goes cockeyed, right, and they really get suspicious, ongoing suspicious, then they'll just eliminate ya. "They're not gonna sit down and say, 'We got these questions, right. In other words, can you explain this and explain that and explain that?' They'll just get rid of ya. And that's the way they do it today." Mitton also never forgot the time when he questioned a gangster for going after someone. "What if you're wrong," Mitton asked. "And he said, 'With who we are, we don't have to be right.'" In view of the risk, Mitton requested assurances that any information would be used strictly for intelligence-gathering purposes and that his identity would remain concealed. He said he understood that if the project proceeded to a second phase, there would be a protection agreement for him and his family. A second phase would entail a full police investigation, the release of his name for wiretap authorizations, search warrants and court testimony if the Crown prosecuted anyone. Although his written agreement with the RCMP didn't include witness protection, officials told him they would take care of it if the project shifted to a second, riskier phase in which he would be designated an informant. RCMP officials paid him an "allowance," covered his family's expenses and other costs ranging from loans and legal fees to life-insurance premiums. They also talked about an "award" of up to $400,000 at the end of the project if it turned into a success. The RCMP was never far away. The force had equipped Mitton's office on the 10th floor of the Howe St. building with listening devices. An RCMP team monitored his conversations in a building penthouse. Operatives also watched his movements 24 hours a day. Mitton warned the RCMP that the operation would be complex and it would take a lot of work to establish links. "They're gonna have sharp lawyers," said Mitton, who had spent a lot of time in courtrooms over the years. "You gotta make your chain." Mitton added that if police properly executed the operation, the list of charges could extend beyond money laundering to drug trafficking and "the odd murder here and there .. " In 2001 the RCMP had already made Commisso and what the force called a "traditional organized crime group" a primary target in a broader national investigation code-named Project Ora, because of alleged involvement in murder, extortion, drug trafficking, gambling and fraud. That initiative - which would eventually cost more than $10 million, according to one insider - eventually branched out into other operations, including Project Elden, with Commisso still the top target. In the latter investigation, the RCMP said it gave money to Mitton, who, in turn, paid Commisso. "The Toronto target received monetary commissions that were based in part on the total amount of business transacted by the RCMP," one senior Mountie revealed in affidavits. A cocaine trafficker who didn't need the money-laundering service introduced Mitton to other project targets. That trafficker received a 1-per-cent commission on any transactions. Commisso also received a small percentage of some of the money-laundering action for "protection services," because Mitton said he had asked someone to "put out the word" in Ontario and British Columbia that the "family" would deal with anyone who tried to cheat the operation. Mitton's initial contacts laundered drug proceeds in the $100,000 range, but in court filings he indicates the relationships and transactions eventually increased to the multi-million-dollar level. The force won't disclose any profits from the illegal transactions and what it did with the money. The operation conducted most of its big cash pickups in New York, Seattle and locations in Florida and Canada. It also involved assistance from U.S. Homeland Security undercover officers. Mitton dealt only with Canadian traffickers and developed relationships with senior members of the Hells Angels and other individuals tied to organized crime in Toronto and Vancouver's East Indian community. Among his disguises, Mitton acted as an employee of a boat firm called Delta Charters. He would entertain money-laundering clients on a boat complete with RCMP surveillance equipment to record conversations with targets. The RCMP said Mitton participated in more than 500 undercover situations in less than 18 months of work and gave numerous videotaped statements about meetings with targets. But he felt the information-gathering had shifted into a major investigation in which the stakes would be even higher. That could lead to charges, prosecution and exposure. He would have to testify. Mitton said he became increasingly concerned about the risks and his exposure with no agreement to protect him or his family. His regular, videotaped statements to the RCMP seemed like an insurance policy in case anything happened to Mitton. He described himself as "a disposable asset." Mitton had already run into dangerous situations. A target in the project found a high-tech listening device in Mitton's appointment diary. Mitton said he defused the problem by convincing the target that it was a sweeping apparatus to detect electronic bugs. He found himself in a tight squeeze when the project participated in a shipment of more than 300 kilograms of marijuana from the Hells Angels in Vancouver to "the family" in Toronto in early 2004. The shipment disappeared from a "stash" house in the Alliston area north of Toronto. The family believed it was an inside job and fingered some guards who had apparently become hostages, Mitton said. Cognizant of a looming disaster, the RCMP sought Mitton's intervention in efforts to placate the Hells Angels and buy time for payment of several million dollars. Mitton said he negotiated the release of the hostages and gained some time, but about $2 million remained outstanding, which left him vulnerable. One police source familiar with the situation confirmed there was indeed missing marijuana, and that the RCMP used Mitton because the force couldn't take any chances in a possible life-and-death crisis. What's particularly intriguing about the episode is that the RCMP inadvertently created the crisis. Unknown to Mitton, police officers had raided the stash house when nobody was there. Another incident is highlighted in a letter written by Toronto lawyer Clayton Ruby, who at one point represented Mitton. The letter, addressed to the RCMP and filed with the court, describes Mitton's version of the pickup of $1.1 million in cash from one of the project's clients, in Seattle. When Homeland Security agents - who posed as representatives for the money-laundering company - arrived at the pickup point, individuals with machine guns robbed them, according to Mitton. The client learned of the robbery and requested that the money-laundering company honour its guarantee policy on theft, loss or seizure. But Mitton said a senior RCMP official decided that the company would pay only $250,000, which reduced his credibility among targets and increased the risk of reprisals. Mitton said he believed the operation's target would threaten or harm him in efforts to recoup all of the stolen money. The FBI and Homeland Security were also hunting for the robbers, which caused further concern to him because he thought their search would disclose his involvement with police. He notified the RCMP of his intention to pull out of the investigation, but the force advised him to reconsider. Officials also informed him that he would be ineligible for any witness-protection program under the law because he was an undischarged bankrupt from previous financial problems with debts of more than $2 million. However, they said his wife and children would qualify. Mitton left Project Elden in early June 2004, but only a few weeks later the RCMP arrested him for allegedly violating his parole by engaging in criminal activity while an agent. The RCMP had received information from someone in the drug trade in Kelowna, B.C., that Mitton had diverted and "skimmed" an undisclosed amount of cash from the money-laundering operation. "It had become apparent that Mitton had not been performing his duties in accordance with the directions given him by his cover team members," said one investigator, without elaborating. Mitton spent more than two months in jail in segregation. (Corrections Canada does so when it believes an inmate's safety is jeopardized.) But after releasing him without charges, the RCMP immediately rearrested him for possessing the proceeds of crime and laundering in connection with the project. In one incident, Mitton allegedly "laundered" $25,000 to purchase a leasehold interest in a Delta Charters boat. Again, police laid no charges. Within days, the National Parole Board had issued another statutory release for him because of "insufficient information" regarding a return to criminal behaviour. At the same time, Mitton said the RCMP visited his wife to warn of threats against her husband and the need to protect herself by leaving home with her children. Despite Mitton's departure, Project Elden continued, and a Commisso connection surfaced again. In November 2004, the RCMP swooped down on more than 50 undisclosed businesses and homes in Vancouver and nearby Surrey, Langley, Coquitlam and Maple Ridge in a drug raid. The force said it seized eight kilograms of cocaine, some marijuana and ecstasy, and 24 barrels of chemicals for manufacturing of methamphetamine, the highly addictive drug commonly called "crystal meth." Officers also confiscated 12 rifles, nine handguns and some money. But police charged no one. The RCMP didn't release any information publicly regarding the Ontario portion of the raids at that time, but they included Tree Valley Garden Centre in Richmond Hill, north of Toronto, and an area home. Neil Peluso of nearby King City, whom the RCMP described as a high ranking member of the Commisso crime family, owned the business and home. But Peluso, who had no criminal record, wanted more information. He asked a B.C. court a few weeks later for an order to unseal details in the search warrants for the raids on his business and home. A judge denied access because he said police were still conducting a "highly sensitive investigation," and making the information available could subvert the ends of justice. The judge added the information could also compromise the identity of an "informant" and endanger "a person engaged in particular intelligence-gathering techniques." Mitton worried that the RCMP would soon lay charges against targets in Project Elden. That would mean targets who faced charges would be entitled to information from the search warrants - including, possibly, Mitton's identity. But Project Elden wound down in 2005 without yielding any charges, partly - and ironically - because of Mitton's central role in the whole operation. It had become, said one police source, too difficult to build any case around the testimony of Mitton. With his past record and continuing illegal activities, Mitton's credibility was by then too much in question. [sidebar] HOW WE UNCOVERED THE STORY This story is largely based on more than 1,000 pages of RCMP affidavits filed with the court in support of search warrants. The affidavits provide details of police operations, but contain allegations that have not been proven in court. The affidavits became public as part of court proceedings involving an alleged stock fraud. The Star further relied on the transcripts of interviews conducted by the RCMP and a letter written to the force by prominent lawyer Clayton Ruby on behalf of his then-client, Michael Mitton. These documents are also filed with the court. In addition, the Star conducted interviews with people involved in or familiar with the RCMP operation, and relied on National Parole Board reports. - --- MAP posted-by: Richard Lake