If you have issues viewing or accessing this file contact us at NCJRS.gov.

() o ' o

" 0

National G-riminal rJusticeRefe(ence Service o a

,'>-

nCJ~(,'l ~,

This microfiche was produced from documents recelv~d for inclusion in the NCJRS data ba~e. Since NCJRS cannot exercise control over the physi<:;al condition of the documents submitted, the individual frame quality will'vary. The resolution chart on this frame may be used to ~~e the document quality:

, ., ...... -.-~'~' :.:"" , ...... _' "" ." ,t. "~.. '. t*l't'.)r."''ljOiO't~>. ::L.'~.'~'J\

----..... , I~~-!,--::~- -.....). ___ rl!f:":'-:",': 1

,1

l,!;i 1.0 w IIII~ w w W 'W w W I:a -1.:/' ~ 1.1...... "..... '* --- 25 111111. 111111.4 11111' 1.6

j'

MICROC8py RESOLUTION TEST CHART ,NATIONAL BUREAU OF STANDARDS·1963·A co>

, .p ,

Points"of view ..or opinions stated in this doctlm~,nt are those of the author(s) and do. not represent the'officigl posiijongr policies of the U. S.:peQ)artment.of J1}stice. r --""~":"":'·-~-----:"'r:.-;-~-t:~~...... ~.~",:,-~ .. ~_-,~,-, .'rT;::·}'~ "~"'="-'''f~·-~·T~~~r-~~~~~",~~ri'·''·+

0, L_,-,,<~#I,~ ~~~~ ., . nited States Department of Justice Washington, D. C.20531 ))

" . o I~ j} o t"""-_,

~ ,",0

'! .U.S. Department .of NiltiDnallnstitute .of This d~cumenl has i!!!en reproduced exaclly received trom the person or organization origlnati,ng iI.Points of or opinions stated rn this document are those ot ,the aUlhors not necessarily :\ . ~RCEMENT represehl the .otticial position or pelicies ot theJINalionallnstilUle of J,m JusUce. ' ' J BULLETIN

" , Permission 10 reproduce this 01'•• I.!!M!.Qd material has beeh" t = granled by NOVEMBER 1981. VOLUME 50, NUMBER 11 Public, Domain , , ,·FBI, OS Dept. o,f Justice J

,to the National Criminal Justice Refer~ni:e Service (NCJRS).

(;) ,,:urther reproducticn .outside of the NCJRS system requIres permis­ SiOn, of Ihe ~owner.' , D Contents -~-~--~--I-~-~-~~--"--"~=--"~-~-~'~~--~r Police History 1 Preserving Police History .. By George F. Maher .,, g03?( \ White-collar Ponzi Schemes and Laundering-How Illicit Funds are Crime [5 Acquired and Concealed V

0 By Vincent P. Doherty and Monte E. Smith $" I'I;r. 1,\

Crime Statistics 12 1980 Crime Statistics o 0, Point of View 18 The Police: From Slaying Dragon$' to Rescuing Cats ~y Edwin J. De/attre

Cooperation r200 Joint FBIINYPD Task Forces: A Study in Cooperation :7~ \: By Kenneth P. Walton and Patrick J. Murphy 'gO 3 f D ~""~ ,~, The Legal Digest [ iJ4 The Motor Vehicle Exception to the Search Warrant Requirement (Part I) qo 3 4- { By John C. Hall

.,/ o , 32 Wanted By The FBI

0

,. l' '" " " , THE COVER: Fe.deral Bureau of Investigation Published by the Office of Congressional and United States Department of Justice Public Affairs A restored 1925 Har­ Roger S. Young ley Davidscn Is driv­ Washington, D.C. 20535 Assistant Director t, o en by an .officer 'Yilliam N. Webster, Director dressed in a uniform Editor-Thomas J. Deakin of Ihat era. See ar\i· Assistant Editor-Kathryn E. Sulewski . The Attorney General has determined that the publication Art Director--Kevin J. Mulholland --'J cle on preserving the ,of ihis periodical is necessary in the transaction of the Writer/Editor-Karen McCarron history of a police public business required by law of the Department of Production Manager-Jeffrey L Summers ;;,' department begin­ Justice. Use of funds for printing this periodical has been ning on p. 1. approved by the Director of the Office of Management and , " Budget through December 28, 1983,

ISSN 0014-5688 USPS 383-310 ,,.. L-' o

'", '~

.., " . j I : . c;:, : c. " " - ' , / '(, pt>337 ill ~,~nIDjl;lli® Q@©IDl@,~ ©~fuillil.®

,'-' rl ("'-­ " I Ponzi Schemes

,; (/ and Latindering-- How Dlicit Funds are Acquired and Concealed Historically, "crime" has' been Herbert Edelhertz, writing in 1970, By considered only in terms of acts of provided a comprehensive definition of o VINCENT P. DOHERTY violence, threats of violence, and overt white-collar crime as " . . . an illegal ' 1::1 and thefts. Our system of jurisprudence has act or series of illegal acts committed evolved by defining as illegal certain by nonphysical means and by conceal­ MONTE E. SMITH activities directed against property and ment or guile, to obtain money or prop­ ~'pecial Agents pe!sons, and over a number of years, erty, to avoid the payment or loss of Economic And Financial Crimes Training Unit law enforcerllent agencies have devel­ money or property, or to obtain busi­ '" 0' {I B oped generally accepted methods for ness or personal advantage." 2 This FBI Academy investigating these traditional crimes. definition considers white-collar crime Quantico, Va. In 1949, however, a new type of in terms of the nature and character of crime was brought to the attention of the wrongful activity involved rather D 1< law enforcement when Professor Ed­ than the offender. win H. Sutherland coined the term This distinction is important tor law "white-collar crime." He defined this enforcement officials, since a success­ ''\ crime as" . . . a crime committed by a ful prosecution must show that one or ,~ ,' .. person of respectability and high social more criminal statutes were violated by , c3' status in the course of his occupa­ the activity in question. Thus, in white­ ~,-...;, 1111 " tion." 1 collar crime investigations, efforts must

(1 The definition of white collar-crime be directed toward proving an illegal :i ,- has, since 1949, expanded to include activity rather than concentrating on ~ acts committed by people of less than the offender. The law enforcement offi­ cer must find the crime rather than the .; high social status, and our appreciation r for the impact of this crime has prompt­ criminal. o ed law enforcement to look beyond It is important, therefore,for the Ie'! , . traditional acts for illegal and criminal officer to understand exactly how the ..;

L behavior. crime is committed and at What junc­ .. ture or junctures in the activity the , " illegality occurs. Knowing the identity , , .' of the perpetrator of a fraud is not enough. The law enforcement officer .-,.....; " ., o must be able to understand, explain, and show conclusively how and why (.' the activities are illegal. o Q -,r .. (! 0 il C', ______~ ___'___~November1g81 /5 0, .. ..'" , " . ~ - ,- '. . " '"

:... ,~ ..., " "

" . " . . '~ " .. ------~---,---~~- -~~.

This article takes an in-depth look One of the earliest known exam­ Today, another Ponzi plan, some­ ProbleMS for Law Enforcement at two types of white-collar crime in an ples of a pyramid scheme appeared in times called the pyrflmid scheme, has "One immediate When corporate entities are em­ effort to demonstrate the complexity of 1920, in Boston, Mass. Charles Ponzi, hit the United Statr#s. It involves the ployed, company promotions of Ponzi the crime and to explain how the activi­ an Italian immigrant and financial wiz­ making of $16,000 Tfom a $1,000 in­ answer to reducing the plans frequently take on enormous and ties are fraudulent. The Ponzi or pyra­ ard, established the Sec1Jrities and Ex­ vestment. To play the pyramid game, effectiveness of complex proportions, making auditing mid· schemes and the laundering of change Company. The corporation one needs only a chart and $1,000 in pyramid schemes is to difficult, expensive, and time consum­ funds activities are only two examples consisted of only Ponzi, who started cash. (See fig. 1.) ing. Too many promoters in local areas of dozens of bribery, kickbacks, his company with a few hundred dol­ With the $1,000, you can buy a increase the public's make prosecution impractical. By the payoffs, bankruptcy, credit card, check, lars borrowed from two silent partners. "slot" on the bottom line. This pur­ awareness of the time informative actions are taken, consumer, and insurance frauds and The company's prospectors promised chase is accomplished by giving $500 impossibility of most promotions have run their course, schemes that occur each year. None­ investors substantial returns on their to each investor above you on the 8th success in the rendering restraining orders ineffective. theless, analyses of these two inves~llJents in Ponzi's company. With­ line and to the player in the zero posi­ The overall problem of establish­ schemes may provide the officer fa­ in 45 days an investor would receive tion. Pyramid success occurs when all schemes." ing criminal liability is made more diffi­ miliarity with the type of activity in­ his original investment plus 50 percent the slots on your line are filled and you cult by the need to separate victims volved in any white-collar crime. interest; in 90 days, he would double are able to progress up the chart. Figure 1 from promoters. Peculiarly, it is in the his original investment. By June 1920, When an investor finally moves into the victim's best interest to become a pro­ Ponzi and Pyramid Schemes Ponzi claimed to be receiving $500,000 zero position, he or she can begin moter and transfer his loss to another. Pyramid sales schemes, otherwise per day and paying out $200,000 a collecting up to $16,000. Participants who lose their entire in­ .known as chain referral schemes or day. At the heart of each pyramid vestments do so only because they Special Agent DohenY Ponzi schemes, have mushroomed Ponzi explained to doubters that scheme is the representation, ex­ cannot convince others to invest. For across the United States and may be knowing how to take advantage of the pressed or implied, that a new partici­ this reason, useful victim testimony is operating in other countries. There is varying currency exchange rates in dif­ pant can recoup his original investment limited. The prosecutor finds appealing no way of calculating the exact amount ferent parts of the world was how he by simply finding and inducing two or victim testimony only from those of money lost by the victims of pyramid made his profit. He started his com­ more prospects to make the same in­ investors who invested in the pyramid schemes, but It is estimated to be well pany upon rece!ving a business letter vestment.. Promoters fail to tell pros­ for reasons other than participation in over one-half billion dollars in the from a conspirator in Spain, who en­ pective participants that this is the chain-referral recruiting. United States alone. Some officials closed a (eply coupon which, if ex­ mathematically impossible, since some One immediate answer to reduc­ even contend that pyramid sales changed at any U.S. Post Office, was persons drop out of the pyramid while ing the effectiveness of pyramid tichemes are the number one consum­ worth 6 cents. In Spain, the cost of the others recoup their original investment schemes is to increase the public's er fraud problem today. Despite the coupon to a buyer was only' 1 cent. and then drop out. This simple misrep­ awareness of the impossibility of suc­ II scope of the problem, many persons Ponzi reasoned that by buying the cou­ resentation constitutes the heart of the cess in the schemes. Public education still do not know what pyramids are or pon in Spain and redeeming it in the fraudulent scheme. is an effective toot in combating the the dangers inherent in them. United States, he made a 5-cent profit. If each investor recruits two addi­ Ponzi schemes. Law enforcement A pyramid sales scheme is a mar­ Thereafter, Ponzi began operations in tional investors in an effort to get his should not rely solely upon adverse keting program by which people buy nine different countries, with his agents money back and no one drops out, publicity, during or after disclosure of a the right to sell others the right to sell a traveling back and forth between these everything works according to plan. If Ponzi scheme, as the means for com­ specified product. The promoters se­ countries and the United States to take there are 15 investors at the first meet­ bating the crime. lect a product, such as household advantage of the disparity in currency ing to start a pyramid and one person items, cosmetics, or safety devices, value. at the top level, the number of new i The Laundering of Money by Orga­ ; SpecialAgentSl71fth and sell large inventories to distributors A Boston Post newspaper reporter members doubles each day thereafter with the added incentive of permitting was convinced that Ponzi had never until, at the end of 2 weeks, 262,143 nized Crime

the distributor to sell new distributor­ purchasl;ld any coupons and that he persons are involved and at the end of At the end of the 19th century, '; ships. The real profit is earned primarily was taking money from one investor to 3 weeks there are 33,554,431 partici­ most money earned by the American by recruiters developing new recruits payoff another. Further investigation pants. It is obvious that the whole underworld was money gained through who develop even more recruits. In all by this reporter turned up information scheme must collapse before this is extortion, blackmail, and dock racket­ of this activity, there is little or no real that Ponzi, under his real name Charles reached. Therefore, the earlier one eering. By the 1920's, the chief source concern given to direct sale of prod- Bianchi, had been sentenced to prison gets in on the pyramid, the better the of income had changed to bootlegging, '\ ucts or services to the public. Con­ in Canada for forgery several years possibility to collect the $16,000. For and some believe that it was prohibi­ sumer distribution, therefore, becomes earlier. everyone to win, an infinile number of tion that supplied organized crime with a sham and acts merely as a cloak of By the end of 1920, Ponzi's world investors is needed to fill the chart the funds and expertise to operate respectability. collapsed and he was subsequently from the bottom up. multimilliori~;iollar ventures. 3 Today, it convicted in Massacl:lI!setts. Of the is estimated that organized crime has $15 million that Ponzi had taken in, invested more than $20 billion into there was no accounting for $8 million. between 15,000 and 50,000 business Such schemes became known as establishments in the United States. 4 lt Ponzi schemes. is estimated that annually, organized crime businesses take in at least $48

6 / FBI Law Enforcement Bulletin ______~------_--"'--'--______November 1981 / 7

c' ? I ! . -' , r-f " \!' billion in gross revenues. with about r " introduced and camouflaged in this "supplier" by the grocery or restaurant The use of ratios to evaluate busi­ 5 r~~ $25 billion in untaxed profits. If these "It law enforcement type of business quite easily. since the have taken on an image of legality and nesses has been used for many years figures are accurate. it becomes obvi­ " .. . law enforcement 1\ \ officials are to combat additional salos volume does not result may be spent or invested with very by accountants, investors, and lending ous tha:~'\. " organized crime has in a proportional increase in '. business little risk of discovery. Within a week of officiais have adapted institutions. There are four basic types historically been successful in conceal­ organized crime /r expenses. Law enforcement officials this "trans~btion." it is almost impossi­ new methods. . .to of ratios in common use: t! ing from law enforcement officials and ]1 II successfully, they who later examine the records of such ble for law enforcement officials to dis­ 1) Liquidity ratios. which indicate the legitimate businessmen the true nature discover laundering a mOllie theater would have a difficult prove the story of the grocer or ability of an enterprise to satiSfy and origin of funds invested in busi­ must have an ," time proving that the actual or "legiti­ restaurant owner. operations and to its immediate (short term) finan­ ness enterprises. understandina of how • VI mate" income generated by the the­ The above techniques have been prosecute successfully cial obligations; momes acquired from used to launder funds successfully for Definition of Laundering ater was much less than that recorded the people involved in 2) Operating ratios. which indicate illiCit sources are on the books and reported to the tax- a number of years, and large numbers the efficiency of the business en­ Alphonse Capone. the infamous ing authorities. _, of domestic businesses controlled by the conversion terprise; gangster of the 1920's is said to have transformed into Businesses that normaily experi­ organized crime are still being used for process." 3) Profitability ratios, which indicate amassed a fortune of $20 million in a respectable funds that ence a high rate of spoilage or other this function. Recently. however. law the effective use of assets and 1O-year period through such illegal ac­ can be spent and loss of goods also have a high poten­ enforcement officials bave adapted the return on the owner's invest­ tivities as bootlegging and gambling. G invested without fear tial for being used to launder money. new methods. such as sampling. ratio actually received by an enterprise in ment in the business; and Yet. when Capone was sentenced to analysis. and flowcharting. to discover the ordinary course of operation. This 4) Leverage ratios, which indicate 11 years in prison in 1931. it was for an of discovery or Groceries and restaurants are good laundering operations and to pros­ pro~eclure is similar to that used to the extent to which the enterprise income tax evasion conviction. not be­ prosecution. " oxamples. since some spoilage of goods is expected during the normal ecute successfully the people involved project the outcome of an election with is financed by debt. cause he had been charged with any of in the conversion process. only a small percentage of the votes By using ratio analysis. an investi­ these illegal activities. course of business. When such a busi­ Domestic Laundries Simply stated, "sampling" is a sta­ counted. If the projected income is gator is able to compare the past per­ 'rhe convictipn of Capone taught ness is controlled. large blocks oflWcit While laundering money can be money are introduced into the busi­ tistical procedure wherein the number materially smaller than that reported to formance of a business enterprise to other organized crime members an im­ of customers of an establishment is taxing authorities, it is a good indication that of the industry in which the busi­ portant lesson: Money not reported on accomplished in a wide variety of legW­ ness and recorded in the general in­ ~ate businesses. it should be recog­ come accounts of the grocery store or randomly counted, a conservative esti­ that the business is being used to laun­ ness operates. This comparison is for an income tax return is money that mate is made of the amount of money der funds. the purpose of spotting significant devi­ cannot be spent or invested without nized that certain domestic businesses restaurant as if this money were re­ spent by each customer. and a projec­ ations from'the norm, which may indi­ risk of detection and prosecution. have characteristics which lend them­ ceived from customers. Fraudulent in­ s~/ves to successful laundering oper­ ~oices for produce or other perishable tion is made as to how much money is cate the existence of a laund,aring Since most monies collected by operation. organized crime activities are from ations. For example. the business Items are then issued to these busi­ Figure 2 Another method used to uncover iI!~gal sources such as loansharking. selected as a "laundry" must be capa­ nesses by other mob-owned or mob­ ble of absorbing a large volume of controlled companies acting as suppli­ domestic laundering operations in­ p'{ostitution, gambling. or narcotics. the volves researching the corporate and individual racketeer is understandably cash income. since most illicit income ers. The grocery store or restaurant ownership structures of both the sus­ reluctant to report the income and its is received in the form of cash. The either issues checks to these "suppli­ pected business and all the companies source on his tax return. Before(spend­ purpose of laundering funds is to co­ ers" or records the transaction as a mingle licit and illicit monies so that cash payment and charges the ex­ with whicl, the suspected business ing or otherwise using these funds. it is deals. Since the ultimate success of a necessary that these monies be given they cannot be separated. while simul­ penditure to an expense account. such laundering operation is dependent an image of legality so that they can be tane.ous/y pr~venting the discovery of as cost of goods sold. The undelivered upon keeping the moray "in-house," reported on a tax return without reveal_ the introductIon of illegal monies into produce or perishable items listed as there will be a commonality among the ing the true nature of their origins. This' the business. Since a/most all checks spoiled and discarded are written off various businesses. The relationship process of conversion is known as and credit card receipts are traceable the books. (See fig. 2.) between the various companies may "laundering. " by law enforcement officials. busi­ By using this method. the grocery nesses such as restaurants. bars. and store or reSiaurant avoids substantial be illustrated visually by the process of If law enforcement t1fficials are to flowcharting. which allows investiga­ combat organized crime successfully. ~ass?ge parlors, which normally take tax liability on large blocks of illicit In a hIgh proportion of cash. tend to be monies introduced into the business tors. prosecutors. and juries to grasp they must have an understanding of more easily the sometimes complex how monies acquired from illicit more desirable as a potential "laundry" since this income is offset by corre~ than a ~usi~ess normally receiving sponding expenses relating to the non­ relationships which exist in laundering sources are transformed into respect­ operations. able funds that can be spent and in­ most of Its Income in the form of deliVered goods. The funds paid to the vested without fear of discovery or ~hecks or other traceable financial prosecution. Instruments. . Another favorable characteristic for a "!aundry" is relatively fixed expenses whIch do not vary with sales volume. An example of such a business is a movie theatel" showing pornographic films. The expenses of such a business (rent. electriCity. wages) are almost constant. regardless of whether the theater is full. Illicit income can be

~~ 8/~~~~~~B~~ ______~_~ ___...,- ___:::C.- ______------November 198" / 9- ~~/ , "

- . '1 to I '" j I - . '" 1 ..... j,., Q ,

;'-' .... While law enforcement agencies Americans known to be associated have been relatively successful in de­ this type of a laundering operation re­ with organized crime activities. 7 Not r tecting and exposing domestic laun­ mains expensive, difficult, and time­ hensive investigation. These ope~~­ Conclusion the wide diversity of activities which only did the American ownership pro­ dering operations, it should be realized consuming, significant steps have tions have continued because legiti­ White-collar crime, like traditional qualify as this type ?f c~im_~. This ex­ tect the identity of bank customers and that underworld leaders have devel­ been taken in providing investigators mate businesses also provide other crime has existed for hundreds of amination of the subject !~'iJltended to allow for the falsification of bank oped and perfected a number of inter­ with new jurisdictional tools to combat essential services needed by o~ga­ years: Our system of jurisprudence be of assistance in law enforceme~t records, but it also enabled the racket­ national money laundering operations this problem. nized crime, such as warehousln~, has, however, concentrated on those efforts to combat this crime. If the rapid eers to bring apparently legitimate that ha'/e traditionally been immune On JanUary 23, 1977, a Mutual transportation, and a place to do bUSI­ crimes involving violence, threats to increase in white-collar crime i~ to be monies back into the United States in from this detection and exposure. Al­ Assistance in Criminal Matters Treaty ness. The concept of investing iIIegall~ person and property, and overt theft. dealt with effectively, it is essential that the form of various financial instru­ though these international laundries between the United States and Swit­ derived income into legitimate bUSI­ For this reason, laws were passed to law enforcement officials understand ments issued by these banks and by vary greatly in form, organization, and zerland became effective. As a result nesses within America becomes most deal with the poorer, more visible crimi­ the nature of these crimes and develop foreign governments. It did not take compleXity, the object is still to dis­ of this treaty, U.S. law enforcement disturbing when one considers th~t the nal element, and law enforce~~nt new techniques to investigate these long for these owners to realize that guise the true nature and origin of authorities are now able to obtain pre­ very methods used to obtain these agencies have concentrated their in­ activities successfully. FBI controlled banks could also be used to funds derived from illegal activities. In­ viously secret bank information Where illicit funds can also be applied t~ .the vestigative efforts on these types of generate other illicit income through Footnotes ternational laundering schemes often organized Crime is involved. marketplacs to eliminate competition, crimes. " the issuance of fraudulent financial in­ I Edwin H. Suthe.rJand, White Collar Crime. (New York: involve the use of dummy corporations Investigators are further aided by compel the purchase of .defe~bve mer­ Following the massive seCUrities Dryden Press, 1949), p. 9. " struments that are used in this country 2 U S Department of Justice, LEAA Tile Nature. m­ and numbered bank accounts, or they the passage of "ThE! Currency and chandise, and gain unfair bUSiness ad­ swindles and bank failures of the as collateral for loans and in other pacl a~d' Prosecution of White-Collar Crime (Washington. may use securities or financial instru­ Foreign Transactions Reporting Act" vantages over more honest 1930's, government leaders and crimi­ DC: U S Government Printing Office, 1970) pp. 4-6. fraud Schemes. Enforcement agents businesses. :., • ", A~gust Bequal, Organized Crime. Tile Aftll Estate, ments issued by banks located in a (U.S.C., title 31, secs. 1051-1143). nologists began to address the prob­ (Lexington. Mass.: D.C. Heath and Company, 1979), working for the U.S. Comptroller of the country where banking regulations are This act and the Treasury Depart­ Historically, law enforcement ef­ lem of white-collar crime and passed Currency now estimate that the volume p. 18.3lawrence J. Kaplan and Dennis Kessler. An Eco­ lax (often referred to as "off-shore ment's regulations implementing its forts have concentrated on the illegal the first laws to deal with these crimes. nomicAna/ysisofCrime, (Springfield, III,: Charies C. Thom­ banks"). of phony finanCial instruments issued activities of organized cri~e rat~er as, 1976), p. 275. " ~ M 16 provisions set forth reporting reqUire­ Since that time, both the general public • "The Mafia-Big, Bad and Booming, ,Ime. ay , by offshore banks is "in the hundreds than on what was done With the in­ foreign Laundries ments for any person importing or ex­ and the jaw enforcement community 1977, p.33. Th A . of millions of dollars." ~ come derived from these activities. If • Wayne Moquin and Charles Van Doren. e men- porting currency or other financial have come to perceive these activities can Way of CiJme-A Documen.'ary History, (New York, It will come as no surprise to most Implication for Law Enforcement investigative efforts against organized as illegal, and studies have shown that NY- Praeger Publishers, Inc., 1976), p. 6~. !be instruments totaling more than $5,000. . "'James Cook, "The InVisible Enlerpnse," Fo s. law enforcement Officials that much of crime are to b~ successful, law en­ The successful use of domestic Further, banks and financial institutions the costs of these crimes are a threat October 13,1980, p. 125. •. , B the money invested by organized crime forcement agencies must als~, begin to to our economy. 'Jim Drinkhall, "Con Men Are RakIng In Millions y businesses to launder dirty money de­ must report currency transactions in Setting Up OWn Caribbean Banks," The Wall Street Jour- in legitimate businesses in the United concentrate on how these ililcit f~n~s pends upon keeping the cash flow "in­ excess of $10,000 to the Internal Rev­ Few police officers, however, have nal, March 23,1981, p. 1. • "f' • --d States is first routed through secret aJI house" and creating such complexity 9 are being converted and used to infil­ had experience and training in this sub­ DRobert E. Chasen ~n~ AJt.f)ur:S!naf ...... urronCJ numbered bank accounts in countries enue Service. This act:also reql.Jlr~s Foreign Transactions Reporting Act-A N.ew Law Enforce­ that investigation into the operation ap­ all U.S. citizens having a financialinier_' trate legitimate-businesses. ject. The two type.s of. wh~te-c~"ar ment Tool," FBI Law Enforcement Bulletm. August 1979, such as SWitzerland, Liechtenstein, pp.1-5. pears to be too complicated to under­ crime explored in thiS article Illust.ate West Germany, Panama, and the Ba­ est in, or signature authority over, bank take. Experience has shown, however, hamas. This type of arrangement is securities or othertinancial accounts in that these laundering operations are ideal for the racketeer Who wishes to foreign countries to report this relation­ not complicated al;l.g can be success­ The.number ,Qf hn,mti,intll!'t clean large amounts of cash earned ship annually to the Treasury Depart­ fully investigated by law enforcement ment. 15.. PelrC~;At,.o' thefirSf~,month~ ,()f'1'~a1,:l:1epile~,~!i'!!tl[(t through illicit activities. Very often, this officers willing to use techniques such .' a' 't5,percel:ltd~cre!ise laundering process involves depositing as sampling, ratio analYSis, and flow­ D:ecre'a;se 1n Hp~red tothQse~pi::pl,lrti!;lg " illicit funds in a secret numbered ac­ Summary charting, combined with traditional month pE!riodof19~O., ", count, then bringing the funds back o o , methods of investigation. Laundering operations evolved 'Bom;b:iing Qf1981./thf;!rfv(~l'e , into the United States in the form of a The Success of organized crime in because members of organized crime theU"lte~ ~t~,~~S "'"nn,:I"UfH;lU , . loan from either the foreign bank or laundering funds through secret num­ needed a source of apparently legiti­ th.f;!se, 369 wete" from a dummy corporation set up un­ I;~cld";~hj$ ." bered bank accounts and foreign cor­ mate income to invest in bUsiness en­ • \ "><$~ .. ,;; ~ .,. , J:.a~J·Yf;!a,1 der the laws of a foreign country. Not porations and through securities and terprises and to account for excess only are the illegal income and the financial instruments issued by off­ consumption and changes in personal sources of this income hidden from the shore banks has, in large part, been a net worth over any period of time cho­ 0' Internal Revenue Service and other result of the fact that these "foreign sen by taxing authorities for a com pre- law enforcement agencies, but the "in­ laundries" have traditionally been be­ terest" on this SUpposed loan is often yond the jUrisdiction and resources of deducted as a bUSiness expense on the tax return of the racketeer. law enforcement agencies operating in the United States. While investigating , , " In many cases, organized crime members have not been content with merely using secret numbered ac­ counts in foreign banks. As early as the '\ 1960's, it was recognized that numer­ ous banks in SWitzerland and the Ba­ hamas had been taken over by

10 I FBI law Enforcement BU"etin ______~ __ , (t ..... o

--""" :f !J , j I ., ", " .,- . '. " " I r

rI r.-~

Q

o

6'

o

1\ Ji ({

c

.0

,.1 '.' " I (.; " I

. ",

,"

..)

.' '. a

,

, . .,II ..) . "~

~ 11= c> \~ ., <) - '- ," 111 '::. ;P "":' ~~'''' . "

,;

~ 0 (~-' (\ 0 \, .)', ~I 0' ~ C\ , ,; c:.. "':':'

Q t,',. • f I f '. . iI'''~ "