Suspicious Activity Reports
Key Pieces of the Money-Laundering Puzzle
By Tracy Connell
In the 21st century it has become evident to law enforcement at every level that financial investigations will be critical in the fight against criminal and terrorist organizations. It is no secret that the criminals far outnumber those of us in the law enforcement community.
However, by forging partnerships with the thousands employed in New Jersey’s financial services industry, together we can become a more formidable opponent to those attempting to exploit our country’s financial and economic infrastructure.
“Suspicious activity reports” are an important tool in keeping that partnership productive.
As reported in the May 2004 issue of the Financial Crime Enforcement Network’s “SAR Activity Review — By the Numbers,” New Jersey financial institutions filed 10,209 SARs in calendar year 2003. Of that total, 6,525 SARs alleged Bank Secrecy Act/Structuring/Money Laundering violations, while another 22 alleged terrorist financing activity.
In many instances, SARs have been instrumental in enabling law enforcement to initiate or supplement major money-laundering or terrorist financing cases and other criminal investigations. Money laundering investigations — without any links to SARs — are increasingly rare. Without the SARs filed by financial institutions, it becomes increasingly more difficult for law enforcement to uncover the direction of the money trail left behind by criminal and terrorist organizations.
INFORMATION SHARING VIA CORNERSTONE
Information sharing is the most critical aspect of our collective efforts to thwart criminal activity. However, there is one area of information sharing where we are sometimes tentative, and that is in the feedback we can provide to our partners in the financial services industry.
Through its new financial investigations initiative, “Cornerstone,” Immigration and Customs Enforcement, the investigative arm of the Department of Homeland Security, is committed to providing New Jersey’s banks and bank regulators with insights into the complexities of money laundering and terrorist financing exposed through Immigration and Customs Enforcement investigations in New Jersey and elsewhere around the United States.
Criminal and terrorist organizations tend to use non-traditional banking means, such as “money service businesses” to launder illegal proceeds or transfer money overseas. MSB’s must be licensed in New Jersey and many other states, and must register with the Financial Crime Enforcement Network. However, there is no guarantee that they will always comply with these Bank Secrecy Act and Patriot Act obligations. The following case study is a perfect illustration of that fact.
THE PAKISTANI CONNECTION
In June 2003, Newark Immigration and Customs Enforcement and Internal Revenue Service agents arrested six subjects and executed four search warrants, culminating a 21- month investigation into the illegal movement of more than $100 million to Pakistan. A licensed MSB in New Jersey was the subject of SARs filed by six different banks between January 2001 and October 2002, based upon millions of dollars in cash deposits and suspicious wire transfers to Pakistan.
Subsequent investigation by Immigration and Customs Enforcement/IRS determined that the president of this licensed MSB had been using his money-transmitting business to deposit large sums of cash in excess of $10,000 from a select group of unlicensed MSBs in Manhattan and Brooklyn. He would then wire transfer large sums from those deposits to entities in Pakistan.
No “currency transaction reports” were filed by the licensed MSB in New Jersey to document receipt of the large sums of cash. To date, four of the six defendants have pled guilty to violating Title 18 USC 1960 (Unlicensed Money Transmitting Business) and are awaiting sentencing.
Another Immigration and Customs Enforcement investigation in Arizona was developed from a SAR filed on an out-of-state business that was structuring deposits of large sums of cash, and operating as an unlicensed MSB. Investigation revealed that during a two-month period, the business made outgoing wire transfers totaling approximately $1.2 million to Pakistan, India and Bangladesh.
As a result, a state seizure warrant was executed on the bank accounts of the business and agents seized $346,700. The business forfeited approximately 75 percent of the seized proceeds to the state.
MONEY LAUNDERING AND SARs
Money laundering investigations are often like jigsaw puzzles — the more pieces that you add, the clearer the puzzle’s picture becomes. Every detail provided in a SAR narrative is an important piece of a complex puzzle. Law enforcement officers and analysts study these pieces, connect one to another, and then another.
Gradually, relationships between suspected businesses and individuals, often times located in other states and even other countries, are identified which confirm the criminal activities under investigation, essentially filling in one corner of the puzzle. Take, for example the following Immigration and Customs Enforcement investigation initiated based upon a SAR filed for a suspected structuring violation.
A subject attempted to deposit $12,000 in cash at a financial institution located in a major city on the West Coast. The cash deposit was intended to credit an account belonging to a customer located on the East Coast. The customer was identified as an import/export business.
After the subject was advised that a currency transaction report was going to be prepared, the subject left the bank without conducting the transaction. The bank decided to file a SAR, and Financial Crime Enforcement Network subsequently conducted financial queries on the business and identified the conductor and the beneficiary as the same subjects of three SARs filed for structuring and suspicious wire transfers and approximately 24 currency transaction reports filed by banks on the East Coast.
An analysis of the banking transactions by the East and West Coast financial institutions revealed a significant amount of cash activity that included structuring and currency transaction reports filed for cash deposits. In November 2002, two suspects were arrested on a federal complaint which charged them with violating Title 18 USC 371 (Conspiracy), and Title 18 USC 1960 (Unlicensed Money Transmitting Business).
A JOINT EFFORT
History and experience have taught us that illicit funds are generated from a variety of criminal activities such as drug trafficking, credit card and insurance fraud, identity theft and benefit fraud, cigarette smuggling, alien smuggling, human trafficking, and child pornography activities, just to name a few.
The SARs filed by the financial community in New Jersey have contributed immeasurably to the successful prosecutions of many of these types of crimes already. BSA and AML compliance officers, please know that the law enforcement community, at every level, considers SARs to be an invaluable resource in the fight to protect this country’s financial and economic infrastructure from exploitation by criminal and terrorist organizations.
With over 21 years of government law enforcement service, Tracy Connell is a senior special agent for the Department of Homeland Security and may be reached via e-mail at firstname.lastname@example.org.