Pubdate: Fri, 21 Sep 2007
Source: Wall Street Journal (US)
Page: A1, Front Page
Copyright: 2007 Dow Jones & Company, Inc.
Contact:  http://www.wsj.com/
Details: http://www.mapinc.org/media/487
Author: Mark Schoofs

Wash Cycle

ATMS BECOME HANDY TOOL FOR LAUNDERING DIRTY CASH

With Small Deposits, Couriers Outwit Banks; Bag of Money in
Queens

At 8:50 a.m. on March 15, 2006, Luis Saavedra and Carlos Roca began
going from bank to bank in Queens, New York, depositing cash into
accounts held by a network of other people, according to
law-enforcement officials. Their deposits never exceeded $2,000. Most
ranged from $500 to $1,500.

Around lunchtime, they crossed into Manhattan and worked their way up
Third Avenue, then visited two banks on Madison Avenue. By 2:52 p.m.,
they had placed more than $111,000 into 112 accounts, say the
officials, who reconstructed their movements from seized deposit slips.

Confederates in Colombia used ATM cards to withdraw the money in
pesos, moving quickly from machine to machine in a withdrawal
whirlwind, the officials say. "The organization at its height was
moving about $2 million a month," estimates Bridget Brennan, Special
Narcotics Prosecutor for New York City.

Messrs. Saavedra and Roca were arrested in June and charged under
state money-laundering laws. Officials say they were moving money for
a Colombian drug-trafficking organization that sells cocaine and the
club-drug Ecstasy. Prosecutors say the two men engaged in a laundering
practice called "microstructuring," a scheme notable for its
simplicity. To evade suspicion by banks, they always made small
deposits. In Colombia, getting at that money was as easy as pushing
buttons on an ATM.

Microstructuring has emerged as a vexing challenge for law-enforcement
officials charged with stanching the illegal movement of money by drug
traffickers, terrorists and organized-crime rings. The deposits and
withdrawals are so small they can pass for ordinary ATM transactions.
It's an extreme variation of a practice sometimes called "smurfing" --
the breaking down of large transactions into many smaller ones to
evade detection by financial regulators. That activity was
criminalized by Congress in 1986.

When the money deposited by Messrs. Saavedra and Roca was withdrawn in
Colombia, it was effectively laundered. It was in local currency, cash
that was virtually impossible to trace. New York officials decline to
identify the drug-traffickers connected to the case because their
investigation is continuing.

This month, Mr. Saavedra, 41 years old, pleaded guilty to
second-degree money laundering and faces prison time. Mr. Roca, 20,
has pleaded not guilty. His former attorney, Alex Grosshtern, says he
lived with his parents until his arrest. "If anything," says Mr.
Grosshtern, "he's a very small cog in a potentially very big scheme."

Immigration and Customs Enforcement agent Salvatore Dalessandro
estimates that the El Dorado task force, a multiagency
anti-money-laundering unit that he runs out of New York, has indicted
or convicted about 25 people this year alone for using
microstructuring schemes to launder money. "We're talking millions and
millions of dollars" laundered through microstructuring, he says.

Linked networks of ATMs have made it easier than ever to move money
around the globe. The number of ATMs in Colombia, for example, more
than doubled between 1995 and 2000, rising from 2,238 to 5,520,
according to the Banking Association of Colombia.

The International Monetary Fund has estimated that between 2% and 5%
of the world's gross domestic product -- between $962 billion and $2.4
trillion based on 2006 GDP data from the IMF -- is laundered
world-wide every year. Experts say much of it flows through the U.S.
financial system. Law enforcement has been hard pressed to keep up
with money-laundering schemes, which criminals use to make proceeds
from illegal activities appear legitimate. Authorities rely heavily on
banks, which are required to report all cash transactions larger than
$10,000 and to institute "know your customer" procedures to ferret out
money laundering and other suspicious activity.

Drug dealers, in particular, have lots of cash they want to slip
surreptitiously into the banking system. Colombian traffickers want
much of their money in Colombian pesos, so the cash they collect in
the U.S. and Europe has to be converted. Many money-laundering schemes
are complex, employing layers of transactions to move money through
multiple countries to obscure the trail.

In the past, bank officials used the government-mandated $10,000 cash
threshold, among other things, to trigger reviews. But over the years,
and especially after Sept. 11, 2001, the industry has turned to
computer programs designed to detect unusual patterns of activity by
individual customers.

Money launderers now appear to be trying to avoid detection by moving
money in ever smaller chunks. "Where it used to be six-, seven-,
eight-thousand-dollar deposits to avoid the $10,000 limit, now I see"
deposits of less than $1,000, says Frank Di Gregorio, a veteran
money-laundering investigator with the Queens district attorney and
the El Dorado task force. "Within the last two years is when I started
to see...the amounts go down into the hundreds."

The small transaction amounts constitute "the ingenuity of this
particular enterprise," says Ms. Brennan, whose office is prosecuting
Messrs. Saavedra and Roca. "Even if you pick up on it, here's a guy
who made three $800 deposits. So what?"

Banks are catching on. Because microstructuring usually involves
deposits in the U.S. and withdrawals overseas, it isn't hard for banks
to program their anti-money-laundering software to detect it.
Withdrawals often follow distinctive patterns, such as occurring just
before and just after midnight to outwit daily withdrawal limits.
Agents with the El Dorado task force say financial giant Citigroup
Inc. raised red flags early and aggressively by filing
suspicious-activity reports in 2003 and 2004 with the Treasury
Department's Financial Crimes Enforcement Network, or FinCEN.
Citigroup, which was one of the banks apparently used by Messrs.
Saavedra and Roca, declined to comment.

The two men also allegedly made deposits at Commerce Bancorp Inc. That
bank's vice president for anti-money-laundering, Vincent Auletta, a
former FBI agent, says the bank didn't know microstructuring "was as
rampant as it was" until a meeting called by law-enforcement officials
last October to alert banks to the problem. That meeting, says Mr.
Auletta, "was the genesis to tweak our software" for detecting
suspicious activity.

But even if an individual bank alerts law-enforcement officials to
suspicious transactions, it isn't easy to unravel schemes involving
lots of accounts at numerous banks. In late 2004, Astoria Federal
Savings, a regional savings-and-loan association in New York, alerted
authorities that a single individual -- he turned out to be Mr.
Saavedra -- was making cash deposits into a variety of accounts. But
the accounts were not associated with Mr. Saavedra because they had
been opened under other names, according to an official close to the
case. So authorities were unable to use that tip to unravel the
network of more than 380 accounts in six states that officials now
believe Mr. Saavedra used.

It wasn't sophisticated data-mining that ultimately snared Mr.
Saavedra, but old-fashioned police work. Agents from the New York Drug
Enforcement Task Force -- a unit led by the federal Drug Enforcement
Administration that includes city and state police officers -- got a
tip in March 2006 about an illicit exchange that was about to go down.

At a McDonald's restaurant in Queens, undercover agents saw a bag
being handed to Messrs. Saavedra and Roca. Agents followed the two men
to the Metro Motel, a down-market establishment in Queens where the
front-desk clerks work behind bulletproof glass. There, the agents
found $283,000 lying on a bed and a table in rubber-banded bundles, as
well as deposit slips from the six-hour, 112-account deposit spree
that the two men had allegedly finished that afternoon.

Agents also found a notebook that investigators dubbed the "Rosetta
stone." It contained a list of more than 100 accounts with such key
information as account numbers, mothers' maiden names, and
personal-identification numbers, which were often easy-to-remember
sequences such as 1234. The notebook had an extensive list of branch
addresses in New York for many major banks.

They arrested the two men, but figuring they had stumbled onto
something unusual, the investigators hatched a plan: They released
Messrs. Saavedra and Roca, trying to leave them with the impression
they'd been arrested by "a regular Joe Schmo detective who doesn't
know anything about financial crimes," says one law-enforcement
official. Agents even returned the notebook, although they kept a
photocopy. Sure enough, Mr. Saavedra resumed his deposit excursions,
and authorities monitored him and his associates.

Yet it still wasn't easy to unravel the web of transactions. Doing so,
Ms. Brennan says, required three assistant district attorneys, a
financial analyst, and a "terrific" DEA agent armed with an accounting
and military-intelligence background. This June, the two men were
picked up again and indicted for money laundering.

Mr. Saavedra, a Colombian citizen apparently in the U.S. illegally,
lived the life of a typical struggling immigrant. Until late last
year, when he moved to Florida, he resided in a working-class
neighborhood of Queens, occupying one room in a two-bedroom apartment
rented by a Colombian family with two daughters, law-enforcement
officials say.

The head of that family, Juan Velasco, appeared stunned when told that
his family's former boarder had been indicted for money laundering.
Mr. Velasco says Mr. Saavedra never brought people to the apartment,
and that he never saw him with multiple ATM cards, deposit slips,
large amounts of cash, or drugs. Mr. Saavedra drove a nondescript van
and didn't wear expensive clothes, he says. Mr. Saavedra worked nights
putting up advertising posters in the subway and elsewhere.

Effective microstructuring schemes require many accounts, and opening
them can be a labor-intensive process. Law enforcement officials say
they don't know all the details of how Mr. Saavedra arranged access to
the accounts. It appears that he relied on people from Colombia, some
of whom may be related to him or his associates, officials say. These
people used foreign passports, visas to the U.S., major credit cards
or similar documents to open the accounts, then passed on the account
documents and ATM cards to Mr. Saavedra or his associates,
investigators say.

Some of the account holders apparently filled out forms allowing them
to temporarily maintain the accounts without a tax ID number or proof
of residency. The banks were supposed to follow up to make sure the
required documentation was eventually filed, but that sometimes "fell
through the cracks," says Ms. Brennan. The banks cooperated with the
investigation, she says.

In other microstructuring cases, investigators say, money-laundering
rings have offered people free vacations to the U.S., on the condition
that they open numerous accounts. Or they simply pay people a fee,
perhaps $500 to $1,000. One current investigation involves a suspect
who uses a laptop to keep track of more than 1,000 accounts, says Mr.
Dalessandro, head of the El Dorado task force.

Suspicious ATM withdrawals aren't just happening overseas. Last
October, customers "emptied" several of Astoria Federal's ATM machines
in Brooklyn, according to Charles Judson, who heads security and
anti-money-laundering at the thrift. They used two ATM cards issued by
the Savings Bank of the Russian Federation, or Sberbank, which imposed
no limit on the amount these customers could withdraw, he says. Over
three consecutive days, Oct. 26 to 28, they withdrew more than
$122,000, he says. Because Astoria Federal imposes a limit of $1,000
per transaction, the customers swiped their ATM cards 130 times. On
March 9, a customer using an ATM card from the Russian Commercial Fuel
and Energy Interregional Bank for Reconstruction and Development, or
TEMBR Bank, swiped his card 20 times to withdraw $20,000 from an
Astoria Federal ATM in Brooklyn.

In written responses to questions about the incidents, Sberbank and
TEMBR Bank said they obeyed anti-money-laundering laws. TEMBR Bank
also said that it guarantees its clients' privacy.

Mr. Judson says that while the transactions may be legitimate, he
strongly suspects foul play. He has notified authorities, he says.
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MAP posted-by: Richard Lake