Authors: Hitha Prabhakar
Another way in which banks sought to step up their game when regulating their accounts (but that was seemingly unsuccessful) was through the use of interbank transmittal letters that accompany checks or cash instruments sent from one bank to another internationally. This also was regulated not by an automated system, but by humans. Cash letters often contain hundreds or thousands of bundled checks as they are sent to the correspondent bank for collection. Banks require all deposits greater than $10,000 to be flagged as potential money laundering. However, when cash letters include money orders and checks less than that amount, they aren’t flagged. Crime groups and terrorist organizations move money in bulk amounts of check and cash letters into foreign accounts unregulated by the U.S. government.
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Banks might have their problems regulating accounts, but another issue comes from how criminals are prosecuted under the Patriot Act. According to Kevin Tyrrell, a special agent at Immigration and
Customs Enforcement, loopholes in the act impeded prosecution. “Closing the Patriot Act loopholes was crucial for us in terms of prosecuting criminals to the fullest extent of the law,” says Tyrrell. “Banking regulations can only go so far, and due to the nature of the way they are written, there are bound to be loopholes. Modifications such as the MSV Title 18-US 1960 Section 359 (a) and Section 373 have allowed us to regulate further when it comes to transferring money [under a certain amount] in accounts, but criminals and terrorists are constantly creating new tactics that are smarter, better, and faster ways of moving money. Unfortunately, U.S. banking system regulations aren’t changing fast enough to keep up.”
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A blatant example of this, Tyrrell points out, is stored value or gift cards used by retailers. In the U.S. last year, more than $1 billion in fraudulent gift cards was used, and 30% were transferring money overseas to places like Pakistan, Afghanistan, and Latin America. Criminals transferring money through these means cannot be prosecuted under the Patriot Act. Tyrrell explains that “Bulk cash smuggling is covered under 31, US Code 5332, a statute which makes it a crime not to declare currency greater than $10,000 if you are coming in or out of the United States. But this statute does not cover money cards or gift cards. In some cases, terrorists are smuggling millions of dollars on these gift cards overseas, and we cannot prosecute them because what they are doing is not covered by the law, even though they are essentially acting as a financial services provider, with the cards being money instruments.”
Likewise, the 1986 Money Laundering Control Act (an amendment to the Bank Secrecy Act of 1970) does not cover wire transfers or digital e-cash that is not FDIC insured. Title III of the Patriot Act was implemented by President George W. Bush on October 26, 2001, a month and a half after 9/11. Its intent is to keep criminals from bypassing the $100,000 deposit limit. But it does not include potential “cyber-laundering” regulations on wire transfers, digital e-cash, or online accounts that aren’t FDIC insured.
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Organized Retail Crime and Latin America
In the past, terrorist financing usually came from the proceeds of drug sales, among other illicit transactions such as diamond sales, often utilized by Hezbollah. In the tri-border region between Paraguay, Argentina, and Brazil, terrorist organizations often sell cigarettes and pirated DVDs to finance their operations. The term “narcoterrorism” in the Latin American context describes drug trafficking organizations that use terror tactics, such as detonating a grenade in a packed public plaza, as a method to spread fear. The most notable was the drug war waged in Medellin, Colombia, which involved Pablo Escobar. He ran the Medellin drug cartel, making an estimated $30 billion annually.
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He waged war against the Colombian government through a series of hijackings, kidnappings, assassinations, and bombings. He wanted to change the extradition policies the government had put in place because of pressure from the U.S. government. The Medellin cartel eventually came tumbling down after Escobar’s much-celebrated assassination. However, organizations such as the FARC (Fuerzas Armadas Revolucionarias de Colombia) began attacking Colombian soldiers on a larger scale in 1982 as their income from the coca harvest increased. They also were able to fund the training of FARC fighters in Vietnam and Russia. The FARC’s primary source of income was drug trafficking until recently, when stringent international laws on drug traffickers began to be enforced.
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The result was a shift in fund-raising where FARC operatives work in conjunction with members of Mexican gangs, such as the Arellano-Felix organization and the Sinaloa Federation. The MS-13 has geographic roots in the Rampart Park area of Los Angeles, CA and cultural roots in Salvadoran culture due to the deportation of many of its members to El Salvador. MS-13 has an estimated 16 factions or “cliques” in the U.S. alone. Internationally the MS-13 has an estimated 36,000 members in seven countries. In the U.S. these cliques are located mostly in California,
Maryland, and Texas, although MS-13 is present in all 50 states and in over 2,000 American cities, according to the FBI.
This is how it works: Profits from illegally sold merchandise are split into different funding sections. About 60% of the funds sent to the group’s country of origin goes to fund bribes to get members of the MS-13 out of prison in El Salvador, Colombia, Paraguay, or Mexico. In El Salvador, for example, judges make decisions based on written arguments, not oral. Therefore, there is very little accountability, and money talks, according to Samuel Logan, author of
This Is for the Mara Salvatrucha
and a Latin American security expert.
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Fifteen percent of the funds goes toward the operational costs of getting members of terrorist organizations, such as al Qaeda, into the country. This includes making fake passports and documents, for which al Qaeda members will pay double. They also need cash for hotel rooms, funds, and so on.
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Yet another 15% of the money is used to support families of MS-13 members who are imprisoned in the U.S. The remaining 10% is used to pay MS-13 mules, boosters, and fences.
“Groups like the MS-13 and the FARC use funds from stolen merchandise as well as sales of drugs for funding their operations,” says Larry C. Johnson, CEO and co-founder of BERG Associates, an international consulting firm with expertise in combating terrorism. “The money, especially if it is being used to fund overseas operations, was being laundered through Swiss and Luxembourg accounts. While selling drugs was one of the main income sources for them, selling items on the black market is more beneficial for the potential terrorists than selling drugs or contraband weapons. If they get caught, the ramifications are not as severe.”
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Funneling Money Through the Black Market Peso Exchange
The MS-13 (as well as many South American terrorist groups) funded the Hezbollah through the Black Market Peso Exchange,
another form of money laundering that allows cash to go relatively undetected.
This system is operated through brokers who purchase narcotics and stolen merchandise in the U.S. from the cartels and transfer pesos to the cartels from within Colombia, Panama, or Mexico. These dollars are laundered into the U.S. financial system by the peso broker without attracting attention. The dollars are then “sold” by the brokers to businessmen in Colombia who need dollars to purchase U.S. goods for export. Goods ready for export are often paid for by the peso broker using purchased “stolen goods” dollars on behalf of the importer.
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For example, an MS-13 member may either sell drugs or steal $2 to $3 million worth of merchandise a year, which includes merchandise that is difficult to track—baby formula, OTC drugs, razor blades. This merchandise is sold within the U.S. via the Internet, flea markets, or pawn shops. Those dollars are exchanged into pesos through a broker who sells the dollars for pesos to either Colombian or other Latin American businesses and business owners. The laundered funds are deposited into U.S. domestic banking accounts, which are then used to purchase merchandise for businesses. (In some cases, small business owners who own fence stores use the funds to purchase merchandise for their “stores” or pay off debt.) The merchandise that is bought is usually from another illegitimate source, such as a fake warehouse or an ORC ring that happens to have ties to the MS-13 or another gang. Then the merchandise is shipped back to Colombia, El Salvador, or Paraguay and is used to stock stores in the country. Pesos made from the sale of this stolen merchandise are given to the peso broker, who pays the trafficker, who in this case is an MS-13 member. Because the larger amounts of money are converted into pesos, they go undetected by banking systems.
Black Market Peso Exchange, ORC, and Cartels
The very notion of a “cartel” conjures images of a well-run yet sinister ring operating more like a corporation than a gang of low-level
guys buying and selling drugs. The Mexican Zetas are no different. The Zetas are a sophisticated and well-run organized crime ring with a strong paramilitary background. The gang was started by El Lasca, “The Executioner,” who was once a special forces soldier in the Mexican army, trained in the art of psychological warfare. The Zetas are one of the most ruthless Mexican drug cartels. Much of the Zetas’ funding comes from drug sales. They smuggle potential terrorists from the Hezbollah and Hamas and illegal aliens across the border into America. They traffic large quantities of cocaine and chemicals to make methamphetamines in Europe by way of Western Africa from the FARC. They also sell stolen merchandise on the black market. Like most large organizations, the Zetas are allies with other gang-related groups, such as the MS-13 in El Salvador, to streamline their operations in porous U.S. border towns in Arizona, Texas, California, and New Mexico, as well as in Latin America.
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As part of a plea for more antidrug aid from the U.S., in April 2010, Mauricio Funes, president of El Salvador, announced that the Zetas had been “exploring opportunities” in his country while strengthening ties with local gangs. The Zetas, he said, are using Central and South American countries as a transit hub to transport drugs into the U.S. and Europe.
But the drug trade isn’t the only moneymaker for drug cartels such as the Zetas. Car theft is one of the most common practices and is an easy way to make quick money. According to a report by the National Insurance Crime Bureau (NICB), many cities that border Mexico are within easy access of drug cartels that use stolen cars to finance and transport drugs, weapons, and, in some cases, people into and out of Mexico.
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In McAllen, Texas, a border town similar to Columbus, New Mexico, five people were arrested in 2007 for allegedly being part of an auto theft ring that gave stolen cars to the Zetas in Mexico. According to McAllen police, the auto theft ring crossed illegally and would use the cars for “alien smuggling and transporting drugs.”
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In a National Drug Intelligence Center report titled “Accomplishments of Fiscal Year 2007,” four major Mexican drug cartels were identified as being “associates” of Islamic fundamentalist groups, mostly in Argentina, Brazil, and Paraguay. The document, which was put together with information from the Central Intelligence Agency (CIA), the Drug Enforcement Administration (DEA), and the Federal Bureau of Investigation (FBI), outlines the nature of the relationship between the Mexican cartels. It describes which terrorist organizations they are associated with and the specific contracts they have set up, which total hundreds of millions of dollars, to sell weapons to these cartels. It says, “The results of 74 investigations of narcoterrorism that have been carried out by the Special Operations Division of the DEA indicate that Islamic groups present on the common border of Argentina, Brazil, and Paraguay launder money, sell arms, and traffic drugs in Mexican criminal organizations.” The document also goes on to identify the groups as being in South America and having ties to the Hezbollah, Palestinian Liberation Organization (PLO), Palestinian Liberation Front (PLF), and Hamas.
Although the cartels aren’t directly identified in the document, a source at the FBI noted the Sinaloa, the Arellano Felix, the Gulf, and the Mexican Zetas (also known as “Los Zetas”) were the main cartels that had connections to the Islamic groups.
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The South American, Mexican, and African Connection
South American drug cartels and Mexican cartels use the same African route to traffic illegal substances to the U.S. and Europe. The Mexican cartels—specifically, the Mexican Zetas—import chemicals used to make methamphetamines, according to Jay Bergman, DEA director for the Andean region of South America. “In order to
get around ever-changing law enforcement efforts, these cartels use West Africa as the alternative,” he says. “When sea interdictions stepped up, we saw traffickers using aircraft taking off from Venezuela, which shares a border with Colombia. Geography is the key reason why Venezuela has become a springboard location.”
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In January 2010, it was reported that the FARC were employing the help of al Qaeda to smuggle cocaine into Europe by way of Africa.
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Sanctions imposed by both the U.S. and Europe make it difficult for Andean drug producers to send their product directly to each country. To circumvent these laws, FARC worked in conjunction with a large drug trafficking network. It moved the product from South America, through western Africa, and into Europe. In December 2009, Oumar Issa, Harouna Toure, and Idriss Abelrahman, three Malian men in their 30s, were extradited to the U.S. while they were in Ghana. They are currently being held on drug trafficking and terrorism charges in New York. They are said to have ties to the al Qaeda in the Islamic Maghreb (AQIM), a West African cell of al Qaeda. Issa told an informant posing as someone with Hezbollah connections that he worked for Toure, a well-known Songhai smuggler of hashish as well as humans who was from the village of Bamba on the Niger River. Toure’s route was through Morocco, a common route once used for the Toudenni salt trade. The area surrounding Bamba had a reputation for petty crime, smuggling, and ethnic violence.
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What’s more, Abelrahman was identified as an AQIM leader, commanding a group of 11 men. Abelrahman’s connections were to the Brazilian drug trade, with plans to take cocaine through Togo, Mali, and Niger and then over to Algeria, Morocco, and up the coast to the Canary Islands.