ATMs used to launder drug money
Mark Schoofs
The Wall Street Journal
Sept. 21, 2007 07:55 AM

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.

Super simplicity
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 Saavedra and Roca was withdrawn in Colombia, it was effectively laundered.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."


Linked networks make it easy
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 percent and 5 percent 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 cash converted to pesos
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 seeing the patterns
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.
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