Bank official convicted of disclosing suspicious activity report

By Christine Duhaime | January 30th, 2011

A former bank official with the Chase Bank was convicted of disclosing the existence of a suspicious activity report to a bank customer. Frank Mendoza, who worked as a loss mitigation specialist for Chase Bank, conducted an investigation of a delinquent borrower on mortgage loans made in relation to seven properties in California. In the fall of 2008, Mendoza reported to Chase that he suspected fraud in relation to the mortgages, and a few months later, the bank filed a SAR with FinCEN. Several months later, Mendoza approached the borrower and asked for US$25,000 in exchange for Mendoza’s assistance with Chase and with a potential federal criminal investigation related to the loans. In these conversations, Mendoza disclosed the filing of the SAR and claimed that a federal criminal investigation of the borrower was imminent.

This is the first conviction under anti-money laundering legislation of a person disclosing the filing of a SAR to the person who is the subject of the report. Mendoza faces a jail term of 95 years in U.S. federal prison.

It is prohibited to alert a person to the filing of a SAR in the US.

Under Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act, employees of reporting entities and the reporting entities themselves are prohibited from disclosing that a suspicious transaction report was filed with FINTRAC, or the content of those reports with the intent to prejudice a criminal investigation. An employee or reporting entity that discloses filing a suspicious transaction report or the content of such a report with the intent to prejudice a criminal investigation is liable on conviction to a prison term of up to two years.

Banks warned against money laundering from Tunisia

By Christine Duhaime | January 24th, 2011

The Financial Crimes Enforcement Network has issued an advisory to U.S. financial institutions to take special precaution when dealing with funds from Tunisian politically exposed persons because of the increased money laundering risk if those funds are from the proceeds of crime (e.g., misappropriated or diverted State assets, proceeds of bribery, public corruption or other proceeds originating in or diverted from Tunisia).

The advisory is equally relevant to Canada, perhaps more so because of the news that several relatives of former Tunisian dictator Zine El Abidine Ben Ali arrived in Montreal on January 20th by private jet and appear to have substantial assets in Canada.

On January 14, Ben Ali stepped down as president of Tunisia and is now in Saudi Arabia. Ben Ali and his family members are politically exposed persons in international money laundering law. A politically exposed person (PEP) is a person who is or was a head of state, head of government, high ranking government official, judge or ambassador, and includes their family members.

Under Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act, banks must treat foreign PEPs with extra precaution and take additional client identification measures to ensure that funds used in their transactions (e.g., deposits, safety deposit box activities, withdrawals, wire transfers, etc.) are not proceeds of crime and that the banks are not inadvertently assisting PEPs to launder money.

The World Bank estimates that more than US$1 trillion is paid in bribes each year. The Stolen Asset Recovery Initiative estimates that corrupt money received by public officials in developing and transition countries is approximately US$40 billion per year, equal to 20%-40% of official development assistance. Corrupt PEPs need to use foreign financial systems to launder (e.g., hold funds derived from corruption and other criminal activities).

The U.S. Senate Committee on Homeland Security and Governmental Affairs released a special Money Laundering Report – “Keeping Foreign Corruption Out of the United States” (available at this site) that describes recent cases of PEPs who laundered hundreds of millions of dollars in the U.S. According to the Report, in at least one case, Yamilee Bongo-Astier (an immigrant to Canada and the daughter of Omar Bongo, the former president of Gabon) received cash from Canada and elsewhere that she deposited into New York banks for family members. In 2007, she had US$1 million in cash in her safety deposit box.  Her family is believed to have transferred over US$18 million into the U.S. financial system.

Tamil group assets forfeited in Canada

By Christine Duhaime | January 21st, 2011

The assets of two Tamil groups with alleged ties to the Liberation Tigers of Tamil Eelam (LTTE) were ordered forfeited to the federal government of Canada by the Federal Court of Canada because the assets were owned or controlled by a terrorist group. The two groups, World Tamil Movement of Ontario and World Tamil Movement of Quebec, were apparently closely aligned with the LTTE and allegedly raised funds to assist the terrorist operations of the LTTE in Sri Lanka. The LTTE and the World Tamil Movement are both designated terrorist organizations (i.e. listed entities) in several countries, including Canada, and therefore may not legally raise money or procure equipment or materials in Canada. Every person in Canada is prohibited from dealing with property owned or controlled by any terrorist group, such as the LTTE, or engaging in other types of terrorist financing.

According to the RCMP, the World Tamil Movement operated a pre-authorized payment program in Canada that withdrew monthly sums from the bank accounts of Sri Lankan foreign nationals in Canada. The operation raised more than $700,000 annually. Some participants interviewed by police said they were coerced or pressured to fund the activities of the World Tamil Movement. In a similar story last week, the government of Switzerland arrested ten suspected members of the LTTE for allegedly forcing Sri Lankan foreign nationals in Switzerland to provide financial support for the LTTE. They were charged with extortion and money laundering.

Quebec construction industry alleged to be laundering money

By Christine Duhaime | January 19th, 2011

Organized crime has infiltrated every level of the construction industry in Quebec, according to Yves Mercure, the head of the construction wing of the Federation des travailleurs et travailleuses du Quebec. During an interview with Radio-Canada in Montreal, Mr. Mercure said that organized crime has infiltrated most major construction companies in Quebec and the construction unions, including the FTQ. According to Mr. Mercure, union members are routinely ordered by their employers to accept payments in cash in order to launder money. Last June, Mr. Mercure’s car was set on fire when he first raised the issue of money laundering in the Quebec construction industry.

Swiss authorities arrest LTTE members for money laundering

By Christine Duhaime | January 12th, 2011

The Swiss authorities have arrested ten suspected members of the terrorist organization Liberation Tigers of Tamil Eelam (LTTE) for alleged extortion and money laundering to support terrorist financing.

According to a statement from the Swiss Attorney General’s office, the Tamils forced Sri Lankan foreign nationals living in Switzerland to provide financial support for the LTTE, which if proven would also likely lead to charges of terrorist financing.

Sri Lankan foreign nationals who refused to provide terrorist financing were allegedly threatened with reprisals. Over the course of several years, several million Swiss francs were raised through this type of extortion and transferred to Sri Lanka to finance the activities of the LTTE, in particular to purchase weapons.

Casinos and money laundering – a quick primer

By Christine Duhaime | January 5th, 2011

Do Criminals Launder Money at Casinos?

Media and enforcement agencies are awash with statistics intended to describe the extent of money laundering at casinos in Canada and elsewhere around the world.  Due to the ubiquitous nature of the activity, it is nearly impossible to produce accurate statistics on the extent in which this activity actually occurs, or the amount of money involved.

We know that deposit-taking institutions (chartered banks, credit unions, caisse populaires and trust companies) present the greatest money laundering risk and outnumber all other laundering vehicles combined but little is known about the extent to which casinos are used for money laundering.

We also know that criminals tend to avoid places where they are easily detected or detectable and land-based casinos in Canada and the United States are not only heavily regulated, they have sophisticated security and surveillance systems in place 24/7 that act as a deterrent against money laundering.

Recent Cases of Money Laundering at Casinos

The following news articles connecting casinos with money laundering in the last three years is illustrative of the use of casinos as money laundering venues:

  • In April, 2008, five Chinese nationals were indicted (and subsequently convicted) in Nevada for stealing US$485 million from the Bank of China and laundering it through casinos in Canada and U.S.;
  • In May, 2008, the RCMP reported that it suspected that drug traffickers in Ontario laundered money at Casino Rama and Mohawk Racetrack.  The Ontario Lottery Corporation indicated that they believed that one of the alleged money launderer was a good customer and didn’t fit the profile of a money launderer;
  • In June, 2008, a convicted fraudster laundered US$5 million at several casinos over a two year period using funds from a mortgage fraud scheme;
  • In July, 2009, several registered casino gaming employees were charged with helping guests structure their gambling activities to avoid reporting transactions to FinCEN, the U.S. financial intelligence unit;
  • In October, 2009, Nevada gaming investigators found evidence of a recent trend by casino personnel conspiring with patrons to avoid the U.S. federal anti-money laundering reporting requirements;
  • In December, 2009, an Australian casino reported that crime gangs were laundering millions of dollars in casinos- one casino patron on welfare purchased over $13 million in chips at the Crown Casino; and
  • In January 2010, former Ontario lawyer Stanko Grmovsek was sentenced to 39 months in prison after pleading guilty to charges of money laundering and insider trading.  Grmovsek is believed to have laundered approximately US$9 million at Las Vegas casinos.

The Financial Action Task Force (FATF) reported the following cases of casino-based money laundering:

  • A number of registered casino employees (poker room supervisors and dealers) were charged with money laundering for their role in facilitating the operation of an illegal gambling ring in a casino that took in US$22 million in sports betting;
  • A compliance officer in Las Vegas was charged with failure to file approximately 15,000 reports to FinCEN over a three year period.  The compliance officer did not file the reports because he was having personal problems, was behind in his work, and the legal obligation to file was never explained to him;
  • A drug dealer pleaded guilty to distributing 100 pounds of crystal methamphetamine between Las Vegas and Hawaii and gambling millions of dollars in cash through Las Vegas casinos that he carried in to the casinos in duffle bags; and
  • Mexican authorities seized US$207 million in cash from the home of a drug kingpin in Mexico who had gambled between US$80 million to US$120 million at Las Vegas casinos.

The sum of money laundered through casinos from these case samples may appear staggering but is insignificant in the context of the vast sums of money that are transacted daily at casinos in Canada and the United States.

Increase in Suspicious Activity Reports Filed by Casinos

In the U.S., the number of suspicious activity reports (SARs) filed by casinos increased 16% during the first half of 2010 compared with the same period in 2009. Structuring continues to be the most cited type of suspicious activity reported by casinos in the U.S. and in the first half of 2010, gaming establishments in the U.S. reported a 28% increase in suspected structuring. Cashing out after minimal play, another frequently used money laundering method at casinos, was reported 11% more in SARs filed in the U.S. An increase in SARs filed by casinos is not evidence of an increase in money laundering at casinos but it does indicate that casino employees detected and reported an increase in suspicious transactions at U.S. casinos that they believed were relevant to a possible violation of law or regulation.

Appeal of Casinos as Money Laundering Venues

Despite heavy security and surveillance at land-based casinos, worldwide they remain a target for some criminals (who need to disguise the proceeds of crime) for the following reasons:

  • The cash intensive nature of their operations help criminal activities blend into the mix;
  • The international/tourist clientele allows for anonymity;
  • The presence of other criminal activity may attract criminals;
  • Historically, little AML regulatory oversight has allowed criminals to operate undetected but this has changed with the increased acceptance of the FATF standards; and
  • Complex money laundering legislation and regulatory regimes, especially in Canada, make it difficult for casino employees to understand and apply the AML rules.

Land-based casinos in Canada and the U.S., particularly those operated by public corporations, do a good job of complying with the anti-money laundering requirements. In Canada, when issues arise in connection with casinos and money laundering, they tend to be associated with the fact that there is an indirect reporting regime for casino money laundering in some jurisdictions (such as British Columbia) that is inefficient and inconsistent with the FATF standards that Canada committed to abide by.

Illegal Internet Casinos Pose Greater Risks of Money Laundering

Although it is not known precisely how much money is laundered at casinos annually, there is evidence that some money laundering does occur but it may be far less than suspected. The fact  is that Internet gambling sites that are operated in offshore jurisdictions and that provide services to Canadians contrary to the Criminal Code of Canada pose a far greater risk of money laundering and terrorist financing than land-based casinos. That is because they operate in foreign jurisdictions where they tend to be unregulated and where there are lax or no anti-money laundering standards applicable to their operations.

According to the FATF, there is evidence that criminals use illegal Internet casinos to commit crime and to launder the proceeds of crime. For example, according to the FBI’s 2008 Financial Crimes Report to the Public, PartyGaming PLC, an Internet gaming company incorporated in Gibraltar that provide Internet gambling services to persons residing in the U.S. several years ago, also provided money laundering services to members of Italian organized crime.

The inability to track foreign Internet addresses and the payment of transactions primarily through credit cards and electronic payment processors, and the offshore placement of many Internet gambling sites makes locating and prosecuting cases of suspected cyber-laundering difficult if not impossible.

The FATF has recommended that Canada enforce the Criminal Code prohibition against foreign based Internet casinos that provide services to Canadians to address the cyber-laundering and cyber-terrorist financing risks that they pose to Canadians.

Online games may be new vehicle for money launderers

By Christine Duhaime | December 28th, 2010

According to this article in PoliceOne.com, online virtual games are fast becoming a preferred method of money laundering proceeds of crime for criminals. Online games such as “Second Life”, “World of Warcraft” and “Dungeons and Dragons”, allow players to purchase goods and services using real credit or charge cards (i.e., American Express), electronic payment methods (i.e., Pay Pal), and open-loop pre-paid access products.

Players can transfer, buy and sell goods and services using virtual currency that can be converted into real currency and cashed out. The games also allow transfers of virtual currency to other players anywhere.

Theoretically, criminals can use online games to funnel proceeds of crime from one jurisdiction to another, avoiding the regulatory safeguards in place to detect money laundering and terrorist financing.

Misha Glenny, the author of “McMafia: A Journey Through the Global Criminal Underworld” indicates in the PoliceOne.com article that there is little government oversight of the virtual money circulating in online games. It “takes place well below the radar of Interpol and global bank regulators… terror networks and transnational gangs are using these games to move cash from weapons deals, smuggling, prostitution and more.”

There is no data available on the amount of money laundering or terrorist financing occurring through online virtual games, if any, but the amount of real currency changing hands in these games totals hundreds of millions of dollars.

Ontario Court of Appeal doubles sentence for terrorist financing conviction

By Christine Duhaime | December 27th, 2010

The Ontario Court of Appeal has upheld the conviction, and doubled the sentence of, Mohammad Khawaja, an Ottawa native, for terrorist financing and other terrorism-related charges. Calling Khawaja’s 10½ year sentence “manifestly unfit”, the Court substituted his previous sentence to a sentence of life imprisonment plus 24 years to be served concurrently.

Khawaja is the first person convicted in Ontario of terrorist financing under the federal Anti-terrorism Act.

The Court found that Khawaja:

  • Was an active member of a terrorist group whose goal was to eradicate western culture and civilization and establish Islamic dominance.
  • Was prepared to go anywhere and do anything for the violent jihadist cause.
  • At the time of arrest, was in possession of a prototype remote detonator device and had promised to build 30 more such devices for a terrorist group.  The device was intended to be used to bomb key locations for the jihad.
  • Willingly participated knowing that his activity was likely to result in the killing of innocent people on a massive scale.

In several e-mails Khawaja expressed the need to devise a way to drain the economies of “Kuffars” (a derogatory term for non-believers of Islam that in this case includes Canadians) of all their resources, crippling their industries and bankrupting their systems by violent means including through the random murder of civilians.

In the decision, the Court of Appeal stated:

“Terrorism is a crime unto itself. It has no equal. It does not stop at, nor is it limited to, the senseless destruction of people and property. It is far more insidious in that it attacks our very way of life and seeks to destroy the fundamental values to which we ascribe values that form the essence of our constitutional democracy…once detected, it must be dealt with in the severest of terms…

When terrorists, acting on Canadian soil, are apprehended and brought to justice, the responsibility lies with the courts to send a clear and unmistakable message that terrorism is reprehensible and those who choose to engage in it here will pay a very heavy price…

Terrorists, in particular, may view Canada as an attractive place from which to pursue their heinous activities. And it is up to the courts to shut the door on that way of thinking, swiftly and surely.”

You can read the full decision (R. v. Khawaja 2010 ONCA 862) here.

Ontario Court of Appeal upholds extradition of former refugee accused of terrorism and money laundering in U.S.

By Christine Duhaime | December 21st, 2010

The Ontario Court of Appeal has upheld an order extraditing Suresh Sriskandarajah, also known as “Waterloo Suresh”, to the U.S. to face allegations of terrorist financing and money laundering. Sriskandarajah is a Sri Lankan former refugee who immigrated to Canada twenty years ago.

He was arrested in 2006 as a result of a joint FBI – RCMP investigation and charged in the U.S. with conspiracy to provide material support and resources to the Liberation Tigers of Tamil Eelan (LTTE), and wilfully dealing in LTTE property.

The LTTE is a designated terrorist organization in Canada and in the U.S. Organizations that are listed entities cannot legally raise money or procure operational equipment or other materials in the U.S. or Canada. Individuals involved in these activities or who provide certain services and support to terrorist organizations are subject to federal prosecution under the Criminal Code.

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Former Winston & Strawn lawyer arrested for money laundering

By Christine Duhaime | December 17th, 2010

Jonathan Bristol, a former partner at Winston & Strawn LLP in New York, pleaded not guilty in a Manhattan court yesterday to charges of laundering more than US$20 million through two firm escrow accounts to allegedly help Kenneth Starr, a former lawyer, defraud his celebrity clients.

Prosecutors allege that Mr. Bristol used the accounts to receive funds belonging to Starr clients in 2009 and in 2010 and then transferred that money to Starr’s firm to pay operating expenses. Bristol was arrested yesterday following a criminal indictment. In Court, he repeatedly broke down in tears during the hearing and was released on a US$1 million bond. He faces 20 years in prison if convicted of money laundering.

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