Dirty Money in the Spotlight

A proposal to get tough on banks that launder cash

Big-time crime in the U.S. must be able to count on one thing: converting its seamy gains into money that is easier to use than the stacks of $50s or $100s in which payoffs are often made. By a process known as laundering, criminals deposit money in American or foreign banks, then withdraw it and invest it in construction projects, real estate or corporations. There is a lot to launder. The underworld’s haul is estimated at no less than $ 170 billion annually from drug trafficking, prostitution and illegal gambling. Last week a report by the President’s Commission on Organized Crime presented recommendations that would make it harder to use legitimate financial institutions to hide profits from crime.

In its 89-page report, the commission painted a grim picture of artful operators who slip by current provisions of the federal Bank Secrecy Act. They pour huge amounts of cash into banks almost with blithe abandon, then withdraw it practically at will. The present law, passed in 1970, calls for a bank to notify federal authorities whenever a deposit exceeds $10,000. The law, though, has often been ineffective, in part because of wrist-slapping fines of only $1,000 against banks that fail to report the large deposits.

In South Florida, the center of the American drug trade, depositors have been known to walk up to a teller’s window with a few dollars less than $10,000 in cash. Couriers known as “Smurfs,” referring to the cartoon characters, flit from bank to bank buying cashier’s checks and money orders for just under the reporting limit. One of the most popular ways to launder money in Florida now is to buy real estate. An estimated $2.5 billion worth of property in that area is believed to have been bought with drug profits.

Some of the laundering is much more subtle, and sophisticated. In Houston, a federal indictment last week claimed that officials of a small steel company accepted huge amounts of drug-begotten cash.

They then issued checks that were entered on the company’s books as tax-deductible “contract services” received.

The commission wants banks to be more careful about collecting too much loose cash. It seeks to make laundering a federal crime, with jail terms of up to ten years and fines of as much as $1 million for repeat violators. It calls upon the banks to police themselves, for example, by designating a bank officer to be accountable for completing federally required transaction reports instead of delegating the job to lower-level workers.

Congress has already removed some technical obstacles to enforcement. In an anti-crime bill passed last month, Congress made it an offense merely to attempt to transport large amounts of cash if the Government has not been notified.

Civil libertarians and others are concerned that the stiffer laws favored by the commission might infringe upon a citizen’s legitimate right to privacy in banking matters. Some critics in Congress charge that the commission’s definition of laundering is too broad and could cast suspicion over large cash-banking transactions of all kinds. Arthur Brill, a commission staffer, dismisses those fears. He claims, “You have nothing to be concerned about if you’re not taking shopping bags full of money to the counter.”

Bankers and investment-house officials complain that they are being blamed unfairly. Contends Daniel Buser, a spokesman for the American Bankers Association: “To say blanketly that financial institutions are cooperating with organized crime is a tragic remark.” John M. Walker Jr., the Treasury Department’s chief for enforcement of the Bank Secrecy Act, claims most bankers are aware of money-laundering problems and are “looking for ways to cooperate.”

The commission will have scored a victory, Brill says, if bank presidents tell their people, “We’re not going to take any more of the Mob’s money.” That kind of attitude by the entire financial community could have a powerful effect. Says Judge Irving R. Kaufman of the U.S. Court of Appeals in New York City and the commission’s chairman: “Without the ability to freely utilize its ill-gotten gains, the underworld will have been dealt a crippling blow. Money laundering is the lifeblood of organized crime.”

—By John S. DeMott. Reported by Anne Constable/Washington, with other bureaus