BERG Associates frequently are called on to provide their assessment of financial investigations, drug trafficking, and terrorism. The following articles provide our thinking on key issues that affect financial institutions and businesses in today’s world.
TESTIMONY OF JOHN F. MOYNIHAN
BEFORE THE HOUSE COMMITTEE ON FINANCIAL SERVICES SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS HEARING ON “PROGRESS SINCE 9/11: THE EFFECTIVENESS OF U. S. ANTI-TERRORIST FINANCING EFFORTS” MARCH 11, 2003
U.S. MONEY LAUNDERING THREAT ASSESSMENT See Chapter 1, page 3. John Moynihan is credited with discovering a money laundering threat the U.S. Government had not previously identified.
Cash Letter/Pouch Activity15
As cross border wire transfers come under increased scrutiny and regulation, criminals have found paper checks, money orders, and cashier’s checks to be an ef- fective method to move money internationally. These more traditional payment instruments take a longer time to clear when traveling outside the United States but are perceived by money launderers as being subject to less scrutiny.
Money launderers can transfer large dollar amounts by writing a number of checks or buying a number of mon- ey orders at various U.S. locations, with each payment below the reporting threshold. The dollar-denominat- ed payments are mailed or transported to accomplices overseas who deposit the checks and other payments in foreign bank accounts. Because these are dollar- denominated payments, the foreign banks that receive them send them back to the United States for deposit
in their U.S. correspondent accounts. The checks and money orders are bundled up at the foreign banks and sent with a deposit slip (referred to in the industry as a “cash letter”) with the details of each check and money order. The U.S. correspondent bank credits the foreign bank’s U.S. account and routes the individual payment instruments to the appropriate paying banks and other institutions.
Some banks handle as many as five to seven million checks a day delivered by shipping companies in pouch- es and overnight bags. Processing is done as efficiently as possible, making it very difficult to aggregate related payments or scrutinize individual payments for evidence of money laundering.
STATEMENT OF JOHN F. MOYNIHAN, PARTNER, BERG ASSOCIATES, LLC Mr. Moynihan. Mr. Chairman and Members of the committee, I want to thank you for inviting me here today for this very important hearing. For the record, my name is John Moynihan, and I am founding member and owner of the consulting firm BERG Associates. Among other things, BERG offers our clients services that assist them in prevention and detection of money laundering and other related forms of financial crime. My experience in this area of investigative expertise derives from my professional background both in public and private sector, which I have summarized in my written statement which I have submitted for the record. Let me begin by stating that the Achilles heel of any criminal organization is its financial infrastructure. If you can break the link between a terrorist like Osama bin Laden and Pablo Escobar and his money, you have greatly impacted on his ability to succeed in realizing his stated objective. Mr. Chairman, today there is much that we do not know about the financial dealings of Osama bin Laden and his surrogates across the globe. However, we do understand how informal money markets work. Unregistered, unlicensed money remittance businesses: In the United States there exist many individuals at international business corporations that have opened bank accounts at U.S. banks for the purpose of engaging in the unlicensed exchange of monies and/or for the remittance of these monies to recipients. These accounts, which are used by these persons and businesses, are opened as mainstream retail accounts or through the private banking departments. These accounts can generate millions and sometimes billions of dollars in transactions within a given year. So what exactly is being accomplished by these underground banking systems? The underground banking system provides the following services or benefits: one, a source of money; two, a system for aiding in avoiding of taxes; three, a system for moving wealth anonymously; four, a system to move money to support or sustain criminal activity. The underground banking system thrives in the United States because the people who move money know how to exploit the key vulnerabilities in our financial and banking system. If I may, I would like to present an example. One, a man from a Middle Eastern company sells perfume in Boston. He sells wholesale and retail and collects payments in checks and cash for deposits into his regular checking account. Second, a second man, with cash or checks, wishes to send his money home to a South American country. He approaches the perfume seller. He purchases from the perfume seller either, one, a check in dollars that is not filled in on the payee line, or, two, perfume for resale in a South American country. Three, if the South American man purchases checks, he carries this check to his country and sells it to an intermediary broker, a money exchanger, at a discount to the value of the check. He in turn receives the local currency sought. The money exchanger can now resell the check to another customer seeking these dollars. Given that the check has not been endorsed and the payee section has not been filled in, the check can be sold to anyone or used to pay for anything. Fourth, if the South American man purchased perfume, and he does not want to pay import duties, he smuggles the perfume into the country and resells it, thus accomplishing his goal of converting his dollars from Boston to local currency without paying duties or exchange fees for just converting the funds. Fifth, the Boston perfume man now has his customer's funds, and he wants to accumulate his wealth in his country of origin in the Middle East without paying taxes. He, therefore, sells the funds received to an intermediary in the Middle East who is seeking to purchase dollars. Upon the sale of these dollars, the intermediary instructs the perfume man where he or his agent can pick up the local Middle Eastern currency. Six, the Middle Eastern intermediary tells the perfume man a number or code, and it is to be used by the man who purchased the dollars in the Middle East with the local currency. Seventh, the Middle Eastern intermediary tells his Middle Eastern customer the code and where to pick up the dollars in the U.S. All transactions are complete and everybody wins. My recommendations: The issue of underground banking and payment systems must be immediately addressed by the Legislature. The Federal law criminalizing the act of engaging in money exchanging without a license should be promulgated. Although 18 U.S.C. 1960, Subsection (b)(1)(B) provides for violations for people who fail to comply with the money transmitting registration requirement, the regulations have not been promulgated, and therefore, law enforcement has had to rely on 18 U.S.C. 982 for criminal forfeitures. It is recommended that 18 U.S.C. 1960 be included in the civil forfeiture statute, 18 U.S.C. 981. As well, such underground banking should be identified as a specified unlawful activity so as to be able to seize and forfeit real property and funds that facilitate the activity. This will significantly hinder persons who are engaging in underground banking from delivering monies to person as a favor, for those people will fear criminal sanctions. Second, if it is the intent of the Congress to add to existing forfeiture laws a component addressing terrorism, the assets associated with the terrorist groups that are identified should be forfeited using guidelines prior to CAFRA 2000. There exists a carve-out section to this law, to the existing civil forfeiture statute. Under present conditions, the reality is that it is going to be incredibly difficult to investigate and develop the kind of evidence required to meet the burden of proof with regard to identified terrorist assets. Without the use of hearsay evidence, barred under the new law, there is a very high probability that there won't be much more evidence. The truth is if we believe differently, then we are fooling ourselves and being somewhat naive. Three, future laws to combat money laundering and illegal transfers of funds must address all identified forms of this activity, including those involved through banking financial institutions and the sale of goods and services. Additionally, said laws must be flexible enough to allow U.S. law enforcement agencies to address new and creative forms of money laundering as they appear. Fourth, ensure that the United States Drug Enforcement Administration plays a vital role in the investigation of these terrorists. The people who appear to be responsible for these acts are not religious. They are thugs and criminals who have distorted religion and hijacked the country. Osama bin Laden's accomplices are clearly protected by the Taliban, a group of fanatics who have distorted the Islam faith and want us to think that they are religious and acting as a government over Afghanistan. The reality is that Afghanistan is the major producer of heroin, and the verdict is out on what role the Taliban plays in this heroin trade. The DEA has the best international informant and intelligence-gathering capability on transnational drug crime. They are expert on the collection and presentation of conspiracy evidence. Mr. Chairman, Members of the committee, this concludes my remarks. I would be pleased to answer any questions that you may have. [The prepared statement of John F. Moynihan can be found on page 198 in the appendix.]