Friday, September 21, 2007

Adventures in Money Laundering

One of the principal problems that any criminal enterprise has is the question of how to enjoy the fruits of that criminal enterprise while disguising the fact that those fruits are ill-gotten. In other words, how to launder the profits. In recent years, the US government has instituted more and more stringent banking regulations designed to frustrate money laundering, such as the requirement that cash deposits and withdrawals of $10,000 or more be reported to government regulators and the rule that bankers must make a good-faith effort to know their customers. At the same time, technology has made it much easier to move money around and across borders without the involvement of any human bank employee. These two trends have resulted in the development of money laundering via ATM-based microtransactions. As reported in Mark Schoofs's page A1 article in today's Wall Street Journal ("ATMs Become Handy Tool For Laundering Dirty Cash"), the scheme works like this: Someone has a large quantity of cash, usually the result of drug sales, that he needs to launder. He and his accomplices open a large number of bank accounts at a large number of banking institutions, and he collects all of the ATM cards for them. He then goes on an ATM deposit spree, depositing his cash in small transactions of a few hundred dollars apiece at various different ATMs using accounts at various different banks. His accomplices, often in a foreign country, can then withdraw the cash in similar microtransactions. Because of the large number of accounts and the small amount of money per transaction, the laundering is hard to detect. Here's how the article described the deposit spree of Luis Saavedra and Carlos Roca, agents of Colombian cocaine and Ecstasy dealers, in March of 2006:
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.

That's right: they made deposits into 112 different accounts in six hours. And when they were caught shortly after this spree, they still had $283,000 in cash left to deposit.

Obviously, all banks have software that is designed to detect suspicious transactions, and it is possible for this software to be modified so that these kinds of microtransactions are detected. The problem, as with any security measure, is the risk of false positives. If the software is too sensitive, too many legitimate transactions will be flagged, resulting either in the banks being unable to give the proper attention to the ones that really are sinister or in honest customers being harassed. And, of course, that's exactly what the people who designed this particular money laundering scheme were trying to do. I deplore what they're doing, of course, but I respect their ingenuity.

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