Money laundering, 21st century-style, part 1 of 2

Companies are realizing that good anti-money laundering programs can do more than satisfy regulators — they can boost the bottom line by reducing major business risks. Transnational organized crime is more profitable than ever, and money launderers are devising new methods to hide the true source of illicit gains. Here are the U.S. federal government's latest anti-money laundering efforts plus ways CFEs can help businesses cope with schemes and payment technology risks.

Even when a crime is innovative and unfamiliar, investigators often can associate it with similar cases they've solved. New needle — old haystack.

On Jan. 24, in McAllen, Texas, a federal district court judge sentenced 12 people to prison after they pleaded guilty to violating the U.S. statutory requirement (31 CFR 103.23) to declare cash sums greater than US$10,000 when entering or leaving the country. The defendants had concealed US$3.1 million in air mattresses aboard a Mexico-bound commercial passenger bus inspected at the Hidalgo, Texas, border crossing. New cache — old method. U.S. Customs and Border Patrol, which astutely detected the stash, and U.S. Immigration and Customs Enforcement's Homeland Security Investigations (ICE/HSI) worked the case jointly.

Sometimes, however, money launderers create an entirely new haystack, making detection and prevention harder. To counter such criminal innovations, HSI has redoubled its efforts, particularly with respect to an emerging technique known as trade-based money laundering (TBML). One week after the Texas trial, the corrupt leaders of a California toy wholesaler were convicted of TBML. Here's how investigators gathered the evidence that made the case.

ICE TURNS UP THE HEAT 

On Jan. 30, 2009, two women — co-owners of the Angel Toy Company (ATC) — made a US$7,000 cash deposit into the firm's local bank account. There are nicer parts of Los Angeles than the gritty south side, where ATC, a wholesaler employing 29 people, was located. But business was good, especially when a certain few ATC customers would drop off bags of cash — sometimes containing more than $100,000 — as payment for teddy bears and other toys.

Meichun Cheng Huang, ATC's vice president in charge of sales, and Ling Yu, the president of ATC, would divide the money into amounts less than US$10,000 before bringing them to the bank. Then they would wire the money to a factory in China, which would ship the merchandise to Colombia where another ATC store would sell the toys for pesos and deliver the converted cash to associates of the Los Angeles customers. Through this arrangement, Huang and Yu earned considerable income for ATC, and they kept the assembly line busy in China. Plus, the special Los Angeles customers were happy to have their U.S. dollars converted into Colombian pesos and delivered to their accomplices in Bogota.

Huang and Yu, though, were in for a surprise. A few months earlier, multiple informants had reported the large cash drop-offs to HSI's Los Angeles office. HSI leads all TBML investigations. Cash payments to a wholesaler didn't make business sense, so HSI quickly began surveilling ATC in cooperation with the California Attorney General's Bureau of Narcotics Enforcement. The investigation revealed that the women's US$7,000 deposit was their 76th structuring transaction, totaling US$8 million. 

Soon thereafter, the U.S. Department of Justice (DOJ) charged Huang, Yu, ATC itself and Jose Leonardo Cuevas Otalora, the owner of Angel Toys Colombia in Bogota, with structuring, laundering and participation in the Black Market Peso Exchange, which DOJ described as "a method of trade-based money laundering that exchanges drug money in the United States for ‘clean' Colombian pesos through the international purchase and shipment of goods." 

In October 2009, a grand jury in U.S. District Court in the Central District of California indicted all four defendants on those charges. Other owners of ATC in Los Angeles apparently were unaware of the fraud, and the grand jury didn't indict them. Huang and Yu pleaded guilty on all counts, and they were sentenced on Jan. 31 to 37 months in prison, and each was fined US$20,000. ATC was ordered to forfeit $1 million to the U.S. government. Cuevas is in custody in Colombia, pending his extradition to the U.S.