Scott Lee Senior Special Agent U.S. Department of Homeland Security Scott.Lee@dhs.gov 1 1
Homeland Security Investigations U.S. agents disrupted an Iranian assassination-for-hire scheme targeting Saudi Arabia's ambassador to the United States. "This case illustrates that we live in a world where borders and boundaries are increasingly irrelevant -- a world where individuals from one country sought to conspire with a drug-trafficking cartel in another country to assassinate a foreign official on United States soil
Homeland Security Investigations Mission Statement Identify and prosecute criminal and terrorist organizations that wish to exploit vulnerabilities within the U.S. financial and trade systems
Homeland Security Investigations Teaching Points U.S. Homeland Security Investigations MENA Regional Illicit Financing Schemes Case Study s Emerging Vulnerabilities
Homeland Security Investigations Homeland Security Investigations Homeland Security Investigations (HSI) is a federal law enforcement agency under the U.S. Department of Homeland Security (DHS). HSI is responsible for identifying, investigating, and dismantling vulnerabilities regarding the nation's border, economic, transportation, and infrastructure security. HSI is charged with the investigation and enforcement of over 400 federal statutes within the United States, and maintains attachés at major U.S. embassies overseas.
Homeland Security Investigations Homeland Security Investigations The Special Agents of HSI use their broad legal authority to investigate and combat a range of issues that threaten the national security of the United States. These investigations include: Money Laundering Bulk Cash Smuggling Financial Fraud Terrorism Trade Enforcement Smuggling Arms, WMD s, Narcotics, People
Last Updated: 10/17/2011
Homeland Security Investigations Homeland Security Outreach Since the attacks of September 11, 2001, law enforcementprivate sector partnerships have been viewed as critical to preventing money laundering, terrorism and terror-related acts. HSI recognizes the significance and integral role that industry groups play in establishing and bolstering antimoney laundering guidance and oversight. The private sector represents the first line of defense against money laundering; and, an active partnership between law enforcement and the private sector is a key component in combating money laundering and terrorist financing. Homeland Security Investigations 9
Homeland Security Investigations Through this public/private partnership we are able to identify the means and methods used by criminals to exploit financial systems. HSI works with specific private sector industries to gather new information and reduce vulnerabilities found within existing financial systems. HSI provides training to the private sector to assist them in identifying and preventing exploitation by criminal and terrorist organizations Homeland Security Investigations 10
Homeland Security Investigations MENA Regional Illicit Financing Schemes Bulk Cash Smuggling Hawala s Trade Based Money Laundering Emerging Vulnerability Homeland Security Investigations 11
HSI Financial Investigations BULK CASH SMUGGLING TRADE BASED MONEY LAUNDERING
BULK CASH SMUGGLING Physically smuggling cash to another jurisdiction, where it will be deposited in a financial institution, with less rigorous money laundering enforcement. In the U.S. it is a crime for anyone to knowingly conceal more than $10,000 and transport it into or out of the U.S. with out filing the appropriate forms. The penalty is 5 years in jail and forfeiture of up to the amount being smuggled. BCS fuels criminal enterprises that traffic in illicit drugs, engage in violent crimes, and fund terrorism.
CURRENCY SMUGGLING METHODS 14
$24,465 seized at JFK Airport 15
Body Carrier $149,360 at Blaine, WA 16
$11,000,000 USD concealed in heavy machinery 17
Jose Luis SERRANO-LOPEZ CASE STUDY Jose Serrano-Lopez On January 12, 2005, Tennessee Drug Task Force officers stopped a BMW X5 for a traffic violation. The registered owner of the BMW, Gilberto SOLTERO, a resident of El Paso, Texas was not present. The driver, Jose Luis SERRANO-LOPEZ, a citizen of Mexico residing in El Paso, claimed to be returning to El Paso from Durham North Carolina. A consensual search of the BMW revealed several false compartments underneath the vehicle.
SERRANO-LOPEZ Search of BMW X5
SERRANO-LOPEZ Compartment in floorboard on driver s side
SERRANO-LOPEZ Access panel under driver s seat
SERRANO-LOPEZ Currency concealed in compartment
SERRANO-LOPEZ $1.5 MILLION SEIZED
BULK CASH SMUGGLING RED FLAG INDICATORS Purchase of any monetary instrument by a non-customer with large amounts of currency. Frequent transactions or purchase of negotiable instruments $10,000 or under in order to avoid filing a Currency Transaction Report (CTR). Customer making cash deposits $10,000 or under at multiple locations or cash deposits made to one account at the same location by multiple individuals. Customer depositing $10,000 or under after being told of CTR reporting requirement. Splitting large currency deposits among several accounts.
HSI Financial Investigations HAWALA TRADE BASED MONEY LAUNDERING
WHAT IS A HAWALA? Hawala is an ancient, method of transferring money that is based upon trust and the personal relationship between the operators. Investigations have shown that proceeds from various crimes as well as funds raised in support of terrorist groups have been laundered through Hawalas. Hawalas allow the transfer of millions of dollars, with little or no transparency, making it an attractive mechanism to move illicit proceeds by criminal and terrorist organizations. In most cases the value is transferred, as opposed to the cash itself. This is referred to as an Informal Value Transfer System or (IVTS).
HOW IT WORKS Customer A USA Hawaladar USA Customer B Pakistan Hawaladar Pakistan This form of Hawala depends on the existence of cash pools in each country to settle payments Customers must provide a token or code to receive payments The method of settlement between the Hawaladars may depend on fraudulent schemes to transfer value
HOW IT WORKS Accounts are settled by Hawaladars by: Reciprocal payments to customers Legitimate purchase/commodities trade Physical movement of currency/bulk cash smuggling Smuggling of gold or other precious gems Invoice Manipulation Wire Transfer or Check
WHY USE A HAWALA? Exchange Rates The primary reason one would use a Hawala is to save money on the transaction fees. A Hawaladar will generally have a much better transfer rate than that of a financial institution. A second reason would be efficiency. A Hawaladar can have your money transferred usually within a day, where a financial institution may take up to a week to complete the transaction. Other reasons are convenience, anonymity, and avoiding paper trails.
Jose Luis SERRANO-LOPEZ CASE STUDY Mahmoud Banki In May 2009, an investigation into Mahmoud Banki for operating an Unlicensed Money Service Business (MSB) and facilitating in the avoidance of U.S. sanctions associated with Iran. A number of bank accounts showed a large quantity of wire activity and deposits which were inconsistent with Banki s listed employment as a chemical engineer and management consultant. Records showed that from January 2006 to September 2009, Banki s hawala network received wire transfers totaling approximately $3.4 million from companies and individuals in the United States and overseas.
Jose Luis SERRANO-LOPEZ CASE STUDY Mahmoud Banki Banki facilitated these illegal transfers by accepting deposits from individuals throughout the U.S. into his personal bank accounts. He then notified the Tehranbased hawala operators, so that a corresponding amount of Iranian currency, could be paid out in Iran. The Hawaladars profited by manipulating the dollar/toman exchange rate, and Banki benefitted by using the millions of dollars he received into his New York account to purchase real estate, securities, and to pay hundreds of thousands of dollars toward personal expenses. Banki was subsequently sentenced to 30 months incarceration and ordered to forfeit $3,314,047, which represents the sum of money involved in the offenses.
HAWALA RED FLAG INDICATORS Flow through account (money in and out) Financial activity doesn t match business Checks to/from individuals from same country International wires with no business connections Use of personal checking account for business
HSI Financial Investigations TRADE-BASED MONEY LAUNDERING TRADE BASED MONEY LAUNDERING
TRADE BASED MONEY LAUNDERING Trade-based money laundering is the use of otherwise legitimate trade transactions to earn move and store proceeds of a crime. When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity. Can be as simple as purchasing commodities with criminal proceeds and shipping them to another country or advanced as moving proceeds of crime through schemes such as over and under valuation.
TBML is the use of legitimate trade transactions to move and store proceeds of a crime. Methods include traditional customs fraud violations such as: Over & under-valuation Over & under-shipment Double invoicing False invoicing TBML METHODS
TRADE BASED MONEY LAUNDERING Over & Under Shipment of Goods and Services Importer remits $2 million to Exporter Importer remits $2 million to Exporter Company A Company B Exporter invoices 1 million widgets at $2 each ($2 Million), but actually ships 1.5 million ($3 Million) widgets to Importer
TRADE BASED MONEY LAUNDERING Double Invoicing Duplicate invoices are created for a single trade transaction. By invoicing the same goods more than once, multiple payments for the same shipment of goods can be justified. The payments are further disguised by using different financial institutions.
TRADE BASED MONEY LAUNDERING False Invoicing of Goods and Services Importer pays $2 million to Exporter Company A Company B Exporter Importer Exporter invoices Exporter 1 million invoices SILVER 1 million SILVER widget widget at $2 at each, $2 but actually ships 1 million GOLD widgets worth $3 each but actually ships 1 million GOLD widgets worth $3 each
OPERATION GOLDEN DOOR Case Overview Duty Free toys from China to Colombia Less Customs scrutiny Free flow of goods No duty payment to cut into profit.
OPERATION GOLDEN DOOR Narcotics proceeds dropped off at target business for payment of goods or deposited directly into company bank accounts. Angel Toy s employees instructed not to accept deposits of more than $10,000 to avoid federal reporting requirements. Account credited and goods sent to Colombia. Broker sells good and distributes pesos keeping a commission fee. Once money entered US banking system, funds wired to China to pay for additional goods.
OPERATION GOLDEN DOOR Seizure warrants on three bank accounts for structuring. Search warrant executed at target business. In July 2010, company CEO, owner, accountant, and Colombian importer indicted on conspiracy to launder money, bulk cash smuggling, structuring, and intimidation of a witness. Criminal forfeiture indictment of $8.6 million, which is the amount allegedly laundered from 2005 through 2009
TRADE BASED MONEY LAUNDERING Red Flag Indicators Payment for goods in excess of known market value. Payment for goods below known market value. Discrepancies on shipping documents. Products or services do not correspond with type of business. Shipments sent by firms or individuals from foreign countries other than the country of the stated enduser.
TRADE BASED MONEY LAUNDERING Red Flag Indicators Difficultly determining the ultimate consignee of the shipments. Shipping routes that do not make economic sense. Amount of fund transfers not consistent with the business. Shipments going to a known or suspected transshipment country. No obvious use for commodity.
Homeland Security Investigations Emerging Vulnerability Attention has increased recently with respect to the use of trading companies being used as Hawala s to facilitate the transfer of funds to criminal and terrorist organizations. Investigative inquires have disclosed a disturbing trend that trading companies are also being used to facilitate the trans-shipment of military weapons, nuclear proliferation/wmd commodities, as well as terrorist funding.
Homeland Security Investigations Vulnerability of Free Trade Zones As a result of relaxed oversight by government authorities FTZ s are vulnerable to exploitation by money launders and terrorist. Weak procedures to inspect goods and register legal entities, including inadequate record-keeping and information technology systems Lack of adequate coordination and cooperation between zone and Customs authorities
Homeland Security Investigations As a result, illicit actors have been able to take advantage of relaxed oversight and the lack of transparency in FTZ s to launder the proceeds of crime, finance terrorism, and facilitate WMD proliferation. FTZs can also be used to create legal entities and access the international financial system, providing opportunities to launder illicit proceeds. Large FTZs are also located in regional financial centers linking international trade hubs with access to global centers of finance.
Homeland Security Investigations To combat this threat, DHS has begun the Illicit Finance and Counter Proliferation Initiative. This initiative involves a thorough review of all applicable reports and databases related to money laundering and trade activity with a nexus to the U.S. The initiative resulted in the identification of trading companies being used to transfer funds to criminal and terrorist organizations and to facilitate the transshipment WMD related materials.
Homeland Security Investigations Case Study One of these trading companies facilitated the payment for and transshipment of F-15 fighter jet parts to Iran. Fortunately, this transaction was never consummated because the shipment was intercepted by U.S. authorities before it could be delivered.
Homeland Security Investigations Case Study A second business facilitated the transfer and sale of parts that could be utilized in WMD production.
Homeland Security Investigations Case Study A third business, purported to be a food and beverage outlet, was linked to a money transmitting business that facilitated the transfer of funds to a terrorist organization in Somalia.
Red Flag Indicators Payment details inconsistent with trading companies purported business. Originators and recipients of wires have ties to Iran Wires sent to U.S. manufactures of export controlled commodities Owner trading company is Iranian Incoming wires deposited into personal checking accounts are in even amounts Determine if recipients/transmitters of wires have been the subject of previous investigations
ICE Scott Lee Senior Special Agent U.S. Department of Homeland Security Scott.Lee@dhs.gov 52