The federal heat on money laundering is getting hotter. So far this year more than 60 big banks in the United States have been cited for failure to report cash transactions in excess of $10,000. These transactions are often signs of money laundering activities by mobsters.
The latest case involves Bank of New England, the second-largest bank in the New England region. It was indicted by a federal grand jury this week on charges related to the unreported withdrawals of $817,000 in cash by an alleged gambling boss.
The nationwide push against bank involvement -- knowingly or not -- in money laundering became evident in February when New England's biggest bank, Bank of Boston, pleaded guilty to failure to report $1.22 billion in cash transactions. During the past eight months, virtually every big name in the US banking has been cited for similar violations. These include Chase Manhattan, Manufacturers Hanover Trust, Irving Trust, Chemical Bank, Bank of America. The biggest fine so far has been a record $2.25 mil lion against Crocker National in San Francisco. And there could be more: The US Treasury says it has forwarded 140 cases to the Internal Revenue Service.
In the Bank of New England affair, a federal grand jury indictment alleges the institution allowed a suspected gambling czar to make cash withdrawals that circumvented the law. Bank employees were charged with taking gifts from the man. Two tellers and an assistant vice-president were indicted along with the alleged gambling boss.
Despite the adverse publicity and the fines levied against banks in incidents such as these, for most customers business as usual is untouched. But a pattern has emerged over the past eight months. In both Boston cases, for instance, there are signs of underworld involvement: with Bank of Boston, a mafia family; with Bank of New England, a man with a history of loan sharking and gambling charges.
``We have irrefutable evidence that banks are being used for money laundering by racketeers and drug traffickers,'' a congressional investigator says.
Everybody -- even the underworld -- needs banks. Criminals need them to change cash garnered from activities like gambling and drug peddling into assets that look like those earned legitimately. One of the best ways of doing so is simply to deposit the cash in a bank account and then write checks on the account. Writing a check arouses much less suspicion than does pulling out a wad of hundreds.
Once in the bank, crime money might be converted into traveler's checks, money orders, or telegraphic transfers. Then it is often sent to a country that does not share financial information with the US -- a tax haven such as Panama, Hong Kong, or Switzerland. It may then finance more crime or return to the US as a no-interest loan to the criminal.
But large cash deposits and withdrawals at banks become suspect. And the Bank Secrecy Act says deposits and withdrawals of more than $10,000 (except for legitimate cash-intensive businesses such as groceries) must be reported to the IRS.
Bank employees, who as a group are not paid very well, are sometimes cultivated by criminals with gifts and friendly banter to look the other way when these cash transactions are made.
Moreover, ``if a drug trafficker has a substantial deposit at a bank, the threat to move money out allows him to influence the bank'' to look the other way during money laundering, the congressional investigator says. In the same way, he says, a mobster can influence a bank to make loans. Although the influence is usually indirect, there have been incidents in Florida where bankers acted in collusion with drug traffickers and where mobsters have even tried to buy banks.
So the crackdown on money laundering is really a crackdown on the mob. ``If you get to the money,'' says a Treasury spokesman, ``you get to the paper trail'' the criminals leave. The blitz against money laundering, he says, stems from the efforts of ``Operation Greenback,'' a task force begun in south Florida in 1978 to combat a flood of drug activities.
``One of the most important ways to attack drug trafficking,'' says Gary Kallen, acting financial investigations director of the US Customs Service, ``is to destroy the financial basis of the organization. Then it ceases to exist.''
Next Tuesday, the Senate Judiciary Committee will hold hearings on legislation that would make money laundering, per se, a crime. Washington observers say it is probable that Congress this session will pass some kind of bill, probably a modified version of one introduced by Rep. William J. Hughes (D) of New Jersey.
There is also legislation to amend the 1978 Right to Financial Privacy Act and to put pressure on foreign tax havens.
The flood of banks cited for violating reporting laws since February coincides with a new, stiffer penalty that took effect at the end of 1984. Most of the banks have come forward voluntarily. The Treasury spokesman notes that since the Bank of Boston case, ``the number of CTRs [cash transaction reports] has increased 50 percent.''
Many banks have contended however, that they were not aware of the currency reporting laws, enacted in 1980. To remedy this, the American Bankers Association last month began an extensive touring seminar to educate bankers on the subject.
In videotaped segments, ABA executive vice-president Donald G. Ogilvie warns bank employees that mobsters now ``know how to dress for success.'' ABA official John Wolff, whose office developed the seminar, says the aim is to ``educate the entire industry'' into ``knowing your customer.''