HOW THE RCMP BOTCHED A STING

Force Used Known Fraudster to Set Up Fake Money Laundering Operation
Aimed at Organized Crime

Inter Maritime looked just like any other nondescript company with an
office on Howe St. in Vancouver's rough-and-tumble financial district in 2003.

The firm told prospective clients that it ran a big international
money-management business based in Belgium and had around $5 billion
in assets. It said about 95 per cent of its dealings involved
legitimate money management in offshore jurisdictions.

But it was the other 5 per cent of the business that Inter Maritime
really promoted. Money laundering.

The firm sought only select clientele like Canadian and U.S. drug
traffickers who needed assistance in cleaning huge amounts of dirty
money through bank accounts and shell companies. That prospective
list included Cosimo Commisso, whom police claim to be the head of an
organized crime family in Toronto, and the Hells Angels motorcycle gang.

Inter Maritime said it charged 6 per cent of the value of funds to be
laundered, and guaranteed all money against seizure, theft or loss.

But this operation, according to the RCMP's own version of events,
was different. Organized criminals and crooked financiers weren't
pulling the strings. The RCMP was.

In affidavits filed in support of search warrants - and whose
allegations are untested in court - the RCMP itself paints a
sensational saga with twists and turns befitting a Hollywood thriller.

Combined with Mountie transcripts of internal interviews, letters
filed in court, National Parole Board reports and interviews with
people familiar with the RCMP's operations, the affidavits provide a
rare glimpse into the secret world of the force's operations.

By its own admission, the RCMP conducted this sting operation with
the help of a notorious fraudster, Michael Lee Mitton, who was hired
to go undercover to meet and offer money-laundering services to
potential Canadian and American clients.

The goal, according to the affidavits, was to lure Commisso and
others under the operation, which was code-named Project Elden and
ran between 2003 and 2005. In fact, a source involved in the
investigation says Mitton ended up paying more than $100,000 in
"commissions" to Commisso, although he noted Mitton may have kept
some of that money.

But the sting operation ultimately fizzled and never led to any
charges against him or anyone else.

Lawyer Joseph Bloomenfeld, who represents Commisso, said suggestions
that the RCMP paid his client "commissions" through one of the
force's agents "are completely unfounded and untrue."

"The references to Cosimo Commisso contained in these affidavits are
based largely on information from one Michael Mitton who was
determined by the RCMP to be untrustworthy," Bloomenfeld added
yesterday in a statement to the Star.

For its part, the RCMP believed that Mitton, now 49, had been an
acquaintance of Commisso, a long-time police target, and hoped that
connection would help Mitton build his credibility in the Vancouver underworld.

Commisso, now about 62, had spent time in prison with two of his
brothers during the 1980s for conspiring to murder three people and
cripple a fourth person. His criminal record also included the
bombing of a building and possession of stolen goods.

The RCMP says in affidavits that it focused on Commisso who, along
with his group, had been under investigation since 2001 "for their
alleged involvement in murder, extortion, drug trafficking, gambling
and fraud."

Project Elden involved about 25 investigators from Vancouver and
Toronto in a special unit that included local police specialists.
While it was running, Mitton paid Commisso for what the RCMP calls,
in one affidavit, "assurances and support."

The RCMP does not elaborate on what that "support" entailed. But the
force says in the same affidavit that Mitton used his relationship
with Commisso to get introductions to a number of people of interest
to authorities in Vancouver.

There are still extensive blacked-out sections in the court filings
that prevent some details of Commisso's alleged participation in the
money-laundering operation from becoming public.

The court documents also contain information on a second project that
eventually prompted the RCMP to charge Mitton with fraud, after he
quit Project Elden because of fears for his life. The charges
involved a post-Elden, multi-million-dollar stock-manipulation scheme
in the Toronto area. That case resulted in police blowing Mitton's
original cover.

Mitton found himself in the uneasy position - after actively working
against the alleged Commisso organized crime group - of becoming
exposed for that role to co-defendants in the stock fraud.

Among the co-defendants was Aneillo (Neil) Peluso, whom the RCMP
describe in the affidavits as being "a high-ranking member of Cosimo
Commisso's organized crime group."

Peluso's lawyer, Alan Gold, has said that allegations about his
client's ties to Commisso are groundless. "They're not worth the
search warrant paper they're written on."

Mitton is now in prison for the stock fraud scheme that followed Project Elden.

It is extremely unusual for details of RCMP operations to emerge
publicly. Without commenting specifically on the two operations,
former senior RCMP officials say privately these types of
investigations can be legally complex, financially daunting and
fraught with danger.

One RCMP official said that although such investigations might not
lead to charges, they can be successful in gathering intelligence on
organized crime. However, another senior officer added that exposure
of probes could also make criminals more cautious.

Senior RCMP officials would not provide any information on how much
Commisso was allegedly paid, compensation for Mitton, any profits
from laundering money, the operation's costs, other targets or why
Project Elden eventually wound down in 2005 without any criminal
charges being laid.

Mitton, a diminutive, soft-spoken career con man with curly hair and
hazel eyes, was the son of a Christian fundamentalist and 3M salesman
in suburban Montreal. By his late teens, the kid with the sweet face
had left home and moved to the bright lights, fast money and gangs of
the city's downtown.

The RCMP and the courts knew him well. He had built up a record of
fraud and bad debts that would make Charles Ponzi, the legendary
American swindler, smile.

But the Mounties thought Mitton could be useful. He had potential.

The force had pulled him from the shackles of prison life in Kingston
during the mid-1980s to work as an agent on various projects. It
eventually promoted him to a sting operation targeting possibly
corrupt federal politicians and mobsters in Montreal.

Mitton worked there for a year until the RCMP abruptly ended the
project without a charge. He fled to Abbotsford, B.C., minus RCMP
protection, and thought angry mobsters from Montreal would soon catch
up to him.

But the cagey con man survived and turned to Vancouver's fast and
loose stock exchange to exploit his talents. Mitton prospered. Money
came easy. It fuelled the needs of a growing family of three children
and his high-rolling lifestyle. He jetted across the continent,
zipped around in expensive cars, drank pricey cognac and dined in
fancy restaurants.

By the end of 2000, he had racked up 103 fraud-related convictions.
There was also an outstanding arrest warrant for him in the U.S. in
connection with a swindle that crippled brokerages there.

One judge described Mitton as "a consummate liar, fraudster and rogue
of the first order." A securities regulator called him a "serial fraudster."

Over the years, trading bans, fines, restitution orders and prison
time couldn't slow him down. There was never much remorse. When
Mitton gained freedom from jail, he would always gravitate back to
another scheme to fleece investors, banks and brokerages.

Sometimes, he'd be working on the intricacies and timing of his next
project while on parole.

He was behind bars again in 2000 for a multi-million-dollar stock
fraud that included a charitable organization among the victims. It
was his biggest operation yet and netted him a four-year prison term
and multi-million-dollar restitution order.

But he didn't spend much time at B.C.'s minimum-security Ferndale
Institution. Eight months later, authorities gave him a work release.

It didn't last long. Within a few weeks, the National Parole Board
had cancelled the release after hearing he had negotiated the
purchase of a shell company, organized a secret bank account and left
his employer without permission.

Despite his record and no sign of rehabilitation, the RCMP
surprisingly hired the career con man in 2002 for a second stint,
this time as an agent on the Project Elden sting.

Corrections Canada played along with the idea by removing a condition
that prevented Mitton from contacting former "business associates."
U.S. authorities co-operated too by delaying extradition on a 1993
arrest warrant for fraud.

In addition to being well-connected in the underworld and an
acquaintance of Commisso, Mitton could think fast on his feet and had
a flair for figures. He was bold and cocky. His five-foot-three frame
and soft voice evoked a harmlessness that could disarm the shrewdest criminals.

He would need all his street smarts and powers of deception to make
the operation work - and survive himself. The Project Elden
assignment was fraught with danger because it allegedly involved some
of the biggest and most violent criminals in the country. Police said
it could drag for several months or perhaps three or four years.

Mitton knew the dangers, and raised them in an interviews with
police, the transcripts of which were also filed in court.

"If something really goes wrong, I'll get popped," Mitton said. "If
anything goes cockeyed, right, and they really get suspicious,
ongoing suspicious, then they'll just eliminate ya.

"They're not gonna sit down and say, 'We got these questions, right.
In other words, can you explain this and explain that and explain
that?' They'll just get rid of ya. And that's the way they do it today."

Mitton also never forgot the time when he questioned a gangster for
going after someone. "What if you're wrong," Mitton asked. "And he
said, 'With who we are, we don't have to be right.'"

In view of the risk, Mitton requested assurances that any information
would be used strictly for intelligence-gathering purposes and that
his identity would remain concealed.

He said he understood that if the project proceeded to a second
phase, there would be a protection agreement for him and his family.
A second phase would entail a full police investigation, the release
of his name for wiretap authorizations, search warrants and court
testimony if the Crown prosecuted anyone.

Although his written agreement with the RCMP didn't include witness
protection, officials told him they would take care of it if the
project shifted to a second, riskier phase in which he would be
designated an informant.

RCMP officials paid him an "allowance," covered his family's expenses
and other costs ranging from loans and legal fees to life-insurance
premiums. They also talked about an "award" of up to $400,000 at the
end of the project if it turned into a success.

The RCMP was never far away. The force had equipped Mitton's office
on the 10th floor of the Howe St. building with listening devices. An
RCMP team monitored his conversations in a building penthouse.
Operatives also watched his movements 24 hours a day.

Mitton warned the RCMP that the operation would be complex and it
would take a lot of work to establish links. "They're gonna have
sharp lawyers," said Mitton, who had spent a lot of time in
courtrooms over the years. "You gotta make your chain."

Mitton added that if police properly executed the operation, the list
of charges could extend beyond money laundering to drug trafficking
and "the odd murder here and there .. "

In 2001 the RCMP had already made Commisso and what the force called
a "traditional organized crime group" a primary target in a broader
national investigation code-named Project Ora, because of alleged
involvement in murder, extortion, drug trafficking, gambling and fraud.

That initiative - which would eventually cost more than $10 million,
according to one insider - eventually branched out into other
operations, including Project Elden, with Commisso still the top target.

In the latter investigation, the RCMP said it gave money to Mitton,
who, in turn, paid Commisso.

"The Toronto target received monetary commissions that were based in
part on the total amount of business transacted by the RCMP," one
senior Mountie revealed in affidavits.

A cocaine trafficker who didn't need the money-laundering service
introduced Mitton to other project targets. That trafficker received
a 1-per-cent commission on any transactions.

Commisso also received a small percentage of some of the
money-laundering action for "protection services," because Mitton
said he had asked someone to "put out the word" in Ontario and
British Columbia that the "family" would deal with anyone who tried
to cheat the operation.

Mitton's initial contacts laundered drug proceeds in the $100,000
range, but in court filings he indicates the relationships and
transactions eventually increased to the multi-million-dollar level.

The force won't disclose any profits from the illegal transactions
and what it did with the money.

The operation conducted most of its big cash pickups in New York,
Seattle and locations in Florida and Canada. It also involved
assistance from U.S. Homeland Security undercover officers.

Mitton dealt only with Canadian traffickers and developed
relationships with senior members of the Hells Angels and other
individuals tied to organized crime in Toronto and Vancouver's East
Indian community.

Among his disguises, Mitton acted as an employee of a boat firm
called Delta Charters. He would entertain money-laundering clients on
a boat complete with RCMP surveillance equipment to record
conversations with targets.

The RCMP said Mitton participated in more than 500 undercover
situations in less than 18 months of work and gave numerous
videotaped statements about meetings with targets.

But he felt the information-gathering had shifted into a major
investigation in which the stakes would be even higher. That could
lead to charges, prosecution and exposure. He would have to testify.

Mitton said he became increasingly concerned about the risks and his
exposure with no agreement to protect him or his family.

His regular, videotaped statements to the RCMP seemed like an
insurance policy in case anything happened to Mitton. He described
himself as "a disposable asset."

Mitton had already run into dangerous situations. A target in the
project found a high-tech listening device in Mitton's appointment
diary. Mitton said he defused the problem by convincing the target
that it was a sweeping apparatus to detect electronic bugs.

He found himself in a tight squeeze when the project participated in
a shipment of more than 300 kilograms of marijuana from the Hells
Angels in Vancouver to "the family" in Toronto in early 2004. The
shipment disappeared from a "stash" house in the Alliston area north
of Toronto. The family believed it was an inside job and fingered
some guards who had apparently become hostages, Mitton said.

Cognizant of a looming disaster, the RCMP sought Mitton's
intervention in efforts to placate the Hells Angels and buy time for
payment of several million dollars.

Mitton said he negotiated the release of the hostages and gained some
time, but about $2 million remained outstanding, which left him vulnerable.

One police source familiar with the situation confirmed there was
indeed missing marijuana, and that the RCMP used Mitton because the
force couldn't take any chances in a possible life-and-death crisis.

What's particularly intriguing about the episode is that the RCMP
inadvertently created the crisis. Unknown to Mitton, police officers
had raided the stash house when nobody was there.

Another incident is highlighted in a letter written by Toronto lawyer
Clayton Ruby, who at one point represented Mitton. The letter,
addressed to the RCMP and filed with the court, describes Mitton's
version of the pickup of $1.1 million in cash from one of the
project's clients, in Seattle.

When Homeland Security agents - who posed as representatives for the
money-laundering company - arrived at the pickup point, individuals
with machine guns robbed them, according to Mitton.

The client learned of the robbery and requested that the
money-laundering company honour its guarantee policy on theft, loss or seizure.

But Mitton said a senior RCMP official decided that the company would
pay only $250,000, which reduced his credibility among targets and
increased the risk of reprisals.

Mitton said he believed the operation's target would threaten or harm
him in efforts to recoup all of the stolen money. The FBI and
Homeland Security were also hunting for the robbers, which caused
further concern to him because he thought their search would disclose
his involvement with police.

He notified the RCMP of his intention to pull out of the
investigation, but the force advised him to reconsider. Officials
also informed him that he would be ineligible for any
witness-protection program under the law because he was an
undischarged bankrupt from previous financial problems with debts of
more than $2 million. However, they said his wife and children would qualify.

Mitton left Project Elden in early June 2004, but only a few weeks
later the RCMP arrested him for allegedly violating his parole by
engaging in criminal activity while an agent.

The RCMP had received information from someone in the drug trade in
Kelowna, B.C., that Mitton had diverted and "skimmed" an undisclosed
amount of cash from the money-laundering operation.

"It had become apparent that Mitton had not been performing his
duties in accordance with the directions given him by his cover team
members," said one investigator, without elaborating.

Mitton spent more than two months in jail in segregation.
(Corrections Canada does so when it believes an inmate's safety is
jeopardized.)

But after releasing him without charges, the RCMP immediately
rearrested him for possessing the proceeds of crime and laundering in
connection with the project. In one incident, Mitton allegedly
"laundered" $25,000 to purchase a leasehold interest in a Delta Charters boat.

Again, police laid no charges. Within days, the National Parole Board
had issued another statutory release for him because of "insufficient
information" regarding a return to criminal behaviour.

At the same time, Mitton said the RCMP visited his wife to warn of
threats against her husband and the need to protect herself by
leaving home with her children.

Despite Mitton's departure, Project Elden continued, and a Commisso
connection surfaced again. In November 2004, the RCMP swooped down on
more than 50 undisclosed businesses and homes in Vancouver and nearby
Surrey, Langley, Coquitlam and Maple Ridge in a drug raid.

The force said it seized eight kilograms of cocaine, some marijuana
and ecstasy, and 24 barrels of chemicals for manufacturing of
methamphetamine, the highly addictive drug commonly called "crystal
meth." Officers also confiscated 12 rifles, nine handguns and some
money. But police charged no one.

The RCMP didn't release any information publicly regarding the
Ontario portion of the raids at that time, but they included Tree
Valley Garden Centre in Richmond Hill, north of Toronto, and an area home.

Neil Peluso of nearby King City, whom the RCMP described as a high
ranking member of the Commisso crime family, owned the business and home.

But Peluso, who had no criminal record, wanted more information. He
asked a B.C. court a few weeks later for an order to unseal details
in the search warrants for the raids on his business and home. A
judge denied access because he said police were still conducting a
"highly sensitive investigation," and making the information
available could subvert the ends of justice.

The judge added the information could also compromise the identity of
an "informant" and endanger "a person engaged in particular
intelligence-gathering techniques."

Mitton worried that the RCMP would soon lay charges against targets
in Project Elden. That would mean targets who faced charges would be
entitled to information from the search warrants - including,
possibly, Mitton's identity.

But Project Elden wound down in 2005 without yielding any charges,
partly - and ironically - because of Mitton's central role in the
whole operation. It had become, said one police source, too difficult
to build any case around the testimony of Mitton. With his past
record and continuing illegal activities, Mitton's credibility was by
then too much in question.

[sidebar]

HOW WE UNCOVERED THE STORY

This story is largely based on more than 1,000 pages of RCMP
affidavits filed with the court in support of search warrants. The
affidavits provide details of police operations, but contain
allegations that have not been proven in court.

The affidavits became public as part of court proceedings involving
an alleged stock fraud.

The Star further relied on the transcripts of interviews conducted by
the RCMP and a letter written to the force by prominent lawyer
Clayton Ruby on behalf of his then-client, Michael Mitton. These
documents are also filed with the court.

In addition, the Star conducted interviews with people involved in or
familiar with the RCMP operation, and relied on National Parole Board reports.