BANKS SAY THEY ARE VIGILANT IN TRACKING DRUG MONEY IN NEW JERSEY

George Gomez's career as a "smurf" unraveled in the summer of 1998.

That's when U.S. Customs officers found the former Teaneck resident
carrying a FedEx box containing $20,000 in small denominations. He had
another $8,000 stuffed in an envelope. Later that day, agents found
$270,000 hidden in a closet in his apartment.

According to court records, Gomez and another confessed money launderer,
former Teaneck resident Sholom Cadaner, had deposited $10 million from
Colombian drug dealers in 44 different bank accounts in North Jersey,
almost always in cash and in amounts under $10,000 to avoid triggering
filings of currency transaction reports, which can attract scrutiny from
authorities. Most of the money was then transferred by check or wire to
addresses in the Panama free-trade zone.

That's what smurfs do, said Marion Percell, assistant U.S. attorney in
Newark. They structure deposits in such a way as to defeat systems in place
at banks to detect suspicious transactions.

Money laundering is a $600 billion global problem, and in New Jersey -- an
officially recognized money-laundering hot spot -- smurfing through the
retail banking system is probably the most common way for drug
organizations to disguise the origin of their earnings before moving it out
of the country, according to Percell.

Sometimes the accounts belong to shell companies, or to otherwise
legitimate businesses. Sometimes, as was the case with Gomez and Cadaner,
the so-called smurfs -- named after the industrious cartoon characters --
go to great lengths to open accounts under fictitious names and fake Social
Security numbers.

U.S. lawmakers' focus on money laundering intensified in recent years as
several major banking scandals came to light.

In 1999, a Russian businessman and suspected mobsters illegally moved $7
billion through Bank of New York branches. The bank was not charged with a
crime but agreed to report periodically to U.S. regulators on
money-transfer activity. A former bank executive and her husband have
pleaded guilty.

An undercover investigation also resulted in federal agents' seizing $1.8
million in suspected drug money in 1998 from Citibank accounts in New York
held by a correspondent shell bank in the Cayman Islands.

The offshore bank, which had no corporate offices, was tied to a financial
group in Argentina led by a former treasury secretary there. Authorities
believed the money came from a Mexican drug ring. Citibank moved another
$300 million through the accounts before the bank closed the accounts.

The Clinton administration launched initiatives to fight money laundering
through correspondent and private client accounts. The initiatives suffered
a setback when legislation to toughen laws died in Congress last year.

But a Senate investigation found that Citibank and several other major U.S.
banks were lax in preventing money laundering through correspondent
accounts held by small foreign banks that operate under little regulation.
Correspondent accounts allow the small banks to operate -- providing
services such as money transfers and currency exchange -- through U.S.
institutions.

On March 19, proposed legislation was brought forward by Democrats,
targeting correspondent accounts.

The measures would prohibit banks from operating overseas correspondent
accounts with foreign institutions the agency deems to be of "primary
money-laundering concern."

U.S. banks would have to maintain records or report on their foreign
operations and identify foreign individuals who own or have access to
domestic accounts. The bill would also allow the Treasury to prohibit or
impose restrictions on U.S. banks' correspondent accounts with certain
foreign financial institutions.

The bill was introduced by Rep. John J. LaFalce of New York and Sen. John
Kerry, D-Mass., a member of the Senate Banking Committee.

While laundering is a global problem, New Jersey has repeatedly drawn the
attention of federal authorities as problem area.

Government officials last year designated the "New York/New Jersey" area as
one of three "High Risk Money Laundering and Related Financial Crime
Areas," along with Los Angeles and San Juan, Puerto Rico -- targeting these
areas for more federal crime-fighting resources.

While law enforcement officials say a centralized database of
suspicious-activity reports from banks, thrifts, and credit unions has
helped them in their efforts, it appears little has changed since 1998,
when a series of stories in The Record showed New Jersey had emerged as a
money-laundering haven as officials cracked down on the crime in New York City.

Current statistics on the total number of money laundering-related
convictions are unavailable, but tallies of suspicious activity reports
published by the Financial Crimes Enforcement Network (FinCEN) show banks,
thrifts, and credit unions in New Jersey filed 10,847 such reports between
1996 and 2000 and the number has grown each year. The state ranks eighth in
the nation in such filings behind California, New York, Florida, Texas,
Illinois, Arizona, and Pennsylvania.

Roughly half of such reports involve money laundering or the structuring of
transactions to defeat anti-money laundering.

FinCEN found that from 1996 to 2000, reports of suspicions of money
laundering more than doubled nationwide as the demise of the Soviet Union,
breakdown of global trade barriers, and advances in telecommunications have
helped organized-crime organizations in places such as Russia, Eastern
Europe, and Latin America to extend their reach.

In 1998, U.S. Customs agents seized almost $14 million in drug money at
Newark's ports.

State officials, at the time, estimated that $2 billion a year was
laundered in New Jersey banks and other financial institutions, or smuggled
through its ports.

The Record series prompted state officials to pass legislation that
stiffened penalties for money-laundering offenses and made it easier to
pursue money-laundering investigations.

The American Bankers Association has not issued a statement on the proposed
new legislation in Washington but is expected to oppose it. John Hall,
spokesman for the trade group, said banks want to do all they can to keep
illegal money out . . . "[but] they feel there are enough laws on the books
now."

Under existing standards, computerized detection systems raise red flags
when suspicious transfers take place. And bank examiners from various
regulatory agencies check annually to see whether banks are complying with
their own anti-money-laundering policies.

All bank employees are fingerprinted and undergo a criminal check, said
Hall. Staff members in "security-sensitive" positions including corporate
accounts, private banking, and sometimes branch managers, often are
required to take two weeks off in succession every year, to help detect
suspicious business patterns that could point to illegal activity.

Michael F. Zeldin, former chief of the money-laundering and
asset-forfeiture division of the Justice Department and a partner in
Delloite & Touche, where he now is a security consultant to bankers, said
banks have become more vigilant in detecting smurfs in recent years.

"It's not as prevalent as it once was," he said, adding that the practice
is becoming more common in non-banking institutions such as casinos and
check-cashing shops.

But banks can't rest on their laurels, he said.

"They need to know their customers and provide ongoing training, testing,
and auditing as to the effectiveness of their programs," he said.

When one avenue of laundering money becomes too risky, criminals have been
adept at finding others.

Authorities are investigating whether Gomez, who ended up admitting to a
smurfing crime committed in 1996 and will be sentenced on April 23 -- had
moved on to another method of laundering by the time he was confronted by
authorities.

A growing trend, said Martin Ficke, a U.S. Customs investigations
supervisor in Newark, is that drug organizations are avoiding banks and
getting into brokering exports of American consumer goods -- such as cars,
jewelry, and clothing -- as a way of getting drug money out of the country.

Through brokered arrangements with buyers in South America, the dealers pay
for American goods with cash and the buyers in South America pay off the
brokers in pesos, in what law enforcers call a "black market peso exchange."

In North Jersey, "millions and millions and millions" of dollars in dirty
money is laundered in this way, Ficke said.