POLICE 'LOSING WAR' ON DIRTY MONEY

Criminals using banks, other institutions to launder money, RCMP probe finds

Criminal money laundering is so pervasive and gangsters so adept at
corrupting and deceiving bankers, lawyers, realtors and insurance agents
that policing it seems doomed to failure, according to a detailed probe
conducted for the RCMP and obtained by the National Post.

The investigation is the most comprehensive examination of money-laundering
cases ever undertaken in Canada, and resulted in a 98-page analysis of
virtually every major proceeds of crime cases solved by the RCMP over six
years.

It shows that vast sums of dirty money are being slipped into the
legitimate economy by both sophisticated drug barons and petty crooks.

The movement of ill-gotten gains appears to be undeterred by
anti-money-laundering laws and tighter internal controls by major
commercial institutions.

"The police win a few battles, but they're losing the war," said Dr.
Stephen Schneider, author of the report for the RCMP, when contacted by the
Post.

"It is an inherently uneven playing field in favour of the bad guys."

Dr. Schneider, a criminologist with both St. Mary's University in Halifax
and the Nathanson Centre for the Study of Organized Crime and Corruption at
York University, was given unprecedented access to RCMP files.

He was able to directly track money from crime scenes to offshore banks and
from drug dealers to the retailers of luxury goods.

His report, completed this month and not yet released, is national in
scope, with cases drawn from every province except Prince Edward Island. It
paints an alarming picture of the business of crime.

Crooks like to spread their dirty money around, but banks and trust
companies are by far the most popular way to sneak illicit money into the
legal economy, the report says.

More than 75% of the cases saw a deposit institution used to process
criminal profits -- usually cash brought into one of the Canadian chartered
banks. The insurance industry took in dirty money in 64% of the cases,
motor vehicles were bought in 60% of the cases and real estate bought in
56% of the cases.

The report highlights the myriad ways criminals move "dirty" money -- the
proceeds of crime -- to make it appear legitimate, or "clean" -- which is
the purpose of money laundering.

In one case, the operator of a brothel in France deposited his cash
receipts into a local bank account jointly controlled by his wife. The
funds were then wired to an account at a caisse populaire in Quebec.

A portion of that money was withdrawn and used to purchase and renovate a
$300,000 cottage in Ontario.

In another case, an Ontario cocaine trafficker deposited more than
$2-million into chartered banks between 1994 and 1997. Police found he had
signing authority for 32 different bank accounts, including 11 foreign
accounts; all of them were active with cash deposits, withdrawals and wire
transfers.

And in one of the most egregious cases, members of the Caruana-Cuntrera
family, a powerful Mafia clan, used personal and commercial bank accounts
in Ontario and Quebec to launder more than US$30-million between 1978 and 1984.

At one point, the mobsters were bringing so much money to a Montreal bank
that the cash was stuffed into tote bags and placed in the back of a
pick-up truck. The truck was then backed up to the bank's front doors and
the money bags tossed down to staff. Once deposited, the money was quickly
wired or transferred out.

"Because of their very nature, banks and similar financial service
providers are highly conducive to satisfying the objectives of the
laundering process," the report says.

"Deposit institutions not only serve as the ultimate destination of dirty
money, they frequently constitute an integral first link in a potentially
long and complicated money laundering chain; in fact, this sector
represents the single largest portal for cash moving from the underground
economy into the legal economy."

The same things that make banks popular with legitimate customers make them
a destination of choice for crooks.

"Chartered banks in Canada -- in particular the 'big five' -- dominate the
financial services industry in this country and thus, like legitimate
customers, criminal entrepreneurs tend to gravitate to these institutions,"
the study says.

Insurance is frequently bought with the proceeds of crime but the report
notes that in most of these cases the criminals did not seek out insurance
to specifically repatriate their dirty money but merely to protect their
property.

"Because motor vehicles, homes, companies, and marine vessels were
purchased with the proceeds of crime, it was often necessary to purchase
insurance for these assets," the report says.

Peter Lamey, spokesman for the Financial Transactions Reports Analysis
Centre of Canada (FINTRAC), the federal government's financial reporting
and intelligence operation, disputes Dr. Schneider's contention that the
war against dirty money is lost.

"It is too early to say that. Over the last three years regulatory change
within Canada has made it more difficult to launder money and the effects
of those regulations will have to be borne out over the next few years," he
said.

Investigators do have a difficult task, he said.

"[New laws] make it more difficult, it raises the bar in terms of what
money launderers have to do. They will have to seek out new and different
ways of doing it. Traditional avenues will start to close on them and they
will have to be creative.

"There will always be a race to keep up with them. It is a battle worth
fighting," said Mr. Lamey.

Gangsters could not be successful in laundering money if it were not for
the help of professionals, from bankers, security brokers and lawyers to
accountants, travel agents and car dealers, the report shows.

In 93% of the cases, the crook or an accomplice conducted a transaction
with a legitimate company and as such, would have encountered a professional.

Mostly, it is believed to be ignorance that led them to move gangster's
money but, in some cases, corruption was evident.

"In a smaller number of cases the transaction was clearly suspicious, such
as the use of large amounts of cash to purchase big ticket items; using
multiple bank drafts from different banks to personally finance the
purchase of a home; requests that lawyers purchase assets on behalf of a
client through cheques issued from legal trust accounts; and the
incorporation of numerous companies that carried out no legitimate
businesses yet have significant amounts of cash deposited into
corresponding bank accounts," the report says.

"In most of the cases involving suspicious transactions no reports were
made to police, indicating that the professional was either uneducated on
suspicious transactions or was wilfully blind to the suspicious circumstances."

As an example, the report flags a 2000 case of an Edmonton man who amassed
considerable assets through drug trafficking. Although he had no legitimate
source of income, he was able to launder his drug money through banks,
bogus companies, legal trust accounts set up with lawyers, and real estate
purchases made with cash directly from drug sales.

In Quebec, the report says, an informant infiltrating the drug empire of
the Hells Angels caught a conversation on tape of a biker recommending a
dirty accountant to an associate, saying: "He's one hell of a good guy.

"He worked 25 years for the government. And he was Rizzuto's accountant --
he's always worked for that Italian clique. You give him cold cash --
'Here, wash this for me' -- and he will play with your money," the biker
said, according to the report. (The biker was likely referring to Vito
Rizzuto, described by police as the head of the Mafia in Montreal.)

The use of corrupted professionals will likely get worse because of
increasing pressure from new laws and the efforts of dedicated police, the
report says.

"One should... anticipate an increase in efforts by criminal organizations
to corrupt industry professionals in order to by-pass or manipulate the
transaction reporting requirements," the report says.

FINTRAC's Mr. Lamey agrees.

"It speaks to the corrosive influence [dirty money] has on businesses,
society, the structures of our economy and institutions," said Mr. Lamey.

Canada enacted anti-money laundering laws in 2001, requiring many
institutions to report suspicious transactions. The following year,
mandatory reporting of transactions of $10,000 or more was imposed and,
last year, mandatory reporting of such transfers across Canada's borders
were imposed.

Dr. Schneider, a former researcher for the Solicitor General of Canada,
culled through almost all cases successfully closed by RCMP between 1993
and 1998 that included a proceeds of crime seizure or money laundering
charge involving more than $10,000. The cases also had to involve more than
40 hours of investigative time.

Dr. Schneider found 371 such cases that were whittled down to 149 cases
that offered complete information allowing for study and comparison.

For these cases, the actual RCMP files were examined by Dr. Schneider,
including sworn affidavits, search warrants, court transcripts, police
reports, court briefs and intelligence reports.

[SIDEBAR]

1993-98:

Where the cases come from:

Ontario: 47 cases (31.5% of the total)

Alberta: 24 cases (16.1%)

British Columbia: 18 cases (12.1%)

Nova Scotia: 18 cases (12.1%)

Quebec: 14 cases (9.4%)

New Brunswick: 13 cases (8.7%)

Saskatchewan: 6 cases (4%)

Manitoba: 5 cases (3.4%)

Newfoundland: 4 cases (2.7)

Prince Edward Island: 0 cases

Source: Money Laundering in Canada: An Analysis of RCMP Cases, 2004

[SIDEBAR]

Criminal Techniques:

Gangsters are nothing if not ingenious, especially when their motivation is
enjoying their ill-gotten gains. To do that, they first have to hide the
nasty secret that their cash comes from drugs or other criminal activity.
Cleaning up this dirty money is what money laundering is all about. "A
number of techniques -- some rudimentary, some more inventive -- are used
to facilitate the money laundering process," says a new RCMP report on
money laundering obtained by the National Post. Here are some them:

Smurfs:

1 Find a number of trustworthy people -- called "smurfs" -- to help you
sneak money into the banks without raising suspicions. Give each smurf a
big chunk of change.

2 The smurfs fan out across a city and visit numerous banks and trust
companies and make a series of deposits -- all under $10,000 to avoid the
reporting rules.

3 The money can later be gathered together through bank drafts, account and
wire transfers and used to buy items or invest.

Casinos:

1 With cash in hand, visit a casino and purchase playing chips. Don't buy
too many, or you'll attract suspicion.

2 Play with your chips at the gaming tables for a bit, just like every
other casino guest. You'll win some and lose some, but that's OK -- it's
just the cost of doing business.

3 Take your pile of chips to a cashier's wicket and cash them out. Ask for
the money in a cashier's cheque.

4 Take the cheque to a bank and deposit it -- with a big grin on your face,
saying you just won big at the casino.

Co-mingle:

1 Establish a cash-intensive legitimate business or corrupt the owner of an
already established enterprise. Restaurants are good picks.

2 Open a bank account in the name of the business and develop a
relationship with the bank as a known businessman.

3 Start mixing your illicit money into the receipts from the businesses.

4 Slowly ramp up the amount and proportion of dirty money being deposited
while bragging to the banker how business is really picking up.