RCMP STING BROKE U.S. LAWS

MOUNTIES CHANGED U.S. CRIMINALS' CASH FOR MONTHS without U.S. authorization

Royal Canadian Mounted Police officers operating a covert currency exchange
in Montreal came ``precariously close'' to being prosecuted for money
laundering by U.S. authorities, a confidential internal RCMP memo states.

Officers operating the currency exchange in Montreal facilitated efforts by
known and suspected criminals to complete drug deals and launder money on
U.S. soil for 16 months without the knowledge and consent of U.S. authorities.

The RCMP didn't formally tell U.S. drug enforcement authorities about its
covert operation in Montreal -- and that it was using a U.S.-dollars
account at a Canadian bank branch in New York City -- until February 1992,
even though they began the operation in September 1990, according to
confidential internal memorandums obtained by the Citizen.

The troubles encountered by the Montreal RCMP officers were outlined in a
March 31, 1992 memorandum by Insp. J.A. Hislop, officer in charge of drug
intelligence and field operations in the RCMP ``E'' Division in Vancouver.

Insp. Hislop made the remarks about Montreal's ``Operation Contract'' as he
was drafting a proposal for his own covert currency exchange project in
Vancouver, after discussions with RCMP officers at Ottawa headquarters.

Insp. Hislop started by saying: ``There are innumerable potential problems
in the conduct of a storefront operation and this fact has been proven
during the conduct of an operation in `C' Division (RCMP in Quebec).''

``The conduct of our operation must always be such that we do not commit
offences in any other country, specifically, the U.S.A.,'' he wrote.

``The operation in eastern Canada has had that very experience, where they
came precariously close to being prosecuted by a U.S. Attorney's office for
money laundering,'' he wrote.

The RCMP finally disclosed its covert operation to the U.S. Drug
Enforcement Administration and U.S. District Attorney in New York during a
meeting on U.S. soil in early February 1992, internal RCMP documents show.

U.S. Special Agent Benny Mangor, who is the U.S. Drug Enforcement
Administration's attache in Ottawa, was unable to comment on when the DEA
was told of the covert Montreal operation and what it did afterwards.

Agent Mangor also declined to comment on the memo by RCMP Insp. Hislop and
said he was unaware that RCMP officers came close to being prosecuted.

The RCMP's decision to keep the DEA in the dark about the covert currency
exchange in Montreal for 16 months is very surprising.

Documents show that it was the DEA that had told the RCMP in 1988 that its
agents had ``documented direct links between Montrealers and principals of
the Medellin and Cali cocaine cartels,'' according to internal RCMP documents.

It was this information, together with tips that Montreal currency
exchanges were being used to launder money for the Columbian traffickers,
that prompted the RCMP to set up its own undercover currency exchange.

The RCMP officers running the Montreal operation started expressing
concerns about keeping the Americans in the dark nine months after their
Montreal International Monetary Centre Inc. operation opened in September,
1990.

By May 1991, undercover officers were transferring large sums of drug money
to bank accounts in Boston on behalf of a criminal suspect, documents show.

The Mounties became alarmed about the legal repercussions because they
realized they were breaking the law in the United States by moving money
over the border without reporting it, internal RCMP documents show.

In a weekly investigation report covering the period of May 4 to May 11,
1991 and written by RCMP Cpl. Pierre Bolduc and Sgt. Yvon Gagnon, the
officers said they felt they had reached a point where they ought to advise
the U.S. DEA of the covert operation in Montreal.

``We must realize as of right now that we are dealing with a rather unusual
situation,'' the officers wrote.

They explained that they knew that one of their suspects ``was and is
involved in drug trafficking'' and was transferring large sums of money to
the U.S.A.

What follows is the remaining text of their report on the issue:

``The question now is do we advise the American authorities of events which
took place with our consent and under our control.

``We believe that it would be rather embarrassing for the RCMP to be
questioned by our American confreres to determine if we know about the
existence of a business which facilitated the transfer of funds.

``We are of the opinion that with the services offered by our business, it
is but a question of time before the DEA or another law enforcement agency
asks us questions which we will be very embarrassed to answer.

``Without advising the DEA of all the details in relation to our business,
we believe it is preferable to advise them about the type of operation we
are presently conducting and the American subjects targeted by this
operation for the following reasons.

``i) we are aware of activities of certain people who are transferring
funds to the U.S.A.

``ii) these money transfers, if not declared, constitute an infraction
under the Currency and Monetary Instrument Reporting Law ( of the United
States).

``iii) in the more or less near future, we will need the assistance of the
DEA to complete certain investigations.

``iv) to avoid having our American confreres blames us for hiding certain
facts which represent offences in the USA.

``v) to preserve the good relations which exists between the D.E.A and our
organization.

``We hope the above facts will assist you in the decision you will have to
make to determine if yes or no the DEA must be :

``a) advised of our activities.

``b) who within the DEA should be advised.

``c) how much they should be told,'' the two officers concluded.

On May 23, 1991 RCMP Inspector Michel Cuerrier wrote a memo attached to the
officers' report which stated: ``As discussed, the Montreal office of the
DEA will be advised of the existence of Operation Contract.''

``It is our duty to advise them of these suspicious transactions,'' he added.

Another attached memo, dated May 24, 1991 and written by Supt. Jean
Bernard, indicated that the senior Quebec Mountie agreed with the advice.

``Obviously, it is now time to sensitize our confreres at the DEA who are
now in a position to help the investigation and possibly make it
progress,'' he wrote.

He mentions the RCMP should brief both the resident DEA agent in Montreal
at the time, Paul Moloney, and the justice attache at the U.S. consulate.

That same month, RCMP officers from Operation Contract in Montreal visited
another RCMP covert operation in Windsor, Ontario.

The Windsor operation was an undercover investment firm project operating
with the knowledge and co-operation of U.S. authorities.

But for reasons not apparent in any of the documents, the Americans were
never officially told about the RCMP's Major Operation 90-26C in Montreal
until February 1992.

Sgt. Gagnon said the resident DEA agent in Montreal, Mr. Moloney, was
informed of the covert operation ``unofficially'' by senior RCMP brass.

He added that the DEA was never officially notified until early 1992
because officers had a ``misunderstanding'' among themselves about who
would do it.

Mr. Moloney retired from the DEA in 1995 and left Montreal to return to the
U.S.

Agent Mangor refused to allow the Citizen to interview him about the events
involving the covert RCMP operation in Montreal, saying he was not
authorized to speak with the news media about operations.

On Feb. 6, 1992 RCMP Sgt. Gagnon met with the U.S. authorities ``to lay out
our operation for them and check possible avenues for using American
banks,'' Cpl. Marc Lavoie wrote in one internal report.

Another memorandum from Sgt. Gagnon, dated Feb. 20, 1992, reported that the
operation was now run with the co-operation of the U.S. authorities.

``Our meeting with the management of the DEA and American Customs in New
York allowed them to understand the goal of our operation and our working
methods,'' Sgt. Gagnon wrote.

The Mounties by this time were using an account of the National Bank of
Canada's New York City branch, and this was a source of anger among the
U.S. officials because they hadn't been told about it, Sgt. Gagnon said.

``It was determined that our account at the National Bank in New York was
legal and could be used,'' Sgt. Gagnon noted.

``We nonetheless agreed to transmit them the names of persons and the
places where the cheques are cashed,'' he added.

``We are waiting for written confirmation from the DEA and a letter
attesting to the fact that the operation of our account in New York is
legal and authorized by the American authorities,'' he wrote.

On March 2, another memo written by Sgt. Gagnon states the RCMP is still
waiting for ``the letter of co-operation from the DEA.''

In a report for the week of March 9 to March 13, 1992 officers reported
that ``another meeting'' was held with the DEA's representative in
Montreal, Mr. Moloney, concerning the financial transactions in the United
States.

``Each transaction in the States will be photocopied and will be left to
the attention of Moloney at our offices where he will take possession of it
personally,'' the officers noted. ``This way, the DEA will be informed on a
daily basis using this method of communication.''

The DEA also even began to receive copies of the RCMP's own internal weekly
investigation reports about the covert operation in Montreal, documents show.

That courtesy began with the RCMP investigation report for the week of Feb.
3 -7, 1992, a report which was dated Feb. 12, 1992, RCMP documents show.

Knowledge of the troubles in Montreal filtered up through the ranks.

Internal RCMP documents show that an Assistant RCMP Commissioner sought a
legal opinion at around this time from a senior lawyer in Justice Canada.

The assistant commissioner wanted to know whether RCMP officers who had
transferred or who caused to be transferred ``dirty'' money to the U. S.
from Canada were guilty of committing an offence on U.S. soil.

He received a reply back on July 23, 1992, from federal Justice department
lawyer Theresa Brucker, who was working on a program developing a national
strategy for drug prosecutions.

Ms. Brucker's subsequent legal report mentions a discussion with Harry
Harbin of the Asset Forfeiture Office of the American Department of Justice.

``Mr. Harbin was of the opinion that although the undercover officer may
technically be guilty of an offence, it is unlikely that he or she would
ever be charged,'' Ms. Brucker wrote.

``Further Mr. Harbin advised that based on the American cases, the officer
in these scenarios does not have the requisite mens rea (criminal
intent),'' she wrote. ``He or she is not transferring money for the
intention of promoting an illegal activity.''

``Based on this information, and the interpretation of the federal law as
provided by Mr. Harbin, it is doubtful whether a Canadian police officer,
acting in his or her official capacity, could or would be charged with a
federal U.S. money laundering offence,'' she concluded.

The Mounties, though, weren't taking any more chances.

When the RCMP launched another undercover currency exchange operation, in
Vancouver in 1993 called the Pacific Rim International Currency Exchange,
RCMP investigators there told the DEA and the U.S. Customs Service in
Washington State about their covert operation from the start.

Checked-by: Mike Gogulski