Law360 - April 30, 2015

On April 21, 2015, the Treasury Department’s Financial Crimes Enforcement Network issued a geographic targeting order, an anti-money laundering device focused on trade-based money laundering schemes used by drug cartels, including Sinaloa and Los Zetas, to launder illicit proceeds through businesses in South Florida.^[1] FinCEN stated that the GTO, the third such order issued publicly by the anti-money laundering agency since August 2014, was served on about 700 electronics exporters in and around Miami. An ongoing criminal investigation conducted jointly by the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations and the Miami Dade State Attorney’s Office South Florida Money Laundering Strike Force has revealed that many electronics exporters are exploited as part of sophisticated trade-based money laundering schemes in which drug proceeds in the United States are converted into goods that are shipped to South America and sold for local currency, which is ultimately transferred to drug cartels.

Background Regarding GTOs

A GTO is an order issued by the United States secretary of the Treasury requiring all domestic financial institutions that exist within a geographic area to report on transactions any greater than a specified value. GTOs are authorized by the Bank Secrecy Act in 31 U.S.C. § 5326(a). Originally, GTOs were only permitted by law to last for 60 days, but that limitation was extended by the USA Patriot Act to 180 days.

In general, a nonfinancial trade or business that receives more than $10,000 in currency in a single transaction, or multiple related transactions, is required to file a Form 8300 with FinCEN. The Miami GTO lowers the $10,000 reporting threshold to $3,000 for covered businesses. These businesses are required to report to FinCEN currency transactions over $3,000, and to include in those reports information about the transaction and the persons involved. Each business covered under this GTO received notice of its obligations via personal service or by certified mail. Failure to comply could result in substantial criminal and civil penalties.

Terms of the Miami GTO

The terms of the latest GTO are effective beginning April 28, 2015, and ending Oct. 25, 2015. The GTO provides that its requirements apply to a “covered business,” which refers to any trade or business that exports electronics (including cell phones), and any of its agents, subsidiaries and franchisees, within the following U.S. zip codes: 33172; 33178; 33166; 33122 and 33126.

If, in the course of its trade or business, a business covered by the GTO receives currency in excess of $3,000 in one transaction (or two or more related transactions), then the business must report the transaction by filing a FinCEN Form 8300. For purposes of this GTO, “currency” means: (1) the coin and currency of the United States or of any other country, which circulate in and are customarily used and accepted as money in the country in which issued, or (2) a cashier’s check (by whatever name called, including “treasurer’s check” and “bank check”), bank draft, traveler’s check or money order.

A covered business receiving more than $3,000 in currency must identify the customer involved in the transaction by obtaining a telephone number and one form of valid identification. The business must also determine whether the customer is conducting the transaction on behalf of a third party, by obtaining a written certification identifying whether such a third party is involved and, if so, the identity of such third party. In addition, when a covered business files a FinCEN Form 8300 to report a transaction, it must also include the following information in the comments section of the form: (1) a description of the goods involved in the covered transaction; (2) the name and phone number of the person receiving such goods; and (3) the address to which such goods are being shipped.

The GTO provides that a covered business must supervise, and is responsible for, compliance by each of its officers, directors, employees, agents, subsidiaries and franchisees with the terms of this order. In addition, a covered business must notify each of its officers, directors, employees, agents, subsidiaries and franchisees of the terms of the GTO, and must transmit the order to its chief executive officer. The GTO further provides that a covered business and any of its officers, directors, employees or agents may be liable, without limitation, for civil or criminal penalties for violating any of the terms of the GTO.

In a press release announcing issuance of the Miami GTO, FinCEN’s director, Jennifer Shasky Calvery, stated that “[w]hen we issued a similar GTO in the Los Angeles area last year, many speculated about whether we’d be doing the same in other parts of the country. We are committed to shedding light on shady financial activity wherever we find it. We will continue issuing GTOs, as necessary, as well as exercising FinCEN’s other unique anti-money laundering authorities, to ensure a transparent financial system that impedes money launderers and other criminals from masking their identity and illicit activity.”

Prior GTOs Issued in Los Angeles and the California-Mexico Border

The Miami GTO is the third publicly announced GTO issued by FinCEN since August 2014. On Oct. 2, 2014, as part of a probe by the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations targeting alleged money laundering activities in Los Angeles’ garment trade, FinCEN announced the issuance of a GTO that imposed additional reporting and record-keeping obligations on certain businesses located within the city’s fashion district.^[2] According to FinCEN, the Los Angeles GTO will enhance ongoing efforts to identify and pursue cases against individuals and businesses engaged in the illicit movement of U.S. currency to Mexico and Colombia on behalf of prominent drug trafficking organizations. The GTO directed at L.A.’s fashion district, which went into effect Oct. 9, was sought by the U.S. Attorney’s Office for the Central District of California, which is working with HSI and the Internal Revenue Service’s Criminal Investigation division to fight money laundering schemes designed to allow international drug cartels in Central America and South America to reach drug proceeds generated in the United States.

According to a press release announcing the GTO, extensive law enforcement operations have revealed evidence that money laundering activities and Bank Secrecy Act violations are pervasive throughout the Los Angeles Fashion District, which includes more than 2,000 businesses. Much of the money laundering is conducted through Black Market Peso Exchange schemes, also known as trade-based money laundering, in which drug money in the United States is converted into goods that are shipped to countries such as Mexico, where the goods are sold and money now in the form of local currency goes to the drug trafficking organizations.

On Sept. 10, 2014, more than 1,000 federal, state, and local law enforcement officials executed dozens of search warrants and arrest warrants linked to businesses in the L.A. Fashion District suspected of engaging in money laundering schemes and evasions of required Bank Secrecy Act reporting requirements. Criminal investigations have revealed evidence that many of these businesses are routinely accepting bulk cash as part of schemes involving black market peso exchange and trade-based money laundering on behalf of drug trafficking organizations based in Mexico and Colombia. During the Sept. 10 enforcement action, HSI special agents seized what was ultimately determined to be more than $90 million in currency. The cash was found at various residences and businesses stored in file boxes, duffel bags, backpacks, and even in the trunk of a Bentley automobile.

Businesses covered under the Los Angeles GTO include garment and textile stores, transportation companies, travel agencies, perfume stores, electronic stores (including those that only sell cell phones), shoe stores, lingerie stores, flower/silk flower stores, beauty supply stores, and stores bearing “import” or “export” in their name. The order took effect Oct. 9 and remained in effect for 180 days. In February 2015, the GTO was extended for an additional 180 days.^[3]

Working in close coordination with its Mexican counterpart, the Unidad de Inteligencia Financiera (UIF), FinCEN announced issuance of a GTO in August 2014 that covered the U.S.-Mexico border at two California ports of entry.^[4] The purpose of this GTO was to improve the transparency of cross-border cash movements. To address U.S. and Mexican law enforcement concerns about potential misuse of exemptions and incomplete or inaccurate reports filed by armored car services and other common carriers of currency, the GTO required enhanced cash reporting by these businesses at the San Ysidro and Otay Mesa Ports of Entry in California.

In 2010, Mexico enacted new anti-money laundering provisions to attack the flow of illicit cash from the United States to Mexico. These efforts made it much more difficult for criminals and narcotraffickers to place large amounts of cash in Mexican financial institutions and resulted in an increase in cash coming back to the United States from Mexico, via armored car services or couriers, for attempted placement in U.S. financial institutions. Law enforcement information and BSA data analysis suggest that much of this cash movement is not properly reported and therefore not made available in the FinCEN database for the benefit of investigators and analysts following illicit money trails.

Conclusion

The three recent GTOs described above demonstrate an increased attention to trade-based money laundering schemes by FinCEN and confirm that criminals are aggressively using legitimate U.S. businesses to launder the proceeds of their illegal activity. The GTOs issued in Miami, Los Angeles, and the San Ysidro and Otay Mesa Ports of Entry are presumably yielding a significant amount of information and data that FinCEN will then share with other federal law enforcement agencies in order to prosecute money launderers. Businesses that operate in any of the areas targeted by these three GTOs—electronics exporters, the fashion and garment industry, armored car services and common carriers—should be vigilant to the indicators of trade-based money laundering and take steps to ensure that cash transactions are properly documented and suspicious activity is reported.

Footnotes

[1] See FinCEN Press Release, “FinCEN Targets Money Laundering Infrastructure with Geographic Targeting Order in Miami” (Apr. 21, 2015).

[2] See FinCEN Press Release, “FinCEN Issues Geographic Targeting Order Covering the Los Angeles Fashion District as Part of Crackdown on Money Laundering for Drug Cartels” (Oct. 2, 2014).

[3] See FinCEN Press Release, “FinCEN Renews Geographic Targeting Order (GTO) Requiring Enhanced Cash Reporting at the San Ysidro and Otay Mesa Ports of Entry in California” (Feb. 2, 2015).

[4] See FinCEN Press Release, “FinCEN and Mexican Counterpart Shine Spotlight on Cross-Border Cash Couriers” (Aug. 1, 2014).

“Display of FinCEN’s Aggressive Anti-Laundering Approach,” by Matthew D. Lee was published in the April 30, 2015, edition of Law360. To learn more, please click here or visit www.law360.com. Reprinted with permission from Law360.