| National Drug Intelligence Center National Drug Threat Assessment 2003 January 2003 Money LaunderingThe trafficking and abuse of illicit drugs--from cocaine to pharmaceuticals--generate enormous profits, and detecting and seizing the money and assets derived from drug trafficking are critical to U.S. counterdrug efforts. The actual dollar amount of money laundered in the United States from the proceeds of drug trafficking is unknown, although interagency estimates suggest that between $100 billion and $300 billion in U.S. currency is laundered annually. Colombian and Mexican drug trafficking organizations are the primary drug money launderers in the United States. While these organizations are active throughout the country, Colombian money launderers are predominant in the Florida/Caribbean, Mid-Atlantic, New York/New Jersey, and Southeast regions, and Mexican money launders dominate in the Great Lakes, Pacific, Southwest, and West Central regions. Dominican traffickers are prominent money launderers as well but primarily only in the Mid-Atlantic, New England, and New York/New Jersey regions. Drug money laundering activities typically are centered in large drug market areas, such as Los Angeles, Miami, and New York, and in areas where drugs and drug proceeds are transported to and from the United States, such as the Southwest Border area and San Juan, Puerto Rico. Most drug transactions are conducted in cash and typically involve small denominations, that is, bills of $20 and under. Thus drug trafficking organizations and criminal groups amass large volumes of bills that must be either smuggled to a foreign destination or placed into the U.S. financial system. The bulk shipment of currency, as well as of monetary instruments such as money orders and checks, is a principal money laundering method used by traffickers. Drug proceeds frequently are collected and stored at stash houses in primary market areas before being transported out of the country. Drug proceeds generated throughout the United States often are transported to cities near the U.S.-Mexico border and in the Southeast before being smuggled out of the country. The smuggling of bulk cash and monetary instruments out of the United States occurs via private vehicles and aircraft; commercial trucks, buses, trains, and aircraft; air and maritime cargo; and couriers on foot. While use of this money laundering method is significant and avoids regulations associated with placing funds in the U.S. financial system, traffickers still launder billions of dollars in drug proceeds through the financial system using techniques of varying complexity. Traffickers launder drug proceeds through money service businesses such as money remittance, money exchange, and check cashing firms. Money service businesses have been implicated in federal drug investigations for accepting and transferring drug proceeds on behalf of drug trafficking organizations, and the number of such businesses in several U.S. cities, including Atlanta, Chicago, and Philadelphia, has increased. According to Financial Crimes Enforcement Network estimates, in 1999 there were approximately 158,000 money service businesses transacting more than $200 billion annually. In 2002 the estimated number of such businesses was raised to 200,000. An updated transaction total is not available. Traffickers also introduce drug proceeds into the legitimate financial system by structuring currency transactions in amounts that fall under threshold reporting requirements (see discussion of the Bank Secrecy Act). Traffickers also place illicit funds in the U.S. financial system by commingling drug proceeds with funds generated at legitimate businesses, by purchasing real estate and vehicles, and by exploiting the gaming industry. To Top To Contents Traffickers employ a number of other techniques to launder their drug proceeds. Common methods include underground banking systems such as the Colombian Black Market Peso Exchange or the Asia-based Hawala system, trade-based schemes, and the services of fiduciaries such as lawyers, accountants, and securities brokers. The smuggling of currency to foreign countries through mail services is another technique frequently used by traffickers to launder drug proceeds. Legislation granting the USCS the authority to conduct searches, without a warrant, of outbound USPS mail or parcels exceeding 16 ounces is contained in the Trade Act of 2002 that was signed into law by the President in August 2002. This new authority should greatly enhance the effectiveness of the USCS in preventing the smuggling of currency and monetary instruments through the mail. In addition to the Trade Act of 2002, several other legislative and regulatory efforts have been enacted to help combat drug money laundering, such as the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act. This Act, which was signed into law in October 2001, provides for wide-ranging reforms designed to stop the funding of terrorism, but these same reforms will also enhance efforts to combat drug money laundering. For example, the USA PATRIOT Act makes inbound and outbound smuggling of bulk cash a criminal offense for which the USCS has exclusive investigative jurisdiction. Other provisions of the Act include the following:
The Foreign Narcotics Kingpin Designation Act was enacted to disrupt the financial activities of drug trafficking organizations and criminal groups. The Kingpin Act was signed into law in December 1999 as an amendment to the Intelligence Authorization Act for FY2000. Modeled after the Specially Designated Narcotics Traffickers program that sought to expose, isolate, and incapacitate the financial infrastructure of key Colombian drug trafficking organizations, the Kingpin Act provides for economic sanctions to be applied to significant foreign drug traffickers and their organizations located worldwide. The Bank Secrecy Act of 1970 was designed to deter money laundering and the use of secret foreign bank accounts. It established regulatory reporting standards and requirements that, in essence, provide a framework for creating a paper trail for large financial transactions. Reports required under the Bank Secrecy Act include the Currency Transaction Report (CTR), required for cash transactions over $10,000 conducted at financial institutions, and the Currency Transaction Report by Casinos (CTRC), required for deposits, withdrawals, exchanges of currency or gambling tokens or chips, or other payments or transfers over $10,000 involving casinos. A Report of Cash Payments Over $10,000 Received in Trade or Business (Form 8300) is required for cash amounts over $10,000 received by business enterprises. A Report of Foreign Bank and Financial Accounts (FBAR) is required for foreign bank accounts with aggregate deposits above $10,000 that are held by U.S. persons. A Report of International Transportation of Currency or Monetary Instruments (CMIR) is required for the physical transport of currency or bearer monetary instruments over $10,000 into or out of the United States. The Suspicious Activity Report (SAR) is another requirement of the Bank Secrecy Act. All financial institutions in the United States are required to complete this report for various suspicious transactions including those totaling $5,000 or more that involve potential money laundering or violations of the Bank Secrecy Act. Geographic Targeting Orders, which require money remitters to file weekly reports on all currency transactions over an arbitrary figure established by the U.S. Department of the Treasury, have been successful. In 1996 and 1997, for example, Geographic Targeting Orders were adopted requiring remittance agents in New York and Puerto Rico that specialized in wire transfers to Colombia and the Dominican Republic to report cash remittances of $750 and above and to identify individuals completing these transactions. The Geographic Targeting Orders led to an immediate reduction in the amount of currency being wired to Colombia and the Dominican Republic from money remitters in these targeted geographic areas, and more than 900 money transmitters ceased their activities as a result of these operations. The 2002 Money Laundering Strategy calls for continued refinements to the High Intensity Money Laundering and Related Financial Crime Areas (HIFCAs) task forces. By November 2002, each HIFCA task force will have evaluated and identified ways in which to increase the participation of state and local law enforcement, regulatory, and prosecution agencies, which has proven to be particularly effective in fighting financial crimes in the past. The New York El Dorado Task Force, a HIDTA-funded financial crimes task force led by the USCS and Internal Revenue Service but comprising members of 29 federal, state, and local agencies, has seized $425 million and arrested 1,500 individuals since its inception a decade ago. HIFCA task forces initiated more than 100 cases in 2001. To Top To Contents To Previous Page To AppendixA To Publications Page ToHome Page |
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