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Money Laundering Financial Investigations DAG Anthony Da Silva California Atty. Gen. Office Criminal Law Division

Scope of Money Laundering CA is center of reverse flow of billions of dollars of illicit bulk cash proceeds of transnational criminal organizations CA is one of top two states in which narco dollars are seized and to which narco dollars are destined Flow of illicit money fuels ongoing operations of transnational criminal organizations

Scope of Money Laundering The true scope of money laundering problem in CA is unknown Estimate it is 1.5 to 2 percent of gross domestic product (GDP) is laundered annually Based on CA $2 trillion GDP in 2012, approximately $30-40 billion could have been laundered in the state

Globalization As globalization increases and CA’s participation in international trade continues to intensify, transnational criminal organizations exploit the increase in the volume of goods and services crossing international boundaries to disguise, launder and smuggle the money they reap from the sale of drugs and trafficking of persons

Money Laundering Scheme Designed to mislead law enforcement and mischaracterize the source and origin of financial proceeds resulting from criminal activity (“dirty money”) Process – Break up large amounts of money into smaller less conspicuous sums which are deposited (“placed”) into the financial system

Layering Through “layering,” the money launderer then engages in transactions designed to distance the money from its original illicit source Example – funds wired through a series of shell corporation accounts at various banks across the country, or disguised as payments for non-existent goods or services

Elements of Penal Code §186 Elements of Penal Code §186.10 Four Elements of Money Laundering Offense A person who conducts or attempts to conduct a transaction, or series of transactions within a 7-day period; involving a monetary instrument (or instruments) of a value exceeding $5,000; through a financial institution or financial institutions with the specific intent to promote, manage, establish, carry on or facilitate the promotion, management or carrying on of any criminal activity; Or with the knowledge that the monetary instrument represents the proceeds of criminal activity or is derived directly or indirectly from the proceeds of criminal activity.

Financial Institution Definition includes banks, savings & loans, and credit unions Check cashers Engage in business of traveler’s checks/money orders Licensed money transmitter Currency exchange (casa de cambio) Securities, investment banking, insurance Engaged in legal/non-legal gambling (casino, card club, bookmaking) Travel agency Vehicle, boat, airplane dealer Escrow companies Delivery/holding packages (UPS)

Health & Safety Code § 11370.6 (Possession over $100,000) Possess cash or negotiable instruments over $100K result of sale, possession for sale, transport or manufacture of controlled substances knowledge money derived from unlawful activities OR 2. intent to purchase 3. commits act in substantial furtherance

Federal Money Laundering 18 U.S.C. § 1956 (a)(1) Conducts or attempts to conduct a financial transaction with property known to be derived from crime property in fact proceeds of specificied unlawful activity (SUA) intent to promote SUA OR intent to engage in tax fraud 4. knowing the transaction is designed to avoid reporting requirements or to conceal nature or ownership of proceeds

Federal Money Laundering 18 U. S. C Federal Money Laundering 18 U.S.C. § 1956 (a)(2) [Transportation offense] Transports, transfers, transmits (or attempts) a monetary instrument between United States & another country intending to promote SUA (clean money) OR knowing proceeds are from unlawful activity (felony) and knowingly conceal nature, location, ownership of proceeds, or intent to avoid state or federal reporting

Federal Money Laundering 18 U.S.C. § 1956 (a)(3) [Sting Offense] Conducts or attempts to conduct a financial transaction property represented by law enforcement to be proceeds of, or facilitate SUA intent to promote SUA or conceal nature, location, source, or ownership , or avoid reporting requirements

Federal Money Laundering 18 U.S.C. § 1957 [Similar to PC § 186.10] Knowingly engaging (or attempting) in monetary transaction with criminally derived property of value greater than $10,000 Property is from SUA

Transmitters Financial Code §§ 2000 – 2172 Person/business selling/issuing payment instruments or stored value; or receiving money for transmission within or without the United States Knows supposed to be licensed with the state but is not Records: DFI – extensive financial records

Federal Anti-Structuring Statute 31 U.S.C. § 5324 (a) Prohibits structuring transactions to evade the reporting requirement of cash in excess of $10,000 through one or more financial institutions OR Multiple cash transactions to purchase T-Cs, money orders, or cashier checks of less than $3,000 to avoid verification and reporting under § 5325.

U.S. Treasury Department FinCEN Financial Crimes Enforcement Center Can research and analyze information and provide other critical forms of intelligence to support financial crimes investigations CTRs, CMIRs, SARs, Interpol case tracking, U.S. Treasury investigation, NADDIS (DEA) High roller DMV; check casher’s permit Request Form

State Agency Resources Franchise Tax Board Employment Development Department Board of Equalization ABC

Federal Agency Resources U.S. Postal Mail cover; suspicious transaction database FBI Regional Computer Crime Labs SAR Review Committees ICE databases/border surveillance INS – FOIA requests

Other Resources WSIN – Sacramento LA Clearinghouse SECC JDIG (Joint Drug Intelligence Group) – LA Nevada Gaming Control Board Trash searches

Private Company Resources Mailbox service companies Telephone providers – Neustar Consumer Credit Agencies Non-bank financial records (Western Union) DIG database

Court Assisted Records Investigative grand jury – SDT process Ex-parte order for utility, financial & escrow records

Authorization to release tax records Voluntary Compliance Authorization to release tax records Authorization to release financial records

Checklists Financial investigation Money Laundering Prosecution

Exhibit List

Source & Application of Funds Analysis FUNDS APPLIED (EXPENDITURES) 2002 2003 Increase in checking account balance (this entry is often not used in the actual prosecution due to the fact that defense counsel can often attack this figure) $5,000 $10,000 Increase in savings account balance $20,000 $15,000 Purchase of securities - 200 shares of a corporation $30,000 Purchase of residence $200,000 Purchase of automobile - 1989 Porsche $40,000 Purchase of fur coat Reduction of loan on Porsche** Reduction of mortgage on residence** $100,000 Living expenses $50,000 $60,000 Total Funds Applied (Expenditures)* $315,000 $240,000 SOURCE OF LEGITIMATE FUNDS Automobile loan Mortgage on residence** Salary $25,000 Total Sources of Legitimate Funds $125,000 INCOME FROM ILLEGITIMATE OR ILLEGAL SOURCES $190,000 $215,000 * All Assets valued on a Cost Basis ** Important to investigate the early repayment of mortgages/loans. Often a target will take out a loan to finance the purchase of a substantial asset and pay it off a short time later in an effort to conceal his true cash-rich position.

Thank You Anthony Da Silva, Deputy Attorney General California Department of Justice E-mail: Anthony.Dasilva@doj.ca.gov Tel: (619) 738-9143

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