Wednesday, November 27, 2013

Russian Bank Lobby Says Crackdown on Illegal Activities and Money Laundering Brings Risks

By Andrey Ostroukh
Wall Street Journal

Russia’s increased efforts to stamp out illegal banking activities could cause the country’s financial system to collapse, a lobby group representing Russian lenders said Tuesday.
The Bank of Russia recently stepped up efforts to clamp down on the country’s banks, revoking licenses and suspending bank operations where lenders were suspected of false accounting and money laundering.
The closure last week of the medium-sized Moscow-based Master Bank was the central bank’s highest-profile move since Elvira Nabiullina became the Bank of Russia chief in July, possibly indicating a renewed push against Russia’s shadow economy. So far this year the central bank has revoked the licenses of nearly two dozen banks.
Ms. Nabiullina’s predecessor, Sergei Ignatyev, had voiced concern earlier this year about massive money-laundering operations in Russia’s banking system but didn’t identify specific institutions.
The Moscow International Currency Association, a lobby representing around 100 domestic banks and Russian branches of international lenders, said in a statement on its website that it welcomes the idea of cleaning up Russia’s banking system, which comprises nearly one thousand lenders.
But it said the central bank should have come down hard on banks involved in illegal activities at an earlier stage, before they had time to amass deposits from households and businesses.
The association, which counts major lenders such as Alfa Bank and Raiffeisen Bank among its members, claimed that over-hasty moves taken now could cause a banking collapse similar to that of 2004.
Back then banks started closing and lowering mutual transaction limits amid fears of a widespread revoking of licenses, which paralyzed the interbank market for several months.
“The interbank market is an important tool used to support and manage liquidity for the majority of Russian banks. Its freeze is capable of creating problems in the whole banking system,” the statement said.
Following last week’s Master Bank closure the ruble dropped to its lowest level against the euro since late 2009. Market observers said some banks were buying foreign currencies in a bid to sidestep risks related to a deepening purge of the banking system.
The Russian central bank declined to comment.

Michael Hearns an Anti Money Laundering specialist with over 2& years of AML experience can also be found at: and on twitter at :!/LaunderingMoney as well as his blog at:

Tuesday, November 26, 2013

Islamic group tied to Russian money laundering scheme

Russian police said Monday they believe a black market financing ring may have helped support the Islamic political organization Hizb ut-Tahrir, banned since 2003.
Russian police said Monday they arrested seven members of a Central Asian criminal gang suspected of steering funds toward Hizb ut-Tahrir, a political organization banned in Russia since 2003. Russian state news agency RIA Novosti reports authorities seized more than $5 million from the members.
Hizb ut-Tahrir emerged in the 1950s as a Sunni group advocating strict Islamic law. Authorities in Kyrgyzstan told the BBC in 2010 the movement experienced a revival in Central Asia following the collapse of the Soviet Union in the 1990s.
Russian police were quoted by RIA Novosti as saying they suspected the financiers laundered money in Russian through financial channels "in the interests of natives of Central Asia illegally based in Russia."
Voice of Russia, in a separate report Monday, said the ring leaders transferred illegal funds to more than 120 different organizations, including offshore entities. They used so-called shadow bankers to transfer as much as $46 million per month through the illegal accounts.
Russian police provided few details about the arrest, which Voice of Russia said followed an 18-month probe.
Hizb ut-Tahrir claims to seek its objectives through peaceful methods

Michael Hearns an Anti Money Laundering specialist with over 27 years of AML experience can also be found at: and on twitter at :!/LaunderingMoney as well as his blog at:

Friday, November 15, 2013

C.I.A. Collects Global Data on Transfers of Money

By Charlie Savage and Mark Mazzetti
New York Times
The Central Intelligence Agency is secretly collecting bulk records of international money transfers handled by companies like Western Union — including transactions into and out of the United States — under the same law that the National Security Agency uses for its huge database of Americans’ phone records, according to current and former government officials.
The C.I.A. financial records program, which the officials said was authorized by provisions in the Patriot Act and overseen by the Foreign Intelligence Surveillance Court, offers evidence that the extent of government data collection programs is not fully known and that the national debate over privacy and security may be incomplete.
Some details of the C.I.A. program were not clear. But it was confirmed by several current and former officials, who spoke on the condition of anonymity because the matter is classified.
The data does not include purely domestic transfers or bank-to-bank transactions, several officials said. Another, while not acknowledging the program, suggested that the surveillance court had imposed rules withholding the identities of any Americans from the data the C.I.A. sees, requiring a tie to a terrorist organization before a search may be run, and mandating that the data be discarded after a certain number of years. The court has imposed several similar rules on the N.S.A. call logs program.
Several officials also said more than one other bulk collection program has yet to come to light.
“The intelligence community collects bulk data in a number of different ways under multiple authorities,” one intelligence official said.
Dean Boyd, a spokesman for the C.I.A., declined to confirm whether such a program exists, but said that the agency conducts lawful intelligence collection aimed at foreign — not domestic — activities and that it is subject to extensive oversight.
“The C.I.A. protects the nation and upholds the privacy rights of Americans by ensuring that its intelligence collection activities are focused on acquiring foreign intelligence and counterintelligence in accordance with U.S. laws,” he said.
Juan Zarate, a White House and Treasury official under President George W. Bush, said that unlike telecommunications information, there has generally been less sensitivity about the collection of financial data, in part because the government already collects information on large transactions under the Bank Secrecy Act.
“There is a longstanding legal baseline for the U.S. government to collect financial information,” said Mr. Zarate, who is also the author of “Treasury’s War,” about the crackdown on terrorist financing. He did not acknowledge the C.I.A. program.
Orders for business records from the surveillance court generally prohibit recipients from talking about them. A spokeswoman for one large company that handles money transfers abroad, Western Union, did not directly address a question about whether it had been ordered to turn over records in bulk, but said that the company complies with legal requirements to provide information.
“We collect consumer information to comply with the Bank Secrecy Act and other laws,” said the spokeswoman, Luella Chavez D’Angelo. “In doing so, we also protect our consumers’ privacy.”
In recent months, there have been hints in congressional testimony, declassified documents and litigation that the N.S.A. program — which was disclosed by Edward J. Snowden, a former N.S.A. contractor — is not unique in collecting records involving Americans.
For example, the American Civil Liberties Union is fighting a Freedom of Information Act lawsuit for documents related to Section 215 of the Patriot Act, the provision that allows the government to compel companies to turn over business records for counterterrorism purposes. After the government declassified the N.S.A. phone records program, it has released many documents about it in response to the suit.
But the government has notified the A.C.L.U. that it is withholding two Foreign Intelligence Surveillance Court rulings invoking Section 215 — one dated Aug. 20, 2008, and the other Nov. 23, 2010 — because they discuss matters that remain classified, according to Alexander Abdo, an A.C.L.U. lawyer. “It suggests very strongly that there are other programs of surveillance that the public has a right to know about,” Mr. Abdo said.
In addition, a Justice Department “white paper” on the N.S.A.’s call records program, released in August, said that communications logs are “a context” in which the “collection of a large volume of data” is necessary for investigators to be able to analyze links between terrorism suspects and their associates. It did not say that call records are the only context that meets the criteria for bulk gathering.
In hearings on Capitol Hill, government officials have repeatedly avoided saying that phone logs — which include date, duration and numbers of phone calls, but not their content — are the only type of data that would qualify for bulk collection under the Patriot Act provision. In a little-noticed exchange late in an Oct. 3 hearing before the Senate Judiciary Committee, Gen. Keith B. Alexander, the N.S.A. director, appeared to go further.
At the hearing, Senator Mazie K. Hirono, Democrat of Hawaii, asked General Alexander and James R. Clapper Jr., the director of national intelligence, a sweeping question: “So what are all of the programs run by the N.S.A. or other federal agencies” that used either Section 215 of the Patriot Act or another surveillance law that allows warrantless wiretapping of phone and emails?
General Alexander responded by describing, once again, the N.S.A.’s call records program, adding, “None of that is hid from you.” Mr. Clapper said nothing.
Then, moments later, General Alexander interjected that he was talking only about what the N.S.A. is doing under the Patriot Act provision and appearing to let slip that other agencies are operating their own programs.
“You know, that’s of course a global thing that others use as well, but for ours, it’s just that way,” General Alexander said.
In September, the Obama administration declassified and released a lengthy opinion by Judge Claire Eagan of the surveillance court, written a month earlier and explaining why the panel had given legal blessing to the call log program. A largely overlooked passage of her ruling suggested that the court has also issued orders for at least two other types of bulk data collection.
Specifically, Judge Eagan noted that the court had previously examined the issue of what records are relevant to an investigation for the purpose of “bulk collections,” plural. There followed more than six lines that were censored in the publicly released version of her opinion.
Lawmakers on the House and Senate Judiciary Committees have been trying to gain more information about other bulk collection programs.
In September, Representative Jim Sensenbrenner, Republican of Wisconsin and an author of the original Patriot Act, sent a letter to Attorney General Eric H. Holder Jr. asking if the administration was collecting bulk records aside from the phone data. An aide said he had yet to get a response. Even lawmakers on the Intelligence Committees have indicated that they are not sure they understand the entire landscape of what the government is doing in terms of bulk collection.
Senators Dianne Feinstein of California and Saxby Chambliss of Georgia, the top Democrat and Republican on the Senate Intelligence Committee, recently sent a classified letter to Mr. Clapper asking for a full accounting of every other national security program that involves bulk collection of data at home or abroad, according to government officials

Michael Hearns an Anti Money Laundering specialist with over 27 years of AML experience can also be found at: and on twitter at :!/LaunderingMoney as well as his blog at:

Wednesday, November 13, 2013

Mexican Drug Cartels launder money through horse stables

By George H Wittman
American Spectator

In recent weeks Mexican cartel money laundering operations in the United States have been exposed as imaginative and daring. In the two principal cases uncovered, very different devices were used by the drug trafficking managers. These cases are an introduction to the breadth of mechanisms available to turn dirty money clean.
Perhaps the operation that had the most elaborate cover, yet a still relatively simple financial structure, was the most forward-looking. One of the top figures in Mexico's Los Zetas drug organization, Miguel Angel Trevino Morales, had a younger brother who liked horses, needed a job, and was available to manage a ranch (bought through an intermediary with drug profits) south of Oklahoma City.

Along with his wife and three children, young José Treviño Morales set about to establish himself as an owner/breeder of quarter horses. He paid for everything in cash or by using false names and accounts of supposed partners. Treviño Morales and his considerable ranch staff of fourteen built a reputation of fair bargaining and quick payment. The 400-plus horse enterprise was the envy of many other breeders with less deep pockets, but any annoyance was quickly salved by the fair and generous business practices of the Treviño Morales operation.

Meanwhile millions of dollars in cash accrued by the drug trafficking operation of the Zetas was "cleansed" in the accounting for the high maintenance quarter horse breeding and racing business. The stable's reputation grew as it began to turn out serious winners on the track and at the auctions in Oklahoma, Texas, New Mexico, and California. The overall operation was incorporated since 2008 as Tremor Enterprises LLC -- and they paid all their bills on time.
The New York Times once again appears to have had an inside source within law enforcement, for when it broke the story on June 12 citing its "investigations lasting months" and anonymous sources, federal authorities, including FBI Special Agents, swooped in on the ranch the same day. They were able to arrest only 7 of the 14 indicted, including José Treviño Morales and his wife. Whether this was due to the Times's early publication has not been surfaced. At this point, however, the U.S. Government has seized 41 of the choicest horses and is arranging for the care of the other 384.

While the Treviño Morales horse breeding operation reportedly successfully "cleaned" tens of millions of dollars -- and won some very large racing purses on the side -- another less romantic money laundering and drug trafficking dance was in process in nearby Western and Midwestern states. Due to the United States' tightening of controls on the production of chemicals used in the making of methamphetamine, the manufacture and shipment of meth from Mexico has grown exponentially.

Many mid-sized American gangs purchase cargos of meth either directly from Mexican cartel producers or intermediaries who have illegally transported the product over the Mexican/U.S. border using both witting and unwitting truck drivers. The meth is then carried from border sites to middlemen in California, Colorado, and elsewhere central to the customer base. One such operation, according to the DEA, owned both a legitimate trucking company and an import/export firm. The latter carried licenses to import goods from China, thus allowing a legal route for money to flow to China and then return in goods or money transfers to Mexico -- and the cycle would begin again.

While there are several versions of the foregoing used in money laundering, one of the most reliable remains the utilization of the real estate market. Purchase and resale of high-end real estate properties (residential or commercial) has been a natural route for cleaning dirty money. Resale at an appropriate price to a bona fide entity creates a cleansed account and money that can be transferred anywhere in the world.

There are many mechanisms now employed by the drug cartels to clean up the cash they obtain through illicit drug sales in the United States and Canada. All that is needed is an intermediary that can maintain the appearance of a legitimate cash flow (such as service and import/export concerns), and careful accounting takes care of the rest. Casinos and high volume restaurants are always an attractive money laundering target. While new and different mechanisms always become available, funneling money into the American stock and commodity markets remains a high priority objective.

The establishment of a legitimate-appearing identity is the sole criterion for creating an investment account allowing considerable sums to be moved around domestically and internationally. Clean identities have evolved through repeated transfers of money from Mexico and other Latin American sources to the Gulf States of the Middle East, China, Southeast Asia and eventually to the usual small countries with discreet banking and taxation laws. It takes quite a bit of imaginative accounting, but it's worth the effort to cover the original sources.

Thus it is the establishment of an acceptable identity that is the key to all illegal money movement. It need not be as elaborate as horse breeding; it can be as simple as what the KGB used to call a "documented legend" that involves a birth certificate, Social Security number -- or equivalent -- and exclusive club membership plus well-distributed cash. This and a few other accoutrements and the money launderer is ready to have a respected friend call his local hard-charging broker with a new client. The securities business swears it's much harder than that, but the Bernie Madoff case showed how social connections and well-covered accounting make a swindle work. The laundering con works the same way

Michael Hearns an Anti Money Laundering specialist with over 27 years of AML experience can also be found at and on twitter at:!/LaunderingMoney as well as