Wednesday, November 30, 2011

Relatives of Le Nature's founder convicted of money laundering

The wife and son of the former head of bankrupt soft drink maker Le-Nature’s were found guilty Tuesday of laundering millions of dollars to buy expensive diamonds, sapphires and even patio furniture.
Karla S. Podlucky was convicted of three money laundering counts but was found not guilty of conspiracy and another money laundering count. Her 30-year-old son, G. Jesse Podlucky, was convicted of one count of conspiracy and four counts of money laundering.
Defense attorneys had argued that Karla Podlucky was a stay-at-home mom and her son a lower-level employee who didn’t know about the widespread fraud at Le-Nature’s, which went bankrupt in 2006, idling 240 workers. The jury heard over three weeks of testimony in the case.
Former CEO Gregory Podlucky was sentenced last month to 20 years in prison for a massive fraud scheme that vastly overstated the company’s revenues so the Latrobe-based Le-Nature’s could get $800 million in loans. Meanwhile, prosecutors said, Podlucky looted the company and underreported his income. Authorities said $33 million was siphoned off to buy jewelry for Karla Podlucky.
Assistant U.S. Attorney James Garrett said the family tax returns showed income that could not support the massive jewelry collection.
Garrett said the suspicious ways the defendants handled various transactions — moving money through multiple accounts, buying a car out of state, using different post offices and addresses — seemed to give the jury enough circumstantial evidence to conclude that the family members knew the money came from fraud.
The Podluckys will be sentenced April 26 and are free on bond, with electronic monitoring.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at and on twitter at :!/LaunderingMoney

Tuesday, November 29, 2011

Internet escort companies charged with money laundering

The United States Attorney's Office for the Middle District of Pennsylvania announced that Philadelphia-based corporations, R.S. Duffy, Inc. and National A-l Advertising, Inc., pleaded guilty on Nov. 22 in federal court in Williamsport before United States District Court Judge Christopher C. Conner.
Pursuant to a plea agreement with the Government National A-1 Advertising and R.S. Duffy pleaded guilty to the money laundering conspiracy charge in the Information, will serve a probation term of 18 months, and pay a $1,500,000 fine.
In addition, under the terms of the plea agreement, the defendants agreed to the criminal forfeiture of $4.9 million in cash derived from the unlawful activity, as well as forfeiture of the domain name. Escorts.corn, all of which represent property used to facilitate the commission of the offenses.
Sentencing has been scheduled for March 1, 2012.
According to United States Attorney Peter J. Smith, on November 1, 2011, an Information was filed in Williamsport, alleging that the corporate defendants operated an Internet enterprise called Escorts.corn which facilitated interstate prostitution activities.
The defendants developed and operated an Internet web site, using the domain name Escorts.corn, and created an on-line network for prostitutes, escort services, and others to advertise their illegal activities to consumers and users of those services.
The defendants received subscription fees and payments in the form of money orders, checks, and credit card credits, and wire transfers from users of Escorts.corn throughout the nation.
The funds the defendants received were the proceeds of violations of federal laws prohibiting interstate travel in aid of racketeering enterprises, specifically prostitution, and aiding and abetting such travel.
The money laundering conspiracy charge alleged that the defendants agreed to engage in monetary transactions in property of a value greater than $10,000 derived from those unlawful activities. In addition, the Information alleged that in connection with the operation of Escorts.corn, the defendants created and maintained a network of Internet customer service accounts which facilitated and caused the transfer and movement of the proceeds of these unlawful activities from locations throughout the United States, including the Middle District of Pennsylvania, to the defendants' business operations at 106 South 7th Street in Philadelphia and to the defendants' accounts at financial institutions, investment funds, and financial services providers.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at and on twitter at :!/LaunderingMoney

Monday, November 28, 2011

International banks have aided Mexican drug gangs


Raul Salinas de Gortari, brother of former President Carlos Salinas de Gortari, used a maze of accounts in New York-based Citibank and other U.S. banks to secretly transfer millions of dollars to Switzerland in the 1980s and '90s, when he was employed as a middle-ranking bureaucrat.

Despite strict rules, some banks have failed to 'know their customer' or ask about the source of large amounts of cash, allowing billions in dirty money from Mexico to be laundered.

By Tracy Wilkinson and Ken Ellingwood
Los Angeles Times

Money launderers for ruthless Mexican drug gangs have long had a formidable ally: international banks.

Despite strict rules set by international regulatory bodies that require banks to "know their customer," make inquiries about the source of large deposits of cash and report suspicious activity, they have failed to do so in a number of high-profile cases and instead have allowed billions in dirty money to be laundered.

And those who want to stop cartels from easily moving their money express concern that banks that are caught get off with a slap on the wrist.

Banking powerhouse Wachovia Corp. last year agreed to pay $160 million in forfeitures and fines after U.S. federal prosecutors accused it of "willfully" overlooking the suspicious character of more than $420 billion in transactions between the bank and Mexican currency-exchange houses — much of it probably drug money, investigators say.

Federal prosecutors said Wachovia failed to detect and report numerous operations that should have raised red flags, and continued to work with the exchange houses long after other banks stopped doing so because of the "high risk" that it was a money-laundering operation.

Wachovia was moving money on behalf of the exchange houses through wire transfers, traveler's checks, even large hauls of bulk cash, investigators said. Some of the money was eventually traced to the purchase of small airplanes used to smuggle cocaine from South America to Mexico, they said.

"Wachovia's blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations," U.S. Atty. Jeffrey H. Sloman said in announcing the case last year, hailed at the time by authorities as one of the most significant in stopping dirty money from contaminating the U.S. financial system.

Wachovia paid the $160 million in what is called a deferred-prosecution agreement; no one went to prison, and the fines represented a tiny fraction of the money the bank had filtered. In court documents cited by the U.S. Drug Enforcement Administration, Wachovia acknowledged serious lapses.

In a similar case, another banking giant, HSBC Bank, is being monitored by U.S. regulators after a probe last year focused on bulk cash that the bank's U.S. branch received from Mexican exchange houses, money suspected to be drug proceeds.

One of the regulators, the U.S. Office of the Comptroller of the Currency, said HSBC had "critical deficiencies" in its 2006-2009 reporting of suspicious activities and its monitoring of bulk-cash transfers.

The OCC issued a cease-and-desist order against HSBC, noting, "The bank's compliance program and its implementation are ineffective, and accompanied by aggravating factors, such as highly suspicious activity creating a significant potential for unreported money-laundering or terrorist financing."

After U.S. federal prosecutors issued grand jury subpoenas, some believed that regulators might try to use the HSBC case to set an example and prosecute individual bankers. Instead, HSBC agreed to strengthen its compliance program and has said it is cooperating with investigators, without acknowledging wrongdoing, part of a so-called consent order.

Bryan Hubbard, a spokesman for the OCC, said last month that "OCC examiners continue to monitor actions by the bank to correct deficiencies and comply with that [consent] order."

In Mexico, authorities say they have taken steps to control and monitor money-laundering. Banking regulations in force since 1997 require reporting and canceling of suspicious accounts, and additional measures last year that put limits on dollar deposits in banks further tightened the restrictions.

"We have been able to establish a system of prevention that is quite robust," Jose Alberto Balbuena, head of the Finance Ministry's Financial Intelligence Unit, said in an interview. "We have a much clearer picture today of what dollars are entering the financial system, where they came from, where they are."

The restrictions have also forced traffickers and their launderers to channel more money into other sectors, such as real estate and commerce, avoiding banks altogether. Mexican and U.S. officials are looking to plug those gaps.

Complicity by banks has a deep history that still resonates in Mexico.

U.S. congressional investigators alleged that Raul Salinas' wife personally carried check after check to the bank, where Citibank executives asked no questions — despite rampant rumors that linked Salinas to drug lords, and even when Salinas was held on charges that he masterminded the assassination of a top politician. The Salinases claimed that they were victims of a political persecution, the Justice Department and Switzerland investigated, and there were calls for reform of banking secrecy laws.

No criminal charges of money-laundering or illicit enrichment were filed against Salinas. He is a free and wealthy man today. In 2008, Switzerland, which had frozen his bank accounts, returned most of the money.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at and on twitter at :!/LaunderingMoney

Sunday, November 27, 2011

Mexico seeks to fill drug war gap with focus on dirty money

By Ken Ellingwood and Tracy Wilkinson,
Los Angeles Times


Tainted drug money runs like whispered rumors all over Mexico's economy — in gleaming high-rises in beach resorts such as Cancun, in bustling casinos in Monterrey, in skyscrapers and restaurants in Mexico City that sit empty for months. It seeps into the construction sector, the night-life industry, even political campaigns.

Piles of greenbacks, enough to fill dump trucks, are transformed into gold watches, showrooms full of Hummers, aviation schools, yachts, thoroughbred horses and warehouses full of imported fabric.

Officials here say the tide of laundered money could reach as high as $50 billion, a staggering sum equal to about 3% of Mexico's legitimate economy, or more than all its oil exports or spending on prime social programs.

Mexican leaders often trumpet their deadly crackdown against drug traffickers as an all-out battle involving tens of thousands of troops and police, high-profile arrests and record-setting narcotics seizures. The 5-year-old offensive, however, has done little to attack a chief source of the cartels' might: their money.

Even President Felipe Calderon, who sent the army into the streets to chase traffickers after taking office in 2006, an offensive that has seen 43,000 people die since, concedes that Mexico has fallen short in attacking the financial strength of organized crime.

"Without question, we have been at fault," Calderon said during a meeting last month with drug-war victims. "The truth is that the existing structures for detecting money-laundering were simply overwhelmed by reality."

Experts say the unchecked flow of dirty money feeds a widening range of criminal activity as cartels branch into other enterprises, such as producing and trading in pirated merchandise.

"All this generates more crime," said Ramon Garcia Gibson, a former compliance officer at Citibank and an expert in money-laundering. "At the end of the day, this isn't good for anyone."

Officials on both sides of the border have begun taking tentative steps to stem the flow of dirty money. For Instance, last year Calderon proposed anti-laundering legislation, after earlier announcing restrictions on cash transactions in Mexico that used U.S. dollars.

The evolving anti-laundering campaign could change the tone of the government's military-led crime crusade by striking at the heart of the cartels' financial empire, analysts say. But the effort will have to overcome a longtime lack of political will and poor coordination among Mexican law enforcement agencies that have only aggravated the complexity of the task at hand now.

"If you don't take away their property, winning this war is impossible," said Sen. Ricardo Garcia Cervantes of the Senate security committee and Calderon's conservative National Action Party. "You are not going to win this war with bullets."

The good news for Mexican and Colombian traffickers is that drug sales in the United States generate enormous income, nearly all of it in readily spendable cash. The bad news is that this creates a towering logistical challenge: getting the proceeds back home to pay bills, buy supplies — from guns to chemicals to trucks — and build up the cartels' empires without detection.

Laundering allows traffickers to disguise the illicit earnings as legitimate through any number of transactions, such as cash transfers, big-ticket purchases, currency exchanges and deposits.

Much of that money still makes its way back into Mexico the old-fashioned way: in duffels stuffed into the trunks of cars. But Mexican drug traffickers are among the world's most savvy entrepreneurs, and launderers have proved nimble in evading authorities' efforts to catch them, adopting a host of new techniques to move the ill-gotten wealth.

For example, Mexican traffickers are taking advantage of blind spots in monitoring the nearly $400 billion of legal commerce between the two countries. The so-called trade-based laundering allows crime groups to disguise millions of dollars in tainted funds as ordinary merchandise — say, onions or precious metals, as they are trucked across the border.

In one case, the merchandise of choice was tons of polypropylene pellets used for making plastic. Exports of the product from the United States to Mexico appeared legitimate, but law enforcement officials say that by declaring a slightly inflated value, traders were able to hide an average of more than $1 million a month, until suspicious banks shut down the operation.

The inventive ploys even include gift cards, such as the kind you get your nephew for graduation. A drug-trafficking foot soldier simply loads up a prepaid card with dollars and walks across the border without having to declare sums over the usual $10,000 reporting requirement, thus carrying a car trunk's worth of cargo in his wallet.

Tainted cash is almost everywhere. In western Mexico, a minor-league soccer club known as the Raccoons was part of a sprawling cross-border empire — including car dealerships, an avocado export firm, hotels and restaurants — that U.S. officials said was used by suspect Wenceslao Alvarez to launder money for the Gulf cartel. Alvarez was arrested by Mexican authorities in 2008 in a rare blow against laundering and remains in prison while fighting the charges.

Even the most unlikely street-corner businesses may be used to scrub money. A pair of tanning salons in the western state of Jalisco were among 225 properties seized from drug suspect Sandra Avila Beltran, the so-called Queen of the Pacific and one of the few women allegedly to reach upper cartel echelons.

Avila, arrested in 2007, is still behind bars on the money-laundering charges as she also fights extradition to the U.S., but she has been exonerated of organized-crime and weapons charges.

The salons, with their all-cash, high-volume turnover, were allegedly used to hide drug money. The chain, called Electric Beach, has outlets all over Mexico City.

Mexico's efforts against money-laundering are hobbled by staff shortages, a failure to investigate adequately and skimpy laws that have exempted from scrutiny a number of industries often used to clean dirty money, independent assessments by financial experts and academics have found.

Javier Laynez Potisek, Mexico's fiscal prosecutor, lamented during a September conference on money-laundering, "Our system allows someone to come in with a suitcase full of money and buy four armored pickups for 600,000 pesos [about $42,000], and we don't have a minimum requirement to identify or report them."

A 2009 report issued by the Financial Action Task Force, an international anti-money-laundering agency, noted that Mexican authorities had won only 25 convictions for money-laundering in the two decades it has been a crime. From the beginning of 2009 to mid-2010, as overall drug-war arrests soared, prosecutors won convictions of only 37 people for money-laundering.

Part of the problem is that only Mexico's Finance Ministry has had access to financial data crucial to potential money-laundering inquiries, and prosecutors have not been allowed to open their own money-laundering investigations without a complaint from finance officials.

There is also stubborn resistance among those who profit from their role as middlemen for big transactions.

One such group is notaries, who in Mexico have a function much like attorneys in the U.S. They handle nearly all real estate transactions and have battled a proposal that would require them to report how each purchase was paid for. Notaries say launderers would probably respond by skipping the paperwork altogether when buying cars and houses, only adding to the black-market economy.

"The only thing that worries us notaries is that [the proposed reporting requirements] would create an alternative market … that brings benefits to no one," said Hector Galeano, finance secretary of Mexico's notaries association.

Some observers suggest that one reason previous Mexican governments were slow to attack money-laundering was fear of harming the rest of the economy.

Edgardo Buscaglia, a scholar who studies organized crime, estimates that in a nation where three-quarters of all transactions are cash, drug money has infiltrated 78% of the sectors constituting the formal economy.

In Sinaloa, the prosperous coastal state considered the cradle of the Mexican narcotics trade, economist Guillermo Ibarra estimates that drug money sustains nearly a fifth of the region's economy, from fancy subdivisions dotted with "narco-mansions" to vast farms.

Sinaloa is a well-known produce grower; in fact, its license plate features a tomato. But it would take an awful lot of tomatoes to account for the kind of over-the-top opulence on display in the state.

The moves to turn the tide in dirty money have generally taken place out of public view. But they could mark an important shift in the drug-war strategy.

A year ago, a small group of Mexican officials and U.S. counterparts met and selected six money-laundering cases to investigate jointly in an experimental offensive. U.S. agents here say the first arrests, involving a network in the northern border state of Chihuahua, could come by year's end.

Separately, U.S. Customs officials familiar with sophisticated money-laundering techniques have begun training Mexican tax inspectors who will be assigned to ferret out launderers. In addition, nearly 500 individuals and Mexican companies, from mines to milk producers, have been placed on a U.S. Treasury Department blacklist for alleged laundering activities.

And the Mexican Congress, after years of government inaction on the issue, is weighing a series of legislative proposals based on Calderon's anti-laundering package that would make it more difficult to cleanse dirty money. In the meantime, the restrictions on the use of U.S. cash in Mexico appear to be altering the flow of drug-tainted dollars for the first time, officials on both sides of the border say.

Under the proposed legislation, a specialized unit added to the attorney general's office, with advice from U.S. officials, would be authorized to take the lead in money-laundering cases and inspect a wide variety of businesses in search of illicit profits.

In addition, the government nearly a year ago replaced the Finance Ministry official in charge of such cases with a veteran Washington-based diplomat, Jose Alberto Balbuena, who had spent many months working with U.S. financial officials and is said to have a better grasp of what's at stake and a good working relationship with top prosecutors.

To date, Mexican reporting requirements have applied only to banks. Under legislation approved by the Senate last year and now before the lower Chamber of Deputies, a range of other industries would also be required to report large cash or suspicious transactions using unexplained funds.

These include real estate, car dealerships, betting parlors, art galleries, notaries, and, possibly, religious institutions. Mirroring "know your customer" regulations in the banking world, the rules would require disclosure of cash purchases for more than 200,000 pesos, or about $14,000, of numerous goods and place a cap of 1 million pesos, or about $70,000, on cash purchases of real estate.

Law enforcement experts say the proposed legislation could fill a yawning gap in Mexico's crime fight.

"It's going to counteract the financial and economic power of the criminals," said Ricardo Gluyas, a professor at the National Institute of Criminal Sciences, which trains Mexico's organized-crime prosecutors. "The new law has teeth. It covers a broad spectrum."

One potentially powerful tool, an asset-forfeiture law that allows authorities to seize property and accounts of traffickers and launderers, was approved by Congress in 2008. A similar law made a big difference in crime fights in Colombia and Italy, allowing authorities in those countries to confiscate and resell properties of drug traffickers and Mafiosi.

"Without firing a shot, you can generate a lot more results by seizing the fortunes of the big capos," Gluyas said.

But critics say the Mexican asset-forfeiture law threatens the due-process rights of owners. So far, it has been little used: Courts had approved only two cases by late this summer, with more than a dozen pending.

Perhaps more than any other measure, the government's move last year to restrict bank deposits of U.S. cash appears to have slowed the entry of dollars to Mexico's financial system. Bank-account holders were no longer allowed to deposit more than $4,000 a month.

In response, traffickers and their launderers are shifting tactics, including keeping money in the United States, officials say. And U.S. officials say that since Mexico announced the new rules, more money appears to be going elsewhere, especially to the Caribbean and Guatemala, where officials have detected a surge in circulating U.S. bank notes.

"That's the big question," Balbuena said. "Where is the money?"

A possible explanation can perhaps be gleaned from an Oct. 5 incident: Customs inspectors in Tijuana stopped an armored car full of plastic bags stuffed with $915,000 in cash. There was no documentation for the money, law enforcement sources familiar with the discovery said.

But it wasn't headed into Mexico. It was headed north, into San Diego.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at 
and on twitter at :!/LaunderingMoney 

Saturday, November 26, 2011

France says Manuel Noriega could soon be extradited to Panama

After spending time in US and French jails former dictator will be extradited to Panama French appeals court ruled this week that former Panamanian dictator Manuel Noriega could be extradited to his homeland to serve time for crimes committed during his iron-fisted rule in the 1980s.
Noriega, a former US ally who ruled Panama from 1983 until his overthrow in a US invasion in 1989, spent more than 20 years in a US jail before being extradited in 2010 to France where he was convicted of money laundering.
“The court acknowledges Manuel Antonio Noriega's consent to being handed over to the Panamanian authorities,” the court said. The ruling comes after the United States agreed to a second Panamanian extradition request. US approval is required because US authorities sent Noriega to France in April 2010 while he was serving time in a Miami jail.
“I want to return to Panama without hatred or resentment,” Noriega told the court in Spanish. “I want to go back to Panama to prove my innocence in these procedures that were carried out in my absence and without legal assistance”.
One of Noriega's lawyers said last week that the fallen leader should be home for Christmas and might not even go to prison because of the 77-year-old's alleged ill health.
A long-time intelligence chief who became the country's military ruler in 1983, Noriega spent 21 years in a Miami prison on drug charges after his overthrow, and then was extradited to France, where he was sentenced to six years in prison on charges of laundering money for the Medellin drug cartel.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at and on twitter at :!/LaunderingMoney

India setting regional standards for money laundering

India on Thursday inked an agreement with the Eurasian Group (EAG), a group that enforces anti-money-laundering standards in the region.
According to an official statement here, following Cabinet approval for the agreement earlier this month, the pact was signed by Department of Economic Affairs Joint Secretary (Capital Markets) Thomas Mathew, who is heading a six-member Indian delegation at the 15th plenary meeting of the EAG on combating money laundering and financing of terrorism being held at Xiamen in China.
The Indian delegation's participation and contribution in the plenary meeting and working groups was appreciated by the EAG Secretariat, member countries and observers, the statement said. India also offered assistance to member nations in enhancing their technical skill for establishing better financial systems, capital market monitoring and surveillance through sophisticated IT tools. Help was also offered in drafting legislation and law enforcement techniques.
The EAG is a FATF- (Financial Action Task Force) styled regional body with nine members, including India, Russia and China, and 29 observers, of which 12 are countries and 17 are international organisations. India was accorded membership in the EAG in December last year.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at:
and on twitter at :!/LaunderingMoney