Van de Kamp Says State Is Money Laundering Center

Criminals seeking to unload drug-tainted cash have found California’s financial banks a ready market, swelling them with surplus cash and turning the state into a major center of money laundering, state Atty. Gen. John K. Van de Kamp said Thursday.

Last year, the state’s banks reported a $1.5-billion cash surplus, according to statistics presented by Van de Kamp to a House subcommittee--a strong contrast to the $300 million that they had to withdraw from the Federal Deposit Bank only five years ago to meet customers’ demands.

In the Los Angeles area, according to the attorney general’s figures, banks reported a $136-million cash deficit in 1980; in 1984, the same banks had $374 million in excess cash. The turnabout in San Francisco was even more dramatic over the same period, as banks went to a surplus of more than $1 billion from a $166-million deficit

The concurrent increase in the state’s drug trade and the experience of South Florida, where banks also became clogged with currency as drug trafficking grew, suggest that much of the cash comes from the proceeds of crime, Van de Kamp said in written testimony before the House Judiciary subcommittee on crime.

“From the ragtag currency exchange houses along San Ysidro Boulevard at the Mexican border . . . to the majestic steel-and-glass headquarters offices in the financial district of San Francisco, there is a kind of leukemia of illicit money in the financial bloodstream of California,” he stated. “Further, the available treatment . . . is no match for the disease.”

Florida still is the largest contributor of cash to the Federal Reserve, recording 61% of the national cash surplus last year, state Deputy Atty. Gen. Gary Schons said in a telephone interview after the hearing. But California banks have moved into second place at 14%, he said.

Nancy Sheppard, a spokesman for the California Bankers Assn., said: “At this time, we have done no investigation of the increase of cash shipments from banks to the Federal Reserve. However, we will be doing so.”

Van de Kamp, who has introduced state legislation aimed at the problem, testified on behalf of the National Assn. of Attorneys General in support of federal measures that would create a new crime of “money laundering” and would give law enforcement authorities new tools to detect the activity.

Half a dozen such measures, ranging in scope and severity, are now pending before Congress.

Currently, federal authorities attempt to monitor “laundering”--the process by which criminals convert cash to assets that disguise the illicit origin of the funds--by requiring financial institutions to report to the Internal Revenue Service all cash transactions in excess of $10,000.

But the reporting requirements are commonly evaded by “smurfs,” who carry sums smaller than $10,000 to one bank after another, converting thousands of dollars in cash to cashier’s checks, which may later be deposited in foreign bank accounts.

Treasury Department investigations this year revealed that financial institutions nationwide have failed to fulfill this reporting requirement, mandated under the Bank Secrecy Act.

Six banks, including Bank of Boston and San Francisco-based Crocker Bank, have been penalized this year for violations of the act. Crocker’s fine last month was a record $2.25 million. More than 100 banks, including 60 that have admitted “inadvertent violations,” remain under investigation.

Van de Kamp said his office has been informed that “a substantial fine” will soon be assessed against Bank of America, California’s largest financial institution, for violations that involved less money than Crocker’s but were “widespread throughout the bank.”

Also in California, the former manager of Bank of Coronado’s San Ysidro branch is under indictment with four other persons on charges that include violations of the Bank Secrecy Act.

Over an 18-month period, the indictment alleges, Guadalupe Alcantar passed $20 million through accounts held by known or suspected narcotics dealers.

In another House hearing on money laundering, Treasury officials revealed that the number of cash transaction reports filed by banks has surged since Bank of Boston pleaded guilty last February to charges of failing to report 1,163 currency transactions with foreign banks.

At the current pace, banks will file 1.5 million such reports this year--more than double the number filed last year. But IRS Commissioner Roscoe Egger Jr. said, “We are a far cry from winning the war.”