Bank Secrecy Act Called Inadequate to Halt Drug Profiteers

A government prosecutor stung by a recent appellate court decision on Monday told a federal judge in Los Angeles that stepped-up efforts to curtail profiteering by drug traffickers would be defeated unless the government’s basic law to control money laundering made individuals just as culpable as financial institutions.

“Every (money laundering) conviction of the past few years (could) be gutted and rendered meaningless,” Brian A. Sun, an assistant U.S. attorney, told U.S. District Judge Consuelo B. Marshall.

At stake, Sun said--in arguing against a motion to throw out a federal indictment against 10 persons charged with participating in a major narcotics money laundering operation operating out of Los Angeles--was the integrity of the federal Bank Secrecy Act, the government’s basic tool to capture money launderers.

Outside court, Sun said he was stunned by Friday’s U.S. 9th Circuit Court of Appeals decision in a similar money laundering case, the doctrine of which he said he feared could be applied to the defendants awaiting trial before Marshall.

Taking note of the act, the appellate court ruled that defendants in a case involving a Phoenix lawyer charged with money laundering activity “were under no duty to report their currency transactions” to the bank so that a report could be filed with the Internal Revenue Service. That was because, the court said, the defendants stayed under the act’s $10,000 disclosure trigger when they moved cash through several banks.

“Even though money laundering furthers the goals of those who may be engaged in criminal activity, it is not our function to rewrite the law,” the appellate court said.

Sun said more than 40 accused drug traffickers--some awaiting trial, others who have already served prison time--could be affected by whether Marshall adopts the appellate court’s decision.

Reached in Clearwater, Fla., Stephen S. Trott, assistant attorney general in charge of the Justice Department’s criminal division, said Sun had a right to be apprehensive about the appellate court decision’s implications for other money laundering cases.

But Trott underscored that the act’s loopholes are so large that, unless Congress approves legislation to crack down with severe criminal penalties on individual drug traffickers who engage in money laundering, the racketeers stand an excellent chance of avoiding conviction.

“The (Bank Secrecy) act has loopholes,” Trott said. “It permits people to launder money. It’s a murky area and the courts are going off in different directions.”

In effect, he said, the law could be “reasonably interpreted” either way on whether it does or does not cover individuals who knowingly manipulate it to escape federal reporting requirements.

In recent years, money laundering, particularly by organized crime, has involved the camouflaging of billions of dollars in illegal profits through a maze of financial institutions so that the source of the cash cannot be traced. California is now considered by law enforcement officials to be the nation’s center for money laundering activity.

Under the federal act, financial institutions, such as banks, must report cash transactions of more than $10,000 to the IRS. This is done on currency transaction reports on which an individual must fill out his or her name, address, Social Security number and other information. The forms are designed to be used by government investigators to help track billions of dollars worth of drug trafficking in the United States and abroad.

But the act is silent on whether an individual executing several cash transactions at several banks in one day--all under $10,000, but totaling several times that amount by day’s end--has an obligation to disclose such activity to banks for federal disclosure purposes.

Subject to Prosecution

Some federal appellate courts have ruled that if the individuals knew they were manipulating the act and that if the government can prove in court they knew this, that they then would be subject to prosecution.

Picking up on the 9th Circuit decision, defense attorney Roger Rosen on Monday told Marshall that his clients in the money laundering case were under “no legal requirement” to comply with the act. That was because they executed several cash transactions that were each under the $10,000 disclosure ceiling.

A decision by Marshall on whether to pursue Sun’s case is expected before Feb. 4, the scheduled start of the trial.