New Law Aids Prosecution of Silberman : Congress Broadened Scope of ‘Sting’ Money

The recent tightening of federal laws prohibiting money laundering is expected to give the government a significant advantage in prosecuting prominent San Diego businessman Richard T. Silberman and others charged with conspiring to disguise funds they allegedly believed came from drug traffickers, attorneys familiar with such cases say.

The change, adopted by Congress in November, makes it illegal to conduct a financial transaction with money portrayed as proceeds of illegal activity--even if the funds involved actually are federal money used by government agents in an undercover “sting.”

Although few, if any, cases have been tried under the new provision, some defense attorneys believe they will now have a tougher time clearing clients accused in money-laundering schemes--particularly if the FBI has wiretapped conversations or other proof showing a defendant thought he was dealing in “dirty” money.

One lawyer, summarizing the defense bar’s collective sentiment on the newly toughened law, complained that the change gave federal agents “ carte blanche “ to set up stings to “manipulate people into breaking the law.”

“This has given the government the power to create an artificial world to test the virtue of whomever they elect to target,” said San Diego attorney Eugene G. Iredale, a veteran of many money-laundering cases.

Prosecutors, however, argue that Congress had merely sewn shut a gaping loophole in the law that hindered their efforts to convict money launderers.

’... a Dirty State of Mind’

“The gist of it is, people who believe they are laundering money should be punished,” said Assistant U. S. Atty. Gordon Greenberg, chief of the financial investigations unit in Los Angeles. “Whether the government says it is dirty money or it is in fact dirty money doesn’t change the state of mind of the defendant. The bottom line is, the defendant has a dirty state of mind.”

Silberman, 59, was arrested April 7 at a San Diego hotel, allegedly while negotiating with an undercover agent to launder $1.1 million the agent told him were profits from Colombian cocaine trafficking. Also arrested was Chris Petti, 62, a reputed organized-crime figure who allegedly acted as a middleman linking Silberman with the undercover agent.

Prosecutors allege that Silberman, a powerful fund-raiser for local and statewide Democratic candidates, conspired with Petti and two Los Angeles County men--Darryl Nakatsuka, 42, and Jack Myers, 43--to launder a total of $300,000 during two transactions in November and February. All but Petti, who was ordered held without bail Thursday, are free on bail and awaiting a preliminary hearing Friday.

An FBI affidavit says that Silberman, who is married to county Supervisor Susan Golding, last year asked his longtime acquaintance Petti to drum up some money-laundering business for him. FBI agents came upon Silberman during their 2 1/2-year investigation of Petti, who allegedly has ties to the Cosa Nostra crime family of Chicago.

Prosecutors said recent changes in federal laws aimed at money launderers will make obtaining convictions in cases like the one embroiling Silberman markedly easier. Indeed, until three years ago, there were no statutes specifically calling money laundering a crime.

Before 1986, there were “exceedingly hypertechnical requirements necessary to prove a money-laundering case,” said San Diego Asst. U. S. Atty. Phillip L. Halpern. The tool most commonly used to convict money launderers in that era was one requiring the filing of a currency transaction report (CTR) for financial deals involving sums exceeding $10,000.

Fraught With Problems

But that approach was fraught with problems. “It was a much more convoluted, difficult method of bringing these prosecutions,” Greenberg said.

For one thing, a cunning mover of dirty money could find ways around the requirements. Many launderers simply broke their transactions down into sums under $10,000, while others filed false reports or used complex investment tools--like multilayered stock swaps--difficult for the government to track, prosecutors said.

“For example, a smart guy would go to a bank and give one teller $9,900, then go to another teller with another $9,900,” Halpern said. “There were a lot of ways to get around this.”

Assuming a launderer was nabbed and charged under the CTR statute, his conviction was by no means assured. Although there were some victories in cases at the district-court level, there was a split on the issue among the federal appellate courts nationwide, Greenberg said.

Overturned Convictions

Specifically, some courts--including the 9th Circuit Court of Appeals--overturned some convictions on grounds that the duty of filing the CTRs was on the bank, not the customer, Greenberg said.

“So what the customer did--absent collusion by the bank--wasn’t illegal,” said Greenberg, who watched in dismay as many convictions he won in the lower courts were voided by the 9th Circuit justices.

“For a while, I had the dubious distinction of losing more cases before the 9th Circuit than any other prosecutor in the history of man,” Greenberg recalled.

In 1986, however, Congress passed the sweeping Anti-Drug Abuse Act of 1986. That legislation prohibited the structuring of a financial transaction deliberately to avoid a reporting requirement.

Passed New Law

Lawmakers went further, however, by passing a law aimed straight at money laundering. The statute makes it illegal to accept funds known to have come from “specified illegal activities” and to attempt to promote that illegal activity or conceal the money’s “nature, location, source, ownership or control.”

“That was a tremendous help,” said Halpern, who prosecuted the first money-laundering case brought under the 1986 law in San Diego. “It is very, very broad because a transaction is defined in the statute as moving money by just about any means.”

For example, “if you sell a used car to disguise the proceeds of specified illegal activity or to further that illegal activity, you’re guilty,” Halpern said.

(The law was so broad, it initially struck fear in the hearts of criminal defense attorneys, who feared they could be prosecuted if they accepted money of suspect origin from a client. Congress amended the statute to exclude attorney’s fees.)

More Firepower

Last November, Congress gave federal prosecutors still more firepower in their war against those suspected of bankrolling the narcotics trade.

Under this newest amendment, a money launderer can be convicted even if the funds he handled were provided by the FBI in an undercover investigation. The change allowed government agents wider latitude in constructing stings to snare those seeking to “cleanse” dirty money through often untraceable investments.

“Prior to that, we’d do stings but we wouldn’t use federal money,” Greenberg said. “We’d have to set up large undercover shops and wait for the defendants to bring their money in.”

Attorneys said adoption of that change was spurred in part by a case involving former Georgia Rep. Pat Swindall, who was charged with money laundering after he agreed to accept an $850,000 home construction loan from an undercover agent posing as a representative of underworld figures. Because the money involved was not truly “dirty” money, Swindall’s prosecution was viewed as frail. The charges were later reduced to perjury.

Imaginary Operation

“The defense in Swindall was to be that the whole thing was an imaginary FBI operation and so he couldn’t be laundering money because the money was clean,” said Los Angeles attorney Terry Scott, who works with Barry Tarlow, the noted lawyer hired to represent Myers in the San Diego case. “The funny thing is, we will never know whether that defense would have worked because the government’s fears (that it would) limited the subsequent indictment to perjury.”

Defense attorneys argue that the recent change gave government agents excessive authority to engage in stings designed to lure innocent people into committing crimes.

“They gave the FBI unlimited power to set people up,” Iredale said. “It permits the government to dangle huge sums of money in front of people having financial problems and create an artificial situation that would never exist in reality. They wind up prosecuting people who, but for the sting operation, would never have violated the law.”

But Halpern said the new amendment merely “gives the government the ability to effectively ferret out money laundering as it has done with other types of narcotics activity.”

Pivotal Factor

In any case, attorneys suggested that the pivotal factor in money laundering prosecutions is the question of knowledge--that is, did the accused launderer know or believe the money he was handling emanated from a dirty source?

“If you don’t prove that, you have no crime,” Halpern said. “You’d better hope you’ve got them on conspiracy.”

A 76-page affidavit contains quotations from transcripts of numerous wiretapped conversations, and prosecutors believe those quotes reveal Silberman’s belief that the $300,000 emanated from drug traffickers.

In one instance, after the undercover agent referred to “the drug types” he worked for, Silberman allegedly said, “Let’s us not even . . . use any of the words anymore, OK?” Later, he reportedly said, “You and I never have to use the word.” And, responding in another conversation to the agent’s description of his employers as “Colombian cocaine drug lords,” Silberman allegedly said, “I don’t want to hear that.”

Context of Conversation

Defense attorneys--like prosecutors interviewed by The Times--declined to comment on the Silberman case. But, in general, they said that to challenge such seemingly incriminating statements--which prosecutors undoubtedly will play for jurors--they would describe the context of the conversation and point out the statements that the prosecution chooses to reveal and those that they don’t.

“The government will pick the words that buttress their position and will often ignore things said immediately before,” San Diego lawyer Charles Goldberg said. “It is important for the jury to hear the whole conversation to understand the tenor and get a flavor for whether it was in jest . . . and what the parties were really thinking.”

In addition, attorneys defending Silberman and his co-defendants likely will attack the FBI’s extensive use of wiretaps--which can be an Achilles heel in some prosecutions and often are crucial in money-laundering cases. Technical challenges to wiretaps can range from arguments that the wiretap order, which must be issued by a federal judge, was overly broad to claims that agents had not exhausted all other avenues of investigation before resorting to a bug.

This case may have added vulnerability on the wiretap front. In trailing Petti and Silberman, the FBI used a so-called “roving wiretap”--a new, wide-ranging tap authorized under a 1986 law challenged vigorously by civil libertarians. The law permits the electronic surveillance of a person on any telephone he uses--rather than the mere bugging of a specific phone--if the government proves that person has attempted to thwart interception.

More than a dozen lines from homes, businesses and pay telephones were tapped in the Silberman investigation, and the San Diego trial will involve the first court test of the roving tap’s constitutionality.

“Congress has been very specific in its limitations on the use of wiretaps because they did not want an indiscriminate invasion of privacy,” Goldberg said. “The defense always closely scrutinizes the wiretaps in these cases.”

Although he conceded that the defense is likely to challenge the roving tap on 4th Amendment invasion of privacy grounds, Asst. U.S. Atty. Charles F. Gorder Jr., who is prosecuting the Silberman case, said the orders permitting the tap were meticulously drawn.

“The requirements are very specific and we’ve met them,” he said.