Money Laundering Kills Convenience

If ordinary consumers think about money laundering at all, it may be with some wistfulness that they have neither way nor wherewithal to do it. At the same time, they do understand that all that cash counted up in back rooms and somehow turned into cashier’s checks, real estate and offshore bank accounts is truly dirty, the ill-gotten gains from drug sales, tax evasion or savings and loan fraud.

But unlike other crimes, the actual laundering and the effort to catch launderers have been pretty remote, until now. Now, says the American Bankers Assn. in full-page national ads, “Your bank needs your help to fight illegal drugs and money laundering.”

They’re referring to new regulations that will increase the number and kind of bank transactions that must be reported to law enforcement authorities, and that could make banking less pleasant for consumers. They too might use more than $3,000 cash to purchase cashier’s checks, traveler’s checks, or money orders, and will have to answer inquiries about it. In return, they might well ask how such little challenges serve to bust big crimes.

The “laundering” of money is actually a washing away or whitewashing of the money’s origins. Whether it goes into banks in paper bags and comes out in traveler’s checks and investments, or enters via multiple small deposits to various accounts, later electronically transferred to the banks and businesses of other countries, the end is the same. The source of the money is obscured by its travels and transformations, as is the ultimate destination. And vast amounts of money, enough to fill cargo containers, are reduced to transportable form.


There are visible effects of this activity, starting with a lot of cash pouring into the Federal Reserve system in given areas. Miami, a prime drug center, had a $5-billion cash “surplus” last year. Cash in Los Angeles, where cocaine is now cheaper, shot to $3.5 billion from $166 million in 1985, says William Gilligan, branch chief of the Internal Revenue Service criminal investigation division in Los Angeles. (Some figures deceive: Jacksonville, Fla.'s cash surplus hit $2.4 billion last year, probably because of the cash take at Disney World in nearby Orlando.)

The ultimate effects are perhaps assumed and less often analyzed, so people forget why they should care about money laundering. Successful laundering of drug money keeps drugs circulating. Any money laundering can put untaxed dollars into the economy, keeping all kinds of prices high, from food to prime real estate. Never mind good and evil, supply and demand: Fairness alone requires that no one should escape taxation when the rest of us pay up.

Efforts to catch money launderers have come down heavily on banks, the natural repositories, however briefly, for money. Since 1970 and the passage of the Bank Secrecy Act, financial institutions have had to file “currency transaction reports” (CTRs) on any transactions involving cash of $10,000 or more. It was later made illegal to “structure” deposits, banking just under $10,000 at a time to avoid the reporting--a favorite trick of money launderers, who sent couriers, or “smurfs,” around town to make multiple deposits in various accounts.

Then the Treasury Department was given the discretion to lower reporting limits at particular banks in “hot” communities. And starting this August, banking institutions will have to keep records of the cash purchase of all those good-as-cash instruments worth $3,000 or more.


These requirements may seem too much work for little effect. The number of CTRs filed grew from 7,000 in 1977 to 7 million last year--a burden the ABA estimates cost the banking industry at least $129 million a year. What’s more, says John Byrne, ABA senior counsel in Washington, some of the filed forms “were sitting in warehouses for years,” unexamined, and only 7% of banks in an ABA survey “ever heard of anything resulting from their CTRs.”

Indeed, most big drug busts are triggered not by such bank reports, but by undercover work and field investigations. The trails left at banks more often provide evidence for investigations that start elsewhere.

Nor does all the money pass through banks. It may also be laundered through businesses that regularly deal in cash. It’s smuggled out, turned into gold and then smuggled out, turned into gambling chips at casinos and cashed in, or moved around the world, largely unpoliced, by wire transfers.

One wonders then that banks are so heavily policed, down to their $3,000 transactions. It’s unlikely that big drug dealers will start laundering millions every day through $2,999 transactions but probable that ordinary consumers will be inconvenienced--which is why the ABA is running its warning ads.


In an effort to establish that our “good neighbor” banks are “working hard . . . to keep illegal drug money out of the banking system,” the ABA ad gives banking too much import as a channel. In fact, while the new rules may, in Gilligan’s words, “take financial institutions out of the laundering business,” that will probably only put “a dent in the drug traffic,” says Byrne.

Still, every little dent, says Stan Morris, deputy director of William Bennett’s Office of National Drug Control Policy, “makes it more difficult for drug dealers to turn cash into wealth. The strategy is one of constant pressure.”