U.S. Succeeds in Tracking Global Financial Crimes

When Mexican investors came to him looking for cash to buy land, Gerald Lortie would make them an offer they couldn’t resist.

Interest rates in Mexico were running close to 50%. Lortie, head of State Investments in San Antonio, was offering loans of $100 million at rates low even by single-digit U.S. standards.

There was only one catch, U.S. investigators say: Lortie demanded an advance fee of $200,000, which he promised to refund if he couldn’t raise the cash the investors were seeking. Lortie promptly scattered the $200,000 into various banks across Texas, and that was the last the Mexican investors ever saw of it.

That’s where FinCEN came in. An arm of the Treasury Department, the Financial Crimes Enforcement Network has become critical to the government’s effort to curb such illegal activity at a time when the breathtaking speed of international money transfers has complicated investigators’ job of following a money trail.

Armed with FinCEN’s information about State Investments, the FBI and IRS arrested Lortie, who was convicted of money laundering and sentenced to 16 months in jail. Authorities seized $1 million in cash, six luxury cars, a home and furniture worth several million dollars.

So successful has FinCEN become in uncovering money laundering, says Treasury Secretary Robert E. Rubin, that finance ministers around the world are inquiring about its details.

“Money laundering is critical to the success of drug traffickers and organized crime,” Rubin said in an interview. “FinCEN gives us a vantage point for attacking drugs and organized crime, and [the Treasury Department] is putting a lot of emphasis on it in this country and around the world.”

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There is nothing fancy about FinCEN’s mode of operation. Its staff members are more likely to be found in green eyeshades than in hot cars and fancy clothes. The tools of their trade are computers that help them keep tabs on the fabulously huge and complex movements of capital around the globe.

But the robbers are still way ahead of the cops in the race to use technology. Experts say no law enforcement agency in the world comes close to being able to address the transnational crime and money-laundering problems that drive business and government corruption.

Stanley E. Morris, FinCEN’s director, says anti-corruption forces have only just begun to grapple with the realities of what he calls a looming “international financial, political and economic crisis.”

A key step for FinCEN has been to build partnerships with the U.S. banking industry in its fight against financial crime.

In the past, financial institutions were viewed as adversaries, to be strictly regulated with little exchange of information. Now banks are seen as the first line of defense against financial crimes.

Citibank in New York, for example, cooperated with federal authorities in an effort to assist Mexico’s investigation of Raul Salinas de Gortari, brother of former Mexican President Carlos Salinas de Gortari.

Records subpoenaed in the case concern tens of millions of dollars that Raul Salinas reportedly transferred out of Mexico through Citibank--mostly to accounts in Switzerland. Banks are required by law to file a blizzard of paperwork to regulatory and law enforcement agencies when they notice any suspicious financial activity--as would appear to be the case here, because Salinas reported an annual income of $200,000.

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FinCEN--acting with the IRS’ Computing Center in Detroit and the five federal bank regulatory agencies--has established a “suspicious activity reporting system,” a computerized databank that is available to all major law enforcement agencies. Suspicious activities subject to being reported include bank fraud, misdeeds by bank officials, tax fraud, check kiting, credit fraud, embezzlement and money laundering.

FinCEN, created by the Treasury Department in 1990, tries to detect or, ideally, prevent the movement of illegally derived money. It provides other countries with the tools and expertise needed to combat financial crime. So far, 23 other nations have established financial crimes enforcement networks.

Their work in tracing laundered money is crucial, Morris said. “Organized crime can’t operate without legitimizing its money,” he said, “and dirty money can be legitimized only with the cooperation of financial institutions and government.”

Experts say several developments are making it easier for corrupt businesses and politicians to carry out their schemes. James W. Wesberry Jr., a veteran anti-corruption expert at the World Bank, says these include:

* The globalization of the economy, which has greatly increased the monetary stakes of corruption.

Rapid technological developments, especially the electronic wiring of the world, which have made it easier to hide criminal activity and dirty money.

* The weakness and instability of governments in many parts of the world, which leave the governments unable to raise revenue, protect their borders and keep criminal elements from infiltrating legitimate institutions--in some cases even the government itself.

* The flight of capital to offshore banks to escape taxation, a strategy that has only recently been used to any extent in the United States.

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Ten years ago, according to Global Finance magazine, daily trading in international currency exchanges was not quite $200 billion. Today it is $1.25 trillion a day--or 100 times the volume of world trade.

In recent years, an increasing number of banks have been infiltrated by well-financed, technologically adept criminal enterprises. In this category was the Pakistani-founded Bank of Credit & Commerce International, which collapsed five years ago after the largest bank fraud in history.

And leaders of many countries have issued warnings that globalization of the economy and the diminishing power of nations are resulting in an explosion of financial corruption and endangering democracies worldwide.

President Clinton said that while Russia no longer posed a serious threat to U.S. security, “the bad news is that once you strip the veneer of Communist control off Russia with nothing to replace it, within five years you have half of the banks run by organized crime.”

Atty. Gen. Janet Reno, in a recent address to the International Law Enforcement Academy in Budapest, Hungary, stressed the need for international cooperation by citing a group of Russians who used computers to steal more than $10 million from Citibank.

Since well before the establishment of FinCEN, the United States has been at the forefront of efforts to stamp out international financial crime. In 1977, it enacted the Foreign Corrupt Practices Act, which prohibited U.S. citizens from paying bribes to win contracts abroad. At the time, the effort was ridiculed by many foreign officials as naive.

The Clinton administration, in continuing to crack down on corruption in international commerce, has made significant progress in persuading other countries to join.

Twenty-one members of the Organization of American States, meeting recently in Caracas, Venezuela, signed the U.S.-drafted Inter-American Convention Against Corruption, which pledges to fight corruption in international business. The treaty makes sweeping changes in national laws and ethics, limits bank secrecy, promotes openness of government operations and provides for extradition of corrupt officials.

Administration officials say the United States, which has yet to sign the treaty, will do so as soon as it completes a routine review to be sure none of its provisions violates the Constitution.

Under the treaty, each country will be required to make it a crime for a government official to acquire assets “that he cannot reasonably explain in relation to his lawful earnings during the performance of his functions.”

The United States also was the driving force behind a decision in the past month by the world’s richest nations to remove tax deductions for bribes paid to foreign officials. The decision commits the 26-member nations of the Organization for Economic Cooperation and Development, or OECD, to rewrite tax rules that have essentially sanctioned the bribery of foreign officials.

Countries with powerful commerce or export ministries, such as Germany, Japan and France, initially argued against the OECD agreement as harming their exports. Their argument collapsed, and the issue gained momentum after major bribery scandals in several countries.

U.S. officials felt vindicated.

“There are no border barriers for state-of-the-art technologies and automation,” Reno told the International Law Enforcement Academy. “It should not surprise anyone that we want to cooperate with our colleagues all over the world, given the fact that today someone sitting in his kitchen in St. Petersburg can rob a bank in Chicago.”