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In a press release touting recent law enforcement success stories based upon Bank Secrecy Act reporting by financial institutions, the Treasury Department’s Financial Crimes Enforcement Network revealed publicly for the first time that its recent Geographic Targeting Orders (GTOs) are generating meaningful leads that are leading to the investigation and prosecution of individuals for money laundering violations. GTOs are a little-known, but powerful, anti-money laundering tool authorized by federal law which impose enhanced anti-money laundering reporting obligations on financial institutions that are short-term and limited to geographic regions of the United States that are perceived to be particularly vulnerable to money laundering. One such geographic area of concern is the U.S. Mexico border at two California ports of entry, which was the subject of a GTO intended to improve transparency of cross-border movements of cash. FinCEN’s announcement revealed that information generated by that GTO led Homeland Security Investigations agents to uncover a money laundering scheme that moved $45 million from the U.S. to Mexico during a 15-month period.

Background Regarding Geographic Targeting Orders

A GTO is an administrative order issued by the director of FinCEN requiring all domestic financial institutions or nonfinancial trades or businesses that exist within a geographic area to report on transactions any greater than a specified value. Authorized by the Bank Secrecy Act, GTOs were originally only permitted by law to last for 60 days, but that limitation was extended by the USA Patriot Act to 180 days. Historically, FinCEN’s issuance of a GTO was not publicized, and generally only those businesses served with a copy of a particular GTO were aware of its existence. Over the course of the last three years, however, FinCEN – the primary agency of the U.S. government focused on anti-money laundering compliance and enforcement – has aggressively exercised its GTO authority frequently throughout the United States in areas of money laundering concern. Recent, publicly-announced GTOs have focused on the fashion district of Los Angeles, exporters of electronics in South Florida, check cashing businesses in South Florida, and most recently, all-cash purchases of luxury residential real estate in six high profile U.S. real estate markets. In each of these examples, FinCEN publicly announced the issuance of the GTO and its terms, and expressed concern that the industries or regions in question were vulnerable to money laundering. These GTOs demonstrate an increased attention to trade-based money laundering schemes by FinCEN and confirm that criminals are aggressively using legitimate U.S. businesses to launder the proceeds of their illegal activity.

GTO Focused on Cross-Border Cash Transport

In August 2014, working in close coordination with its Mexican counterpart, the Unidad de Inteligencia Financiera (UIF), FinCEN announced issuance of a GTO covering the U.S.-Mexico border at two California ports of entry. The purpose of this GTO was to improve the transparency of cross-border cash movements. To address U.S. and Mexican law enforcement concerns about potential misuse of exemptions and incomplete or inaccurate reports filed by armored car services and other common carriers of currency, the GTO required enhanced cash reporting by these businesses at the San Ysidro and Otay Mesa Ports of Entry in California.

When this GTO was announced, FinCEN noted that in 2010, Mexico enacted new anti-money laundering provisions to attack the flow of illicit cash from the United States to Mexico. These efforts made it much more difficult for criminals and narco-traffickers to place large amounts of cash in Mexican financial institutions and resulted in an increase in cash coming back to the United States from Mexico, via armored car services or couriers, for attempted placement in U.S. financial institutions. According to FinCEN, law enforcement information and BSA data analysis suggest that much of this cash movement is not properly reported and therefore not made available in FinCEN’s database for the benefit of investigators and analysts following illicit money trails.

In August 2015, FinCEN renewed the California border crossing GTO and issued another GTO focused on eight major border crossing locations in Texas. These GTOs temporarily modified the Report of International Transportation of Currency or Monetary Instruments (CMIR) requirements for common carriers of currency when physically moving more than $10,000 in cash across designated border crossings in California and Texas. The GTOs required 100 percent CMIR reporting and recordkeeping by common carriers of currency at these border crossings because they eliminate the reporting exemption for these carriers that might otherwise apply to transporting currency from a foreign person to a bank. The GTOs’ enhanced reporting also required common carriers of currency to note additional information when completing the CMIR, including the name and address of the currency originator; the name and address of the currency recipient; and the name and address of all other parties involved in the movement of currency and monetary instruments. According to FinCEN, this additional information significantly assists law enforcement’s ability to identify and prosecute illegal transportation of currency and disrupt the illicit movement of bulk cash across the southwest border.

Law Enforcement’s Use of GTO Data

FinCEN’s announcement explained that HSI agents initiated an investigation which was based largely on information provided in response to the California border GTO:

Over the course of 18 months, HSI investigators utilized an extensive volume of sensitive financial information to assist in their investigation into a large-scale illegal third-party money laundering organization. The investigation began based largely on information gleaned from a FinCEN-issued Geographic Targeting Order (GTO). This GTO required armored car services importing or exporting funds through two specific geographies in the southwest border region to acquire additional identifying information on certain transactions.

The information that investigators discovered as a result of the GTO led them to focus on one particular armored car company that appeared to be facilitating a money laundering scheme outside southern California. Investigators discovered that the company was importing U.S. dollars and Mexican pesos from casas de cambio in Mexico and depositing them into shell company bank accounts that were opened and operated by the two individuals who owned and operated the company.

Law enforcement was able to identify and connect an address for the armored car company that was shared by several other companies owned by the same individuals. Two of these newly identified companies were registered as money services businesses (MSB). Further investigation and a detailed analysis of financial data indicated that these additional companies were simply shell companies that the two individuals used to funnel millions of U.S. dollars back into Mexico.

Subpoenas were issued to the banks used by each of these companies, as well as to all of the people known to be involved with the companies. Transaction records identified cash deposits of $45 million over a 15-month period, which were then transferred in and out of the accounts of the various companies owned by the individuals before ultimately being wired to Mexico.

As a result of the investigation and discovery of the money laundering scheme, both individuals pled guilty to violations regarding failures to maintain an effective anti-money laundering program. They also lost all licenses necessary to operate as an MSB and forfeited hundreds of thousands of U.S. dollars and Mexican pesos.

The investigation and prosecution referred to in FinCEN’s announcement appears to be United States v. Angelica Padilla and Valente Marquez, No. 16-1075 (Southern District of California). In that case, the defendants, who are husband and wife, were charged with failing to maintain an effective anti-money laundering program in connection with a series of money transmitting businesses that they owned and operated. The press release announcing their guilty pleas described their offenses as follows:

SAN DIEGO – Bonita residents Angelica Padilla and her husband, Valente Marquez, pleaded guilty in federal court today, admitting that they failed to establish and maintain an effective anti-money laundering program in connection with their money transmitting businesses.  The guilty pleas were heard before U.S. Magistrate Judge Karen Crawford.

Under U.S. law, any business which provides check cashing, currency exchange, or money transmitting or remittance services, or any person who engages as a business in the transmission of funds, must register with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).  In addition, any such business must establish and maintain an anti-money laundering program including the development of internal policies, procedures and controls.

According to the plea agreements, Padilla and Marquez owned and operated money transmitting businesses in Bonita, through which they accepted and transmitted large amounts of U.S. currency.  Although Padilla and Marquez registered their businesses with FinCEN, they admitted that they lied to financial institutions about the true nature of their operations.

Specifically, Padilla operated money transmitting businesses under the names “Giros Express” and “Liberty Metals and Coins,” while Marquez operated a money transmitting business under the name “Cuva.”  Both falsely claimed that they were in the business of buying and selling precious metals.  All three businesses operated from an office at 4045 Bonita Road.

As part of their plea agreements, Padilla and Marquez agreed to cease operating as money transmitters and to relinquish their licenses. In addition, both agreed to forfeit $400,000.

U.S. Attorney Laura Duffy said, “Those who choose to operate a money transmitting business under U.S. law must fully comply with all federal regulations governing their operations, and will be held to the highest standards to ensure that criminal proceeds do not filter into the financial system.”

Both defendants were sentenced on January 9, 2017, to probation for a period of five years. They were also ordered to pay a fine of $25,000 and to forfeit the amount of $400,000, which the parties agreed represented proceeds of the criminal activity.

Conclusion

Over the course of the last three years, each of the GTOs described above has been accompanied by a FinCEN press release and a flurry of media coverage.  FinCEN has been notably (and understandably) silent, however, on whether any of the information disclosed by financial institutions pursuant to the terms of the GTOs has been valuable.  FinCEN’s announcement confirms that its campaign to crack down on trade-based money laundering through the frequent and expansive use of Georgraphic Targeting Orders appears to be generating meaningful information for law enforcement, and we expect to see additional investigations and prosecutions in the future based upon information reported to FinCEN pursuant to the GTOs.  We also expect that FinCEN will continue to make aggressive use of its authority to issue GTOs in regions or industries perceived to have money laundering vulnerabilities.