1998-09-23 -- Money Laundering -- White Paper
STATE OF NEW JERSEY
DEPARTMENT OF LAW AND PUBLIC SAFETY
REPORT TO THE GOVERNOR
BY THE ATTORNEY GENERAL'S
MONEYLAUNDERING WORKING GROUP
CHRISTINE TODD WHITMAN, GOVERNOR
PETER VERNIERO, ATTORNEY GENERAL
Table of Contents
EXECUTIVE SUMMARY 2
I. INTRODUCTION 5
A. What is Money Laundering? 7
1. Currency Smuggling 8
2. Structuring of Cash Transactions 10
3. Asset Purchases for Re-sale 11
4. Asset Purchases for Goods 12
5. Conversion through Casinos 13
6. Other Methods 13
II. THE NEW JERSEY STATUTE AND LAW ENFORCEMENT RESPONSE 15
A. The Statute 15
B. The Money Laundering Review Committee 17
C. The Law Enforcement Response 19
III. SUMMARY OF CASES - 1994 THROUGH 1998 24
IV. PROPOSALS 27
A. Establish a State Financial Investigations Unit in the Division
of Criminal Justice 28
B. Encourage Counties to Train Financial Crimes Investigators 30
C. Improve Access and Review of Suspicious Activity Reports 31
D. Improve Access to Federal Information 33
E. Prepare and Disseminate an Assets Seizure Checklist 34
F. Legislative Initiatives to Enhance The Money Laundering Act 36
1. Amend Money Laundering Statute - First Degree Offense 36
2. Require Consecutive Sentences for Money Laundering Convictions 37
3. Support Legislative Proposals for Reporting Requirements
on Check Cashing Agencies 38
4. Support Expansion of the Wiretap Act to Include Money Laundering 40
5. Propose an Anti-Money Laundering Profiteering Act 41
6. Propose Legislation to Curtail Use of Casinos by Money Launderers 41
a. Cash for Cash Transactions 41
b. Convicted Money Launderers Should be DisqualifiedFrom Licensure and Excluded from Casinos 42
G. Establish Liaison with Banking Community 43
H. Identification of Emerging Trends and Their Effect on Money Laundering 43
1. High-Tech replacements for traditional techniques of
Money Laundering 44
2. High-Tech Methods for Laundering Illegal Proceeds 45
3. Cryptography 48
V. CONCLUSION 50
VI. EXHIBITS A1-A43 PREFACE
On May 31, 1998, Governor Whitman asked the Attorney General to review the current system of combating money laundering and to make recommendations for improvements where appropriate. Thereafter, the Attorney General formed a Money Laundering Working Group consisting of state, federal, and local law enforcement entities, and asked the Group to review existing laws to determine whether there are ways in which the statutory framework could be strengthened, and to consider whether it is feasible to establish "a system to allow New Jersey agencies to better share and obtain existing federal databases that record large cash transaction by banks and businesses in the state. . . ." See Exhibit A. The Attorney General also asked the Working Group to consider whether strengthened regulation of the state's check-cashing businesses would enhance law enforcement's ability to address this statewide and national problem.
In response, the Working Group reviewed a number of current legislative proposals, and discussed other initiatives to address the problem of money laundering. The following Report represents the findings of the Working Group, and offers a comprehensive plan for enhancing our statewide attack on money launderers. By this Report, the Attorney General approvingly forwards these recommendations to the Governor for her review.
This Report by the Attorney General's Working Group on money laundering presents an overview of money laundering, and identifies a number of common methodologies used by money launderers in New Jersey and throughout the nation. The Report reviews the current statutory scheme in New Jersey designed to combat money laundering, and then provides a summary of the number of cases prosecuted under the money laundering act from its inception. Finally, the Report offers a comprehensive plan designed to aid law enforcement in its efforts to combat money laundering, and also identifies emerging trends in high technology and their possible effect on money laundering.
The specific proposals in the Report include the following :
1. Establishing a state financial investigations unit in the Division of Criminal
2. Encouraging counties to train financial crimes investigators to support money laundering investigations and prosecutions;
3. Improving access and review of suspicious activity reports so that financial transactions related to possible money laundering offenses are thoroughly investigated;
4. Improving access to federal information available to law enforcement, including improved access and dissemination of material from the Financial Crimes Enforcement Network;
5. Preparing and disseminating an assets seizure checklist for use by law enforcement during the course of a financial crimes investigation;
6. Proposing legislative initiatives to enhance the money laundering act, which include : (a) amending the money laundering statute to provide for a first degree offense if the amount involved in the transaction is $500,000 or more; (b) requiring sentences for money laundering convictions to be served consecutive to a sentence for the underlying offense; (c) supporting legislative proposals for reporting requirements on money remitters; (d) supporting expansion of the Wiretap Act to include money laundering as an offense for which a wiretap can be ordered; (e) proposing an Anti-Money Laundering Profiteering Act that would provide for the disgorgement of proceeds and increased fines against defendants convicted of money laundering offenses; and (f) proposing legislation to curtail use of casinos by money launderers, including initiatives designed to prevent money launderers from engaging in cash for cash transactions, and to disqualify convicted money launderers from licensure and to require their exclusion from casinos;
7. Establishing liaison with banking community so that communication and coordination with law enforcement can be improved; and
8. Identifying emerging high-technology trends and considering their effect on money laundering, including a discussion of high-tech replacements for traditional techniques of money laundering and the use of cryptography by money launderers.
Together, these proposals represent a coordinated, comprehensive, and sophisticated response to the problem presented by money launderers. By addressing the problem now, New Jersey will be in a better position to take effective action against those criminals who seek to gain access to their ill-gotten gains.
Most Americans work hard and enjoy the privileges of living in a free and democratic
society. Our society provides all people with opportunities to achieve, and our Government
strives to guard jealously the rights of its citizens who abide by the compact of an
ordered society. Unfortunately, within our midst there are those who weaken the fabric of
our society by virtue of their illegal activities. These criminal enterprises seek to
obtain money and power through criminal conduct, and then attempt to infiltrate our
legitimate society, thereby distorting the terms of the compact.
These criminal enterprises generate vast profits for themselves and often times seek to gain legitimacy and use their criminal proceeds to insulate their conduct from scrutiny. They generate millions upon millions of dollars for the members of the enterprise, and allow their associates to live lavish lifestyles that have been forged from the misery and despair that their criminal activity produces.
Moreover, vast sums of money in the hands of a corrupt few can have serious consequences for our nation's economic well-being. The infiltration of criminal proceeds into world markets can destabilize them, and can have a corrupting effect on those who work within the market system. The penetration of criminals into the legitimate markets can also shift the balance of economic power from responsible and responsive entities to rogue agents who have no political or social accountability. In short, when criminal enterprises are able to enjoy the fruits of the criminal ventures, the world market can be destabilized, leaving some countries vulnerable to persuasion and interference by corrupt organizations.
In order to address the corrupting presence of criminal proceeds in our economic system, and to help rid our state and this country of criminal enterprises that reap huge profits from criminal activity, many states and the federal government have enacted laws designed to prevent the successful conversion of ill-gotten gains into untraceable funds. In 1994, New Jersey enacted the "Financial Facilitation of Criminal Activity" law, codified at N.J.S.A. 2C :21-25, which proscribes various types of laundering activity. These laws, intended to combat the spread of money laundering, have helped the effort to reduce the amount of infiltration into our financial system.
In most cases, money launderers are attempting to conceal or disguise the nature of their proceeds, which are usually generated by the illicit sale of drugs in the United States. Although the overwhelming amount of money laundered in this country is derived from drug distribution activity, the act of laundering is also utilized by other profit-minded criminals, such as weapons smugglers, fraud rings, auto theft rings, and other financially motivated criminals. Any effort by the criminal element to disguise, conceal, or convert the proceeds of unlawful activity into seemingly "legitimate" funds constitutes money laundering, and poses a threat to the welfare of our citizens.
Although New Jersey has a comprehensive criminal code, including a recently-enacted
money laundering provision, it is vitally important that the law enforcement community
keep pace with the ever-changing dynamics of the money launderer, whose methods are
constantly evolving in an effort to stay beyond the reach of the law. With the
introduction of high technology and other new electronic methods in which funds can be
laundered, the problem continues to grow even as increased resources are directed at the
problem. As law enforcement pressure increases, the criminal enterprises become more
skilled at avoiding detection and dismantling by law enforcement. Meanwhile, law
enforcement, in order to keep pace with these criminal enterprises, must maintain the
highest levels of training and expertise for its members. If the flow of criminal proceeds
is to be interrupted, the law enforcement response must be coordinated, comprehensive,
sophisticated, and decisive.
The following Report summarizes the existing law and the current state of money laundering prosecutions by state and local law enforcement, and highlights some proposals which, if enacted, would make it increasingly difficult for launderers to find a safe-haven in New Jersey.
What is Money Laundering? Although the term "money laundering" is common in
the parlance of law enforcement communities, the words themselves do not accurately convey
the extent and degree of sophistication associated with the crime that it purports to
describe. In its simplest incarnation, money laundering is "an activity aimed at
concealing the unlawful source of sums of money. . . ." In effect, money laundering
serves as the manner in which criminals attempt to thwart law enforcement's ability to
track the success of a criminal venture by disguising the proceeds of that venture to make
the proceeds appear lawful or to make them unidentifiable. Money laundering serves to rid
the currency of the criminal enterprise of its illegal taint and, once funds are
laundered, allows for the proceeds to be used by the enterprise for its various
activities, both lawful and unlawful.
Although the concept of money laundering is rather straightforward, the methods employed by criminals are varied and reflect the ingenuity of the criminal mind in attempting to thwart law enforcement. However, a number of preferred methods or schemes of money laundering have been identified and reflect the most common methods in which criminals transport and disguise their profits.
Currency Smuggling - Perhaps the most rudimentary method of money laundering, currency smuggling is the act of transporting large sums of proceeds generated through the criminal activity from within the United States to countries abroad. Currency smuggling allows criminals to obtain immediate access to their funds without the need to utilize a financial or other commercial institution, and avoids generating a paper trail so that once the transportation is complete, the sources of the proceeds are virtually undetectable. Often, the only cost to the criminal enterprise in currency smuggling is the fee paid to the courier who physically transports the proceeds, which is usually calculated as a percentage of the funds transported. Depending on the arrangement between the enterprise and the courier, fees usually calculated as a percentage of the amount of funds smuggled are paid, making for a profitable venture for both the courier and enterprise. The prime danger to the criminal enterprise in this type of laundering is the difficulty in concealing large sums of currency, which can be bulky, from customs inspectors at the borders or from law enforcement officers while in transit. If found, the currency is normally seized and the criminal enterprise loses its shipment. Although the act of currency smuggling is straightforward, the methods employed are varied and creative. Criminal enterprises employ couriers who conceal currency in a number of ways, including within hidden compartments in suitcases or vehicles, and in parcels being transported. Couriers may also conceal illegal proceeds within merchandise or goods that are being shipped as export from the United States, making detection difficult. Given the size of our national border, at times couriers simply travel to an adjoining country (such as Mexico) carrying the proceeds in a satchel for immediate transfer to the waiting members of the enterprise. Couriers may also use private vessels or aircraft to transport bulk proceeds to the foreign destination. In short, although currency smuggling is a comparatively crude method utilized to move illegal proceeds from the United States, it is common because of the ease with which it can be accomplished and due to the virtually untraceable nature of the proceeds if the smuggling is successful.
Structuring of Cash Transactions - In response to the explosion of money laundering activity, Congress passed a series of laws designed to prevent criminals from using banks and other commercial establishments in moving their ill-gotten proceeds from this country, including laws requiring certain financial institutions to report any currency transactions in amounts of $10,000 or more. This law thwarts money laundering activity by virtue of the requirement that the financial institutions handling the transactions are required to report all such transactions to the United States Department of the Treasury, which can share the information with law enforcement. Criminal enterprises, desirous of secrecy, would thus avoid the ease of using these institutions as unwitting facilitators of their criminal activity. In response to the regulatory scheme imposed, money launderers who used financial institutions began to divide their cash horde into amounts less than the reporting requirement in an effort to avoid the reporting requirement and the associated disclosure of their activity. In addition, criminal enterprises began using individuals who would take a small portion of the cash horde to several different financial institutions and either deposit the money in a pre-existing account or exchange the cash for a monetary instrument such as a cashier's check. "Smurfing," as this practice is called, thus allows for the enterprise to avoid disclosure by breaking down the proceeds into small, discrete transactions, making law enforcement's job that much more difficult. The drawbacks to smurfing are the time-consuming nature of the activity, the need to employ a number of individuals, the necessity of maintaining accounts at several institutions, and the necessity of repeated contacts with commercial or financial institutions. However, recruits to smurf proceeds are readily available, and considering the scope of economic activity in this state and this country, detecting smurfs who use legitimate commercial institutions remains a difficult task for law enforcement. Moreover, New Jersey is particularly susceptible to smurfing activity by virtue of the presence of our gambling industry. At casinos, smurfs often purchase a significant quantity of chips, engage in a minimum amount of gambling, and then exchange the chips for "clean" cash or a monetary instrument from the casino.
Asset Purchases for Re-sale - Another common method of laundering proceeds of criminal activity employed by more sophisticated criminal enterprises is the purchase of tangible assets. Through this method, a criminal enterprise can convert proceeds to large scale items such as homes or vehicles (although reporting requirements apply for cash transactions), or the proceeds can be converted by purchasing items for purported re-sale abroad. For example, a criminal enterprise can establish a business, such as a computer hardware business, and then purchase a large amount of inventory with the cash proceeds of the illegal activity. Although the purchase of the goods would likely generate a currency report, the front business is less likely to arouse the suspicion of law enforcement, and gives the outward appearance of legitimate commercial activity. Thereafter, the goods are legally shipped and then quickly re-sold in the host country, often at below market rates in order to obtain the proceeds immediately. The fact that the "business" is losing money is simply factored into the criminal enterprise as the cost of laundering the funds for subsequent use by the enterprise.
Asset Purchases for Goods - Another common and highly visible method in which money launderers convert their illegal proceeds is through the purchase of luxury items for themselves or others associated with them so that they can enjoy a lavish lifestyle. These purchases, such as expensive jewelry, furs, clothing, vacations, and other costly items allow members of the enterprise to enjoy the fruits of their activity in a very public way. Although the assets themselves are used and enjoyed by the enterprise and its associates directly, these too can easily be converted back to cash should the enterprise require access to funds.
Conversion through Casinos - Casinos and gambling are one of the more significant economic activities for the state of New Jersey. The presence of casinos, however, makes New jersey particularly susceptible to money laundering, for the industry presents a convenient locale to exchange large sums of money without drawing undue attention to the person exchanging funds, and can allow criminals to convert proceeds undetected. Once funds are exchanged at the casino, the currency loses its illegal taint and is identified as gambling proceeds, giving the criminals the opportunity to use their ill-gotten gains with the appearance of legitimacy. The casino floor presents a target of opportunity for the criminal enterprise in need of a means to convert their funds from illegal to apparently legitimate income.
Other Methods - In addition to the methods outlined above, money launderers also use wire transfer agencies and other money remitters in order to launder their proceeds. Although these types of transactions leave a paper trail, it is often times easy to provide false identifying information to the businessperson operating the remitting agency, which leaves law enforcement with few investigative avenues to pursue. Criminal Enterprises also use securities brokers and dealers and other businesses that engage in trading of securities to help launder their cash transactions. In short, virtually any business or institution, from banks to import-export houses, presents itself as a means through which a criminal enterprise can convert its ill-gotten proceeds into untainted and useable funds.
THE NEW JERSEY STATUTE AND LAW ENFORCEMENT RESPONSE
In 1994, Governor Whitman signed P.L. 1994, c. 121, which codified the crime of financial facilitation of criminal activity. See Exhibit B. Commonly referred to as the "Money Laundering Act," this law was designed to address the growing concern about criminals who profit from their illegal enterprises and who then use their proceeds in the operation of otherwise legitimate businesses or to enjoy a lavish lifestyle from the fruits of their ill-gotten gains. In enacting the law, the Governor and Legislature recognized the need to establish criminal as well as civil remedies so as to "deter individuals and business entities from assisting in the legitimizing' of proceeds of illegal activity. . . ." N.J.S.A. 2C :21-23e. In the Legislative findings and declarations associated with the law, the Legislature observed that those who profit financially from criminal schemes "continue to pose a serious and pervasive threat to the health, safety and welfare of the citizens of this State. . . . ." N.J.S.A. 2C :21-23d.
The Statute The statute itself is fairly broad, and is modeled on the federal law, with
some important distinctions. Section 2C :21-25
of the New Jersey Code provides, in pertinent part, [a] person is guilty of a crime if the
a. transports or possesses property known to be derived from criminal activity; or
b. engages in a transaction involving property known to be derived from criminal activity
(1) with the intent to facilitate or promote the criminal activity; or
(2) knowing that the transaction is designed in whole or in part
(a) to conceal or disguise the nature, location, source, ownership or control of the property derived from criminal activity; or
(b) to avoid a transaction reporting requirement under the laws of this State or any other state or of the United States . . . .
The statute further provides that "[f]or purposes of this act, property is known to be derived from criminal activity if the person knows that the property involved represents proceeds from some form, though not necessarily which form, of criminal activity. . . ." N.J.S.A. 2C :21-25d. This provision allows for a conviction in circumstances in which the State cannot prove exactly what type of criminal activity generated the proceeds that were the object of the laundering activity.
In addition, the statute expressly allows for knowledge of criminal activity to be inferred in circumstances in which "the property is transported or possessed in a fashion inconsistent with the ordinary or usual means of transportation or possession of such property and where the property is discovered in the absence of any documentation or other indicia of legitimate origin or right to such property. . . ." N.J.S.A. 2C :21-26.
Currently, a money laundering offense involving $75,000 or more in the aggregate is classified as a second degree offense, with a possible sentence of 5-10 years imprisonment and a $150,000 fine. For amounts less than $75,000, it is classified as a third degree offense, with a possible sentence of 3-5 years imprisonment and a $15,000 fine, with a presumption of non-incarceration for a first-time offender. The legislature also included a provision in the statute that precludes the merger of a conviction for a money laundering offense with a conviction constituting the criminal activity involved or from which the illegal proceeds were generated. Id.
The Money Laundering Review Committee In recognition of the powerful new law available
to the State's law enforcement community, Attorney General Verniero in 1996 promulgated
Guidelines regarding the prosecution of money laundering cases. These Guidelines were
intended to provide a framework in which the law enforcement community could coordinate
money laundering prosecutions and would ensure uniformity in the application of this new
Since the inception of the Money Laundering Act, and as part of the Guidelines, the Division of Criminal Justice was charged with the responsibility of coordinating money laundering prosecutions with the county prosecutors. As part of those Guidelines and in an effort to ensure that prosecutions were consistent with the purposes of the new law and that there was no statewide disparity in the various counties, the Guidelines called for the establishment of a Money Laundering Review Committee. See Exhibit C.
The Money Laundering Review Committee comprises senior attorneys from the Division of Criminal Justice. The Review Committee is "responsible for pre-charge consultation, tracking prosecutions and serving as a source of information and advice to the county prosecutors and their assistants. . . ." Id. In addition, the Guidelines called for county prosecutors to engage in pre-charge consultation with the Division of Criminal Justice prior to filing a charge alleging a violation of the money laundering statute, and required the Division to maintain a tracking system of all cases that were filed under the money laundering act. Finally, the Review Committee and the Division are responsible for maintaining a database of dispositions for all cases charging a money laundering offense, and is also to be available to prosecutors to provide advice and assistance in handling money laundering cases.
Since its inception in October 1996, approximately 21 cases have been submitted to the Money Laundering Review Committee for review, analysis, and assistance. A quick comparison between the number of complaints and indictments filed charging money laundering and the number of matters reviewed by the Committee reveals that not every prosecution that charges a money laundering offense is being considered by the Committee as is required by the Guidelines. The reasons for this are unclear, but may be attributable to a somewhat time consuming and exhaustive preparation and review process that may inadvertently deter prosecutors from submitting matters for review.
In discussions with prosecutors and with members of the Review Committee, it is apparent that the process established in 1996 must be streamlined to allow for a more timely and efficient review of cases. In this regard, the Money Laundering Review Committee must reconsider the thresholds that it established to allow for money laundering cases to proceed, and must also consider ways in which coordination and communication with the county prosecutors can be improved so as to allow for more cases to be developed and to encourage law enforcement officers to pursue investigative leads which may result in a money laundering charge. The Money Laundering Review Committee must also ensure that consistency and uniformity are maintained in money laundering prosecutions statewide.
It remains apparent that the investigation and prosecution of money laundering is a critical component of New Jersey's comprehensive crime and drug enforcement strategy. Criminals continue to engage in illegal activity and are reaping huge profits from their illicit trade. Much of this conduct revolves around the illegal drug trade and the staggering profits to be made by individuals who are dealing narcotics and peddling misery. Money continues to flow from the streets and communities in New Jersey to the drug lords in Colombia and Central and South America, and the cycle of despair continues.
The Law Enforcement Response Recognizing the scope of the illegal money laundering activity in New Jersey, the law enforcement community has responded in a number of significant ways. The law enforcement response includes civil sanctions, which allows prosecutors to seize and forfeit illegal proceeds generated or assets used by an enterprise in their criminal activity, and criminal punishment. It is important to bear in mind that a significant part of the law enforcement response to money laundering is the prosecution of drug dealers at all levels, including street level prosecutions. Although in most cases, these "routine" prosecutions do not include a money laundering charge, the disruption of a drug distribution network through arrest of its members serves to curtail the flow of illegal proceeds. Moreover, such drug prosecutions also impose significant costs on an organization, requiring the purchase of more contraband for subsequent sale, training of new members, and the attendant costs associated with attempting to keep an organization's activities clandestine. Although such drug prosecutions, most all of which are handled by the county prosecutors, are not ordinarily considered part of the money laundering equation, they are in reality an important aspect of the law enforcement response and represent a vital part of the effort to combat money laundering. The local law enforcement community engages the criminal element at this level, while at the same time taking responsibility for the front-line response to violent crimes and the criminal activity that confronts our communities on a daily basis.
Indeed, the level of criminal activity that must be addressed by local law enforcement can best be understood when the number of cases that are filed each year by the county prosecutors is considered. In 1997 alone, approximately 45,000 defendants were charged by county prosecutors, who are responsible for handling these cases. Of that number, approximately 17,000 individuals were charged with offenses related to narcotics activity. The raw data serve as a reminder that the prosecutors' offices are the agencies primarily responsible for enforcing the laws of this state and for pursuing cases against defendants for all types of criminal conduct. Their efforts in the quest against money laundering are only one facet of the demands that are placed on prosecutors' offices on a daily basis.
In addition to the overall drug prosecutions by county prosecutors, the State Police has developed substantial expertise and experience in identifying smugglers who are using the interstate highways to transport currency as part of smuggling activity. The State Police has also been successful with interdiction efforts, and have produced a number of significant seizures from highway stops. In conjunction with the Statewide Narcotics Task Force, the State Police has seized over $5,800,000 which represented proceeds from illegal activity. In one such seizure, a suspect was found removing a duffle bag from his car and, when the bag was examined, was found to contain approximately $500,000. A search of this suspect's home revealed an additional $322,000 concealed within the house. The continued efforts to identify couriers who are transporting illegal proceeds through New Jersey can be effective in deterring enterprises from using our roadways, although the sheer volume of activity and congestion in our state will prevent law enforcement from effectively thwarting the criminal element merely by interdiction of their couriers.
Another successful response can be seen in the efforts of the "Calico" Task Force, which is part of the Statewide Narcotics Task Force and is led by the State Police along with state and local law investigators who investigate and target Colombian cartels involved in drug distribution and money laundering activity. The Calico Task Force, established in 1990, has been actively involved in identifying and investigating large scale money laundering and drug distribution networks in the northern New Jersey area, and has been successful in seizing substantial amounts of drugs and currency. To date, Task Force members have seized more than 1,600 kilograms of cocaine and more than $19 million in proceeds of criminal activity. The Calico Task Force remains an effective weapon against criminal enterprises, and continues to perform its mission successfully.
In addition, the State Police and state and local law enforcement officers have combined their efforts in a new effort entitled the "Hotel/Motel Task Force," which is a coordinated effort designed to identify couriers who use hotels in the northern New Jersey area to receive and exchange drugs and currency. The Hotel/Motel Task Force has been successful at interdicting several individuals involved in money laundering and narcotics distribution, and their investigations to date have resulted in the seizure of approximately 160 kilograms of cocaine and over $2 million.
In addressing the unique concerns associated with the use of casinos for money laundering, a joint state-federal task force was recently formed entitled the Atlantic City Casino Task Force. This Task Force comprises agents from various federal agencies, and members of the State Police, Division of Gaming Enforcement, Division of Criminal Justice and the Atlantic County Prosecutor's Office, and is designed to target those individuals who engage in money laundering through the casinos. Although a new effort, the Task Force has already successfully prosecuted several individuals, and it is anticipated that significant inroads will be made in detecting and prosecuting those who attempt to convert their ill-gotten proceeds through the legitimate gaming industry.
As can be seen, the state and local response to money laundering has been significant, and has been effective at identifying and prosecuting a number of individuals and organizations for their involvement in the money laundering trade. The response to money laundering must be considered as part of a statewide comprehensive response to criminal activity, in which local law enforcement is responsible for overall narcotics enforcement at the street level, and is also responsible for violent crimes and a host of other criminal behaviors. However, as is demonstrated in the following section, the scope of the problem continues to grow, and law enforcement must be prepared to respond.
SUMMARY OF CASES - 1994 THROUGH 1998
With the passage of the money laundering act in 1994, county prosecutors and deputy attorneys general from the Division of Criminal Justice were provided with a powerful new weapon to prosecute individuals who were involved in moving proceeds of criminal activity into the hands of the criminals. In 1994, the same year that the law became effective, 2 complaints and 1 indictment were filed charging money laundering. Over the course of the next four years, over 280 separate defendants were charged with a money laundering offense in a complaint. The yearly breakdown of the total number of complaints filed charging a violation of N.J.S.A. 2C :21-25 recorded for the corresponding calendar year is as follows:
1994- 2 complaints
1995- 83 complaints
1996- 74 complaints
1997- 79 complaints
1998- 48 complaints
See Exhibit D. For these same years, approximately 131 indictments were filed charging a violation of N.J.S.A. 2C :21-25. The following represents the number of indictments filed charging a violation of the money laundering act for the corresponding calendar year:
1994- 1 indictment
1995- 32 indictments
1996- 36 indictments
1997- 47 indictments
1998- 15 indictments
As is reflected in the number of cases filed charging a violation of the money laundering statute, prosecutors are using the current law on a regular basis, and appear to be proceeding with understandable caution when making charging decisions relating to money laundering. Given that the statute is relatively new, having been enacted in 1994, these numbers indicate a good-faith effort by prosecutors in bringing money laundering cases. But the extent of possible money laundering activity can perhaps be understood when the total number of cases charging a defendant with a first degree drug distribution offense or with being the leader of a narcotics trafficking network is compared to the total number of money laundering cases.
For example, from 1994 to 1997, in approximately 2,777 cases, a defendant was charged
with being the leader of a narcotics trafficking network or with a first degree drug
distribution offense. See Exhibit E. Clearly, these crimes are motivated by the promise of
substantial financial reward, which is seen as overcoming the risk of being arrested,
prosecuted, and imprisoned, or of being killed by other competitors. What is required is
an exhaustive review and comprehensive proposals to combat a problem of this scale. These
Considering the tremendous financial incentive to engage in money laundering activity, even the stringent laws in place do not provide a complete deterrent to the criminals who are willing to risk imprisonment for the rewards reaped by engaging in money laundering activity. In light of this incentive, it is apparent that law enforcement must continue to direct its resources and efforts at reducing the pernicious impact that money launderers have on our communities. More can also be done by coordinating efforts between state, federal, and local governmental entities and law enforcement agencies. The Legislature can also play a vital role in this effort by amending the money laundering act to provide for the imposition of stern penalties and sanctions that deter these offenses and cancel the profit motive.
The following proposals from the Money Laundering Working Group represent a unified, carefully designed approach to increasing the effectiveness of law enforcement's investigation and prosecution of money launderers. The proposals, both individually and collectively, can significantly improve our efforts at removing money launderers from our midst.
Establish a State Financial Investigations Unit in the Division of Criminal Justice
As was recommended in the "Financial Crimes 2000" Report prepared by the National Association of Attorneys General, a necessary component should be the designation within the Division of Criminal Justice of a Financial Investigations Unit. A Financial Investigations Unit, which may be established by Attorney General directive without the need for new legislation, will serve as a statewide resource, and will provide guidance, information, and assistance to investigators and prosecutors who are involved in the prosecution of money launderers. The Financial Investigations Unit would also be charged with maintaining information regarding trends in money laundering, and providing periodic updates to the county prosecutors so that the law enforcement community could keep pace with increasingly sophisticated criminal organizations.
The Division of Criminal Justice will also assist in the training of personnel at the county and state level on money laundering investigations, and will also be responsible for coordinating investigations and activities with the counties. The Division will also ensure that the 21 prosecutors offices have adequate access to the information available to the Financial Investigations Unit.
The Financial Investigations Unit should also have in place a sufficient number of experienced state investigators who are specially trained in money laundering cases. The Financial Investigations Unit would be responsible for investigating and prosecuting money laundering cases, and would also serve as a referral point for the State Police and county and local law enforcement which request assistance in an investigation into possible money laundering activity. The Financial Investigations Unit could provide support to a county investigation, or could assume the investigation if requested to do so by the county prosecutor.
In addition, the Financial Investigations Unit would provide for access to databases currently available to assist investigators and prosecutors in an investigation, and would also maintain an independent money laundering database identifying individuals, organizations, methods of operations, and other distinguishing aspects of money laundering enterprises so that a body of material could be maintained on those involved in the criminal trade of money laundering. The Financial Investigations Unit would also be responsible for disseminating information to the law enforcement community on known and suspected money launderers and attempt to identify their whereabouts and patterns of operation, so that law enforcement could be ever vigilant when confronting these groups of criminals. The Financial Investigations Unit would also instruct law enforcement personnel on the various types of transaction reporting requirements that currently exist in our country and would help improve law enforcement's access to this information. Training, coordinated with federal and state agencies will also allow for the development of particularized expertise and will help cultivate inter-agency relationships and cooperation.
Encourage Counties to Train Financial Crimes Investigators One of the most effective ways to combat money laundering is for law enforcement entities to have available in their own office individuals with particularized expertise in the area of money laundering. In training and recruiting investigators and prosecutors with specialized skill in investigating and prosecuting money laundering offenses, the county prosecutors will have a readily available resource in their respective offices to assist with these cases, and may have investigators assigned who can serve as a liaison with state and federal agencies. Moreover, by training investigators to operate as financial crimes investigators or as liaisons, investigators will be available to assist with on-going investigations initiated by local law enforcement. As investigators develop experience in this field, the practices and patterns of the money laundering enterprises will become more apparent, and the specially-trained investigators may be able to pursue suspects aggressively upon learning of suspected money laundering activity, and will be able to coordinate activity with the Division of Criminal Justice's Financial Investigations Unit. In addition, local investigators can cultivate sources, and can use their expertise to gain the assistance of the community at large.
Improve Access and Review of Suspicious Activity Reports Under the current regulatory framework, the federal government requires that all banks file with the government a "Suspicious Activity Report" in circumstances where the financial institution handling a transaction determines any one of the following have occurred:
1) the transaction involved insider abuse; 2) the transaction or series of transactions
involved $5,000 or more and the financial institution detects any known or suspected
federal criminal violation and a suspect can be identified; 3) the transaction or
transactions involves $25,000 or more regardless of whether a suspect can be identified;
or 4) the transaction or transactions involve $5,000 or more that may involve potential
money laundering violations. See Exhibit F.
Many of the suspicious activity reports, especially those in which the bank has reason to suspect a potential money laundering violation, may lead to significant information or suspects involved in moving illegal proceeds. The federal regulations governing suspicious activity reports require that the financial institution submit the suspicious activity report to the U.S. Department of Treasury's Financial Crimes Enforcement Network ("FinCEN"), and also requires that the institutions keep supporting documentation relating to a suspicious activity report for a period of 5 years from the date of the report. Notably, the financial institutions are required to provide copies of suspicious activity reports and supporting documents to law enforcement authorities if requested to do so, see 31 C.F.R. Sect. 103.21, and are encouraged to voluntarily provide them.
In 1997, the total amount of money reported to FinCEN on suspicious activity reports filed by New Jersey financial institutions was approximately $652 million. See Exhibit G. Although all of this currency is not necessarily illegal proceeds, it is apparent that the financial institutions are being utilized by criminal enterprises to move substantial amounts of currency from New Jersey to other locations. In order to staunch the flow of illegal proceeds from New Jersey, it is necessary for law enforcement to scrutinize the information provided on the suspicious activity reports to determine if any particular transaction or series of transactions is involved in a possible money laundering offense.
In light of the huge volume of currency reported on the suspicious activity reports and considering the large number of reports filed, the Division's Financial Investigations Unit will utilize data analysts who will be able to access the information and will be able to assist the county prosecutors with compiling the reports and retrieving them for ongoing investigations. Such a responsibility should be centrally-located with the Division, so that there need not be unnecessary duplication of efforts at the county level. Under such a system, the county investigators will be able to gain access and assistance from the Financial Investigations Unit, and will also routinely review the suspicious activity reports and refer any significant activity to the county investigators.
Improve Access to Federal Information The U.S. Department of Treasury has established a
Financial Crimes Enforcement Network, identified as "FinCEN," an agency whose
mission is "to support and strengthen domestic and international anti-money
laundering efforts and to foster interagency and global cooperation to that end through
information collection, analysis and sharing, technological assistance, and innovative and
cost-effective implementation of Treasury authorities. . . ." See Exhibit H. In order
to accomplish its mission, FinCEN uses the Bank Secrecy Act and other federal regulations
to obtain access to financial records and reports that are required to be filed with the
Internal Revenue Service, such as currency transaction reports. FinCEN also provides
access to commercial databases and to law enforcement databases that contain information
regarding ongoing or closed investigations. See Exhibit I.
As part of the mission of FinCEN, state and local law enforcement agencies are provided direct access to their databases through the FinCEN Gateway. Currently, New Jersey has 4 state investigators trained and authorized to access the Gateway database to provide support to investigations from the State Police, county prosecutors and the Division. In 1997, approximately 34 requests were made for Gateway database searches by state and local law enforcement. In 1998, the total number of Gateway database search requests was 40. As is apparent from the number of queries performed, this valuable resource can be utilized by more investigations, and can be used to help develop leads and evidence regarding the patterns of conduct of money launderers in a wide variety of investigations.
In order to increase access and to allow for investigators to obtain the information from FinCEN on a more expedient basis, it will be essential to obtain authorization for and train more investigators and analysts in the proper use of the FinCEN Gateway database. It will also be necessary to continue to educate all state and county investigators on the type of information available through the Gateway database and the extent of support that this service can provide to investigations. This increased access will allow investigators to obtain information immediately, and will support active investigations with speed and accuracy. It is anticipated that with increased access, searching through the Gateway will become a common investigative technique, and will help increase our efforts at reducing the amount of money that is passed through the state.
Prepare and Disseminate an Assets Seizure Checklist Although money laundering is often times a complex and sophisticated endeavor characterized by secrecy and sophisticated efforts to conceal the true nature of the activity, a significant number of cases are developed through the arrest of couriers and drug smugglers who are moving substantial sums of currency or narcotics through New Jersey. However, in light of the pressing demands placed upon an officer making a stop and seizure, at times there is not sufficient detailed questioning of suspects to elicit information that could be helpful in identifying the source of the illegal proceeds or the identities of the associates of an enterprise. Moreover, there are circumstances in which the facts of the stop and seizure do not give rise immediately to sufficient probable cause to justify arresting the suspects, and they are released with no further investigative action taken at that time.
In order to assist law enforcement officers at the time of arrest, the Working Group prepared a list of suggested questions which, if posed to suspects, will be helpful to law enforcement in conducting subsequent investigation to identify the source and associates of the activity. For example, the proposed model questions suggest inquiring of suspects who are found to be in possession of substantial sums of currency questions regarding the source of the currency, ownership, destination, knowledge of account information, and other detailed questions regarding a seized cash horde. When answers are provided, law enforcement officers can later attempt to confirm this information to determine its accuracy and to develop evidence regarding the nature or source of the funds seized. Moreover, in conjunction with county financial investigators, the cases can then be examined to determine whether or not the smugglers are connected to a known organization or enterprise, and efforts can then be made to develop evidence regarding the criminal activity. This process will also allow for better coordination and cooperation between law enforcement agencies, who can share investigative leads and information developed as a result of detailed questioning. The role of cooperation can also be established at this time, with the possibility of infiltration of an enterprise by a cooperating individual.
In addition to a questionnaire, the passage of an illegal smuggling conveyance law should be added to the criminal code. Such an offense would prohibit the modification of a vehicle, or knowingly driving a vehicle that has been modified, to contain a hidden compartment or a compartment opened with controls intended by the vehicle manufacturer to operate other devices, when the purpose is to use the compartment to facilitate the transportation of a controlled dangerous substance or other contraband. This proposal was suggested in the December, 1996 "Report to the Governor by the Attorney General on the Need to Update the Comprehensive Drug Reform Act of 1987," and merits immediate consideration by the Legislature. See Exhibit J.
Legislative Initiatives to Enhance The Money Laundering Act
As discussed above, the current statutory scheme provides prosecutors with powerful weapons in the fight against money launderers. However, in order to enhance enforcement against individuals who engage in money laundering, a number of statutory changes can be made to improve law enforcement's efforts. These legislative recommendations include :
Amend Money Laundering Statute - First Degree Offense - Currently, money laundering is classified as a second degree offense if the amount of funds involved in the criminal activity was $75,000 or more. Although seizures of substantially more than this threshold amount are common, there is no increase in the degree of offense to reflect a higher amount laundered. On June 11, 1998, a bill was introduced in the legislature calling for a 1st degree offense of money laundering if the amount involved was $500,000 or more. This bill is an appropriate upgrade to the crime of money laundering, and should be supported with the amendments to the bill suggested by the Division of Criminal Justice. An increased penalty would send the clear message that money launderers will find no quarter in this state to obtain easy access to their ill-gotten gains. See Exhibit K.
Require Consecutive Sentences for Money Laundering Convictions - One of the concerns reported by prosecutors in pursuing money laundering cases is the lack of an effective sentencing scheme that takes into consideration money laundering as a separate offense. Often times, prosecutors found that judges would impose sentences on convicted money launderers that were ordered to be served concurrently with sentences for the underlying offense. Although the money laundering statute prevents merger of offenses, the courts are free to impose concurrent sentences. The effect can be that money launderers do not receive an incremental increase in a sentence for a money laundering conviction that is handed down with a conviction for a related or underlying offense, giving prosecutors little incentive to pursue a money laundering charge. In order to increase the sanction on money launderers, the Working Group has proposed that the money laundering statute be modified to include a mandatory consecutive sentence provision similar to that recently passed by the Legislature in N.J.S.A. 2C :39-4.1, colloquially referred to as the "guns and drugs" law. Such a provision would require that any money laundering sentence be served consecutive to a sentence for the underlying criminal activity, thereby giving prosecutors the assurance that a conviction will result in a substantial sentence in addition to the term of imprisonment imposed for the underlying offense. See Exhibit L.
Support Legislative Proposals for Reporting Requirements on Check Cashing Agencies - In addition to using traditional financial institutions to move currency from within New Jersey to places outside, money launderers also utilize the services of check cashing agencies and money remitters. Although these businesses are currently regulated, there is no additional reporting requirement imposed upon them beyond the requirement of the filing of a currency transaction report for cash transactions of $10,000 or more. However, evidence suggests that money remitters are a significant source of money laundering activity on behalf of cocaine traffickers. Nationwide, money remitters "are suspected of being used to launder as much as $800 million in profits from the Cali and Medellin drug cartels." The United States Treasury Department has imposed a Geographic Targeting Order (GTO) on money remitters in New York and five counties in New Jersey, requiring them to report all transfers over $750. The effect on some businesses targeted by the GTO was a decrease in business by as much as 75%. Obviously, the GTO hit its mark. New Jersey has a large number of money remitters operating in the Northern part of the state, many of which are associated with the New York remitters and are being used, either wittingly or unwittingly, to launder large sums of money. It is essential that these money remitters be licensed and closely regulated in a manner similar to banks. Moreover, a strict currency transaction reporting (CTR) requirement should be considered, along with a regulation capping the size of a check that can be handled by check cashing businesses at $2,500. As these proposals are being further reviewed, representatives from the industry and affected constituencies should be consulted to provide additional information as to the practical effect of any new legislation.
There is currently proposed legislation that would require check cashing agencies to file certain currency transaction reports when the value of the checks cashed exceeds a threshold amount. This bill, if amended, would provide significant support to law enforcement in its efforts to combat the use of money remitters to wash their illegal proceeds. In addition, legislation has been proposed that would limit the size of checks that could legally be handled by the state's check-cashing businesses. The proposal currently under consideration caps the be cashed at $2,500. These measures may be necessary to ensure that large sums of ill-gotten gains are not quickly moved through check cashing businesses. See Exhibit M.
Support Expansion of the Wiretap Act to Include Money Laundering- The New Jersey Wiretap Act permits law enforcement to seek a court order allowing the interception of oral or electronic communications of a suspect upon a showing, among other things, of probable cause to believe that the person whose communications are to be intercepted is or was engaged in specified criminal activity or is committing certain offenses. See N.J.S.A. 2A :156A-10. These specified offenses allowing the installation of a wiretap include murder, kidnaping, and a number of other offenses. See N.J.S.A. 2A :156A-8. Money laundering is not included as an offense that would permit a wiretap to issue. See id. In order to facilitate law enforcement's efforts in detecting money laundering activity and to assist in gathering evidence of such activity, the Wiretap Act should be amended to include money laundering as a specific offense that, if probable cause exists, would authorize a court to issue an order allowing for the interception of wire communications. See Exhibit N. By allowing wiretaps in such investigations, law enforcement will be able to gather critical evidence relating to the scope of an enterprise, including identity of its members, the extent of its activities, the roles of individuals employed by the enterprise, and the means and methods utilized to move criminal proceeds. Such an amendment would allow law enforcement to utilize all available means to infiltrate a criminal enterprise and would assist in gathering evidence against all individuals involved in a money laundering organization.
Propose an Anti-Money Laundering Profiteering Act - In addition to the legislative proposals identified in this Report, an initiative to create an anti-money laundering profiteering act should also be considered. Modeled after the current Anti-Drug Profiteering Act, an anti-money laundering profiteering act would have the same benefits of the anti-drug provisions by allowing for a lien against all assets of the wrongdoer. This would provide an effective means whereby courts could order the disgorgement of proceeds obtained through the criminal enterprise. See Exhibit O. Notably, funds recovered through an anti-money laundering profiteering act or through forfeiture could be re-directed back to the law enforcement agencies to support the costs associated with hiring and training state investigators in specialized areas such as forensic accounting necessary to support these types of investigations.
Propose Legislation to Curtail Use of Casinos by Money Launderers -
As noted earlier, New Jersey is particularly susceptible to money laundering by virtue of the gambling industry in Atlantic City. In order to deter the unwitting use of casinos by criminal enterprises, a number of statutory and regulatory initiatives should be considered.
Cash for Cash Transactions - One of the methods employed by money launderers is a cash-for-cash transaction at a casino designed to launder proceeds to make them appear to be gambling winnings. In such circumstances, a patron purchases chips with proceeds from illegal activity and then cashes out the chips, receiving either cash or a monetary instrument such as a check or wire transfer. This procedure allows for the appearance of gambling activity to mask the true source of the funds. One way to combat this activity is to prohibit cash-for-cash transactions in excess of $3,000. This provision, which is currently used by Nevada gaming officials, requires a casino to segregate cash in excess of $3,000 and identify the owner of the currency. When the owner cashes out any chips, the funds he receives are that portion of his segregated cash that was maintained by the casino. This procedure, which some New Jersey casinos voluntarily practice now, prevents a money launderer from obtaining "clean" funds through the casino. A regulatory scheme requiring this procedure should be considered.
Convicted Money Launderers Should be Disqualified From Licensure and Excluded from Casinos - Currently, a person convicted of money laundering is not subject to a mandatory casino license revocation, nor is a non-licensed person subject to mandatory exclusion from casinos. See N.J.S.A. 5 :12-71; 5 :12-129. See Exhibit P. In other words, a person convicted of money laundering is not automatically barred from wagering in New Jersey's casinos and is not excluded from holding a license in the industry. A legislative initiative should be endorsed that would require exclusion of convicted money launderers and drug dealers from casino floors and that would prevent convicted money launderers and drug dealers from holding a casino license.
Establish Liaison with Banking Community In conjunction with obtaining suspicious activity reports and documents relating to possible criminal activity, it is important for law enforcement to maintain regular contacts with the banking community in order to keep informed of trends and patterns that are observed by personnel at the financial institutions. Moreover, such regular contact will help the financial institutions to comply with all reporting requirements, in that they will have a resource to provide information and assistance should they so require. Accordingly, the county prosecutors and Division of Criminal Justice should designate investigators to act as liaison to the banking community, and provide regular contact with bank representatives so that both law enforcement and the financial institutions are coordinating their efforts and working together to insure compliance with the laws and to help prevent the spread of money laundering activity.
Identification of Emerging Trends and Their Effect on Money Laundering
Money Launderers, like other criminals, attempt to stay ahead of law enforcement's ability to identify and prosecute them by using the latest techniques and technologies available to them to conceal their activity. In order for the law enforcement community to keep pace with the ingenuity of the criminal mind, it will be necessary for all agencies to coordinate their efforts and to communicate with one another as the launderers are pursued. Perhaps the area that most likely represents the next wave for money launderers is in the context of computers and high-technology. Money laundering, in its many iterations, can be facilitated by high-technology in a number of ways, from the simple use of accounting software on a personal computer, through the manipulation of electronic money and personal identification cards. In order to thwart the increased use of computers and high technology to facilitate money laundering by criminal enterprises, law enforcement must be aware of a number of areas that can hamper the ability to prosecute successfully money launderers.
High-Tech replacements for traditional techniques of Money Laundering - Something as simple as the utilization of computerized accounting software can substantially change the nature of money laundering. Paper records, which are often times discovered in the course of a money laundering investigation, are replaced by computer generated spread sheets. This seemingly insignificant change fundamentally alters that type of evidence that will be encountered in the investigation of money laundering cases and facilitates other changes in the manner in which money laundering is perpetrated. When computers are linked through networks, such as the Internet, data can be instantaneously exchanged between and among members of the money laundering enterprise and with the criminal networks that generate the illicit proceeds that are laundered. Networked systems can also make detection and retrieval of evidence more difficult, as a local associate of an enterprise can remotely access records and data that can be stored on a computer outside of the United States. Computers and other high-technology also fundamentally alter the manner in which the proceeds are handled. With computerized money transfers and other technological developments, it will become increasingly difficult for law enforcement to rely upon traditional investigative techniques to counter the flow of illegal proceeds. A key initiative to assist law enforcement in the investigation of money laundering is training in the areas of the use of computers and computer networks in the commission of crimes and computer forensics. In addition, it is imperative that law enforcement establish a research and development component to stay abreast of the rapid changes in technology and their impact on criminal investigations.
High-Tech Methods for Laundering Illegal Proceeds - Developments in high technology
have created a whole new class of electronic financial instruments, collectively referred
to as "e-cash." There are essentially three types of e-cash systems that are
proceeding on parallel tracks. These are : (1)
stored value cards; (2) network based systems; and (3) a hybrid of those two systems.
Although these e-cash systems have not yet become commonplace in the United States, their
availability highlights a dangerous area in which the money launderers can extend their
reach into our market system under cover of legitimate activity and with the unwitting
assistance of high technology. Stored value cards, which are becoming common in Europe,
involve electronic storage of value on the card itself that can be drawn down at the site
of a transaction. The user adds value to the card and then that value is reduced as the
card is used for purchases or other financial transactions. "[I]n addition, some of
these stored value cards systems - the European Mondex system, for example - are beginning
to employ devices to facilitate transfers of value from one card to another, creating a
decentralized network of payment without the involvement of the card issuer."
Network-based systems use networks, such as the Internet, as the means of funds transfers. Id. These systems work in a similar manner to traditional payment systems which require an account which is drawn on by a card user at the point of transaction through the use of a network. These transactions are secured through the use of cryptography. The third system is a hybrid of the stored value cards and the network-based systems where the two types of cards are compatible. Id.
The three e-cash systems each share certain characteristics in common. Each, to a greater or lesser extent, would facilitate the movement of large amounts of money without the traditional record keeping done by banks. Each of the systems, depending on how they are designed, could allow the transfer of money with the nature and content of the transaction hidden by the use of cryptography. They would each virtually eliminate the need to transfer large quantities of cash, which is bulky and hard to move.
The characteristics associated with e-cash pose significant challenges to law
enforcement in its efforts to combat money laundering and the underlying criminal
activities which it supports. Anti-money laundering efforts by law enforcement have
consistently targeted and examined paper-trails through which the money can be traced back
to its illegitimate source. Id. Other techniques such as currency transaction reports
(CTRs) have sought to have banks and other institutions report certain activities which
could trigger follow-up investigation by law enforcement. E-cash systems could eliminate
those paper-trails, which would significantly impact law enforcement's effort to
investigate and successfully prosecute money laundering. "[C]ertain digital-cash
schemes now being developed could make financial transactions untraceable, enabling money
launderers and drug dealers to move cash freely over international computer systems while
cops wring their hands." The lack of a paper-trail, coupled with the wide spread use
of cryptography in the E-cash systems, would make such transactions virtually anonymous
and it would be impossible for law enforcement to determine the nature of the transaction
or parties to the transaction. In addition, the sheer speed of the transaction will make
the transaction harder to detect and track. When encrypted and placed in the electronic
stream of commerce, the exchange of laundered proceeds will be all but impossible to
separate from the thousands of legitimate transactions.
The most effective means to combat the potential abuse of e-cash systems by money launderers is to impose record-keeping requirements on the card issuers in order to make it possible to trace the transactions. With the emergence of new technology and new means to transfer cash from within New Jersey to places abroad, it will be imperative for the law enforcement community to coordinate with federal and state legislators to ensure that record keeping requirements similar to those currently imposed on banks are in place so that investigations into money laundering are not hampered by a lack of necessary enforcement mechanisms. By coordinating with federal and state governmental agencies, it will be possible to keep abreast of the criminal enterprises' varied methods employed to dispose of their illegal cash proceeds.
Cryptography - Arguably the greatest threat to the ability of law enforcement to investigate and prosecute crimes in the digital age is encryption. Encryption is the conversion of readable "cleartext' or "plaintext" into an unintelligible text called "ciphertext" utilizing a mathematical formula. Encrypted documents cannot be read without the use of a key that deciphers the ciphertext back to into cleartext. From a law enforcement perspective, if digital evidence is encrypted and the key to its decryption is not produced or found, the evidence is unavailable to law enforcement. Encryption is a powerful tool in the hands of criminals, such as money launderers, and could render the investigation of these crimes all but impossible. In order to prevent the widespread use of encryption technology to thwart law enforcement, it is essential that federal, state, and local law enforcement agencies coordinate efforts to identify instances in which criminals are using encryption to evade prosecution so that appropriate legislation could be drafted to address a potentially serious problem. Such legislation should increase penalties on those defendants who use encryption technology during the course of committing another offense, and should also consider whether or not a separate substantive offense can be crafted in which a person who knowingly uses encryption during the course of committing a crime is subject to additional penalties.
The problem of money laundering remains of paramount importance to the citizens of New Jersey, who seek to rid this state of those criminal enterprises that utilize proceeds of criminal activity and undermine legitimate economic activity. To date, law enforcement has directed significant resources at the problem, and is making progress in dismantling criminal networks that operate within our borders. With the dawn of the 21st century, the law enforcement community must be well-positioned to combat the pervasive effect of money laundering. In offering this Report, the Attorney General's Money Laundering Working Group hopes to provide a blueprint that can be followed by state and federal agencies who are dedicated in their effort to combat this scourge of our times. It is a battle, however, that must be fought, on all fronts, by all of society, if we are to prevail against those that seek to undermine the American Dream.
NOTE: The exhbits attached to this report are only available in PDF at http://www.state.nj.us/lps/dcj/monlaund.pdf
1998-09-23 -- Money Laundering -- White Paper
New Jersey Department of Law and Public Safety
Peter Verniero, Attorney General
Hughes Justice Complex
25 South Market Street, Trenton, New Jersey 08625
Citizens Access: 609-292-8740