BUSINESS

A dangerous trail

Police pursue the profits from drug sales

JOHN DeMONT October 31 1988
BUSINESS

A dangerous trail

Police pursue the profits from drug sales

JOHN DeMONT October 31 1988

A dangerous trail

BUSINESS

Police pursue the profits from drug sales

It was one of the largest drug raids in Canadian history. On June 21,1985, RCMP officers seized 58 kg of heroin with an estimated street value of $87 million. It was concealed in a shipment of teak furniture from London, England, in a warehouse in a Montreal suburb. The RCMP investigation that followed made an even more interesting discovery— that prominent Sicilian Mafia families had been using four small Canadian banks, including the National Bank of Canada, to launder the millions of dollars that they earned trafficking heroin and hashish in Canada and the United States. RCMP officers said that, at one point, the families were moving so much money through the Canadian banks that their couriers had to stuff the cash into tote bags, load them into pickup trucks and back them up to the banks’ front doors in Montreal. Now, Maclean ’s has learned that after a three-year investigation involving police on four continents, authorities in Canada and the United States are about to lay more charges in the case.

The charges will likely result in one of the largest criminal trials in Canadian history and they reflect a new determination on the part of the government to crack down on the laundering of illicit drug money through the Canadian banking system. Indeed, Canadian police will soon have sweeping new powers to disarm drug dealers under the terms of Bill C-61, which gives them the ability to freeze bank accounts and seize cars and other assets bought with money suspected of coming from the illegal drug trade. The new law will also allow for wider use of court-ordered wiretaps. At the same time, the U.S. Congress enacted parallel legislation that is designed—over strenuous Canadian objections—to extend American jurisdiction into Canada and other countries.

The new Canadian legislation provides statutory protection from civil action for banks that report details about suspicious transactions or accounts to police. Said Richard Mosley, a government lawyer who helped draft the law: “The bill fulfils the clear need to strip the profit motive and the proceeds from crime.” But in Washington, legislation passed early last Saturday—one of the last acts of the 100th Congress before it adjourned for the Nov. 8 U.S. elections—provides for more extensive action to trace drug money in Canada. The foreign bank measure, part of a sweeping antidrug law, would force all foreign banks with operations in the United States to maintain records of cash transactions of $10,000 or more in their home countries, and share the information if called upon by U.S. drug investigators. Failure to co-operate in a formal information-sharing agreement could bring U.S.

sanctions against the operations of foreign banks in the United States.

The U.S. legislation provoked opposition in Canada. Spokesmen for Canadian bankers said the American legislation was not necessary since C-61 will allow police to cut deeply into the flow of drug money through the Canadian

banking system. Some bankers said that the U.S. action is an unfair extension of American law into Canada. Said Robert Macintosh, president of the Canadian Bankers’ Association: “This isn’t about money laundering. This is about sovereignty.”

Canada and the United States have already negotiated a mutual legal-assistance treaty, which provides a framework for co-operating on law enforcement matters and exchanging information. But there is no Canadian law that would force banks to retain the type of records sought under the U.S. legislation. The RCMP estimates that $2 billion to $4 billion worth of narcotics profits are laundered yearly in Cana-

da. Often, the money is deposited in Canadian banks and other financial institutions and then moved out of the country; some of it even returns to finance legitimate business operations. Indeed, law enforcement officers around the world now spend as much time following drug dealers’ tangled financial trails as hunting down narcotics shipments. The most recent evidence of their growing success was the indictment last month of 80 bankers and narcotics traffickers around the world as well as the Luxembourg-based Bank of Credit and Commerce International for allegedly laundering drug profits for a Colombian cartel that supplies cocaine to U.S. dealers.

Canadian police, who say that they have

been hindered by lax laws that have made the country a relatively safe haven for international drug money, are also seeking new ammunition in their own antilaundering war. Their main new weapon will be the dramatic changes contained in C-61, which will give Canadian investigators expanded powers to attack illegal drug profits. The bill has been passed by the House of Commons and should receive Senate approval before the end of the year. Banks will then be able to ask clients to identify the source of the money that they are depositing and they will be free to inform the RCMP of any suspicions.

The implementation of the bill will coincide

with the heightened U.S. campaign against money laundering. As a result of that crackdown, RCMP officers say that drug lords may attempt to divert some of their illegal money through Canadian banks. In Canada, the Mafia, smaller criminal gangs and even individual drug dealers regularly use the banks to funnel dirty money into legitimate business operations. Law enforcement officials say that the most common technique is to deposit the money in banks, trust companies and other financial institutions and then route it through a dizzying array of financial transactions before parking it in the treasury of a crime-controlled front company that often operates as a legal business concern.

Since 1981, the RCMP has managed to seize $50 million in drug proceeds and assets. But currently, the only money-laundering law is Section 312 of the Criminal Code, which makes it a crime to possess knowingly “any property or thing or any proceeds” of crime. As a result, police are unable to investigate large deposits until the courts rule that the money has come from illegal sources. As well, a 1985 Supreme Court ruling effectively prevented the RCMP from seizing any drug profits deposited in a Canadian bank account. RCMP officers had applied to seize $726,000 deposited in the main Montreal branch of the Royal Bank of Canada by Louis Pinto, a Colombian businessman arrested by the FBI in the United States in 1983 for his part in a massive conspiracy to launder cocaine profits. But the court ruled that bank deposits were not a tangible asset like cash found at the scene of the crime and could not be confiscated. Said Sgt. Mark Bourque, a member of the RCMP anti-drug-profiteering unit in Montreal: “The Pinto ruling effectively said to drug traffickers, ‘Come to Canada, convert your drugs to cash and then run to the banks to deposit it.’ ”

American police are supported by the U.S. Bank Secrecy Act, which requires financial institutions to report most banking and currency transactions exceeding $10,000 to the government. Most Canadian banks already claim to have a system whereby employees are urged to report their suspicions about large deposits to a superior who can then investigate. Sandra Mundy, a solicitor in the Toronto legal department of the Toronto-Dominion Bank, said that since February, 1986, the bank has requested that any customer engaging in a cash transaction exceeding $10,000 fill in a form declaring where the money came from.

While some Canadian law officers say privately that they would have preferred C-61 to have been even stricter, all welcome the new act. Predicted Fred Bobiasz, a policy adviser with the solicitor general’s department: “Bill C-61 will mean that drug dealers who feel Canada is a safe haven will have to think twice.”

Still, the Canadian efforts clearly have not gone far enough to meet the concerns of the U.S. Congress. The foreign banks provision would force the treasury secretary to negotiate agreements with foreign countries requiring their banks to keep records of any cash transac-

tions involving more than $10,000 in U.S. currency. The information would then be made available to U.S. law enforcement agencies. The White House has joined Canada and other foreign governments in opposing the foreign

banking provisions. Officials from several U.S. cabinet departments sent letters to Congress urging that the provisions be killed. Canadian Ambassador Allan Gotlieb sent a two-page letter to 53 senators and several administration officials on Oct. 7 objecting to the move by Congress. And, in a letter to the U.S. state department last month, officials of the 12nation European Community wrote that while the EC supported American efforts to combat the laundering of drug money, it was “profoundly concerned” over the implications of the antidrug bill amendment. President Ronald Reagan has not said whether he will veto the bill if it is not amended.

Meanwhile, international co-operation against the illegal drug trade is growing. Even Switzerland, the nation most famed for its bank secrecy, has emerged as a willing European ally of U.S. crime investigators. Clearly anxious to repair the nation’s reputation as the banker for Third World dictators and First World criminals, Swiss government authorities have drawn up a bill making money laundering a crime. Said Jorge Kistler, spokesman for the Swiss justice ministry in Bern: “Switzerland has become a very uncomfortable place for the world drug trade to do its banking.” With the addition of Bill C-61, police are clearly hoping that Canada too will become an uncomfortable place for criminals to carry out illegal banking.

JOHN DeMONT