View from New York: Bank on smurfs to make drug world go round

Stand in line at a bank in New York City's Chinatown and there is a good chance that there are some smurfs queuing alongside you. They may be hard to spot, since they aren't blue-coloured like the cartoon characters, but the list of suspects can be narrowed down to anyone handing over large quantities of cash to the bank teller.

Smurfs are the foot-soldiers in the complex business of laundering the proceeds of the booming narcotics trade and are in heavy demand from gangs selling heroin and cocaine in New York.

State Department estimates (which they readily admit are something of a guess) suggest that about dollars 50bn (pounds 34bn) of drug money is laundered in the United States each year.

Smurfing is one of the simplest techniques and involves using large numbers of people, often illegal immigrants or the poor and unemployed, who are looking to make a few dollars by opening up multiple bank accounts with false identification and spending their days going from bank to bank paying in cash and doing wire transactions.

The use of these people is a consequence of provisions in the Bank Secrecy Act, which requires banks to file currency transaction reports (CTRs) on any cash transactions in excess of dollars 10,000.

Splitting hundreds of thousands of drug dollars into small packets to avoid these requirements has become a common way for drug gangs to get around the laws.

More sophisticated alternatives include routing cash through a friendly and legitimate business, which can then transfer millions of dollars either domestically or overseas under the guise of its regular activities. A less subtle approach is simply to transport boxes of cash overseas to countries where banks do not ask too many questions of someone wanting to open an account with a suitcase containing dollars 1m in cash.

Panama is a favourite, as are Bogota in Colombia and Caracas in neighbouring Venezuela. But transporting millions of dollars across borders is a risky business and many dealers elect to do their laundering at home.

That has spurred new legislation. A bill sponsored by Henry Gonzalez of Texas, a Representative in Congress, is currently at the committee stage and on course to be voted on next spring if all goes well.

(The UK recently beefed up its own money-laundering laws as part of the 1993 Criminal Justice Act, setting out more stringent rules for banks, which are supposed to know their customers and report suspicious transactions.)

Mr Gonzalez's Anti-Money Laundering Bill of 1993 aims to make life more difficult by tightening rules governing cheque-cashing and money-transmitting businesses, while increasing the efficiency of the surveillance and reporting of suspicious transactions.

It also plans to include casinos under the dollars 10,000 reporting requirements, including the many casinos on Indian reservations that have been springing up around the US after new laws permitting gambling on Indian-owned land.

One problem with the dollars 10,000 rule is that it has created an avalanche of paperwork for the banks. Fifty million currency transaction reports have been filed since the rules were introduced in the 1970s and there is widespread agreement that many routine filings for large companies are of little use to law enforcement officials.

A study conducted last year found that one large retail chain had 83,000 CTRs filed on it in a 12-month period, for transactions worth dollars 9.3bn. There was no suspicion of money laundering at the retailer and even if money was being laundered it would be impossible to spot in the midst of 83,000 CTRs.

The new legislation intends to grant reporting exemptions for between 100 and 500 of the largest companies generating CTR filings. And it will encourage banks to apply for exemptions for some of their better-known customers, reducing paperwork and focusing the entire system more clearly upon transactions more likely to involve laundering.

The banks are already governed by various laws making them liable for assisting illegal actions by their customers and are also open to prosecution for illegal acts by staff.

An American Express affiliate, American Express Bank International (AEBI), is under investigation by a federal grand jury as a result of a dollars 30m laundering scheme at its Beverly Hills branch.

The customer involved, a supposedly wealthy Mexican businessman, turned out to be a petrol station attendant. He was allegedly helped to launder drug proceeds by two AEBI staff. The bank may be held criminally liable for the activities of its employees.

The operation at AEBI was at the sophisticated end of the money-laundering spectrum but many drug gangs still prefer to use the smurfing technique; it is time-consuming but can be harder to detect.

According to law enforcement sources, the Colombian cocaine cartels often fly in people from Colombia and put them up in New York. They even buy them clothes to make them look respectable while doing their rounds of the banks.

A money-laundering cell of 50 people may operate for only a year or 18 months before being shut down and its members flown back to Colombia. This makes infiltration very difficult. And getting a smurf to co-operate with law enforcement is very difficult.

As one private investigator notes: 'They are scared to talk because their families are back in Colombia, so the gangs have some security there.'

The Hong Kong Chinese drug gangs that control the heroin trade at wholesale level in New York have also proved hard to infiltrate.

Sometimes a legitimate business is used as a front. It might be a fast-food outlet, which takes dollars 3,000 a day but pays in dollars 8,000 at the bank.

Last week police in New York City charged a chicken fast-food restaurant in the crime-ridden borough of the Bronx, after a sting operation in which police bought guns and drugs from the owner. Fareedullah Nawabi, an immigrant from Afghanistan, used Mama's Fried Chicken as a front.

During the entire three-month sting operation the under-cover police saw Nawabi sell only dollars 50 worth of chicken, though during the same period he sold them dollars 48,000 of guns and cocaine.

Many drug operations do not bother to involve a business as a front but instead rely upon the smurfs making their tireless rounds of the many banks at which they hold accounts to pay in their bundles of banknotes.

With New York's heroin and cocaine business continuing to thrive, the employment prospects for smurfs appear bright.