Photo Credit: James Tourtellotte

Millions of dollars in U.S. currency seized by U.S. Customs agents.

One Customs investigation led to the first ever guilty plea by a U.S. bank to criminal violations involving the failure to file Suspicious Activity Reports to the government and the failure to implement an anti-money laundering program. Another Customs investigation exposed, for the first time, that the international life insurance industry was being exploited by drug organizations to launder tens of millions of dollars.

The first investigation involved Broadway National Bank, a small bank in New York that during the 1990s became the bank of choice for criminal organizations seeking to conceal their illicit financial activities from the government. Over the course of approximately two years, the bank failed to report more than $123 million in bulk cash deposits and structured cash deposits to the government.

On Nov. 27, Broadway pleaded guilty to a three-count information charging the bank with failure to file required reports on the $123 million in suspicious cash deposits, failure to implement an anti-money laundering program, and helping to structure $76 million in bulk cash deposits. No U.S. bank had ever pled guilty to the first two charges.

The plea before Judge Thomas Griesa in the Southern District of New York came as a result of a four-year investigation into Broadway by the El Dorado Task Force, a New York financial crimes task force led by Customs and the Internal Revenue Service.

The El Dorado investigation disclosed that one drug money laundering organization made $46 million worth of cash deposits at Broadway - in many cases, bringing hundreds of thousands of dollars in cash into the bank in duffel bags for deposit. The bank almost never filed the required reports on such deposits, which were promptly wired to locations in Latin America. The cash deposits were so large that bank tellers complained to managers about having to count the cash during their lunch breaks.

Another drug money laundering organization made $20 million worth of structured cash deposits at the bank that were designed to evade the federal currency transaction reports. Broadway never filed any of the required reports to the government detailing these structured deposits, which were wired to Latin America and the Middle East. A Customs/IRS probe later led to the conviction of 19 members of this group.

Yet another example of the bank's disregard for U.S. anti-money laundering laws occurred when it opened new accounts for an individual whose account at the bank had just been frozen by the government for money laundering activity. The individual promptly began structuring cash deposits into his new account. Once again, Broadway failed to file any of the required reports on these structured cash deposits.

As part of its guilty plea, Broadway National Bank agreed to pay a $4 million fine and a $1,200 special assessment to the government.

In the second investigation, Customs agents in Miami uncovered a sophisticated scheme by which Colombian drug trafficking organizations exploited investment-grade life insurance companies in the United States, the Isle of Man, and other locations to launder roughly $80 million worth of drug proceeds over the past few years.

Called "Operation Capstone," the multi-national investigation marked the first time that massive drug money laundering through the international life insurance industry had been exposed and prosecuted. The two-year probe was spearheaded by U.S. Customs, the Isle of Man Customs & Excise Service, and Colombia's Departamento Administrativo de Seguridad (DAS). Authorities in the United Kingdom, Panama, and South Florida also assisted in the investigation.

The investigation revealed that Colombian cartels, through a small number of insurance brokers, were purchasing life insurance policies in the U.S., the Isle of Man, and other locations, with cartel associates as the beneficiaries. These policies were funded with millions in drug proceeds sent via wire transfers and checks from third parties.

The probe disclosed that cartels were routinely liquidating their drug-financed life insurance policies early, despite the stiff financial penalties for early liquidation. The reason is that, despite the early withdrawal fees, the cartel beneficiaries would then receive funds from the insurance company that appeared to be legitimate insurance / investment proceeds. The cartels could then use these "clean" funds unquestioned.

Although additional arrests and seizures are expected in this ongoing investigation, Operation Capstone has thus far resulted in the seizure of roughly $30 million by authorities in the U.S., Colombia, and Panama. Colombian authorities have also arrested 10 individuals in connection with the investigation.

In addition, on December 6, the U.S. Attorney for the Southern District of Florida announced the indictment of five Colombian nationals for money laundering violations. The defendants are accused of laundering approximately $2.1 million through insurance companies, primarily in the United States, as part of Operation Capstone.