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Money Laundering Crackdown Changes Transaction Requirements

by Andrew S. Ittleman on Categories: criminal tax law

Money Laundering Crackdown Changes Transaction Requirements

Miami-area Electronics Businesses — and others — must be aware

Miami is a city built on foreign trade. But recently, many of Miami’s exporters of technology goods have had to change their operations to combat a potentially unseen threat: trade-based money laundering. Illicit organizations from drug cartels to terrorist financing organizations have been forced to turn to trade-based money laundering in recent years as the U.S. government clamped down on direct smuggling of currency into and out of the United States.
On April 21, 2015, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Geographic Targeting Order (GTO) to approximately 700 Miami-area businesses that export electronics and mobile phones. The GTO requires covered businesses to report to the federal government cash transactions of $3,000 or more, which is significantly lower than the usual $10,000 threshold. The GTO focuses squarely on cash transactions, and their particular role in trade-based money laundering transactions routed through the Miami area. The report to the government required by the GTO (IRS Form 8300) must include detailed information about the transaction and the people involved, and must be retained by the filing party for a period of five years.
What is Trade-Based Money Laundering?
It is easy to understand how cash transactions in the electronics industry present a money laundering risk, even where the sale of electronics is bona fide with perfectly legitimate companies on both sides of the transaction. First, let us assume that a company in Miami sells $100,000 worth of electronics to a retailer in Caracas, Venezuela. Second, let us assume that the transaction is flawlessly documented, and that $100,000 worth of electronics are actually shipped by the Miami company and received by the retailer in Caracas. Regardless of the legitimacy of the transaction, the retailer in Caracas may have tremendous difficulty paying for the merchandise, due in large part to friction in Venezuela’s banking system and a lack of access to U.S. dollars. Consequently, the Venezuelan retailer may turn to a casa de cambio or casa de bolsa, and use bolivares to purchase the U.S. dollars needed to complete the transaction. These companies — which U.S. law enforcement often refers to as “black market peso brokers” — then complete the transactions, and in many cases use an agent in the U.S. to do so with physical currency. Thus, the Miami company may be visited by an unknown person with $100,000 in cash with a message that he is there on behalf of the Venezuelan retailer to pay for a particular shipment of merchandise, when in fact he has been sent on behalf of the “peso broker.” 
To the extent that the peso broker may in reality be connected to drug traffickers or other varieties of organized crime in Latin America, the sale of the electronics presents an ideal means of laundering their ill-gotten money. In short, the peso broker can use $100,000 in physical cash (which is actually the proceeds of drug sales in the U.S. due to be paid to traffickers in Latin America) to purchase the merchandise on behalf of the Venezuelan retailer. Next, rather than smuggling the $100,000 in cash into Venezuela, the money moves in the form of export goods, thereby avoiding the legal and logistical risks associated with smuggling cash and exchanging dollars for bolivares in Venezuela. Finally, the merchandise is sold by the Venezuelan retailer, and $100,000 in criminal proceeds has seeped into the legitimate stream of international commerce, and all of the parties to the transaction — including the Venezuelan retailer, the Miami distributor, the peso broker, and the Latin American traffickers — have been paid.
How will the GTO affect Miami-Area Businesses?
Understanding the significance of the GTO requires an understanding of Miami’s electronics export industry, as well as the money laundering risk it presents. First and foremost, the GTO should not be interpreted as an indictment of Miami’s community of electronics exporters. Rather, these business often serve a legitimate and important purpose: electronics manufacturers are typically unwilling to sell their products into Latin America due to the credit risk presented by large transactions, so hundreds of U.S. businesses have stepped into that void with the willingness to extend credit where the manufactures themselves would not. This allows Latin American distributors and retailers to purchase their inventory on terms (payable in 30, 60, 90 days, etc.), and Latin American consumers to purchase first-world electronics at reasonable prices. Nevertheless, due to the high values of these international transactions, they unquestionably present a money laundering risk, which we have seen reveal itself in a variety of ways, including false invoicing, third party wire payments, and cash transactions.
The new GTO requirements on select Miami electronics exporters may not actually result in wholesale changes to how these businesses conduct their financial transactions. Many of our clients who received FinCEN’s GTO have long since stopped accepting cash, and in that way the GTO will have little impact on them. However, these clients all understand that regardless of the manner by which they receive payment, their sale of electronics into Latin America is under intense scrutiny, and they are now on notice that they must take steps to avoid participating — even unwittingly — in money laundering violations.
We have recommended to many of our clients to incorporate anti-money laundering (AML) programs into their businesses including, at a minimum, the following four basic features:
  • the development of internal policies, procedures, and controls; 
  • the designation of a compliance officer;
  • an ongoing employee training program; and
  • an independent audit function to test the vigorousness of their programs.
By incorporating such an anti-money laundering program, which in many cases will fit hand-in-glove with existing underwriting programs, companies can help themselves avoid unwittingly participating in money laundering violations, and better respond to subpoenas and administrative summonses calling for documents concerning specific transactions.
Legal counsel representing such businesses should be aware of the requirements of the GTO and the best practices involved in establishing and maintaining a robust anti-money laundering program. Given the complexities of these programs and the risks in not implementing one, companies’ in-house and outside counsel who are not familiar with AML programs should seek further advice from qualified counsel. Even if a client is not directly subject to the requirements of the GTO, all Miami-area exporters in all industries should understand and plan for compliance to avoid becoming unwitting participants in money laundering violations and thus becoming the targets of future criminal investigations. 
Andrew S. Ittleman is a founder and partner of Fuerst Ittleman David & Joseph, PL. He concentrates his practice in the areas of white collar criminal defense, anti-money laundering compliance, and food and drug law. Ittleman litigates extensively against the United States government in civil and criminal matters. Ittleman can be reached at 1001 Brickell Bay Dr., 32nd Floor Miami, FL 33131 (305) 350-5690

South Florida Legal Guide Midyear 2015 Edition 

Tags: money laundering fincen irs taxes

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