                    FORENSIC EXAMINATION 
                OF MONEY LAUNDERING RECORDS

                             By 

                    James O. Beasley II
                       Special Agent
             Senior Supervisory Resident Agent
            Fresno, California, Resident Agency
                    (Sacramento Office)
          Formerly Assigned to the FBI Laboratory


     As criminal organizations generate money from illegal
activities, they must find ways to conceal or disguise this
money--a procedure known as "money laundering."  In response to
this problem, Federal, State, and local law enforcement have, in
recent years, aggressively investigated and prosecuted
violations of money laundering statutes.  This, in turn, has led
to a deeper understanding of how criminals manage "dirty" money.

     Determining where suspects' cash originates and the means
they use to conceal this cash can be exceedingly difficult for
investigators, unless they have reliable informants
cooperating witnesses, or undercover agents.  In addition,
investigators may find it difficult to distinguish cash gained
through legitimate businesses from cash gained through illegal
means.

     For these reasons, circumstantial evidence becomes critical
in money laundering cases.  It is often the only evidence
available to provide a connection between the funds in question
and their original source.  In fact, it is this very link, the
"specified unlawful activity" (SUA), that is a statutory
requirement in Federal money laundering prosecutions.

     Today, the Racketeering Records Analysis Unit (RRAU) of the
FBI Laboratory in Washington, DC, can establish this necessary
link by examining the records kept by criminals who launder
money.  Criminals, in order to provide proof to their superiors
that they properly channeled all of the cash, document the
collection and disbursement of all funds.  Fortunately, these
records also provide critical evidence for investigators, who
must prove that the funds were acquired illegally.

     This article provides information on the operations of the
RRAU and how the unit can assist investigators and prosecutors
in developing money laundering cases.  It also discusses some of
the methods criminals commonly use to hide illegal proceeds.
Although these methods vary greatly, experts can now identify
characteristics unique to these types of organizations.  And,
while none of these methods are new, what is new is that law
enforcement now recognizes the value of forensic examination of
these records.

RACKETEERING RECORDS ANALYSIS UNIT

     The RRAU uses the clandestine business documents
confiscated from organizations believed to be laundering funds
to trace the history of the alleged illicit businesses.  These
documents reveal valuable information as to the amount of money
laundered and how the suspects packaged, transported, disguised,
and hid these funds.  By providing a more complete picture of
the roles and behaviors of criminals and their illegal
operations, the RRAU expands the scope of money laundering
investigations.

     In addition, this information can aid prosecutors to gain
stiffer sentences for individuals found guilty of money
laundering.  The courts base suspects' sentences on the amounts
they laundered, which is determined through their own business
records.  Current Federal sentencing guidelines (1) allow for
these sentence adjustments, and at least one Federal appeals
court upheld the use of RRAU testimony in connection with
related sentencing adjustments in drug matters. (2)

LAUNDERING TECHNIQUES

     Individuals who launder money use a variety of techniques
to avoid detection by law enforcement.  Therefore, it is
important that law enforcement personnel understand the various
techniques and the proof needed to ensure successful prosecution
of these cases.

Secreting Funds

     Criminals often hide ill-gotten funds until they can
smuggle the money to another destination.  Although hiding funds
increases the risk of seizure by authorities or theft by other
criminals, it eliminates the need for a professional money
launderer, who typically charges a fee ranging from 3 to 5
percent to assist in transferring the money through legitimate
financial institutions.

     This technique was evident in a New York case, where
authorities seized millions of dollars in currency, as well as
business records, from an alleged furniture and appliance
warehouse.  Although officials kept the warehouse under
surveillance for several months, the evidence acquired during
that time was largely circumstantial, consisting mainly of
investigators' accounts of activity in and around the warehouse.

     In this case, investigators observed that the subjects
frequently used telephone paging devices and made numerous
attempts to elude, or otherwise mislead, surveillance units.
Investigators also found cocaine residue on a piece of duct tape
retrieved from a trash receptacle located outside the
warehouse.  Finally, they noted that although the warehouse
moved little furniture, there still appeared to be a lot of
activity within the building.

     When investigators raided the warehouse, they discovered a
collection and storage point for drug proceeds, instead of the
cocaine "stash house" that they expected to find.  And, although
they did not confiscate drugs, they did confiscate approximately
$18 million in U.S. currency, packaged in cardboard boxes and
secreted in a concealed compartment of a truck.  In addition to
cash, investigators also confiscated numerous handwritten
documents from both the warehouse and other search locations,
which they then submitted to the RRAU for analysis.

     The initial review of the records indicated that they
represented transactions involving millions of dollars in
cash--recorded as it came into the warehouse--followed by
confirmed totals counted by denomination.  The suspects assigned
the totals to at least 11 accounts before combining the cash
into outgoing sums that were packaged in boxes and suitcases and
placed in the truck.  This method typifies how money launderers
hide large sums of cash until they can transport it out of the
country.

     However, a more detailed analysis of the warehouse
documents by the RRAU revealed more damaging evidence to be used
at trial.  Records showed that the organization received,
through at least 114 exchanges, over $44 million in cash during
a 3-month period.  Individuals in the warehouse listed the
amount of cash received, the date of receipt, the account
relating to each transfer of funds, the alleged amount at the
time of delivery, and the confirmed count of each amount.  The
listing of incoming and confirmed accounts, along with counting
the currency by denomination and coded account designations,
characterize money laundering records.

     Of particular note was an outgoing amount of nearly 
$7.5 million, listed on one page of the seized documents.  The
same amount appeared on another page of the documents as the sum
of three smaller amounts of cash that the suspects placed in
boxes and a suitcase.  Further examination of the documents
revealed a third page, which indicated that the individuals
derived the smaller amounts of money by counting it by currency
denominations, i.e., $100s, $50s, $20s, etc.

     The amount of money seized in the warehouse closely
approximated that of the currency listed on an inventory
recovered from one of the search locations.  By comparing
documents, examiners determined that the criminals sorted the
cash according to denomination and boxed it for storage, most
likely until they could smuggle the money out of the country.

     Finally, the confiscated records revealed that the suspects
collected the nearly $7.5 million over a period of several days
just prior to preparing it for shipment.  This evidence served
to further strengthen the case for prosecutors.

     However, in order to prosecute the suspects under the
Federal money laundering statutes, prosecutors needed to provide
proof that the suspects obtained the funds illegally.
Therefore, an FBI examiner testified in court concerning
notations on two seized documents.  These notations showed the
purchase/sale of 35 units at prices of $13,500 and $14,000,
each, between 8/24 and 10/4.  The examiner further testified
that there appeared to be a relationship between the units and
their corresponding prices: The units were consistent with
kilogram prices for cocaine.

     This type of bookkeeping--partial dates and an informal
accounting flow--typifies drug records.  It also provides
another indication that the suspects obtained the funds through
an illicit drug trade.

     It is important to note in this case that even though
investigators found the drug documents in one location and the
cash documents in another, RRAU experts were still able to
establish a circumstantial relationship between the two sets of
records.  It is this type of evidence that can be so crucial to
any such case.

Disguising the Source of Illicit Funds

     "Operation Polarcap," a joint investigation conducted by
the FBI, the Drug Enforcement Administration (DEA), and the
U.S. Customs Service, represents an excellent example of how
business records and paperwork provide critical evidence in
money laundering cases.  By examining seized documents,
examiners gained valuable insights into how the criminals
disguised the actual source of the illegal funds.  This
undercover investigation, which involved months of surveillance,
resulted in the seizure of thousands of documents, many of them
found in trash receptacles at various businesses connected to
the laundering scheme, including a jewelry store located in Los
Angeles, California.

     When RRAU examiners received the confiscated documents,
their task was to show, based solely on an analysis of the
documents, how the suspects received cash and circulated it
through legitimate financial institutions in ways designed to
conceal its true origin.  Their analysis revealed a laundering
network that acquired millions of dollars in cash from sources
in New York, Los Angeles, and Houston.  A large portion of this
cash from these cities was delivered to the Los Angeles jewelry
store.

     RRAU examiners were able to show that when the suspects
received the cash, they noted on bills of lading the total
number of packages in a given shipment, as well as individual
weights and total dollar values of each package.  For example,
one of the receipts indicated a delivery of five packages
weighing 250 pounds and valued at $1,568,000.  A handwritten
entry in a seized ledger book showed that same dollar amount
under the column heading "$ Received."  Finally, a computerized
summary of currency transaction reports (CTRs) filed by several
Los Angeles area banks at which the jewelry store maintained
accounts showed $1,568,000 deposited to an account at one of the
financial institutions.  A comparison of all of these documents
confirmed that the numerical notations represented amounts of
cash delivered from New York to Los Angeles.

     Other evidence that indicated the suspects attempted to
disguise the illicit funds included a dated ledger entry showing
that the jewelry story received $2,800,000 on September 2.  A
scrap of paper bearing the same date showed that this figure was
a combination of three smaller amounts labeled "L.A."  One of
these amounts was $1 million.  Other scraps of paper found in
the trash at the jewelry store indicated that the $1 million was
counted by denomination on September 2.  All of this evidence
pointed toward a possible money laundering operation.

Fraudulent Documents

     Money laundering organizations also produce fraudulent
documents, such as sales receipts, designed to conceal the true
origin of a business' cash.  For example, in the Los Angeles
jewelry store case, investigators found a scrap of paper, dated
August 10, 1988, which indicated two amounts of collected cash
totaling $1,034,000 and designated "L.A."  This corresponded
with a cash deposit of $1,034,005 made on that date to an
account of the business at another Los Angeles bank.

     In addition, investigators recovered two consecutively
numbered receipts from trash receptacles.  These receipts
revealed how the suspects broke down this total in an effort to
portray the source of the money as cash proceeds from the two
sales of 24k gold to a gold refiner in the amounts of $693,000
and $341,000.  Since cash sales that large would be highly
unusual in any legitimate business, the suspects produced
fraudulent documents designed to conceal the true origin of the
business' cash.

     At trial, a RRAU examiner testified that these types of
business practices are inconsistent with normal business
activities.  Instead, they are associated with money laundering
operations.

     Of tremendous importance in this case was the seizure, on
an almost daily basis, of many documents from trash discarded at
the business.  A critical lesson learned from this analysis is
that the potential value of garbage in criminal investigations
cannot be overestimated.

Structuring Financial Transactions

     Another method for laundering money involves structuring
financial transactions.  This type of activity was evident in
another case uncovered through a Federal investigation in
Brooklyn and Manhattan in 1990.

     The case involved a residential setting--specifically four
apartments--where suspects collected, counted, and prepared drug
funds for conversion to negotiable instruments, such as bank
money orders.  When investigators raided the apartments, they
recovered $1,304,595 in cash, along with money orders worth
approximately $73,000, all in amounts of less than $10,000.
Investigators also seized hundreds of additional money order
receipts and related handwritten documents, which they submitted
for examination.

     An RRAU analysis of the seized documents disclosed that 
the operation received cash totaling at least $13,503,441 in 26
deliveries from September 1989, to March 1990.  After the
suspects received the cash, they listed daily breakdowns that
showed, through a series of deductions, how specific amounts
were used to purchase money orders at area financial
institutions.  These purchases totaled a minimum of $11,022,141
during a 6-month period, allowing authorities to convict the
main defendant for laundering over $10 million in cash.

     This evidence resulted in an increase of nine levels in the
defendant's sentence under the Federal sentencing guidelines.
Based partly on a previously negotiated plea agreement, the
defendant received a much longer prison sentence than would have
resulted had the documents not been carefully examined.

CONCLUSION

     Documentary evidence can be of tremendous value when
investigating and prosecuting money laundering violations.
Although the methods used to move large volumes of currency
generated through illicit activities vary, forensic techniques
can be applied to identify characteristics unique to these types
of organizations.  These same techniques can also be applied to
explain how these activities are represented in the records of
these operations.  Such clandestine records also provide the
evidence needed to show the source of the laundered funds.

     The Racketeering Records Analysis Unit can assist law
enforcement at all levels with money laundering cases.  Without
this assistance, many cases may go unprosecuted, and those cases
prosecuted may not result in the maximum sentences.  RRAU
examiners can review the business records of specific money
laundering organizations in order to provide investigators and
prosecutors with the proof necessary to convict the defendants
and gain stiffer sentences.

     With the growth of the illicit drug trade comes a growth in
money laundering organizations.  Law enforcement must respond to
this increasing problem not only by proving their money
laundering cases but also by gaining the stiffest possible
sentence for defendants.


ENDNOTES

     (1)  Federal Sentencing Guidelines Manual, 1992 Edition
(St. Paul, Minnesota: West Publishing Co.), 1991.

     (2)  See United States v. Harris, 903 F. 2d 770 (10th Cir.
1990.)

_______________

	Law enforcement agencies should direct requests for RRAU
assistance to:

                                 Director
                      Federal Bureau of Investigation
                      Attention:  Laboratory Division,
                     Racketeering Records Analysis Unit
                       10th and Pennsylvania Ave, NW
                           Washington, DC  20535
                 Telephone inquiries should be directed to:
                           RREAU (202) 324-2500.
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