Guide to Economic Crime and Digital Masked Bandits and Asset Forfeiture in the 21



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A Discussion on Modern Public Sector Thinking in a Lean Economy and Law Enforcement: A Local Municipality’s Leadership Guide to Economic Crime and Digital Masked Bandits and Asset Forfeiture in the 21st Century

Rande W. Matteson, CFE, PhD

Thomas J. Price, BA

Stephen G. Matteson, MBA, MHA

Abstract

In this paper, the authors discuss the benefits of educating the public sector CEO, Mayor and elected and appointed officials on the benefits of creative ideas grounded in proactive operational and economic solutions using a paradigm shift in the current public safety-law enforcement model. As an example, the historical framework and results of success attributed to the Black Market Peso Laundering Exchange System provides us with a foundation to expand today. The BMPE schema and asset forfeiture metrics remains a widely practiced enterprise found in many different geographic regions of the world.  Many of these schemes involve economic cybercrime and organized schemes to defraud. These digital masked bandits are frequently found in small communities in the United States where they conceal their conduct and assume local officials are either too busy tending to local matters and or simply are devoid of their clever illegal conduct. The authors describe the trending of these modern day fraudsters with the desire is to balance out old outdated law enforcement practices in lieu of improved and creative methods to hold fraudsters accountable for their conduct in the 21str Century and to recover assets from these illegal enterprises.



Keywords: Black-Market Peso Exchange, Economic Crime, City Manager, Mayor, Local Government, Asset Forfeiture, Digital Masked Bandits, Fraudsters

Facing the Brutal Facts Upfront

The latest trends suggest all crime is at its lowest in many decades. However, economic crime has exploded and few law enforcement officials understand it nor embrace these crimes which is part of the reason for the increase in these offenses.

Americans join for the most part remain uninformed as to the accurate trending process of crime and what exactly triggers criminal activity. Given the elusive nature of crime, Criminologists have yet to agree on the exact variables that lead to crime. Perhaps in the near future some new constructs will help us transition from the fragmented guess work to neuroscience based and measureable formulas to our outdated approach to crime.

It may surprise the reader to know that nearly 70 percent of criminal related arrests are the result of traffic stops. To add to this data, the vast majority of arrests made by law enforcement nationwide are accomplished by uniform first responders, not investigators. (http://www.nhtsa.gov/people/injury/enforce/GPFOR2.html).

Traditional and Economic crime are inclusive of criminal and civil crimes and torts and can be applied to most human behavior. Added is the strength of secondary benefits are criminal and civil remedies, however, remain many times these events remain under prosecuted. The same argument holds for the use of asset forfeiture provisions that were developed to help reduce the incentive for all crime. The reasons for this lack of tack on accountability methods will be discussed later in this paper. R. Siberski (personal communication, November, 10, 2012).

In the modern economy, all communities in America we find a wide-range of ethnic and demographic population data and these cultural differences generally present challenges to law enforcement personnel. So, we feel it is appropriate to assert that all communities can be impacted from the forward thinking discussion presented in this article.

Not too long ago, most municipalities appeared to have strong balance sheets and believed they were flush with cash. Spending among the public sector seemed effortless and few officials thought they would face a real economic and employment crisis in their communities. Considering the wide-spread confusion found in the financial sector today, it is particularly useful for public sector leaders to distinguish workable solutions to fund and oversee their local communities as productive economic sequelae.

It is not too difficult for one to imagine living with the uncertainty of reduced municipal funding and lean budgets and public sector employees and the citizens with talk about employee layoffs and going broke. Today, it is commonplace to read about the real economic dilemma plaguing many local communities. It is wildly held that job loss leads to an array of stressors that have long-term socioeconomic, physical and mental health consequences yet to be accurately identified and quantified. One can be certain, these excess costs will negatively impact society at some point.

Meanwhile, many public sector employees planned for their future retirements, have found themselves in a downward trajectory having not considering they too would be negatively impacted by the current fiscal problems with underfunded debt obligations and many public sector filing for bankruptcy protection.

Today, all the prior rule sets have changed and the best informed and positioned municipal leaders are creative and visionary in their critical thinking and in managing public sector business enterprises.

The authors concur that by most accounts the current economic problems facing American Cities is real and can be quite damaging if we do not face the brutal facts upfront. Frankly, the costs for doing business in the public sector has no other choice, but to find creative people armed with alternative solutions and forward thinking skills to improve our current and future fiscal and budgetary leadership analytics. M. Kessler (personal communication, November 12, 2012).

Finding similar landscapes during the Great Depression, today, across the United States we find record numbers of public sector entities filing for bankruptcy protection for fiscal reorganization in Federal Bankruptcy Court because their leadership is basically unable to fund its services and fiscal obligations. The adage of doing more with less seems to be the common thinking today, leaving local officials with the task of desperate measures to finding alternatives to effectively leading their local governments. (http://www.governing.com/gov-data/municipal-cities-counties-bankruptcies-and-defaults.html).

However, finding solutions to these economic problems requires new thinking models and the courage to step forward and challenge previously held notions that no longer valid. Simply relying upon the old status quo is a formula for disaster.

Today’s Local Municipality

In the trending fiscal climate we find a number underfunded municipalities frequently searching for creative means to fund and sustain current-future unforeseen fiscal obligations and offset a cascade of budget obligations.

There seems to be little disagreement among municipal leaders the current lean economic climate that future survival is based upon dynamic ideas that hold all stakeholders accountable and to maximize all available resources, this includes creative and proactive investigative strategies focused upon economic crime. One of the criticism is that many public sector leaders are not yet comfortable with folks who bring to the discussion new and forward thinking concepts and ideas. Although we may find the ideas from a forward thinker embraced by a few select public sector leaders, it is more common to find this view and perspective described in short order as current leaders may view the forward thinker as a potential threat on many fronts. Not much the authors can offer in this discussion except to say, get over it and move ahead by focusing on the authentic leadership demanded by your local community.

Moving ahead in our discussion, we believe it is accurate to report that a vast majority of municipalities are considered small populated communities as opposed to larger cities such as New York City, however nonetheless, leaders from local communities experience considerable challenges to effectively lead and manage their cities regardless of size and revenues. J. Mines (personal communication, November 1, 2012).

Regardless of the form of local government, the Mayor, City Manager and Council Members their jobs today are generally busy representing and managing all the various community projects, budgeting, personnel issues and conflicts, unions and a myriad of funding and operational issues that impact stakeholders and compliance matters that consume much of their daily work time.

At the end of the day, it is common practice for the local public sector Chief Executive Officer pondering multiple complex issues and economic activity full of radiating questions with serious consequences and at times few options.

One viable mechanism to offer as a workable solution to public sector fiscal problems includes alternative ideas to consider to offset financial obligations through the underutilized investigation of economic crime and asset forfeiture provisions to offset some budgetary obligations for the local community.

The public sector CEO may ask how the municipality can hold steady and attempt to excel in these challenging economic times. We argue that ineffective leaders having become compartmentalized and myopic in their thinking and strategic fiscal planning skills. Asset forfeiture can be such an instrument to offer some alternative ideas to current day issues of crime and economic benefit tied to criminal conduct.

We realize these ideas could be uncomfortable to some readers and objectively stating our position they should be. Although we argue there is not likely one best approach, there is however, one fact certain, old thinking is not working and that unless the public sector CEO takes proactive steps towards forward thinking and lifelong learning processes linked to creative ideas they could easily find survival difficult.

Many public sector CEO's have considered consolidation of public services and it is quite predictable this type of conversation will obviously draw a healthy round of debate, however, we do find many local communities that benefit from consolidation of services.

Drawing from the above analysis, we argue there is little choice, and note economic hardships are likely here to stay. Therefore, it becomes necessary for the public sector CEO to shift their previously held ideas and skill sets driven by the uncertainty of a global economy in conflict into a more active-visionary leadership role within various departments under their tutelage. This includes its law enforcement-public safety function.

The authors suggest the futuristic public sector CEO should considering adopting a paradigm shift into the learning organization model as underscored in Senge's work. (http://www.moyak.com/papers/learning-organization.html)

The learning organization model is similar to elementary team sports and encourages individuals to roll up their sleeves and join in the process of serving the community and is aligned to forward thinking and proactive ideas as a lifelong learner who embraces curiosity and creativity. Basically, it works like this, employees at all levels roll up their sleeves and become empowered with data driven knowledge to be creative in proactive steps to reduce crime and costs and improve services with smart justice thinking tied to measurable results. The process is data driven and public sector leaders must be willing to ask the critical questions of staff and personnel in order to design successful projects.

The public sector CEO and staff who can set aside outdated and previously held notions of maintaining the status quo and reframe previous thinking are afforded an opportunity to find benefits with a decent return on investment in their leadership roles, and are expected to experience improved outcomes.

Unfortunately, this provision of asset forfeiture linked to proactive economic crime is commonly overlooked for a variety of reasons, however, the primary reason is that the majority of law enforcement managers at all levels lack personal experience necessary for the investigation of these crimes and are most times devoid of subject matter knowledge and of misdirected current resource allocations. It is easier to arrest and prosecute low level criminals than to invest time and resources into more complex investigative work such as economic crime.

In addition, economic crime investigations are at times somewhat complex, however, there is more than ample evidence to suggest that this thinking is myopic and not accurate. The authors postulate the underlying reason is placed firmly in the lack of understanding and tactile experience investigating complex economic crime.

Regardless of the argument, there are countless cases where federal law enforcement officials have produced successful result investigating economic crimes utilizing proactive strategies as some of the best approaches to these crimes and the return on investment includes prosecutions, expanded cases and asset forfeiture.

Obviously, change can produce challenges to the existing status quo. When role allocation involves shifts in authority and status it can lead to shareholder conflict. The public sector CEO should expect an institutional challenge from its law enforcement and public safety components, however this is easily remedied. Integrating already established law to apply to economic crime and adapting a proactive convert approach inclusive of the benefits of asset forfeiture does offer the public sector leadership a workable series of solutions to offset some budgetary concerns within public safety and law enforcement.

However, the public sector CEO should be willing to educate themselves in the methods and mastery of law enforcement to develop a good working knowledge of the underutilized seizure and forfeiture of assets attributed to a variety of local and international-transnational criminal activity.

Historical Construct

Historically, the ancient Asian based Hawala money laundering schemes have long been regarded as the original method to conceal the legitimacy and transfer of monies from legitimate tax revenues.

One such simple example illustrates that bad guys frequently use commercial commerce and consumer goods to move articles of value in lieu of transferring money.

On the surface, the contents of the container are articles and consumer goods with a value and does not appear to be evidence of a crime. Upon further examination, the story presents another view, grounded in crime.

The authors suggest that our readers conduct some independent research on the federal Foreign Corrupt Practices Act and False Claims Act violations and explore the estimated fraud dollar amounts attributed to these offenses. Each of these crimes, has serious consequences along with a long history of sizable assets that have been forfeiture to the U.S. Government.

In summary, these schemes to defraud represent more trillions of dollars that can result in asset forfeitures under federal and state law. Many of these crimes initially come to the attention of local law enforcement from local citizens who choose to disclose these unlawful practices which would afford the local community to share in any asset forfeiture proceeds as a result of assisting in the federal investigation. (Passas, N., 1996).

The authors illustrate the point, unless law enforcement officials are well trained in the various crimes underscored in this paper, it is likely many complex crimes will not be detected or investigated.

Schemes to Defraud and International Money Laundering in Your Community

Among the many different public sector departments and divisions we find under the public sector CEO, one stands out. It is law enforcement-public safety services, but for some inexplicable reason asset forfeiture remains underutilized nationwide. Asset forfeiture has been commonly applied to cases involving controlled substances, however, the law is clear, asset forfeiture statues apply to most any felony crime.

The effective use of our already scarce resources combined with creative projects that result in asset forfeiture seizures do benefit the community overall and the public sector. Following certain guidelines, we can apply forfeiture proceeds to fund a myriad of projects.

It would be difficult to assert that international-transnational crime is not found in most all communities in the United States. It is more plausible to say that transnational crime is underreported and misunderstood by law enforcement. Moreover, few law enforcement personnel have a good working knowledge of both federal and local statutes which have increasingly have become very important tools to effective investigative work.

We suggest a focus on economic and cybercrime and other forward thinking projects for all law enforcement-public safety programs will produce a plethora of positive results.

The authors begin with a suggestion to educate the public sector CEO, Mayor, Financial Officers, Legal Counsel, Strategic Planners and elected officials to bring them into a full understanding on the topic and application-provisions of asset forfeiture statutes. (http://topics.nytimes.com/top/reference/timestopics/subjects/o/offshore_banking/index.html).

As discussed in our analysis, our posture opens up new ideas and conversations that can lead to creative and proactive projects that permit for the application of various state and federal laws to identify participants and assets as part of the successful outcome of most all conspiracy and substantive crimes. (http://www.justice.gov/jmd/afp/)

In short, those assets are generally attributed to a wide range of crime and become subject to forfeiture under law. Once awarded to the local government, these assets-proceeds of crime can then be applied-utilized by the local community by way of funding public safety projects according to agency policies and applicable law.

Considering the many legal remedies afforded by federal and state laws, it is unrealistic for local officials to rely upon federal resources to lead and manage investigations that involve clever schemes. The authors suggest education and training represent at least one key to bridge the gap in this example. Simply stated, an educated public safety sector can be successful in its investigation of complex crime and money laundering crimes with or without federal law enforcement assistance. We believe this educational approach includes the public sector CEO, Mayor and other officials within the community.

Although at times a societal controversy we find technology as a welcome tool for the public sector. Whether unmanned aerial surveillance systems, license plate readers, facial scanning or red light cameras, there is little doubt technology does provide a measurable benefit to any community and these projects many times can be funded from forfeited assets-proceeds derived from criminal conduct.



International Money and Money Laundering

Currently, it is unrealistic to believe that local law enforcement can adequately identify the number of money launders that either work and live or otherwise transit-utilize their geographic location to facilitate money laundering schemes. Consider these highlights, it is estimated that in excess of US $40 plus trillion dollars in deposited funds are held in international offshore financial institutions, such as Panama, Luxembourg, The Cayman Islands, the United States and other offshore tax havens each with reputations for being popular banking centers.  (http://www.imolin.org/)

It is more than probable to assert that businesses and citizens in your own community may have monies held in offshore financial institutions and your local law enforcement agency has no knowledge of these activities.

The authors should note that not all monies held in offshore banks are illegal, however, tax evasion is one common reason for establishing foreign bank accounts. Income and sales tax evasion and the source of money most times is an illegal activity and asset forfeiture applies. For example, a conspiracy to evade or misreport the payment of sales tax generally is a felony offense and concealing those monies is considered money laundering, another felony offense. Aside from the criminal liability from the conduct, asset forfeiture applies to this example.

Drawing from one of many different schemes, we note many of these deposited funds transfer via U.S. Banks and Businesses and end up by process evading federal and state-local taxes and result in defrauding various governmental organizations of revenue resulting in the loss of billions of dollars per annum. The loss of revenue causes an adverse economic impact on local governments. It is common practice for federal law enforcement agents in many different agencies to author affidavits in support of business and financial search warrants to seek evidence in constructing a criminal case involving crimes that include asset forfeiture provisions. This practice is not common among local law enforcement officials.

The authors suggest the overwhelming dollar volume of assets-funds that are discussed in this paper suggest it is no longer an excuse not to investigate business crimes and international money laundering in local communities. The investment of time and resources to proactively investigate these clever organized schemes flourish in many communities. These offenses represent the capital investment in businesses and real property and concealed assets in other forms which are held in your local communities.

Keeping this discussion an easy to follow and interesting process, we simply say under applicable law, these assets can be seized and forfeited to the local government because they are proceeds of illegal conduct. However, we note that if you ask the majority of our public safety personnel to explain and apply these constructs and laws to the clever schemes and money laundering the results may surprise the reader. However, those gaps can be successfully bridged without much effort.

Digital Masked Bandits a/k/a Fraudsters

According to Transparency International (http://www.transparency.org/) The World Bank (http://www.worldbank.org/en/news/2012/10/09/new-world-bank-report-highlights-success-integrity-work) and the Association of Certified Fraud Examiners (http://www.acfe.com/rttn.aspx (combined with the United States Department of Justice' work in the False Claims (http://www.law.cornell.edu/uscode/text/31/3729) and Foreign Corrupt Practices Acts (http://www.justice.gov/criminal/fraud/fcpa/) combined these data demonstrate crime at estimated dollar amounts in the trillions of dollars annualized. These examples provide for a wealth of criminal prosecutions and potential asset forfeiture outcomes. (http://www.publicintegrity.org/news/Taxpayers-Against-Fraud)

The FBI's Uniform Crime Index of crime has widely been considered outdated and underreported for many years. Although all reported crime is at the lowest levels in decades, this statement is not quite accurate because cybercrime, economic crime-fraud and money laundering crimes are not reported in the UCR data. Another common and overlooked crime is organized retail theft (shoplifting).

Many vendors do not report this activity to law enforcement and the largest percent of violations occur among employees at rates trending nearly 50 percent. The estimated of dollar loss attributed to retail theft exceeds U.S. $ 6 billion dollars annually.

If these data were reported, the UCR crime index would present serious conversations-challenges to law enforcement and create ideas to pursue these crimes and asset forfeiture. It is important to note, failure to report a felony crime to federal authorities is a federal felony offense. (http://www.nrf.com/modules.php?name=News&op=viewlive&sp_id=1389)

The authors would like to point out that economic crime has become a major global enterprise and in order to take on the problem, it requires global thinking combined with creative solutions. There is no legitimate reason that law enforcement and complementary role players in the private sector cannot incorporate their repertoire of skills to identify and find workable solutions to economic crime investigations while applying asset forfeiture statues to the underlying offenses.

Covert and proactive investigations in the area of retail theft have taken considerable time to be accepted by many law enforcement officials and today we find increased arrests, convictions and asset forfeiture statutes provide some enhanced enforcement tools used to prevent and hold accountable these those engaged in these criminal organizations.

There is little debate that our world has evolved into an electronically connected transnational global network consisting of business and social links equivalent to a vastly unregulated electronic underground.  It may not surprise the reader to learn these business enterprises fail to result in any tax revenue as found in illegal trade based commercial economic crimes.

It is nearly impossible for the government to accurately determine the volume of crime and economic proceeds related to economic crime, fraud, cyber crime bandits and money laundering.

Suffice it to say that these crimes are a target rich opportunity for local law enforcement to investigate and protect citizens from these elusive criminals who prey on the assets of citizens. There is much more to say about the flow of these trillions of dollars that slip through our oversight of law enforcement with little focus on seizing and forfeiting those proceeds.

A simple example would include an electronic search of online vendors and or other social media based ads targeting counterfeit goods. A case that seems minor can result in major arrests and millions of dollars in seized assets and proceeds not mention expanding the investigation to the original source of supply along with additional arrests and asset forfeitures.

Taking on these estimates in a similar vein, we uncover much more potential for investigative assignments that are evidence of a vast and diverse number of cyber fraud and international money laundering schemes grounded in consumer and pseudoscience frauds that are not generally investigated by law enforcement. This lack of investigative attention to these crimes only permits the bad actors from being caught and held accountable while enjoying the economic benefits from their illegal conduct.



It is More Than Illegal Drugs

The excitement of watching a Hollywood television show or movie about international arms traffickers and drug cartels will generally attract large audiences.

There is an invalidated assumption that economic crime is boring and unproductive, it doesn't take much analysis to examine the data and find economic crime far surpasses all other crimes combined.

The purchase of a counterfeit products like popular women’s purses, watches or DVD’s, software programs is commonplace today and may not attract the same attention as an arms dealer or drug cartel member, but the volume of these counterfeit goods and services being trafficked far exceeds the other traditional crimes and produces considerably more in untaxed revenue and asset forfeiture. (Naim, M., 2005)

Make no mistake, the new counterfeiters were old arms dealers and drug cartel members as they have decided to shift their crime paradigm and take a more educated and metric driven economic approach to crime many times grounded in less violence not easily being detected by law enforcement.

These schemes are extensive and varied and can include counterfeit prescription and or over the counter medicines for your children to toothpaste that contains toxic ingredients and counterfeit commercial airplane and automotive parts.

These Intellectual Property (IP) crime enterprises generate massive amounts of dollars in illegal and untaxed income in the United States and abroad. Globally, these combined enterprises are estimated to produce trillions of dollars in untaxed revenue to foreign governments while committing theft and undermining the efficacy of legitimate article-goods. This conduct can lead to significant private sector loss of business which can result in layoffs and further negative economic outcomes that impact local communities.

Let your critical thinking skills ponder another example of global crime, consider the serious nature and the negative outcomes of academic fraud. Today, billions of dollars in unreported income is attributed to students (K-12 through professional academic degree programs) purchasing custom written scholarly papers authored by paid ghost writers. The selling of these services will include offers to take an online college course, exam or complete homework for a substantial fee. Many of these vendors boast their client base is in the millions and receives hundreds of billions of dollars in untaxed income earnings.

The client base of cheaters includes students enrolled in programs leading to professional degree practices; as dentists, physicians, lawyers and more. Aside from the obvious, these organized schemes defraud federal and state Departments of Education, Banks-Financial Institutions, Colleges, Employers, adds to taxpayer debt obligations and erodes the integrity of our domestic infrastructure including national security and our ability to intellectually compete globally.

Student debt obligations for financial aid obligations are estimated to exceed U.S. $ 1 trillion dollars and rising. Included in the data driven information, is that students admit to regularly cheating in college at 80 plus percent. The authors assert this illegal enterprise of organized plagiarism schemes will continue to flourish because law enforcement is not actively involved in the investigation of these practices.

In a simplistic approach to this modern day criminal activity, the seasoned law enforcement investigator quickly can discern the benefits from applying proactive strategies to these crimes.

Law enforcement can work among and with other law enforcement officials in geographic jurisdictions and benefit from utilizing their own and or other state statutes, the federal statutes so as to be creative in their approach to successfully investigating these crimes.

In addition, these crimes can be easily facilitated via electronic venue utilizing cyber investigative strategies. Asset forfeiture funding can then be applied to further expand (crime proceeds funded) law enforcement investigative initiatives.

Keep in mind, any conspiracy to facilitate the above practice becomes a felony crime with asset forfeiture provisions.

The recent nationwide organized academic cheating scandals at various K-12 and higher education institutions led to criminal investigations, prosecutions and the potential for asset forfeiture.

Basics of the Black Market Peso Exchange

Historically, let's examine one more example in support of the authors' thesis. Much of the new way criminals think is attributed to the basic Black Market Peso Exchange (BPME). Simply stated, exploring the original monetary sources for Black-Market Peso Exchange schemes we find these funds have been laundered through various mechanized global business schemes that appear to be legal, but are not. They are successful and unfortunately grounded in the lack of subject matter knowledge of law enforcement. (Passas, N. 1993)

On the surface, many of these schemes are reportedly legitimate until you apply critical thinking skills, forensic analysis and the law to the schema, then it becomes clear these activities are illegal.

The old statement maintained by many law enforcement personnel which suggests illegal business conduct is a civil matter is long outdated, a myth and incorrect. The reality is that more times than not, business transactions such as gray market goods, commodity diversion or intellectual property schemes become illegal if properly examined, however one must be familiar with the applicable federal and state law and these schemes in order to assess-evaluate and apply the law to the underlying intent of the conduct.

It is widely held that Florida is ranked number one in corruption nationwide. In a Broward County Florida Grand Jury Investigation, the final report of Florida's Prescription Drug industry found the integrity of the system to be corrupt and consumers have no idea as to the efficacy of their prescription drugs. This example is yet another overlooked and under prosecuted crime that includes violations of federal and state law which asset forfeiture law provide for seizure of assets linked to violations of law in the prescription drug industry. (http://www.sun-sentinel.com/sfl-adrugs18dec18,0,2762514.story)

Florida also ranks number one in staged insurance schemes and health care fraud which exceeds all estimates in excess of US $3 million dollars in fraud in South Florida daily. Nationwide, health care fraud crime is found in all communities and the dollar estimates value these losses upwards of U.S. $ 100 billion dollars per annum. (United States Health and Human Services, 2012).

In a recent criminal case, as comical as it may seem, South Florida fraudsters who believed their clever scheme would not be prosecuted, and earned over US $ 1 million dollars in a short period by defrauding customers by selling false claims for toilet paper. Each defendant was convicted and exposed to 5-year federal prison sentences. The case involved the forfeiture of assets and proceeds of their crime. (http://www.reuters.com/article/2011/11/23/us-usa-crime-septic-idUSTRE7AM1RZ20111123)

It is needless to say that a majority of these global criminals underreport and or fail to report annual earnings and launder proceeds and thus violate a series of felony federal and state criminal statues for income and sales tax evasion, in addition to their underlying criminal conduct.

Upon careful review, it becomes abundantly clear that numerous versions of the Black-Market Peso Exchange very much are a series of illegal acts that violate a variety of state and federal felony statutes. These violators depend upon the "complexity" of their conduct to elude law enforcement.

However, by choice it is generally held that local municipalities are not generally aligned to investigate organized schemes to defraud that include the Black-Market Peso Exchange among other crimes. This juxtaposition tends to open more discussion on related issues such why as organized schemes to defraud consumers are not being actively investigated. The authors suggest both federal and local law enforcement officials combine efforts and resources to properly investigate these crimes.

As a reader you should know the most recent Association of Certified Fraud Examiners annual report, finds the dollar value attributed to measured fraud alone exceeds US $4 trillion annualized (exclusive of US $40 plus trillion dollars deposited in foreign bank accounts).

Latin American Connection

In the 1980's, The Black Market Peso Exchange was uncovered in Colombia as a result of the illicit drug trade, as a way to conceal monies and avoid detection by government officials.  Today, the Black Market Peso Exchange has evolved into a global electronic underground full of money making opportunities and these enterprises become illegal and enforceable actions. (http://www.pbs.org/wgbh/pages/frontline/shows/drugs/special/blackpeso.html)

The Black Market Peso Exchange offers a full range of economic opportunities to engage in a variety of corrupt business practices and has the potential to benefit and undermine private and public sector commerce and tax revenue while arguably creating a series of personal financial benefits to the bad guys.   

In money laundering and schemes to defraud we uncover a vast network of digital masked bandits and sophisticated money launderers lurking as the new electronic predators hiding behind all sorts of legitimate and illegitimate businesses. 

The entrepreneurial spirit of these actors offers its willing participants unlimited opportunities to engage in many diverse and complex financial and commercial schemes. 

In keeping our discussion simple, if the reader knows that fraud is stealing or theft, it helps with applying creative investigative practices and catching these criminals and forfeiting their assets.

Fraudsters need to communicate their schemes and the state, local and federal law provides for effective tools to investigate and hold accountable these digital masked bandits for their conduct. Some of these schemes include concealment, omission, and misrepresentation combined with the intent to defraud individuals or to facilitate business ventures for individuals, corporations and governments by promoting an organized and systematic schema of false information, all defined as illegal. 

These savvy and educated global facilitators offer a real challenge for others to understand their world.  To enter the Black Market Peso Exchange game, government and private sector officials need to develop knowledge and special skill sets for the 21st century in order to understand these complex schemes.  This recommendation would include designing ways to intercede at the various axes as choke points of these monetary commercial pathways, developing enforcement tools, and exchanging information among interested investigative officials. R. Siberski. (personal communication, May 5, 2012).

The Black Market Peso Exchange includes the Informal Funds Transfer Systems (IFTS) and the Informal Value Transfer Methods (IVTM) models. (Passas, N., 1995)

Generally speaking, these methods both support the overall Black Market Peso Exchange system by providing additional means to conceal money and trade finance schemes to defraud. Much of the attention to these schemes focuses upon insurgents and terrorist who conceal their assets by the use of global commerce trade transactions to move assets. It is important for the authors to underscore the reported global economic impact and the corrupt practice’s linked to this conduct and has the potential to erode the global economy and destroy governments.

Today, the sophisticated transnational criminals who deal in diverse business crimes include all kinds of smugglers, commodity diversion traffickers and copycat pirates to name a few.  In order for law enforcement to investigate these crimes, they too must become educated and develop information to use to act on these crimes. (Richards, J., 1999).

Money Laundering-It is Simple: The Schematic

Since ancient history, underground networks of people developed clever schemes to conceal and avoid disclosing the source of income and revenue to government officials.  R. Siberski (personal communication, May 5, 2012).

The Black Market Peso Exchange is reported to have its developmental roots in Colombia and was the result of concealing illegal funds tied to clandestine drug smuggling. 

The enormous amounts of cash generated from the illegal drug business, presented an economic problem, how to conceal and reinvest (cleanse-launder) those proceeds without detection.  This would require assistance from a variety of facilitators, including bankers, government officials and others. Ancillary to this is the question of how much these activities distort official economic statistics, since the underground economy is left out them. Overall, economists would tend to agree that economic inequality and monopoly power and inadequate information tends to cause market failure.

Today, aided with the use of technology, the modern day Black Market Peso Exchange enterprise is a popular method of transferring funds and assets internationally to avoid detection and evading the payment of commerce trade duties and taxes and, importantly, of providing investment capital to purchase high demand (tariff cost prohibitive) U.S. goods to import and sell in Latin American markets.  However, one of the key concerns is that, by following the money trail, authorities would uncover serious violations of law and link those activities to organized criminal cartels. 

The old notion of the participant is that tax avoidance and repayment plans can be far less life changing events than a conviction and incarceration linked to other serious offenses. However, U.S. and many state laws on money laundering and other serious crimes today carry severe penalties.  

The Black Market Peso schematic generally involves proceeds from an illegal or legal enterprise that are deposited into a friendly financial institution.  The funds are then moved-transferred to conceal their original bank depositor and then, once cleansed, investment brokers offer these funds (investment capital) to purchase commerce.  The targeted commerce is then purchased, transferred to various Latin American ports of entry and then ultimately sold to the Latin American consumer via a network of brokers and facilitators, who often are corrupt. 

As noted previously, in the overall scheme, the reason(s) for concealment could include tax avoidance (linked to illegal activity) concealing proceeds from creditors, and establishing "untraceable funds" for use later on.   

The Black Market Peso Exchange funds may be held in either domestic or foreign investment accounts and then dispersed and moved around to "launder" and or conceal-cleanse the original source of funds.  In the process, corrupt officials and unregulated government oversight programs are secured to assist in the movement and concealment methods. 

It is important to disclose that as a secondary concern, we find continuing open source information with respect to threat finance schemes that are inclusive of economic crimes. R. Siberski. (personal communication, May 5, 2012).

After the funds are determined to have been sufficiently laundered from the institutional transfers, the foreign source offers the funds as capital to investors who are generally commodity importers.   From this point on, the shadowy network becomes more complex when trying to follow the various actors and international commerce landscape.  These complexities make the scheme popular with less potential for detection by authorities.

The original investment monies are then used by those importers to purchase and pay for various products using the currency of the host country's financial institutions, in this example, the peso.  The money is repaid in the same currency, the peso.

The commodities are then shipped to the Caribbean or another location in the Americas and end up being smuggled into the country of choice by the importer to evade the payment of duty and related taxes and applicable exchange tariffs. 

The Black Market Peso broker earns a fee based commission on each aspect of the laundering process.  The monies are used to purchase U.S. goods and those are considered instrumentalities of the illegal money laundering scheme.   In essence, the investor becomes a principal co-conspirator to criminal conduct. 

In the recent criminal investigation of the Angel Toy Company in Los Angeles, California, the method of concealment of laundered-structured proceeds and investment capital was linked to Chinese businessmen operating in concert with Colombia and Mexican counterparts under the auspices of the Black Market Peso Exchange model.

Probable Criminal Violations under U.S. Law

In the Black Market Peso Exchange scheme, a number of US key Federal laws are potentially violated including; 18 USC-Statements or entries, 1001, 371-Conspiracy to commit an offense or to defraud the United States, 543-Entry of goods for less value, 542-Entry of goods by false statements, 545-Smuggling of goods, 1365-Tampering with consumer products, 4-Misprison of a felony, 1956-Laundering of monetary instruments, 1341-Frauds and Swindles, 1342- Fictitious name or address, Racketeer Influenced Corrupt Practices Act violations USC 1951-1968 and the Foreign Corrupt Practices Act, 15 USC 78dd and 26 USC federal criminal tax violations. Each of these felony offenses permit the seizure of proceeds linked to these activities. (http://www.law.cornell.edu/uscode/text/18)

Most individual states adopt versions of other states and federal law. Using Florida law as an example, we can apply the Florida Communications Fraud Act, FSS 817.034 and Theft-812.014 and Conspiracy, Money Laundering, Sales and Business Income Tax felony crimes and the Florida Contraband Forfeiture Act to the conduct we outline in this paper. (http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Index&Title_Request=XLVI)

In these examples, asset forfeiture proceedings are generally applied in federal or local state courts. Many of the procedures remain standardized and can either be civil or criminal actions.

Officials should defer to their local jurisdiction-law for applicable laws and the processes for filing on forfeiture cases and use of these funds to offset budgetary obligations for local governments.

Colombian Drug Cartels' Use of Panama in Money Laundering Schemes

Another example of money laundering would include the transnational criminal drug cartels with partnerships between Colombia and Panama.  Utilizing your local law enforcement agency internal intelligence unit the focus on various schemes outlined in this paper could lead to developing creative investigative work and the identification of various people and businesses involved in undetected criminal activity with asset forfeiture opportunities. R. Siberski (personal communication, May 2, 2012).

Federal law enforcement took the lead and had to start someplace to become creative in its proactive approach to transnational crime and asset forfeiture. Today, we find those initial risks have been well worth the investment of resources and are attributed to the success of innovative criminal and asset forfeiture investigations that have led to the arrest and conviction of clever criminals, the hundreds of billions of dollars in forfeited assets we find among complex crime and holding accountable those who intentionally operate criminal enterprises.

In the early 1980's, the Medellin Cartel composed of Carlos Escobar, Carlos Lehder and the Ochoa brothers faced the daunting task of having to conceal and transfer billions of U.S. dollars from the U.S. to Colombia without attracting attention from U.S. and Colombian authorities. (http://www.pbs.org/wgbh/pages/frontline/shows/drugs/business/inside/colombian.html)

To solve their problem, the Medellin Cartel turned to the "Casas de Cambio" (money exchange houses), a black market and largely unregulated system of currency exchange in Colombia (commonly found throughout Latin America).

The Colombian money brokers, acting as full-service bankers, would use their electronic monetary system and links to international entities as fronts to "launder" the drug traffickers' dollars. The scheme became a large part of the Black Market Peso Exchange.

The Colombian money brokers would advertise that they had dollars available for the purchase of U.S. products. Colombian importers, businesses and private individuals would pay for their goods in pesos in Colombia, and the peso brokers would place purchase orders on their behalf in the U.S.

The system would appeal to the importers (commodity diverters) because in addition to obtaining access to dollars at favorable exchange rates, they would evade government controls and payment of import tariffs. The drug traffickers would receive their money untainted from the fact that it came from the drug trade, and the peso brokers would derive a hefty commission for their role in the scheme.

U.S. and Colombian authorities began to assert greater controls over the purchase of a variety of U.S. products as they became cognizant of the Black Market Peso Exchange scheme.  To get around these controls, drug lords developed an elaborate system composed of legal and business entities in multiple countries.

The Republic of Panama and its felon de facto leader, former strongman General Manuel Antonio Noriega, became key elements to the new scheme. The strong business and political ties between the U.S. and Panama made the use of Panama propitious for this purpose. (http://www.bbc.co.uk/news/world-latin-america-16129630)

But most significant was the fact that Panama's leader, General Noriega, had facilitated the use of Panama for evasion of U.S. economic embargos. Amongst others, General Noriega had given the Cuban government, the Farabundo Marti National Liberation Front of El Salvador, and the Sandinistas of Nicaragua access to the US economic system. Actually, in Panama and its leader General Noriega, Colombian drug traffickers found an ideal vehicle and a natural ally for their money laundering scheme.   

Conclusion

Most all municipalities have undergone serious fiscal changes and more change is expected as a result of lean economic times. The public sector corporations that survive will be those that are lead by creative and forward thinkers as mechanisms of action.

Barriers to these forward thinking approaches to crime are simply are folks who are embarrassed to admit they are unfamiliar with economic crime, asset forfeiture and the desire to inoculate themselves from positive and measured change. If we allow them to make the decisions we will experience inevitable setbacks with many negative consequences.

There is little argument the United States has become a diverse population and a multicultural nation. Considering the diversity in society, law enforcement has not kept up with these cultural and demographic shifts or its ability to effectively predict and enforce violations of law in a global marketplace.

The authors assert that as it becomes more difficult to become gainfully employed. As a result of the low number of employment opportunities, people have continued to engage in many unreported and various illegal schemes that drive creative opportunities to commit crime with little chance of law enforcement detection. In order for law enforcement to stay informed and active in the investigation of these investigative shifts and criminal conduct, they need to become educated in the new approach to crime. This includes economic crime and the application of asset forfeiture as proactive enforcement tools for the 21st Century.

Taken together in this new perspective, the few examples of schemes illustrated by the authors produces more opportunities for private-public sector corrupt practices, lower cost investment capital, encourages the supply in commodity diversion crimes, provides dangerous consumer products, results in untaxed revenue, drives money laundering schemes, skews international-local commerce and trade data and impacts a series of other macro and micro economic opportunities including the negative impact upon wholesale distribution of U.S. goods, loss of American jobs, false trade and commerce data, loss of revenue and organized criminals who enrich themselves by engaging in these creative and illegal business crimes.    

The range of complexity and key ingredients of these cases includes simple buy bust exchanges for counterfeit products along with more complex crimes utilizing proactive strategies that produce larger outcomes. We would like to restate the value in forward thinking and the value of applying creative resources to produce more data driven and measurable investigative outcomes.

We believe the more educated the public sector CEO and staff becomes on these crimes and solutions that include asset forfeiture proceedings the each member can provide input and suggestions in proactive efforts to counter the increasing problem of economic crime in their local communities.



References

Association of Certified Fraud Examiners. (2012). Global Fraud Index. Retrieved from, http://www.acfe.com/rttn.aspx

Angel Toy Company, Company Officials Convicted of Massive Fraud. (2012). Retrieved from http://www.huffingtonpost.com/2012/01/31/toy-company-owners- launder-drug-money_n_1243732.html

U.S. Department of Justice, Asset Forfeiture. (2012). Retrieved from http://www.justice.gov/jmd/afp/

Public Broadcasting Corporation, The Medellin Cartel. (2011). Retrieved from http://www.pbs.org/wgbh/pages/frontline/shows/drugs/business/inside/colombian.html

Center for Public Integrity. False Claims Act. (2012). Retrieved from http://www.publicintegrity.org/news/Taxpayers-Against-Fraud

Niam, M., (2005). Illicit. How Smugglers, Traffickers, and Copycats are Hijacking the Global Economy. New York; NY. Random House Publishers.

British Broadcasting Company. The Story of Manual Noriega. (2012). Retrieved from http://www.bbc.co.uk/news/world-latin-america-16129630

Richards, J., (1999).  Transnational Criminal Organizations, Cybercrime and Money Laundering:  A Guide for Law Enforcement Officers, Auditors and Financial Investigators. CRC Press, Boca Raton: FL.   

Passas, N., (1996).  The Genesis of the BCCI Scandal.  Journal of Law and Society, vol. 23, no. 1, pp.52-72.

Passas, N., (1995).  The Mirror of Global Evils: A Review Essay or the BCCI Affair.  Justice Quarterly, vol. 12, no. 2,  pp. 801-829.

Passas, N., (1993).  Structural Sources of International Crime: Policy Lessons from the BCCI  Affair.  Crime, Law and Social Change, vol. 20, no. 4, 1993 pp. 293-305.   

Prescription Drug Fraud Grand Jury Report. (2012). Retrieved from http://www.sun- sentinel.com/sfl-adrugs18dec18,0,2762514.story

Municipal Bankruptcy. (2012). Retrieved from http://www.governing.com/gov-

data/municipal-cities-counties-bankruptcies-and-defaults.html.

NTSB Traffic Stops and Arrests. (2012). Retrieved from

http://www.nhtsa.gov/people/injury/enforce/GPFOR2.html

Retail Theft. (2012). Retrieved from

http://www.nrf.com/modules.php?name=News&op=viewlive&sp_id=1389

Offshore Banking Schemes: New York Times. (2012). Retrieved from

http://topics.nytimes.com/top/reference/timestopics/subjects/o/offshore_banking/i ndex.html

United Nations, International Money Laundering. (2012). Retrieved from

http://www.imolin.org/

Toilet Paper Fraud Officials Sentenced. Retrieved from

http://www.reuters.com/article/2011/11/23/us-usa-crime-septic- idUSTRE7AM1RZ20111123

Authors

Rande W. Matteson, CFE, Ph.D. 
U.S. Government, Retired Supervisory Special Agent

Former Municipal Law Enforcement Officer


Saint Leo University, Associate Professor and former Chair, Department of Criminal Justice
Academic

  • PhD, Lynn University, Global Corporate Leadership

  • M.S, Rollins College, Administration of Criminal Justice

  • B.A., University of Central Florida, Public Administration and Criminal Justice

Address: 10437 Green Links Dr., Tampa FL 33626

Telephone 813.352.9291

Email rwmatteson@aol.com

Thomas J. Price, BA

Prívate Sector Business Entrepreneur, Licensed General Contractor, Commerical Broker Developer

Two Term City Councilman, City of Rockledge Florida

Currently serving as Mayor City of Rockledge, Florida

Numerous Committee Memberships Serving on City and County Economic Projects

Former Municipal Law Enforcement Supervsior



Academic

BA University of Central Florida, Criminal Justice and Public Administration

Address: 1996 US Highway 1., Rockledge FL 32955

Telephone: 321-632-2554

Email tprice3261@aol.com

Stephen G. Matteson, MBA, MHA 
Private Sector Entrepreneur

Previous Health Care Business Development Manager


Academic

  • MBA, Florida State University

  • MHA, Saint Leo University

  • BSBA, Florida State University

Address: 10437 Green Links Dr., Tampa, FL 33626

Telephone 813.731.0580



Email stephenmatteson@gmail.com


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