Talking to ‘The Infiltrator’ about AML

If you ever lose sight of the importance of your work as a compliance officer, or struggle with a case of mid-day doldrums, take a moment and be thankful that at least you probably never faced down death threats while reviewing internal controls.

Robert Mazur has a bounty on his head for his efforts to root out criminal activity in “the heart of money laundering risk.” Working for the Drug Enforcement Agency as an undercover agent, he laundered more than $50 million for Colombian drug cartels, resulting in one of the largest money laundering prosecutions in U.S. history.

Mazur’s efforts were chronicled in an autobiography, “The Infiltrator: My Secret Life Inside the Dirty Banks Behind Pablo Escobar's Medellin Cartel,” and the recently released movie, The Infiltrator, where he was portrayed by actor Bryan Cranston.

Mazur spent nearly five years in the 1980s infiltrating the operations of drug kingpin Pablo Escobar and his Medellin Cartel, earning his trust while masquerading as a mob-connected, Florida-based businessman named Bob Musella, a cover identity chosen while searching gravestones for an alias to use.

Mazur’s mission, Operation C-Chase, was supported by a staff of more than 250 law enforcement authorities working with counterparts in France and the United Kingdom to infiltrate the money-laundering operations used by infamous drug cartels.

It took more than two years to set up the stings and facilitate more than two years living undercover. Prep work included inserting Mazur into a legitimate jewelry business and brokerage house to bolster his credentials. A construction company and boxing matches were also used to funnel illicit funds that ran through “Musella’s” efforts.

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Mazur helped bring down the 7th largest privately held bank in the world at the time, BCCI (Bank of Credit and Commerce International), for its role in laundering drug proceeds. More than 1,200 hidden recordings of bank officials and drug traffickers, facilitated more than 100 arrests, seizing more than 3,200 pounds of cocaine and $100 million in cash and assets. Nearly $500 million in fines were leveled against those who worked with the cartels.

You won’t see a clear headshot of Mazur, currently president of KYC Solutions, an AML consultancy, accompanying this piece. A $2 million bounty remains on his head, courtesy of the betrayed cartels. The threat of assassination hasn’t forced him into hiding, but does require such precautions as shielding his face during interviews and speaking engagements.

Mazur, face obscured, recently shared the stage with Bill Sweeney, financial services evangelist at BAE Systems Applied Intelligence, at an AML forum in New York City. BAE Systems recently released an AML and fraud report, “How Dirty Money Moves,” an analysis and benchmark of the current landscape. We caught up with them to discuss the evolution of money laundering, the current state of compliance efforts, and what we can learn from the world of drug cartels and other criminals.

The payments world has certainly expanded. Not long ago, everything was cash, debit cards, and credit cards. Now, it seems every week someone has come up with a new product to exchange money. With every new system comes new risks and, added to that, marketplace globalization means money is being moved across borders and in amounts that were never before possible. One might imagine that the bad guys are cheering these developments.

Mazur: Telecommunications is certainly something that is becoming a big mover of values across borders.

With just a pin number, you can move a large amount of money. Granted, there are self-imposed limits, but if you get a bad actor, one who has a higher threshold, you begin to see sophisticated methods of identity theft, which we have seen in the remitter world, in order to move a massive amount of money with a massive number of small transactions.

The traditional methods of moving value across borders probably deserve a better look at what degree they create risk for those companies that are intending to, in an honest and honorable way, operate those types of businesses. That is really what we are talking about here. We want to catch the bad guys, but we also want to make sure we maintain our reputations and don’t become unwittingly involved with the individuals who are involved in this type of stuff.

You need the tools and techniques to know that something is outside normal behavior and let the system alert you to it. You also need to have smart people who are trained to understand what’s out there and can do quick assessments, evaluations and, ultimately, investigations.

Sweeney: Bob talks about his adventures and seeing big rooms piled high with cash. Today, all that same stuff fits on a thumb drive.

What does BAE’s recent research tell us about the evolution of AML in terms of both the crime and defenses against it?

Sweeney: When you talk about the evolution of AML, you need to put it into context. The entire world is evolving, becoming more digital, more global, and more connected. It is only natural that the people who launder money are going to look at the ways people are conducting e-commerce and online transactions. They are going to look at the way we use computers today and automation and ask, “Why don’t we do that?”

What you are seeing is a tremendous push to adopt the technologies and approaches that that the rest of the world has used for legitimate reasons.

Many institutions face a difficult trade-off between providing correspondent banking services and protecting themselves against the inherent risks that come with those business lines. What should they consider when thinking about those risks?

Mazur: The abuses are not just though correspondent banking transactions, but also payable-through accounts that often go through a similar method of movement where you are aggregating transactions on behalf of a group of clients through transactions that go from bank-to-bank or branch-to-branch across borders. You don’t need to look much further than the HSBC case and their correspondent banking relationships with financial institutions in Mexico, or similar unfortunate events for Wachovia Bank and, before them, Union Bank of California.

There are many other types of account holders that move money through correspondent banking relationships that are not really getting the attention they deserve.

One method I saw heavily used by the Columbian and Mexican cartels is the over-valuation of export transactions. Basically, what that does is create space for the repatriation of value back into the source country and the owners of this illicit money.

If I am a coffee grower in Columbia and I sold $10 million of coffee to Starbucks, chances are that I’m not going to be repatriating that full $10 million. I might bring back $5 million and that provides space on my invoicing that is oftentimes sold on the black market. It enables people who are account holders in Columbia to have dollars moved through the correspondent banking relationships and foreign branches.

We really need a well-informed AML workforce that is able to focus on the highest areas of risk in a company, or a bank, or whatever type of business you might be, and recognize this is not a one-size-fits-all situation. There are clear red flags that fly with those companies that are most often abused in connection with the movement of massive funds. Educating the workforce to know what those are is extremely important to use the limited amount of resources that you have in the best possible ways.

The education of the workforce needs to be at all possible levels. Not just the front line, not just the top office, but those in-between levels as well.

Money launderers have shown themselves to be innovative, adaptable, and willing to change tactics to avoid restrictions and capitalize on emerging weaknesses. Given such a moving target, how do programs and training stay on pace? What’s the best way to balance staffing, training, and technology?

Sweeney: Money launderers can be incredibly creative coming up with one scheme after another.

We can take some examples from cyber-attacks. Look around at what the financial services industry is doing. One of those things is sharing information. Everybody hears about the type of attack that is out there. We give them names. We say, “Here is what the digital footprint looks like for somebody doing it.” We share that information freely with the government, each other, and consortiums. The idea is that by sharing information you make the whole industry a learning organization. You have one bank that gets hit, but everybody else gets inoculated.

That’s one aspect of continuous learning. The other is that it is no longer sufficient to have a static system. It is no longer enough to just say that if a transaction is over $10,000 we should investigate it. The money launderers are looking at ways to reverse engineer the process. They probe and figure out what you are going to catch and what you are not going to catch. That is why you need systems that constantly evolve and look for behaviors that are not normal. It is why you see people looking at things like machine learning technologies and big data solutions. With those solutions you let the data tell you what’s going on and what’s suspicious.

About Robert Mazur

Robert Mazur is recognized as one of the world’s leading experts on the financial escapades of the underworld, with first-hand knowledge about how international black money markets launder nearly $2 trillion in criminal proceeds annually. For years, in the eyes of organized crime leaders he was a highly successful mob connected money launderer that helped manage their illicit fortunes.
He spent five years as a deep undercover agent for US, UK, French and other government law enforcement, gathering evidence that led to some of the largest money laundering prosecutions in history. The only undercover agent in the world to have infiltrated so deeply into the inner circle of financial crime, his experience is unique. He’s seen how the system works from the inside, and the insights he holds are so valuable that the criminal world offered $1/2 million for his death.
Author of The New York Times Best Seller book The Infiltrator, his true-life story of the undercover operation that led to over 100 prosecutions, Mazur is also the inspiration behind ‘The Infiltrator’, a movie starring Bryan Cranston that was released in 2016.
Mazur’s accomplishments include a successful 27 year career as a U.S. federal agent and 17 years of private sector work as an expert witness, consultant and investigator for both defense counsel and governments. As part of his recent private sector experience he has debriefed many high level drug traffickers and money launderers concerning their current day methods of operation.
Mazur is a contributor to money laundering related programing that has aired on PBS, ABC, CNN, Univision, BBC and hundreds of other TV and radio networks. He is widely published on the issues of money laundering. His articles have been published in journals and many media outlets, including the NY Times. He is certified in both U.S. and Canadian courts as an expert in money laundering.
Source: RobertMazur.com

You need the tools and techniques to know that something is outside normal behavior and let the system alert you to it. You also need to have smart people who are trained to understand what’s out there and can do quick assessments, evaluations and, ultimately, investigations.

It there a danger in just throwing money and bodies at a problem, as so many institutions have tried?

Mazur: Regrettably, there are some people in the AML compliance world who feel that is, in some fashion, an advantageous way to go.

There is a small army of former federal law enforcement officers who, at times, wind up engaged to work on lookbacks for the monitors assigned to deferred prosecution agreements. If a bank has been involved in bad conduct they need to look back at a certain number of years of transactions. Unfortunately, the way things often go, these aggressive and experienced agents are told they have, at most, two-and-a-half hours to resolve an alert.

Well, these alerts sometimes involve transactions that go to multiple countries’ multiple financial institutions. We have the most experienced people wanting to do their job properly, but they are handcuffed by the fact that their numbers are not going to look very good because they are going to be involved in just one alert in a day. They end up being taken from the workforce. What we wind up getting is more of the people who are willing to do the cookie-cutter approach, resolve the alert in the allotted time frame, and keep the numbers moving in the direction everyone wants them to. Everybody walks away dumb and happy.

That’s not what we need. We need an educated workforce, armed with enhanced tools, who can go in there and help you identify the highest risk, based on real experience.

Trade-based money laundering is not something that is new to the world. There are new twists and turns, but the core issue has been out there for a long period of time. The core issue of abusing gold bullion transactions has been out there for a long period of time. The famous saying that those who fail to learn from history are doomed to repeat it is well applied to AML compliance issues.

Bill, you caution against binary thinking when it comes to detecting money laundering, thinking in terms of fraud/not fraud. Can you explain?

Sweeney: You need to take a risk-based approach. Instead of viewing transactions, accounts, and relationships as either 0s or 1s, it should be more like from 0 to 100 on how risky it is. There is an entire gradation of risk.

With the volume of data exploding globally and exponentially, you cannot do this manually. You need to have systems that help focus your attention on the riskiest things so you are spending your time wisely.

Bob, what are some of the AML detection and prevention lessons learned from your time undercover? How does it fit with the current regulatory focus on beneficial ownership and related issues that are drawing renewed focus, notably with the release of the so-called Panama Papers?

Mazur: If you are going to detect money laundering by working on smaller numbers of accounts, it can be done in an automated fashion. When you are talking about hundreds of millions of dollars, however, you are talking about high-level bad guys and it gets a lot more complicated.

When it comes to the relationships, I can tell you this. I never sat down with a bad guy at a high level who didn’t want guarantees that I was going to handle things in a way where this was not going to come back to them and they were not going to lose their money. And, if you did lose their money, you were going to make good on it.

At times I dealt with lawyers representing these criminal organizations. What they really wanted was to make sure their names didn’t show up in any way in any of the documents—and yet they wanted comfort that their money was secure. That’s a very delicate balance for somebody who runs, or is part of, a criminal organization.

Things that I’ve seen that are now recommended by [the Treasury Department’s] FinCEN and other bodies regarding beneficial ownership are potentially helpful, but even the systems we used in the underworld, way back when, would not come up on radar screens, even these new methodologies, because of their sophistication.

For example, one of the money laundering methods we used was a lawyer and an accountant who set up what appeared at face value to be a European mutual fund and of course none of the investors would have more than 25 percent, so therefore they would not have to be disclosed even under the newest of guidelines that relate to this.

And as far as managers were concerned and people on paper were concerned the lawyers in Lichtenstein, the lawyer in the British Virgin Islands, and the accountant in Panama were the people who were on paper. I was on paper as a one of many managers and as an employee of one of the groups, but none of the beneficial owners appeared on anything whatsoever.

We had pre-signed undated documents from those who put this mechanism together that enabled us, if we ever wanted, to take control of the accounts and move the funds. It was one of our safeguards.

The real safeguard, believe me, is that when you violate an agreement in that part of the world of the “retirement system” it’s not a very favorable one. You only get to make a mistake once.

Sweeney: We talk about money laundering and AML and it becomes very antiseptic. We feel removed from what we are talking about. And yet, if you screw up in that environment, you get the dirt nap.

If you walk into any bank and said I want to open up an account so I can bank the proceeds from human trafficking, almost nobody would want to do that. But that’s what’s behind all this: really bad stuff. It makes your skin crawl when you hear what is really behind all this and the people who are doing it.

Mazur: There is an understanding of professional regulatory responsibilities that need to be met, but there are also moral responsibilities. I see how inspired a lot of the people I speak to get when they transform the concept of money laundering from a spreadsheet to “Oh man, that really happened!” I have an advantage in being able to share that with people because I have been in meetings, looking into the eyes of people who have killed people. I’ve had them say to me, “If anything goes wrong here, there isn’t a hole deep enough on this planet you can hide from us in.” That’s the lack of morality that exists behind this money.

It is refreshing that so many of the people who are now involved in the AML fight don’t look at it strictly as a job; they view at it as a responsibility.

Any recommendations for improving AML efforts at home and internationally?

Mazur: I can’t count the number of times I’ve dealt with people in the private sector who complain, understandably so, that they do their best to send suspicious activity reports into the government but they go into a black hole. They never hear anything back and there is never any follow up. They aren’t sure what they are doing is really important.

We could see some improvement within the criminal law enforcement community in their interplay on the issue of money laundering. My pet peeve is that money laundering is often viewed as an add-on statute by most of the agencies that use it. It might be added on in drug cases or, for example, the FBI might add it on to a Medicare fraud case.

We need to recognize that money launderers are criminals who deserve the same type of focus that the FBI does with terrorists and the DEA does with drugs dealers. Those agencies understand it is their responsibility to identify the biggest players in those crimes and go after them. We need to be doing the same thing with money launderers.

There is a formula that would be worth considering where we have a collaborative enforcement agreement similar to back in the old strike force days of the Kennedy Era.

When Italian-American organized crime posed a threat, we had strike forces throughout the country where agents from different agencies worked together to go after the mob. There is a very big hole that could be filled by the law enforcement community if they take that same type of approach to money laundering, not just in the United States but on a global basis. They could attempt, on a continuing basis, to identify the biggest money launderers in the world and directly go after them instead of waiting for an add-on to underlying criminal activity.

That kind of a strike force, constantly looking at who is involved in money laundering, could work effectively with the private sector if we set up a safe haven way for the exchange of information, just as a safe haven exists with the filing of SARs. This would be an added thing that can be done by the criminal law enforcement community to help regulators, the private sector, and society in general and diminish the suffering they face as the result of these highly sophisticated money launderers operating around the globe.