Joey Nariz is a narcotics trafficker who has made a career of smuggling cocaine

Question

Joey Nariz is a narcotics trafficker who has made a career of smuggling cocaine into the United States. Over the years, he has bought most of his supply from Colombia but more recently had begun to obtain it in Peru. His base of operations in the United States is San Lauro, a small California town northwest of San Diego. He controls his southern operations through encrypted satellite phones and fax machines. Working in a small town provides the perfect cover, but he enhances his secrecy by operating out of a large farm supply store that he had purchased when he first came to San Lauro. He deals with his distributors in other small towns in California, New Nevada, and Arizona. He prefers small towns because the people are trusting, and small towns never possess any serious antinarcotics capabilities.

Joey never personally transports or handles any drugs. He reserves those tasks for a network of undocumented Mexicans who can earn more working for him in a single day than they can earn back home in several years. Most of them are otherwise honest people willing to break the law so they can send money home to their families.

His largest problem is managing the cash. He has learned the hard way that he must handle the cash himself. Despite having more than $90 million in cash stashed away in warehouses, he lives a very frugal life. He spends whenever he can, but he’s afraid to try to buy real estate or other large-ticket items with cash for fear of drawing attention to him.

He decides, however, to travel to Miami and purchase a large house and boat. He packs the trunk of his car with cash and heads east. Once in Miami, he uses his contacts with local distributors to find a real estate agent who would be willing to work for cash. He instructs the agent to find him a large waterfront house for which the seller would accept an all-cash deal. He ends up paying $14 million for an $8 million house, but he’s very happy with the property. The seller had no mortgage, so they were able to make the deal quietly in an attorney’s office. They told the attorney that they were relatives and that the payment had already been made “out of closing,” which meant the closing involved only some paperwork and no money.

Joey used the same method to purchase a $3 million yacht for which he paid $4 million. He then sold it for $2.5 million. The sale yielded a check net of commissions from the yacht broker. He deposited it into a bank account that he had opened with only $500 in cash and a check for $5,000 from his San Lauro bank account. When he opened the bank account, he told the bank representative that he was from San Lauro, California, and in the farm supply business. He even provided the bank a letter of introduction from his San Lauro bank.

Is Joey’s money-laundering scheme likely to work?

Is the bank likely to report the deposit of the payment for the yacht by filing a currency transaction report or a suspicious activity report?

Is law enforcement likely to discover his purchase of the house or boat for cash?

How would a forensic accountant go about investigating Joey for drug trafficking and money laundering if given subpoena power? Would the investigation discover the under-the-table house and yacht purchases?

Explanation / Answer

1)

Joey’s money-laundering scheme is not likely to work as in the United States, banks are required to file Suspicious Activity Reports (SARs) for suspected large financial transactions to the Financial Crimes Enforcement Network (FinCEN). Further, banks need to follow Customer Information Programme as stipulated under the USA Patriot Act strictly while opening a new account of customer who wishes to do financial transactions through them.

2)

Yes. The bank likely to report the deposit of the payment for the yacht by filing a currency transaction report or a suspicious activity report to the Financial Crimes Enforcement Network (FinCEN) as the transactions is aggregating $ 5,000 or more.

3)

Yes. Law enforcement likely to discover his purchase of the house or boat for cash as his transactions with the bank is most likely to be reported to the Financial Crimes Enforcement Network (FinCEN).

4)

If given subpoena power, a forensic accountant may go about investigating Joey for drug trafficking and money laundering by unearthing the origins of money deposited by Joey in his new bank account. Further, forensic accountant under subpoena power may ask for the documents from Joey to prove his source of funds and Income, Income Tax Returns, his properties, his residence status, and any further relevant information from his old bank.

The accountant may further investigate into the house purchase deals, transactions with brokers and yacht purchase deals executed by Joey to find out the sources of funds used to purchase those assets and to expose the under the table deals.

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