Written by attorney Robert Marshall Sanger

Money Laundering and Financial Crimes in Santa Barbara Part 1

Robert Sanger is a Certified Criminal Law Specialist and has been a criminal defense lawyer in Santa Barbara for 37 years. He is a partner in the firm of Sanger & Swysen. Mr. Sanger is an Officer of California Attorneys for Criminal Justice (CACJ) and is the Co-Chair of the CACJ Death Penalty Committee as well as a Director of Death Penalty Focus and a Member of the ABA Criminal Justice Sentencing Committee. This article originally appeared in the January, 2011 edition of Santa Barbara Lawyer Magazine as one of Mr. Sanger's monthly Criminal Justice columns. MONEY LAUNDERING AND FINANCIAL CRIMES IN SANTA BARBARA Introduction Lawyers who advise banks or other financial institutions are already familiar with SAR's. These are Suspicious Activity Reports which are required to be filed by the institution with regard to any transactions that appear to involve money laundering or other financial crimes. These SAR's are then reviewed by personnel within the United States Treasury Department along with Currency Transaction Reports (CTR's) and other mandatory reports. The purpose is to uncover money laundering, identity theft and other financial crimes. Santa Barbara, California, is included in a HIFCA, a "High Intensity Financial Crime Area," by an agency within the Treasury Department calling itself, over the last twenty years, FinCEN. We will discuss what this agency is and what triggered this HICFA assessment. We will also explore what this means in terms of law enforcement and the prosecution of individuals and organizations. Finally, we will discuss what lawyers should know about advising their clients in order to avoid involvement in a criminal investigation or indictment. What is FinCEN? Despite the efforts of the current Administration and the United States Congress to consolidate the efforts of the federal regulatory agencies pertaining to financial institutions, the United States Treasury maintains a separate unit for detection of financial crimes. It was established in 1990 and is denominated the Financial Crimes Enforcement Network (FinCEN). The FinCEN's mission is "to enhance U.S. national security, deter and detect criminal activity, and safeguard financial systems from abuse by promoting transparency in the U.S. and international financial systems." Despite this rather general mission, FinCEN spends most of its resources trying to uncover money laundering, identity theft and, given the recent economy, mortgage fraud. FinCEN's primary tool is the Suspicious Activity Report (SAR) which is required to be filed by banks and financial institutions if suspicious activity is detected relating to a transaction of $5,000 or more. FinCEN then responds to some of these SAR's and can take civil enforcement action or refer matters for criminal prosecution. FinCen employs about three hundred financial analysts who review the SAR's and other documents. FinCEN does not have its own squad of Special Agents with badges, guns and power of arrest although that suggestion has been made. If a FinCEN analyst comes upon a SAR or other document that suggests criminal activity, she or he will refer the matter to Internal Revenue Service Criminal Investigation (IRS-CI), U.S. Customs and Border Protection or Federal Bureau of Investigation (FBI) or other federal law enforcement agencies for further criminal investigation. The jurisdictions of these agencies are overlapping but IRS-CI generally will look at money laundering as regards tax evasion, Customs from the standpoint of international transportation of currency and the FBI from the perspective of organized crime, bank fraud, identity theft and other fraudulent schemes. Customs, the FBI and other agencies are particularly alert ot evidence of international terrorist movement of money. What is a HIFCA and Why is Santa Barbara within One? There are seven High Intensity Financial Crime Areas (HIFCA's) that have been identified throughout the country and its possessions by FinCEN. Santa Barbara is within one of those HIFCA's. The Southern California Region is comprised of Los Angeles, Orange, Riverside, San Bernardino, San Luis Obispo, Santa Barbara, and Ventura. HIFCA's take their model from the concept of High Intensity Drug Trafficking Areas (HIDTA) were set up in Los Angeles, Miami and New York. These earlier drug HIDTA's were complemented by the Joint Drug Intelligence Group (JDIG) which operated nationwide. The JDIG and HIDTA was essentially a co-located task force made up of local, state and federal agencies under the FBI's direction to enhance joint cooperation and investigations. Based on this model, the HIFCA takes a similar approach, however, the lead agency is FinCEN under the Department of Treasury. FinCEN's makes its determination as to what areas qualify to be characterized as a HIFCA based on the evaluation of the SAR's and related documents being generated across the nation. As depicted in Figure 1 above, we are in one of only five HIFCA's in the continental United States and one of seven total, including Puerto Rico and the Virgin Islands. We are within one of these HIFCA's because of the high incidence in our area of money laundering, identity theft, currency transaction violations and other financial crimes. This is not surprising in light of the demographics of our County as well as the financial sophistication and international connections of our business community. Law Enforcement and Prosecution of Financial Crimes When a possible criminal violation of federal law comes to the attention of FinCEN analysts through the SAR's or related documents, the analysts will refer the matter to the IRS-CI, Customs, the FBI or some other federal agency. If that agency sees merit in the report, it will commence a traditional financial crimes investigation. That means that they will review all documents, interview witnesses and, if appropriate, obtain subpoenas from a federal grand jury to obtain testimony or other documents. Ultimately, if the suspicion appears to be substantiated, the agency, with the assistance of the United States Attorneys Office, will prepare the case for presentment to the grand jury for Indictment. The federal agents will determine who is the target in the course of their investigation. As we have emphasized often in the column, it is important for the lawyer advising an organization or individual to be alert to any warning signs that a federal criminal investigation has commenced. Counsel should immediately try to identify the agents and the Assistant United States Attorney (AUSA) handling the matter. It is critical that counsel get involved as early as possible in order to make arrangements to avoid an indictment. If there is an indictment, the case will proceed through the federal court criminal process as would any other case. There is an opportunity to obtain an agreement from the AUSA to have the client report to court rather than be arrested. This also gives you the opportunity to contact Pre-Trial Services in advance to arrange for release. It is also possible that a referral from FinCen could result in an investigation by local law enforcement or a joint task force. If there are also potential violations of state laws or if the financial loss of the crime is not that significant, the federal government can defer to local prosecution. In addition, in the course of the investigation into suspicious financial crimes, unrelated criminal investigations might emerge. We had one case recently, in another county, where the Sheriffs came along on the execution of a federal warrant which was based on a SAR report, however, the Sheriffs branched out into their own investigation of an unrelated unsolved murder. The lesson here, of course, is to react quickly to any hint of an investigation and take it seriously. Much can be done to avoid indictment for a client or to defend a case if there is action taken at the earliest stages. To be continued in Part 2

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