In an unprecedented global financial probe, federal officials announced in May they had shut down a digital currency website operating a $6 billion money-laundering network. The scheme was neatly summarized by one investigator as “a PayPal for criminals,” a shadow online banking system used to conduct illegal transactions and launder the proceeds.
It was a groundbreaking investigation by the Global Illicit Financial Team, which consists of Immigration and Customs Enforcement’s Homeland Security Investigations directorate, the Secret Service and the Internal Revenue Service’s Criminal Investigations Division. Search and arrest warrants were served in seven countries and the assets of Liberty Reserve frozen.
Globally, an estimated 1 million people used the site to conduct more than 50 million illicit transactions, making it the largest money-laundering case in history. The impact is far-reaching given the precious few major financial law enforcement breakthroughs since the Sept. 11, 2001, terrorist attacks. Unlike other recent headline-making regulatory cases, like the HSBC bank money-laundering scandal in 2012, arrests were made, criminal proceeds will be recovered and people will be held accountable.
Despite the challenges involving venue and jurisdiction, the case tapped widespread U.S. and international law enforcement cooperation. Going forward, the Global Illicit Financial Team is an example of what could be -- with the right agency at the helm.
In the rush to react to Sept. 11, politicians from both parties scrambled to create the Homeland Security Department. Since then, operational problems at DHS have been widely chronicled, and the behemoth department has not lived up to its initial billing. This has been particularly true in combating international money laundering and its inverse partner terrorist finance.
The Treasury Department, the IRS’ parent agency, by definition focuses on financial matters including international money laundering and value transfer, which employs trade-based and underground finance networks, and new mobile and cyber payment technologies. These are vitally important issues that have not received the focus they deserve.
When DHS was formed, Treasury’s enforcement arm was gutted. The U.S. Customs Service (created in 1789) and the Secret Service (established in 1865) were transferred to Homeland Security, and the Bureau of Alcohol Tobacco and Firearms was shifted to the Justice Department. At Justice and DHS, money laundering is addressed as a subset of other crimes, such as bank robberies, white-collar fraud and narcotics rings.
Treasury is able to develop strategies, policies and regulations in the fight against money laundering and terrorist financing, but it lacks the investigative resources to implement and enforce those policies. The domestic financial sector views Treasury as its natural government partner, and such relationships with industry should not be weakened.
The Secret Service and Customs should be brought back to Treasury. Most Secret Service and Homeland Security Investigations agents would jump at the opportunity. If politically unpalatable, the Global Illicit Financial Team should at least be embedded as a nimble state-of-the-art financial crimes task force under the Treasury banner.
Using the resources that are uniquely Treasury’s -- including the 18 million pieces of intelligence filed each year in its Financial Crimes Enforcement Network, the robust legal tools deployed under the USA PATRIOT Act, criminal sanctions and designations, domestic and international enforcement and regulatory networks, and financial expertise -- real progress can be made in combating large scale and complex financial crimes.
John A. Cassara, a former intelligence officer and Treasury Department special agent, is author of several books on money laundering and terror finance and is an industry adviser to SAS Federal LLC.