Tuesday, April 25, 2017

Bulk Cash Pays for the Wall - By John A. Cassara

In the hyper-charged debate over the merits of building “the wall” along the U.S.-Mexico border and its funding impact on a possible government shutdown, I would like to propose a solution. 
The focus has largely been on contraband and illegal immigrants going north.  We largely ignore the other side of the equation; i.e. illicit proceeds – mostly in the form of bulk cash – flowing south.  If we could recover just a few percentage points of the tens of billions of profits from the sale of drugs and other transnational crimes (TOC) that annually flow south across the border, we could pay for the wall.  Moreover, targeting the illicit proceeds should be palatable to both Mexico City and Washington DC, and may serve as a basis for enhanced U.S.-Mexican cooperation on illicit trafficking and related TOC.
During the recent presidential campaign we heard that Mexico is going to pay for the wall.  Taxes on certain goods imported from Mexico and/or fees on official remittances have been floated as possible revenue sources.  Others ideas assuredly will surface.  Here, a few considerations are important; one – forcing the government of Mexico to pay would be perceived by Mexicans and many Americans as humiliating, and two – nobody wants to punish U.S. consumers or hard working migrants.
But using criminally derived funds to pay for the wall would drive home the lesson that criminal activity is the reason the wall is being built.  There is also a degree of poetic justice in having the proceeds of crime used to thwart future criminal behavior.  This initiative also ultimately fulfills President Trump’s campaign promise; most of the funding originates from Mexican transnational criminal organizations.
Sometimes lost in the discussion about transnational crime is the fact that criminal organizations are motivated by greed.  Cartels do not traffic in drugs for the sake of trafficking in drugs.  In fact, virtually every type of transnational criminal activity – from the sale of counterfeit goods to arms trafficking – is perpetrated with ultimate objective of making money.  And trafficking drugs is highly profitable.  While estimates of U.S. narcotics sales vary widely, a 2010 White House study pegged the number at $109 billion annually. 
It is important to note that analysts believe much of the money generated from these crimes is actually laundered in the U.S.  In fact, illegal drug sales in the U.S. may generate as much as 20 million pounds of currency every year!  As a result, drug traffickers and money launderers have a logistics problem.   Because of financial transparency reporting requirements, money launderers cannot simply walk into a bank in the U.S. with a suitcase full of cash and deposit it with no questions asked. 
So narcotics trafficking organizations have increasingly moved to smuggling bulk cash into jurisdictions such as Mexico.  “Placing” their ill-gotten gains into financial networks in Mexico is much easier.  Studies recently conducted by the U.S. government suggested that as much as $18 billion to $39 billion is smuggled annually across our southern border in the form of bulk cash.
How do they smuggle the cash?  The techniques are only limited by the criminals’ imaginations.   Some of the most common methods include simply driving it across the border and using a nearly endless list of ways to conceal cash parcels.  Bulk cash is sometimes concealed in vehicles’ spare tires, gasoline tanks, seat cushions, floor boards, and panels. Other uses include tanker trucks or similar vehicles that have false bottoms or altered gasoline or water tanks.  Bulk currency is concealed in shipping containers, often secreted in cargo.  Cash is also hidden in a variety of consumer goods such as boxes of cereal and other food stuffs, teddy bears, dolls, boxes of cigarettes, detergent, baked into bread, stuffed into air compressors, tools, furniture, sports equipment, produce, etc.  And finally, bulk cash is smuggled by couriers simply taping money on their bodies, using special smuggling vests, or simply transported in suitcases and duffle bags.
So how have we done?  A  variety of law enforcement agencies play a role in detecting and intercepting bulk cash smuggling, particularly Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP).  From 2005 to 2016, CBP officers reportedly seized a total of $211 million at the southern border.  According to a 2011 GAO study, we are seizing less than 1 percent of the multi-billion in drug-trafficking proceeds smuggled across the border.  Another study suggests that $99.75 of every $100 the cartels ship south is getting through.  Putting these numbers in perspective adds clarity – think of it this way: We seize only a George Washington quarter out of a $100 Benjamin paper bill! 
Of course, additional cash is being seized by other federal, state, and local law enforcement agencies sometimes in the interior of the country.  In addition, Mexican law enforcement has also seized bulk cash on its side of the border.  But even combining all seizures, it is still probably fair to say we are only recovering approximately one percent of the illicit cash.
These statistics are even more sobering because bulk cash smuggling is the most straight-forward of anti-money laundering efforts or investigations.  We are not talking about complex money trails layered via off shore havens, tracking trade-based laundering schemes, or tracing virtual currencies in cyber space.  At its core, bulk cash is a physical commodity (money) that generally moves from point A (U.S. side of the border) to point B (Mexican side of the border).  The cash shipments are hidden, often in complex ways – but the fundamental methodology is not complicated.
The consequences of bulk cash smuggling are devastating.  The uncontrolled hemorrhage of billions of dollars of untaxed drug proceeds that flow into the coffers of transnational organized crime groups directly fuels massive crime, corruption, and violence in Mexico.  But the impact of these crimes is not limited to Mexico.  In fact, not only is drug-fueled instability in Mexico spreading to parts of the U.S., particularly in Southwest border-states, but the murder carnage in places like Chicago is largely the end result of drug-related transnational criminality. 
The U.S. government is fully aware of the problem.  In fact, bulk cash smuggling was prominently featured in our last (2007) National Money Laundering Strategy.  The “action items” in the report, centered on traditional law enforcement countermeasures such as increased intelligence, coordination, border inspections, etc., have proved wholly inadequate.  In 2013, the U.S. Senate Drug Caucus released an excellent report on improving U.S. anti-money laundering practices.  The report notes that bulk cash smuggling continues to be a primary money laundering technique and that our counter-measures have been ineffectual.
Law enforcement officials have long observed that if we put a barrier (in all its varied forms) in front of criminals they will try going around it.  For example, after the Mexican government restricted the deposit of U.S. dollars in Mexican banks and currency exchange houses in 2010, law enforcement witnessed the money launderers using “funnel accounts” and trade-based money laundering to move money and value across the border.  Some observers feel a recent drop in cash seizures could also be the result of new ways of moving money across the border such as prepaid cards.  And, of course, criminals will try to go around, under, and over the border wall.  So countermeasures must take the above into consideration.
Despite criminals’ attempts at bypassing barriers, the numbers suggest tens of billions of cash still cross our southern border every year.  Let’s use $20 billion as a round number.  With the construction of a wall and a few other steps, over a few years we should realistically increase our seizure rate to say 5% or $1 billion a year.  If that holds constant, in 15 years the recovered funds would pay for the wall.
What are the few other steps?
1.         In designing the wall, we should have stopping bulk cash on the northern side of the border in mind as well as thwarting drugs and illegal immigrants coming from the south.  The construction and placement of the physical wall should be done in such a way as will “funnel” currency smugglers to border crossings that will be heavily controlled and monitored.  In other words, just like a successful tactical military maneuver, we will use terrain, barriers, and deploy our resources (technology and personnel) to force smugglers to use routes and border crossings we want them to use. 
2.         Increase border enforcement personnel including Border Patrol and Customs and Border Protection.  The Trump Administration has already endorsed this policy.
3.         Use data and advanced analytics to better target bulk cash smugglers just as we target narcotics smugglers and other contraband traffickers.
4.         Treasury’s FinCEN should issue a long-delayed rule that equates prepaid cards with monetary instruments for purposes of cross-border currency declarations.
5.         Systematically crack down on trade-based money laundering.  Both the U.S. and Mexico have Trade Transparency Units (TTUs). With a small increase in personnel and software, these TTUs could be directed to increase their focus on U.S./Mexican trade fraud and “black market peso” operations that are increasingly used by narcotics traffickers to avoid our traditional anti-money laundering countermeasures.
All of the above countermeasures are entirely doable.  Not only do these approaches to combatting criminality adhere to our already-articulated inter-departmental bi-partisan national anti-money laundering strategy, but they should be acceptable as they are self-funding and provide reasonable political cover for all sides.
(Note: An abbreviated version of this proposal was published February 27, 2017 in the Washington Times)
John A. Cassara is a retired U.S. intelligence officer and Treasury Special Agent.  More information is available at