Chapter One

 

THE MAGIC TRICK

 

 

 

 

"When the President does it, that means it is not illegal."

 

Richard Nixon

 

 

 

 

 

 

Money laundering is all about sleight of hand.

 

It is a magic trick for wealth creation.

 

The lifeblood of drug dealers, fraudsters, smugglers, kidnappers, arms dealers, terrorists, extortionists and tax evaders, it is perhaps the closest anyone has ever come to alchemy.

 

Myth has it that the term was coined by Al Capone who, like his arch rival George "Bugs" Moran, used a string of coin-operated laundromats scattered around Chicago to disguise his revenue from gambling, prostitution, racketeering and violation of the prohibition laws.

 

It's a neat story, but not true.

 

"Laundering" perfectly describes what takes place: illegal, or dirty, money is put through a cycle of transactions and comes out the other end as legal, or clean, money. In other words, all traces of illegality are scrubbed away by a succession of transfers and deals, so that those same funds reappear as legitimate income.

 

Romance has since been added to myth with the name Meyer Lansky.

 

Whereas cronies like Capone, Luciano and Frank Costello made their way through the world using muscle, Lansky - a 5 foot 3 inch, Polish-born, New York-raised, 9th grade drop-out - used his wits to become the highest-ranking non-Italian in what used to be called "The Syndicate." He was affectionately known in those days as the mob's accountant. He is often affectionately remembered these days as the patron saint of money launderers. It's an epitaph that would have amused him.

 

Lansky became particularly distressed in October 1931 when Capone's carelessness allowed the Feds to send him to Alcatraz for something so obvious as tax evasion. Determined to avoid a similar fate, he theorized that any money the Internal Revenue Service didn't know about was, by default, not taxable. With that as his premise, he embarked on a quest for ways to hide money, and soon discovered the benefits of numbered Swiss bank accounts. Some 20 years later, after helping his long-standing partner in crime, Benjamin "Bugsy" Siegel, to finance The Flamingo - the first major hotel and casino complex in the desert that would become Las Vegas - Lansky convinced his pals that their non-taxable future lay in offshore expansion. Even if the IRS suspected money was being stashed outside their jurisdiction, they couldn't get their hands on it. So he took the mob to Havana and with the blessings of strongman Fulgencio Batista, Lansky almost single-handedly turned the Cuban capital into a boomtown. But his dreams of a world beyond the reach of the IRS ended with a rude awakening. In 1959 Fidel Castro battled his way down from the mountains and with the help of guns provided by American gangsters, threw out all the Americans.

 

Some of Lansky’s cohorts brooded over such bad luck, but he was typically philosophical. He admitted he'd backed the wrong horse - very few people believed that Castro, his comrade Che Guevara, and their ragtag band of merrymen could pull off an entire revolution - took his losses, and learned the lesson that the best guarantee for any offshore investment is a politically stable environment.

 

In pursuit of somewhere safe and sound, he turned to the Bahamas. Thirty minutes by air from Miami and in the same time zone as the eastern United States, the 700 islands and cays that made up the then-British colony were ideal. Communications were good, real estate was cheap, access was easy, the market was ripe and, best of all, the local politicians were crooked.

 

The fly in the ointment, where Meyer Lansky's beatification is concerned, is that he was hardly a saint and definitely not a money launderer. His fundamental concern was with evading taxes. He did little more than come up with some basic procedures for capital flight. There's nothing to suggest he ever intended to repatriate any money and spend it legally. Lansky is to money laundering what the Wright Brothers are to the Concorde. He got the business off the ground, but it was left to other people to break the sound barrier.

 

In fact, it wasn't until 1973 that the term "money laundering" actually appeared in print for the first time. And when it did, it had nothing to do with Meyer Lansky. The earliest sightings were in newspapers covering the Watergate scandal.

 

At the end of February 1972, Richard Nixon took the first formal steps towards renewing his tenure at the White House. He announced the creation of the Committee to Re-elect the President - abbreviated to CRP and, bizarrely, pronounced "creep" - and named his former law partner, Attorney General John Mitchell, to run it. But that was strictly for public consumption. The real campaign drive had begun at least a year before when Mitchell and Secretary of Commerce Maurice Stans, who later took the chair of CRP's Finance Committee, secretly built a presidential war chest. Among the earliest contributors was the American dairy industry, which wanted to reward Nixon for having raised federal milk subsidies. Also on the Stans-Mitchell list was the recluse billionaire Howard Hughes, who reportedly handed $100,000 directly to Nixon's closest friend, Florida banker Charles "Bebe" Rebozo.

 

Then there was the international financier Robert Lee Vesco. Under investigation at the time by Mitchell's Justice Department, Vesco thought enough of Nixon and, evidently, the prospect of some Oval Office sympathy, to arrange a cash donation of $200,000.

 

 

When Mitchell and Stans squeezed American Airlines for $100,000, George Spater, then chairman and chief executive of the airline, was faced with the dilemma of how to divert corporate funds that were otherwise accountable. He arranged to have a Lebanese company called Amarco submit a fraudulent invoice as commission on parts sold to Middle East Airlines. American Airlines paid the invoice and Amarco deposited the money in Switzerland, then wired it to their account in New York. There, Amarco's agent withdrew $100,000 in cash and handed it to Spater, who turned it over to Mitchell and Stans.

 

Braniff Airlines, also hit by the duo, laundered their beneficence through Panama. The airline's regional vice president for Latin America collected $40,000 by instructing the company's man in Panama City to raise a false invoice from a local company for "goods and services." To cover the shortfall, they sold blank tickets for cash.

 

Next Stans turned to the oil industry. Ashland Oil's chairman, Orin Atkins, obliged with money funneled from a subsidiary in Gabon. Gulf Oil laundered its $100,000 gift to Mr. Nixon through a subsidiary in the Bahamas.

 

Vesco's donation was eventually returned, but under the statutes then in force, CRP was not technically under any obligation to report these contributions. However, Congress had just passed a law that was to come into effect on April 7, specifically prohibiting anonymous campaign donations. Knowing that it would severely cramp their style, Mitchell and Stans decided to pull in as much as they could before the deadline. They dusted off an old Mexican connection to guarantee that anonymous donations could not be traced, and went back to work, now targeting private citizens who would appreciate discretion in these matters. They also went in search of corporations that might otherwise be banned by the new law from making substantial and undeclared political contributions.

 

Never known for a subtle approach, Stans bullied potential donors with lectures on the debt of gratitude that they and all patriotic Americans owed to Richard Nixon. In the same breath he reminded them that his Mexican connection was not subject to American audits.

 

With hindsight, it was a fairly adolescent scheme. Among the contributions Stans raked in were four cashier's checks in sums of $15,000, $18,000, $24,000 and $32,000. Totaling $89,000, they were each drawn on a different bank in the United States and made payable to a Mexico City lawyer named Manuel Ogarrio Daguerre. In mid-April Ogarrio forwarded the checks to Miami, where on April 20 they were deposited into the bank account of a local real estate salesman named Bernard L. Barker. Were anyone ever question him about the source of the money, Barker was under instructions to say that it was his share of a land deal he’d made with an anonymous Chilean businessman. Were anyone ever ask why he subsequently withdrew the $89,000 in cash, Barker was to answer that the deal had fallen through and he needed to repay the commission.

 

Had Mitchell and Stans then gone on a binge, blowing the money on wine, women, song - or even campaign advertising - it's likely no one ever would have found out about it. Instead, they decided to finance a crime.

 

On the evening of June 17, 1972, five burglars broke into the Democratic National Committee headquarters at the Watergate office building, west of Juarez Circle. They were: Virgilio Gonzalez, a Cuban-born locksmith; Eugenio Martinez, a Cuban-born anti-Castro activist and CIA informant; Frank Sturgis, a Miami soldier of fortune with CIA connections; James W. McCord, Jr., a former employee of both the FBI and the CIA; and one Bernard L. Barker of Miami, Florida. As it turned out, Barker had also worked for the CIA and been involved in the 1962 Bay of Pigs invasion.

 

The five men were arrested immediately. At first, the most interesting member of the group appeared to be McCord, because at the time of the break-in he was coordinating security for the CRP. Then came the arrest of G. Gordon Liddy and E. Howard Hunt. The brains behind the break-in, both had direct links to the CIA, the CRP and, shockingly, the White House.

 

Yet the thread that would unravel the conspiracy turned out to be Barker.

 

Too clever by half, Mitchell and Stans never reckoned that anything could go wrong. Nor had it dawned on them that if anything did go wrong someone might somehow find those four checks and trace them back through the Mexican lawyer to the CRP. Once Bob Woodward and Carl Bernstein of the Washington Post broke the story, however, and it had gained enough momentum for them to run with it, every other investigative reporter in America tried to get in on the act. Competition for front-page scoops became red-hot. In the end, it was the New York Times that headlined the Mexican money connection.

 

Subpoenas flew and investigators got inside Barker's bank account. A fifth suspicious check was uncovered, this one for $25,000 and dated April 10. Drawn on the First Bank and Trust Company of Boca Raton, Florida, it was made payable to Kenneth H. Dahlberg, a Nixon fund-raiser. When a reporter asked him about the check, Dahlberg admitted he'd long since turned it over to Maurice Stans.

 

Bathed in Mexico, $89,000 was just the tip of the iceberg. The amount soon jumped to $750,000. That's when it was revealed that Stans was maintaining a huge and unquestionably illegal slush fund at the CRP.

 

The sheer amateurishness of their money laundering scheme linked the CRP to the Watergate break-in. By March 21, 1973 Nixon, already so tangled in his own lies that his fate was sealed, tried to convince his legal adviser John Dean that he might be able to buy his way out of the crisis with more laundered money.

 

Prophetically, in a private Oval Office conversation, Dean warned Nixon, "People around here are not pros at this sort of thing." He went on, "This is the sort of thing Mafia people can do, washing money, getting clean money and things like that. We just don't know about those things, because we are not criminals and not used to dealing in that business."

 

It was only a matter of time before the President’s meager lines of defense were split open so wide that no one, least of all Richard Nixon playing the laundryman, could have halted the process that brought him down.

 

Like any great thriller, the story is filled with ironies. One is that Nixon had been so far ahead in the polls, and his opponent, George McGovern, politically so far out in space, that the CRP hadn’t needed to solicit illegal funds. He could have stayed in the Oval Office, never made a speech, never kissed a baby, never hit the campaign trail, and still have won in a landslide.

 

A second is that in the wake of Watergate, Congress took action to prohibit government intrusion into the lives of ordinary citizens. One new law virtually enjoined financial investigators from comparing notes, which has turned out to be a boon for the laundrymen.

 

A third irony is that money laundering was not yet a crime anywhere in the world.

 

 

 

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