Chapter Eighteen

 

THE NEW THREAT

 

 

 

 

"Today's criminals make the Capone crowd and the old Mafia look like small time crooks."

 

Former US Secretary of State George Shultz

 

 

 

 

 

 

For anyone confident enough to trust his cash to the evolving nations of Africa, the dark continent offers a legion of possibilities. Hard currency is king. And unlike many other fragile economies, for example those in Eastern Europe, the Africans have known the potency of cash for decades.

 

The Kenyan government determined in late 1994 that anyone could export up to US $500,000 without official approval. As a result, shell companies run from overseas now wash money in Nairobi before wiring it on to India and Switzerland. Despite pleas from the central bank for vigilance, many banks in Kenya are reporting bumper profits.

 

Post-apartheid South Africa has also been invaded by traffickers and laundrymen who use the country as a staging area to transship drugs into Europe and North America. The Nigerians were the first to take advantage of the smuggling infrastructure developed by arms dealers and ivory poachers after the United States banned direct flights from Nigeria. They bring cocaine and heroin into the country uninspected at small chaotic ports, then ship the drugs to New York on commercial flights out of Johannesburg and Cape Town --- a considerably less risky run than sending those drugs direct from Colombia or Thailand.

 

Since Nelson Mandela's election in April 1994, South Africa has made a concerted effort to lure foreign investment. The well developed, modern financial services industry is not only a way for legitimate businesses to invest in Africa, it is equally accessible to laundrymen. A massive amount of cash flows through the banking system where controls are clearly inadequate. With as many as 70 known drug syndicates operating internationally out of South Africa, it has become the most violent country on earth with a reported 50 murders a day.

 

Then there is Francophone Africa. According to a confidential report out of the French Ministry of Foreign Affairs, tremendous sums of drug money are washed through hotels in Senegal and the Ivory Coast, casinos in Gabon and Cameroon, fisheries in Guinea and the vanilla trade in Madagascar. The French police have also found drug links to African horse-racing and state run lotteries. Heroin from south-east Asia is routed through Africa on its way to the United States.

 

But no where in Africa has money laundering and drug trafficking become such an enthusiastic national affair as Nigeria.

 

Once awash with oil, Nigeria is at the center of the continent's drug trade. A 25 ounce unit of heroin imported from Southeast Asia for $6000 can be resold to distributors in Lagos for $120,000. Organized crime is so blatant that Nigeria was the first African country "decertified" by the US, marking Washington’s absolute dissatisfaction with the then military ruler, General Sani Abacha. Yet the depth of Nigerian involvement in drug trafficking was only revealed when American undercover agents working in Brazil uncovered an organization managed by Russians that relied entirely on Nigerians to move Colombian cocaine through West Africa before smuggling it into the United States.

 

The State Department accused Nigeria of harboring some of the most sophisticated and finely-tuned transshipment, money-moving and document forging organizations in the world. Furthermore, they calculated that as much as 40 percent of the heroin coming into the States is brought in by Nigerians. These are not random mules or freelancers, but professional gangs who enjoy the protection of government officials. It’s no coincidence that thousands of Nigerian drugs couriers are in prisons around the world, making up the largest single national grouping. But the drug barons operating out of Lagos are virtually never caught.

 

The Nigerians voraciously deny that the problem is that grim, blaming such allegations on "wicked reporting." They even bragged when they arrested a Nigerian man at Lagos airport trying to leave the country with $800 million in cash.

 

But it takes a lot of wicked reporting to match eight tons of $100 bills! And in a country where international fraud is an expedient source of foreign income, organized criminals understand the sex appeal of dirty money so well that they've built highly lucrative scams round it.

 

An official-looking letter, or, more often these days, an email, is sent randomly by the tens of thousands, promising a huge commission for your help. It's signed by someone pretending to be an attorney or with some vague title, such as a Nigerian royal, who says he is affiliated with a company sounding oddly familiar like "Shell BP."

 

He writes that he is acting as an agent for an official entity --- Nigeria's national oil company is a favorite --- because a particular problem has arisen with blocked funds. A large sum due the company is being held in a Swiss account and, as the result of some muddled legal complication, the money cannot be released directly to the company.

 

The letter goes on, "We are anxiously looking forward to securing a foreign partner who can offer us the benefit of having some money remitted into any company's or personal buoyant account. This money runs in millions of US dollars."

 

If you will allow the money to pass through your bank account, in other words to launder it, you will be paid handsomely for the service. The deal is that the third party will wire the money due, for example $10 million, into your account without you assuming any liability. All you have to do is wait for the money to clear, then forward $7 million to the agent. You are welcome to the $3 million difference as you share.

 

Reassuring you that you are not being asked to do anything illegal, simply to step into the middle of a legitimate commercial transaction, the agent offers to show you references and the background paperwork. However, as there is always some sort of fast-approaching deadline when this money must be paid, the agent suggests that to save time you should furnish your banking details, plus your personal authorization for the transfer. Needless to say, once you supply him with the information, that's the last you ever see of the deal. Your letterhead, signature and banking details are used by Nigeria forgers to create a second letter, this one ordering your bank to wire out the balance of your account.

 

The scam is known as "419 Fraud," named after the Nigerian law that makes it illegal.

 

On the back of this scam, Nigerian conmen have created all sorts of "advance fee fraud" variations. In one, they bait you with letters and contracts from companies and banks explaining why and how the money must be paid into the account of a disinterested person. Tempted by a huge commission, you agree to get involved. But this time, at the very last minute, there's an awkward hold up. You are then bombarded with emails and phone calls from very embarrassed bankers and very embarrassed lawyers, explaining that the party due those funds is insisting the money must be simultaneously transferred. So a conference call is hastily arranged to ensure that, as you authorize your bank to wire out $7 million, lawyers representing the party paying the money authorize their bank to transfer in $10 million. By sheer coincidence, as soon as you instruct your bank, the conference call goes dead.

*****

 

 

 

 

The Nigerians honed their criminal skills in the heady days of oil affluence when greed reigned supreme. The Russians developed theirs in the bleak days of Communist oppression, when crime was franchised by the state and synonymous with survival.

 

The Soviet Union’s forced economy never really worked but the black market always did. So when the Kremlin’s walls came tumbling down, organized gangs --- who once ran the parallel economy --- moved swiftly to replace illusions of capitalism with the realities of drugs, prostitution, fraud, murder, extortion, loan sharking, smuggling, the sale of nuclear materials and money laundering.

 

Today, crime is the most exportable sector of the former Soviet Union.

 

As reported crimes increase at 30-50 percent a year, Mafia-style groups murder bankers who refuse to cooperate. They run protection rackets, extracting money from westerners who think they can waltz into the former Soviet Union and make a killing. And they contract to have new and late-model cars stolen in Germany, tens of thousands of them annually, which are driven back to Russia and sold for hard currency. Through Cold War contacts developed around Eastern Europe, Russian gangs have had no trouble infiltrating Poland, Hungary and the Czech Republic. But it was East Germany that turned out to be their gold mine. With unification came their foothold in the West and there are now more than 300 variously organized Russian crime gangs operating in Germany. These are professional criminals who deal in anything and everything, including nuclear materials which they flog to the highest bidders in the Third World.

 

Taking advantage of Europe’s crumbling borders, they used their German base to establish a presence in Britain. And that presence has become so worrying that British police now revise their threat assessment every three months. In addition to using the City of London to launder their money, current thinking is that Russian crime syndicates will become the UK’s major supplier of drugs and illegal weapons before the end of this decade.

 

The French have also seen Russians coming into the country. In Paris and along the Riviera, shops selling luxury goods display signs in Russian, reminiscent of the 1970s when the petrodollar-rich Saudis were the invading force and the signs were in Arabic. But the money the French are seeing is not roubles from Moscow, these are dollars from New York. Like everyone else, the Russians grasped the concept that jurisdiction stops at the border and the more borders they can put between the source of their cash and the place where they spend it, the harder it is for anyone to detect it.

 

Not that everyone bothers. When a group of Russians recently arrived in Luxembourg with bundles of cash, suspicious bankers explained to their prospective clients that due to international pressures they could not take dirty money. So the Russians produced sworn affidavits from someone in the Ministry of Finance to swear that this money was clean. Forged papers were all the bankers needed to protect themselves, and they accepted the cash.

 

Until recently, it was thought that Russian mobs were operating independently of the more established international syndicates. But that view has begun to change. A gang of Russian émigrés were indicted in New Jersey along with seven members of the Gambino crime family in May 1993, after police broke up a fuel tax racket.

 

The scam they ran is known as a daisy chain.

 

False invoices were moved through front companies to create the appearance of fuel being sold to various wholesalers. One of the shells, known as the "burn" company, showed the purchase of tax free heating oil and the sale of tax-paid heating oil to the next shell on the chain. The burn company would have been liable to the government for the tax which, of course, was never paid. But when the government came looking for its money, the burn company became impossible to find.

 

It’s a standard pattern. Paper trails are made too complex to follow and companies disappear. And even if some extra-savvy IRS inspector is able to wind his way through purchase orders, provisional invoices, final invoices, brokerage letters, wire payment instructions, third-party payment letters, tax exempt certificates and 28 different shell, all he’s going to find at the end of the chain is the burn company which turns out to be nothing more than a post office box.

 

New Jersey based Russians laundered more than $66 million through banks in Aruba, the British Virgin Islands, Zurich and Greece. Including in the 101 count indictment against them were charges of racketeering, extortion, mail and wire fraud, plus state and federal tax evasion and, of course, money laundering. But the most interesting aspect of the case centered on $6.7 million that these Russians paid to the Gambino family who allowed them to operate. This "mob tax" was the first indications that working agreements now exist between Russians and the Mafia.

 

Although the Justice Department couldn't link these Russians directly to organized crime groups in Moscow, they have since made a connection in Brooklyn’s Russian immigrant community. It happened when a ton of cocaine was confiscated near St. Petersburg. The biggest drug bust to date in Russia, a ton of white powder was hidden in cans marked meat and potatoes and trucked in from Finland. With information supplied by the Russian Interior Ministry police, the FBI was able to establish that the cocaine had been owned by the Colombians who were using Russia as a back door to get product into Europe. By then following the money trail, they were able to ascertain that the middlemen who’d brokered the deal were living in New York.

 

Finding that much cocaine in St. Petersburg was a shock because the Russian market was still in its infancy, although no one in American law enforcement ever doubted that Russian gangs would one day spot enormous possibilities in the drug trade. But it was no less surprising to learn that Russians who’d emigrated to the States in the late 1980s had, by the early 1990s, already made contact with the cartels.

 

Even before anyone understood the significance of Colombian laundryman Franklin Jurado’s arrest in 1991 while on his way to Moscow, it was difficult for western authorities to come to terms with the breakdown in law and order in the former Soviet republics. No one in the States could even guess that Jurado had been introduced to the Russians by émigrés in America. Instead, the Justice Department was focused on the easy availability of raw materials that were putting the Russians into the narcotics trade; with their need for hard currency; with the large pool of well trained chemists have found themselves out of work as the economy transitioned from controlled to market related; and with the opening of Russia's borders.

 

No one in the States had yet imagined that Russia was destined to become a jungle in the snow, that it would perhaps be impossible to stop Russia from becoming another Colombia.

 

Like Colombia, the level of contempt for the law and the random violence that one finds there today are immense. Like Colombia, their prime target is the world’s most important consumer market. Like Colombia, the Russians have well established émigré communities in several major cities.

 

According to Alexei Belov, deputy head of Russian Interior Ministry's criminal investigation department, there are now two dozen Russian organized crime groups operating in the States. Specializing in drugs and money laundering, they are found in Boston, Philadelphia, San Francisco, Los Angeles, Miami and Chicago but mostly they are in New York --- especially Brooklyn’s Brighton Beach, the heart of a 200,000-strong Russian community.

 

There have always been Russian shops and Russian cafes and Russian restaurants and Russian newspapers in the boardwalk neighborhood east of Coney Island, but in the past ten years there have been 15 gangland style murders there, none of which has been solved because no one in the community will come forward to tell the police what they know.

 

Until the late-1980s, Brighton Beach was just another ethnic neighborhood, similar in some ways to Little Italy lower Manhattan. There were blood ties that stretched back to the old country, and because of Russian emigration to Israel, there was that connection too. There was crime but the mobs in Brooklyn were second string.

 

It all began to change with the fall of Communism.

 

The exodus from Russia went from a trickle to a flood. They headed to Europe, and to Israel and in large measure to the States. They settled where Russians had traditionally settled, which meant neighborhoods like Brighton Beach. But as all immigrants had come to realize once they got to America, the streets were only paved with gold for a few. The rest of them had to fight to earn a living, and many of them, uprooted from their culture, deprived of their language and confused by their environment, could barely scrape by. Scientists drove taxis. Physicians waited on tables. Engineers carried baggage in hotels. Desperately seeking the American dream, many Russians were willing to do whatever they had to.

 

Nearly 8000 miles away, sometime towards the end of 1991, 30 Russian major league gangsters met in a country house outside Moscow to divide up the world. They sensed the lawlessness that would prevail throughout the Russian Republics and saw opportunity. They too wanted a slice of the American dream, especially dollars, and the center of their world became Brighton Beach. That was where they intended to run their 17 city American drug network.

 

The old infrastructure was too feeble for their use, but at least there was something to build on. They had cultural ties, and blood ties and young Russians willing to do their bidding. They also understood how to reinforce their will through horrendous violence.

 

At that meeting outside Moscow, they plotted to sell their drugs in America, launder their money in Israel, reinvest their capital in criminal activities in Europe --- especially Germany in Belgium --- and use those profits to put more drugs onto American streets. In their spare time, having become world class experts at cheating government under the Communists, they reckoned to run their usual array of extortion, fraud and fuel tax scams.

 

The following year, Russian gangsters started arriving in Brooklyn, setting up business. Much of the Brighton Beach community was repelled by this new threat. But their life in Russia had instilled in them a healthy mistrust of authority and they did not trust the police to protect them. The only people who stood in the way of this new wave was the old guard mobsters, and although they resisted as best they could, they never stood a chance. Anyway, others in the community welcomed the arrival of men like Vyacheslav Ivankov.

 

Under the old regime he should have been in prison. Dubbed by the Communist press "the father of Soviet extortion" and considered by the KGB to be one of the most dangerous men in the country, he was thrown into a Siberian jail in 1982 for 14 years. But in 1991 someone let him out and he somehow got a visa to emigrate to New York. He listed his occupation on the application as a film director.

 

His reputation having preceded him, Ivankov had little trouble winning respect. He paid for some and used muscle to extract the rest. He’d been sent by his partners in Moscow to organize America and he was determined to do just that.

 

For three years he ran Brighton Beach, rebuilding the criminal infrastructure there, establishing a new Russian authority in Brooklyn, and from Brooklyn exporting it to the rest of the country. The FBI finally caught up with him in mid-1995 and put him out of business. But they couldn’t tear apart the base he’d built. And they hadn’t yet figured out how to infiltrate this new enemy.

 

Ivankov might have been a professional gangster but he’d probably seen too many movies. The FBI was even more concerned with Ivankov’s old enemy who were now his new friends, former KGB agents. No longer in the spying business, the remnants of the state police network turned out to be model partners for organized criminals. Professionally trained, highly qualified ex-spooks have become Russia’s most capable drug traffickers and laundrymen. They too are moving into Brooklyn. But they’re bringing with them skills Ivankov never dreamed of and a more global view of crime.

 

Here’s where the Russians could make the Colombians look like amateurs. The southern republics of the Commonwealth of Independent States are covered with gargantuan fields of wild marijuana. So are huge tracts of Russian Siberia where the weed blankets several million acres, roughly the size of Connecticut. Those fields are just waiting to be harvested. Opium poppy also grows throughout the ex-Soviet republics. So far, it’s being converted only into inexpensive opium-based compounds. It is not yet being refined into heroin. But it is surely only a matter of time before heroin is produced on a grand scale throughout the region. The potential is especially frightening when you consider that around 40 percent of the arable land in the former Soviet Union is ideally suited for the heroin poppy.

 

Russian gangs teamed up with former KGB operatives are learning how to grow it, refine it and ship it. They already know how to protect it. And now they have a base in Brooklyn from which they can distribute it. The Mafia won't like it and neither will the Latin Americans. But this time they’re not up against a few cowboys from Moscow, they’re trying to stare down guys in black leather coats whose reputation for ruthlessness was well earned. There's little they'll be able to do about the Russians, except perhaps decide they can't beat them so they might as well join them.

 

The FBI learned through Italian police intelligence that two summits had been held. One was in Warsaw in March 1991. The another was in Prague in October 1992. Both were hosted by Russian organized crime bosses. The guests of honor were representatives of Sicilian, Neapolitan and Calabrian crime organizations. The main topics of discussion were narcotics, the sale of nuclear material and money laundering.

 

Since then, links between the Russians and the Italians became more evident. Sicilians were discovered operating refineries which supplied Russians with product. High-tech printing presses in Naples were furnishing Russians with quality counterfeit American money. Italian gangsters were heavily investing in Russia’s privatized companies. While Russian gangs laundered some of their money in high-yield Italian government tax exempt bearer bonds.

 

Rightfully concerned, the FBI opened a liaison office in Moscow. And just in case anyone thinks that the rest of the world wasn’t worried, the Danes were so scared that they invited the FBI to open an office in Copenhagen just to monitor Russian organized crime coming into Scandinavia.

 

No less alarming is that since the fall of the Soviet Union, when the state was the country’s only bank, no fewer than 2000 banks sprang up. And 95 percent of them are believed to be owned or controlled by Russian organized criminal groups. Because of that, Russia may boast one of the lowest bank robbery rates in the world. By contrast, the contract killing rate soared with more than 500 a year aimed at bankers and prominent businessmen as organized crime tries to muscle in on legitimate money.

 

To put the size of the threat into perspective, Swiss authorities admitted that in the years 1992-1995, at least $54 billion came into Swiss banks from Russia. And, Belov insists, he’s not bragging when he says, "The Italian Mafia is like a kindergarten compared to our Russians."

*****

 

 

It is understandable that criminal organizations in the great melting pot have traditionally relied on the sanctuary that comes from operating in tight-knit ethnic communities. In that respect, North America’s Asian increasingly influential gangs have been compared to the Italians during the infancy of the Cosa Nostra. Better organized than the Russians, they are today considered by the FBI to be the major new threat. What’s more, the Asian gangs seem to have learned some lessons from the early days of the Mafia in America. The Italians eventually opened their doors to non-Italians. The Asians are remaining steadfastly xenophobic, becoming immediately suspicious of any non-Asians trying to permeate their ranks.

 

Since the war in Vietnam, the Southeast Asian community in southern California has dynamically cut out a niche for itself in what had once been a minor Chinese and major Mexican stronghold. They deal in drugs, stolen cars, stolen computer chips, extortion, fraud and money laundering.

 

San Diego, with the best weather in America and probably more golf courses per capita than anywhere else in the country, has become their major trading center. San Diego has become the Vietnamese version of Brighton Beach.

 

A joint task force of federal and state authorities tried to take them apart in 1993. Planting a Vietnamese American undercover agent took months. Once he was inside, it took several more months before he could get another non-Vietnamese American agent involved in the sting.

 

The feds’ were after Dung Cong Ta, a 43 year old methamphetamine dealer who sported a pony tail and a little mustache, who called himself "Don Mexico" and who had his fingers in several pies, including cars, computer chips and money laundering. The man they sent to stalk him was Quan Pham, a young agent who worked for the State's Department of Motor Vehicles. He was given the identity of a drug dealer named Sonny.

 

Hanging out in the neighborhood, getting to know people, Sonny was introduced to Dung Ta through a mutual friend at a restaurant in April 1993. Surprisingly, Dung Ta turned out to be too trusting because, as soon as he and Sonny sat down to talk, Dung Ta agreed to sell him some meth. Within a few weeks, Dung Ta was happy enough to meet Sonny’s boss, the owner of a marijuana plantation in Hawaii who called himself Kimo Pomeroy. In real life Kimo was Spencer Ellis, an undercover agent with the California Bureau of Narcotics Enforcement.

 

Throughout that spring and into the summer, Dung Ta and Kimo did drug deals. In parallel to the undercover operation, police started busting gang members dealing in cars and computer chips. By July, Kimo felt confident enough to up the stakes by asking Dung Ta for advice on laundering money. Dung Ta responded by introducing him to a local attorney named Phillip Schuman.

 

Five years younger than Dung Ta, Schuman was tall, with curly dark hair and a receding hair line. He’d once been a cop on the Skokie Illinois Police Department. But he left police work to spend a few years as a broker in the Chicago area before moving to California where he got two masters degrees and then his law degree.

 

A man who always seemed to have a wild look in his eyes, Schuman opened three offices in and around San Diego. And while many lawyers work out of more than one office, a sole practitioner working out of three was odd. How successful he was has never been made clear. But his presence in the Vietnamese community, and some of the information the police were able to glean through wire taps, led them to believe that one of his specialties was false insurance claims.

 

Dung Ta praised Schuman’s abilities as a great laundrymen, telling Kimo that Schuman hid money in the California State Bar Trust Fund --- his client’s account. But Schuman wasn’t the only money laundering contact Dung Ta had. He also introduced Kimo to Nilo Fernandez, a Filipino who suggested that Kimo set up a US corporation with overseas operations. Cash from marijuana sales could be taken to the Philippines where Fernandez would wash it, sending it back to San Diego, first as capitalization for Kimo’s company, then as profits. It was a basic scheme, for which Fernandez was charging 16 percent. Still, Kimo agreed to go for the deal and asked Schuman to set up the company.

 

In September, Kimo gave Fernandez $50,000 in cash as a test run to see how the laundry would function. Someone working for Fernandez smuggled the money out of the US and into the Philippines. Shortly thereafter, $42,000 was wired back to the San Diego bank account of the newly incorporated Quasi Star International. Over the course of four months, Kimo gave Fernandez a total of $335,000 to be washed through the Philippines. $222,000 of it came back to Quasi with all the appropriate paperwork disguised as venture capital from an investor Fernandez decided to call "Aquino."

 

During that time, Schuman let Kimo know that Fernandez was overcharging for his laundry facilities. He said that he and Dung Ta would be willing to handle Kimo’s account for half as much. Kimo was interested. Schuman suggested that instead of the Philippines, there were plenty of other ways to wash money, for instance through gambling facilities. Or, Schuman said, he could set up a law office in Hawaii supposedly to collect on insurance fraud claims and put money through his client’s account. Or, he could wash Kimo’s money through shell companies banking in the Caymans, the Cooks and the Channel Islands.

 

Kimo settled on the last idea and gave Schuman $20,000 to fly to the Channel Islands to set up an. At end of January 1994, Kimo handed Dung Ta $108,000 in cash to be deposited on the island of Jersey.

 

On January 25, 1994 Dung Ta and his wife left San Diego for Minneapolis, where they were scheduled to change planes for London. Before boarding in San Diego, Dung Ta tried to check a gray Samsonite suitcase through to the Channel Island of Jersey, but was told it couldn’t be done and that he would have to clear customs in London.

 

Without his knowledge, the suitcase was seized by US Customs agents in Minneapolis, who then stopped Dung Ta and his wife. They were asked if they were carrying more than $10,000 in cash. Neither had filled out a Customs declaration to say they were. And both lied that they weren’t. A search produced $3300 on his person, $8600 on hers and $90,000 in the suitcase.

 

Dung Ta maintained the money was paid to one of his businesses for damage done by the Los Angeles earthquake. His wife claimed her $8600 was as a gift from a friend whose name she couldn’t remember and her sister, whose address she didn’t know.

 

As soon as Dung Ta was in custody, Schuman was arrested. Because an attorney was involved, extra caution was taken during the search of his offices. A Customs agent who had not worked on the case was brought in to go through Schuman’s computer files. Under strict instructions not to have any conversations with other agents involved in the case and not to copy or seize any documents that did not pertain to this particular case, he first introduced a special program into each computer to assure that nothing would be erased and that no additional writing could be added to any file. Next, he searched the hard drives for specific words --- Dung Ta, Quasi, Kimo, Sonny, etc. Similar precautions were taken with computer equipment found at Schuman’s home.

 

Charges were filed against 21 people including Schuman, Dung Ta and Fernandez. A market in stolen computer chips was shut down, as was a stolen car ring, the money laundering route through the Philippines and a thriving methamphetamine dealership. But at the heart of America’s closed ethnic communities is survival. And San Diego’s Vietnamese, having learned how to win in southeast Asia, are becoming equally skillful at doing just that in southern California.

 

 

*****