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Dirty Money 

President Bush says he's serious about cracking down on money laundering by terrorists. San Francisco's experience suggests otherwise.

Wednesday, Oct 31 2001
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In times past it was possible to prop up a flimsy, ill-conceived, or downright disingenuous idea by adding the appellation "dot-com."

Now the proper way to burnish hokum involves tacking on the words "against terrorism."

Take, for example, George Bush's promise Friday to "strike at the financial foundation of the global terror network." The announcement, along with the banking rules that accompanied it, was played as a dramatic change of heart by Republican lawmakers, who prior to Sept. 11 had opposed tighter financial rules to stop money laundering.

But in San Francisco, local implementation of the federal government's 2001 National Money Laundering Strategy released last month suggests Bush's promise may be hard to take seriously.

The Strategy, which was released by the Treasury and Justice departments Sept. 18, yet has gone unreported in the Bay Area media, designates the San Francisco area as one of six High-Intensity Money Laundering and Related Financial Crime Areas. Aside from suggesting that the San Francisco financing industry is swimming in criminally derived funds, the new designation is supposed to call for greater cooperation between local and federal law enforcement agencies. Yet when I called the S.F. District Attorney's Office to find out how this new policy was being implemented, the special prosecutor for white-collar crimes knew nothing of the report, nor of San Francisco's new High-Intensity Money Laundering designation. He went so far as to say that he considered money-laundering prosecutions the purview of federal, not local, authorities.

The Strategy says that in 1999 San Francisco-area banks handled 1.5 million cash transactions worth more than $10,000 each. By comparison, in the New York/New Jersey area, whose banking industry dwarfs San Francisco's in almost every other respect, there were 878,460 such transactions reported.

Why the difference?

"San Francisco represented a cash-intensive environment," says an official with the U.S. Treasury's Financial Crimes Enforcement Network. No kidding: The San Francisco area appears to have been a cash-only Valhalla in 1999, with these transactions totaling $80 billion.

But federal investigators charged with pursuing financial crimes in the U.S. Customs Service and in the IRS special investigations division were at a loss when I asked them what to make of these figures, apart from suggesting that Bay Area banks are more scrupulous at keeping cash-transaction records. If true, this would mean banks in other regions are failing to file legally required reports on tens of billions of dollars' worth of cash transactions.

Now, I don't think S.F. federal investigators are asleep on their watch; instead, this sounds more like a case of mixed messages from Washington.

Before the terrorist attacks, Treasury Secretary Paul O'Neill openly scoffed at the need for or effectiveness of greater international money-laundering cooperation. Cracking down on this kind of crime had been a perennial no-go in Congress thanks to effective lobbying by banks and wealthy individuals. Just last week congressional Republicans had joined banks in seeking to separate anti-money-laundering rules from the rest of the anti-terrorism package Bush signed Friday. The hope was that the money-laundering provisions might be easier to dismantle if considered separately.

So it's not hard to imagine last month's National Money Laundering Strategy being delivered with a wink and a nudge.

In a column earlier this month I described how an S.F. accountant, who admitted to specializing in Third World flight capital, had aided the former prime minister of the Ukraine, who was under investigation in a multimillion-dollar money-laundering enterprise. I noted that the Ukraine case mentioned dozens of San Francisco bankers, lawyers, real estate brokers, and other professionals who had all helped further the alleged money-laundering scheme.

Reading those court documents, one could imagine a New York Mafia-style dragnet, where prosecutors indict money-laundering accountants, then force them to give up their client lists and other evidence; they indict money-laundering bankers, whose employers henceforth forswear helping hide criminal proceeds. It's conceivable that our local DA's Office could do this kind of work; the original indictment in the Ukraine case was handed down under statutes prohibiting receipt of stolen property. There's nothing obvious stopping Terry Hallinan's attorneys from using the same sorts of anti-fencing laws to pursue local professionals who abet money launderers.

There actually are plenty of local jurisdictions that do aggressively pursue financial crime; San Bernardino County, to name one, dedicates detectives specifically to money laundering. Sadly, expert money-laundering investigators in other local jurisdictions cut their teeth pursuing money derived from drug sales. And our local DA proudly shuns drug investigations.

That leaves the job up to locally posted federal agents, who are supervised by a U.S. administration that was until recently openly hostile to the idea of aggressively curtailing financial crime.

I posited the idea of sweeping accountants and other financial professionals into an anti-money-laundering dragnet to Wayne Yamashita, assistant special agent in charge of the U.S. Customs Service's San Francisco office of special investigations. This was a nonstarter.

"That has a chilling effect on the entrepreneurial desires of aggressive businesspeople," Yamashita said. "My personal sense is that we would be going after the substantive violators, not the people who are working with them. But that's a policy decision."

It's a Washington decision that may be tilting in the wrong direction, and that's too bad. If money-laundering lawyers, bankers, and accountants are granted an informal form of official impunity, as they now appear to be, criminal enterprises are allowed to flourish. Business and civic life becomes more corrupt and more dangerous.

As the 2001 Strategy notes, "money-laundering investigations and prosecutions are the tip of the law-enforcement sword, because they not only uncover the sophisticated schemes put on by professional lawyers, bankers, and accountants, but they make it possible to dismantle entire criminal enterprises by disrupting the financial operations of these illicit organizations."

What's more, such investigations can be used "against terrorism."


Wednesday night at the Fort Mason Officer's Club was a wonderful time and place to be along in years and economically comfortable; this was the site of the 20th anniversary dinner of the Coalition of San Francisco Neighborhoods. These middle-class homeowner/gadflies make up perhaps the sturdiest pillar of the San Francisco interest group pantheon. They've also provided fodder for curmudgeonly columns in which I've vilified these neighborhood groups' members and allies.

That's why I was astonished when I was invited to attend their fete. And I was even more alarmed when, one after another, coalition members approached to say things like "I loved your column about So-and-So," "Keep it up," and "Don't tell anyone I said that."

Stranger still was the coalition members' warm response to guest speaker Jerry Brown; he insulted every person in the room, skewering the type of neighbor who is a stickler for enforcing city codes (dozens of these were present), mocking City Hall gadflies (there were dozens more of these), and ironically disparaging nostalgic San Franciscans bent on preserving antiquities such as the Port of San Francisco (the room was lousy with these). The San Francisco neighbors laughed themselves to tears, closing Brown's talk with a spontaneous standing ovation.

My puzzlement abated when I recalled growing up the son of a preacher whose congregations, generally speaking, were along in years, economically comfortable, and riven into factions both bitter and secret. Like Kiwanis Clubs, small-town city councils, or any other groups in which the middle class congregates, San Francisco neighborhood activist associations seemed to love seeing their intramural enemies skewered. Embittered by this thought, I went back to poking at my plate of filleted sole. "I'm going to have to quit vilifying them," I thought to myself. "Sometimes you have to be kind to be cruel."


Speaking of gracious hospitality, I have been wanting to thank Carlos Petroni, publisher of the online political pamphlet Frontlines, socialist gadabout, and candidate for treasurer, for inviting me into his home not long ago. He served me a delicious cup of strong java, engaged me in interesting small talk, and guided me through boxes of research he's been doing in hopes of toppling his opponent, Treasurer Susan Leal.

I always like talking to Carlos Petroni. As a day job, Petroni translates Ellery Queen novels into Spanish. Petroni was Svengali to our last mayoral election's most prominent prank candidate, Lucrecia Bermudez. He's such a committed, doctrinaire leftist that he's been denounced in print by the doctrinaire San Francisco Bay Guardian for being too critical of ordinary left-wingers. Petroni once got into an ongoing feud with my dear friend and colleague Peter Byrne, after the Frontlines publisher falsely claimed Byrne had endorsed Petroni in one of his many fruitless political campaigns.

Noble as they may be, these aren't among the reasons I'm voting for Petroni Nov. 6. I'm a Petroni voter because his opponent is one of the last people I'd want overseeing San Francisco's financial affairs.

Leal displayed contempt for sound, open fiscal management in performing her mutual roles as San Francisco city official and a director of SFO Enterprises, the S.F. government-chartered private corporation that led the privatization of the international airports of Honduras (see "Flight Capital," Sept. 12). That debacle may have cost the city more than a million dollars and exposed the city to millions of dollars more in potential civil liability.

When I began investigating the Honduras affair earlier this year, Leal's office was one of the first places I went. She was, after all, a guardian of the public purse who happened to sit on the corporation's board of directors. She told me she had a personal file on SFO Enterprises. I asked Leal to show the file to me, and she suggested she would. She immediately backtracked, though, and when I insisted, she became hostile.

Ultimately, my investigation showed that airport officials involved with SFO Enterprises LLC misused public funds right under the nose of its director, Susan Leal.

When I questioned Leal at a recent public appearance about her role in the Honduras affair, she said SFO Enterprises LLC had not led the privatization of Honduras' airports.

That Leal would seek to mislead the public about such easily ascertainable information speaks volumes about her contempt for office. Voters choose a treasurer to faithfully manage their tax money. Leal sat as corporate director -- a post that should have involved being a financial watchdog -- of a city-chartered corporation that apparently squandered city funds in violation of several state and federal laws. When asked for information about this, she obfuscated; when asked publicly, she lied.

Carlos Petroni may be regarded in some circles as kind of kooky. But with Susan Leal as the only other option, I'll settle for kooky.

In a city awash in dirty money, dirty politicians, and dirty public/private dealings, the city treasurer shouldn't look the other way.

About The Author

Matt Smith

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