Financial institutions in the United States and Canada have used cues from investigators and analyzed transactional data to find occasional, isolated transfers tied to sales of fentanyl but still lack an effective strategy or system for spotting the activity, according to sources.
The synthetic opioid, largely produced in China at a potency 25 to 50 times higher than that of heroin, has fueled a public health crisis and led to deaths of thousands of individuals in the United States and Canada after being repurposed as a cheaper, more readily available alternative to prescription painkillers in recent years.
Canadian officials advised institutions in January to apply more scrutiny to clients who advertise medications with fentanyl precursors and watch for multiple clients wiring funds to the same recipients in specific regions of China. But other financial red flags are not unique to fentanyl trafficking, leaving transfers tied to the drug indistinguishable and under the compliance radar.
Derek Benner, the current head of Homeland Security Investigations, or HSI, attributed some of the challenge facing compliance officers to the fact that traffickers can accumulate substantial wealth through an “e-commerce model” of distribution that does not require the extensive networks of middlemen that typify other smuggling operations.
Traffickers ship fentanyl produced in mainland China to Hong Kong before repackaging and reshipping it to the United States, where the drug is sometimes converted to pills and sold through dark web marketplaces, Benner said last month at the ACAMS Financial Crime Conference in Las Vegas.
Fentanyl’s potency poses another challenge for investigators, as traffickers may not need to purchase large volumes to generate a profit. One pure kilogram from China can rake in several million dollars after distribution, Benner said.
Those same obscure patterns emerged in the case of Utah resident Aaron Shamo. In November 2016, local and federal agents raided Shamo’s home in Salt Lake City and found $1.2 million in his basement, seized 95,000 pills and connected him to $2.5 million in cryptocurrency.
Shamo, whom federal prosecutors accused last year of conspiring to launder money and violate drug-trafficking statutes, exhibited “no red flags” for banks or investigators, according to Benner, and various parties to the illicit scheme had almost no direct contact with one another.
Shamo allegedly used little more than an internet connection to arrange shipments of Chinese-manufactured fentanyl to “straw purchasers” across the United States who forwarded the packages to him without inspecting their contents.
He later sold the product on AlphaBay, a now-shuttered dark-web marketplace, then turned back to the postal system to collect cash payments or used peer-to-peer cryptocurrency exchanges to convert digital assets into government-issued currency, according to Benner.
Shamo likely would have avoided detection if one of his packages had not “quite luckily” caught the attention of law enforcement, he said.
“This is what I call a ‘cartel of one,'” Benner said. Shamo “doesn’t have cartel connections, or banking connections with an illicit money-laundering network. … He wasn’t structuring lots of money in bank accounts [and] SARs [suspicious activity reports] weren’t filed.”
Financial institutions have occasionally managed to pinpoint other fentanyl distributors despite those hurdles.
Jim Dinkins, a Virginia-based operations director for U.S. Bank’s enterprise financial-crimes compliance group, said the lender successfully identified fentanyl-related transactions after meeting with investigators and comparing the institution’s business “footprint” to areas targeted by law enforcement for high volumes of illicit opioids.
U.S. Bank identified at least two traffickers already under investigation after federal agents warned compliance staff to be on the lookout for clients buying pill presses and other red flags, said Dinkins, a former director of HSI.
Financial institutions do not have a “special formula” for finding similar transactions and “are not necessarily going to see a big, traditional money-laundering scheme unless it’s a cartel,” he said.
Verafin, an anti-money laundering software firm based in St. John’s, Canada, has found other fentanyl traffickers by flagging bank accounts tied to several small transfers through PayPal, then running web searches on the account holders.
The bank in question learned that one client, a DJ in Texas, had purchased small glass vials from China, Brendan Brothers, the company’s co-founder, said during the panel in Las Vegas. Further analysis of the DJ’s transactional history identified additional suspicious customers, he said.
“I don’t think we’re in a position where we can build models,” Brothers said. “It’s only through the combination of multiple pieces of evidence are you going to be able to detect this.”
Fentanyl vendors in the meantime continue to accept various forms of payment through traditional financial institutions.
Federal prosecutors in Ohio outlined one such operation in August, accusing Fujing Zheng and his father, Guanghua Zheng, of shipping fentanyl analogues and more than 250 other synthetic substances from a Shanghai pharmaceutical plant to the United States.
The pair used a range of financial institutions to funnel proceeds from their U.S. customers, including Hong Kong banks, conventional money services businesses and cryptocurrency wallets, according to the indictment.
Other synthetic drug vendors in China continue to advertise their ability to accept PayPal or wire transfers and claim to guarantee delivery within 24 hours, according to Louise Shelley, director of the terrorism, transnational crime and corruption center at George Mason University in Virginia.
“There is a wide range of payment options,” Shelley said. “Some [approximately 70] are even registered in China as legitimate firms.”
|Topics :||Anti-money laundering , Counterterrorist Financing|
|Source:||U.S.: Department of Justice , U.S.: Law Enforcement , Canada|
|Document Date:||November 7, 2018|