Narcotics-Related Financial Investigations - Criminal Investigation (CI)
Why is IRS Involved in Narcotics Investigations?
One look at the daily newspaper is proof enough that crimes dealing with or motivated by money make up the majority of current criminal activity in the nation. Tax evasion, public corruption, health care fraud, and even drug trafficking are all examples of the types of crimes that revolve around money. In these cases, a financial investigation often becomes the key to a conviction.
Traditional law enforcement relies on investigative tools such as crime scene analysis, physical evidence, fingerprint identification or eyewitness accounts. The limitations of these techniques become obvious to those who are trying to prove wrongdoing in a sophisticated financial crime. With no proof, there is no conviction.
When the Internal Revenue Service astounded Public Enemy Number 1, Alphonse Capone by obtaining a conviction for tax evasion and demanding millions of dollars in back taxes, Capone said, "They can't collect legal taxes from illegal money." But it's really pretty simple: No matter what the source of income -- all income is taxable.
And this creates a real problem for drug dealers. What are they going to do with their money -- so that IRS won't find it?
For the IRS, money laundering and narcotics investigations are the compliance effort to address criminal violations of the Bank Secrecy Act, the Money Laundering Control Act of 1986 and section 6050(I) of the Internal Revenue Code.
Why a Financial Investigation?
Financial investigations are by their nature very document intensive. Specifically, they involve records, like bank account information and real estate files, which point to the movement of money. Any record that pertains to, or shows the paper trail of events involving money is important. The major goal in a financial investigation is to identify and document the movement of money during the course of a crime. The link between where the money comes from, who gets it, when it is received and where it is stored or deposited, can provide proof of criminal activity.
Criminal Investigation's contribution to the war on narcotics is vital but sometimes difficult to recognize, because the work of IRS special agents usually doesn't make the headlines. The long hours of tracking down and documenting financial leads isn't glamorous, but it does allow an investigation to go right to the door of the leader of the narcotics organization. A complete financial analysis and reconstruction of a drug organization's financial activity as it relates to unreported income on tax returns and money laundering can often be critical to making the conviction.
Criminal Investigation (CI) was established in 1919 and commenced its first narcotics investigation of an opium trafficker in Hawaii in the early 1920's, obtaining tax evasion charges against the leader of that organization.
The CI Narcotics Program's goal is to utilize the financial investigative expertise of its special agents to disrupt and dismantle, through investigation, prosecution and asset forfeiture, the country's major drug and money laundering organizations.
Federal Statutes, Task Forces and Strategies Regarding IRS Narcotics Investigations
Definition of Terms
Currency Transaction Report (CTR) - Form 4789: Filed by financial institutions that engage in a currency transaction in excess of $10,000.
Suspicious Activity Report (SAR) - Form TD F 90-22.47: Filed by financial institutions on transactions or attempted transactions involving at least $5,000 that the financial institution knows, suspects, or has reason to suspect the money was derived from illegal activities.
Report of Foreign Bank and Financial Accounts (FBAR) - Form TD F 90-22.1: Filed by individuals to report a financial interest in or signatory authority over one or more accounts in foreign countries, if the aggregate value of these accounts exceed $10,000 at any time during the calendar year.
Report of Cash Payments Over $10,000 Received in a Trade or Business -Form 8300: Filed by persons engaged in a trade or business who, in the course of that trade or business, receive more than $10,000 in cash in one transaction or two or more related transactions within a twelve month period.
Report of International Transportation of Currency or Monetary Instruments (CMIR) - Form 4790: filed by persons who physically transport, mail or ship currency or other monetary instruments in an aggregate amount exceeding $10,000 at any one time into or out of the United States.
Internal Revenue Code – CI has sole jurisdiction for criminal violations of the Internal Revenue Code (IRC), Title 26 of the United States Code. The IRC, Section 61(a) defines gross income as ". . . all income from whatever source derived." This has been held by the courts to include income earned from illegal activities such as drug trafficking. The primary criminal statutes violated include evasion of income tax, false income tax returns, and failure to file tax returns, among others.
Additionally, IRC, Section 6050(i), requires anyone involved in a trade or business, except financial institutions, to report currency received for goods or services in excess of $10,000. This requirement has provided a significant impediment to the use of illicit profits by narcotics traffickers for the purchase of luxury items such as vehicles, jewelry and boats. Financial institutions report similar information on a Currency Transaction Report.
A new law, Title 31, Section 5331 of the United States Code, was passed in 2001 as a result of the USA Patriot Act and duplicates the reporting provisions of IRC, Section 6050(i). Dual reporting of this information will now be made to both the IRS and the Treasury Department's Financial Crimes Enforcement Network (FinCEN).
Money Laundering Control Act of 1986 – CI investigates and recommends criminal prosecution for violations of Title 18, United States Code, Sections 1956 and 1957. These statutes make illegal certain financial transactions constituting laundering, hiding, or use of proceeds generated through specified unlawful activities, such as narcotics trafficking and embezzlement, among others.
Bank Secrecy Act – The Currency and Foreign Transactions Reporting Act, Public Law No. 91-508, Title II, along with financial institution record-keeping requirements, became known as the Bank Secrecy Act (BSA). The BSA mandates the reporting of certain currency transactions conducted with a financial institution, (Form 4789), the disclosure of foreign bank accounts (TD F 90-22.1), and the reporting of the transportation of currency exceeding $10,000 across United States borders (Form 4790).
Asset Forfeiture – The asset forfeiture program is one of the federal government's most effective tools against drug trafficking, money laundering, and organized crime. In conjunction with other federal, state, and local law enforcement agencies, CI uses asset forfeiture statutes to dismantle criminal enterprises by seizing and forfeiting their assets. Most of CI's seizures and forfeitures are the result of Title 18 and Title 31 money laundering and currency investigations.
Criminal Investigation (CI) Supports National Strategies and Initiatives:
Criminal Investigation supports national law enforcement strategies and initiatives by investigating and recommending prosecution of domestic and international narcotics traffickers and related money-laundering organizations. CI follows the money trail, tracing the profits from the illegal activity back to the criminal.
To focus our resources against major money laundering organizations, CI participates in inter-agency task forces in High Risk Money Laundering and Related Financial Crimes Areas (HIFCAs); intensifies the use of federal criminal and civil asset forfeiture laws; and enhances intra-agency, inter-agency, and international coordination of money laundering investigations.
High Intensity Money Laundering and Related Financial Crime Area (HIFCA) Task Forces
Mandated in the National Money Laundering Strategy, HIFCAs occupy the flagship role in the nation's efforts to disrupt and dismantle large-scale money laundering systems and organizations. The designation of a HIFCA is intended to concentrate law enforcement efforts at the federal, state, and local level on combating money laundering in high-intensity money laundering zones, whether based on drug trafficking or other crimes. The 2001 Money Laundering Strategy announced the designation of two new HIFCA locations: Northern District of Illinois (Chicago) and Northern District of California (San Francisco). The four HIFCAs named in the 2000 strategy were: New York/New Jersey; San Juan/Puerto Rico; Los Angeles; and a "systems HIFCA," designed to address cross-border currency smuggling in Texas/Arizona to and from Mexico. HIFCAs are composed of all relevant federal, state, and local enforcement authorities; prosecutors; and federal financial supervisory agencies as needed. They work closely with the High Intensity Drug Trafficking Areas (HIDTA) and Organized Crime Drug Enforcement Task Forces (OCDETF) and focus on collaborative investigative techniques.
As part of the Anti-Drug Abuse Act of 1988, the President established the Office of National Drug Control Policy to oversee the nation's effort to combat illegal drugs. As part of that oversight authority, the Director of the ONDCP established a National Drug Control Strategy. This strategy directed agencies involved in counter-narcotics activities to focus their efforts on reducing the demand for drugs through treatment and prevention and by attacking and disrupting the drug supply through aggressive law enforcement and increased international cooperation.
Organized Crime Drug Enforcement Task Force (OCDETF)
The Organized Crime Drug Enforcement Task Force (OCDETF) Program was created and is managed by the Department of Justice "to identify, investigate, and prosecute members of high-level drug trafficking enterprises, and to destroy the operations of those organizations." IRS CI is substantially reimbursed for the resources it commits to the war on narcotics trafficking and has been a participating member of OCDETF since its inception in 1982.
High Intensity Drug Trafficking Area (HIDTA)
The High Intensity Drug Trafficking Areas (HIDTA) Program was established by the Anti-Drug Abuse Act of 1988, to provide assistance to federal, state and local law enforcement agencies operating in areas most adversely affected by drug trafficking. The Director of the Office of National Drug Control Policy (ONDCP) has oversight authority over the HIDTA Program . There are 28 locations designated as HIDTA. HIDTA initiatives focus on the investigation of money laundering violators and the identification and confiscation of the profits derived from the illegal sale of narcotics. Criminal Investigation supports HIDTA by dedicating special agents and other resources to the initiatives. CI provides the financial investigative perspective necessary to meet the goals of the National Drug Control Strategy.
Narcotics Enforcement Statistics
Criminal Investigation continues to commit financial investigative expertise to investigations involving highly complex narcotics related financial crimes
Examples are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted. IRS Special Agents participated in the financial investigative aspect of these cases.