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WHY WE CAN'T USE GREEN REGULAR POSTAL MONEY ORDERS ?
this clearly says 'negotiable only in the US and possessions'
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The Toronto Star Business Story
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September 20, 2000
Banks unwittingly laundering cash
Tellers wrongly accepting U.S. money orders
By Elaine Sambugaro and Rob Ferguson
The Toronto Star
Canada's banks have been unwitting accomplices in the laundering
of at least $3.5 million (U.S.), or more than $5 million (Canadian), in
dirty money since 1998 by cashing illegally purchased U.S. Postal
Service money orders, American authorities say.
The issue is the subject of a meeting in Toronto today between the
U.S. Department of Justice, the U.S. Postal Service, the RCMP,
major banks and the Canadian Bankers Association, The Star has
learned.
``We have no reason to believe that the banks are actively
involved in money laundering,'' said Henry Gibson, a U.S. Postal
Service compliance officer attending the meeting.
``In fact, we believe that it is very likely that the banks are not
even aware that domestic postal money orders are being deposited
into their accounts.''
American officials will brief the banks and ask them to stop cashing
the money orders - which are clearly stamped ``negotiable only in
the U.S.'' - or risk being charged back for the amounts cashed
starting in January.
``They will be left holding the bag,'' said another U.S. Postal
Service official, who spoke on condition of anonymity.
There's no suggestion the banks have broken any Canadian laws.
Some 47 per cent of all the U.S. Postal Service money orders
redeemed outside U.S. territory last year were in Canada.
``Canada is the country of choice,'' said the official. ``We want, at
least, to stop the money flow through Canada.''
Other countries of concern to the United States include Britain,
Belgium and Israel.
`We have no reason to believe that the
banks are actively involved in money
laundering. In fact, we believe that it is
very likely that the banks are not even
aware that domestic postal money orders
are being deposited into their accounts.'
- Henry Gibson
U.S. Postal Service compliance officer
Money to buy the postal orders used in laundering schemes comes
from drug trafficking, immigrant smuggling, counterfeit currency and
other criminal activities, said Chris Giusti, manager of the U.S.
Postal Service anti-money laundering division in Washington, D.C.
The amount of money involved last year - $522,000 (U.S.) - doesn't
sound like ``major organized crime'' is involved, but the Canadian
Bankers Association is ready to listen to the Americans, said Gene
McLean, director of security for the group representing more than
40 banks.
``If there's something there, we're going to be very keen to
address it,'' McLean said yesterday.
An RCMP inspector attending the meeting said it sounds like
Canadian bank tellers need more training to spot potential money
laundering attempts.
``There has to be some indication of what to look out for,'' said
Murray Simms, who follows organized crime as a member of the
Newmarket-based Integrated Proceeds of Crime Unit.
The U.S. Postal Service has no idea why bank tellers outside the
United States and its territorial possessions such as Puerto Rico
have cashed money orders clearly stamped negotiable only in the
United States.
``That's something both our inspection service and we are
scratching our heads about,'' the official said, noting that banks in
another country bordering the United States have managed to
comply.
``We don't find a lot of activity with domestic money orders going
through Mexican bank accounts.''
The Canadian connection blossomed after investigators from the
U.S. departments of treasury and justice and the U.S. Postal
Service worked in the early 1990s to close a money pipeline through
Colombia and Panama, the U.S. Postal Service official said.
``Working with the government in Panama and with some pretty
high profile seizures we closed the pipeline down. Since that
happened, we have seen a significant increase of money orders
going through Canada.''
The proportion was as high as 65 per cent of all such money orders
as recently as 1996, but has since fallen to the 47 per cent level
last year. Figures for this year were unavailable.
There is no legislation in Canada prohibiting a bank from cashing a
U.S. money order and depositing the money into a customer's
account before transferring it to the bank's own U.S. account for
reimbursement.
The money orders are sold in denominations of up to $700 each and
can be purchased without identification to a maximum of $3,000 at
any one time.
That, and the fact that they cost just 80 cents to purchase, makes
them a favoured method for converting or laundering cash from drug
deals or other criminal activity for deposit into bank accounts, from
which the money can be funnelled into more legitimate pursuits.
To get around the identification issue, however, criminals dubbed
``mules'' or ``smurfs'' trek from one post office to another, visiting
dozens over several days if necessary, buying small money orders
until they have $75,000 worth, for example.
That practice, called structuring, is against U.S.
anti-money-laundering laws but is difficult to stop.
U.S. law made it illegal to cash U.S. Postal Service domestic money
orders outside American territory in 1995. Until now, postal
authorities have been relying on voluntary compliance from the
financial industry to avoid the troublesome process of charge-
backs.
But U.S. Postal Service officials said the time has come to clamp
down by refusing to reimburse banks that cash the money orders, a
move first telegraphed last April at a money laundering conference
in Miami attended by several Canadian banking and law enforcement
officials.
The amount of illegal money orders cashed in Canada totalled $3
million in 1998 and dwindled to $522,000 last year, perhaps because
criminals were laundering more money inside the United States,
American officials said.
Figures for this year were not immediately available.
At one point during a six-month period in 1998, the Royal Bank of
Canada cashed $634,505 worth, according to U.S. Postal Service
documents.
The money orders were subsequently traced to illegal purchases,
said the Postal Service official.
``That obviously is a problem.''
The documents show those transactions involved 924 money orders
all purchased in the same general area of New York city and
northern New Jersey, recently identified by U.S. authorities as one
of five money laundering hotspots in the United States.
In the same 1998 time frame, the documents state 108 postal
money orders worth $74,550 were cashed by the Canadian Imperial
Bank of Commerce and 296 worth $207,200 by the Bank of
Montreal.
Laundering scheme appears to be
drug-related
``In every case, the money orders were purchased illegally,
structured such that they did not have to provide ID here in the
U.S. We were able to document and confirm that,'' the Postal
Service official explained.
The three Canadian banks had no comment yesterday.
Reports issued by the departments of treasury and justice in 1997
estimate that more than $200 million worth of U.S. postal money
orders were used in laundering schemes to funnel illicit proceeds
through Panama and Colombia.
That is a small portion of the $25 billion worth of U.S. Postal Service
money orders sold annually, but still too much for postal officials to
stomach as governments around the world - including Canada -
move to crack down on money laundering.
Canada passed new anti-money-laundering legislation in June.
While the money orders cashed in Canada have been purchased
mostly in the greater New York city area, they are not related to
the five traditional organized crime families in New York, the postal
official said.
``It appears the source of the money orders are more connected
to the Colombian drug lords . . . . It is drug-related, not
mob-related.''
The average U.S. Postal Service money order is for $138. Most
being cashed in Canada are for $700, the legal maximum, one of the
factors that has led the postal service to conclude that they are
being used to launder money.
Another factor is a sophisticated $5 million computer tracking
system, which monitors the 1 million money orders a day forwarded
by American banks to the U.S. Federal Reserve Bank clearing
centre. About 3,000 money orders a day are linked to suspicious
activities.
Simms, the RCMP inspector, said Canadians should be aware that
money laundering can hurt them directly.
``There's an unfair advantage for businesses that may be
supported and financed by illegal activity.
``They're not relying on market share and competitive advantages.
That creates hardships for legitimate Canadian businesses.''
Elaine Sambugaro is a Toronto-based freelance writer
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