In the latest development in a probe by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) targeting alleged money laundering activities in Los Angeles’ garment trade, the Financial Crimes Enforcement Network (FinCEN) announced Thursday the issuance of a Geographic Targeting Order (GTO) that imposes additional reporting and recordkeeping obligations on certain businesses located within the city’s fashion district. (The GTO is available here; FinCEN’s press release is here.) According to FinCEN, the GTO will enhance ongoing efforts to identify and pursue cases against individuals and businesses engaged in the illicit movement of U.S. currency to Mexico and Colombia on behalf of prominent drug trafficking organizations (DTOs).
A Geographic Targeting Order (or GTO) is an order issued by the United States Secretary of Treasury requiring any United States domestic financial institutions that exist within a geographic area to report on transactions any greater than a specified value. GTOs are authorized by the Bank Secrecy Act in. They only last for a limited period of time, not to exceed 180 days.
The GTO directed at L.A.’s fashion district, which will go into effect Oct. 9, was sought by the U.S. Attorney’s Office for the Central District of California, which is working with HSI and the Internal Revenue Service’s Criminal Investigation division to fight money laundering schemes designed to allow international drug cartels in Central America and South America to reach drug proceeds generated in the U.S.
According to a press release announcing the GTO, extensive law enforcement operations have revealed evidence that money laundering activities and BSA violations are pervasive throughout the Los Angeles Fashion District, which includes more than 2,000 businesses. Much of the money laundering is conducted through Black Market Peso Exchange schemes, also known as trade-based money laundering, in which drug money in the United States is converted into goods that are shipped to countries such as Mexico, where the goods are sold and money now in the form of local currency goes to the drug trafficking organizations.
On September 10, 2014, more than 1,000 federal, state and local law enforcement officials executed dozens of search warrants and arrest warrants linked to businesses in the Fashion District suspected of engaging in money laundering schemes and evasions of required BSA reporting. Criminal investigations have revealed evidence that many of these businesses are routinely accepting bulk cash as part of schemes involving black market peso exchange and trade-based money laundering on behalf of DTOs based in Mexico and Colombia. During the Sept. 10 enforcement action, HSI special agents seized what was ultimately determined to be more than $90 million in currency. The cash was found at various residences and businesses stored in file boxes, duffel bags, backpacks and even in the trunk of a Bentley automobile.
“This order requires nearly every business in the Fashion District to report any instance in which they receive at least $3,000 in cash, and failure to comply with the order could lead to a criminal indictment,” said Acting United States Attorney Stephanie Yonekura. “My office sought the unprecedented order from FinCEN with the goal of shutting down the flow of dirty money to foreign drug cartels – a huge problem that has contaminated the Fashion District.”
Businesses covered under the order announced Thursday include garment and textile stores; transportation companies; travel agencies; perfume stores; electronic stores (including those that only sell cell phones); shoe stores; lingerie stores; flower/silk flower stores; beauty supply stores; and stores bearing “import” or “export” in their name. The order will take effect Oct. 9 and remain in effect for 180 days. Affected businesses in the Los Angeles Fashion District are instructed to review the order to understand their reporting obligations.
FinCEN previously issued a GTO in August 2014 that covered the U.S.-Mexico border at two California ports of entry. Information gathered pursuant to that GTO is providing U.S. law enforcement with an unprecedented ability to identify precisely who is moving money into and out of the United States using armored cars and other common carriers of currency.