'There's No One Watching':Police, prosecutors seek greater oversight of money-service businesses

pdonohue@beaufortgazette.comDecember 17, 2011 

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Violent gangs, drug traffickers and other criminals have funneled billions of dollars through South Carolina in recent years by exploiting a loophole in state law offering police no chance to regularly review wire transfers and money orders, authorities say.

South Carolina and Montana remain the only states without laws allowing state and local agencies to license, investigate, fine and close money-service businesses, which wire money from one place to another among other things, according to the U.S. Treasury Department.

Local and state police officials and prosecutors say it's time South Carolina closed the loophole because criminals use such businesses to launder billions of dollars in ill-gotten gains each year.

According to the FBI, money-service businesses have become the primary method for transferring money to finance numerous criminal enterprises, including the violent Mexican drug trade and international terrorism.

State authorities have little chance of preventing criminals from moving their money out of South Carolina without a new law, Beaufort County Sheriff P.J. Tanner said.

"By reviewing those transactions and regulating those businesses, you're going to identify the people who are sending milk money home and you're going to identify the people working for a cartel," Tanner said. "We don't need a new state agency to do this. ... We just need the law."

'There's no one watching this stuff'

Money-service businesses are required to register with the Treasury Department's Financial Crimes and Enforcement Network every two years. They must also report any suspicious transfers or series of transfers to federal authorities within 30 days.

A transaction is considered suspicious when it involves a large sum of money, appears to involve money tied to criminal activity or is purposely designed to evade federal banking regulations, such as someone wanting to break a large cash transaction into several smaller transactions.

In 2010, 780 registered business owners in South Carolina submitted about 5,000 suspicious activity reports to a Treasury Department facility in Detroit, Mich., according to federal records.

By comparison, businesses in Kentucky, a state similar in size to South Carolina, filed 3,390 suspicious activity reports, federal records indicate.

However, expertssay this is only a portion of the suspicious transfers being made in South Carolina. Federal regulations do not require businesses that operate as an agent of a larger company -- such as a grocery store that offers money transmittal services -- to register.

In a presentation to the state's solicitors earlier this month, Andy Lewis, the president of the Ulysses Group, a Charleston security firm, estimated that South Carolina has more than 3,000 money-service businesses, each transferring about $2.8 million each year. That means as much as $8.4 billion in international and domestic transfers are being made with little or no regulatory oversight, Lewis said.

Lewis, who says he has worked for military and intelligence agencies, said federal investigators do their best to keep tabs on suspicious transfers, but it is impossible to thoroughly investigate each report or even the majority of the reports filed by South Carolina businesses.

"They are really conservative in their estimates," Lewis said. "There's no one watching this stuff. The FBI and the IRS and other federal agencies just do not have the agents on the ground to generate the reports that help make cases. In many instances, they are adopting their cases from local and state authorities but not in South Carolina.

"We are the big hole in the country."

That's where local law enforcement comes in.

'Not on the cutting edge' Federal and state laws providing oversight of money service businesses have helped authorities investigate and apprehend members of drug cartels and international terrorist cells, including Mohamad Youssef Hammoud.

Hammoud, 37, was sentenced earlier this year to 30 years in prison for using $8 million in proceeds from a cigarette smuggling ring in Charlotte, N.C., to support Hezbollah, a Lebanese militant group with a history of violent attacks on U.S. and Israeli targets.

Hammoud and 22 other members of the North Carolina cell used money transmitting businesses to transfer funds from the U.S. to Lebanon where they were used to purchase night-vision goggles, aircraft design software, video cameras and other equipment, according to the Justice Department.

To plug holes left by sometimes spotty federal enforcement, other states have passed laws to keep a closer eye on the money-service industry.

The Georgia Department of Bank and Finance licenses and regulates check cashers, money-order companies and money transmitters in that state, said Carol Webb, the department's director of communications and planning.

Among other requirements, Georgia state law mandates that businesses open their books to the Georgia Bureau of Investigation and state revenue department upon request. The businesses may be fined or punished in civil court if found to be operating improperly or without a license.

Such regulations are exactly what South Carolina needs, said 14th Circuit Solicitor Duffie Stone.

"We are not on the cutting edge of this," Stone said. "I mean why would a drug dealer in Savannah risk getting caught with a ton of cash when he can just cross the border into South Carolina and use one of our money wiring services? We've got to play catch up."

The state's top law enforcement officer agrees.

Through a spokesman, S.C. Attorney General Alan Wilson lent his support to local and state law enforcement officials, saying he shares their concerns about the lack of regulation.

Lewis and Tanner said Wilson has not expressed much interest in cracking down on the state's money service industry but added that they hope they can count on him for his support in the future.

A legislative solution?

When the General Assembly reconvenes in January, state lawmakers can expect to be lobbied by the S.C. Sheriff's Association, the S.C. Solicitor's Association and the S.C. Police Chiefs Association, all of whom are pushing for a change, Tanner said.

Accompanied by letters of endorsement from all three organizations will be draft legislation requiring businesses to register with the state and also gives law enforcement agencies the ability to acquire transaction logs and other information.

It is unclear if such a bill will be introduced or if it will suffer a fate similar to a proposal introduced in February by Rep. Alan Clemmons, R-North Myrtle Beach, that had 34 co-sponsors but never made it out of committee.

Clemmons' bill gave general authority to Wilson to "attack the ongoing misuse of money service businesses..." but lacked specifics, according to legislative records.

Rep. Andy Patrick, R-Hilton Head Island, was among the bill's co-sponsors and said it may not have passed because most legislators are not aware there's a problem.

"We should do more than putting a law on the books just to have a law," Patrick said. "This has to be something with teeth. We have to give law enforcement and our solicitors real tools to fight organized crime in our state."

The money service industry agrees.

After reading the one-page bill Clemmons filed earlier this year, David Landsman, executive director of the National Money Transmitters Association, called it "very disappointing" and urged legislators to consider drafting more effective regulations.

"I kept looking for more," Landsman said after reading the one-page bill. "I can't believe that's all there is. After years of waiting for a South Carolina license requirement, the industry is left wondering what this bill even means, or what it hopes to do.

Landsman said the industry welcomes licensing requirements and other rules for money service businesses as a way to protect businesses and consumers.

"We want a level playing field, consistency in state regulations and efficiency," Landsman said. "We're used to regulations."

Help welcomed

A new law in South Carolina governing money service businesses would be welcomed by federal regulators, said Stephen Hudak, spokesman for the Treasury Department's Financial Crimes and Enforcement Network.

"The federal regulations do set up a system of examination on the federal level but the state examination procedures do add an extra level of scrutiny," Hudak said. "Whether a law is passed is up to the officials in South Carolina, but more eyes on this kind of activity and this data is generally good."

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