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      How the Feds Blew a Case Against an Alleged South American Drug Money Launderer How the Feds Blew a Case Against an Alleged South American Drug Money Launderer
      Photo of allegedly laundered money from a separate case, courtesy FBI

      How the Feds Blew a Case Against an Alleged South American Drug Money Launderer

      January 14, 2016

      For federal law enforcement officials, Martin Lustgarten Acherman was a prize catch in the war on drugs. Since 2007, investigators had been keeping tabs on the Miami-based businessman who maintains dual citizenship in Austria and Venezuela, methodically gathering evidence that Lustgarten was laundering tens of millions of dollars for Colombian and Mexican drug traffickers, as well as paramilitary groups, according to court documents obtained by VICE.

      On April 8, 2015, authorities arrested Lustgarten in Miami after a grand jury indictment charged him with conspiracy to commit money laundering, obstruction of an official proceeding, and conspiracy to obstruct an official proceeding. His bust generated headlines heralding the dirty drug money nexus between Miami and Venezuela.

      But nine months later, the case against Lustgarten suddenly unraveled as prosecutors dismissed the charges against him in what money laundering experts and former drug warriors say represents a stunning blow against the US government's efforts to punish those who profit from the narcotics trade.

      "It is very unusual for a case like this to get dismissed," Michael Levine, a New York-based trial consultant who worked for a quarter-century as a Drug Enforcement Administration (DEA) special agent, told VICE. "It suggests to me that something was unearthed by the prosecutors that they decided to stop and not go any further with it."

      "It is a steep fall for the government to dismiss a case like this one so abruptly and so quickly,"added Charles A. Intriago, a former Miami federal prosecutor who founded the Association of Certified Anti-Money Laundering Specialists.

      Calls to the lead federal prosecutor, Joseph Palazzo, were referred to a US Department of Justice spokesman in Washington DC, who did not respond to VICE's requests for comment. A spokesman for the DEA's New England division, which handled the criminal investigation, likewise did not return phone calls seeking comment.

      Of course, E. Peter Mullane, the lead attorney for Lustgarten, says the case was dropped for a simple reason: his client is innocent. "From day one we had vigorously protested the fact that this person had been indicted for alleged offenses that he did not commit," Mullane said in an interview. "It took approximately nine months of extensive discovery and aggressive pleadings to make this point."

      According to the feds' indictment, Lustgarten operated companies in Hong Kong, Singapore, and Panama that provided capital loans and purchase-order financing to Venezuelan firms involved in the international trade. In Venezuela, companies like Lustgarten's allegedly took advantage of that country's strict controls regarding the availability of US dollars by exchanging American currency in the black market for Venezuelan bolivars at a higher rate than normal. By striking deals with Lusgarten's companies, Venezuelan importers would have access to American cash in order to pay for consumer goods coming from outside the country.

      Prosecutors argued Lustgarten was obtaining the US dollars from drug traffickers and paramilitary groups. The indictment details how the DEA Boston office seized accounts in March 2009 tied to Lustgarten's firms at a Bank of America branch in Doral, a city largely populated by Venezuelans in Miami-Dade County. Yet Lustgarten continued to launder drug proceeds through banks in Hong Kong, Singapore, and Switzerland, according to the feds. During an April 13 detention hearing in Miami, Palazzo accused the Venezuelan-Austrian businessman of laundering between $40 million and $100 million.

      "The government's case is also very strong," Palazzo said at the time, according to a transcript of the hearing. "Mr. Lustgarten's arrest was the culmination of several years of investigation by a joint task force in the District of Massachusetts... Extensive wiretaps were conducted in the US and in Colombia and several search warrants were executed on Mr. Lustgarten's emails. So there is plenty of documentary evidence supporting the charges as well."

      Palazzo also accused Lustgarten of being an unreliable confidential informant who routinely passed false information to the Boston task force investigators. "Mr. Lustgarten is basically a professional liar that has been lying to the DEA and Homeland Security and to the US Attorney's Office in Boston for several years," Palazzo told magistrate Judge Edwin G. Torres.

      The indictment went on to name a man named Salomon Bendayan, whom Palazzo alleged controlled shell companies that worked in concert with Lustgarten's supposedly shady businesses. Bendayan was arrested one month after Lustgarten.

      While Lustgarten was held without bail for nine months, his defense team went to work taking apart the prosecution's case against their client. On November 19, Lustgarten's other lawyer Nathan P. Diamond filed a motion against Palazzo's request to delay the trial date until February, accusing the prosecutor of stall tactics and failing to produce evidence against his client. In essence, Diamond argued Lustgarten was being denied his right to a speedy trial, pointing out that the prosecutorial team had not provided documents detailing their client's banking transactions in seven countries.

      That's because prosecutors never obtained the documents, according to Diamond. In order for prosecutors to obtain evidence in other countries, they must first obtain permission from foreign governments to do so under what is known as a mutual legal assistance treaty agreement.

      That process appears to have helped derail the feds.

      In Lustgarten's case, a request to gather evidence in Colombia was sent to that country's government in February, but US prosecutors did not receive a response until August, five months after he had been arrested, according to Diamond's motion, which cites a DOJ memo he apparently obtained. Prosecutors sent requests to Hong Kong officials in February, July and September, but said they did not get a reply at all, the motion states, and a request to Switzerland's government was made in July, three months after Lustgarten's arrest.

      On November 20, Miami federal judge Marcia G. Cooke denied Palazzo's request to delay the trial, according to Lustgarten's court docket. About a month later, it seems like Palazzo gave up. On December 14, the US Attorney's Office dismissed the more serious charges when Lustgarten agreed to plead guilty to a misdemeanor charge of illegally entering the US on October 12, 2011, according to court documents obtained by VICE.

      Bendayan, the other man charged in the indictment, also had money laundering charges dismissed against him when he pleaded guilty to a felony count of operating an unlicensed money transmitting business.

      Andrew Ittleman, a partner in the Miami law firm at Fuerst Ittleman David & Joseph who specializes in money laundering cases, said Lustgarten's ordeal shows how difficult it is for the US government to prosecute international money laundering crime cases.

      "It places a high burden on the government," Ittleman told me. "His defense attorneys did a masterful job of holding the government to its burden of not only proving beyond a reasonable doubt, but that government would also have to do it quickly."

      The turning point in Lustgarten's case was the prosecutor's inability to secure cooperation from foreign countries, according to Ittleman.

      "An assistant US attorney can't just make a phone call to another country to get permission," Ittleman said. "You need to abide by certain rules. In this case, the US government was not getting the cooperation it needed from Hong Kong, Argentina, Colombia, etc."

      Gregory D. Lee, a retired supervisory DEA agent who also provides expert witness testimony, said he was surprised investigators and prosecutors did not attempt to retrieve Lustgarten's foreign banking documents prior to the indictment.

      "Once you have somebody in custody, the clock starts ticking to go to trial," Lee explained. "You have to anticipate these type of problems so you avoid them. When you don't have the documents to turn over to the defense, it turns into a house of cards and it all comes tumbling down. Apparently that is what happened here."

      Follow Francisco Alvarado on Twitter.

      Topics: Crime, Florida, Venezuela, Money laundering, FBI, Justice Department, US Attorney


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