The Problem with Dirty Money

This is the second installment in a two-part series on VICE, presented by STARZ.

Read the first installment, "Double Life Hustle," here.

"When no other crimes could be pinned to Al Capone, the Internal Revenue Service obtained a conviction for tax evasion. As the astonished Capone left the courthouse he said, 'This is preposterous. You can't tax illegal income!' But the fact is income from whatever source derived (legal or illegal) is taxable income."

Capone's downfall, recounted in the lines above on the IRS's website, underscores the inherent difficulty with dirty money. There is a point at which hiding or laundering it becomes harder than making or taking it in the first place. The challenge increases with quantity.

There are cunning and moronic ways to do this. Let's start with one of the best. The realtor Seth Neal's answer to the following question on Quora.com was particularly enlightening:

"Suppose I just stole 2 billion dollars from a bank. How should I use this money without being traced?"

We should preface Neal's answer with some cautionary advice. If you thought having $2 billion was going to be easy, you were wrong. Laundering it without getting caught by the IRS, the FBI, or whomever you stole it from is going to be as hard as acquiring it was. You are about to become a career money launderer. You will have to be a professional recruiter of the unsavory. You are going to traverse the country in your new home—a semi-trailer—recruiting smurfs, gophers, and coyotes while setting up shell companies and buying cash-heavy businesses to launder your money. Welcome to the hustle. And hustle you must, because the IRS is coming. And the IRS does not lose.

The Good: The Way to Do It

Enter Nealian Theory. Below is Neal's marvelously comprehensive tutorial, edited for length and clarity. First, you need to understand that $2 billion in dirty money does not equal $2 billion in clean money. Capiche? You are going to lose a substantial portion in the laundering process. That's how it goes: It takes money to clean money. Now pay attention.

Step 1. You need a Class A commercial driver's license with a T endorsement.

Step 2. Buy the following items: Semi-trailer—a 16-wheeler, 53 feet long with a lift jack. (Don't skimp on your truck: You'll be storing your cash here for longer than you probably want.) Twenty-eight well-built galvanized steel pallets. Cardboard pallet boxes and plastic wrap to reinforce them.

Home Depot sells large moving boxes; buy 20. Put your pillows and blankets and sheets in them to weigh them down. You are going to load these after you load your cash to create a false wall of sorts. Tape the boxes together, four across and five high. This will leave a small opening through which you can access your cash. Create a sliding door here with your mattress.

Step 3. Load your cash. Each pallet will weigh a little more than 1,400 lbs. Your pallets and your pallet jack have a load capacity of 5,000 lbs., so you are fine. But your boxes will have issues, so be sure to watch them carefully and wrap the $%&# out of them. Make sure your pallet jack is secured and you have a strap across the last row of pallets. You wouldn't want these things sliding out the back door. Put up your fake wall and your mattress.

Note: You may already have a secure facility to hold your cash, being a master criminal and all. But if experience has taught me anything, it's that you want to carry your money with you wherever you go. There is no better way to hide 28 pallets of unmarked $100 bills than the above.

Step 4a. Hit the road and start laundering your seed money. If you think stealing $2 billion was hard, wait until you try to clean it up!

Step 4b. Travel to the next town. You have two very important people to find.

First, you need to find yourself a smurf (or two). In the United States, the best smurfs are lawyers in their early 40s, not particularly successful but making it. Divorce attorneys and civil defense attorneys are good bets to start with. Make sure to pay them their hourly fee upfront and speak only in hypotheticals. You will ask them to make small deposits for you every other day for the next two and half months. You'll need to come up with a cover story. If they seem open to the idea, give them a briefcase with $250,000, plus the fee you negotiated (between $20,000 and $50,000). You'll mail them the deposit slips and banking info.

The second person you need to find is a coyote. Your coyote needs to be someone who has valid identification and a mailing address. You will be opening a few bank accounts (the same number as you have smurfs). It's important to go with the coyote and provide the initial $1,000 deposit as well as the email that will be used to access the online portal. The coyote uses the information to open the account, but you control it.

Step 4c. Have these bank accounts regularly transfer money to your legitimate accounts. You are trying to make it hard to trace where the money is going and where it is coming from. The places you need to send money through include Hong Kong, Switzerland, Singapore, Lebanon, the Cayman Islands, etc. Wherever the money lands, it needs to be in a shell corporation where you can create an appearance of business. You are the owner of this business and are being paid well for the hard work you are doing.

Step 4d. Repeat 4a through 4c. The more smurfs you have depositing your money, the better. After 10 weeks of traveling, you should have at least 30 smurfs in your employment. You will also have your first $250,000 of clean money. By week 20, if you don't bring any new smurfs on and don't reinvest your old smurfs with money, you'll have $7.5 million in clean money at a cost of about $1.5 million.

Obviously, with each smurf you employ, the higher your exposure becomes, so be sure to hedge your exposure as much as possible. (Contact them, but not vice versa; change your phone with each new city; be careful how you access your accounts online; never duplicate emails for bank accounts, etc.) You should have to see them face to face only once. If they insist on seeing you again, walk away forever. Yes, you forfeited money, but that's better than going to prison.

Step 5. Start some legitimate businesses. You've only just begun your lifelong journey of cleaning up this money. But having a few million to pour into businesses will help you and your traveling billion get clean. Focus on businesses deal mostly in mostly cash and are hard to audit. Consider owning a 24-hour laundromat in every town you travel to.

If you think this scenario sounds unrealistic, a 28-year-old businessman in Moldova remains accused of stealing $1 billion from Moldovan banks over the course of three days. The money mysteriously disappeared from the Moldovan banking system in the week leading up to country's parliamentary elections in November 2014.

The Bad: How Not to Do It

If it is your job to prevent drug cartels in southern Florida from laundering money, there are certain things you should never do. The least intelligent move you could make would be to launder their money yourself in an undercover operation, proceed to use the funds from your laundering commission for your own personal gain, deliberately not keep records of the bags of drug cash you are laundering, and assume the U.S. government, for which you work, isn't going to notice.

This is exactly what officers of Florida's Bal Harbour Tri-County Task Force did for nearly three years, beginning in 2010. They spent the money they made as an undercover laundering front on things like submachine guns, vehicles, visits to five-star hotels, expensive dinners, laptops, and travel.

In the process they laundered $56.6 million for drug cartels and gangs, pulled in at least $1.7 million, and made zero arrests. Out of the funds they amassed from their 3 percent laundering fee, hundreds of thousands remain missing, and there are no records of how it was spent.

The 12-member task force made 235 laundering deals but kept records of only 39. These guys traveled all over the country, collecting bag after bag of drug money, which they then sent to law firms. The lawyers deposited the money into SunTrust bank accounts for shell companies, and the money then made its way back to the cartels through Miami export companies in the form of goods. The task force essentially enabled the cartels to launder their money via a process known as the Black Market Peso Exchange (more on this later).

To top it all off, the task force kept detailed records of the law firms involved but not much else. All of this happened in coordination with the DEA, which assumed the task force was following standard protocol. Not only did the task force manage to infuriate the many U.S. government organizations trying to track money laundering, it exposed Mexican and Colombian cartels like Norte del Valle—along with pretty much every law firm left in Florida that would have been willing to represent them. This is what hustle failure looks like.

The Ugly: A Plan for the Rest of Us

If your life falls into the second category, you don't need a semi-trailer; you need a neurological exam. But for everyone else, the good news is that no matter how badly you screw this next one up, you can't be worse than the guys in Bal Harbour.

Take the Chicago cocaine dealer who calls him self "P Slong" in an episode of the National Geographic Channel's Underworld Inc. P Slong is identified as a "major cocaine wholesaler and money launderer" who claims not to touch the drugs, only the money—and in large amounts. He sends his suppliers' money south to the Mexican border, elaborately concealed in trucks and other vehicles, and launders his own profits. In one night, he may clean $150,000 by funneling it through a Chicago nightclub.

One of his biggest risks is transporting the cash to the club. Aside from the obvious risk of theft, if he gets pulled over by police and dogs find the cash, he will lose it. For this reason, he vacuum-seals the cash in plastic and then covers it in Vaseline. P Slong explains, "I gotta mingle with the rich people, keep my nose clean, dress sharp, and leave all that other stuff [back] in my neighborhood."

He launders money by fronting events at clubs "to make it look like he is a legitimate entrepreneur." He will do several club events a week. The smaller events might allow him to cook the books and add $10,000 to the nightly revenue. "The biggest one might bring in, like I say, one-fifty, two hundred [thousand dollars]." He does this by inflating the sales and combining his drug money with actual revenue from the club. "Now what I'm collecting on is the door, the drinks, the tickets. I'm gonna pay for everything full upfront with my dirty money, and I clean it within an hour or two."

He walks away with a check that can be deposited at any bank as legitimate income. Or, as he calls it, "dirty coke money into clean game money—because it's all about the game baby, nobody plays it better."

P Slong's laundering method may be effective, but his operational point of weakness will always be cash. There are a lot of U.S. agencies ready to exploit that vulnerability.

The Feds

A former assistant U.S. attorney who provided VICE background explained that in the past, when it came to drug dealers, money laundering was never the primary charge a prosecutor would seek. Money laundering was a side charge, a way to hold someone, or a last resort if nothing else stuck. This changed over the past 15 years as focus shifted from the war on drugs to the war on terror. U.S. authorities now view money laundering as its own priority and not just a side effect of the drug trade. There is even a fancy new name: counter-threat financing.

Melvin Patterson, a DEA spokesman, told VICE that agencies worked together in reviewing certain information such as suspicious activity reports filed by financial institutions. "These reports are viewed by the intel community within the DEA, FBI, IRS, Homeland Security, etc.," he said.

Patterson recalled a case when he was stationed in Tulsa, Oklahoma. The DEA came across a cluster of used car lots. They noticed that the businesses were going through a large quantity of cost transaction reports, mandatory for any deposit exceeding $10,000.

"This organization was just making deposits like crazy, [but] the cars—the inventory—wasn't moving," he said. "We concluded that we did not have a drug nexus. So we got FBI involved in what became a coordinated case through DEA's Special Operations Department. FBI started exploiting their banks accounts even more, and they saw that this money was making its way all the way to Hezbollah."

"It just tells you: What starts small in Tulsa, Oklahoma, may be something that's a little bigger than what you might think," Patterson said.

"In most cases, you are eventually going to run into an international connection if you keep following the money trail," he continued. "So when you talk about gangs—they may have no idea that they are linked and that the money they are providing is working its way out of the country."

The Black Market Peso Exchange

According to the assistant district attorney who spoke with VICE, "There are essentially two kinds of money laundering. There is the laundering of an individual's profits to legitimize the dirty money and place it into the financial system. And there is the laundering of capital to further advance the activity of the organization—to keep the business in operation." An example of the latter is the Black Market Peso Exchange, a popular method for Columbian cartels, such as those enabled by the Bal Harbor Tri-County Task Force.

In this scenario, a dealer in the U.S. needs to transfer capital back to the cartel in order to get more product. The dealer uses a money broker to launder the drug proceeds into the U.S. banking system. Meanwhile, the cartel, which controls a string of technology retail stores in Colombia, has a store order a large shipment of computers, mobile phones, etc., from a Miami export company. The money broker then pays the Miami export company for the order from a U.S. bank. The computers are sent to Colombia and converted back into pesos. The cycle continues.

Pure Colombian Capitalism

The economics of the narcotics business are brutal, "unfettered capitalism." In a Ted Talk, Steven D. Levitt laid out the crackonomics of the epidemic:

"The death rate… seven percent per person per year. You're in the gang for four years; you expect to die with about a 25-percent likelihood. For comparison's purposes, let's say that you were a murderer and you were convicted of murder, and you're sent to death row. It turns out, the death rates on death row from all causes, including execution: Two percent a year. So it's a lot safer being on death row than it is selling drugs out on the street."

So why would anyone play the game? The chances of leaving or getting out are slim. So when you are born into a statistical warzone, and you watch the people around you die in combat, your options become very limited. Many pick a side and join a gang. At that point the only way out is up the food chain. Because as Levitt put it, "The gang leader always got paid, OK? No matter how bad it was economically, he always got himself paid."

Unlike the American soldiers fighting abroad, the foot soldiers fighting in American ghettos aren't getting a paycheck that can go in any bank. Everyone gets paid in cash. No one expects to grow old.

Download the STARZ app to catch up on Power now, and don't miss the Season 3 premiere on Sunday, July 17, at 9 p.m. on STARZ.

This article was paid for by STARZ and was created independently from VICE's editorial staff.