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How the practice of moving money to secret, low-regulated off-shore accounts has played a role in the crimes of money laundering, fraud, and tax evasion.

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00:00Tonight on Frontline
00:08Narcotics trafficking, drug cartels, professional con men
00:13They took my money away
00:15These are people who prey on the sick and the dying
00:17Driven by greed
00:18The offshore scandal
00:20How criminals and scam artists who prey on the innocent
00:23Hide their stolen profits on tropical islands
00:26300 billion annually
00:27It's a big problem
00:28Tonight, from cold cash to hot money on Frontline
00:37Funding for Frontline is provided by the Corporation for Public Broadcasting
00:52And by annual financial support from viewers like you
00:55This is Frontline
01:00As L.A. burns, Governor Wilson orders in more National Guardsmen
01:11The Los Angeles riots in 1992
01:16Over a thousand buildings were destroyed
01:19A billion dollars lost in property damage
01:23The entire store has been ransacked
01:24And the damage estimates from all the looting and fires now total at least 200 million dollars
01:31One group hit particularly hard were Asian American shop owners
01:35I look at the TV
01:37I didn't even recognize what was that
01:40But it's my friend called
01:41Hey, it looks like it's your store
01:44Is that right?
01:45Let me see
01:46I mean, one more
01:47Look at Channel 2
01:48And I look at it
01:50It was my store burning down
01:52Oh, God
01:54It was terrible
01:59Bonali and her husband James' grocery store was completely destroyed
02:06They had saved for 25 years to buy the store
02:10In one night, it was gone
02:12This was all my dream
02:14And it's all gone
02:17After the fire, Mrs. Lee called her insurance company
02:21But they never paid
02:23The whole 10, 11 months has passed
02:27You know, we didn't get anything
02:28Mrs. Lee was not alone
02:32In fact, hundreds of claims by Asian American shop owners were not being paid
02:37Finally, Mrs. Lee decided to seek help
02:40And came to the Asian Pacific American Legal Center
02:43Where attorney Julie Pack took her case
02:45A lot of small business owners, especially minorities
02:49Don't have the options to go to the well-known insurance companies
02:54The insurance companies that we know about
02:56Mrs. Lee and 140 other shop owners believe their insurance companies
03:00Were run by an elaborate web of scam artists
03:03Who took premiums but had no intention of ever paying claims
03:07Mrs. Lee's $140,000 policy was held by a company that called itself
03:12First Assurance and Casualty
03:14We had people wait six to eight months
03:16The check never showed up
03:17Whenever we called them, they said
03:20Call our office in Oklahoma
03:21Call our office in Texas
03:23Call us in Louisiana
03:24Mrs. Lee paid nearly $400 in premiums every month
03:29But after the fire, she couldn't find anyone who represented her insurance company
03:33That's the largest question
03:35What really is the insurance company?
03:38Is it one person?
03:39Is it 100 people?
03:40Does it include a board of directors?
03:42Who's accountable?
03:43Who is the bottom line?
03:45We have no answers to those questions
03:47To get answers, PAC joined forces with an expensive Los Angeles law firm
03:54That had offered free legal services to victims of the riots
03:57Larry Ingle was assigned the case
03:59Mrs. Lee went to the data insurance agency
04:03The data insurance agency
04:06The data insurance agency bought the policy through Great Republic
04:09The policy was obtained through First Assurance
04:13Located in the Caribbean
04:14Mrs. Lee's company operated out of Oklahoma, Arizona, Texas, and Louisiana
04:21But had been set up offshore
04:23Outside the U.S.
04:25In the Turks and Caicos Islands
04:27Earlier in the case, Council and I really believed that
04:30All in the Caribbean, there are just these empty warehouses
04:33With answering machines
04:34And nobody works there
04:36Someone comes once a week to pick up the premium checks
04:39And that's it
04:39They got a lot of money in premiums
04:43They didn't pay very many policyholders
04:45And somewhere offshore, there's a big pot of money
04:48More and more victims of fraud in the U.S.
04:53Are discovering the source of their problem
04:55Lies not only in America, but offshore
04:57In small countries and tiny islands
05:00Where financial regulation is minimal
05:02And secrecy is guaranteed
05:04Today, over 60% of the world's money resides offshore
05:09Protected from the more rigorous regulation
05:11Of major financial centers like New York and London
05:14Many of the 50 offshore financial centers worldwide
05:18Are in the Caribbean
05:19And investigators believe these havens have become essential tools
05:23For sophisticated criminals in the United States
05:26In the United States, if a law enforcement agency has questions
05:32They can come in in an investigative process
05:35And open up in the United States
05:37In the offshore accounts, you can't do that
05:40There's secrecy
05:41So you have an extraordinary differential in standard
05:45That sits as an open invitation
05:48As an incentive
05:49For people to say
05:51I'm taking my money away
05:53Where I can hide it
05:54Where I can operate outside of the reach of the law
05:57The most successful of the offshore centers
06:06Is the Cayman Islands
06:07Nearly 500 miles south of Miami
06:10In the Caribbean
06:11Only recently, Grand Cayman was a sleepy sandbar
06:16Today, it is the fifth largest banking center in the world
06:19With over 500 banks
06:21This year, $600 billion will pass through these islands
06:26When I went to the Caymans for the first time in 1974
06:35There were perhaps six or seven hotels on the beach
06:40And the banking community was beginning to come in
06:43You had 100 banks instead of 520
06:46Now it's wall-to-wall hotel and condo
06:49Jack Blum is a lawyer and former special counsel
06:53To the Senate Foreign Relations Committee
06:55He learned firsthand about the Caymans
06:57While investigating drug money laundering and BCCI
07:01The crooked bank that collapsed
07:03Offshore centers like the Cayman Islands
07:06Provide a wide range of people
07:09With a black box to hide financial transactions
07:13And that could be drug money
07:15It could be money that is a result of a major financial fraud
07:20It could be money that comes out of
07:23Some sort of taxable transaction
07:25Which no one wants tax authorities to get at
07:28The black box is keeping the records
07:32The information and the data secret
07:35The Caymans, like several other offshore havens in the Caribbean
07:43Are a British dependency
07:44Where ultimate authority rests with a governor appointed by Great Britain
07:48Royal salute!
07:54Please
07:54The annual celebration of the Queen's birthday
08:00Is an important event here
08:02The Cayman's link to the British crown
08:04Is crucial to the island's prosperity
08:06The Cayman Islands is a place where the British flag is for rent
08:23The British flag symbolizes stability
08:27The British government is really directly responsible for the Cayman Islands
08:31Now if it were something other than the British government
08:34If it were some independent country
08:36Small, subject to diplomatic pressure
08:40The people who deposited in its banks wouldn't feel secure
08:44So for example, when Panama, which was a premier banking haven
08:48Was ruled by Noriega
08:51And Noriega fell out of American grace because of his drug dealing
08:55The hot money was terrified and left immediately
08:59British offshore centers began to develop in the 1960s
09:04As tax havens for wealthy Britons trying to escape the then 80 and 90 percent tax rates
09:10As the global economy developed
09:13More and more financial institutions began moving offshore
09:16Drawn by lower taxes and relaxed regulation
09:19The islands attracted investors by adopting strict confidentiality laws
09:28That effectively closed the door to investigators
09:30While technology gave them instant access to major financial markets
09:35But havens designed to avoid the tax collector
09:38Also had an appeal to organized crime
09:41And during the 1980s
09:42The Caymans and other islands
09:44Became important financial centers for the drug trade as well
09:48If it's a British dependent territory
09:53It's basically a magnet for people in the money laundering business
09:56Kenneth Rijak is a former banking attorney from Miami
10:04Who laundered tens of millions of dollars for cocaine and marijuana smugglers during the 1980s
10:09I found it obscenely easy
10:12Many of the dependent territories and some of the former British possessions
10:17Are very user friendly for money launderers
10:19The beauty of a money laundering tax republic is that
10:24You can move money into there and move it out anywhere to the rest of the banking world
10:29Thereby disguising its point of origin and its criminal background
10:32I would rent a light twin engine aircraft in a neighboring island
10:39I would show up at the airfield early in the morning with five or six clients
10:45Each client would be toting a very substantial briefcase with a million or so
10:50For a couple hundred dollars
10:54You could get several hours worth of airtime
10:57We would get down there as rapidly as possible
10:59It's about a two and a half hour trip
11:00Enjoying ourselves drinking champagne on the way down
11:03And talking about what we would do
11:05The DEA finally caught up with Rijak in 1990
11:13And he cooperated with prosecutors in exchange for a light sentence
11:17His testimony was frank
11:20About how government and banking officials on the islands
11:23Helped him launder drug money
11:25As soon as we arrived at the airport
11:30We would have our lawyer who was then the advisor to Her Majesty's government on that island
11:34Talk to the people at customs
11:36Because at that time
11:38Here we were unloading and presenting
11:40No luggage but a lot of money and a lot of suitcases
11:43The customs people would look at it very briefly
11:46Make sure that nobody else saw it
11:48Order us to close it up
11:49And pass us right on through
11:50Without so much as an inquiry
11:51As to where was the money going
11:53Where did it come from
11:54What was the background
11:55Who were we
11:56We would then load up a number of cars
12:01Drive right to the bank
12:03Lug the baggage up there
12:05And immediately it would be fed into a number of counting machines
12:08Because when you have millions of dollars
12:10It takes a long time to count
12:11In those particular financial institutions that were in the Caribbean
12:21Not just Cayman Islands
12:23You had bankers that back in the 70s and 80s
12:27Were growing those financial institutions
12:30Knowing that they were soliciting huge amounts of deposits
12:35From at least suspect sources
12:37If they didn't know directly that they were from drug activities
12:41Or from con men that operated in this country
12:45They certainly knew that these were not Fortune 500 companies
12:49That they were soliciting
12:50The British government has authority over several Caribbean islands
12:54In London the BBC interviewed the minister responsible
12:58Tony Baldry
12:59How did we allow offshore islands to be used to the extent that they
13:04They were and to a certain extent still are
13:06For drugs, money and financial crime
13:09Throughout the whole of the world
13:11Throughout the 80s
13:13Including the dependent territories
13:15But not just in the dependent territories
13:17You would have found it equally in New York
13:19Just as you found it in London
13:21Just as that happened elsewhere
13:23So too it happened in the dependent territories
13:25What is important is the fact that
13:28We in the dependent territories
13:30Have taken the necessary steps
13:32Whenever it's been appropriate
13:34To ensure that the regulatory regime
13:36Becomes tougher
13:37Becomes more refined
13:39To deal with any perceived and real
13:41Weakness within the system
13:44But those reforms came only under extreme pressure
13:48From the United States
13:49During the course of these negotiations
13:52I was told that Margaret Thatcher
13:55Called Ronald Reagan to complain
13:57That the United States was being far too tough
14:00And that we were beating up on
14:01The British negotiators who were handling this
14:04And that we shouldn't be so tough
14:07Because we would ruin the economy of the island
14:09In 1990
14:11The islands finally ratified a treaty
14:14Which granted U.S. investigators
14:16Limited access to banking details
14:18If they could prove a bank account's connection
14:21To criminal activity
14:22Well, what happened was
14:26The most egregious things were in fact closed down
14:29So people do not now arrive
14:32For the most part from the United States
14:34With suitcases loaded with currency
14:36We don't have charter flights
14:38With carloads of currency
14:40From the United States
14:42Going into Cayman Islands banks
14:43That was taken care of
14:46But the treaty allowed no fishing expeditions
14:48By U.S. investigators
14:50And the island's confidentiality laws
14:52Remained in place
14:54It is still a crime in the Caymans
14:56For anyone to divulge financial information
14:58What they've done is
15:00They've curbed to a great degree
15:03The inflow of cash
15:04What they have not curbed
15:06Is the use of the legal system
15:09In those islands
15:09The anonymous corporations
15:11The various other ways of hiding
15:14The cash that moves from one bank
15:17To another bank
15:18So that the police can't follow it
15:21And their facilities
15:22And that kind of corporate structure
15:25Are absolutely essential
15:26To criminal activity in the United States
15:28So in fact, have they helped us?
15:31What they've done is
15:32They've helped us a little bit
15:34But the little bit isn't enough
15:36And more has to happen
15:38To demonstrate the kind of services
15:42Offered routinely by some banks
15:44In the Caymans
15:45Which enable American citizens
15:46To flaunt U.S. financial laws
15:48We asked Jack Blum
15:50To secretly record a sales pitch
15:52From the Guardian Bank and Trust Limited
15:54In Grand Cayman
15:55He talked with its president
15:57John Mathewson
15:58Matthewson explained
16:23How Guardian could set up
16:24An anonymous corporation
16:26To disguise Blum's banking transactions
16:29To make them untraceable
16:30We are able to serve
16:34As nominee directors
16:36So that if something
16:39Has to be signed
16:40Or executed
16:40On your instruction
16:41We can do it for you
16:42With this mechanism
16:44You can operate
16:46Anyplace in the world
16:47Without anyone being able
16:49To ascertain
16:50That you have anything
16:51To do with that corporation
16:52At all
16:52I was told
16:55Ten different ways
16:57To avoid U.S. tax
16:58To take profits
17:00From my business
17:01Out of the United States
17:02Set them up offshore
17:04And then lend them back
17:05To my business
17:06And then charge them
17:07As a further expense
17:09Charge the interest payments
17:11As a further expense
17:12On my business
17:13In fact legitimize
17:15Moving more money offshore
17:16Matthewson told Blum
17:19How to secretly
17:19Get his money
17:20Out of the United States
17:21And into the Caymans
17:22Keep your checks
17:23Under $10,000
17:24We will give you
17:27The name
17:28Of three different corporations
17:30That we keep
17:31For this purpose
17:31We always want
17:32To add numbers
17:33After you've made it out
17:35You wrap it
17:37In a sheet
17:38Of plain paper
17:38Put your account number
17:41On the paper
17:42And on the check
17:43Or send it to us
17:44By regular airmen
17:45Upon receipt
17:47We credit your account
17:49Right
17:49We then courier
17:51That check back
17:52Along with hundreds
17:52Of other checks
17:53To one of our
17:54Correspondent banks
17:55In the U.S.
17:55Where it's cash
17:56And when it comes back
17:57To you
17:58If you flip it over
17:59All you see in the back
18:00Is a U.S. bank
18:01Absolutely no way
18:03That anyone can ascertain
18:05That check was offshore
18:06We've done our homework
18:07Wow
18:08We know what to do
18:09And how to do it
18:10And Matthewson
18:12Told Blum
18:13How he could spend
18:14His offshore funds
18:15Secretly in the United States
18:16One of the simple ways
18:19Is we issue
18:21Gold credit cards
18:22As you wish
18:23For the first time
18:24In your life
18:25You'll be able to charge
18:26Something on a credit card
18:27Where only you
18:28In this bank
18:28Will know what
18:29Has been charged
18:30Another Cayman's bank
18:33Finsbury Bank and Trust
18:35Also issued gold master cards
18:37Which guaranteed confidentiality
18:39They were used
18:40In United States
18:41Cash machines
18:42To apparently launder
18:43Criminal money
18:44One Finsbury client
18:46Used his card extensively
18:47It would amount
18:50To several thousand dollars
18:51A day
18:51And in the space
18:53Of less than two years
18:54He managed to withdraw
18:55Over a million dollars
18:56Out of his account
18:58Down here
18:58We've seen no explanation
19:00On file
19:00We cannot think
19:02Of any good reason
19:04Why he would necessarily
19:05Need to have cash
19:06Why would someone
19:09Use a method like that
19:10In order to withdraw
19:11Several thousand dollars a day
19:14I can only conclude
19:16That he's doing
19:18The thing which is illegal
19:19After an FBI investigation
19:23Discovered how the cards
19:25Were being used
19:26The bank was closed down
19:27But as we discovered
19:30At Guardian Bank
19:31Secrecy is still being sold
19:33In the Caymans
19:33We know
19:35That it will take
19:37A year or two
19:38Before you're really
19:40Comfortable offshore
19:41Once you're comfortable
19:43You probably wish
19:45The hell you'd done this
19:46Ten years ago
19:46And all of this was done
19:49Without even figuring out
19:51Who I was
19:51What I was
19:52Or what I was trying to do
19:53And of course
19:55In the conversation
19:55I should say
19:57There was a kind of
19:58Gratuitous reference
19:59To well we don't do business
20:00With drug dealers
20:01But he didn't ask
20:03Whether I was involved
20:04In fraud
20:05And it's clear
20:06That everything
20:07He suggested that I do
20:09Violated some portion
20:10Of U.S. law
20:11Today
20:13U.S. authorities
20:14Are not just worried
20:15About drug money
20:16But their ability
20:17To follow any financial
20:19Paper trail
20:19When it runs offshore
20:21This is illustrated
20:22By a case
20:23In which dozens
20:24Of American and British
20:25Citizens lost millions
20:26As reported by
20:28BBC correspondent
20:29Gavin Hewitt
20:30Last year
20:33A young entrepreneur
20:34From England
20:35Set out to raise
20:36Venture capital
20:37In America
20:38Najum Kidwai
20:42Had failed to raise
20:43Funds in Britain
20:44And turned instead
20:46To a company
20:46In Florida
20:47Like many others
20:49Who chose this route
20:50He would end up
20:51Losing money
20:52We saw an advert
20:54In the Sunday Times
20:55Approached a company
20:56Called Turnberry
20:57Underwriters Limited
20:58Who were based
20:59In Miami
21:00We were picked up
21:04In a limousine
21:04Which was sent
21:05By Turnberry
21:06Very impressive
21:07Very much like
21:09Miami Vice
21:10A chauffeur had asked
21:13Did I like
21:14Inder music
21:14And I said yes
21:16So he played
21:17Just very comfortable
21:18Environment
21:19Najum Kidwai
21:25Najum Kidwai
21:25Was looking for
21:26Funding to finance
21:27A virtual reality
21:29Project
21:29Intended for
21:30Medical research
21:31Turnberry
21:33Offered him a deal
21:34They would provide
21:35Eight million dollars
21:37In collateral
21:37For a bank loan
21:39In return for a fee
21:40Of a hundred thousand dollars
21:42However
21:43The collateral
21:44Would only be available
21:45If Najum Kidwai
21:47Arranged a letter of credit
21:48To cover
21:49Twenty percent of the deal
21:51That one point six million
21:53Would be Turnberry's payment
21:55For securing the loan
21:56If he failed to raise
21:58A letter of credit
21:59Within thirty days
22:00He would forfeit
22:02His hundred thousand dollar fee
22:03Unknown to Najum Kidwai
22:06One of the men
22:07He had dealt with
22:08At Turnberry
22:08Was under investigation
22:10For alleged fraud
22:12Les Mirsky
22:13Denied that the contracts
22:15Were drawn up
22:15In such a way
22:16That almost every
22:17Potential client
22:18Forfeited his fee
22:20However
22:20Turnberry
22:21And related companies
22:23Are estimated
22:24To have collected
22:24Thirty million dollars
22:26In fees
22:27From those who
22:28Fail to meet the deadline
22:29And the FBI
22:30Is investigating
22:31Mr. Mirsky
22:33Who denied
22:33He had negotiated
22:34With Najum Kidwai
22:35Was unsympathetic
22:37To his plight
22:38Have you seen his contract?
22:39I don't mean to
22:39Yes I have seen his contract
22:40And was it signed by me?
22:43His contract
22:43That wasn't signed by you
22:44But you were the person
22:46He negotiated with
22:47That's not true
22:48Well it is true
22:49Because he sat in this very office
22:51That we're in now
22:52And met with you
22:53Absolutely
22:54And he came through an agent
22:55In New York
22:55And he went to another office
22:56In Florida first
22:57And then found his way here
22:58Ultimately
22:59Ultimately I had a conversation
23:00With him
23:01Ultimately he signed a contract
23:02Ultimately he failed
23:04Since then he's a psycho lunatic
23:06Running all over the world
23:07Intriguing I guess
23:09To investigative journalists
23:10Who like to print this stuff
23:11Okay
23:12However it's just not true
23:13But after his initial meeting
23:16At Turnberry
23:16Najum Kidwai was delighted
23:18He thought he had the money
23:20To finance the project
23:22He did not realize
23:24That most banks
23:25Would not issue a letter of credit
23:26For the 20% he was to raise
23:28Unless they had evidence
23:30That Turnberry's
23:31$8 million collateral
23:33Existed
23:34He was to approach
23:36Over 200 banks
23:37All the time
23:38His 30 days were passing
23:40And he risked losing
23:41The $100,000
23:42Eventually
23:44One bank in London
23:45Showed interest
23:46But they needed to approach
23:48The banker for Turnberry
23:49It turned out to be
23:51In the Cayman Islands
23:53The bank that was involved
23:54Was a bank called
23:55Guardian Bank and Trust
23:56Grand Cayman Limited
23:57And our bank
23:59Approached this bank
24:01And found out very quickly
24:04That they were not getting
24:05Sufficient banking information
24:07That was required
24:08To conclude this transaction
24:09This led our bankers
24:13To believe that
24:13There was a problem here
24:15And it may be
24:16A scam of some type
24:17Guardian Bank
24:19Did tell Kidwai's bank
24:21Orally
24:21That the funds
24:22For the collateral existed
24:23But the London Bank
24:25Wanted further information
24:26Including where the money
24:28Came from
24:29Mr. Matthewson
24:31From BBC
24:32Television
24:33When Guardian's
24:34President John Matthewson
24:35Declined to provide
24:37More information
24:37The London Bank
24:39Pulled out
24:40The deal fell through
24:41And Kidwai lost
24:43His $100,000 fee
24:44Are you not the banking
24:46Reference for Turnberry
24:48Absolutely not
24:50We have details
24:51That Turnberry
24:51Has used your bank
24:52That is not correct
24:55We've seen the details
24:56You really ought to
24:57Check your
24:58Information first
25:00We've seen the accounts
25:02Where Turnberry
25:03Have used your bank
25:04And they have actually
25:06Cited you as their referee
25:08I would suggest
25:09That you research this
25:11Much better
25:12Because I have no knowledge
25:14Of what you're talking about
25:14Are you saying
25:15That you don't know
25:16Anything about Turnberry
25:17But the BBC
25:19Has learned of a report
25:20Turned over to the
25:21Cayman authorities
25:22By a former executive
25:24Of Guardian Bank
25:25Which confirmed
25:26Matthewson's link
25:27To Turnberry
25:28And cited
25:29Five or six
25:30Other suspicious cases
25:32Being run
25:32Through the bank
25:33There have been
25:34Many victims
25:35They cite your bank
25:37As being the bank
25:38Banking referee
25:39Matthewson is an
25:41American citizen
25:42Who founded Guardian
25:44In 1985
25:45In the past year
25:47His position at the bank
25:48Was changed
25:49Following an investigation
25:50By the Cayman authorities
25:52Who say
25:53They have taken action
25:55But will not reveal
25:56What it is
25:57What comfort can you give
25:59Those people
26:00Who have lost money
26:01Well the comfort
26:03That I can give
26:04I'm not sure
26:06If I can give comfort
26:07The individual concerned
26:08Is still in place
26:09He's still running a bank
26:10That is
26:12That is not
26:13Entirely correct
26:14Okay
26:15In what way
26:16Is it incorrect
26:17It's incorrect
26:18In that
26:19That individual
26:20Is not in the same position
26:22As he was at that point
26:24He still turns up
26:25To his bank
26:26There are
26:27There are checks
26:28And balances
26:29And balances in place
26:30As part of
26:31A revised internal control system
26:34The Cayman authorities
26:36Are satisfied
26:37With the action
26:38They have taken
26:38John Matthewson
26:40Is currently under investigation
26:42By state and federal authorities
26:44In the United States
26:45And the dozens of entrepreneurs
26:47Who lost money
26:48Are still seeking an explanation
26:50For the offshore connection
26:52It's happening
26:54To so many people
26:55And on such a large scale
26:57I think
26:57The average American
26:58Would be shocked
26:59I've handled
27:01A number of cases
27:02Like that
27:02And it's gotten
27:04To the point
27:04Where I just
27:05Hear the beginning
27:06Of the story
27:07And I say
27:07You've been had
27:08And the people say
27:09How do you know that
27:10And it's because
27:11I've heard this story
27:12Five times before
27:13There is even more concern
27:25With another offshore center
27:26The British Virgin Islands
27:28In the 1980s
27:30These islands too
27:31Aggressively began
27:32To sell financial secrecy
27:33With the approval
27:35Of the British government
27:36They adopted legislation
27:38Enabling international
27:39Business companies
27:40To be formed
27:41Companies in which
27:43It would be impossible
27:43To discover
27:44Who the real owner was
27:46Why would people go there
27:49What is it about it
27:51That makes it so attractive
27:53It's the fact that
27:54The incorporation laws
27:56In those islands
27:58Allow you to set up corporations
28:00And often times
28:01To do so
28:02Without divulging
28:03Either to the individuals
28:05In that government
28:06Who the beneficial owner is
28:08Or because of the secrecy laws there
28:11Prevent U.S. law
28:13Enforcement or regulators
28:14From being able to determine
28:15In those cases
28:16Where they are conducting
28:18Either an investigation
28:19Or a civil inquiry
28:21Who it is that is
28:23Actual the owner
28:24Behind those corporations
28:25So they really are
28:26Hideaways
28:26Yes
28:27These hideaways
28:28Proved attractive
28:29To lawyers acting
28:30As fronts for criminal groups
28:32And they headed
28:33For the capital
28:33Of the British Virgin Islands
28:34Roadtown
28:35On the island of Tortola
28:37I would take a taxi
28:38Real fast
28:39Into Roadtown
28:40See somebody that I knew
28:41Form a corporation
28:43And get the heck out of there
28:43As quickly as possible
28:44Do it all within an hour or two
28:46Take that corporate
28:47Identity
28:48The name
28:49Of course it was a company
28:50That was on the shelf
28:51Meaning
28:52Was already formed
28:53By that
28:53Attorney or accountant
28:55And
28:55Just waiting for a buyer
28:57I would take that name
28:58Back to the United States
29:00Give it to a client
29:01Who would use it
29:01For his own nefarious purpose
29:03Did you regard that as easy?
29:05I regarded it as
29:07Easier than brushing your teeth
29:10An accountant on Tortola
29:13Also found these
29:14International business companies
29:15Very useful
29:16Sean Murphy would launder
29:18Over 300 million dollars
29:19Through them
29:20In his files
29:21He kept ready-made companies
29:23That could be set up
29:24Within hours
29:24And sold off
29:25Just as quickly
29:26If the client wished
29:28To disguise the ownership
29:29Of a company
29:30Murphy would provide
29:31Substitute nominee shareholders
29:33Dealing usually
29:34With American lawyers
29:35The accountant often
29:37Never knew
29:37Who his real clients were
29:39When he was arrested
29:41Sean Murphy chose
29:42To cooperate with investigators
29:43In exchange for his freedom
29:45His testimony
29:49Unraveled an international
29:50Drug smuggling
29:51And money laundering operation
29:53And gave investigators
29:55An invaluable roadmap
29:56For how criminal enterprises
29:58Used the British islands
29:59To launder money
30:00Although Murphy still will not appear on camera
30:08For the first time
30:10He talked with us about the service
30:11He provided the visiting lawyers
30:13I met him on board the boat
30:15And we would just socialize
30:17And he informed me
30:18That he wished me
30:19To form some companies
30:20For him
30:20He would choose
30:22The name of the company
30:23He would then
30:24Ask me invariably
30:26To provide
30:28Full nominee services
30:29For the company
30:30So I would be
30:31Appear to be
30:33The owner of the company
30:34Murphy says
30:36This particular client
30:38A successful Miami lawyer
30:39Wanted him to wire money
30:41Between offshore centers
30:42Further disguising
30:44The paper trail
30:45I would open a bank account
30:47At Barclays Bank
30:48With myself
30:49For signatory
30:49And he'd give me instructions
30:51About money being wired in
30:53And how I was
30:54To deal with them
30:55Afterwards
30:57We met for lunch
30:59At Wickham's Quay
31:00He gave me standing instructions
31:04Upon receipt of funds
31:05To wire them onwards
31:07To a bank he gave me
31:08In California
31:09Eventually
31:11About 4 million dollars
31:13Was wired
31:13Through the Virgin Islands
31:15The governments of the island
31:18Know very little
31:19About who is using
31:22The companies
31:23They'll obviously appreciate
31:26The income
31:26That is generated
31:27They have no control
31:29Over what clients
31:30A trust company will take
31:32And there's no register
31:34Of who the clients are
31:36There is no way
31:37For the government
31:38Of these islands
31:39To find out
31:40Who the trust companies
31:41Are dealing with
31:42Because of course
31:43The trust companies
31:44Are offering secrecy
31:45If there was
31:46A way of finding out
31:47They wouldn't use
31:48That jurisdiction
31:49Despite the evidence
31:51Provided by Sean Murphy
31:52Of how these
31:53International business companies
31:54Were being used by criminals
31:55The number of company registrations
31:57Has risen dramatically
31:58In the British Virgin Islands alone
32:00From 5,000 in the mid-80s
32:02To over 120,000 today
32:04What do you think it is
32:06That attracts people
32:07To forming companies here?
32:09I think you'll find
32:11In the BVI
32:12There is a friendliness
32:14Which you may not find elsewhere
32:17And people like to know
32:19Where they're doing business
32:20That there is
32:22A friendly emotion
32:23With the people
32:26Who live in the country
32:28And where they want
32:28To do business
32:29And I think this has
32:31Hamilton Lavity Stout
32:32Is the chief minister
32:33For the British Virgin Islands
32:34With overall responsibility
32:36For regulating
32:37The financial center
32:38We asked him
32:40How these international companies
32:41Can be properly controlled
32:43If only people
32:44Who set up companies
32:45Like Sean Murphy
32:46Know who the real owners are
32:49It will not just left for them
32:51It also will be
32:52The duty of the
32:55Bank and trust company
32:57Inspector and regulator
33:00To be able to
33:02Dwell into the situation
33:06To know exactly
33:07Who they're dealing with
33:08Well let me ask you
33:09Another question
33:10Why the need for secrecy?
33:12Excuse me
33:12The question of secrecy
33:18And how you can ensure
33:19Proper regulation
33:20Is surely a proper question
33:23For you as chief minister
33:24Well the thing about it is
33:26I must take strong objection
33:28The reason why I ask you
33:30To put questions on paper
33:32What you want to ask me
33:33Is the reason why
33:35I will not answer that question
33:36Because it was not one of the questions
33:38You put on paper
33:39And I am very serious
33:41When it comes to that
33:42I only will answer any question
33:46It's not an unreasonable question
33:48Is it?
33:49It may not be an unreasonable question
33:51To you
33:51But I am saying
33:53I will not answer
33:54That question
33:55Because it was not
33:56On the list of
33:57A question which you asked me
33:59American investigators
34:03Are increasingly concerned
34:04With the connection
34:05Between these anonymous
34:06Offshore companies
34:08And the growing problem
34:09Of insurance fraud
34:10In the U.S.
34:11Which has become
34:12A billion dollar a year racket
34:13One factor
34:15In the high cost
34:17Of health care
34:17Is outright fraud
34:19And federal prosecutors
34:21Have now charged
34:21Officers of a now defunct
34:23Insurance company
34:24Based in Denver
34:25In 1992
34:27Federal authorities
34:28Broke up a huge
34:29Insurance scam
34:30Headquartered in Denver
34:31The company
34:33Cabot Day
34:34Was responsible
34:35For thousands
34:36Of health insurance
34:37Policies in the U.S.
34:39But when it came time
34:41To pay the claims
34:42There was no money
34:43In this one case
34:46There were 14 states
34:48In this case
34:48There were 14 states involved
34:49And 11,000 policyholders
34:51And this case
34:52Didn't last very long
34:55In the sense
34:55Of insurance coverage
34:57This was approximately
34:5813 months existence
35:00Of this company
35:01In that amount of time
35:03They had taken in
35:04Approximately
35:055.6 million dollars
35:07In premiums
35:08And they left
35:09Abandoned
35:10Approximately
35:115.7 million dollars
35:13In unpaid claims
35:14When Cabot Day
35:15Began selling insurance
35:17It registered its company
35:18Offshore
35:19In the British Virgin Islands
35:20And claimed it had
35:21Millions of dollars
35:22In assets
35:23Because of the minimal
35:24Regulation governing
35:25These offshore corporations
35:27U.S. insurance regulators
35:29Were not aware
35:30If those assets
35:30Really existed
35:32They presented
35:33A financial statement
35:34Which showed
35:34They had 10 million dollars
35:36In assets
35:36It all looked legitimate
35:37But they were
35:38Made up numbers
35:39They were absolutely
35:40Lies
35:42Each and every one of them
35:43One of the insurance
35:45Con men
35:45Described for us
35:46The ease
35:47Of setting up
35:48Anonymous companies
35:48In the islands
35:49Basically we called it
35:51One stop shopping
35:52You would go into
35:53The islands
35:53And we could form
35:56The company
35:57Be licensed
35:59And be able
36:01To write business
36:02All in the same day
36:03So
36:04And what checks
36:06Did the islands
36:06Make on you
36:07Basically this
36:10That we paid
36:10Our registration fee
36:11And beyond that
36:13That was it
36:14And on the basis
36:16Of what you had set up
36:18In those islands
36:19You were then able
36:20To sell insurance
36:23In the United States
36:24On a basis
36:25Which was totally fraudulent
36:26That's correct
36:27Our asset base
36:28Was just not there
36:29In New Jersey
36:36Lloyd Orozzi
36:37Was facing huge medical bills
36:38As his wife
36:39Lay hospitalized
36:40With cancer
36:41Unknown to him
36:43His health insurance company
36:45Had been taken over
36:46By Cabot Day
36:47And when he turned to them
36:49To pay for his wife's treatment
36:50There was no money
36:52Mercifully she died
36:54Mercifully she died
36:55Because I was praying
36:56For her to die
36:56Because she was
36:57In such a terrible state
36:59Health wise
37:01And she was really
37:02Suffering badly
37:03But mercifully also
37:07That I wouldn't have
37:08To go through
37:08Any more
37:09Of this financial burden
37:11Because in a matter
37:14Of a few months
37:16Not a year
37:17But in a matter
37:18Of a few months
37:19I would have been
37:19Wiped out completely
37:20She mentioned that
37:22Over and over again
37:23That this is costing
37:24You so much money
37:25This is costing us
37:26So much money
37:26You're going to lose
37:27The house
37:28Because I'm sick
37:29I want to die
37:30And I want to die now
37:31They're utter ghouls
37:35These are people
37:36Who prey
37:37On the sick and the dying
37:39The worst people
37:40On earth
37:41As far as I'm concerned
37:43Minister in the 80s
37:46There were some
37:46Well publicized cases
37:48Where these
37:49International business
37:50Companies were behind
37:52Serious financial crime
37:54How has it come about
37:56That those number
37:58Of companies
37:58Which was 5,000
38:00I think during the mid 80s
38:01Has risen to 120,000
38:03When it was quite evident
38:05That if you set up
38:07Companies where you can't
38:08Discover who the real
38:09Owner is
38:10They will be used
38:11By criminals
38:12The concern is not
38:13With the concept
38:15Of an international
38:16Business company
38:16The concern is ensuring
38:18That regulators
38:20And law enforcement
38:22Agencies can find out
38:24And can discover
38:25Who are the true
38:26Owners of the funds
38:27Concerned
38:28And they can't
38:29With the international
38:30Business companies
38:30Quite proper
38:32A quite proper issue
38:33And it's for that
38:34Reason that the
38:36Dependent territories
38:36Are amending their
38:38Legislation
38:39So that can come about
38:40And that seems to me
38:42To be wholly proper
38:43Quite right
38:44They have perceived
38:45A perfectly legitimate
38:47Need which they are
38:49Responding to
38:49Through their
38:50Regulatory regime
38:51The changes proposed
38:53By the British government
38:53Would help investigators
38:55Discover the real owners
38:56Of these companies
38:57But even if the measures
38:58Are approved
38:59They still fall far short
39:00Of the standard
39:01In New York or London
39:02Of openly identifying
39:04The owners of corporations
39:05It is pathetic
39:07Fundamentally
39:08These folks
39:09Who are involved
39:10In these networks
39:11Are running circles
39:13Around the capacity
39:15Of law enforcement
39:15It's almost as if
39:16You had
39:1721st century
39:18Technology being applied
39:20To the criminal enterprise
39:21And 19th century
39:23Law enforcement capacity
39:25Trying to stop it
39:26And law enforcement
39:27Is regrettably
39:28So far behind
39:30That it's going to take
39:34A major international
39:35Cooperative effort
39:36To change the process
39:37I will
39:39I will
39:40Discharge
39:41Discharge
39:41All the duties
39:42But there are some
39:43Signs of progress
39:44In the fight against
39:45Offshore financial crime
39:47According to law
39:48So help me God
39:49So help me God
39:50This year
39:51Investigators from
39:52Scotland Yard
39:53And the FBI
39:53Formed a new task force
39:55To counter
39:56White-collar crime
39:57In the British
39:57Dependent territories
39:59Having the ability
40:04To tap into
40:07British law enforcement
40:08Who might have
40:09Intelligence about
40:10Many of these
40:11Scam artists
40:12And who also
40:13Have a much
40:14More in-depth
40:15Knowledge of
40:17The laws
40:18And the operation
40:19Of these companies
40:19In these offshore
40:20Venues
40:21I think that it makes us
40:22That much more
40:23Effective
40:24I think nationwide
40:26We've now convicted
40:27Something like
40:28200 individuals
40:30In a variety of
40:31Insurance fraud
40:32Conman schemes
40:33Offshore banking
40:34Money laundering
40:36And some of the
40:38Results have been
40:39Extremely impressive
40:40They're starting
40:41Down a road
40:42And I think the
40:43Law enforcement people
40:44Involved in it
40:45Are well-intentioned
40:45The problem is
40:47You can't solve this
40:49With law enforcement
40:49People
40:50You have to go
40:50After the system
40:51It's the system
40:52That's no good
40:53It's the system
40:54That has to be changed
40:55For all of the
40:58Concern about
40:59Money laundering
41:00And fraud
41:00In Washington
41:01They're worried
41:02About something
41:03Even bigger
41:03The billions
41:05Of dollars lost
41:06In taxes
41:07The Internal Revenue
41:09Service estimates
41:10300 billion dollars
41:11Ends up offshore
41:12Each year
41:13As part of
41:13Tax evasion schemes
41:15Jerry Rowe
41:17Heads the IRS
41:18Criminal division
41:19That looks into
41:19Tax fraud
41:20Tell me how a
41:21Basic scam
41:23Might work
41:24Well if you want
41:25To take as a
41:26Case example
41:26Let's look at
41:27A case in
41:28New England
41:29That involved
41:29An owner of a
41:30Dairy store there
41:33Howdy partners
41:34Welcome to
41:35Stu Leonard's
41:36Country Hoedown Show
41:38Stu Leonard's
41:42Dairy store
41:43Was Connecticut's
41:44Biggest tourist
41:45Attraction
41:45Part supermarket
41:53Part theme park
41:55It was a
41:56Marketing miracle
41:56Catchy gimmicks
42:04Lured customers
42:05And their children
42:08Its owner
42:12Stu Leonard
42:13Was given an
42:14Award for
42:14Entrepreneurial
42:15Excellence by
42:16President Reagan
42:17When they come
42:21In here
42:22I have this
42:22Concept that
42:23They're right
42:24And I want
42:25To please them
42:26Because they're
42:27Going to come
42:27Back
42:27And our whole
42:29Policy here
42:30Is to make
42:30A lifetime
42:31Customer
42:31The store
42:33Was making
42:34Millions of
42:35Dollars
42:35Every year
42:36Then in
42:371991
42:38Customs agents
42:40Searched a
42:40Passenger
42:41About to board
42:41A flight to
42:42St. Martin
42:42In the
42:43Caribbean
42:43The authorities
42:47Discovered the
42:47Passenger had
42:48Altered a
42:48Currency report
42:49And was secretly
42:50Trying to take
42:51$70,000 in
42:52Cash out of
42:53The country
42:53The passenger
42:55Was Stu
42:56Leonard
42:57It was the
43:01Beginning of
43:01The end
43:02For Leonard
43:02The IRS
43:03And the
43:04United States
43:04Attorney's
43:05Office
43:05Started to
43:06Dig into
43:06His taxes
43:07We know
43:08That they
43:09Skimmed over
43:10$17 million
43:11In cash
43:13And we
43:14Estimate
43:15For the purpose
43:16Of the case
43:17At least
43:17That approximately
43:18$6.7 million
43:20In taxes
43:21Was lost to
43:22The government
43:23While they
43:23Were conducting
43:24This
43:24For 10
43:26Years
43:26Leonard
43:27And his
43:27Accomplices
43:28Used a
43:28Sophisticated
43:29Computer
43:30Program
43:30To under
43:31Report the
43:32Amount of
43:32Money the
43:33Dairy store
43:33Was making
43:34And then
43:35Smuggled the
43:35Skimmed cash
43:36Offshore
43:36Amounts went
43:40At one time
43:40From $10,000
43:42Up to $250,000
43:43They were
43:44Taken out
43:45Of the
43:45Country
43:45On numerous
43:46Occasions
43:47Taken on
43:47Their
43:48Persons
43:48Taken in
43:49Briefcases
43:49Taken in
43:50Suitcases
43:50Even on
43:52Some occasions
43:52They were
43:52Taken inside
43:54Gifts
43:55Or what
43:55Appeared to
43:55Be gifts
43:56Baby gifts
43:56Other kinds
43:57Of gifts
43:57Once the
43:59Money got
43:59To French
44:00St.
44:00Martin
44:00It quickly
44:01Became
44:02Untraceable
44:03We do
44:04Know that
44:04They were
44:04Taking out
44:05Large sums
44:06Of cash
44:06Repeatedly
44:07We also
44:08Know that
44:08They had
44:09Extensive
44:10Holdings
44:10In St.
44:11Martin
44:11Mr.
44:13Leonard
44:13Built
44:13A palatial
44:14Estate
44:15In St.
44:15Martin
44:15Called
44:16Carpe Diem
44:17He
44:17Built
44:18Four
44:19Condos
44:20Apartments
44:20For his
44:21Children
44:22So we
44:23Know that
44:23He's
44:23Invested
44:24A lot
44:24In the
44:25St.
44:25Martin
44:25Economy
44:27Investigators
44:30Still don't
44:30Know exactly
44:31How much
44:31Cash
44:32Leonard
44:32Took to
44:33St.
44:33Martin
44:33There really
44:35Is no
44:35Way
44:36That we
44:36Have
44:37Now
44:37To trace
44:38A bank
44:39Transaction
44:40In St.
44:41Martin
44:41Like we
44:42Do here
44:42In the
44:43United
44:43States
44:43We can
44:45Run into
44:45Difficulty
44:46Not because
44:47A country
44:48Is unwilling
44:48To cooperate
44:49But if
44:49Certain laws
44:50Prohibit
44:51The disclosure
44:51Of certain
44:52Financial
44:52Information
44:52We also
44:54Have no
44:54Legal authority
44:55To compel
44:55Witnesses
44:56Or to compel
44:56Documents
44:57To be
44:57Produced
44:58In a
44:59Foreign
44:59Country
45:00As a
45:01Matter of
45:01General
45:01Rule
45:02Stu
45:03Leonard
45:03Was sentenced
45:04To prison
45:05And ordered
45:05To pay
45:06A multi
45:06Million dollar
45:07Fine
45:07Well
45:08Well I
45:08I made
45:10A mistake
45:10I'm
45:12Very
45:12Sorry
45:12I
45:14Have
45:14Just
45:15Acknowledged
45:15That mistake
45:16In court
45:17And I'm
45:18Prepared
45:18To take
45:19The
45:19Consequences
45:20Leonard's
45:21Conviction
45:21Was the
45:22End of
45:22The
45:22Largest
45:23Computer
45:23Tax
45:23Fraud
45:24In
45:24American
45:24History
45:25Is this
45:26The tip
45:26Of the
45:26Iceberg
45:27I guess
45:27A lot
45:28Of times
45:28You just
45:28Don't
45:29Know
45:29What you
45:29Don't
45:29Know
45:30But
45:31It's
45:32Our
45:33Environment
45:33Our
45:33Economic
45:34Environment
45:34Is one
45:35That lends
45:35Itself
45:36To these
45:36Type
45:36Cases
45:37We have
45:38People
45:39That
45:39That have
45:40Cash
45:41Businesses
45:41Whether
45:41It's a
45:42Grocery
45:42Store
45:42Or a
45:43Restaurant
45:43Or a
45:44Bar
45:44Cash
45:46Is
45:47Generated
45:48And can
45:49Be
45:49Can be
45:50Smuggled
45:50Outside
45:50Of the
45:51Country
45:51For
45:54Law
45:54Enforcement
45:54Agencies
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56:16videocassette
56:17information
56:17about this
56:18program
56:18please call
56:19this
56:19toll-free
56:20number
56:201
56:21800
56:22328
56:23PBS
56:231
56:24This is
56:34PBS
56:34Yes
56:35for
56:36For
56:37To
56:37For
56:38To