1984- Making the Cash Connection

A transformative year for combating money laundering

Years ago,  during a transformative time Apple Computers introduced the Macintosh, which revolutionized the way people interacted and embraced technology. The Space Shuttle Discovery took off on its maiden voyage and over its lifetime gathered more space flight time than any spacecraft to date. Michael Jackson released his landmark music video, Thriller, which dramatically raised the bar on the scale and ambition of music videos to come. The trendsetting band, U2, landed their first top 40 hit in the U.S. and Ronald Reagan, the folksy former Hollywood star—known as the great communicator—was reelected as president.  

The year 1984 marks the height of the 80s, a period in pop culture of bold ideas in music, fashion and big hairstyles. Perhaps the band Franky Goes to Hollywood summed up the boldness of the year by telling the world to just “Relax” and “Go to it.” The audacity of expressiveness in the U.S. certainly did not harmonize with George Orwell’s oppressive prediction of the year in his classic book, Nineteen Eighty-Four. 

However, 1984 was not all fun and games. That year, a smokable form of cocaine was first introduced in the Los Angeles area and soon grew to be a nationwide scourge commonly referred to as the crack epidemic. Street gangs were the purveyors of this highly addictive substance that energized crack users to jack up the crime rates as they fed their habits.   

The country was swimming in an abundance of Colombian cocaine. Miami, Florida was the poster city for cocaine-fueled violence. Cartel minions were routinely gunned down in daylight as constant turf battles erupted. It was akin to the Prohibition era where gangsters like Al Capone outfitted with Tommy guns openly warred with rival gangs. In an unsettling juxtaposition, as the violence hit an all-time high, so did the sales of businesses that catered to those with an insatiable appetite for luxury goods. 

In Miami, life was good—economically speaking—for those selling Ferraris, Rolexes or high-end speedboats. Miami cocaine traffickers were creating such a demand for luxury automobiles that no car dealer sold a vehicle for less than full retail price. These cocaine cowboys were living—in plain view—a life of extraordinary decadence, making Wall Street tycoons look like spending prudes. The dirty cash abundance also gave the traffickers a competitive advantage. According to Robert Hoelscher, a Miami-Dade County police sergeant, "We were out-equipped. They had better aircraft. They had bigger, faster boats. They had automatic weapons. We were outgunned in many respects."[1]

Following several well-published stories of drug dealers enjoying expensive cars and yachts, Congress made the cash connection and enacted the Revenue Protection Act of 1984.[2]The law required trades or businesses to file a Form 8300 with the IRS whenever a patron paid $10,000 or more in currency. Support for the law was also buoyed by concerns of the growing Tax Gap, the amount of aggregate estimated tax from the underground cash economy that does not make it to the tax returns each year. Today, it stands at over $300 billion annually.  

In 1984, Rudy Giuliani and his team of FBI and IRS investigators made the cash connection when their work led to the indictment of 38 individuals tied to one of the largest heroin smuggling rings in the U.S. and Europe which involved the La Cosa Nostra and the infamous Bonanno crime family. The case was known as the “Pizza Connection” given that the traffickers used pizza parlors across the country to distribute the drugs. The massive criminal enterprise was facilitated by a well-organized money-laundering machine that regularly moved duffle bags of cash through financial institutions, eventually landing in Italy and Switzerland. More odiously, investigators discovered that some big banks warmly embraced doing business with highly suspicious actors, even arranging for security to personally escort the criminals from their hotel rooms to the bank. 

The Pizza Connection was just one of many concerning instances leading up to 1984, when bank officials turned a blind eye and transformed into money laundering collaborators. These scandalous stories included the Great America Bank, which laundered $94 million of narcotic proceeds and willfully failed to file 406 currency transactions reports (CTRs); the Pan American International Bank, whose chairman told an IRS undercover agent posing as a corrupt Mexican official that no CTRs would be filed on Latin American customers because the bank wanted to attract business; and international bank Deak-Perera, which had the temerity—after being notified they were under investigation—to continue to launder approximately $97 million by failing to properly report on CTRs. 

In 1984, several law enforcement agencies and the intelligence community collaborated on a study to seek the international cash connection. This study determined that $5 to $15 billion of the $50 to $75 billion in illegal drug money generated each year is laundered into the international financial channels. About a third of the illicit proceeds leaving the country was done by couriers physically transporting bulk currency and the remaining two-thirds was wired offshore after being placed in U.S. financial institutions. 

Enter the Crockett and Tubbs

A widely popular TV series made its debut in 1984. Miami Viceis arguably one of the most iconoclastic shows of all times. According to fashion-conscious magazine TheRake, the show was a “groundbreaker musically, aesthetically, stylistically, automotively, and a precursor for the spate of high-gloss cinema-quality television now on our screens.” Only those who watched Miami Vice were card-carrying members of the in-crowd. Rake stated that, “Miami Vice remodeled our sense of cool and helped turn America’s murder capital into one of its centers of chic.”[3]

Miami Vice told the story of undercover detectives—James "Sonny" Crockett and Ricardo "Rico" Tubbs—and their never-ending battle with ruthless and cash-rich drug dealers. To give Crockett and Tubbs the necessary cover to blend in with those of illicit wealth, the police department outfitted the detectives with high-end autos and yachts seized from cartel members. Most of the episodes ended in a crescendo of gun violence, often resulting in dead drug dealers, as Crockett and Tubbs brought another criminal ringleader to justice.  

Miami Vicewas clad with cynicism for the war on drugs, a war first proclaimed by President Richard Nixon in 1971 as the counterculture gravitated to mind-altering substances. However, Miami Vice was not battling peace-loving hippies but rather ruthless cartel thugs who had no compunction in discharging bullets to keep their empire a going concern.   

The “whack-a-mole” concept was a reoccurring Miami Vice theme. As one trafficker was taken down, several others would pop up to take their place. To the 19 million plus viewers of Miami Vice, the war on drugs seemed to be a futile, losing battle.  The constant imagery of luxury—where criminals lived in guard-gated estates and owned multiple Ferraris—probably pushed the public to make the cash connection that criminals could spend lavishing with impunity. 

The president’s commission on organized crime

In the backdrop of epic drug-related violence and a popular weekly series reminding the public of the dire state of the war on drugs, the President’s Commission on Organized Crime issued a bold report on the state of criminality in the U.S. titled, The Cash Connection: Organized Crime, Financial Institutions and Money Laundering in October 1984. What made the report so audacious? It was the first time that the federal government officially recognized the widespread menace of money laundering.   

In the report’s cover letter to President Ronald Reagan, the chairman of the commission, federal judge Irvin Kaufman, stated that he has “become increasingly dismayed by the virtual impunity with which organized criminal enterprises and their members and affiliates ‘launder’ the proceeds of their illegal activity through financial institutions in this country and abroad.” Espousing further the dire state of unbridled money laundering, Kaufman said that the, “abuse of our financial system by career criminals has become a nationwide affliction and thoroughly deserves the condemnation it has received from law enforcement officials and members of the business community.”[5]

Perhaps Kaufman’s boldest statement: “Money laundering is the lifeblood of organized crime.”[6]

The cash connection findings

Though the report acknowledged that the Bank Secrecy Act (BSA) has been a “potent weapon against money laundering activities,” the commission concluded that there are aspects of the law that have encumbered BSA’s effectiveness. As the report reads, “willful violations of the Act are not stringent enough to accomplish their intended purpose, and the felony provisions of the act can be applied in [and] only in extremely limited situations.”[7]

The commission expressed a concern that the BSA had a diminutive ability to dissuade bank representatives from willfully providing money laundering services to bad actors. As the report stated, “Even though money launderers have corrupted, or attempted to corrupt, officials and employees of numerous financial institutions in conducting their money laundering activities, the Act (BSA) provides neither civil nor criminal penalties for such conduct and the penalties under the existing federal criminal statue on bribery of bank officials are far too lenient.”[8]Clearly, the commission desired not only to bring money launderers to appropriate justice but also complicit bank officials.   

The report stated that the effects of money laundering are “too pernicious and too widespread” to uphold the belief that a “highly limited scheme of Federal regulations, standing alone, will suffice to deal with the problem.” As it relates to the integrity of the U.S. financial system, the commission believed that the activities of money launderers, by corrupting officials and facilitating their criminal enterprises, had a “deleterious effect upon the financial community.”[9]  

To keep the financial system safe from abuses and to give law enforcement a potent weapon to combat widespread money laundering, the commission recommended that the federal government “must strike directly at the heart of the problem by making the use of financial institutions by money launderers a criminal offense.”[10]

Similar to the intent of the Racketeer Influenced and Corrupt Organizations Act (RICO)—enacted in 1970, the same year as BSA—the commission contemplated a criminal statute that would entwine the broader conspirators, the money launderers. They recognized that the “ingenious techniques of professional money launderers,” coupled with coopted bank officials could allow drug traffickers to “conduct illegal activities with substantial confidence that the profits from such activities can be safeguarded from detection and seizure by law enforcement agencies.”[11]   

The proposed criminal statute

For the reasons stated in the report, the commission recommended that Congress should amend Title 18 of the U.S. Code to add a bold new statute titled, Laundering of Monetary Instruments. The novelty of the proposed law was that it criminalized the act of conducting, or causing to be conducted, a banking transaction with the intent to “promote, manage, establish, carry on, or facilitate” any unlawful activity.

More concerning to bank officials and venders of luxury goods was the second prong of the proposed law which incriminated circumstances where someone conducted, or caused to be conducted, a banking transaction “with knowledge or reason to know that such transaction represents ‘income derived, directly or indirectly, from any unlawful activity.’”[12]So, if a car dealer deposited cash into a bank knowing it represented the sale of a car to a drug trafficker, the car dealer could be prosecuted for money laundering even though the car dealer did not intend to “promote, manage, establish, carry on, or facilitate” the unlawful activity.[13]     

As the committee members described the potency of the recommended law, “such legislation would give federal law enforcement agents clearly defined authority to investigate money laundering activities from the customer’s side of the teller’s window.”[14]

Enter 1986

By 1986, Miami Vicewas at the height of popularity and influence. So many men wanted to copy the half-shaven look of Don Johnson—the actor that played Crockett—that specialized razors were marketed to replicate his designer stubble.  Consumer demand for the handgun used by Crockett was so intense the manufacturer was unable to meet orders and went bankrupt. And sales of the Wellcraft SCARAB 38’—the speed boat used by Crockett and Tubbs to chase down traffickers—increased by 21 percent, influencing the company to sell exact replicas of the boat used on the show.[15]

In 1986, first lady Nancy Reagan and her husband appeared in a nationally televised event to kick off the first lady’s “Just Say No” to drugs campaign.[16] In addition, that year President Ronald Reagan sent a resounding messaging of “Just Say No” to money laundering by signing into law the Money Laundering Control Act (MLCA) of 1986.  

Congress has a proclivity to denuder or simply euthanize proposed legislation but such was not the case for the Cash Connection report. The MLCA enacted the criminal statutes of Title 18, Sections 1956 and 1957, which in substance encompassed the salient provisions of the proposed law recommended by the commission. Far from watering down the commission’s intended punitive effect, the MLCA also included provisions to seize property derived from illicit activity, even through a civil proceeding.    

One might argue that the MLCA may have looked a bit Orwellian at the time, given the contemplated intrusions into personal financial dealings. In essence, a person can go to prison even though they had nothing to do with the commission of the underlying crime. Furthermore, a person could have their assets seized civilly based on the preponderance of evidence then bear the responsibility to prove such assets were not purchased with dirty money. 

However, there is little evidence that the MLCA drew substantive concerns. It was passed without significant debate or delays. Whether Miami Vice played a role enhancing legislators’ ability to see the “deleterious” effect of money laundering and the need for a new financial weapon on the war on drugs is of conjecture. Arguably, Miami Vicedid reinforce the public’s image that law enforcement appeared to “out-gunned.” And it is not conjecture that President Ronald Reagan, the former television star, was eminently aware of influential power of television.  

Final thoughts

Based on the succession of significant money laundering convictions of high profile criminals and their money launderers, the MLCA has proven far more productive than RICO in roping in those that facilitate and conspire with criminal organizations. Cartel kingpins, terrorists, politicians, Ponzi schemers, fraudsters and bank officials all have met their demise through the MLCA. The MLCA gave law enforcement an upper hand not only in the war on drugs, but also in bringing America’s criminal elect and their collaborators to justice.

Yes, the year 1986 is seminal given the enactment of the MLCA, but the year 1984 is when the U.S. made the cash connection.     

[1]Curt Anderson, “‘Miami Vice’ Film Reminds of Cocaine Past,” Washington Post, July 18, 2006, https://www.washingtonpost.com/wp-dyn/content/article/2006/07/18/AR2006071801292.html

[2]Matthew P. Harrington and Eric A. Lustig, “IRS Form 8300: The Attorney-Client Privilege and Tax Policy Become Casualties in the War Against Money Laundering,” Hofstra Law Review, 1996, https://scholarlycommons.law.hofstra.edu/cgi/viewcontent.cgi?article=1934&context=hlr

[3]Christian Barker, “The Miami Vice Effect,” The Rake, November 2016, https://therake.com/stories/icons/the-miami-vice-effect/

[4]“Miami Vice,” Story Entertainment, December 6, 2010, https://www.storyentertainment.com/ow/ow.asp?MiamiVice

[5]“The Cash Connection: Organized Crime, Financial Institutions, and Money Laundering,” President’s Commission on Organized Crime, October 1984, https://www.ncjrs.gov/pdffiles1/Digitization/166517NCJRS.pdf

[6]Ibid.

[7]Ibid.

[8]Ibid.

[9]Ibid.

[10]Ibid.

[11]Ibid.

[12]Ibid.

[13]Ibid.

[14]Ibid.

[15]“Influence of Miami Vice,” Miami Vice Wiki, https://miamivice.wikia.com/wiki/Influence_of_Miami_Vice

[16]“Nancy Reagan Introduces ‘Just Say No’ Campaign,” History, September 14, 1986, https://www.history.com/speeches/nancy-reagan-introduces-just-say-no-campaign