Meyer Lansky: The Godfather of money laundering

This article was originally published in ACAMSTODAY Magazine for Money Laundering Professionals in their December 2015–February 2016 | Vol. 15 No. 1 edition

In 2015, the heirs of reputed gangster, Meyer Lansky, announced their intent to seek compensation from the Cuban government for the nationalization of the Riviera hotel by Fidel Castro back in 1959.[1]  The once elegant and prestigious casino is one of the last remaining vestiges of an empire ruled by an influential crime boss cloaked in intrigue. If all that has been printed is true, Lansky was the chairman of the board of a global enterprise churning out copious profits from illegal alcohol, casinos, racketeering and the distribution of drugs. Lansky’s alleged wealth, echoed repeatedly by journalists, approached $300 million, and is supposedly pocketed tightly away in Swiss accounts far from the prying eyes of law enforcement. To be fair, Lansky denied such riches but in his own words he said, “I admit quite frankly I made a fortune from bootlegging.”[2]

Lansky was the FBI and IRS’ great white whale and they tailed and bugged him relentlessly. One day the feds overheard a doozy of a statement. While in a hotel room watching a news report on the extent of organized crime, Lansky quipped, “We are bigger than U.S. Steel.” Lansky denied he uttered that exact phrase and the FBI did not record the conversation. Nevertheless, those six words branded them as gangsters for the rest of their lives.  In the movie, The Godfather, the character of Hyman Roth—a stately and successful syndicate leader—is said to be based on Lansky. The obvious clue being Roth said word for word in the movie “We are bigger than U.S. Steel.” For Hollywood, the story of Lansky was made for the big screen, or maybe vice versa. 

Born in 1902, his close associates included a who’s who list of American gangsterdom—all of which looked toward Lansky for his sound gangster wisdom. Lansky even had a vibrant partnership with the most famous gangster in the world, Al Capone. While Capone was violent and ruthless, Lansky was smart and methodical. Known as “the thinking man’s gangster,” Lansky’s gift was innate mathematical prowess. Other gangsters marveled at his ability to effortlessly solve equations in his head and remember the slightest of figures.[3]   

Having no better calibrated moral compass, Lansky did, however, disdain senseless killings. Murders only brought public outrage and law enforcement heat. Lansky knew that those in position of trust had little fortitude to control their greed. Graft was a much better influencer than the Tommy Gun. Lansky firmly believed that when everyone gets their fair share, contentment abounds and business flourishes.[4] 

Lansky brought the science of business management to organized crime. As acclaimed Investigative Journalist Sally Denton put it, “He organized crime along corporate hierarchical lines, delineated authority and responsibly, holdings and subsidiaries, and more important, meticulously distributed shares of profits and proceeds, bonus and perquisites.”[5] Lansky was also the prophet that enlightened mobsters to the gospel of hiding ill-gotten gains. In other words, he saved them from the cops hunting down their money trails.  

A consummate collaborator, it was only natural that Lansky would partner with trusted friends from his  youth street gang days—such as Lucky Luciano and Bugsy Siegel—to exploit the misguided 18th Amendment to the Constitution prohibiting the sale of alcohol. Luciano and Siegel would go on to achieve gangster notoriety and both owed their downfalls to forsaking Lansky’s sage advice.    

At first they opened a front company—a car and truck rental garage—with pristine books and some actual customers in case anyone questioned their unexplained cash. But as the currency piled in, the rental business was no longer adequate cover. Even back then depositing large amounts of currency could draw the attention of lawmen, especially the tenacious Treasury agents referred to as the T-MEN. Necessity, the mother of invention, propelled Lansky to devise schemes to keep the cash out of the banks and simultaneously create a fa?ade of legitimacy.[6]

Bankers back then were reluctant to lend money to the garment industry, which were mostly struggling immigrant shops. The industry did not work on preorders so they needed quick capital to make product to sell. Lansky saw a money laundering opportunity in the bankers’ mistrust of foreigners and the industry’s need for constant short-term loans. Lansky took his illicit cash and lent it to the clothing manufactures. And when the inevitable came—the inability to pay back the loan on time—instead of breaking legs, Lansky made them an offer they could not refuse: to turn over a portion of ownership and profits.[7] Lansky now had the appearance of a clothier. 

When Capone and New York’s public enemy number one—infamous gangster Waxey Gordon—were convicted on tax evasion, Lansky realized that Treasury developed a doomsday machine that could obliterate men of his ilk. During his closing arguments, even Capone’s defense attorney admitted the inevitability of tax convictions on gangsters when the T-MEN came calling. “I have no illusions about what is going to happen in this or any of the so-called gangster cases.”[8] 

Capone thought he had the upper hand by not letting his name appear on any document or ledger.  Waxey was more sophisticated with hundreds of bank accounts that layered transactions to obfuscate the money trail. But federal law enforcement were getting better at the art of following the money. And both Capone and Waxey unwittingly exposed a big fat Achilles’ heel—the ostentatious enjoyment of ill-gotten gains. The T-MEN tediously calculated how much both spent on expenditures including skirts, suits and underwear.[9] It was dubbed the silk drawer approach—proving income indirectly through living expenses. 

For Lansky, the misfortunes of Capone and Waxey served to solidify the formation of his money laundering principles. First, use shell companies and front men that on paper owned and controlled operations. Second, portray a man of modest means by avoiding lavish spending, big houses and flaunting wealth. Third, never neglect to file tax returns showing income that squares with the life of moderation. Fourth, move the bulk of the profits skimmed from the tax returns to offshore havens such as Switzerland. And the fifth, the superior principle, practice unwavering self-control by not letting vanity, greed and a pursuit of power overtake your gangster facilities.     

As the T-MEN unleashed their wrath, Senator Huey Long—a populist presidential candidate and one of the largest recipients of Lanksy’s graft—was in a desperate need for a money laundering solution. The T-MEN were hot on his money trail and Long was feeling the feverous heat. Lansky offered Long a numbered Swiss bank account with $3 million, the annual cost of doing business in his state. Lansky told Long that no one would be able to identify the true ownership and the bank would only give authority to the person with the correct password. Lansky admonished Long to never write down the password.[10]   

Years prior to the repeal of Prohibition, gangsters had the forethought to nurture healthy income streams from other vices. Casinos were Lansky’s play on vice. They were referred to as “carpet joints,” illegal gambling operations tucked away in rural countries where the sheriff was the overlord and rather nonchalant about controlling illegal gambling when properly compensated. Before Lansky got into the casino business, most illegal gaming operations were known as “clip joints,” where games were rigged to fleece patrons. This was not Lansky’s style. The calculus was easy; the house always wins and the reputation of an honest casino would bring the masses through the doors. To this end, Meyer ensured his casinos provided patrons with an honest game, nice meal and entertainment.[11]

In the areas where Lansky set up his carpet joints he became the Santa Claus of graft-spreading joy to all those who could complicate matters. One clever way Lansky allowed county officials to avoid the appearance of impropriety coalesced around court fines. Municipal court records shows a dramatic increase in civil fines that coincide with the establishment of a Lansky operation. It seems the same group of Lansky associates were charged repeatedly for disorderly conduct but none ever made their court appearance, conveniently allowing the assessment of a hefty nonappearance fine.[12] These financial transactions that served to promote Lansky’s criminal operations would have been violations of federal money laundering laws if enacted back then. 

None of Lansky’s casinos where ever titled in his name. Lansky handpicked crews well-versed in casino operations to serve as front operators, trusted men paid equitably to ensure their loyalty. Lansky was the behind the curtain guy. A Wizard of Oz of sort, covertly pulling the strings to ensure maximum efficiency but never acknowledging his freehold.[13] 

Las Vegas, the only state in the Union that legalized gambling, poised an alluring opportunity for Lansky.   By the 1940s, Lansky’s collaboration with other crime bosses grew into what law enforcement called  “National Crime Syndicate.”[14] Lansky and his syndicate had a secret ownership interest—commonly referred to as “points”—in several Vegas casinos from which they methodically skimmed profits.  Lansky ensured the skim was proportionate and not aggressive, so that the casino covered expenses and showed moderate profit. Lansky then made certain each of his fellow syndicate bosses were paid their respective booty based on their points. Lansky even organized their figures to report to the IRS for his fellow syndicate leaders.[15] 

Lansky continued to evolve his money laundering as money flowed in from his carpet joints and Vegas casinos. Bagmen with suitcases brimming with skimmed profits couriered the cash around the country and then ultimately to Swiss banks. One of his couriers was a Swiss citizen giving him easy access in and out of the popular haven. Another was given the moniker “the lady in mink” because she liked to dress exceedingly well on her syndicate delivery excursions.[16]   

Numerous shell corporations were used to cloud the money trail and once they were sufficiently layered these overseas companies would lend money back to front entities. No financial trailing was left exposed to inquisitive auditors. The front companies even paid interest and deducted the amounts accordingly on the tax returns which caused the government to unwittingly subside Lansky’s operations through write-offs. Lansky’s official biographer explains it as “a financial maze that was virtually impenetrable.” [17]

In the early 1950s, the Kefauver Committee—a U.S Senate committee enacted to determine the scope of organized crime—brought much unwanted public attention to the conflagration of criminal enterprises exploiting vice across the country. Some of the witnesses subpoenaed before the committee were Lansky’s associates or recipients of Lansky’s under-the-table patronage. The Committee directed the T-MEN to spearhead a racketeering task force that led to the convictions of corrupt sheriffs and noteworthy gangsters such as Frank Costello and Mickey Cohen.[18] 

The Kefauver Committee forced Lansky to appear three times and in their final report to Congress named Lansky the leader of an “East Coast Crime Syndicate.” Other than the pejorative mention in the final report, Lansky walked away unscathed from criminal charges but that was too close for comfort. The Kefauver hearings served as another teaching moment. Lansky realized that the only way to fend off another inquisition was to move his operations outside the jurisdiction of the U.S.[19]   

Lansky was introduced to the Caribbean islands back in the 1920s when he and fellow gangsters traveled there to meet with European distillers who conveniently built distribution centers on the islands soon after the enactment of Prohibition.[20] By the late 1920s, the islands also became a hot bed of financial activity for wealthy Americans not interested in paying their fair share of taxes. These tax dodgers sought the services of Bahamian attorneys and banks to establish accounts and shell entities.[21]

The Bahamas, in particular, became so desirable for tax cheats that at one point banks ran out of vaults and the walls of law practices inside and out were littered with name plates of shell companies. The flight of tax dollars became such a concern that Congress held hearings in 1937 publicly exposing several prominent citizens that used schemes devised by ingenious New York law firms. Treasury Secretary Henry Morgenthau Jr. publicly characterized the permissive financial behavior as “devices an honorable and conscientious citizen would [not] adopt.”[22] As the hearings demonstrated, many money laundering accoutrements were already in place for Lansky thanks to crafty attorneys.  

Cuba was Lansky’s bold move in the Caribbean. With close proximity to Florida, it became one of the most visited tourist destinations for Americans. The resident dictator, Fulgencio Batista, was well versed in the ways of graft and took to Lanksy’s payoffs in Swiss bank accounts like a fish to a baited hook. Moreover, in a twist of irony, Batista enlisted the crime boss to ensure casinos on the island provided an honest game. Cuba had received a good spout of negative press regaling Americans on how their casinos where actually clip joints rigged to fleece the throngs of unsuspecting visitors. Under Lansky’s watchful eye only operators Lansky trusted to run an honest game were allowed access to the island.[23]  

Cuba seemed so promising that Lansky decided to double down on Batista’s laissez-faire government.   Lansky was already doing brisk business with his Montmartre Casino but Lansky felt that in order to attract even more big-time gambles, a grand resort was in order. At a cost of $19 million, Lansky’s Riviera hotel was going to be the most luxurious resort casino in the world, rivaling anything in Vegas. Even though Lansky oversaw every aspect of the design in true Lansky tradition there were no paper trails to his hidden ownership. Lansky had only one official association with the Riviera: He held the lowly position of director of kitchen operations.[24]  

In 1957, the Riviera opened to a fanfare of movie stars, social elite and more importantly uber high rollers. The resort quickly manifested into Lansky’s vision of a vibrant, world class casino free from meddling law enforcement and regulators. But his exuberance was short lived. In an epic strategic failure, Lansky underestimated the swell of support for a young revolutionist by the name of Fidel Castro. In 1959, Castro’s coup seized power from Batista and forced casinos to close and the properties were nationalized.[25] It was a painful amputation of an income appendage Lansky was hoping to lean on. But the ever resilient Lansky licked his wounds, learned from his mistakes and focused his casino attention to other Bahamas islands.[26] 

The Swiss bank of choice for Lansky and other gangsters was the International Credit Bank (ICB) whose customers included “some of the most powerful members of the underworld in the United States.”  And through the ICB back entrance came the “most astonishing steam of couriers in the history of Swiss banking.”[27] To provide valued customer service, ICB established branches in the Bahamas easing the travel burden for underworld couriers.[28]

In the Bahamas it was Bank World of Commerce (BWC). To Lansky and his associates, BWC became a key generator of loans (the funds of which were used to invest in legitimate businesses including Florida hotels). The bank was established by his cronies and Lansky handpicked a close associate to serve on the BWC’s board of directors.[29] It only seems natural that an elite money launderer would progress to control a bank.  

In March 1971, federal investigators finally broke through Lansky’s complex web of hidden money trails and were poised to indict him on two counts of tax evasion.[30] But Lansky had a strong premonition that the FBI and IRS were closing in so he fled to Israel and applied for citizenship. Prodded by information from U.S. law enforcement, Israel eventually denied Lansky's citizenship. Dejected and in increasing poor health, Lansky begrudgingly made his way back to the U.S. to face the charges.[31] 

With the news of the indictments, the press worked themselves up into a speculation frenzy. The Associated Press called Lansky the “reputed financial genius of the underworld” and the Miami Herald gave him the lofty title of “Gangland Finance Chairman.”  But with all the media hype, a Miami jury thought otherwise and acquitted Lansky of the first tax evasion count.[32]

The second tax evasion count involved skimmed profits from the Las Vegas Flamingo Hotel and Casino.  Lansky’s attorney successfully motioned the court to have the trial moved to Nevada given the bulk of the evidence resided in Vegas.  As the trial approached, Lansky’s attorneys informed the court that their defendant was too ill to travel across the country. Attorneys on both sides argued the matter for several years and finally the Nevada Judge ordered the case dismissed based on the government’s own physicians opining that Lanksy was in no physical condition to withstand the vigor of travel and trial.  Rumors abound that the kingpin paid someone off but it was never remotely proven. Now it was law enforcement licking their wounds and residing to the fact that the kingpin would go to his grave—as one FBI agent put it—“laughing that he whipped us all.” [33]

Lansky finally passed away on January 15, 1983, with the outward appearance of a man living his last days almost destitute unable to fund his severely disabled son’s care.[34] Much can be speculated on Lansky's involvement in organized crime. To what extent was the size and scope of the syndicate’s larcenous empire? Did Lansky really possess a mountainous fortune—the legendary $300 million? Was there an agreement that all his fortunes were to go to syndicate leaders rather than family? Or, was his money so tightly laundered away through a network of entities and front men that he ultimately lost control and access over time? These questions—to date—are left unanswered. 

Lansky did not invent the complex money laundering schemes that became the gold standard for criminal enterprises. This credit probably goes to New York attorneys back in the 1920s eager to assist tax dodgers.[35] But the evidence is much less speculative that Lansky was a transformative figure in gangsterdom. Without Lansky, organized crime would not have effectively industrialized. And more importantly, crime bosses would have been sitting ducks with their exposed money trails. But Lansky shared his money laundering principles, taught them the ways of effectively hiding cash and making ill-gotten gains work for them through legitimate ventures. In this sense, Lansky was the underworld’s Godfather of money laundering.  

Paul Camacho, CAMS, vice president of AML compliance, Station Casinos LLC, Las Vegas, NV, USA, [email protected]

[1] Daniel Trotta, “Heirs of Meyer Lansky Want Compensation for Cuban Casino,” Reuters, December 9, 2015, https://www.reuters.com/article/us-cuba-usa-lansky-idUSKBN0TS2U920151209

[2] Dennis Eisenberg, Uri Dan and Eli Landau, “Meyer Lansky: Mogul of the Mob,” 1979.

[3] Ibid.

[4] Robert Lacey, “Little Man Meyer Lansky and the Gangster Life,”1992.

[5] Sally Denton and Roger Morris, “The Money and The Power,” 2001.

[6] Robert Lacey, “Little Man Meyer Lansky and the Gangster Life,” 1992.

[7] Dennis Eisenberg, Uri Dan and Eli Landau, “Meyer Lansky: Mogul of the Mob,” 1979.

[8] “Start Closing Arguments in Capone’s Trial,” Chicago Daily Tribune, October 16, 1931.

[9] Elmer Irey, The Tax Dodgers: “The Inside Story of the T-Men’s War with America’s Political and Underworld Hoodlum,” 1948.

[10] Dennis Eisenberg, Uri Dan and Eli Landau, “Meyer Lansky: Mogul of the Mob,” 1979.

[11] Ibid.

[12] Robert Lacey, “Little Man Meyer Lansky and the Gangster Life,” 1992.

[13] Ibid.

[14] Senate Committee, “Kefauver Reports,” 1951.

[15] Robert Lacey, “Little Man Meyer Lansky and the Gangster Life,” 1992.

[16] Dennis Eisenberg, Uri Dan and Eli Landau, “Meyer Lansky: Mogul of the Mob,” 1979.

[17] Ibid.

[18] Hank Messick, “Secret File,” 1969.

[19] Dennis Eisenberg, Uri Dan and Eli Landau, “Meyer Lansky: Mogul of the Mob,” 1979.

[20] Hank Messick, “Syndicate Abroad,” 1969.

[21] “Tax Dodgers’ Are Named At Joint Inquiry,” Christian Science Monitor, June 18 1937.

[22] Chicago Daily Tribune,“The C.I.O And The Tax Investigation,” June 24, 1937.

[23] Robert Lacey, “Little Man Meyer Lansky and the Gangster Life,” 1992.

[24] Ibid.

[25] Ibid.

[26] Hank Mesick, “The Syndicate Abroad,” 1969

[27] Dennis Eisenberg, Uri Dan and Eli Landau, “Meyer Lansky: Mogul of the Mob,” 1979.

[28] Ibid.

[29] Ibid.

[30] Robert Lacey, “Little Man Meyer Lansky and the Gangster Life,” 1992.

[31] Dennis Eisenberg, Uri Dan and Eli Landau, “Meyer Lansky: Mogul of the Mob,” 1979.

[32] Robert Lacey, “Little Man Meyer Lansky and the Gangster Life,” 1992.

[33] Ibid.

[34] Dennis Eisenberg, Uri Dan and Eli Landau, “Meyer Lansky: Mogul of the Mob,” 1979.

[35] CHICAGO DAILY TRIBUNE, JUNE 24 1937

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