“What do you think?” Chantal asked Luke. “It sounds quite ambitious to me.”
Luke stroked his chin and wondered about Chantal. Her melodious voice was low and cultured, holding a hint of the Caribbean. He was intrigued about her background, which obviously included the islands, along with a strong dash of New England. Boston, if he wasn’t mistaken.
When she raised a challenging brow at him, he grinned and returned to the discussion. “It is ambitious,” Luke agreed. “But I think if we apply the right kind of leverage to the weak links in the operation, the whole chain is going to fall apart. The plan is to set these guys up on federal felony charges like racketeering and money laundering, and make it clear that we have an airtight case. Then we give them the choice between two hundred years in federal prison or confessing to their crimes against Kelly in exchange for reduced sentences. They’ll be lining up to plead guilty to the rape charges.”
“We hope to offer these reductions in the federal charges with the agreement that the defendants will do the full time for state charges regarding the rape and kidnapping of Kelly Maarten,” Tessa continued. “The defendants will still do plenty of time behind bars, but it will be a moral victory for Kelly and other victims like her. We could even establish precedent with respect to these pimps who essentially treat young girls as sex slaves.”
“What about Detective Flynn?” Chantal asked.
Tessa’s mouth flattened. “Whoever set up that hit and carried it out gets a needle in his arm.”
“There’s not much sugar in that offer,” Chantal pointed out.
“It doesn’t matter. We’ll get others to implicate the person who arranged the hit by offering them the sweet deal, as you say. We just need corroborated testimony to do that.”
Luke nodded encouragingly, then looked at Chantal again. “We have the knowledge of what’s going on in that club, we just need to prove it so we have some bargaining power. That’s why we asked for your help.”
“Has the FBI agreed to this division of the defendants?” Chantal asked. “Usually they want criminals to face any federal charges first. By the time all is said and done, it’s not worth the time of the state to go after what’s left. Frankly, it’s often not even an option for the state to hold an expensive trial to prove that someone who is serving one hundred years in a federal prison is guilty of a sex crime that carries a sentence of five to eight years.”
“I know,” Tessa said. “That’s why I want to give the Feds several big fish in what we suspect is a racketeering operation and use them to negotiate for the state maintaining control of defendants like Sledge Aiken and Jerry Kravitz.”
“What about Roderick Hedges?” Chantal asked. “Is he not the biggest fish of all, aside from the organized crime family?”
Tessa sighed. “I’d like to have first crack at Ricky, but understand that just might not be realistic. We’ve got to compromise somewhere and offer the Feds a bone. Ricky may be the sacrificial offering, because the evidence to date hasn’t shown that he was personally involved in what happened to Kelly—but if I find anything to the contrary, then I want him to face state charges first.”
“Well the legal decisions are your call,” Chantal said as she took out a pad of paper for notes. “My job would be to give you the ammunition you need—the leverage, so to speak, to force a deal. Is that correct?”
“Yes,” Tessa nodded. “We understand that you were involved with the early stages of the multiagency task force. That could give us a huge advantage and will cut your learning curve.”
“And you did hear about how I left the previous task force? I guess it’s no secret that Special Agent Peebles and I despise one another. Such a small man, in more ways than one.” Chantal spoke slowly, her faint accent becoming more pronounced.
Tessa gave a feline smile. “The thought that you might have a bone to pick with the new head of the task force never entered my mind.”
Luke laughed quietly and shifted in his seat. He loved it when she got that smug look—it made him want to jump her bones right there on the conference table. Come to think of it, the last time he’d seen that particular expression on her face, she’d been sprawled across his bed.
When individual beads of sweat began to pop out along his forehead, Luke made a visible effort to restrain himself and focus on the conversation.
“So you know that Peebles and I disagreed on what the focus of the investigation should be, yes?” Chantal laughed, unaware of Luke’s internal struggle. “I don’t wish to sound arrogant, but if I’d remained on that team, they wouldn’t need any help from you and Mr. Novak. They would already have enough to charge all of the players involved.”
“What did Special Agent Peebles want to focus on?” Luke asked.
Chantal shrugged her shoulders beneath her elegant Ar-mani suit. “He had no respect for number crunchers, as he called the consultants with accounting backgrounds. He was enamored of subpoenas for wiretaps, undercover work, and other active surveillance tools. I’m sure he believed that these methods were much sexier than poring over balance sheets and income tax returns. But in doing so, Peebles lost sight of one very important thing.”
“Which is?” Tessa asked.
“The fact that the federal government will overlook many criminal acts, but it simply cannot abide those who cheat it out of tax revenues. Look at all of the organized crime figures who went to prison in the last seventy years—the vast majority were locked up on tax evasion or other financial charges. Accounting might not be sexy, but the tax laws are much more strongly enforced than any other legal codes on the books. That applies to criminals as much as upstanding citizens.”
“So all income is taxable, even illegal income?” Tessa asked.
“Absolutely. It’s not uncommon for drug dealers and others engaged in criminal acts to declare their profits honestly on tax returns out of fear of the IRS. So if the FBI gives you any trouble, you can threaten to talk to the Criminal Investigation Division of the Internal Revenue Service. I’m sure they’d be happy to get involved.”
Tessa nodded. “We’ll keep that in mind as a backup plan. For now, I want to give the FBI a chance to play nice. Where do you recommend that we start in terms of the financial information on Club Red, Inc?”
“First of all, we need to prove that money laundering is actually taking place as you suspect. There are certain legal requirements to establishing this, namely that the defendants are attempting to take profits gained from specified unlawful activities and ‘launder’ them so that the funds appear to be legitimate revenue.”
Luke spoke up. “We have a bunch of specific examples. Take Jerry Kravitz, who last year spent five hundred thousand dollars cash on a house. But when we looked into it, we found he only declares an income of fifty thousand dollars a year on his tax returns, money he earns as a sports announcer.”
“Perfect.” Chantal nodded. “This is a tip-off that the money he spent isn’t from legitimate sources. Maybe he underdeclared his legitimate income, in which case he is guilty of tax evasion. Or he has another source of income that he’s hiding, which would be my guess in this case. But this is an example of an individual engaged in lucrative illegal activities. I think you are more interested in a whole company based on this concept, because the penalties are much harsher. It becomes a conspiracy, punishable by strict sentencing requirements and seizure of assets, with fairly limited burdens of proof on the part of the government.”
Tessa nodded. “So we look at Club Red, Inc. and charge that the entire business is based on illegal gambling, prostitution, drug sales, excise tax evasion for the liquor and cigarette violations, and so on.”
“Yes,” said Chantal. “Club Red, Inc. and all those responsible for managing the corporation engage in illegal acts, which generate high profits. But these profits have the stigma of their illegal origin attached to them, and law enforcement knows exactly how to prove this. So the profits must be laundered. This has to be done so the money can be sp
ent without the government being able to trace where it came from. Without this laundering of funds, the individuals and the criminal organizations can’t use their money, and it doesn’t do them any good.”
“We’ve already identified a list of illegal activities going on at Club Red, now what?” Tessa asked.
“Let me explain the most common steps of money laundering, and that will help us focus here on the best way to proceed,” Chantal said. “Do you have a pen for the whiteboard over there?”
Luke laughed when Tessa immediately opened her bag and pulled out six different colors of markers to use on the board. “I think you two are going to get along just fine. Tessa’s got a thing for whiteboards and diagrams.”
Chantal smiled and started drawing on the board. “It is very helpful to see things in schematic form, where they are more logical.”
Tessa gave him the Look, modified in this case to signify “So there.”
“There are three steps to money laundering in most traditional criminal organizations—placement, layering, and integration,” Chantal explained. “More specifically, we have placement of the illegal funds into the financial system, layering of these funds in a series of steps which distance the dirty money from its illegal source, and finally integration of the layered funds back into the national or international economy so that it is difficult to distinguish them from legitimately earned money.”
Tessa spoke up. “I’ve been reading up on money laundering, but most of the examples pertain to narcotics and smuggling. I don’t think that’s what we have here, at least not on a large scale. The mechanics of this case are very confusing.”
“Don’t worry, you are meant to be confused. The more complex the process, the easier it is for the criminals to continue undetected. Let me give you what I feel is a realistic example based on my review of Club Red’s books.” Chantal flipped the whiteboard over and began again.
“Thanks. I just want to be sure I know what I’m talking about when I meet with the FBI later.”
“You will. I will keep it simple, as long as you understand that there are as many ways to launder money as there are to earn the illegal funds in the first place. But we will focus on likely activities in this case, so let’s talk about the revenues we believe Ricky Hedges earns from illegal gambling and so forth. Let’s say that in a particular two-week period, Ricky earns five hundred thousand dollars by running card tables and sports-betting operations, as well as prostituting his women.”
Tessa winced at the phrase, thinking of Kelly.
“I’m sorry if I offend you,” Chantal said softly. “But it’s best not to sugarcoat the process.”
When Tessa nodded, Chantal continued. “Ricky has no way to declare these ill-gotten funds as legal profits because an audit of the club’s books would show that his legitimate sales cannot possibly account for a million dollars of profit in a month.”
“So he has an extra million bucks and no place to spend it. Poor guy,” Luke drawled.
“Indeed,” agreed Chantal. “It is a very frustrating situation. If he tries to spend the money, he risks an audit that could result in his losing his whole business. Government seizure laws are positively Draconian when it comes to racketeering and organized crime. So Ricky must launder these funds. But a million dollars is a lot of money, and doubtless it is mainly in small-denomination bills. He must have a way to get this money into the banking or financial systems without drawing attention to himself.”
“That much cash would be suspicious,” Luke pointed out. “And heavy. A million bucks in tens and twenties would weigh around three hundred pounds. Despite the movies, cash isn’t exactly a portable instrument in those sums.”
“He can’t just deposit the money?” Tessa asked. “Maybe in his personal accounts?”
Chantal shook her head. “The Federal Bank Secrecy Act, or BSA, requires that paperwork be filed for any deposits of $10,000 or more that banks receive. And the details from any such paperwork are then entered into a nationwide database—which has computer programs running algorithms designed to flag suspicious deposits and law enforcement officials trained to see patterns that could indicate illegal activity. So BSA regulations create complications for those who have dirty money to place in the financial system, who want to deposit the funds without drawing attention to themselves.”
“How do they get around the regulations?” Tessa asked.
Chantal sighed. “Unfortunately, there are literally dozens of ways, with varying levels of sophistication. The degree of complexity employed in placing funds is often directly related to the level of sophistication of the criminal organization.”
“How sophisticated is Club Red?” Luke asked.
“About middle of the road, based on my review of the financial records, though that seems to be changing over the last year. It’s my belief that Ricky has been using a couple of the more popular methods to place his money, which you will recall is the first step in laundering it. One of his methods is an old favorite for cash-rich businesses—inflating legitimate revenues. He simply says that some of the illegal funds come from cover charges, stripper revenue, drinks, food, parking, etc.”
“But you don’t think that could be the case?” Tessa asked.
“I don’t believe so. From my initial calculations based on his deductible expenses—which include overhead like liquor and food—Club Red would have to be charging outrageous sums per drink, or serving about two to three thousand people every night of the week to account for the amount of profit he’s indicated in the club’s financial statements. I’d have to do an inspection of his inventory and observe the activity at the club, but it seems clear to me that he’s padding the books.”
“Not very well, if all it took was a twenty-four-hour audit,” Luke pointed out.
“Well, I can suspect it, but proving the crime would take subpoenas and warrants. To get those, I need proof. The legal system here is quite complicated sometimes,” Chantal said. “It didn’t take me long to spot the potential for this activity, though, because I’ve got a lot of experience looking for it. This is not a sophisticated system that Ricky uses, but it’s also not his only method for placing illegal funds. He’s also engaging in some labor-intensive methods—structuring, it’s called. He uses runners or smurfs to structure his deposits in such a way that they come in under bank radar.”
“Smurfs? What do cartoon characters have to do with this?” Tessa asked.
“Picture a beehive of activity, or a herd of smurfs running here and there doing work. This is where the name comes from—many, many low-paid runners who take small cash deposits to banks all over the city and state, then put them into a series of accounts held by Club Red or other companies owned by Ricky Hedges. This is all these smurfs do, day in and day out. I call them the worker bees.”
“I get it,” Tessa said. “These smurfs deposit money in amounts under $10,000 to avoid the reporting requirements of the banks. They do a high volume of low-value transactions so they don’t trigger the suspicions of the banks.”
“Very good. This is the preferred method of many drug smugglers, who try to ‘structure’ their deposits to avoid suspicion. It’s also a crime in and of itself, but it is almost impossible to prove without a tip-off from the banks and intensive surveillance to catch them in the act,” Chantal said.
“Pretty clever,” Tessa said, taking notes as she spoke.
“Yes and no. It is a very popular method, so I’ve learned to look for it. And it seems that Ricky Hedges realized this potential, because in the last year or so he’s been trying to incorporate more complex methods for placement of his money. Do you remember the credit cards you told me about?”
“The ones we found on Kelly?” Tessa clarified.
“Yes. When you said that the cards hadn’t been reported stolen—that in fact Club Red had been crediting those accounts for several months—I started thinking. I believe Ricky is taking illegally earned profits and depositing the cash in the cred
it accounts of people who frequent the club, possibly as payment for services rendered,” Chantal said.
“Or it could be another way for Ricky to sweeten the pot and get people into the club. What if they were paying off gambling balances with those accounts?” Luke asked.
“You are a very cynical man,” Chantal purred. “I like that. I will have to dig further to verify, but what you suggest is very plausible. It seems that Club Red has been increasing its sophistication in the placing of funds in numerous ways.”
“Now that the mystery of the credit cards Kelly was holding has been solved, we can investigate those individuals and build a case against them if it’s warranted,” Tessa said. “How else does Ricky play the shell game with his money?”
“Another way he’s placed funds has been by starting a real estate development company, which enables him to play with property in a system we call reverse flips.”
“I take it we’re not talking about gymnastics here,” Luke said.
“No, this involves buying property, then flipping it, or selling it again immediately.”
“Lots of investors do that,” Tessa pointed out.
“Yes, but the trick with reverse flipping is for Ricky to buy property at a price that is well below its actual market value. Say he buys a retail property for $500,000. But if we did research on other plots of land in the same area, we would see that the true market value of Ricky’s purchase is closer to $1 million.”
“Maybe Ricky’s just a very good negotiator,” Luke said dryly.
“Not when he pays the difference between the documented sales price and the market value to the seller under the table. The documented price he pays in clean funds, and the under-the-table amount is paid in dirty money.”
“That’s pretty slick, as long as the seller is in on the deal,” Tessa said.
“Oh, it gets better,” Chantal replied. “In other permutations of reverse flips, Ricky could take a mortgage out for part of the documented sales price. Then he can turn around and sell the newly acquired property to a legitimate buyer for its true market value, realizing a profit of $500,000. He pays off any mortgage with this profit, which is clean money. He even gets a tax deduction on interest and any closing costs for the deal. And he looks like a legitimate real estate entrepreneur.”
No Escape Page 26
