No Escape

by Heather Lowell

  “How does law enforcement keep track of this kind of activity?” Tessa asked.

  “It’s very difficult, which is why it’s so popular. And there’s more going on with Club Red, I’m afraid. I believe that Ricky has begun to incorporate international aspects, particularly shell corporations and offshore banking, into his strategy to place, layer, and integrate his dirty money back into the economy.”

  “How do things like shell corporations help out with money laundering?” Tessa asked. “I mean, I know they do, I just don’t understand the mechanics.”

  “Well, so far we’ve only discussed placement of the funds in depth. There are two more stages in the equation,” Chantal said, over the sound of Tessa’s groan. “You can place all the money you want in the financial system, but if you don’t fully launder it, you still can’t spend it.”

  “So how does Ricky layer, then integrate the funds?” Luke asked, giving Tessa a sympathetic pat on the back. The complexity of the financial schemes Ricky was involved in was requiring all his attention to follow. He could only imagine how tough it was for Tessa, with everything else going on in her mind, to say nothing of her injuries.

  “That’s where these shell corporations come in. Let’s go back to the funds deposited by smurfs into local and state banks. These accounts undoubtedly belong to companies other than Club Red, Inc. They are probably held by numerous phony corporations that are in reality owned and operated by either Ricky Hedges or individuals acting on his behalf,” Chantal said.

  “Are these legitimate business partners or underlings?” Tessa asked.

  “Probably a combination of both,” Chantal replied. “So when Ricky’s illegal profits are shipped out in small amounts all over the state of California, they are deposited by smurfs into the accounts of Company A. This Company A may very well be a wholly owned subsidiary of Company B, which in turn is part of a consortium headed by Company C, which is part of a limited liability joint venture as a junior partner with Company D, and so on to Company M. Company M is owned and operated by Ricky Hedges or someone he trusts with the task.”

  “Sounds like a lot of people would have to be involved,” Tessa said.

  “Not at all,” Chantal corrected her. “Each company would be set up in various offshore havens by a single individual in the name of owners who may or may not actually exist. It costs less than five hundred dollars to file articles of incorporation in most states and countries. Many criminals have a dozen or more related shell corporations to layer the funds, that is, to distance them so far from their illegal origins that it would be almost impossible to follow the trail unless you knew it was there.”

  “What is it exactly that they do to muddy the waters?” Luke asked.

  “A popular method of layering would be to have Company A take out a loan from an offshore bank, let’s say the Bank of Curaçao. Company A will secure the bank loan with the illegal profits that smurfs have deposited into its accounts in California. With the loan from the Bank of Curaçao, Company A can then buy certificates of deposit—or some other highly portable monetary instrument—and sell them to Company B for cash. Company B can do whatever it wants with these monetary instruments—for example, it can liquidate them and buy property, which is then flipped, or it can take out another loan with the CDs as collateral.”

  “Doesn’t anyone follow up on what’s done with loan funds to make sure there’s nothing illegal going on?” Tessa asked.

  “No. Certainly not at international banks, where investor privacy is guaranteed. And so the layering of funds continues,” Chantal said. “Once the monetary instruments are liquidated, Company B can also buy luxury consumable items from Company C, which are sold back to Club Red at a cut rate, or it can invest the money on the stock market and generate legitimate profits, which are invested in Company D or parked in its accounts, and so on. The possibilities are virtually limitless. Every transaction further layers the money and makes it almost impossible to trace.”

  “So the money is pumped back into the economy in the form of ‘clean’ funds that are impossible to connect back to the original deposits made by Ricky’s smurfs,” Tessa said. “The lightbulb just went on.”

  “This concludes my lecture on the basics of money laundering,” Chantal agreed with a smile.

  “These last steps you’re talking about, the layering and integration—they seem much more complicated than placement itself,” Luke mused.

  “They are,” Chantal said. “However, the placement of funds is often the most vulnerable and dangerous step. It’s a simple idea, but there are many ways for it to go wrong. This is why you hear tales of illegal enterprises that literally have suitcases or boxes full of cash lying around—they don’t have the know-how or sophistication to place and launder their dirty money.”

  “But you also said the level of sophistication of Club Red’s operations seems to be increasing, right?” Tessa asked.

  “It does. The credit card activity, real estate ventures, and reverse flips—these are new. The linking of Club Red with companies incorporated in the Caribbean and Mexico is also new. If I had to guess, I’d say that Ricky has been getting investment and financial advice, starting sometime in the last nine or ten months.”

  “Who would do something like that?” Tessa asked. “Does Ricky just start advertising for a crooked financial advisor?”

  “Certainly not. He would need to find a legitimate financial advisor, because that individual would be able to shield his illegal operations on behalf of Club Red with his genuine and legal investment activities. Unfortunately, many accountants and money advisors out there are willing to turn a blind eye to the provenance of funds given to them to invest, as long as they get a good cut of the profits.”

  “I don’t know,” Tessa said. “I would think in this case that the financial advisor would have to be deeply involved in where the funds come from, because as you said, it seems that Ricky is being guided in some way. At least in the last year or so, you said he seems to have an investment partner. Someone who’s helping him deepen the level of his money laundering.”

  Chantal considered that for a moment. “I believe you could be right. One thing we’ve found about these shady financial advisors is that the primary service they provide is the use of shell corporations. Many of these accountants will incorporate various shell companies around the world, then just park them—meaning they stand inactive until a client needs to use them. Then the system of shell companies is already set up, and the advisor can quickly get things started with particular transactions when there is a need.” She tapped a marker on the whiteboard as she considered that. “I think you are definitely right, and I know what might have happened to Ricky and Club Red.”

  “What?” Luke and Tessa asked together.

  “You said the Ianelli Family is a potential business partner. This is where I believe Ricky is getting his financial assistance,” Chantal said simply. “They are not one of the big-time ethnic flavors of Mafia here in Southern California. They’re the offshoot of a small Midwest family, and they make their living by taking a skim of ongoing criminal operations in their territory. They do have a small drug-running and smuggling ring based out of the Inland Empire in the desert, but that’s because the other profitable routes between Mexico and San Diego to L.A. were already taken.”

  “From my time with the sheriff’s department, I remember that the Ianellis were involved in extortion and excise tax violations more than anything else. They would go around to the small-time local operations in prostitution, drug running, strip clubs, and cigarette sales, then extort the people running those schemes for a cut of the profits. Basically, a high-volume protection racket with many individuals paying small amounts of money.”

  Chantal nodded. “Yes. The Ianellis have been able to squeeze their way into small-time operations that other, bigger criminal organizations have written off as too tiny or not profitable enough. These small-time operations have become the niche of the Ianel
lis, but what if they also wanted to start growing and getting a bigger slice of the action?”

  “They would form alliances like any other company,” Tessa said. “In this case, with Club Red, Inc. And Ricky Hedges.”

  “Yes, indeed. I think we may be onto something here,” Chantal said. “What if Ricky needed help expanding his business, and the Ianellis needed an organization that can absorb some of their illegal profits as well? Wouldn’t it behoove them to combine forces and create some sort of joint venture?”

  “Maybe in the short run,” Luke said. “But it’s been my experience that criminal alliances never last. And that’s good news for us—it shows us exactly where the weak link is with Club Red. After a while, especially under close scrutiny by law enforcement, the criminal partnerships start to fracture under the pressure. If we exert specific force in carefully chosen places…”

  “The whole conspiracy falls apart,” Tessa finished with a grim smile.

  “I don’t wish to be a wet blanket,” Chantal began. “But I must advise you that it is extremely difficult to prove the type of money laundering and racketeering activities that we are talking about here. It’s one of the reasons that law enforcement officials build the case in other ways, first.”

  “What do you mean?” Luke asked. “We see evidence of the FBI and the Treasury Department targeting these criminal conspiracies all the time. People go to prison for this stuff.”

  “True,” Chantal agreed. “But these task forces have years to investigate. You have, I think, only a very short period of time. That is if Kelly Maarten is your true focus.”

  “She is,” Tessa said.

  “So you need information on the money laundering and other federal activities to force people to return Kelly and to testify about what was done against her. I just don’t see how we can do this quickly. With enough time and money, we could uncover what is going on in California and in the US banking system, because we have regulations that assist law enforcement. But to understand the full picture, I would also need full access to international bank records and transactions, including offshore banks.”

  “And they don’t share this information with law enforcement?” Luke asked.

  “No. Look at the Swiss, sitting on bank records predating World War II. It’s worse in the new world, in the Caribbean and South American offshore banks. Inevitably we would come up against the roadblock of bank secrecy, and so far no agency has found a good way around that.”

  “There has to be something,” Tessa said.

  “Maybe I could look unofficially into records through old colleagues, or we could pay someone to hack into various systems. But we would not be able to take that information to trial. I’m sorry,” Chantal added, when she saw Tessa’s expression.

  “We haven’t come this far to turn back,” Tessa promised. “How are these cases normally resolved expeditiously, if tracking the financial records through shell corporations and offshore banks doesn’t work?”

  “We must have inside information,” Chantal said simply. “It is the only fast way to do things.”

  “We can do that,” Luke said. “We need to get enough leverage to force someone to roll over on Ricky, the Ianellis, and the shady financial advisor. And to get that leverage, we have to figure out which of our players to squeeze hard enough that he starts singing.”

  “Jerry Kravitz and Sledge Aiken,” Tessa said instantly. “We have the Kelly connection, and proof that she was a minor runaway living under Jerry’s roof when Sledge paid to have sex with her. We’ll have to use that to get them talking and make up the rest of the strategy as we go along.”

  Luke stepped aside to take a call on his cell phone, and Chantal began to gather her things. She handed a card to Tessa. “This has my home and cellular numbers, as well as my e-mail address and a secure FTP site for large document transfers. In the meantime, I will go back over the financial records you sent me and begin to draft text for subpoenas on other documents. I must see more detailed information on the workings of Club Red, Inc., in order to finish the accounting investigation.”

  “Get me the subpoena text as soon as you can. Carmen gave me the name of a federal judge whose campaign was based on stamping out corruption and corporate crime. He should be sympathetic to our case and will issue subpoenas and warrants if we get the paperwork in order.”

  “Let’s go see Jerry at home right now,” Luke said to Tessa as he hung up. “He just put in an urgent call asking Sledge to meet him there in an hour.”

  “I’m probably going to regret asking, but how do you know where Jerry is and what he said on the phone to Sledge?” Tessa asked.

  “I’ve had a team doing surveillance on his house with a parabolic microphone for a couple of days,” Luke replied.

  “Shush. I didn’t hear you,” Tessa protested. “We don’t have a warrant for that.”

  “I don’t want to take him to court with the information, baby. I just want to know where he is so that we can, um, talk.”

  Chapter 37

  Los Angeles, California

  Monday afternoon, March 15

  Luke and Tessa cruised to a stop in her car several houses down the street from Jerry Kravitz’s property. Luke looked around and caught sight of his surveillance team in a white utility van. He hesitated as he removed his seat belt, then spoke. “I suppose it’s useless to ask you to stay behind.”

  “Pretty much.”

  “You may not like some of the methods I have to use. At least if you stay in the car, you have some deniability if it gets to a trial,” Luke pointed out.

  “As you said, I’m not looking for information I can take to court. Lots of legal arm-twisting goes on during the plea-bargaining process. Most of it is off the record,” Tessa said.

  “I want to warn you right now that Jerry might take some serious convincing. I’ll do my best to keep it clean, but at this point it’s really up to Kravitz how we come to a deal. It could get ugly,” Luke warned.

  “Uglier than someone trying to run me down with a car?” Tessa asked. There was no heat in her voice; she just sounded determined.

  “I give up. But bring your poker face.” Luke got out of the car and adjusted his light jacket. Tessa knew it covered a holstered handgun, though she hadn’t seen it closely enough to identify it.

  She figured that gave her plausible deniability if it came down to it in court.

  “What’s the strategy going to be to get Jerry to talk?” Luke asked. He took Tessa’s hand and gave some prearranged signal to his surveillance team in the van. There was no sign of a response, but he knew they’d gotten the message to start the tape recorder attached to their surveillance equipment.

  “I’m going to use a popular old auction trick—going once, going twice, sold to the person who cooperates first.” Tessa gave his arm a squeeze and cuddled up to his side, figuring they were meant to look like a harmless couple as they approached Jerry’s front door.

  “Good plan. I think the whole Club Red empire is tottering on the edge of collapse right now. Kind of like a display of oranges at the supermarket—pull out the right one, and the whole thing comes tumbling down.”

  “And at this point, I don’t even think it’s important who we squeeze—as long as someone starts talking. The rest will come from the momentum created by that one person caving,” Tessa agreed.

  She followed Luke as he walked up the drive, ignoring the path to the front door. Instead, he walked under the carport, passed Jerry’s black Mercedes coupe, and stopped at a side door that opened into the kitchen. He knocked twice sharply, then dropped Tessa’s hand to brace for Jerry’s reaction.

  “It’s open!” Tessa heard Jerry’s voice, looked at Luke, then followed him as he went into the house.

  “Hiya, Jerry. Expecting someone?” Luke asked.

  Standing at the sink washing dishes, Jerry whipped around with a curse. He looked at Luke, then stared at Tessa for a moment. “You’re that prosecutor who was spreading Kelly’s l
ies. What the hell are you doing here?”

  “You said to come in,” Tessa pointed out.

  “I thought you were someone else. Get the hell out of my house,” Jerry said, dropping the glass he was holding back into a sink filled with soapy water.

  “We’re here completely off the record right now. Just a couple of people having a chat. I think you’re going to want to hear what she has to say,” Luke said. He looked around the kitchen, which was littered with dishes, cartons of Chinese food, and old pizza boxes.

  Tessa also checked out Jerry’s kitchen—it was bachelor chic, all the way. Formica table, mismatched chairs, and a grimy film on vinyl flooring that hadn’t seen mop or bucket for months—if ever. The appliances sported a pumpkin-and-avocado color scheme that was so old it had come into fashion again, giving everything a weathered retro look that a better decorator might have been able to pull off. But not Jerry.

  “I said to get out of here. You’ve got nothing on me, and I’m not talking to you without a lawyer present,” Jerry said. He casually turned his back to them and continued with the dishes, but Luke didn’t like the tension that was tightening the line of Jerry’s shoulders.

  Without a word, Luke motioned Tessa to step to the rear of the kitchen. “That’s handy. We’ve got a lawyer right here. We’d like some information from you, and we’re willing to cut you a sweet deal for being the first in line to tell it to us.”

  “Fuck off. If you had anything, you’d have arrested someone already. But I hear the judge shot your case full of holes and told you to back off. I guess pretty little blond girls who want to be singers don’t make reliable witnesses, eh, Counselor?” Jerry snorted at his own wit.