Jorge Milton Cifuentes Villa by most standards would be considered a prosperous businessman and philanthropist. The Colombian national who also holds Mexican citizenship owned and operated a wide range of companies in several countries, and he oversaw a handful of nonprofit organizations designed to save the rain forest and promote sustainable forestry. Despite the appearance of legitimacy, a bank investigator might have seen red flags.
In February 2011, Cifuentes, a.k.a. Elkin de Jesús López Salazar, and his companies were added to the U.S. list of Specially Designated Narcotics Traffickers. The list is part of the Kingpin Act, which applies financial sanctions against significant foreign drug traffickers. Cifuentes’ front companies helped to move drug money to the Revolutionary Armed Forces of Colombia (FARC), which is known to use its funds to conduct terrorist activities. The web of companies Cifuentes owns or controls in Colombia, Panama, Ecuador, Mexico, Spain and the U.S. gave authorities further insight as to how nonprofit organizations are being used by criminals to launder money and finance terrorism.
“They have the means to disperse the money all over the world,” said Octavio Betancourt, managing director for the risk consulting firm Milersen LLC, at a Florida conference on money laundering in March 2011. Betancourt explained to bank compliance officers and others how launderers are exploiting tax benefits and the good will of donors to finance their illicit activities.
Legitimate-looking nonprofit organizations run by cifuentes, such as Fundación Salva la Selva (Save the Forest Foundation), were not meant to raise money from unwitting donors, but rather were a front for funneling money to a drug trafficking organization. Salva la Selva maintains an attractive website with user-friendly interfaces and hosts photo galleries of indigenous community members, animals and forests supposedly benefiting from donations to give the semblance of truthfulness to investigators. Cifuentes also used companies involved in tourism, construction, real estate, a Visa prepaid card company and investment funds to move money that ultimately benefited the Sinaloa cartel in Mexico and the terrorist group FARC, according to the U.S. and Colombian governments. Electronic payments were used across a variety of sectors to move the funds through his shell companies.
Cifuentes and the head of the Sinaloa cartel, Joaquin “El Chapo” Guzman Loera, were indicted in November 2010 in the U.S. District Court for the Southern District of Florida on charges of drug trafficking and money laundering. “Going forward, Cifuentes Villa will no longer be able to masquerade as a legitimate businessman while supplying cocaine to the Sinaloa cartel,” said Adam Szubin, director of the U.S. Office of Foreign Assets Control, when Cifuentes was added to the Specially Designated Narcotics Traffickers list.
Donations to Terrorism
Nonprofit organizations may or may not even be aware when they are being used to funnel drug money. However, compliance officer research on clients and their companies could lead to red flags that signal criminal activity. Betancourt said a close look at the companies belonging to cifuentes raises several questions. In addition to the two environmental nonprofits he operated was a mining company. The association between a mining company, known to cause pollution, and environmental entities would have prompted suspicion for him as an investigator.
More than a decade ago, the exploitation of nonprofits by terrorist organizations drew the attention of the Financial Action Task Force (FATF), an intergovernmental body created to promote national and international policies to prevent money laundering and terror financing. In 2001, FATF created Special Recommendation VIII to help countries identify when a terrorist organization is posing as a legitimate nonprofit to avoid asset-freezing measures, or to divert funds intended for legitimate purposes. The recommendation calls for transparency, research and cooperation between the public and private sectors.
“While the vast majority of charities are honest, fake charities emerge from time to time,” said Henrique Dominguez, vice president of EFG Bank Luxembourg, who also spoke at the conference. “[They are] targeted by criminals to launder the proceeds from tax crimes and other serious offenses.” Dominguez told bank anti-money laundering officials that they must do their due diligence to investigate clients, regarded as “know your customer” in the industry. They also must be alert to an ever more sophisticated scam network that is making nonprofit organizations a high-risk sector for money laundering.
“This is very serious,” he said. “The purpose [of the FATF recommendation] is to ensure that nonprofit organizations are not misused by terrorist organizations.” Dominguez said compliance officers should check for a history of donations, large cash donations, a physical address, Web presence, and they should give special attention to foundations set up after a tragedy, such as the earthquake in Haiti when governments are preoccupied and donors are eager to provide funds.
Tracking Dirty Money
Many countries in latin America support the work of charitable organizations and donors by providing tax relief, but the governments may not have the manpower to investigate every organization for misconduct. Banks and financial institutions have their reputations on the line, and their compliance officers can prevent the organization from even establishing a bank account. When suspicions arise, they can notify authorities.
Gonzalo Vila, director of Latin American operations for the Association of Certified Anti-Money Laundering Specialists, told Diálogo that each bank has its own policies when it suspects money laundering, and each country has a different protocol for notifying authorities to trigger an investigation. However, in general, it is the bank’s responsibility to deny an account to a customer whose information cannot be verified. When a bank has evidence that a current client or potential client receives funds from an illegal source, the bank can file a Suspicious Activities Report to that country’s Financial Intelligence Unit, usually located in the ministry of the interior or finance.
Asked by Diálogo to describe how the terrorist threat manifests itself in latin America, Dominguez gave a firsthand example of transfers he was handling in the late 1990s as a bank employee in the Tri-Border city of Ciudad del Este, Paraguay.
He said his bank identified numerous wire transfers from Ciudad del Este to what clients identified as charities in the Middle East. “So, maybe it’s a coincidence, but after what happened we know that the terrorist attacks were supported by donations.”
Ira Morales Mickunas, who analyzes organized crime and financing of terrorism for Milersen LLC, told Diálogo that investigations have proven that terrorism financing is happening from money laundered through nonprofits in the Tri-Border region. “There’s a lot of activity going on in the region … keeping a very low profile of many of these organizations,” she said of charities ostensibly promoted as providing health care and education in the Middle East. “Many of these charitable organizations have been proven in time through investigations by the U.S. government [to be] fronts for terrorist organizations.” Morales Mickunas could not estimate how many millions of dollars flow through nonprofit organizations to terrorist groups because she said these organizations often have a double set of books, with a lot of money unaccounted for; but she noted that globally, money laundering accounts for trillions of dollars.
In the decade since the September 2001 terrorist attacks in the U.S., Brazil, Argentina and Paraguay have worked with the U.S. to closely monitor money transfers originating from the Tri-Border area. Several entities and people in the region have also been designated by the U.S. Treasury Department as known Hezbollah financiers.
Dominguez pointed out those areas where “informal” banking relationships proliferate are especially high risk. He identified other areas such as Isla Margarita in Venezuela and the north of Chile, where he said the relations between bankers and their clients are more important than professionalism, and due diligence and client background checks can break down, making banks vulnerable.
Betancourt cited terrorist groups within Latin America as exploiting nonprofits as well. “It’s not only the Middle East; you find terrorist groups, like guerrillas, within Latin America,” he told Diálogo. “They use these types of entities to work and to buy arms and to kill people, and [pay for] assassins for hire.”
While the designation of Cifuentes and his businesses may be a useful tool to halt his business activity across six nations, studying his and others’ use of fraudulent nonprofits to funnel money can provide clues for preventing fraud elsewhere. “We are going to see much more activity in the Latin American region. The fact that we are not hearing about it doesn’t mean that nothing is happening,”said Morales Mickunas. “I think that we should be very alert.”