Webinar in Review

Banking Law Enforcement Undercover Operations

by: Dennis Lormel
Date: January 14, 2016

Introduction

Undercover operations are an extremely valuable and productive law enforcement tool. They frequently result in high profile criminal prosecutions. Undercover cases range from public corruption to organized crime, drug trafficking, financial crimes, counterfeit goods, smuggling, government contracting and other criminal activities. Many of these activities also involve money laundering and fraud. In today’s world, the FBI has adeptly applied the undercover technique to deal with homegrown violent extremists, who are intent on committing terrorist acts. Unfortunately, there have been an alarming number of these situations in the past few years. Fortunately, these extremists are not well trained, have the desire to conduct a spectacular terrorist act they are not capable of without assistance and consequently attempt to recruit other extremists believed to possess the required skillsets, who invariably turn out to be undercover FBI agents.

Two very high profile FBI undercover operations that took place in the same time period were the Donnie Brasco organized crime case and the ABSCAM public corruption investigation. The Brasco case was initiated in 1976. ABSCAM was initiated in 1978. Not only did these two cases result in significant criminal prosecutions, they also served to shape and define the FBI’s undercover program going forward.

The movie Donnie Brasco was based on the FBI’s undercover operation. FBI Agent Joseph D. Pistone went undercover using the alias name Donnie Brasco. Pistone succeeded at infiltrating the Bonanno crime family. The operation ran from 1976 to 1981. The evidence collected by Pistone led to 200 indictments and over 100 convictions. This investigation reinforced the requirement for rigorous undercover training for potential undercover agents. Pistone was meticulous, extremely disciplined and detail oriented. Also, due to the nature of the investigation, Pistone crossed the mental line between law enforcement and organized crime. In part, this led to the requirement of certifying FBI undercover agents as being properly trained and psychologically fit to handle the stressful demands of deep undercover work.

ABSCAM started as a sting operation focused on theft, forgery and stolen art. It quickly morphed into a public corruption investigation. ABSCAM resulted in the investigation of more than 30 political figures. Six members of the U.S. House of Representatives were convicted, as was one Senator, the Mayor of Camden, New Jersey, a member of the State Senate in New Jersey, members of the Philadelphia City Counsel and an Inspector for the U.S. Immigration and Naturalization Service. The U.S. Congress was outraged by the ABSCAM investigation and held public hearings criticizing the FBI undercover technique. To ensure the integrity of undercover operations, on January 5, 1981, Attorney General Benjamin Civiletti issued “The Attorney General Guidelines for FBI Undercover Operations”.

Understanding the Methodology

ABSCAM taught law enforcement, especially the FBI, the importance of establishing and following stringent rules to govern use of the undercover technique. The undercover technique is an extremely valuable law enforcement tool. If undercover guidelines are not strictly enforced and best practices not closely followed, law enforcement risks losing undercover authority. Almost all law enforcement undercover operations adhere to strict guidelines. In those rare situations where rogue operations exist, they are dealt with harshly once discovered and they will be discovered.

The Undercover and Sensitive Operations Unit, Attorney General’s Guidelines on FBI Undercover Operations, was revised on November 13, 1992. The introduction of the guidelines states: “The use of the undercover technique, including proprietary business entities, is essential to the detection, prevention, and prosecution of white collar crimes, public corruption, terrorism, organized crime, offenses involving controlled substances, and other priority areas of investigation. However, these techniques inherently involve an element of deception and may require cooperation with persons whose motivation and conduct are open to question, and so should be carefully considered and monitored.”

An undercover operation is a covert operation requiring undercover operatives to use alias identities and proprietary business fronts, as part of their deception, in order to penetrate criminal or terrorist activities. By doing so, law enforcement can collect evidence not otherwise available through traditional investigative techniques and to generally do so in a more timely fashion. Frequently, undercover operations present the opportunity to video tape and/or audio tape meetings and conversations. This usually results in developing incontrovertible evidence used to obtain criminal prosecutions. Video and audio recordings do not lie. When subjects of an undercover investigation are recorded openly discussing their criminal activity with undercover operatives they provide compelling evidence against themselves.

Depending on factors to include the sensitivity of an investigation, the funding requirements, the nature of the criminal activity, potential liability and other considerations, there are different levels of approval. Undercover operations dealing with sensitive circumstances will require presentment of a proposal before a headquarters undercover review committee. In the case of the FBI, the Undercover Review Committee is comprised of FBI and Department of Justice (DOJ) senior executives. The Committee approves or disapproves undercover proposals. Approved undercover operations are then subject to ongoing oversight and review for the duration of the operation. This is to ensure the undercover operation adheres to the Attorney General Guidelines, remains properly focused, and monitors the safety and psychological wellbeing of undercover personnel. It is easy to lose investigative focus and stray from an investigative plan. Likewise, it is tempting for undercover operatives to get caught up in their role, become cavalier or impacted by the stress of the situation. This is why continuous oversight, especial and deep and long term undercover operations is essential.

Financial Institution Cooperation

In most undercover situations, the undercover operation is going to require one or more covert bank accounts. Section IV (C)(1)(b) of the Attorney General Guidelines mandates FBI Headquarters approval to “Require the deposit of appropriated funds or proceeds generated by the undercover operation into banks and other financial institutions.”

In some undercover situations law enforcement might contact a financial institution at the outset of an undercover operation to set up a covert bank account. In many of those situations, it will be with an institution in which the investigators have strong working relationships. In many situations, due to the sensitive nature of the investigation, law enforcement will have the undercover operatives open covert accounts and not disclose the nature of the accounts to the financial institution. In such situations, the financial institution could generate alerts regarding the undercover account through due diligence, transaction monitoring or other alerting mechanisms. This could escalate to contacting the customer (the undercover operative) or filing a suspicious activity report (SAR). Depending on the situation, at that point, law enforcement might choose to disclose the nature of the account to the financial institution.
Regardless of how a financial institution determines that a customer account is an undercover law enforcement account, once that determination is made, the financial institution has an important decision to make. Do they open, maintain or close the undercover account. This is where public/private partnerships and understanding perspectives come into play. It is incumbent that law enforcement and the financial institution understand the perspective of the other in establishing and sustaining a cooperative relationship regarding these matters.

Protecting the Financial Institution from Liability

In operating an undercover operation and relying on bank accounts to develop evidence, the primary consideration of law enforcement is to obtain a criminal prosecution. Conversely, a financial institution’s primary consideration is to protect itself against liability and/or monetary loss. Each side must understand and respect the perspective of the other side and work together to establish a middle ground where the prosecution is balanced against the potential liability and/or monetary loss.

In situations where law enforcement requests that a financial institution open a covert bank account at the outset, or after the financial institution discovers a covert account and law enforcement requests that the account not be closed, law enforcement should provide the financial institution with written assurance. Where undercover operations are involved, law enforcement and DOJ or the prosecutor’s office (in the case of federal prosecutions, a U.S. Attorney’s Office) should enter into a Memorandum of Understanding (MOU) with the financial institution. In many situations, law enforcement will indemnify the financial institution against financial loss.
If a financial institution chooses to bank a law enforcement undercover account, it is strongly recommended that the institution go to the FBI or DOJ website and download the Undercover and Sensitive Operations Unit, Attorney General’s Guidelines on FBI Undercover Operations, Revised November 13, 1992. The Guidelines are readily available. In the event that a financial institution is not comfortable with the undercover account activity, they should discuss their concerns with the prosecutor responsible for the case, or go directly to DOJ or to the head of the law enforcement field office conducting the investigation.

In terms of best practices between law enforcement and financial institutions regarding maintenance of undercover accounts, trust, proper planning, education and communications are of paramount importance. Without trust, law enforcement and financial institutions will be reluctant to plan together and adequately communicate with each other. Building trust comes with establishing working relationships and understanding perspective. Proper planning will entail discussing and understanding the purpose for the account, the anticipated flow of funds and why the specific institution or a branch or other institutional entity is required. In one sense, planning would be part of the education process. Education should be a two way street where law enforcement educates the financial institution about the undercover process and financial requirements. Education also includes the financial institution explaining how banking processes work and emphasizing the importance of financial intelligence and where to find relevant financial evidence. Without clear communication, the elements of trust, planning and education will be hard pressed to succeed.

Post Investigation Review

At various stages of an investigation, and at the completion of an investigation, law enforcement should conduct an after action review to assess what worked well, what could have worked better and what did not work. Based on lessons learned, future undercover operations should be better positioned to succeed. Likewise, when a financial institution learns that an undercover case has been completed, or at the time the undercover account is closed, the financial institution should conduct an after-action review to assess how the account operated, what issues were encountered by the financial institution, how they were handled and how they could have been dealt with more effectively.

To the extent allowable and practical, law enforcement and financial institutions should meet and jointly assess the undercover account relationship. This is an outstanding opportunity to strengthen trust and identify and heighten best practices. This may not be possible because of the sensitive nature of many undercover operations, grand jury and investigative requirements not to discuss investigative information, and other considerations. However, to the extent information can be shared it would serve to enhance trust, planning, education and communications.

Conclusion

Undercover operations are an extremely valuable and productive law enforcement tool. Invariably, by their nature, many undercover operations must have covert bank accounts. Financial institutions can either impede or facilitate the operation of such accounts. It is imperative that law enforcement and financial institutions work together to ensure that undercover bank accounts are properly used to develop the evidence to support a successful criminal prosecution. At the end of the day, the objective of an undercover operation is to protect our national security and our economy from criminal exploitation. Regardless of their perspectives, law enforcement and financial institutions share the objective of protecting national security and the economy.