#706
Original Air Date: February 21, 1989
Produced by Charles C. Stuart and Marcia Vivancos
Written by Charles C. Stuart
Reported by Chalres C. Stuart, Marcia Vivancos, and Mark Hosenball
NARRATOR
Illegal drug traffic adds up to one hundred billion dollars a year.
MICHAEL MACDONALD
They will smuggle the cash out of the country the same way they smuggle
the drugs into the country, a hundred different ways.
NARRATOR
Meet some of the legitimate businessmen who make it possible--accountants,
lawyers, bankers
SURVEILLANCE FOOTAGE
...five... six... seven...
NARRATOR
FRONTLINE follows a federal investigation of the illegal money trail into
the heart of the mainstream economy.
MICHAEL MACDONALD
There are legitimate businesses taking advantage of the currency that's
out there.
NARRATOR
Tonight, on FRONTLINE: "Who Profits From Drugs?."
JUDY WOODRUFF
Good evening.
Our most common images of the illegal drug war in
America are of poor, urban neighborhoods besieged by an unstoppable wave
of addiction, violence, and greed.
Those images of the drug problem are perpetuated
by the media's focus on stories about desperate addicts, ruthless pushers,
and invincible foreign cartels.
But there is another side of the story with a
very different group of players who don't fit the stereotypes. Tonight,
FRONTLINE investigates what happens to the enormous profits of the illegal
drug trade, following a trail directly into the offices of otherwise
respectable businessmen... people who would say no to drugs, but very
willingly say yes to drug money. It is the untold story of how the whole
American economy profits from illegal drugs.
Tonight's program was produced by Charles Stuart
and Marcia Vivancos. It is called, "Who Profits From Drugs?"
NARRATOR
This yacht center in Fort Lauderdale, Florida is just one of thousands of
such marinas dotting the seaboard of Florida's coast--all of them
potential smuggling havens for drug traffickers. From 1978 to 1981, when
it was known as the Amity Yacht Center, this was the site for one of the
largest marijuana-smuggling organizations known to the federal government.
Investigators estimate that two million pounds of marijuana worth at least
one half a billion dollars was smuggled through here.
The organization was run by this man, Raymond
Thompson, who was also suspected of killing at least three people.
At the Florida Department of Law Enforcement,
detectives were looking into the Thompson organization. Lonnie Cooper
headed the investigation.
LONNIE COOPER, Detective
The Ray Thompson organization was run by two main components: one was fear
and the other was money. Now, when money wouldn't suffice to elicit the
kind of loyalty or obedience that Ray Thompson demanded, then he did not
hesitate to invoke fear.
NARRATOR
In the summer of 1981, police raided the Amity Yacht Center, seizing
fifteen tons of marijuana and making one arrest. They missed Ray Thompson.
But Thompson was nervous. He needed a place to hide five hundred and fifty
thousand dollars in fives, tens, and twenties, so he asked his long-time
friend, James Savoy, to install a safe in the floor of his workshop.
LONNIE COOPER
Large amounts of money were subsequently placed in that safe. That must
have put a strain on Savoy that he couldn't stand. He went one night and
tried to break the safe open with a sledgehammer. He was unable to do
that. He then went out and rented a jackhammer, spent almost the rest of
the next day jackhammering out this floor safe, was buried in concrete,
and placed in the the floor. He was able to get this safe and part of the
concrete out, hut he still couldn't get in the safe.
NARRATOR
Savoy eventually opened the safe and stole the money. He drove to North
Carolina and checked into a motel.
LONNIE COOPER
He hooked up with a prostitute. When their business was done, Savoy either
passed out or fell asleep. He woke up the next morning five hundred and
fifty thousand dollars lighter, with no idea of where to look for the
prostitute or what to do. That was his second worst mistake. His first
worst mistake was he then decided to return to South Florida.
NARRATOR
In March of 1982, Ray Thompson caught up with James Savoy when he returned
to Florida. He forced Savoy to go to the marina, where he was put on a
boat and taken out into the Atlantic Ocean.
LONNIE COOPER
They put him on the back of the boat, they weighted him down with some
chain they'd bought, an anchor, and Ray Thompson said, "I want to do
this myself." Ray Thompson took a gun, placed it to the back of
Savoy's head, blew the back of his head off. They threw him out into the
water. They broke the gun down, threw it out in different parts and
returned.
NARRATOR
Thompson was eventually convicted of drug smuggling and murder, but the
story of his money demonstrates a surprising problem all drug traffickers
face: cash.
At the Internal Revenue Service, agents have
seized 1.6 million dollars in drug profits from just one raid.
It is money like this, not the growing and
manufacturing of their product, not the smuggling and distribution of the
drugs, which presents traffickers with their most difficult business
problem--how to handle large amounts of cash.
Dave Wilson, an agent at the Drug Enforcement
Administration's financial investigations office, explains why.
DAVE WILSON, Agent, DEA
Handling millions of dollars creates a weight and, ah, distribution
problem to them that you wouldn't expect, because most of their business
is done in fives, tens, and twenties. Because of that--as for instance, we
discovered this a while back, twenty dollars, in twenty-dollar bills, two
hundred and fifty thousand dollars weighs about seventy-five pounds. Well,
when a trafficker is doing several million dollars a week, he has a
problem just disposing of the paper. Just being able to handle that much
paper.
NARRATOR
Another problem with cash--who to trust with it. When drugs are seized or
lost, traffickers can always get more. But when they lose their cash,
either through a seizure like this one, or through a theft like James
Savoy's, they have lost what matters most to them, their profits.
DAVE WILSON
Ordinarily, we'll see that the money is handled by a different group of
people than the cocaine is handled by. The people that handle the money
tend to be much more influential in an organization, tend to be more
trusted, and are generally speaking more sophisticated.
NARRATOR
Michael MacDonald is a criminal investigator with the Internal Revenue
Service. He points to another problem traffickers have with cash.
MICHAEL MacDONALD, Criminal Investigator, IRS
How to spend it where it doesn't come back to haunt them, in terms of a
tax problem, in terms of tax-evasion prosecutions, in terms of rendering
his assets seizable, forfeitable. To simplify things, a very common way of
doing it is get the money offshore. You need to get the money into a
foreign bank.
They will smuggle the cash out of the country the
same way they smuggle the drugs into the country, a hundred different
ways. They'll carry it out in suitcases. They will carry it out in duffel
bags on commercial flights, box it up. They'll package it in commercial
shipments. They'll charter jets. They'll take it on by private plane.
People will kind of chuckle about that and feel that's Hollywood, but that
is real life in the drug trade.
NARRATOR
In Fort Lauderdale, Florida the Drug Enforcement Administration has set up
a special office to investigate one of the largest drug money laundering
operations known to the federal government. Here, investigators are hidden
away behind an unmarked, locked door.
Agent:
Is Tony there? Yeah, try it. He still out on the street? Yeah, but I
thought he was going to go home...
NARRATOR
FRONTLINE was allowed inside on the condition that no undercover agents be
identified.
Agent:
That file is right in front of where Tim, ya know, reconciliation...
NARRATOR
This office, and its headquarters nearby, are the center for what has been
code-named "Operation Man."
Agent:
Okay, ask him how he knows that Nelson did that load when he was out on
bond.
NARRATOR
It began with intelligence gathered from the investigation into Ray
Thompson and his organization. Agents here are uncovering a trail of 100
million dollars in drug profits laundered through six countries and
invested back into the United States.
Based on information from public files and
indictments, and on interviews with agents, prosecutors and defendants,
FRONTLINE has pieced together the story of how this drug money was
laundered, where it was invested, and who profited.
The key would be an enforcer in the Ray Thompson
organization, a man indicted for kidnapping and murder: Scott Errico.
Errico had gone to college and he was smart enough to know that he needed
professional help when it came to moving his share of the drug profits.
In 1983, Errico took half a million dollars in
cash and, on instructions from his lawyer, flew to New York. His lawyer
then told him by telephone to go to the Helmsley Hotel, where Errico met
an Englishman who would help him launder his money.
They stuffed hundreds of thousands of dollars
into suitcases, and together they departed for England.
In London, Errico checked into an expensive
apartment under an assumed name. Twice he paid large sums of rent in cash.
But most of his drug profits were deposited into a branch of the Midland
Bank located on the Isle of Man off the coast of England' where bank
secrecy laws were particularly strict.
The money launderer, Patrick Diamond, began to
educate Errico in the sophisticated art of hiding his money. He set up
fake corporations with Errico as the hidden owner. But all the while they
were meeting, detectives from Scotland Yard were watching.
Commander Roy Penrose is in charge of criminal
investigations for Scotland Yard.
ROY PENROSE, Detective, Scotland Yard
During that surveillance operation, we came across a man called Stephen
Marzovilla. We didn't know him. He looked interesting. There were several
meets recorded with him and Diamond. We then decided to put surveillance
on him and as a result of that, we found him to be Scott Errico.
Heathrow Airport:
British Airways to Paris, Charles de Gaulle flight BA-306. This is the
final call boarding now at gate number eight.
NARRATOR
When Errico tried to leave England on September fifth, 1985, an
increasingly suspicious Scotland Yard stopped him at Heathrow Airport.
He was brought to the Cannon Row Prison and
questioned closely about drug dealing and the source of his money.
According to a confidential transcript of the interview, Errico pleaded
innocent: "I'm not such a bad guy. I went to college. We are all
white college boys. There are no Colombians or Cubans. College boys have
morals."
Soon Diamond was also arrested and led detectives
here to the British Virgin Islands and the island of Tortola, to the
offices of Financial Management and Trust, and its president Shaun Murphy.
At five o'clock in the morning investigators
knocked on Murphy's door and, armed with a search warrant, took possession
of his extensive files.
ROY PENROSE
...and from the documentation found there, it was abundantly clear that he
was the main, or one of the main, individuals for money laundering, drug
money, from the U.S.
NARRATOR
Because the money was coming in from the United States, Scotland Yard
notified the Drug Enforcement Administration, which in turn called in
United States Customs and the Internal Revenue Service.
Paul Teresi headed the drug enforcement's Fort
Lauderdale office which ran the investigation.
PAUL TERESI, DEA
Ah, the very unique part of this in that we had the money launderers, the
person who's actually moving the money, who also had very clear records in
black and white showing who the money belonged to and the paper trail, how
it was being moved.
NARRATOR
The files were airlifted to Fort Lauderdale. They were extensive and
complete. Murphy and Diamond had kept three files for each transaction:
one for the client, another for auditors, the third and most important was
for themselves.
PAUL TERESI
If they knew that the police were coming they would have removed the third
file. The third file was the code system, the handwritten notes,
accounting for the wire transfers, the ah, cash transfers, ah, the money
orders, and the way they were received.
NARRATOR
Shaun Murphy was an accountant who specialized in taking in cash dollars
and converting them into the accounts of fake, offshore corporations.
Because government agents from two countries now had his files and
threatened him with prosecution, he revealed everything he knew.
According to a confidential report from Scotland
Yard, the detail which issued forth from the mouth of Murphy was
staggering. Under interrogation, he admitted receiving in excess of one
hundred million dollars in drug trafficking proceeds and identified ten or
more large-scale, U.S.-based, drug money laundering organizations.
Agent:
Today's date is April the twenty-second, 1986. The following is a call
being made by Shaun Patrick Murphy to Michael I. Levine in Miami, Florida
from Mr. Murphy's office in Tortola, British Virgin Islands.
NARRATOR
While Federal agents listened in, Murphy called one of his clients, a
lawyer, to discuss the arrest of Diamond.
Shaun Murphy:
...what, huh, sorry, hang on, there's a bit static on the line, hang on,
carry on.
Michael Levine:
I don't think you've done anything wrong so as far as you're concerned
that should be the answer.
Shaun Murphy:
But, I mean this thing about Diamond really frightens me. I mean Diamond's
been involved with all this kind of stuff. I've been wiring money to
Diamond and so on.
Michael Levine:
I mean I can't tell you not to do something if you legally gotta do it.
But I mean I'm just saying see counsel over there and, ah...
Shaun Murphy:
Right, they are going to walk in with an affidavit and what do ya call it,
a search warrant thing and just go through all my files
Michael Levine:
Well if, if an affidavit is a search warrant, then legally there's nothing
you can do about it.
Paul Teresi:
Levine, Michael Levine, had been laundering drug money for a major
marijuana import, ah, smuggling organization, of which Scott Errico was
also part of, the initial organization going back to 1982.
NARRATOR
This is Michael Levine, Scott Errico's lawyer. He was quickly arrested and
charged with money laundering.
Gerry Levine:
Well, let's see, I think that's taken in, I don't see Michael there...oh
there he is on the side, my sister, and my cousins.
NARRATOR
Gerry Levine is Michael Levine's mother.
Gerry Levine:
That's Camp Wildwood, it was the summer...there's Michael on the dock
getting ready to go swimming, and ah, I think it was the summer of '65.
NARRATOR
Michael Levine grew up in Miami, Florida, and by all appearances had a
normal childhood. He played sports and attended private schools where he
was rewarded for good conduct. He graduated from the University of Miami
Law School specializing in tax law.
GERRY LEVINE
I think he got involved without realizing what he was getting involved in.
I mean, he's a tax lawyer. And the same--whether it's a tax lawyer or a
criminal lawyer, people come to you--particularly a tax lawyer--to invest
money. And that's what your job is. And I don't think you necessarily know
where that money is coming from.
NARRATOR
Today, Michael Levine is in federal prison.
MICHAEL LEVINE
In my personal case it wasn't ah, a conscious, at least, it was not a
conscious decision, I am going to launder money. Ah, it was ah, I was in
the tax field, in the corporate field and ah, as a professional referral
someone says, well, can you form a corporation for a client? When that
happened I did it. That was ah, I thought my job and what my
rationalization was in terms of the client, who I had known to be a drug
dealer. I say-I'd know, for him to be a drug dealer, we never discussed
it. Ah, I never was involved in his organization. I knew he was a drug
dealer like you would know most clients that come into your office, the
way they dress, the way they act, the way they handle themselves, the type
of money they have, you can make a presumption that ah, in all probability
their funds are from illegal sources.
NARRATOR
Levine laundered money for various drug dealers, including Scott Errico.
His primary client was Patrick Bilton, who imported marijuana by the ton
and brought the cash to Levine.
MICHAEL LEVINE
The first times that client gave me money it was only like five thousand
dollars. I say only 'cause it kinda, this whole thing distorts your value
of money, ah, I was flabbergasted. I've never seen five thousand dollars
in my life and I, I counted several times and what happens is slowly you
get used to it. Ah, when I took that to the bank, ah, you look over your
shoulder, you think someone is going to rob you and then it gets to the
point where they give you twenty thousand dollars or they gave you fifty
thousand dollars and then they, as I told you, they gave me sometimes one
hundred to two hundred thousand dollars.. You tend after a while to lose
the ah, the apprehension of the money. It's kinda scary at the beginning.
After a while it loses its value, you don't think of it in terms of what
it can buy. You just think, well, one hundred thousand dollars, you don't
count it, at least I never did after a while, it was, ya know, if you had
it in twenties or hundreds it just took too long to count.
NARRATOR
Levine needed help to launder the money internationally. He returned to
his alma mater, and went to the law library where he looked up the name of
a company specializing in tax shelters and located Patrick Diamond.
He flew to London to meet with Diamond, and
together they set up shell corporations to hide the proceeds of the drug
dealing. On one such trip, Scotland Yard was watching and took this
picture.
MICHAEL LEVINE
A typical transaction, if you will, would have been someone, in this case
Patrick Bilton, coming to see me and saying ah, here is ah, probably one
hundred fifty thousand dollars and I need this in my overseas account.
It's a corporation that's already been set up. Ah, based upon that, I
would call up either Shaun Murphy or Patrick Diamond and they would come
to the United States. I'd have that money in my safe deposit box, ah, go
to the safe deposit box sometimes with Mr. Diamond or Mr. Murphy,
sometimes not, give them the cash in my office ah, and they would walk out
with it and bring it back themselves, any method they wanted to, with
instructions to fill out a currency report.
Custom's Agent:
Okay, you're all traveling together, you are ready to go.
NARRATOR
Anyone leaving the United States with more than ten thousand dollars in
cash is required by law to go to United States Customs and fill out a
currency report. Murphy and Diamond never did. They smuggled drug money
out of the country in suitcases and were never caught.
PATRICK O'BRIEN
Frankly, most of our efforts is put on incoming aircraft with drugs, and
is ah, there's only minimal effort put on outgoing aircraft.
NARRATOR
Patrick O'Brien is head of enforcement for U.S. Customs in Miami.
PATRICK O'BRIEN, U.S. Customs, Miami
I can't go into all of our techniques, certainly not in detail, but you do
use profiles. Certain profiles that we've developed based on our success
as to who would be a likely candidate to be smuggling. The problem, of
course, with profiles is that they become self-fulfilling. If you only
look at this type of person, then those are the only people that you ever
find smuggling money. And then your profiles get narrower and narrower.
I mean, we've had cases here where we've been
watching money coming in or going out and the ah, the baggage handlers
have better profile systems than we do. I mean, they have done very well
ripping off some of this. The second thing, of course, is information. We
rely on that a lot, both from sources of information and from
investigations.
Patrick O'Brien:
Okay, move it over there...Wally's got the dope scales...let's just stick
it over here...Do a million, let's see how much a million weighs...So
what's a million dollars weigh these days?...should weigh twenty-four
pounds, right?...in hundreds...a million dollars in hundreds. Twenty-two
pounds.
NARRATOR
When Customs does seize money, they often get a lot of it. This is ten
million dollars of drug proceeds. But this is only a small fraction of
what federal investigators estimate to be approximately one hundred
billion dollars generated by the drug business every year.
It is at this point, when drugs have become cash
dollars and traffickers start looking for ways to move it and launder it,
that investigators say businessmen and financial institutions start
sharing in the profits.
For example, this money is from a bank which is
under active investigation for taking in cash from the sale of
drugs...fives, tens and twenties...and then, for a service charge, giving
the drug dealers back these one-hundred dollar bills.
Once drug money makes it safely out of the
country and is deposited offshore, some banks make a profit by charging a
fee to accept large cash deposits.
MICHAEL LEVINE
The banks in the British Virgin Islands started charging two percent to
make a deposit down there, which I always found kind of curious in that
ah, these were major banks we're talking about, ya know, largest in the
world ah, saying that we will charge you two percent to make a deposit,
with a straight face, and I just, you know, I can't imagine anyone making
a deposit and paying someone, a bank, to take that money unless the source
was illegal.
NARRATOR
To further conceal the drug profits, Levine would invest his client's
money back into the United States into boats, real estate, both commercial
and residential, and he entered into an agreement for part ownership in a
radio station...all totaling close to twenty million dollars in assets
purchased with drug proceeds.
With each transaction, Levine would charge a fee
for his service, and yet he didn't see himself as part of the drug
problem.
MICHAEL LEVINE
No, I did think about it, ah, several times I would say, well, am I
bringing drugs to the schools? And in my case, my rationalization was
these specific clients ah, were doing it anyway. It was only after the
fact that they said I want to buy a toy, a house or a boat that they came
to see me. So the rationalization was that with me or without me, it was
going to get done.
NARRATOR
Levine used a complex strategy to hide the ownership of assets purchased
with drug profits, in this case a boat used by one of his clients for
smuggling. The owner of this boat was listed as a corporation Levine had
set up in Delaware, which was in turn owned by another corporation set up
in the British Virgin Islands.
At the United States Department of Justice, a
special team of lawyers tries to trace these ownerships backwards and link
them to drug profits. Michael Zeldin is head of Asset Forfeiture.
MICHAEL ZELDIN, Asset Forfeiture
We have to trace the asset. We have to prove that the asset was derived
from or facilitated or was in some way involved with the illegal activity
before we can forfeit it. We can't just forfeit 'cause we want to. And so
the more layers of insulation you place between the investigator and the
ultimate asset, the more difficult it is.
NARRATOR
Once assets are seized and proven to have been purchased with drug
proceeds, they are sold by the government at auctions like this one.
Auctioneer:
Item #127, a Lamborghini. This car was titled in the state of Florida, it
had a Florida tag on it, it was made overseas, it's got kilometers on the
speedometer. I got twenty now five, twenty
NARRATOR
Last year the government seized 22,000 items worth five hundred and fifty
million dollars purchased primarily with drug proceeds.
Auctioneer:
...fifty-nine and a half, now sixty. Are we through? Is everybody happy?
That man right over yonder, sixty thousand five hundred dollars.
NARRATOR
The money from the sales goes to the federal government.
MICHAEL ZELDIN
It's earmarked for law enforcement. So the money we take off the criminal
is put back into law enforcement agency budgets for further apprehension
and generating more money. Like the revenue collectors, we make our salary
and then some.
NARRATOR
The Levine case has convinced law enforcement agents that businessmen and
public officials also profit from money gained from the sale of drugs.
Elton Gissendanner was director of Florida's
Department of Natural Resources. He was accused of accepting a bribe to
arrange for a reduced charge for a defendant in a drug-smuggling case.
According to investigators, Gissendanner made a
series of cash payments totaling fifty to sixty thousand dollars to build
this house in Tallahassee, Florida. Gissendanner would not talk to
FRONTLINE, but he has told investigators that the money he invested was
family money, not drug money. He pled guilty to a lesser charge of
obstruction of justice.
LOTHAR GENGE, Prosecutor
Mr. Gissendanner, in fact, was in turn ah, using substantial amounts of
cash and making cash deliveries to persons in the Tallahassee area. I
think the evidence at the trial showed, in one case, he delivered ten
thousand in cash in connection with an investment in a nightclub type of
operation.
NARRATOR
When Scott Carswell was looking for investors in his Tallahassee night
club, seventy-five people responded. Elton Gissendanner came up with a
ten-thousand-dollar payment in cash.
SCOTT CARSWELL
We had a little trailer and he came in and I was at a table with some
other investors, and he asked me to come to the back, and I did, of the
trailer. And that's when he brought out, at that Point, cash and asked me
if I would have any trouble taking cash for his investment, and it was at
that point I told him I really didn't know.
'Course, I wanted the investment. We needed the
money. I didn't want to lose it, but I didn't want to take it improperly.
NARRATOR
Carswell took the money and reported it properly as a large cash
investment. But investigators say Scott Carswell is the exception rather
than the rule. They say that the business community is too often willing
to accept cash payments and not report them, further laundering drug
profits into the local economy.
Michael MacDonald has investigated money
laundering for ten years for the Internal Revenue Service.
MICHAEL MACDONALD
And this is just, just typifies the type of situation we're running into,
where there are legitimate businesses taking advantage of the currency
that is cut there, to move it through their institutions, move it through
their companies, move it through their accounts, and they can make money
off it and they can make a lot of money off it.
MICHAEL ZELDIN
And I think that there are a lot of people who are privileged who are
benefiting from the narcotics trade in small ways or in large ways, who
don't see themselves as the problem, but rather see the peddlers of the
drugs as the problem, and if they could only get rid of those guys, then
we'd have no other problem. I think they're blind.
NARRATOR
Attorney Michael Levine pled guilty to laundering money and is currently
serving a thirty-month sentence. Shortly before he was caught, he realized
the violent reality behind his involvement in the drug business.
MICHAEL LEVINE
I was about to make a trip to London and all of a sudden in the paper, the
Miami Herald had a picture of Scott Errico and said he had murdered
somebody, which I didn't know that, you know, until that time, and then
all of a sudden it wasn't the game anymore. You know, these are real
people and real lives. All of a sudden, the person that was in the paper
was my client I was assisting prior to that time.
NARRATOR
Federal prosecutors admit that without the capture of Scott Errico,
Michael Levine and dozens of others would still be in business today.
In Fort Lauderdale, agents continued to develop
information provided by the accountant Shaun Murphy. Using this
information and documents from his files, they followed a paper trail
which was now leading them outside of Florida to places like Boston,
Massachusetts.
Investigators emphasize that the laundering of
drug money is no longer confined to southern Florida, and Boston is a good
example. Founded on old money and thriving on new, two-earner incomes,
Boston is seemingly far removed from the center of the drug trade. But
money was laundered here and legitimized into the local economy by two
drug dealers, Fred Carroll and Thomas McNichols.
By the summer of 1988, McNichols and Carroll had
been arrested and had pled guilty to charges of drug smuggling and money
laundering. As they awaited sentencing, they reported to the courthouse
each week. They declined to be interviewed by FRONTLINE, but grand jury
testimony, public records and interviews reveal the full extent of their
story.
Carroll and McNichols grew up in Boston and
graduated from Boston College and the University of Massachusetts. Carroll
went on to get a law degree.
During the early 1980's, they imported marijuana
by the ton into New England. One shipment arrived one evening in May of
1982. Carroll and McNichols had arranged for ten to fifteen tons of
marijuana to be brought from Colombia directly into Boston Harbor. They
communicated with the ship at sea by radio from this house in Quincy, just
south of Boston. The ship radioed that the marijuana was too heavy, the
boat they were using too old, and distress signals indicated that it was
taking on water. It limped into Boston Harbor and docked directly behind a
popular restaurant where it remained for the night.
The next day, Carroll and McNichols ordered the
captain to take the boat back down to Quincy where, in broad daylight, it
was run ashore. A neighbor found the sight of a large, beached boat
interesting enough to capture it in a watercolor painting, never
suspecting that it contained tons of marijuana.
The following evening, offloaders known as Red's
Raiders, after McNichols' nickname, loaded the marijuana into large rental
trucks and drove it back into Boston, to Horticulture Hall, where an
employee let them in after hours.
Undercover agent Wendy Lovato investigated for
the Drug Enforcement Administration.
WENDY LOVATO, Agent, DEA
At that time in the hall, Fred Carroll and Thomas McNichols would be there
in person with ledger sheets. They would weigh the marijuana that would be
noted and it would be noted who was taking what amount of drugs out of
there, so they would know how much they would be paid.
NARRATOR
A celebration and cash payoffs took place later outside the Bull and Finch
bar, better known as Cheers, after the television show. Evidence shows
that McNichols and Carroll were extremely sophisticated in the laundering
and investing of the proceeds from their drug sales. They had met Shaun
Murphy in their travels to the Caribbean and they smuggled their cash out
of the country to him.
WENDY LOVATO
Mr. McNichols had a leather jacket with secret compartments sewn in the
back, and he would transport the money that way and other ways they would
get the money into the island of Tortola. They would take the thousands of
dollars of cash to Mr. Murphy.
NARRATOR
Off-camera, Carroll told FRONTLINE, "I'm just a hippie left over from
the 1960's who wanted to get his friends high." But he was
sophisticated enough to know he needed a good lawyer to help deal with the
laundering and investing of his money. He turned to his cousin John
Rogers, who had experience in criminal law serving two years as an
assistant district attorney in Boston.
To launder the money, Rogers and Murphy became
co-signers in fake corporations set up outside of the united States. Drug
money began to flow back into Boston from these offshore corporations,
much of it into Boston's prestigious and very expensive Back Bay.
Carroll bought a condominium at 205 Commonwealth
Avenue, and McNichols purchased a unit at 120 Beacon Street.
NARRATOR
Jonathan Chiel is an assistant U.S. attorney in Boston.
JONATHAN CHIEL, Assistant U.S. Attorney
If you were to try to find out who owned 120 Beacon Street, you would find
a realty trust held in the name of a company owned by a British Virgin
Islands company whose shareholders were located in, again, some other
company, perhaps in Panama. The layering was complete and designed so that
no one could ever follow the trail back.
NARRATOR
Early on, attorney Rogers wrote Murphy telling him to invest thirty
thousand dollars into a new retail business to be opened in Faneuil Hall
Marketplace and operated by Francis McNichols.
Faneuil Hall Marketplace in Boston is visited by
over ten million people a year. Business flourishes, and McNichols saw an
opportunity to get a good return on his money. He invested close to two
hundred thousand dollars of drug profits and opened not one, but three
sporting-apparel stores.
WENDY LOVATO
The stores were half-owned and managed by Tom McNichols' brother, Frank.
Thomas McNichols being the other fifty-percent owner and ah, Tom McNichols
would funnel in his narcotics money into the stores, which virtually kept
the stores alive.
NARRATOR
By the early 1980's, Carroll, McNichols, and Rogers were buying buildings,
renovating and selling them each at a large profit, running over a million
dollars through an unsuspecting savings bank south of Boston.
Said Fred Carroll off-camera, "I made three
times as much money in real estate as I did with marijuana."
So successful were they at laundering and
investing their money, they stopped smuggling drugs by 1982. When
McNichols promised his girlfriend that he had quit the drug business, she
agreed to marry him. Shaun Murphy, by now a close friend of the drug
dealers, flew to Boston from the Virgin Islands and took these pictures.
Auctioneer:
Number 477, John Lennon's piano, and I have... five thousand pounds...
NARRATOR
During a trip around the world in 1983, Carroll and McNichols stopped in
London, at Sotheby's, for an auction of Beatles memorabilia.
Auctioneer:
Eight thousand pounds at the back of the room. All done at eight thousand
pounds. Any more for it? Eight thousand pounds. All done at eight thousand
pounds. Thank you.
NARRATOR
The high bidder for John Lennon's piano, with $19,000 of drug money, was
Thomas McNichols.
He and Fred Carroll tried to avoid an inquisitive
press.
Reporter:
Why so secretive? I mean, there's a lot of fans out there...
Thomas McNichols:
Have to catch a plane. Have to catch a plane to Switzerland...
Reporter:
How much were you prepared to pay for it?
Thomas McNichols:
I would have gone to $25,000.
Reporter:
Why are you being so reluctant to talk about it?
Thomas McNichols:
'Cause I have to catch a plane. C'mon. Get us a cab, will ye?
Reporter:
Can you tell us anything about the collection at all?
Thomas McNichols:
Private corporation.
Reporter:
Will it be in a museum or...
Thomas McNichols:
Private collection.
NARRATOR
When they returned, they continued to invest their money. An estate in
Maine and land in St. Thomas. In what would have been one of their most
successful ventures, they purchased twenty-eight prime acres on Martha's
Vineyard for four hundred seventy-five thousand dollars. By the time it
was seized and sold by the federal government, it brought $1.2 million.
Investigators found that many people who came in contact with Carroll and
McNichols were only too willing to help them invest their money. No one
asked what they did for a living.
They were simply interested in the fact that
Carroll, McNichols and their front man, Rogers, had money to offer. This
real estate broker, who sold them property, talked to FRONTLINE on the
condition that he not be identified. He says that had he known they were
dealing in drug profits, he would have dealt with them anyway.
REAL ESTATE BROKER
I have an obligation to feed myself and my family and that's it. I mean,
I'm not a police officer. That's not my job. My job is to sell property,
and get as much money as I can for my clients.
NARRATOR
In 1986, agents in Fort Lauderdale had just begun the Boston phase of
their investigation. They labeled McNichols, Carroll and Rogers the Boston
Boys, and they had to act quickly.
An indictment was returned within a year just
before the five-year statute of limitations ran out. They were charged
with drug smuggling, money laundering, and tax evasion, but in the rush,
information was only just coming to light that the Boston Boys had also
given out a series of loans to several friends, businessmen who realized
that Carroll and McNichols had money, and lots of it.
Not only did they loan one hundred and ninety
thousand dollars to McNichols' brother to open the Pulse Sports Apparel
stores, but one hundred thousand dollars went to the owners of the Seaside
Restaurant.
Two loans, each for three hundred thousand
dollars went to a real estate developer to renovate two town houses.
Another loan for one hundred thousand dollars went to a New York
stockbroker for his personal use.
Investigators wanted to know if the businessmen
who received these loans knew they were borrowing drug money.
The loan to the Seaside Bar was at prevailing
interest rates and was used to maintain the business. The owners were
friends of Carroll and McNichols. They declined to comment to FRONTLINE
about the loan, but told agents they didn't know the origin of the money.
Six hundred thousand dollars in loans went to two
trusts set up to purchase town houses at 352 Beacon Street and 88
Marlborough Street. Investigators say the money went to a developer, Peter
Bailey, who works here. When asked about the loans, Bailey said,
"It's none of your business." He denies receiving any money.
But investigators from the Internal Revenue
Service, the Justice Department, and the Drug Enforcement Administration
disagree.
WENDY LOVATO
Again, these were all cash transactions. The Boys gave Mr. Bailey three
hundred thousand dollars and he, not wanting his name on paper, Mr. Bailey
used a corporate name.
NARRATOR
Agents say the stock broker from New York, Herbert Hardt, was an
acquaintance who used his loan for his own personal use and invested
another one hundred twenty thousand dollars in the stock market for
McNichols and Carroll. He told FRONTLINE he was not interested in
commenting.
The three Pulse stores owned by the McNichols
brothers remain open for business. In a plea agreement, Thomas McNichols
agreed to forfeit fifty thousand dollars of the one hundred ninety
thousand dollars he had invested. Prosecutors could not prove that his
brother Frank knew the money had come from drug profits.
Jonathan Chiel:
There is the complication of the fact that his brother's involvement and
there is a company going there which we could not say with certainty knew
of the source of the funds. We ah...
Question:
It's his brother. He'd know his brother was dealing marijuana, would he
not?
Jonathan Chiel:
We don't know that, sir. I mean, we, that's something that you have to
prove beyond a reasonable doubt. This was a criminal forfeiture that we're
talking about.
NARRATOR
But to this agent, who investigated the case, it is clear the businessmen
must have known the source of the money.
WENDY LOVATO
Everyone in their mind said they didn't know what they were doing, yet I
believe everyone knew exactly what they were doing. So I believe if they
knew that the Boston Boys were making millions of dollars off narcotics,
why not go to them for a loan?
NARRATOR
In the fall of 1988, at the federal courthouse in Boston, Carroll and
McNichols were sentenced to ten years each. Emerging from the courtroom,
Frank McNichols, part owner of the Pulse stores, declined to comment about
his brother's investments.
Outside, the Boston Boys still did not want to
talk about the case. For his part, John Rogers was sentenced to three
years in federal prison for the laundering of drug money. No one else was
indicted, including the recipients of the loans, who had paid them back
with interest.
JONATHAN CHIEL
Without specifically, without specific regard to any individuals in this
case who I don't want to comment on in any way; absolutely, the people who
profit, the real estate agent, the realtor, the yacht salesmen, whoever it
may be, who receive large amounts of money often in cash, who look the
other way. They are absolutely an essential part of the problem.
NARRATOR
In 1986, in the middle of the Boston Boys investigation, Congress passed a
tough money-laundering statute to help prosecute people who do business
with drug traffickers. Congress made it a federal crime for anyone to
become involved in a financial transaction if they know that the money
represents the proceeds from an unlawful activity.
MICHAEL ZELDIN
If you come in with cash, if you come in with enough cash, then by and
large you get your way.
NARRATOR
At the Justice Department, Michael Zeldin says the government should now
focus its investigations on those in the business community who are
looking for quick profits from drug money.
MICHAEL ZELDIN
And people on the bottom line are going to say, What's in it for me?
What's my bottom-line financial interest in this proposition?" And
that's the problem. When they say, "what's in it for me?" and
don't see that what's in it for them is a society that's going to be
ruined by drugs, then they're a part of the problem. They're the problem.
NARRATOR
Operation Man is a rare case where the files of a money launderer provided
a virtual road map to how and where drug profits were invested. The
government knows that it may never seize files this extensive again. So
federal agents are now posing as money launderers in an effort to reach
the highest levels of drug organizations.
In the summer of 1988, in Seattle, Washington, a
ship carrying seventy-two tons of marijuana was towed into port by the
United States Coast Guard. Despite this successful seizure, none of the
eighteen arrested on the boat would give information about the head of the
organization, Brian Daniels, who allegedly had been smuggling drugs into
the United States for the past fifteen years.
To reach Daniels, government agents set up a
sting, offering to launder Daniels' money through a gambling casino. When
a lawyer showed up in a Las Vegas motel room with $7.6 million, he was
arrested. The arrest of Daniels followed.
And in an effort to arrest businessmen willing to
profit by helping drug traffickers launder their cash, federal agents are
using informants and surveillance cameras.
Here an informant, with his back to the camera,
explains to a Dallas businessman that he needs drug money laundered.
IRS Informant:
...I do manage the money for some drug dealers, so this is drug money. You
know, I just don't want there to be no misunderstanding about that.
NARRATOR
Rene Manoz headed the investigation for the Internal Revenue Service.
RENE MANOZ, IRS Investigator
Ah, the money was attractive to them. They recognized the ability where
they could launder millions and millions of dollars of illegal proceeds.
And they would generate a healthy profit from that source. The individuals
were very intelligent in terms of the methods they would use.
NARRATOR
In a second meeting, the chairman of the board of the Premier National
Bank, Connie Armstrong, on the right, explained that there would be no
problem laundering the money.
Connie Armstrong:
And we'll go right down and have cashier's checks issued. See, what
she's...
Informant:
Yeah, but I don't want any problem at the bank.
Connie Armstrong:
We won't have a problem at the bank.
Informant:
Okay?
Connie Armstrong:
See, we're going to his bank to have the cashier's checks issued.
Informant:
Okay. His bank already been informed?
Connie Armstrong:
His bank has already been informed.
NARRATOR
The informant for the Internal Revenue Service then brought out one
hundred thousand dollars in cash, which Armstrong readily accepted.
Informant:
Come out here and help me count this. Make sure that's...
Connie Armstrong:
How much is...
Informant:
One, two, three...
NARRATOR
Armstrong and the other businessman, Thomas Crouch, pled guilty to
defrauding the government and failing to report a cash transaction.
They were just two of many businessmen caught in
the IRS money-laundering sting. Another banker in Tulsa, Oklahoma. A
lobbyist in Washington, D.C. In Atlanta, accountants from the brokerage
houses Dean Witter, Prudential Bache, and Oppenheimer.
Also in Atlanta, a former United States
Congressman, Pat Swindall, allegedly agreed to accept drug money to pay
for a house, then declined.
And in Boston, indictments are expected which
involve restaurants, trade unions and more lawyers.
In Fort Lauderdale, Operation Man continues with
a series of active investigations into drug smuggling and money-laundering
organizations worth over one hundred million dollars.
The most notable is an investigation into the
owners of the Apache powerboat racing team, Ben and Jack Kramer.
Announcer:
There's the Apache helicopter always present. Jack Kramer watching his son
do battle in the World Offshore Championship...
NARRATOR
Included in the indictment is their attorney, Melvyn Kessler, who was
arrested on his way to teach a course at the University of Miami Law
School.
According to a confidential drug enforcement
report, the federal government expects to seize assets worth in excess of
forty-five million dollars. Neither federal investigators or those charged
would talk to FRONTLINE because the investigation is still active.
Agent:
Meduluna, see the city? Okay, that would be, just outside that city would
be where the airstrip is.
NARRATOR
Agents at the center of the investigation hope that their efforts will
make a difference in the war against drugs by taking some of the profit
out of the crime. But even at its most successful, Operation Man will
seize only a small fraction of the billions of dollars generated by the
business of drugs. The lesson of the operation, these agents say, is that
greed crosses all lines of the business and legal communities.
For Michael Levine, one of the first men jailed
by operation Man, the lesson is different, but just as clear.
Michael Levine:
It is a strange feeling all of a sudden to be thrust into the limelight
for something illegal, and finding yourself recognized by this illegal
act, forget about what you have done prior to that date. It doesn't matter
at that point. It is just that illegal act from then on that will be with
you the rest of your life, no matter what happens.
Question:
Was it worth it?
Michael Levine:
Never. No. Not even a close call on it. And I can't imagine it ever being
worth it for anybody if you want to remain a legitimate part of society.
It just is never worth it.
JUDY WOODRUFF
Operation Man continues. Two bankers in Los Angeles were recently indicted
for their involvement in laundering drug money.
And the federal government, in an ongoing effort
to take the profit out of the illegal drug trade, is expected to make
arrests next month in a money laundering scheme stretching across the
country, totaling well in excess of one billion dollars--more than ten
times the size of Operation Man.
Thank you for joining us. I'm Judy Woodruff.
Goodnight.
