WorldCity Business Magazine

Anatomy of a frontier city

by Mary Dempsey

Miami sits in an unusual position. It is a gateway to Latin America, long notorious for government corruption, drug trafficking and money-laundering. At the same time, the city has its own unsavory past as a haven for gangsters like Al Capone and Meyer Lansky, a refuge for exiled foreign dictators and a playground for narcotics kingpins.

Miami’s combination of geography, culture and carelessness about compliance make it a petri dish for financial crime, according to three experts who examined the topic at a breakfast event organized by WORLDCITY.

“The rules are different down here because we’re on the frontier,” Mitchell Fuerst, a partner at law firm Rodriguez O’Donnell Ross & Fuerst, told participants at the monthly DHL Connections meeting. “Miami is barely 100 years old. It’s the same as Boston and New York were 110 or 115 years ago when immigrants and different cultural norms came to those cities.

“What law enforcement may call nonauthorized transactions are what some companies might call creativity in business,” Fuerst added.

A crackdown on financial crime and money laundering, as well as stringent regulations covering accounting practices including the Sarbanes Oxley Act and the Patriot Act have created a market in Miami for investigation companies. International investigation and risk consulting companies Kroll, Vance, Pinkerton, KPMG Forensic and Diligence all have offices in South Florida.

In fact, British-based Diligence has only three global offices: London, Washington and Miami.

Anti-money-laundering specialist Charles Intriago, another speaker at the breakfast, agreed with Fuerst that Miami’s role as a cultural crossroads is a factor. He said Latin American immigrants arrive with a different cultural perspective when it comes to corruption, which is chronic in their part of the world.

Current headlines in South American newspapers focus on a corruption scandal that is buffeting the government of Brazilian President Luiz Incio Lula da Silva. Nicaraguan officials investigating improper use of government funds are looking into Miami bank transfers allegedly connected to former President Arnoldo Alemn. Meanwhile, Guatemala’s ex-president, Alfonso Portillo, is in exile in Mexico while corruption charges are pending against him in his home country. In October 2004, three former presidents of Costa Rica were arrested on separate corruption charges.

“The one part of their culture that stays with [Latin Americans] is the culture of living in an environment rife with corruption,” said Intriago, president of Alert Global Media and the publisher of the monthly Money Laundering Alert newsletter.

Worldwide at least $300 billion some $822 million daily changes hands annually in just drug trafficking, one of the elements of money-laundering, the Ecuador native said. Other factors are kidnapping money, political kickbacks, human trafficking and terrorism money. “Corruption is the lubricant of all major crime,” said Intriago, “except for crimes of passion.”

He said money laundering has reached such a global scale that it is impossible to accurately quantify it. However, he added: “In Miami, it works out to billions of dollars annually. Maybe $10 billion. It’s hard to say.”

Intriago, whose company organizes a well-known annual conference focusing on money-laundering, said a culture of corruption does not come to Miami solely from outside. He also noted that Miami has a historical reputation for rolling out a red carpet for gangsters and deposed dictators. Chicago mobster Al Capone moved to Miami in 1928, the same year New Yorker magazine dubbed him “the greatest gang leader in history.” And organized crime boss Meyer Lansky died in South Florida a wealthy old man. Lansky made Hollywood his home about the same time that Venezuelan dictator Marcos Prez Jimnez fled to Miami after a popular revolution ended his rule. Two decades later, in the late 1970s, deposed Nicaraguan strongman Anastasio Somoza also moved to Miami before relocating to Paraguay where he was assassinated.

In more contemporary times, it was not Latin American leaders who found refuge in Miami but, rather, their money. The now-closed Riggs Bank office in Miami ended up paying federal fines after it was discovered that it hid millions of dollars in accounts belonging to former Chilean dictator Augusto Pinochet. In late July, following a request from the attorney general of Chile, another former Miami bank branch turned over $1 million of Pinochet-linked money that it found in its accounts.

Some members of the audience at the breakfast presentation rebutted the two speakers’ claims that Latin American immigration was fueling financial crime in Miami.

“Corruption that transcends borders has been around a long time, and it has nothing to do with the influx of immigrants,” said Jose de la Torre, dean of the Chapman School of Business at Florida International University. “If we look at [corruption] as focusing on frontier towns, we’re missing the point.”

Alex Blair, managing director at Diligence, told the breakfast gathering that Miami’s situation is not unique. “These are global trends,” said the former official in British government intelligence agency, MI6. “London is almost a frontier town, too. There are many parallels to Miami and Europe.

“You could largely substitute London for Miami and Eastern Europe and the former Soviet Union for Latin America,” he added.

Blair also noted that investigators do not need to look at the top of the most powerful institutions to find wrongdoing. He cited an international drug-investigation he worked on in England, noting that one of the suspects was a local council member in the county of Kent. The suspect was also a member of a local police board. “There’s corruption even at the local level,” the Diligence executive said.

Blair concurred that cultural crossroads tended to attract criminal activity. In Europe, he previously headed a team investigating organized crime led by Russians. “People are now calling London London-grad’ because there are so many mini-oligarchs from Russia coming here,” he said. He added, however, that the foreign crime chiefs make some adjustment away from home. “Organized crime people are very violent. [But] they have an unwritten truce: They don’t kill one another while in London,” he explained.

The three panelists at the gathering titled “Scoundrels, Scalawags and Scofflaws: Crime in a Globalized Economy,” agreed that criminals need the assistance of others who directly aid them or, at the minimum, ignore their wrongdoing. Blair referred to the accountants, bankers and lawyers who work with them as the “weak links” in the criminal chain.

The speakers said countries need strong international laws to combat financial crime, as well as adequately funded law-enforcement agencies to track down lawbreakers.

“If great laws were the [sole] catalyst of change, we wouldn’t have some of these problems in Latin America, home to some of the most beautiful constitutions in the world,” said money-laundering expert Intriago. “But there are no enforcement mechanisms.”