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How the American economy uses the profits from the illegal drug trade.
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00:00Funding for Frontline is provided by this station and other public television stations nationwide and by the Corporation for Public Broadcasting.
00:12Illegal drug profits add up to a hundred billion dollars a year.
00:15They will smuggle the cash out of the country the same way they smuggle the drugs into the country a hundred different ways.
00:22Meet some of the legitimate businessmen who make it possible. Accountants, lawyers and bankers.
00:30Frontline follows a federal investigation of the illegal money trail into the heart of the mainstream economy.
00:37There are legitimate businesses taking advantage of the currency that's out there.
00:42Tonight on Frontline, who profits from drugs?
00:45From the network of public television stations, a presentation of KCTS Seattle, WNET New York, WPBT Miami, WTVS Detroit and WGBH Boston.
01:06This is Frontline with Judy Woodruff.
01:13Good evening.
01:15Our 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.
01:28Those images of the drug problem are perpetuated by the media's focus on stories about desperate addicts, ruthless pushers and invincible foreign cartels.
01:40But there is another side of the story with a very different group of players who don't fit the stereotypes.
01:47Tonight, Frontline investigates what happens to the enormous profits of the illegal drug trade, following a trail directly into the offices of otherwise respectable businessmen.
02:01People who would say no to drugs, but very willingly say yes to drug money.
02:08It is the untold story of how the whole American economy profits from illegal drugs.
02:15Tonight's program was produced by Charles Stewart and Marcia Vivancos.
02:21It is called, Who Profits From Drugs?
02:25This yacht center in Fort Lauderdale, Florida, is just one of thousands of such marinas dotting the seaboard of Florida's coast.
02:39All of them potential smuggling havens for drug traffickers.
02:44From 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.
02:57Investigators estimate that two million pounds of marijuana, worth at least one half a billion dollars, was smuggled through here.
03:07The organization was run by this man, Raymond Thompson, who was also suspected of killing at least three people.
03:17At the Florida Department of Law Enforcement, detectives were looking into the Thompson organization.
03:23Lonnie Cooper headed the investigation.
03:27The Ray Thompson organization was run by two main components.
03:33One was fear, and the other was money.
03:36Now, 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.
03:51In the summer of 1981, police raided the Amity Yacht Center, seizing 15 tons of marijuana and making one arrest.
04:00They missed Ray Thompson.
04:03But Thompson was nervous.
04:04He needed a place to hide $550,000 in fives, tens, and twenties.
04:10So he asked his longtime friend, James Savoy, to install a safe in the floor of his workshop.
04:17Large amounts of money were subsequently placed in that safe.
04:22That must have put a strain on Savoy that he couldn't stand.
04:27He went one night and tried to break the safe open with a sledgehammer.
04:32He was unable to do that.
04:34He then went out and rented a jackhammer, spent almost the rest of the next day jackhammering out.
04:42This floor safe was buried in concrete and placed in the floor.
04:47He was able to get the safe and part of the concrete out, but he still couldn't get in the safe.
04:52Savoy eventually opened the safe and stole the money.
04:57He drove to North Carolina and checked into a motel.
05:00He hooked up with a prostitute.
05:03When their business was done, Savoy either passed out or fell asleep.
05:09He woke up the next morning $550,000 lighter with no idea of where to look for the prostitute or what to do.
05:20That was his second worst mistake.
05:24His first worst mistake was he then decided to return to South Florida.
05:29In March of 1982, Ray Thompson caught up with James Savoy when he returned to Florida.
05:36He forced Savoy to go to the marina where he was put on a boat and taken out into the Atlantic Ocean.
05:44They put him on the back of the boat.
05:49They weighted him down with some chain they'd bought, an anchor.
05:53And Ray Thompson said, I want to do this myself.
05:56Ray Thompson took a gun, placed it to the back of Savoy's head, blew the back of his head off.
06:02They threw him out into the water.
06:04They broke the gun down, threw it out in different parts and returned.
06:09Thompson was eventually convicted of drug smuggling and murder.
06:13But the story of his money demonstrates a surprising problem all drug traffickers face, cash.
06:21At the Internal Revenue Service, agents have seized $1.6 million in drug profits from just one raid.
06:28It is money like this, not the growing and manufacturing of their product, not the smuggling and distribution of the drugs,
06:43which presents traffickers with their most difficult business problem, how to handle large amounts of cash.
06:49Dave Wilson, an agent at the Drug Enforcement Administration's Financial Investigations Office, explains why.
07:01Handling millions of dollars creates a weight and distribution problem to them that you wouldn't expect,
07:10because most of their business is done in fives, tens, and twenties.
07:14Because of that, for instance, we discovered this a while back, $20 in $20 bills, $250,000 weighs about 75 pounds.
07:25Well, when a trafficker is doing several million dollars a week, he has a problem just disposing of the paper,
07:31just being able to handle that much paper.
07:35Another problem with cash, who to trust with it.
07:38When drugs are seized or lost, traffickers can always get more.
07:42But when they lose their cash, either through a seizure, like this one, or through a theft, like James Savoy's,
07:49they have lost what matters most to them, their profits.
07:53Ordinarily, we'll see that the money is handled by a different group of people than the cocaine is handled by.
08:00The people that handle the money tend to be much more influential in an organization,
08:05tend to be much more trusted, and are, generally speaking, more sophisticated.
08:10Michael McDonald is a criminal investigator with the Internal Revenue Service.
08:15He points to another problem traffickers have with cash.
08:19How to spend it where it doesn't come back to haunt them, in terms of a tax problem,
08:23in terms of tax evasion of prosecutions, in terms of rendering his assets seizable and forfeitable.
08:30To simplify things, a very common way of doing it is get the money offshore.
08:36You need to get the money into a foreign bank.
08:40They will smuggle the cash out of the country the same way they smuggle the drugs into the country, a hundred different ways.
08:47They'll carry it out in suitcases, they'll carry it out in duffel bags on commercial flights, box it up,
08:53they'll package it in commercial shipments, they'll charter jets, they'll take it home by private plane.
09:00People kind of chuckle about that and feel that it's just, that's Hollywood, but that's real life in the drug trade.
09:06In 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.
09:26Here, investigators are hidden away behind an unmarked, locked door.
09:36Is Tony there?
09:41Yeah, I tried, he's still out on the street?
09:46Yeah, but I thought he was going to go home.
09:49Frontline was allowed inside on the condition that no undercover agents be identified.
09:54This office and its headquarters nearby are the center for what has been codenamed Operation Man.
10:07Okay, ask him how he knows that Nelson did that load when he was out on bond.
10:15It began with intelligence gathered from the investigation into Ray Thompson and his organization.
10:22Agents here are uncovering a trail of $100 million in drug profits laundered through six countries and invested back into the United States.
10:32Based 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.
10:49The key would be an enforcer in the Ray Thompson organization, a man indicted for kidnapping and murder, Scott Eriko.
11:05Eriko 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.
11:12In 1983, Eriko took half a million dollars in cash, and on instructions from his lawyer, flew to New York.
11:23His lawyer then told him by telephone to go to the Helmsley Hotel, where Eriko met an Englishman who would help him launder his money.
11:35They stuffed hundreds of thousands of dollars into suitcases, and together they departed for England.
11:42In London, Eriko checked into an expensive apartment under an assumed name.
11:49Twice he paid large sums of rent in cash.
11:53But 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.
12:04The money launderer, Patrick Diamond, began to educate Eriko in the sophisticated art of hiding his money.
12:12He set up fake corporations, with Eriko as the hidden owner.
12:16But all the while they were meeting, detectives from Scotland Yard were watching.
12:21Commander Roy Penrose is in charge of criminal investigations for Scotland Yard.
12:26During that surveillance operation, we came across a man called Stephen Muzzavilla.
12:33We didn't know him. He looked interesting. There were several meets recorded with him and Diamond.
12:40We then decided to put surveillance on him, and as a result of that, we found him to be Scott Eriko.
12:49British Airways to Paris, Charles de Gaulle. Flight BA 306. This is the final call. Boarding now at Gate 8.
12:56When Eriko tried to leave England on September 5th, 1985, an increasingly suspicious Scotland Yard stopped him at Heathrow Airport.
13:08He was brought to the Cannon Row Prison and questioned closely about drug dealing and the source of his money.
13:15According to a confidential transcript of the interview, Eriko pleaded innocent.
13:19I'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.
13:35Soon, Diamond was also arrested and led detectives here to the British Virgin Islands and the island of Tortola.
13:42To the offices of Financial Management and Trust and its president, Sean Murphy.
13:49At 5 o'clock in the morning, investigators knocked on Murphy's door and armed with a search warrant, took possession of his extensive files.
13:58And from the documentation found there, it was abundantly clear that he was the main or one of the main individuals for money laundering of drug money from the US.
14:14Because 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.
14:27Paul Teresi headed the Drug Enforcement's Fort Lauderdale Office, which ran the investigation.
14:34The very unique part of this is that we had the money launderers, the person who was 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.
14:50The files were airlifted to Fort Lauderdale. They were extensive and complete.
14:57Murphy and Diamond had kept three files for each transaction, one for the client, another for auditors. The third and most important was for themselves.
15:07If 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 cash transfers, the money orders and the way they were received.
15:24Sean Murphy was an accountant who specialized in taking in cash dollars and converting them into the accounts of fake offshore corporations.
15:35Because government agents from two countries now had his files and threatened him with prosecution, he revealed everything he knew.
15:43According to a confidential report from Scotland Yard, the detail which issued forth from the mouth of Murphy was staggering.
15:53Under interrogation, he admitted receiving in excess of $100 million in drug trafficking proceeds and identified 10 or more large scale U.S. based drug money laundering organizations.
16:06Today's date is April 22, 1986, as long as a call being made by Sean Patrick Murphy to Michael Levine of Miami, Florida, from Mr. Murphy's office in Tortola, British Virgin Islands.
16:28While federal agents listened in, Murphy called one of his clients, a lawyer, to discuss the arrest of Diamond.
16:34Huh? Sorry? Hang on, a little bit of static on the line. Hang on, carry on.
16:38I don't think you've got anything wrong. So, as far as you're concerned, that should be the answer.
16:43But, I mean, this thing about Diamond really frightens me. I mean, Diamond's been involved with all this kind of stuff. I've been wearing many diamonds and so on.
16:50I mean, I can't tell you not to do something if you legally got to do it. But, I mean, I'm just saying, seek counsel over there.
16:57Right. They're going to walk in one day with an affidavit or what do you call it? Search one thing and just go through all my files.
17:02An affidavit is a search warrant and there's nothing you can do about it.
17:06Levine, Michael Levine, had been laundering drug money for a major marijuana import smuggling organization, of which Scott Errico was also part of the initial organization going back to 1982.
17:21This is Michael Levine, Scott Errico's lawyer. He was quickly arrested and charged with money laundering.
17:28Oh, let's see. I think that's taken and I don't see Michael there. Oh, there he is on the side. My sister and my cousins.
17:42Jerry Levine is Michael Levine's mother. That's Camp Wildwood. It was the summer. There's Michael on the dock getting ready to go swimming. And I think it was the summer of 65.
17:58Michael Levine. Michael Levine grew up in Miami, Florida, and by all appearances, had a normal childhood.
18:05He played sports and attended private schools where he was rewarded for good conduct.
18:13He graduated from the University of Miami Law School, specializing in tax law.
18:20I 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.
18:39And that's what your job is. And I don't think you necessarily know where that money is coming from.
18:49Today, Michael Levine is in federal prison.
18:53In my personal case, it wasn't a conscious, at least, it was not a conscious decision, I am going to launder money.
19:03It was, I was in the tax field, in the corporate field, and as a professional referral, someone says, well, can you form a corporation for a client?
19:14Well, when that happened, I did it. That was, I thought, my job. And what my rationalization was, in terms of the client, who I had known to be a drug dealer.
19:28When I say I had known for him to be a drug dealer, we never discussed it. I never was involved in his organization.
19:35I knew he was a drug dealer like you would know most clients that come into your office, if 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 in all probability their funds are from illegal sources.
19:53Levine 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.
20:06Well, the first time that client gave me money was only like $5,000. I say only, because it kind of, this whole thing distorts your value of money. I was flabbergasted. I've never seen $5,000 in my life.
20:21And I, I counted it several times. And what happens is slowly you get used to it. When I took that to the bank, you look over your shoulder, you think someone's going to rob you.
20:32And then it gets to the point where they gave you $20,000 or they gave you $50,000. And then they, as I told you, they gave me sometimes $100,000, $200,000.
20:40You tend after a while to lose the, the apprehension of the money. It's, it's kind of scary at the beginning after a while, it loses its value.
20:52You don't think of it in terms of what it can buy. You just think of, well, a hundred thousand. You don't count it. At least I never did after a while.
20:59It was, you know, if you had it in twenties or hundreds, it just took too long to count.
21:04Levine 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.
21:19He flew to London to meet with Diamond and together they set up shell corporations to hide the proceeds of the drug dealing.
21:27On one such trip, Scotland Yard was watching and took this picture.
21:33A typical transaction, if you will, would have been someone, in this case, Patrick Bilton, coming to me and saying,
21:40here is probably $150,000. And I, I need this in my overseas account, this corporation that's already been set up.
21:52Based upon that, I would call up either Sean Murphy or Patrick Diamond and they would come to the United States.
21:59I'd have that money in my safe deposit box, go to the safe deposit box, sometimes with Mr. Diamond or Mr. Murphy, sometimes not give them the cash in my office.
22:11And they would walk out with it and bring it back themselves, any method they want to do with instructions to fill out a currency report.
22:21Anyone leaving the United States with more than $10,000 in cash is required by law to go to United States Customs and fill out a currency report.
22:36Murphy and Diamond never did. They smuggled drug money out of the country in suitcases and were never caught.
22:44Frankly, most of our effort is put on incoming aircraft with drugs. And there's, there's only a minimal effort put on outgoing aircraft.
22:55Patrick O'Brien is head of enforcement for U.S. Customs in Miami.
23:00I 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.
23:17The problem, of course, with profiles is that then becomes self-fulfilling. If you only look at this type of person and those are the only people that you ever find smuggling money and then your profile gets narrower and narrower.
23:28We've had cases here where we've been watching money coming in or going out and the baggage handlers have better profile systems than we do, right?
23:38I mean, they've, they've done very well ripping off some of this.
23:41The, uh, second thing, of course, is information. We rely on that a lot, uh, both from sources of information and from investigations.
23:50Okay, move it over there.
23:52Let's just stick it over here.
23:53Do a million. See how much a million is.
23:56So what's a million dollars weighted these days?
23:58Uh, I should weigh 24 pounds, right?
24:00Mm-hmm.
24:01Twenty-two.
24:03Twenty-two pounds?
24:04Twenty-two pounds.
24:05Twenty-two pounds.
24:06Dirt on.
24:07Yeah.
24:08Well, that's right.
24:09When Customs does seize money, they often get a lot of it.
24:13This is 10 million dollars of drug proceeds.
24:17But this is only a small fraction of what federal investigators estimate to be approximately 100 billion dollars generated by the drug business every year.
24:28It 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.
24:45For 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.
24:55And then for a service charge, giving the drug dealers back these 100 dollar bills.
25:06Once 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.
25:16The banks in the British Virgin Islands started charging 2% to make a deposit down there, which I always found kind of curious in that these were major banks.
25:28We're talking about, you know, the largest in the world, saying that we will charge you 2% to make a deposit with a straight face.
25:38And I just, you know, I don't, I can't imagine anyone making a deposit and paying someone a bank to take that money unless the source was illegal.
25:49To 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,
25:59and he entered into an agreement for part ownership in a radio station, all totaling close to 20 million dollars in assets purchased with drug proceeds.
26:11With each transaction, Levine would charge a fee for his service, and yet he didn't see himself as part of the drug problem.
26:18No, I did think about it several times. I would say, well, am I bringing drugs to the schools?
26:24And in my case, my rationalization was these specific clients were doing it anyway.
26:33It was only after the fact that they said I want to buy a toy or a house or a boat that they came to me.
26:40So my rationalization was with me, without me, it was going to get done.
26:44Levine used a complex strategy to hide the ownership of assets purchased with drug profits.
26:50In this case, a boat used by one of his clients for smuggling.
26:55The owner of this boat was listed as a corporation Levine had set up in Delaware,
27:00which was, in turn, owned by another corporation set up in the British Virgin Islands.
27:06At the United States Department of Justice, a special team of lawyers tries to trace these ownerships backwards
27:12and link them to drug profits.
27:15Michael Zeldin is head of asset forfeiture.
27:18We have to trace the asset. We have to prove that the asset was derived from or facilitated
27:26or was in some way involved with the illegal activity before we can forfeit it.
27:30We can't just forfeit because we want to.
27:32And so the more layers of insulation you place between the investigator and the ultimate asset, the more difficult it is.
27:39Once assets are seized and proven to have been purchased with drug proceeds,
27:44they are sold by the government at auctions like this one.
27:49Item number 127, a 1980 Lamborghini.
27:53It's got 12 cylinders.
27:55This car was titled in the state of Florida.
27:57It had a Florida tag on it.
28:00It was made overseas.
28:01It's got kilometers on the speedometer.
28:04I got 20 and a half high.
28:05I got 20 and a half high.
28:06I got 20 and a half high.
28:07I got 20 and a half high.
28:08I hit 25 and a half high.
28:09Last year, the government seized 22,000 items worth $550 million, purchased primarily with drug proceeds.
28:1759 and a half now, 60 to bid 59 and a half, now 60.
28:2160 now a half.
28:22I got 60,000 now the half.
28:24We got 60,000 now the half.
28:25I got 60 now the half.
28:26We got 60 and a half now 61.
28:29If it's 60 and a half, now one.
28:31The bid is $60,500 all the way through.
28:34Is everybody half?
28:36That man right over yonder was $60,500.
28:41The money from the sales goes to the federal government.
28:45It's earmarked for law enforcement.
28:48So the money we take off the criminal is put back into law enforcement agency budgets for further apprehension and generating more money.
28:57Like the revenue collectors, we make our salary and then some.
29:01The Levine case has convinced law enforcement agents that businessmen and public officials also profit from money gained from the sale of drugs.
29:14Elton Gissendanner was director of Florida's Department of Natural Resources.
29:19He was accused of accepting a bribe to arrange for a reduced charge for a defendant in a drug smuggling case.
29:27According to investigators, Gissendanner made a series of cash payments totaling $50,000 to $60,000 to build this house in Tallahassee, Florida.
29:37Gissendanner would not talk to Frontline, but he has told investigators that the money he invested was family money, not drug money.
29:46He pled guilty to a lesser charge of obstruction of justice.
29:51Lothar Genge was the prosecutor.
29:54Mr. Gissendanner, in fact, was in turn using substantial amounts of cash and making cash deliveries to persons in the Tallahassee area.
30:07I think the evidence at the trial showed, in one case, he delivered $10,000 in cash in connection with an investment in a nightclub type of operation.
30:19When Scott Carswell was looking for investors in his Tallahassee nightclub, 75 people responded.
30:34Elton Gissendanner came up with a $10,000 payment in cash.
30:39We 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.
30:49And I did of the trailer and that's when he brought out that point cash and asked me if I would have any trouble taking cash for his investment.
31:01And it was at that point I told him I really didn't know.
31:04Of course, I wanted the investment. We needed the money.
31:06I didn't want to lose it, but I didn't want to take it improperly.
31:09Carswell took the money and reported it properly as a large cash investment.
31:15But investigators say Scott Carswell is the exception rather than the rule.
31:20They say that the business community is too often willing to accept cash payments and not report them,
31:27further laundering drug profits into the local economy.
31:32Michael McDonald has investigated money laundering for 10 years for the Internal Revenue Service.
31:38And this just typifies the type of situation we're running into where there are legitimate businesses taking advantage of the currency that's out there
31:49to move it through their institutions, move it through their companies, move it through their accounts,
31:54and they can make money off it and they can make a lot of money off it.
31:57And 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,
32:07who don't see themselves as the problem, but rather see the peddlers of the drugs as the problem.
32:13And if they could only get rid of those guys, then we'd have no other problem. I think they're blind.
32:18Attorney Michael Levine pled guilty to laundering money and is currently serving a 30-month sentence.
32:25Shortly before he was caught, he realized the violent reality behind his involvement in the drug business.
32:34I 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,
32:42which I didn't know that until that time. And then all of a sudden, it wasn't the game anymore.
32:51You know, these were real people, real lives. And all of a sudden, the person that was in the paper was my client that I was assisting prior to that time.
33:03Federal prosecutors admit that without the capture of Scott Errico, Michael Levine and dozens of others would still be in business today.
33:14In Fort Lauderdale, agents continued to develop information provided by the accountant, Sean Murphy.
33:25Using 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.
33:36Investigators emphasized that the laundering of drug money is no longer confined to southern Florida.
33:43And Boston is a good example. Founded on old money and thriving on new to-earner incomes, Boston is seemingly far removed from the center of the drug trade.
33:55But money was laundered here and legitimized into the local economy by two drug dealers, Fred Carroll and Thomas McNichols.
34:04By the summer of 1988, McNichols and Carroll had been arrested and had pled guilty to charges of drug smuggling and money laundering.
34:13As they awaited sentencing, they reported to the courthouse each week.
34:17They declined to be interviewed by Frontline, but grand jury testimony, public records, and interviews reveal the full extent of their story.
34:26Carol and McNichols grew up in Boston and graduated from Boston College and the University of Massachusetts.
34:38Carol went on to get a law degree.
34:41During the early 1980s, they imported marijuana by the ton into New England.
34:52One shipment arrived one evening in May of 1982.
34:56Carol and McNichols had arranged for 10 to 15 tons of marijuana to be brought from Columbia directly into Boston Harbor.
35:05They communicated with the ship at sea by radio from this house in Quincy, just south of Boston.
35:12The 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.
35:20It limped into Boston Harbor and docked directly behind a popular restaurant where it remained for the night.
35:31The next day, Carol and McNichols ordered the captain to take the boat back down to Quincy, where in broad daylight it was run ashore.
35:38A 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.
35:49The following evening, offloaders known as Reds Raiders, after McNichols nickname, loaded the marijuana into large rental trucks and drove it back into Boston to Horticultural Hall, where an employee let them in after hours.
36:04Undercover agent Wendy Lovato investigated for the Drug Enforcement Administration.
36:11At that time, in the hall, Fred Carroll and Thomas McNichols would be there in person with ledger sheets.
36:18They 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 wouldn't know how much they would be paid.
36:28A celebration and cash payoffs took place later outside the Bull and Finch bar, better known as Cheers, after the television show.
36:39Evidence shows that McNichols and Carroll were extremely sophisticated in the laundering and investing of the proceeds from their drug sales.
36:47They had met Sean Murphy in their travels to the Caribbean, and they smuggled their cash out of the country to him.
36:54Mr. McNichols had a leather jacket with a secret compartment sewn in the back, and he would transport money that way and other ways they would get the money into the island of Tortola.
37:06They would take the thousands of dollars of cash to Mr. Murphy.
37:13Off camera, Carroll told Frontline, I'm just a hippie left over from the 1960s who wanted to get his friends high.
37:20But he was sophisticated enough to know he needed a good lawyer to help deal with the laundering and investing of his money.
37:27He turned to his cousin, John Rogers, who had experience in criminal law, serving two years as an assistant district attorney in Boston.
37:38To launder the money, Rogers and Murphy became co-signers in fake corporations set up outside of the United States.
37:45Drug money began to flow back into Boston from these offshore corporations, much of it into Boston's prestigious and very expensive Back Bay.
37:56Carroll bought a condominium at 205 Commonwealth Avenue, and McNichols purchased a unit at 120 Beacon Street.
38:05Jonathan Cheel is an assistant U.S. attorney in Boston.
38:10If you were to try to find out who owned 120 Beacon Street, you'd find a realty trust held in the name of a company, owned by a British Virgin Islands company,
38:18whose shareholders were located in, again, some other company perhaps in Panama.
38:23The layering was complete and designed so that no one could ever follow the trail back.
38:32Early on, Attorney Rogers wrote Murphy telling him to invest $30,000 into a new retail business to be opened in Faneuil Hall Marketplace and operated by Francis McNichols.
38:46Faneuil Hall Marketplace in Boston is visited by over 10 million people a year. Business flourishes, and Thomas McNichols saw an opportunity to get a good return on his money.
39:13He invested close to $200,000 of drug profits and opened not one, but three sporting apparel stores.
39:20The stores were half owned and managed by Tom McNichols' brother Frank, Thomas McNichols being the other 50% owner, and Tom McNichols would funnel in his narcotics money into the stores, which virtually kept the stores alive.
39:39By the early 1980s, Carol McNichols 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.
39:54Said Fred Carroll off camera, I made three times as much money in real estate as I did with marijuana.
40:01So successful were they at laundering and investing their money, they stopped smuggling drugs by 1982.
40:08When McNichols promised his girlfriend that he had quit the drug business, she agreed to marry him.
40:15Sean Murphy, by now a close friend of the drug dealers, flew to Boston from the Virgin Islands and took these pictures.
40:23During a trip around the world in 1983, Carol and McNichols stopped in London at Sotheby's for an auction of Beatles memorabilia.
40:368,500.
40:378,000 pounds at the back of the room, all done at 8,000 pounds. Selling them for 8,000 pounds. Any more for it? 8,000 pounds. All done at 8,000 pounds. Thank you.
40:51The high bidder for John Lennon's piano, with $19,000 of drug money, was Thomas McNichols.
40:57He really doesn't want to be filming. Well, okay, I mean, CBS is already filming. We just want to get something on the news.
41:03Let's just get an exam. We'll come back. We'll come back. Okay.
41:06Can you just give us one statement?
41:08He and Fred Carroll tried to avoid an inquisitive press.
41:12What can I happen to you? Why so secretive? I mean, there's a lot of fans out there that are interested.
41:17I have to catch a plane. Okay. You've got to catch a plane, Switzerland.
41:20How much were you prepared to pay for it? I would have gone to $25,000.
41:24Why are you being so reluctant to talk about it?
41:27Because I've got to catch a plane. We'll get a cab.
41:30We'll help you get a cab. Okay.
41:32How much did you, how much, can you tell us anything about the owner at all?
41:35Nope. Nope. It's a private corporation.
41:38Will it be in a museum? No, it'll probably be in a private collection. Get a cab.
41:47When they returned, they continued to invest their money, an estate in Maine, and land in St. Thomas.
41:53In what would have been one of their most successful ventures, they purchased 28 prime acres on Martha's Vineyard for $475,000.
42:02By the time it was seized and sold by the federal government, it brought $1.2 million.
42:08Investigators found that many people who came in contact with Carroll and McNichols were only too willing to help them invest their money.
42:19No one asked what they did for a living.
42:21They were simply interested in the fact that Carroll, McNichols, and their front man, Rogers, had money to offer.
42:28This real estate broker, who sold them property, talked to Frontline on the condition that he not be identified.
42:36He says that had he known they were dealing in drug profits, he would have dealt with them anyway.
42:42I have an obligation to feed myself, my family, and that's it. I mean, I'm not a police officer. That's not my job.
42:57My job is to sell property and get as much money as I can for my clients.
43:03In 1986, agents in Fort Lauderdale had just begun the Boston phase of their investigation.
43:12They labeled McNichols, Carroll, and Rogers the Boston Boys, and they had to act quickly.
43:18An indictment was returned within a year, just before the five-year statute of limitations ran out.
43:25They were charged with drug smuggling, money laundering, and tax evasion.
43:30But 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.
43:39Businessmen who realized that Carroll and McNichols had money and lots of it.
43:44Not only did they loan $190,000 to McNichols' brother to open the Pulse sports apparel stores,
43:51but $100,000 went to the owners of the Seaside restaurant.
43:56Two loans each for $300,000 went to a real estate developer to renovate two townhouses.
44:03Another loan for $100,000 went to a New York stockbroker for his personal use.
44:09Investigators wanted to know if the businessmen who received these loans knew they were borrowing drug money.
44:16The loan to the Seaside Bar was at prevailing interest rates and was used to maintain the business.
44:23The owners were friends of Carroll and McNichols.
44:26They declined to comment to Frontline about the loan, but told agents they didn't know the origin of the money.
44:33$600,000 in loans went to two trusts set up to purchase townhouses at 352 Beacon Street and 88 Marlborough Street.
44:45Investigators say the money went to a developer, Peter Bailey, who works here.
44:50When asked about the loans, Bailey said, it's none of your business.
44:54He denies receiving any money.
44:57But investigators from the Internal Revenue Service, the Justice Department and the Drug Enforcement Administration disagree.
45:05Again, these were all cash transactions.
45:08The boys gave Mr. Bailey $300,000.
45:11And he, not whining his name on paper, Mr. Bailey used a corporate name.
45:17Agents say the stockbroker from New York, Herbert Hart, was an acquaintance who used his loan for his own personal use
45:25and invested another $120,000 in the stock market for McNichols and Carroll.
45:31He told Frontline he was not interested in commenting.
45:36The three Pulse stores owned by the McNichols brothers remain open for business.
45:41In a plea agreement, Thomas McNichols agreed to forfeit $50,000 of the $190,000 he had invested.
45:49Prosecutors could not prove that his brother, Frank, knew the money had come from drug profits.
45:56There is the complication of the fact that his brother's involvement and there is a company going there
46:02which we could not say with certainty knew of the source of the funds.
46:06It's his brother. He didn't know his brother was dealing marijuana, would he not?
46:12We don't know that, sir.
46:14I mean, that's something that you have to prove beyond a reasonable doubt.
46:17This is criminal forfeiture that we're talking about.
46:19But to this agent who investigated the case, it is clear the businessmen must have known the source of the money.
46:27Everyone in their mind said they didn't know what they were doing, yet I believe everyone knew exactly what they were doing.
46:34So I believe if they know that the Boston boys are making millions of dollars off narcotics, why not go to them for a loan?
46:45In the fall of 1988, at the federal courthouse in Boston, Carroll and McNichols were sentenced to ten years each.
46:54Emerging from the courtroom, Frank McNichols, part owner of the Pulse stores, declined to comment about his brother's investments.
47:03Outside, the Boston boys still did not want to talk about the case.
47:07For his part, John Rogers was sentenced to three years in federal prison for the laundering of drug money.
47:14No one else was indicted, including the recipients of the loans, who had paid them back with interest.
47:21Without specific regard to any individuals in this case, who I don't want to comment on in any way,
47:27absolutely, the people who profit, the real estate agents, the realtors, the yacht salesmen, whoever it may be,
47:34who receive large amounts of money, often in cash, who look the other way,
47:40they are absolutely an essential part of the problem.
47:43In 1986, in the middle of the Boston boys' investigation, Congress passed a tough money laundering statute
47:51to help prosecute people who do business with drug traffickers.
47:56Congress made it a federal crime for anyone to become involved in a financial transaction
48:02if they know that the money represents the proceeds from an unlawful activity.
48:08If you come in with cash, if you come in with enough cash, then, by and large, you get your way.
48:15At the Justice Department, Michael Zeldin says the government should now focus its investigations
48:21on those in the business community who are looking for quick profits from drug money.
48:26And people on the bottom line are going to say, what's in it for me?
48:29What's my bottom line financial interest in this proposition?
48:33And that's the problem.
48:35When they say, what's in it for me, and don't see that what's in it for them
48:41is a society that's going to be ruined by drugs, then they're part of the problem.
48:47They're the problem.
48:50Operation Man is a rare case where the files of a money launderer provided a virtual roadmap
48:56to how and where drug profits were invested.
49:00The government knows it may never seize files this extensive again.
49:05So federal agents are now posing as money launderers
49:08in an effort to reach the highest levels of drug organizations.
49:15In the summer of 1988 in Seattle, Washington,
49:18a ship carrying 72 tons of marijuana was towed into port by the United States Coast Guard.
49:25Despite this successful seizure, none of the 18 arrested on the boat would give information
49:31about the head of the organization, Brian Daniels,
49:34who allegedly had been smuggling drugs into the United States for the past 15 years.
49:44To reach Daniels, government agents set up a sting offering to launder Daniels' money
49:49through a gambling casino.
49:51When a lawyer showed up at a Las Vegas motel room with $7.6 million, he was arrested.
49:57The arrest of Daniels followed.
50:04And in an effort to arrest businessmen willing to profit by helping drug traffickers launder their cash,
50:10federal agents are using informants and surveillance cameras.
50:14Here, an informant with his back to the camera explains to a Dallas businessman
50:21that he needs drug money laundered.
50:23However, I do manage the money for some drugs.
50:27So this is drug money.
50:29I just don't want to mention the same thing in that.
50:33Rene Munoz headed the investigation for the Internal Revenue Service.
50:38The money was attractive to them.
50:41They recognized the ability where they could launder millions and millions of dollars
50:46of illegal proceeds, and they would generate a healthy profit from that source.
50:53The individuals were very intelligent in terms of the methods that they would use.
50:58Those accounts are established when I come back.
51:01In a second meeting, the chairman of the board of the Premier National Bank,
51:05Connie Armstrong, on the right, explained that there would be no problem laundering the money.
51:11The informant for the Internal Revenue Service then brought out $100,000 in cash, which Armstrong readily accepted.
51:40I came back to him and said that I was coming down there to get some cash.
51:44Here's checks.
51:45Come out of here and help me count this thing.
51:49Make sure that we've got a little order established.
51:57Armstrong and the other businessman, Thomas Crouch, pled guilty to defrauding the government
52:02and failing to report a cash transaction.
52:05They were just two of many businessmen caught in the IRS money laundering sting.
52:11Another banker in Tulsa, Oklahoma.
52:15A lobbyist in Washington, D.C.
52:19In Atlanta, accountants from the brokerage houses Dean Witter, Prudential Bache, and Oppenheimer.
52:25Also in Atlanta, a former United States congressman, Pat Swindoll, allegedly agreed to accept drug money to pay for a house, then declined.
52:35And in Boston, indictments are expected, which involve restaurants, trade unions, and more lawyers.
52:42In Fort Lauderdale, Operation Man continues with a series of active investigations into drug smuggling and money laundering organizations worth over $100 million.
52:54The most notable is an investigation into the owners of the Apache Powerboat Racing Team, Ben and Jack Kramer.
53:01There's the Apache helicopter, always present, Jack Kramer, watching his son do battle in the World Offshore Championship.
53:09Included in the indictment is their attorney, Melvin Kessler, who was arrested on his way to teach a course at the University of Miami Law School.
53:17According to a confidential drug enforcement report, the federal government expects to seize assets worth in excess of $45 million.
53:25Neither federal investigators or those charged would talk to Frontline because the investigation is still active.
53:33Medjuluna? See the city? Okay.
53:38All right, that would be just outside that city.
53:41Agents 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.
53:50But even at its most successful, Operation Man will seize only a small fraction of the billions of dollars generated by the business of drugs.
54:01The lesson of the operation, these agents say, is that greed crosses all lines of the business and legal communities.
54:09For Michael Levine, one of the first men jailed by Operation Man, the lesson is different, but just as clear.
54:17You know, it's a strange feeling all of a sudden to be thrust into the limelight for something illegal.
54:27And find yourself recognized by this illegal act. Forget about what you've done prior to that date.
54:35It's just, it doesn't matter at that point. It's just that illegal act from then on that will be with you the rest of your life, no matter what happens.
54:44Was it worth it?
54:45Is it worth it?
54:46Oh, never. No. Not even close on it.
54:51And I can't imagine it ever being worth it for anybody if, if you want to remain a legitimate part of society.
55:02It just is never worth it.
55:04Operation Man continues. Two bankers in Los Angeles were recently indicted for their involvement in laundering drug money.
55:17And the federal government, in an ongoing effort to take the profit out of the illegal drug trade,
55:23is expected to make arrests next month in a money laundering scheme stretching across the country,
55:30totaling well in excess of one billion dollars, more than ten times the size of Operation Man.
55:39Thank you for joining us. I'm Judy Woodruff. Good night.
56:23Frontline is produced for the Documentary Consortium by WGBH Boston, which is solely responsible for its content.
56:50Funding for Frontline is provided by this station and other public television stations nationwide,
56:57and by the Corporation for Public Broadcasting.
57:03For videocassette information about this program, please write to this address.
57:08For a transcript of this program, please send $5 to Frontline, Box 322, Boston, Massachusetts, 02134.
57:27Please work here in
57:47see you next hour, of course.
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