Inside this Issue

Safeguarding America’s Economic Security

www.ice.gov

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Cornerstone is U.S. Immigration and Customs

Enforcement’s (ICE) comprehensive economic

security initiative.

Cornerstone works in partnership with the

business community to exchange information

on methods criminal and terrorist

organizations use to earn, move and store

their illicit funding.

The Cornerstone Report—formerly known as

“Tripwire”—is a quarterly bulletin

highlighting key issues related to economic

security and fostering communications

between ICE and private industry.

Spotlight On Economic Vulerabilities . . . 2

Following the Money . . . . . . . . . . . . . . . . . 3

Cornerstone Investigations Updates:

Selected Recent Cases . . . . . . . . . . . . . . . 4

Cornerstone Outreach: Recent and

Upcoming Events . . . . . . . . . . . . . . . . . . . 5

Volume I: No. 3 • July 2004

ICE Agents Reaching Out To 

The Financial Industry 

Cornerstone, ICE’s comprehensive economic security initiative, is a twopronged approach to fighting financial

crime and fraud.

The first of these prongs is our investigative approach, which seeks to identify 

and target the vast range of schemes that

criminal and terrorist groups use to earn,

move and store their illicit funding, from

money laundering to intellectual property

rights fraud.

The second prong is equally important—

an aggressive outreach program to 

private industry to develop a two-way

information-sharing partnership. Since 

ICE and the Department of Homeland

Security (DHS) launched Cornerstone 

last year, our Cornerstone agents have 

conducted almost 400 industry visits

nationwide to share information on 

the initiative.

Unfortunately, a recent article published in

July 2004 in “American Banker Online,” a

publication for the banking community,

gave a mistaken impression of these outreach visits, suggesting that ICE investigators were dropping in at banks “unannounced” and with “no advance notice” to

conduct investigations.

Nothing could be further from the truth.

Here’s how the Cornerstone outreach program works. In each of ICE’s 27 regional

offices, we have assigned a specially trained

Cornerstone agent who is responsible for

outreach to the business community and

developing public awareness of the program in his or her region.

As a part of this effort, these agents frequently meet with members of the banking community to discuss ICE’s financial

investigation programs and how ICE can

provide information that may better secure

their businesses and, in return, how ICE

can gather information, tips and suggestions from the businesses.

Ultimately, we want to build an unprecedented working partnership with private

industry to combat money laundering,

bulk cash smuggling, commercial 

fraud and other threats to America’s 

economic security.

ICE is a law enforcement agency, not a regulator.Thus, we do not conduct spot audits

of bank records—so there is no reason for

banks to prepare for “examinations” related to these visits.

The visits are designed simply to allow a

forum through which ICE agents can share

information on trends and patterns in

fraud and financial crime and, when

appropriate, receive information about

these trends from the banking community

on a strictly voluntary basis.

The goal is to share information about vulnerabilities in the nation’s economic security and help private businesses detect such

vulnerabilities in their own systems—vulnerabilities that might be open to exploitation by terrorists, money launderers, drug

traffickers or other criminal organizations.

The Cornerstone initiative was developed

to help ensure that banks and financial

institutions are not victimized by criminal

organizations. But the aforementioned article leads readers to believe that ICE is casting our spotlight on the banks, rather than

the criminals.

That’s not true. Cornerstone targets the

perpetrators of financial crime—not 

the victims.

Readers who would like to learn more

about how they can get involved should

visit ICE online at www.ice.gov. ICE 

looks forward to working with the 

banking industry in the shared mission 

of protecting our financial and economic

systems from exploitation by criminal 

and terrorist organizations. $
Criminal organizations have a long

history of using precious metals and gems—particularly

diamonds and gold—as money laundering tools.

These precious commodities can be easily concealed, transported and smuggled.

Furthermore, they are highly liquid

commodities, easily exchanged in both

legitimate and illicit markets worldwide.

Last year, a report from the General

Accounting Office (GAO), the investigative arm of the U.S. Congress, suggested that terrorist organizations may

also be getting in on the act, using

diamonds or gold as alternative financing mechanisms to earn, move and

store their funding.

A 2003 ICE case illustrates how

resourceful money launderers and

smugglers can be in employing these

commodities to move and store funds.

Investigators uncovered a scheme in

which jewelers were converting the

proceeds from drug sales into the

equivalent value in gold.

They then melted the gold and recast it

into a wide range of common materials,

like wrenches, nuts, bolts, belt buckles

and trailer hitches.The disguised gold

was then shipped to Colombia to be

sold and converted back to cash.

The investigation of this case, “Operation

Meltdown,” resulted in 23 arrests along

with the seizure of 140 kilograms of

gold and $1.5 million in cash.

Dealers in precious metals and gems

should protect themselves and their

industry from exploitation. As in all

money laundering scenarios, the 

cardinal rule for business owners

should be to “know your customer.”

This rule is particularly important for

jewelers and others dealing in precious

metals and gems.

The industry has long prided itself for

its discretion and respect for the privacy of its customers. Dealers should

take care that criminal and terrorist

organizations don’t exploit these values in order to move their illicit funds

surreptitiously.

Red flags to look for include the 

following:

• Payments that come from someone

other than the purchaser.

• Payments made with sequentially

numbered money orders or travelers

checks.

• Checks lacking the identity of the

purchaser.

• Payments drawn from banks in countries other than the purchaser’s country of origin.

• Multiple checks drawn on the same

account on the same day.

Finally, be aware that, following the

passage of the USA PATRIOT Act 

in 2001, dealers in precious gems 

will be subject to more stringent

reporting requirements.

The Department of the Treasury’s

Financial Crimes Enforcement Network

(FinCEN) is preparing regulations to be

distributed to industry and public in

the coming months.These new controls

will clarify the obligations of industry

while helping to shut down a vulnerability that criminal and terrorist organizations might use to launder funds.

ICE will continue working with 

the industry to ensure that these 

regulations help to bring greater transparency without unduly burdening

business owners. $

Page 2 of 5

Volume I: No. 3

July 2004

Spotlight On Economic Vulnerabilities

Industry Alert: Precious Commodities A Favored Tool For Money Launderers 

Tracking Precious Commodities With NIPS

ICE’s Numerically Integrated Profiling System (NIPS) is one of our investigators’ key tools

for tracking the illicit movement of diamonds, gold and other precious commodities. 

NIPS is an analytical computer program to identify trade anomalies and patterns of criminal activity—including fraud, illegal trade, money laundering, tax evasion, drug smuggling

and terrorist activity. 

NIPS is the only software tool in the government with the capability to identify, analyze

and trace connections in the movement of people, money and materials into and out of

the United States. 

NIPS monitors international trade and economic activity by drawing on information from a

wide range of databases, including the Automated Commercial System, the Automated

Manifest System, the Department of Commerce Export System, Bank Secrecy Act databases, I-94 passenger/flight data, telephone records, ICE seizure data and information

received from foreign governments. 

By drawing on a wide range of data sources and allowing for analysis of multiple data

points, NIPS allows ICE investigators to develop a fuller sense of the ways in which precious commodities may be transferred into and out of the United States by criminal organizations as instruments for earning, moving or storing their funding. 

In “Operation Meltdown,” ICE uncovered a

trade-based money laundering scheme in

which jewelers refashioned gold into common objects to be smuggled to Colombia for

resale, like the bolt pictured here. 
ICEagents in San

Francisco

recently completed a

three-year financial investigation involving

an illegal money transmitting business in

Fremont, California.

The company, ZSQ Exchange Incorporated,

was operating as a “hawala,” an informal

banking system typically used to transfer

funds in the Middle East and Asia.

With Fremont’s large Afghan population,

ZSQ built a sizable business by transferring

millions of dollars from immigrants in

California to their relatives in Afghanistan,

Pakistan and other Middle Eastern countries.The vast majority of these transfers

were simple exchanges of money between

family members.

However, this company had a darker side:

A portion of the monies transmitted by

ZSQ were derived from heroin sales in the

United States and transferred to an international heroin trafficking organization in

Pakistan with reputed ties to terrorist

organizations.

Ultimately, ICE’s investigation, coordinated

with other government entities in the

United States and abroad, led to the successful prosecution of the owner of ZSQ

Exchange along with his wife and 11

other defendants worldwide—including

members of a heroin trafficking organization in Pakistan and two international

money launderers in Thailand.

This particular case suggests the challenges

of following the money in an age of rapid

communication technology and global

financial flows.

While traditional hawala arrangements

often are based upon simple relationships

of trust and direct communication

between parties, the ZSQ model was an

innovative form of hybrid hawala—incorporating e-mail and Internet accounts, the

traditional U.S. banking system and international commerce networks into the traditional hawala method in order to launder and transfer money across the borders

of numerous countries.

In this case, cooperation with foreign 

law enforcement and government 

entities was essential to shut down 

this funding system.

Furthermore, this case illustrates that,

when it comes to earning, moving, and

storing money, criminal and terrorist

organizations frequently draw on the 

same infrastructures and methodologies.

Terrorist organizations, for example, have

used hawala to transfer funds across international borders, just as the heroin traffickers used ZSQ Exchange.

Legitimate financial institutions should be

aware of the methodologies through

which their businesses may be open to

exploitation by unlicensed money transmitters, as well as by criminal and terrorist

organizations.

Be alert to ways in which these organizations can exploit vulnerabilities in our

financial systems to transfer their illicit

funding.

ICE Condo Sale Earns $2.6

Million For Nicaragua

On May 21, ICE accepted $2,624,892 on

behalf of the government of Nicaragua in

the sale of a Miami condominium owned

by Byron Jerez-Solis, who once headed the

Nicaraguan equivalent of the U.S. Internal

Revenue Service.

The 5,207 square foot condominium 

was seized by the ICE Foreign 

Corruption/Financial Task Force in

December 2003, after a judge ruled 

in a civil proceeding that there was 

sufficient evidence that the property 

was purchased by Jerez-Solis, the former

head of the Nicaraguan Direccion General

de Ingresos, using funds that were 

most likely obtained illegally.

The sale of the condo marks the first time

that property seized by the ICE Foreign

Corruption/Financial Task Force has been

sold for funds reparation.The money will

be returned to Nicaragua.

Jerez-Solis headed the Central American

country’s revenue collection office under

former President Arnoldo Aleman. Aleman

is currently facing criminal charges in

Nicaragua relating to fraud and money

laundering while he was in office. Both

men are under house arrest in Nicaragua,

where they are being scrutinized for their

handling of national assets.

The Miami Foreign Corruption/Financial

Task Force, which ICE created in August

2003, is the only task force in the nation

that specifically targets the proceeds of

public corruption, bribery and embezzlement emanating from foreign nations. $

Page 3 of 5

Volume I: No. 3

July 2004

Following the Money

Alternative Banking Systems Vulnerable To Exploitation 
ICE Breaks $400

Million Intellectual

Property Crime,

Smuggling Case (New York, NY, June

3)—Under “Operation Executive,” ICE

agents arrested twelve people and seized

six shipping containers in a major intellectual property crime case targeting an

organization believed to have smuggled at

least $400 million in counterfeit goods

into the United States in one year.

Of the six containers seized on June 3, five

held counterfeit designer luxury handbags,

luggage and wallets, and the sixth contained counterfeit cigarettes. Large-scale

counterfeiting operations have emerged as

a significant source of funding for criminal organizations in the United States and

abroad.These crimes represent a potential

area of vulnerability for the nation’s economic and homeland security.

Suspect Extradited In Global Child

Pornography Scheme (Newark, NJ,

June 18)—An administrator of Regpay Co.

Ltd, a Belarus-based business providing

billing services for child pornography

websites and operated pornographic websites of its own, was extradited to New

Jersey from Spain to face trial for his role

in a global child pornography enterprise.

ICE investigators, in cooperation with

other law enforcement entities in the

United States and abroad, unraveled 

the Regpay scheme, which encompassed 

a Florida credit card billing service 

and thousands of paid memberships to 

50 websites in a global child pornography operation.

ICE Seizes Exotic Cars, Arrests Nine

(Downey, CA, June 10)—An ICE drug trafficking investigation ended with the arrest

of nine men on charges of conspiracy to

import and distribute controlled substances in the United States and Canada.

In addition to using court-authorized

wiretaps and investigations into trafficking

patterns, ICE agents conducted financial

investigations to discover that the alleged

head of the trafficking operation, George

Martinez, reportedly used his profits 

to purchase real estate in Southern

California, often placing the assets 

under different names to conceal his 

ownership of the assets. Federal agents

seized two high-priced automobiles—

an armored Mercedes-Benz and a Ferrari

Spyder—along with $669,000 from 

a bank account in the name “George

Martinez Investments.”

Charges In China Arms Technology

Export Case (San Francisco, CA, June

3)—Two California businessmen and a San

Jose company were indicted for illegally

selling U.S.-produced night vision technology on the international market, including

to China, in violation of export control

laws that forbid the sale of items with military applications to designated countries.

The defendants were alleged to have

exported defense articles and services

without proper licensing and authorization, in one instance selling a night vision

infrared camera to the North China

Research Institute for Electro-Optics for

$65,000. One defendant was also charged

with traveling to China in 2002 to provide

guidance in the manufacture, use and testing of night vision technology to customers in China.This prosecution resulted

from a cooperative investigation on the

part of ICE, the FBI, the Department of

Commerce and the IRS.

ICE Uncovers Major Drug Trafficking,

Money Laundering Scheme In

Maryland (Baltimore, MD, June 8)—

A federal grand jury indicted 31 individuals in connection with a massive drug 

trafficking and money laundering 

operation in the Baltimore-Washington

metropolitan area.

ICE financial investigators learned that

some members of the organization were

allegedly using drug proceeds to fraudulently purchase insurance policies on other

individuals without their knowledge.The

conspirators would then collect on the

proceeds of the insurance policies when

the designees died.Twenty-nine individuals were arrested on federal drug conspiracy and mail-wire fraud charges.Two

defendants are still being sought. $

Page 4 of 5

Volume I: No. 3

July 2004

Cornerstone Investigations Update:

Selected Recent Cases 

Some of the counterfeit designer goods

seized in “Operation Executive” in New 

York are shown above. ICE seized at least

10 shipping containers filled with a total of

over $40 million. 
To develop the

Cornerstone partnership between ICE

and the private sector, we’re implementing plans for outreach events

throughout the United States, including national events in Washington,

D.C., and regional forums around the

country. 

Recent events have included the 

following: 

• On May 7, 2004, the National

Federation of Independent

Businesses hosted a special

Cornerstone roundtable forum in

Washington, D.C., with ICE

Assistant Secretary Michael J.

Garcia and representatives from the

business community and various

industry and trade associations. This

forum was an opportunity for business leaders to ask questions and

offer feedback on how to nurture

the Cornerstone partnership. 

• On May 25, 2004, Marcy Forman,

ICE Acting Director of

Investigations, briefed dealers in

gold and precious metals about

money laundering vulnerabilities

and compliance with reporting

requirements for their industry in

Providence, Rhode Island. 

• On June 9, 2004, Assistant Secretary

Garcia offered the keynote address

at a day-long financial symposium

in New York City, titled “Frauds,

Schemes, and Scams.” The symposium brought together several hundred participants from the city’s

banking and financial community

with representatives from federal,

state and local law enforcement and

other government agencies to look

at new trends in financial crime. $

Page 5 of 5

Volume I: No. 3

July 2004

ICE, the largest investigative arm of the Department of Homeland

Security, is charged with preventing terrorist and criminal activity by

targeting the people, money and materials that support terrorist and

criminal organizations.

Cornerstone is ICE’s comprehensive economic security initiative, detecting and shutting down vulnerabilities in the nation’s financial and economic systems before terrorists and criminals can exploit them.

In addition to financial and money laundering investigations, Cornerstone targets commercial fraud, smuggling and trafficking, export and trade violations and intellectual property

crimes. ICE’s global reach allows the agency to investigate these crimes around the world.

Since the agency was established in March 2003, ICE financial investigations have seized

over $348 million in suspect currency and effected 1,802 arrests.

The Secretary of Homeland Security has determined that the publication of this newsletter

is necessary in the transaction of business required by law of U.S. Immigration and

Customs Enforcement (ICE).

The Official Newsletter of Cornerstone

Cornerstone Outreach: Recent Events 

Assistant Secretary Michael Garcia (on far left) discusses ICE’s Cornerstone economic security initiative with industry representatives at the National Federation of Independent

Businesses in Washington, D.C.

Invitation For Cornerstone

Report Article Submissions

The Cornerstone Report covers a

broad range of topics related to financial investigations and vulnerabilities

in the financial and trade sectors. 

We strive to present clear thinking by

knowledgeable observers that can be

read with ease and pleasure by both

professionals and a general audience, and we’re happy to review

unsolicited submissions for potential

publication in the newsletter. 

If you would like to submit an article

for publication or simply find out

more about how you can participate

in the Cornerstone initiative, drop us

an e-mail at tripwire@dhs.gov for

more information.