Chapter Six

Recommendations

Trafficking

Recommendation

The Legislature should amend California law to target the leaders of transnational criminal organizations operating in California.

California has no statutory authority that specifically targets or punishes supervisors, managers or financers who conduct operations locally on behalf of transnational criminal organizations. Currently, high-level prison or street gang members who supervise, manage, or finance their local gang associates in the distribution and retail sales of drugs are treated as “co-conspirators” or “aiders and abettors” of their underlings and foot soldiers. However, other states and the federal government have enacted laws that increase the punishment and seize the working capital of the prison or street gang leaders who work on behalf of drug trafficking organizations.

For example, Congress enacted the Continuing Criminal Enterprise Act (Criminal Enterprise Act)247 in an effort to combat drug cartels by directly attacking their leadership.248 Under the Criminal Enterprise Act (21 U.S.C. §848), a director of an illegal criminal organization may be sentenced to prison for not less than twenty years to life without the possibility of parole.249 In addition to lengthy incarceration, the Criminal Enterprise Act authorizes the seizure of the director or manager’s ill-gotten monetary gains,250 thus depriving the criminal organization of its working capital. And in statehouses, Maryland and New Jersey passed laws similar to the Criminal Enterprise Act to increase the criminal liability of large-scale narcotics operators beyond that of their “employees.”251

To more effectively combat transnational criminal organizations and their criminal gang associates, the California Legislature should broaden existing law to increase criminal penalties for organizers, supervisors, managers or financers of criminal enterprises. This could be accomplished by amending current law to include a Criminal Enterprise Act and to increase potential sentences and fines. By doing so, law enforcement can more effectively target the “shot-callers” of these criminal organizations and destabilize their operations.

Recommendation

Federal, state, and local law enforcement should use California’s State Threat Assessment System as a central hub for sharing information about transnational crime.

California lacks a unified system for collecting, analyzing, and disseminating information about transnational organized crime. Police departments and task forces regularly maintain data related to the activities of known organized crime figures, but such data is rarely shared outside that immediate county or affected region. California’s State Threat Assessment System (STAS) is uniquely positioned to act as the central hub for California’s transnational crime information-sharing needs. The STAS already provides critical tactical and strategic intelligence about trends and emerging patterns relating to criminal activity statewide and ensures first responders and policymakers are provided with timely, accurate, and relevant situation awareness about transnational criminal tactics and techniques. In coordination with the Attorney General’s Office, California’s tribal, local, state, and federal law enforcement agencies should partner with the STAS to develop a platform to share information about transnational criminal organizations across the state.

Recommendation

Federal, state, and local authorities should establish a unified maritime task force and associated radar network to counter maritime smuggling operations along California’s coastline.

Various local, state, and federal law enforcement agencies coordinate their activities to interdict maritime smuggling operations along California’s coast. These partnerships are often regional in nature and are typically established on an as-needed basis. California needs a new multi-jurisdictional Maritime Task Force – that leverages expertise at the federal, state and local levels – to combat the threat along its coastline, especially from panga vessel smuggling, and to coordinate strategy between affected counties. In addition to the creation of the Maritime Task Force, California should work with federal agencies to implement a network of high-intensity radar stations, sonar buoys, or other appropriate and effective technologies strategically located along the coast, like the large radar receiver recently placed at Carlsbad’s Ponto Beach by federal officials, to better detect maritime threats and coordinate law enforcement responses.

Recommendation

The Legislature and Governor should fund five additional Special Operations Units across California.

Transnational crime involves an increasingly decentralized array of international and domestic criminal actors conducting a range of trafficking, financial, and high-tech crimes. The sophisticated nature of these groups and their criminal activities requires an equally sophisticated and coordinated law enforcement response.

The multi-million dollar budget cuts in 2011 to the California Department of Justice’s Bureau of Narcotics Enforcement resulted in cutbacks to numerous task forces and special operations units (“SOUs”) across the state focused on drug-trafficking organizations and violent gangs. Despite these cuts, the one remaining SOU, operating out of Fresno, has been successful in combatting cartel and gang activity in the Central Valley. For example, in June 2011, the Fresno SOU completed a six-month investigation involving high ranking members of the Nuestra Familia prison gang and various Norteño street gangs that were selling cartel-supplied drugs in Merced and Madera counties.252 The investigation led to the arrest of 101 suspects and the seizure of 27 weapons and $6.6 million in U.S. currency. Building off this crackdown, the Fresno unit opened 23 additional investigations and closed 14 of them in 2012 and 2013. During these investigations, agents debriefed informants and cooperators and learned that Nuestra Familia was working with Mexican drug cartels, including La Familia Michoacana and the New Milenio Cartel (an off-shoot of Sinaloa), to distribute drugs in the Central Valley, provide protection on the street and in prison, and even commit fire bombings and murders.253

Given the success of the Fresno SOU, California would benefit greatly from adding a SOU in each of the Division of Law Enforcement’s regional offices in Sacramento, San Francisco, Riverside, Los Angeles, and San Diego. With a relatively modest total budget of $7.5 million, these five new teams would help local and federal authorities build cases against the most dangerous transnational criminal organizations operating in California.

Recommendation

The federal government should continue providing critical funding to support state and local law enforcement agencies in investigating and dismantling trafficking organizations.

In California, methamphetamine trafficking has reached staggering levels. The overwhelming majority of the foreign supply of methamphetamine flows through California’s port-of-entry border in San Diego. Amongst the U.S. states that share a border with Mexico, methamphetamine seizures in California dwarf the seizures of our sister states by a factor of five.

Based on the advocacy of the California Attorney General’s Office and other state and national law enforcement leaders, Congress appropriated $7.5 million in January 2014 for state law enforcement grants to be administered by the U.S. Department of Justice’s Community Oriented Policing Services (COPS) Office to target methamphetamine production and trafficking. These funds will help state law enforcement agencies directly combat one of the most lucrative and dangerous activities perpetrated today by transnational criminal organizations. In California, which suffers disproportionately from foreign- and domestic-refined methamphetamine trafficking by drug cartels, grant funds will support close collaboration between the California Department of Justice’s Division of Law Enforcement and local agencies in investigating and dismantling the organizations behind the methamphetamine epidemic in the hardest-hit and underserved communities. But, sustained funding is crucial to law enforcement’s ability to make a lasting impact against methamphetamine trafficking. Congress is preparing to consider appropriations for Fiscal Year 2015, and it should continue to fund at or above current levels the resources for this critical federal methamphetamine grant program.

Of equal importance is the restoration of federal funds for other task forces focused on combatting transnational criminal organizations. For several years, federal funding through the Byrne Justice Assistance Grant Program (“Byrne JAG”) has enabled the California Department of Justice to lead task forces across the state composed of federal, state, and local law enforcement. In California, the Board of State and Community Corrections administers the distribution of Byrne JAG funding. For California’s 2013-2014 Fiscal Year, the Board awarded the Department of Justice $2.1 million, which helped support 17 joint state-local task forces. However, this represents a 46 percent reduction from the $3.9 million in funding awarded to the Department of Justice in Fiscal Year 2009-2010. Because of the critical role played by these highly trained joint state-local task forces in responding to drug trafficking activities, the Board should fully restore funding for these task forces at their 2009-2010 level.

Recommendation

Federal, state, and local law enforcement agencies should increase operational coordination in combatting transnational criminal organizations.

Given the international scope of trafficking networks, local, state and federal law enforcement agencies in California must coordinate to combat major transnational criminal organizations such as the Sinaloa cartel. This coordination should be focused on operations and capacity building.

Operational coordination allows law enforcement agencies to better utilize limited resources and leverage prosecutorial authority under state and federal law. Potential projects could include: (1) improvements to intelligence exchange and information sharing involving state task forces and federally-sponsored HIDTA teams; (2) partnerships between state law enforcement officials and the National Park Service and U.S. Forest Service to combat marijuana cultivation on public land; and (3) coordination between state and federal public health and corrections officials to reduce demand for drugs trafficked by transnational criminal organizations.

In addition to operational coordination, capacity building is essential to ensure that expertise is developed to combat transnational criminal organizations. Thus, state officials should support existing federal government programs designed to enhance Mexico’s capacity to combat transnational crime. The foundation for this cooperation was laid in August 2013 with the signing of a Memorandum of Understanding between the California Department of Justice and the U.S. Department of State’s Bureau of International Narcotics and Law Enforcement Affairs. This agreement provides the framework for cooperation between California and the State Department on training and advising foreign legal personnel, and on assisting judicial reform and police training initiatives in other countries.

High-Tech Crime

Recommendation

State and local authorities should develop public-private partnerships to leverage technology against transnational crime.

Because it is so often targeted by transnational criminal schemes, the private sector is usually the best source of information about high-tech threats. Additionally, in the realm of technology, the private sector is often in a better position than government to develop tools and techniques to combat criminal activity, especially new and emerging schemes used by transnational criminal organizations. Law enforcement should find ways to take advantage of the resources available in the private sector to develop new and innovative ways of countering ever-changing criminal threats and tactics.

Recommendation

Business should adopt industry best practices designed to protect against cybercrime.

Lax cybersecurity practices, or the lack of any protections whatsoever, allow far too many breaches of computer networks and databases to happen in California, resulting in billions of dollars in economic losses. To help guide businesses and other entities throughout the state, the California Department of Justice earlier this year released Cybersecurity in the Golden State (http://oag.ca.gov/cybersecurity), a report exploring the serious cyber-threats facing business and offering them practical guidance on how to minimize cyber vulnerabilities. All entities, public and private, doing business in California should assume they are a target and consider and adopt the industry best practices identified in that report.

Money Laundering

Recommendation

The Legislature should amend California law to enable prosecutors to temporarily freeze the assets of transnational criminal organizations and their gang associates before the filing of an indictment

There is currently no provision in California law for the seizure of criminal proceeds and assets to prevent their dissipation prior to the filing of a criminal case or, in drug cases, prior to the filing of a civil asset forfeiture petition.254 California law should be modified to allow for pre-indictment freezing of a transnational criminal organization’s illicit proceeds or property to prevent their dissipation or disbursement. The ease with which money laundered in California is returned to Mexico via electronic or physical transportation often outpaces the ability of prosecutors to commence criminal proceedings to freeze transnational criminal organization assets.

Unlike California law, federal law authorizes a pre-indictment seizure of assets and property with or without prior notice.255 The prosecution can request a temporary restraining order without notice if it can establish probable cause that, upon conviction, the property will be subject to forfeiture, and that notice will jeopardize the availability of the property for future forfeiture.256 Alternatively, a federal prosecutor can request a noticed hearing where he or she must demonstrate that there is a substantial probability that the government will prevail on the issue of forfeiture, failure to allow seizure will result in the property being destroyed or removed from the jurisdiction, and the need to preserve the seized property outweighs the hardship on the opposing party.257

California prosecutors should be given equal authority to preserve assets and property prior to filing criminal cases. This could be accomplished by amending existing law by expanding the class of transnational “profiteering” activities subject to seizure. Preservation of such assets would, for example, assist in the recovery of the costs of disposing of toxic waste from, and cleaning up of sites damaged by, clandestine methamphetamine conversion labs. Lacking this authority, a transnational criminal organization’s assets can quickly be removed from California prior to the commencement of formal legal proceedings.

Recommendation

The Legislature should strengthen California’s prohibition against financial transaction “structuring.”

Federal law requires financial institutions to report to financial regulators all currency transactions over $10,000, as well as multiple currency transactions that aggregate over $10,000 in a single day.258 Federal law makes it a crime to break up or “structure” financial transactions into amounts smaller than $10,000 for the purpose of avoiding the mandatory reporting requirements.259 Federal law does not require that the structured transactions be intended to hide the fact that money came from criminal activities or to facilitate criminal activities.260 The mere structuring of financial deposits, coupled with notice of the reporting requirements, is sufficient to charge a money launderer with a federal financial crime.

By contrast, California’s laws require state prosecutors to prove a money launderer intentionally structured a financial transaction to disguise that the proceeds were derived from a criminal activity or, alternatively, were structured to promote or further criminal activity.261 Requiring a prosecutor to establish a defendant’s subjective intent in a structuring case enables transnational criminal organizations to conduct unmonitored transactions and launder their money with a reduced risk of state criminal liability.

California’s anti-structuring statute should be amended so that breaking up financial transactions into smaller amounts for the purpose of avoiding the reporting requirements is, in and of itself, a criminal act.

Recommendation

California prosecutors need advanced training to combat sophisticated transnational money laundering schemes.

Significant budget reductions have curtailed the investigatory and prosecutorial capacities of law enforcement agencies to combat transnational crime. Meanwhile, transnational criminal organizations have employed increasingly sophisticated schemes to launder their illicit profits. These emerging schemes require prosecutors to dissect complex international trade transactions and finance mechanisms in order to demonstrate criminal liability and successfully dismantle criminal organizations and syndicates.

The Department of Justice should leverage existing resources and partnerships to provide advanced training and technical assistance to prosecutors investigating complex money laundering schemes. Such training will expand the pool of trained and experienced prosecutors in the fight against organized crime in California and enhance our ability to disrupt this criminal activity.

Recommendation

State authorities should partner with their Mexican counterparts to share intelligence and disrupt the illicit flow of money across the border.

Emerging money laundering strategies by Mexico-based transnational criminal organizations include the use of non-bank financial institutions such as money transmitters to deposit and transfer illicit funds into the financial system. Unregistered money transmitting businesses, which mask that they are in the business of transferring funds through the international financial system, present a challenge for tracking and prosecuting money laundering transactions.262 For example, financial crime investigators have observed individuals who claim to be agents or employees of licensed money services businesses operating along the California-Mexico border entering California from Mexico with satchels full of bulk cash.263 The investigators need to have available to them in real time an up-to-date database of registered agents and employees of California-licensed money service businesses and would benefit from having similar information available from money services businesses operating in Mexico.264

Bilateral anti-money laundering initiatives are underway in the U.S. and Mexico. For example, in October 2013, the Financial Crimes Enforcement Network (FinCEN) reached an agreement with Mexico’s National Banking and Securities Commission to share information related to their respective responsibilities on fighting money laundering.265 Reportedly, this marks the first time that FinCEN has entered a relationship with a regulator outside the U.S. to share information.266

Given California’s pivotal role in cross-border transnational money laundering activities involving Mexico, California financial regulators and law enforcement officials should similarly partner with Mexico’s Banking and Securities Commission to share intelligence in a timely manner about the methods, modus operandi, and trends and routes used by criminal organizations operating between California and Mexico and cross-border currency flows. California and Mexico should incorporate the latest technology to collect, analyze, and disseminate critical financial intelligence, including cross-border wire transactions.267