Office of Statewide Prosecution

Report of the Statewide Grand Jury

February 9, 1994
(This document has been re-formatted for the Internet)

We, the members of the Eleventh Statewide Grand Jury, have been investigating several telemarketing fraud operations in the South Florida area. During our term thus far, we have issued indictments against twenty individuals and one corporation, charging them with racketeering, organized fraud, communications fraud, and money laundering. In the course of these investigations involving the operation of a number of fraudulent schemes, we heard the testimony of law enforcement agents, involved and culpable parties, and victims. We also reviewed a multitude of documents concerning the transfer of monetary assets. As a result, our attention was drawn to the money transmitter industry, and more particularly, the businesses involved in cashing checks for the general public, known generically as "check cashing stores." It became obvious to us that such businesses can be used, knowingly or unknowingly, as facilitators of fraudulent financial activity, particularly for telemarketing boiler room operations to launder funds stolen from unsuspecting citizens.

We emphasize at the outset that check cashing businesses serve a widely recognized social and economic purpose for a significant number of people, many of whom are economically disadvantaged and cannot or do not maintain accounts with traditional financial institutions. In addition to their primary function of cashing payroll, social security, and other government benefit checks, they can provide a range of ancillary services including the sale and cashing of money orders, financial wire transfers, and document transfer via facsimile machines.

These businesses, however, differ from traditional banking institutions in one significant way: they operate essentially free of meaningful federal and state regulation, oversight, and enforcement. This key difference between banks and non-bank financial institutions has attracted con artists, money launderers and other criminals as customers for these check cashing businesses. The illegal telemarketers we heard from knew that without government regulation, these businesses did not have to keep records of the identity of those for whom they move money. The lack of this one administrative detail, required in traditional banking operations, makes the unregulated money transfer business a Mecca for virtually untraceable criminal activity.

As an example, we heard testimony regarding numerous fraudulent telemarketing businesses that regularly engaged the services of one particular check cashing store. Specifically, we heard of checks and money orders totaling more than $300,000 that were cashed over a five month period by a group of people using three different non-existent business names. These non-existent businesses were listed as the payees on the checks and money orders. The payors were victims of an advance fee loan scam whereby they paid the non-existent companies a fee for a loan they never received. In another matter, and much to our amazement, we even heard of a check cashing store accepting and cashing checks made out to the Internal Revenue Service and the State of Florida. In that scam, the victims were led to believe that the government was assisting them in recouping their losses from an earlier scam. Thus, we saw clear examples of how check cashing stores can enable criminals to "take the money and run" without creating a paper trail, thereby making it extremely difficult for law enforcement to identify and apprehend those responsible for the fraud.

During the course of our inquiry, we were advised by officials in the office of the Comptroller, Department of Banking and-Finance, that check cashing stores are under no legal obligation to:

(1) verify that their business customers are legally registered; (2) verify that the person presenting the checks or money orders is authorized to cash them; or (3) to keep records of the identity of the person who cashed the checks or money orders. Banks, on the other hand, are required to obtain proof of proper formation or registration before opening a business account, and proof of identification for the authorized signatories on all accounts.

We also learned that many illegal telemarketing operations are successful for so long because they accept only money orders from their victims. While the sale of money orders by any entity is regulated, principally to protect the integrity of funds belonging to the money order purchaser, the cashing of money orders at a check cashing store is not regulated at all. Cashing money orders at a bank would pose two main problems to the con artist: first, the payee would have to present identification when cashing the money order, which would ultimately reveal his identity to law enforcement; and second, assuming a large volume of business, the bank would require the payee to have an account with the institution thereby producing a record of transactions. Again, by using a check cashing store that has no legal requirement to keep such records or to obtain identification, the fraudulent telemarketer can hide his or her assets and identity. Because money orders produce a risk free source of funds, this loophole has been a boon to the illegal telemarketer.

During the course of our inquiry, we also learned that check cashing stores are not subject to regulation concerning the fees charged for services rendered, as are banking institutions. In the cases we examined, the check cashing store charged a higher fee, usually double, for cashing the checks of illegal telemarketers. This ability to charge what the market will bear creates a motive for assuming the risk of dealing with criminals and their money.

We also learned that check cashing stores are not legally obligated to maintain transaction records of any kind that would be useful to law enforcement in the exercise of their investigatory duties. Moreover, check cashing stores are not required to register with any regulatory agency, fulfill any licensing requirements (other than the typical county occupational license), or to disclose to any authority the identities of the principals involved in the activities of the business. Because of this total lack of regulation, the law enforcement and banking regulators from whom we heard are not even able to determine the total number of such businesses operating in Florida. It is obvious to us that without the testimony of cooperating criminals., law enforcement officials would be hard pressed to ever trace the cash flow of such illegal operations as we have investigated during our term.

On the basis of this compelling evidence, and the attendant suggestions for remedial action received from state law enforcement and regulatory authorities, including the recommendations of the Comptroller's Money Transmitter Task Force, of which we have been advised, the Eleventh Statewide Grand Jury of Florida strongly urges the Legislature to enact laws to license and regulate check cashers, and the issuers and redeemers of money orders, travelers checks and other such financial instruments. We also recommend that check cashing stores be subject to the same anti-money laundering statutes and currency reporting and record-keeping requirements with which traditional financial institutions must comply.

More specifically, the Grand Jury believes such a regulatory system should include at least the following elements:

- a requirement for identification of the owners, investors (or silent partners), operators, directors, and/or any other person who receives profit from the operation of a non-bank financial institution;

- a requirement that subjects agents, branches and/or other entities operating on behalf of a non-bank financial institution to the same regulatory regime as their parent companies, and holds -the latter accountable for the actions of the former in connection with the proposed law's provisions; .

- a requirement that such businesses have a sound and identifiable legal economic base;

- a provision for unannounced site inspections during regular business hours by appropriate regulatory authorities for records inspections, and by appropriate law enforcement authorities for licensing compliance;

- a cap on allowable fees charged for services rendered; - a requirement that all records of transmittals, currency exchanges, checks cashed, payment instruments issued, and other related financial records be maintained for a period of five years (the statute of limitations for criminal theft prosecutions) and,

- a provision for significant criminal penalties for violations of licensing requirements, consumer protection statutes, and for fraudulent record-keeping practices.

The Grand Jury further recommends that:

- regulations be imposed requiring non-bank financial institutions to obtain identification from customers at the receiving end of a wire transfer and when cashing checks or money orders;

-record keeping regulations be imposed that require documentation regarding the identity of the payees of checks, wire transfers and money orders be kept for a period of five years; and,

-non-bank financial institutions, like their traditional banking counterparts, should be required to file "suspicious transaction reports" regarding possible money laundering or currency reporting violations.

We emphasize again that check cashing stores serve a legitimate need in the marketplace, and we do not intend to suggest that all check cashing businesses engage in money laundering or fraudulent financial transactions. Yet, we have seen specific instances where the absence of regulation created an atmosphere conducive to facilitating such unlawful financial activity, which is virtually impossible for law enforcement to detect and control. Accordingly, we urge the Legislature to address the issues raised herein and to adopt our recommendations as well as those set forth by the Comptroller's Money Transmitter Task Force regarding the regulation of check cashing stores.

I, MELANIE ANN HINES, Legal Adviser, Eleventh Statewide Grand Jury, and Statewide Prosecutor for the State of Florida, hereby certify that I, as such Legal Adviser and as authorized and required by law, have advised the Grand Jury which returned this Interim Report this_______day of February, 1994.

Legal Adviser
Eleventh Statewide Grand Jury
Statewide Prosecutor

I, SUSAN ODZER HUGENTUGLER, Assistant Legal Adviser, Eleventh Statewide Grand Jury, and Assistant Statewide Prosecutor for the State of Florida, hereby certify that I, as such Assistant Legal Adviser and as authorized and required by law, have advised the Grand Jury which returned this Interim Report this _____day of February, 1994.

Assistant Legal Adviser
Eleventh Statewide Grand Jury
Assistant Statewide Prosecutor

This Interim Report was returned before me in open Court this_____ day of February, 1994, in Deerfield Beach, Broward County, Florida.

Presiding Judge
Eleventh Statewide Grand Jury