Private safe-deposit firms seen as crime shield

Fri Apr 15, 2011 12:18pm EDT

ST. LOUIS, April 15 (Complinet) - As U.S. investors flock to the perceived security of silver and gold, revived interest in private safe-deposit companies where precious metals can be stored anonymously has sparked concern that the services can also be used to hide financial crime.

Unlike bank safe-deposit operations that require box holders to show identification, some private safe-deposit companies offer anonymous rentals of boxes and vaults and require customers to pay annual rental fees, which can run into the thousands of dollars, in cash.

"You're entitled to some privacy in your life. This is what I offer you," said Elliot Skaikin, owner of 24/7 Private Vaults in Las Vegas. "If I had a choice between trusting my bank and trusting my attorney, I wouldn't trust either one of them."

Commercial banks have a limited responsibility to report to the Treasury Department suspicious activity associated with safe-deposit boxes. But the unregulated, non-bank safe-deposit companies have no obligations to know the identities of the customers they serve or report apparent violations.

Dave McGuinn, the president of Houston-based Safe Deposit Specialists, a consultancy for banks on safe-deposit issues, said he has been receiving calls from people planning to open private safe-deposit facilities to take advantage of investors' demand for storage. Some plan to offer anonymous rentals.

"I am cautioning all of these individuals that they will be inviting criminals and terrorists into their safe-deposit vault facility to conduct illegal activities," McGuinn said.

A number of private safe-deposit firms had opened two decades ago, but most failed, he said. Now, however, such businesses were making a comeback, and he predicted that this time around they might make a go of it.

"Based on the number of calls and e-mails I'm receiving from consumers who don't trust the government and are buying gold and silver and looking for a safe place to store these precious metals, I think that if these private vaults are run properly, they do have a better chance of making it than the others did 20 years ago," McGuinn said.

Demand for gold and silver shows no signs of easing, with prices this week near record levels.

"NO NARCOTICS"

McGuinn said that he recently completed a consulting project for a new private-vault client and identified nine such companies currently operating in the United States.

At least two, 24/7 Private Vaults and Inwood Security Vaults in Dallas, offer anonymous safe-deposit boxes, do not ask for identification and deal only in cash, he said. "This is really scary."

The Web site of 24/7 Private Vaults says it was established in 1999 and offers renters "untraceable privacy," allowing clients to use iris scans rather than ID cards to prove they have the right to access a box.

Skaikin said that he decided to open the business after a bank refused to add his daughter to his account without first seeing her identification documents. He closed his account and left with more than $10,000 in cash.

"I thought of it because I got mad, I got so pissed off at the bank," he said.

He added that people were "brainwashed" at a young age to provide their Social Security numbers and other identification on demand. He said 24/7 has only two rules: "No narcotics and don't lose your keys."

MICKEY MOUSE

The Dallas firm, Inwood Security Vaults was established in 1981 and provides customers "complete anonymity," its Web site says. Inwood owner James Collins said that clients can use any name, including a pseudonym such as Mickey Mouse, to rent a box. They need only bring their keys and sign their supposed name to access their boxes. The signature is matched against the one Inwood keeps on file.

In February 2009, federal authorities seized 32 gold bars from one of Inwood's safe-deposit boxes. Court documents suggested that financial investigators traced the gold with help from the company that sold the precious metal to Inwood's client and the armored car service that transported it.

In many cases, however, customer anonymity prevents investigators from linking their targets to a specific private safe-deposit box, sources said.

Collins said that federal agents simply walked into Inwood with "the necessary documents" and told him they were going to take the gold.

The Justice Department said the gold had been purchased with the proceeds of a multi-million dollar Ponzi scheme that revolved around a Panamanian corporation, Evolution Market Group (also known as Finanzas Forex), which sold supposed high-yield foreign exchange investment opportunities.

Prosecutors are seeking to make Evolution forfeit the seized assets.

Although Inwood was not accused of wrongdoing, the incident highlights the potential for abuse of private safe-deposit facilities.

Collins acknowledged that money launderers or terrorists could potentially abuse his service. "We don't know what is in those boxes. Frankly, we don't want to know," he said.

"SIGNIFICANT CONCERN"

A veteran Drug Enforcement Administration financial investigator whose probes have led to private safe-deposit box companies told Complinet that the threat posed by such firms is unknown, "but it could be a huge problem." He added that such businesses "definitely should be covered by the Bank Secrecy Act," the primary U.S. law against money laundering.

Dennis Lormel, former head of the Federal Bureau of Investigation's terrorism finance unit, said the growth of private safe-deposit companies is "a cause for significant concern."

"What better way for criminals and terrorists to hide their ill-gotten gains or monies they are otherwise trying to hide? This type of activity is totally underground and the prospect of the unknown is extremely frightening," he said.

A Treasury Department source said that Treasury's Financial Crimes Enforcement Network (FinCEN), which is responsible for administering the secrecy act, cannot impose anti-money laundering obligations on private safe-deposit companies without a "financial transaction hook." The source added that some law enforcement authorities and U.S. lawmakers were aware of the private-vault companies.

FinCEN spokesman Steve Hudak confirmed that the agency at present is unable to force such firms to act against money laundering and terrorist financing.

Inwood's Collins rejected the idea that companies such as his should be regulated like financial institutions. "We have nothing to do with finance. We're all storage," he said.

(Editing by Randall Mikkelsen)

(This article was first published in Complinet (www.complinet.com). Complinet, part of ThomsonReuters, is a leading provider of connected risk and compliance information and on-line solutions to the global financial services community.)

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