NYC-Area Money-Launderer Artist Ordered to Forfeit $12M+; Scheme Involved NYC Employee

His name was Joseph Castello. But for years he was known to his associates as “Joey Checks.” That’s because for almost a decade Castello handled other peoples’ checks – more than $600 million worth, in fact. And about a third of that sum was laundered. On July 7, a three-judge panel for the U.S. Court of Appeals, Second Circuit, ruled that Castello had to pay forfeiture in the amount of $12,012,924.31 and vacate all claims to his $9 million Greenwich, Connecticut home. The decision reverses an earlier ruling by U.S. District Judge Leonard Wexler who had deemed any forfeiture excessive. Evidence indicates the circuit court made the right call.

Joey Castello, now 46, aided by wife Dana Schwartz Castello and three other persons, during 1995-2004 ran what on the surface was a legitimate check-cashing operation in the New York City area. About $200 million of the estimated $660 million cumulative handle, however, amounted to money-laundering. Nominally, the business operated out of storefronts and offices in Brooklyn and Manhattan. But Castello’s principle base was his own wheels. He would travel throughout the area carrying bags of cash in his car trunk, distributing money to customers who either had made out checks or received them from a third party. In either case, those customers didn’t want funds deposited in a bank or some other financial intermediary. Castello, customers or third parties also forged endorsements. In exchange for his services, Castello charged clients anywhere from .75 to 5 percent of a check’s face value, and most commonly 4 percent.

In addition to handling checks made out to real persons and businesses, Castello would cash checks made out to fictitious ones. In one instance, noted prosecutors, Castello cashed $2.5 million in checks for an employee of the City of New York who had issued checks to fictitious “expert witnesses” in the Family Court system. Castello’s clients were motivated by tax evasion, union pension contribution avoidance, Medicaid fraud, securities fraud, cash payroll for illegal aliens, and personal spending. According to federal officials, participating customers worked “primarily for organized crime individuals and companies interested in avoiding both taxes and union payments.”

The scheme was driven by a desire by clients to circumvent Currency Transaction Report (CTR) requirements of the Bank Secrecy Act. That 1970 federal law requires domestic financial institutions to file a CTR with the Internal Revenue Service on all transactions greater than $10,000 and to report suspicious activity such as money laundering and tax evasion. People engaged in large-scale illegal activity understandably dislike this requirement. Many of them, especially associates of the Lucchese crime family, through word of mouth, used “Joey Checks” Castello as a convenient one-stop banking service. On literally thousands of occasions, Castello collected checks and deposited them without filing Currency Transaction Reports. Castello’s customers, in turn, failed to log receipts. They also concealed payments to other individuals by not filing appropriate IRS forms.

Castello had help from his wife, Dana Schwartz Castello. She allegedly deposited nearly $2.7 million worth of checks into a Citibank account bearing her name. Prosecutors charged the couple with: 1) filing IRS Form 1040 joint tax returns for various calendar years that omitted mention of check-cashing income; and 2) depositing large sums of U.S. currency into the Citibank account. Three other individuals – Michael Varrone, Ramon Calvo and Rolf Andersen – also were named by prosecutors as figures in this scheme. Varrone, Calvo and Anderson were business owners who cashed checks with Castello. Andersen, for example, was the owner of International Brands, Inc., a wholesale liquor distributor who allegedly supplied cash to Castello in exchange for checks from Castello’s customers.

Castello was arrested by IRS Special Agents at his Greenwich, Conn. home on April 16, 2004. Nearly two years later, in March 2006, he was indicted by a federal grand jury for failing to file Currency Transaction Reports, unlawfully structuring financial transactions, conspiracy to impair and otherwise impede the IRS, tax evasion, and obstruction of justice. He pleaded not guilty in U.S. District Court for the Eastern District of New York (Central Islip, Long Island, N.Y.) to all offenses. On February 9, 2007 a jury convicted Castello of failing to file CTRs, but acquitted him of all other crimes. His wife also was acquitted, though she forfeited all rights to title and interest in the bank account in her name. That September Judge Wexler imposed a five-year prison sentence on the husband to be followed by three years of probation. He also forced Castello to pay a $250,000 fine, $300,000 in restitution to fraud victim Leo Bruss, home equity, and financial asset forfeiture of more than $12 million. Defendants Varrone, Calvo and Andersen also were ordered to forfeit the latter sum.

Forfeiture was a sticking point with Joey Castello. Believing the mandated payment violated the Constitution’s Excessive Fines Clause, he appealed. A Second Circuit panel, which included future Supreme Court Justice Sonia Sotomayor, remanded the case back to Judge Wexler’s court, asking him to apply an Eighth Amendment analysis. Wexler affirmed the conviction but this time held that forfeiture in any amount would be excessive. The U.S. Attorney’s Office appealed. This time around the appeals court mandated the original sum, arguing that this case did not violate the standard set by the leading case, U.S. v. Bajakajian (1998). All four factors used to determine restitution in Bajakajian weighed in favor of restoration of full forfeiture here. The court reasoned:

Bajakajian was convicted of a single failure to report, which “affected only one party, the Government, and in a relatively minor way. There was no fraud on the United States, and [the defendant] caused no loss to the public fisc.” The same cannot be said here.

Castello cashed thousands of checks in excess of $10,000, totaling over $200 million, without filing the required CTRs, and he did so knowingly and willfully. Castello’s refusal to file CTRs helped his customers evade taxes, cash fictitious checks, and commit securities fraud. The victims included private parties as well as the federal government…As Castello emphasizes, he was acquitted of tax fraud and the related crimes with which he was charged; but his failure to file the CTRs allowed others to commit crimes that, had he filed the CTRs, the government could have prevented or prosecuted.

Joey Castello, now a resident of Lewisburg, Pa. federal penitentiary, didn’t steal. But he made a fortune enabling others to do so. He had his operation down to a fine science. It was the perseverance of agents in the IRS Criminal Investigation Unit that ultimately tracked down his scheme. Those cheated out of their money, including present and future union pensioners, are feeling relief.