Mexico outfits on US money-laundering list thrive
By E. Eduardo Castillo and Mark Stevenson / Associated Press
Posted: 05/14/2011 10:18:10 AM MDT
MEXICO CITY (AP) - Business appeared slow on a recent night at the
cavernous, marble-lobbied Numero Uno bar.
Neatly uniformed waiters were on hand ready to whisk plates from the
extensive menu to dozens of tables; the exhaustive drinks list
includes a rare and expensive 18-year-old whisky brand that is
reportedly the favorite of Mexican drug lord Joaquin "El Chapo" Guzman.
Yet the owners may not mind that almost all the tables are empty. The
U.S. Treasury Department says the Sinaloa cartel uses the Mexico City
restaurant and a web of other companies ranging from a cattle ranch
to an office supplies store to launder millions of dollars in drug
profits each year.
Despite being listed in the U.S. as a money-laundering operation,
Numero Uno is still open for business.
"We've really been hurt by the street work going on around here, more
than by that list," said one of the bar's waiters, motioning toward a
repaving project outside the front door.
In fact, many alleged fronts for drug cartel activity remain open
around Mexico, despite the attempts of U.S. and Mexican officials to
shut them down.
Experts say that cutting off operations that funnel illegal money
into banks and other legitimate businesses is key to winning the
country's bloody war against drug cartels. But the Mexican
government, hampered by inefficient laws and few investigators, has
seized less than 1 percent of the estimated annual $10 to $29 billion
in drug profits moving through Mexico, despite
recent measures such as strict limits on the use of U.S. dollars in
From 2008 to mid-2010, prosecutors seized only $65.1 million in
money laundering proceeds, mainly in dollars, but with smaller
amounts in pesos, euros and gold, according to figures obtained by
The Associated Press under a freedom-of-information request. In the
same time, they won only 37 convictions in money-laundering cases,
out of 150 suspects arrested or brought to trial, the records from
the Attorney General's Office show.
No later figures were immediate available from the office.
Since Mexico enacted a highly touted law to seize the properties of
drug traffickers and cartel members nearly two years ago, not a
single property has been seized under the law.
Judicial authorities say a mistake in the language of the law
requires prosecutors to reveal their entire criminal case against a
suspect in civil proceedings to seize his assets, something
prosecutors are not willing to do for fear of endangering their
cases. Amendments have been proposed to fix that shortcoming.
Mexico also has had limited success at seizing bulk cash shipments.
About $100 million in suspect U.S. dollars is seized annually by
Mexican inspectors at borders and airports and by police in raids on
traffickers' houses, according to a government security report for
the period from 2006 to mid-2009.
Experts say that bulk cash seizures are often random or lucky, based
on a tip-off or a suitcase inspection. Such seizures yield little
intelligence and seldom disrupt the cartels' money network, usually
netting only low-level couriers.
The U.S. Foreign Narcotics Kingpin Act bans American businesses from
having any dealings with 300 individuals and 180 companies that the
Treasury Department's Office of Foreign Assets Control lists as being
affiliated with cartels. While the act has helped disrupt some
financial networks, it has done little for forfeitures or fines.
The Treasury Department cited only about $20,000 in fines in the last
year for U.S. companies violating the ban. And since 2000, only about
$15.7 million in accounts of people and businesses on the list has
been seized by U.S. authorities.
Now average Mexicans, wearied by more than 35,000 deaths, mainly of
low-level operatives in the conflict, are demanding the government go
after the financial networks that pay for cartels' guns and
assassins. It was one of the main demands by organizers of a march
against violence last week that drew tens of thousands to Mexico
City's central square.
"They (authorities) have to change their strategy," said Juan Carlos
Rivas, 33, a Mexico City businessman who marched in the protest.
"They have to go after the gangs' finances. If they don't this is
never going to end."
Officials say part of the problem is the complexity and difficulty of
money laundering cases. "It is typically a several year investigation
in order to bring down a network," said Adam Szubin, director of the
U.S. Treasury Department's Office of Foreign Assets Control.
Szubin says drug cartels are now using everything from soccer teams
to beauty salons to launder money, but they particularly like
trucking and small air cargo firms, companies that can move both
drugs and proceeds from the sales. They also like pharmacies because
they have both big cash flows and access to precursor chemicals to
make synthetic drugs.
U.S. and Mexican authorities recently said they uncovered a Sinaloa
cartel laundering operation led by Jorge Cifuentes Villa, who owned
or controlled 44 companies in Colombia, Mexico, and Ecuador ranging
from an airline and real estate and consulting firms, even a dive
shop. He apparently remains at large.
In June, Mexico set strict limits on exchanging or depositing dollars
in cash, something that appears to be having an effect. But officials
say it may be forcing those suspect transactions over Mexico's border
into the southwestern United States and Central America.
The new measures limit cash dollar transactions for people who are
not bank account holders to $1,500 per month, and $4,000 per month
for those with established bank accounts. Most Mexican banks now
refuse to handle dollars in cash at all - a big change from just a
couple of years ago when, as one bank spokesman recalled, people
would show up at banks to deposit briefcases full of dollars.
The measures are forcing launderers to move their operations to
Central America, where countries - principally Guatemala and Honduras
- have reported a spike of incoming U.S. cash of about one billion
dollars since Mexico imposed the restrictions, according to a high-
ranking Mexican official, who was not authorized to be quoted by name
for security reasons. U.S. authorities say they have also received
reports of about 700 instances in which suspicious money transfers
were changed in an apparent attempt to get around the Mexican
restrictions, including attempts to break big cash movements into a
series of smaller transfers.
There are also indications that the suspicious transfers are
increasingly being sent to banks in the border region on the U.S.
side, where dollars can be changed more easily into pesos in towns
with large numbers of currency exchanges.
Overall, the Treasury Department says there has been a decline the
amount of U.S. cash dollars returned by banks in Mexico to U.S.
Federal Reserve offices, a key indicator of the total amount of U.S.
dollars moving through Mexico.
The administration of President Felipe Calderon has proposed similar
limits on peso cash transactions, banning cash transactions of over
100,000 pesos ($8,500), or cash purchases of real estate.
But congress is still debating that. In a country whereas much as 70
percent of the economy is cash-based or under-the-table, a rule
prohibiting cash purchases for big-ticket items could cause
significant economic pain.
"You can buy a house, a car, a high-value item today in cash," said
Mexican Bankers Association President Luis Robles Miaja. "In
Mexico ... a lot of illicit money from drug cartels is laundered
simply through commercial transactions, not through banks."
U.S. companies are reluctant to settle in Mexico drug war
AP | 10:43
McAllen, Texas, USA .- Dozens of employees of Mattel Inc. were on
their way to another day of work to make Power Wheels in the
industrial heartland of Mexico, when gunfire erupted around him and a
grenade hit one of its buses killed a worker and wounded five.
The battle between drug traffickers and the army near the city of
Monterrey last week was the kind of violence that frightens the new
investment by U.S. companies south of the border, where organized
criminals are turning increasingly to kidnapping, extortion cargo
theft and despite the government's offensive against drug cartels.
"These acts of violence do not happen in a vacuum occurring in the
street that could be right in front of your building. Bullets are
fired and have to go to stop somewhere," said Dan Burgess, a senior
manager of Freightwatch Inc. , a cargo security company based in Austin.
As a result, only half of U.S. companies surveyed recently by the
Chamber of Commerce-Mexico said it would go ahead with plans for new
investments in Mexico, and several companies, including Whirlpool
Corp., have recently announced new factory installed in Elsewhere,
referring to concerns about safety.
More than 35,000 people have died from drug-related violence since
President Felipe Calderon deployed thousands of federal security
forces four years ago to fight against traffickers. In recent months,
nearly 400 bodies have been taken from mass graves in the northern
states of Tamaulipas and Durango. There are almost daily reports of
factional executions, abductions and extortion.
The army said Mattel workers apparently caught in a crossfire on May
6, when attackers believed to be working for the cartel Los Zetas
attacked a military convoy with guns and a grenade from an overpass
on a highway on the outskirts of Monterrey.
"People were horrified and incredibly Mattel saddened" by the attack,
the company said in a statement released by the spokeswoman Jules
However, the battles between government forces and the cartels are
becoming more common, and companies and their workers are inevitably
One in 10 companies reported kidnappings and 60% said their employees
were beaten or threatened in 2010, according to the Chamber of
And cargo theft of trucks and trains are widespread and growing.
Cargo theft cost the company about $ 700 million last year, an
increase of 40% over the past three years, according to the National
Alliance of Multimodal Transport.
Whole trailers loaded with newly manufactured cars were stolen this
year on major highways in the states of Tamaulipas, Nuevo León,
Morelos and Sinaloa. Some truckers refuse to drive through dangerous
areas, including Ciudad Juarez, where officials say the criminals
tend to extort $ 70 and ask to move to safety.
Increasingly, thieves steal selectively load, things like industrial
chemicals and metals specially treated, at the request of specific
customers, according to the Freight Transport Association of Mexico.
Companies in Mexico estimated payments to organized crime groups as
part of the cost of doing business. "It's a practice known that many
Mexican producers and exporters pay a certain percentage of their
products to pass through some parts of Mexico without the wrecking,"
said a senior U.S. official in Mexico, who spoke on condition of
anonymity because of considerations security.
Armed security escorts can be seen as mass rumble along the roads
north of Mexico, some hired by private companies, others - like in
the state of Coahuila - provided free of charge by the government. In
the Panasonic plant in Tijuana, they turn to armed escorts daily
deliveries, a 20-minute ride to the border with the United States.
So many rolls and plates of steel, aluminum and copper have been
stolen from the Monclova-Monterrey highway this year that some
insurers are suspending insurance, according to Freightwatch.
Despite losses, most U.S. companies already operating in Mexico say
they have no plans to leave a place where you pay $ 3 per hour of
labor, lax environmental standards, tax incentives and a very
convenient location convenient for its proximity to the U.S. market.
"People think that everything in Mexico is a constant battle, but it
is not," said Keith Patridge, which promotes businesses on both sides
of the border to the McAllen Foreign Trade Zone in southern Texas.
Indeed, daily imports and exports worth more than U.S. $ 1,000
million across the border and feed hundreds of thousands of jobs in
the United States and Mexico. More than 18,000 U.S. companies have
operations in Mexico, including most of the companies in the Fortune
But those figures could be higher, said Gabriel Casillas, chief
economist for JP Morgan Mexico, who estimates that drug-related crime
cost Mexico U.S. $ 4,000 million in foreign direct investment in 2010.
Patridge takes a look through the window of his office to three large
flags from Mexico, Canada and the United States. A little farther
across the street, the new offices of the Department of Homeland
Security have an arsenal of weapons, armored vehicles seized and drug
cabinets cells occupied with Mexicans who have been captured while
crossing the Rio Grande furtively. The boundary for thousands of
federal agents, is a barrier that must be protected and defended
However, for Patridge, and most business leaders in the area, the
border is a river, a fence or a wall that opens up in the middle of
an area that feels like a single community.
"We are a city, a metropolitan area that stretches across the border.
The southern part of our city workforce that is among the most
competitive in the world. The north side of the city is the world's
largest market "he says.
Years ago, Patridge helped between 20 and 30 year U.S. companies to
establish manufacturing operations in Mexico. Last year there were five.
In El Paso, Texas, Bob Cooke runs a similar cross-border trade
chamber, which promotes U.S. business and investment across the
bridge in Ciudad Juarez, the most violent city in Mexico. Said only
one U.S. company opened a store in Ciudad Juarez last year.
"Clearly we are not arguing that they are normal business, but not as
bad as it seems," he said, adding that because of the bad image, "and
we can not even get companies to look towards it."