Mexico's efforts also hampered by U.S. Govt. we see.
AZMEX Background 27 NOV 2011
International banks have aided Mexican drug gangs
Despite strict rules, some banks have failed to 'know their customer'
or ask about the source of large amounts of cash, allowing billions
in dirty money from Mexico to be laundered.
Raul Salinas de Gortari, brother of former President Carlos Salinas
de Gortari, used a maze of accounts in U.S. banks to secretly
transfer millions of dollars to Switzerland in the 1980s and '90s,
when he was a middle-ranking bureaucrat. No criminal charges of money-
laundering or illicit enrichment were filed against Salinas.
(Associated Press)
By Tracy Wilkinson and Ken Ellingwood, Los Angeles Times
November 27, 2011, 7:16 p.m.
Reporting from Mexico City—
http://www.latimes.com/news/nationworld/world/la-fg-mexico-money-
laundering-banks-20111128,0,430982.story
Money launderers for ruthless Mexican drug gangs have long had a
formidable ally: international banks.
Despite strict rules set by international regulatory bodies that
require banks to "know their customer," make inquiries about the
source of large deposits of cash and report suspicious activity, they
have failed to do so in a number of high-profile cases and instead
have allowed billions in dirty money to be laundered.
And those who want to stop cartels from easily moving their money
express concern that banks that are caught get off with a slap on the
wrist.
Banking powerhouse Wachovia Corp. last year agreed to pay $160
million in forfeitures and fines after U.S. federal prosecutors
accused it of "willfully" overlooking the suspicious character of
more than $420 billion in transactions between the bank and Mexican
currency-exchange houses — much of it probably drug money,
investigators say.
Federal prosecutors said Wachovia failed to detect and report
numerous operations that should have raised red flags, and continued
to work with the exchange houses long after other banks stopped doing
so because of the "high risk" that it was a money-laundering operation.
Wachovia was moving money on behalf of the exchange houses through
wire transfers, traveler's checks, even large hauls of bulk cash,
investigators said. Some of the money was eventually traced to the
purchase of small airplanes used to smuggle cocaine from South
America to Mexico, they said.
"Wachovia's blatant disregard for our banking laws gave international
cocaine cartels a virtual carte blanche to finance their operations,"
U.S. Atty. Jeffrey H. Sloman said in announcing the case last year,
hailed at the time by authorities as one of the most significant in
stopping dirty money from contaminating the U.S. financial system.
Wachovia paid the $160 million in what is called a deferred-
prosecution agreement; no one went to prison, and the fines
represented a tiny fraction of the money the bank had filtered. In
court documents cited by the U.S. Drug Enforcement Administration,
Wachovia acknowledged serious lapses.
In a similar case, another banking giant, HSBC Bank, is being
monitored by U.S. regulators after a probe last year focused on bulk
cash that the bank's U.S. branch received from Mexican exchange
houses, money suspected to be drug proceeds.
One of the regulators, the U.S. Office of the Comptroller of the
Currency, said HSBC had "critical deficiencies" in its 2006-2009
reporting of suspicious activities and its monitoring of bulk-cash
transfers.
The OCC issued a cease-and-desist order against HSBC, noting, "The
bank's compliance program and its implementation are ineffective, and
accompanied by aggravating factors, such as highly suspicious
activity creating a significant potential for unreported money-
laundering or terrorist financing."
After U.S. federal prosecutors issued grand jury subpoenas, some
believed that regulators might try to use the HSBC case to set an
example and prosecute individual bankers. Instead, HSBC agreed to
strengthen its compliance program and has said it is cooperating with
investigators, without acknowledging wrongdoing, part of a so-called
consent order.
Bryan Hubbard, a spokesman for the OCC, said last month that "OCC
examiners continue to monitor actions by the bank to correct
deficiencies and comply with that [consent] order."
In Mexico, authorities say they have taken steps to control and
monitor money-laundering. Banking regulations in force since 1997
require reporting and canceling of suspicious accounts, and
additional measures last year that put limits on dollar deposits in
banks further tightened the restrictions.
"We have been able to establish a system of prevention that is quite
robust," Jose Alberto Balbuena, head of the Finance Ministry's
Financial Intelligence Unit, said in an interview. "We have a much
clearer picture today of what dollars are entering the financial
system, where they came from, where they are."
The restrictions have also forced traffickers and their launderers to
channel more money into other sectors, such as real estate and
commerce, avoiding banks altogether. Mexican and U.S. officials are
looking to plug those gaps.
Complicity by banks has a deep history that still resonates in Mexico.
Raul Salinas de Gortari, brother of former President Carlos Salinas
de Gortari, used a maze of accounts in New York-based Citibank and
other U.S. banks to secretly transfer millions of dollars to
Switzerland in the 1980s and '90s, when he was employed as a middle-
ranking bureaucrat.
U.S. congressional investigators alleged that Raul Salinas' wife
personally carried check after check to the bank, where Citibank
executives asked no questions — despite rampant rumors that linked
Salinas to drug lords, and even when Salinas was held on charges that
he masterminded the assassination of a top politician. The Salinases
claimed that they were victims of a political persecution, the
Justice Department and Switzerland investigated, and there were calls
for reform of banking secrecy laws.
No criminal charges of money-laundering or illicit enrichment were
filed against Salinas. He is a free and wealthy man today. In 2008,
Switzerland, which had frozen his bank accounts, returned most of the
money.
wilkinson@latimes.com
ken.ellingwood@latimes.com
Mexico seeks to fill drug war gap with focus on dirty money
The evolving anti-laundering campaign could change the tone of the
Mexican government's battle by striking at the heart of the cartels'
financial empire, analysts say.
Mexico drug money
Soldiers carry a table displaying stacks of seized U.S. dollars at a
media presentation Tuesday in Mexico City. The money, found in a car
in a downtown Tijuana neighborhood, is believed by authorities to
belong to members of the Sinaloa drug cartel. (Eduardo Verdugo,
Associated Press / November 22, 2011)
By Ken Ellingwood and Tracy Wilkinson, Los Angeles Times
November 27, 2011
Reporting from Mexico City—
http://www.latimes.com/news/nationworld/world/la-fg-mexico-money-
laundering-20111127,0,5902870,full.story
Tainted drug money runs like whispered rumors all over Mexico's
economy — in gleaming high-rises in beach resorts such as Cancun, in
bustling casinos in Monterrey, in skyscrapers and restaurants in
Mexico City that sit empty for months. It seeps into the construction
sector, the night-life industry, even political campaigns.
Piles of greenbacks, enough to fill dump trucks, are transformed into
gold watches, showrooms full of Hummers, aviation schools, yachts,
thoroughbred horses and warehouses full of imported fabric.
Officials here say the tide of laundered money could reach as high as
$50 billion, a staggering sum equal to about 3% of Mexico's
legitimate economy, or more than all its oil exports or spending on
prime social programs.
Mexican leaders often trumpet their deadly crackdown against drug
traffickers as an all-out battle involving tens of thousands of
troops and police, high-profile arrests and record-setting narcotics
seizures. The 5-year-old offensive, however, has done little to
attack a chief source of the cartels' might: their money.
Even President Felipe Calderon, who sent the army into the streets to
chase traffickers after taking office in 2006, an offensive that has
seen 43,000 people die since, concedes that Mexico has fallen short
in attacking the financial strength of organized crime.
"Without question, we have been at fault," Calderon said during a
meeting last month with drug-war victims. "The truth is that the
existing structures for detecting money-laundering were simply
overwhelmed by reality."
Experts say the unchecked flow of dirty money feeds a widening range
of criminal activity as cartels branch into other enterprises, such
as producing and trading in pirated merchandise.
"All this generates more crime," said Ramon Garcia Gibson, a former
compliance officer at Citibank and an expert in money-laundering. "At
the end of the day, this isn't good for anyone."
Officials on both sides of the border have begun taking tentative
steps to stem the flow of dirty money. For Instance, last year
Calderon proposed anti-laundering legislation, after earlier
announcing restrictions on cash transactions in Mexico that used U.S.
dollars.
The evolving anti-laundering campaign could change the tone of the
government's military-led crime crusade by striking at the heart of
the cartels' financial empire, analysts say. But the effort will have
to overcome a longtime lack of political will and poor coordination
among Mexican law enforcement agencies that have only aggravated the
complexity of the task at hand now.
"If you don't take away their property, winning this war is
impossible," said Sen. Ricardo Garcia Cervantes of the Senate
security committee and Calderon's conservative National Action Party.
"You are not going to win this war with bullets."
++
The good news for Mexican and Colombian traffickers is that drug
sales in the United States generate enormous income, nearly all of it
in readily spendable cash. The bad news is that this creates a
towering logistical challenge: getting the proceeds back home to pay
bills, buy supplies — from guns to chemicals to trucks — and build up
the cartels' empires without detection.
Laundering allows traffickers to disguise the illicit earnings as
legitimate through any number of transactions, such as cash
transfers, big-ticket purchases, currency exchanges and deposits.
Much of that money still makes its way back into Mexico the old-
fashioned way: in duffels stuffed into the trunks of cars. But
Mexican drug traffickers are among the world's most savvy
entrepreneurs, and launderers have proved nimble in evading
authorities' efforts to catch them, adopting a host of new techniques
to move the ill-gotten wealth.
For example, Mexican traffickers are taking advantage of blind spots
in monitoring the nearly $400 billion of legal commerce between the
two countries. The so-called trade-based laundering allows crime
groups to disguise millions of dollars in tainted funds as ordinary
merchandise — say, onions or precious metals, as they are trucked
across the border.
In one case, the merchandise of choice was tons of polypropylene
pellets used for making plastic. Exports of the product from the
United States to Mexico appeared legitimate, but law enforcement
officials say that by declaring a slightly inflated value, traders
were able to hide an average of more than $1 million a month, until
suspicious banks shut down the operation.
The inventive ploys even include gift cards, such as the kind you get
your nephew for graduation. A drug-trafficking foot soldier simply
loads up a prepaid card with dollars and walks across the border
without having to declare sums over the usual $10,000 reporting
requirement, thus carrying a car trunk's worth of cargo in his wallet.
Tainted cash is almost everywhere. In western Mexico, a minor-league
soccer club known as the Raccoons was part of a sprawling cross-
border empire — including car dealerships, an avocado export firm,
hotels and restaurants — that U.S. officials said was used by suspect
Wenceslao Alvarez to launder money for the Gulf cartel. Alvarez was
arrested by Mexican authorities in 2008 in a rare blow against
laundering and remains in prison while fighting the charges.
Even the most unlikely street-corner businesses may be used to scrub
money. A pair of tanning salons in the western state of Jalisco were
among 225 properties seized from drug suspect Sandra Avila Beltran,
the so-called Queen of the Pacific and one of the few women allegedly
to reach upper cartel echelons.
Avila, arrested in 2007, is still behind bars on the money-laundering
charges as she also fights extradition to the U.S., but she has been
exonerated of organized-crime and weapons charges.
The salons, with their all-cash, high-volume turnover, were allegedly
used to hide drug money. The chain, called Electric Beach, has
outlets all over Mexico City.
++
Mexico's efforts against money-laundering are hobbled by staff
shortages, a failure to investigate adequately and skimpy laws that
have exempted from scrutiny a number of industries often used to
clean dirty money, independent assessments by financial experts and
academics have found.
Javier Laynez Potisek, Mexico's fiscal prosecutor, lamented during a
September conference on money-laundering, "Our system allows someone
to come in with a suitcase full of money and buy four armored pickups
for 600,000 pesos [about $42,000], and we don't have a minimum
requirement to identify or report them."
A 2009 report issued by the Financial Action Task Force, an
international anti-money-laundering agency, noted that Mexican
authorities had won only 25 convictions for money-laundering in the
two decades it has been a crime. From the beginning of 2009 to
mid-2010, as overall drug-war arrests soared, prosecutors won
convictions of only 37 people for money-laundering.
Part of the problem is that only Mexico's Finance Ministry has had
access to financial data crucial to potential money-laundering
inquiries, and prosecutors have not been allowed to open their own
money-laundering investigations without a complaint from finance
officials.
There is also stubborn resistance among those who profit from their
role as middlemen for big transactions.
One such group is notaries, who in Mexico have a function much like
attorneys in the U.S. They handle nearly all real estate transactions
and have battled a proposal that would require them to report how
each purchase was paid for. Notaries say launderers would probably
respond by skipping the paperwork altogether when buying cars and
houses, only adding to the black-market economy.
"The only thing that worries us notaries is that [the proposed
reporting requirements] would create an alternative market … that
brings benefits to no one," said Hector Galeano, finance secretary of
Mexico's notaries association.
Some observers suggest that one reason previous Mexican governments
were slow to attack money-laundering was fear of harming the rest of
the economy.
Edgardo Buscaglia, a scholar who studies organized crime, estimates
that in a nation where three-quarters of all transactions are cash,
drug money has infiltrated 78% of the sectors constituting the formal
economy.
In Sinaloa, the prosperous coastal state considered the cradle of the
Mexican narcotics trade, economist Guillermo Ibarra estimates that
drug money sustains nearly a fifth of the region's economy, from
fancy subdivisions dotted with "narco-mansions" to vast farms.
Sinaloa is a well-known produce grower; in fact, its license plate
features a tomato. But it would take an awful lot of tomatoes to
account for the kind of over-the-top opulence on display in the state.
++
The moves to turn the tide in dirty money have generally taken place
out of public view. But they could mark an important shift in the
drug-war strategy.
A year ago, a small group of Mexican officials and U.S. counterparts
met and selected six money-laundering cases to investigate jointly in
an experimental offensive. U.S. agents here say the first arrests,
involving a network in the northern border state of Chihuahua, could
come by year's end.
Separately, U.S. Customs officials familiar with sophisticated money-
laundering techniques have begun training Mexican tax inspectors who
will be assigned to ferret out launderers. In addition, nearly 500
individuals and Mexican companies, from mines to milk producers, have
been placed on a U.S. Treasury Department blacklist for alleged
laundering activities.
And the Mexican Congress, after years of government inaction on the
issue, is weighing a series of legislative proposals based on
Calderon's anti-laundering package that would make it more difficult
to cleanse dirty money. In the meantime, the restrictions on the use
of U.S. cash in Mexico appear to be altering the flow of drug-tainted
dollars for the first time, officials on both sides of the border say.
Under the proposed legislation, a specialized unit added to the
attorney general's office, with advice from U.S. officials, would be
authorized to take the lead in money-laundering cases and inspect a
wide variety of businesses in search of illicit profits.
In addition, the government nearly a year ago replaced the Finance
Ministry official in charge of such cases with a veteran Washington-
based diplomat, Jose Alberto Balbuena, who had spent many months
working with U.S. financial officials and is said to have a better
grasp of what's at stake and a good working relationship with top
prosecutors.
To date, Mexican reporting requirements have applied only to banks.
Under legislation approved by the Senate last year and now before the
lower Chamber of Deputies, a range of other industries would also be
required to report large cash or suspicious transactions using
unexplained funds.
These include real estate, car dealerships, betting parlors, art
galleries, notaries, and, possibly, religious institutions. Mirroring
"know your customer" regulations in the banking world, the rules
would require disclosure of cash purchases for more than 200,000
pesos, or about $14,000, of numerous goods and place a cap of 1
million pesos, or about $70,000, on cash purchases of real estate.
Law enforcement experts say the proposed legislation could fill a
yawning gap in Mexico's crime fight.
"It's going to counteract the financial and economic power of the
criminals," said Ricardo Gluyas, a professor at the National
Institute of Criminal Sciences, which trains Mexico's organized-crime
prosecutors. "The new law has teeth. It covers a broad spectrum."
One potentially powerful tool, an asset-forfeiture law that allows
authorities to seize property and accounts of traffickers and
launderers, was approved by Congress in 2008. A similar law made a
big difference in crime fights in Colombia and Italy, allowing
authorities in those countries to confiscate and resell properties of
drug traffickers and Mafiosi.
"Without firing a shot, you can generate a lot more results by
seizing the fortunes of the big capos," Gluyas said.
But critics say the Mexican asset-forfeiture law threatens the due-
process rights of owners. So far, it has been little used: Courts had
approved only two cases by late this summer, with more than a dozen
pending.
Perhaps more than any other measure, the government's move last year
to restrict bank deposits of U.S. cash appears to have slowed the
entry of dollars to Mexico's financial system. Bank-account holders
were no longer allowed to deposit more than $4,000 a month.
In response, traffickers and their launderers are shifting tactics,
including keeping money in the United States, officials say. And U.S.
officials say that since Mexico announced the new rules, more money
appears to be going elsewhere, especially to the Caribbean and
Guatemala, where officials have detected a surge in circulating U.S.
bank notes.
"That's the big question," Balbuena said. "Where is the money?"
A possible explanation can perhaps be gleaned from an Oct. 5
incident: Customs inspectors in Tijuana stopped an armored car full
of plastic bags stuffed with $915,000 in cash. There was no
documentation for the money, law enforcement sources familiar with
the discovery said.
But it wasn't headed into Mexico. It was headed north, into San Diego.
ken.ellingwood@latimes.com
wilkinson@latimes.com
Cecilia Sanchez of The Times' Mexico City bureau contributed to this
report.
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