The recent L.A. fashion district bust, where federal agents seized approximately $100 million in cartel cash, has put money laundering back in the global spotlight. The case is the latest in a long list of incidents displaying the business savvy of narco-traffickers.
Drug cartels have remained at the forefront of money laundering. Like any business, they must adapt to a changing marketplace, clients and regulators. We've compiled a list of cases that at times blur the line between organized crime, governments, financial and law enforcement institutions. Collectively, this compendium can be read as a kind of encyclopedia on cleaning dirty drug money.
A presidential sibling and Citibank
In July 2013, a federal judge in Mexico exonerated Raul Salinas from illicit enrichment. Mexicans saw the brother of ex-president Carlos Salinas de Gortari (1988-1994) walk away with a reinstituted fortune of 41 real estate properties and approximately $17 million. Back in 1995, Raul’s scheme was discovered when his wife and brother-in-law were trying to withdraw millions from a Swiss bank account under his name.
A 1998 U.S. General Accounting Office report found the following: “Mr. Salinas was able to transfer $90 million to $100 million between 1992 and 1994 by using a private banking relationship formed by Citibank New York [and] the funds where [sic] transferred through Citibank Mexico and Citibank New York to private investment accounts in Citibank London and Citibank Switzerland.” According to the U.S. investigation, the bank argued it had only violated one clause of its customer policy — not performing a background check. The Department of Justice was unable to verify whether bank officials had conspired.
The figure below simplifies how Raul used his wife, Paulina, to carry out the job, according to the Department of Justice. Paulina allegedly would withdraw the funds from five Mexican banks, depositing the checks under an alias at Citibank Mexico. This process is the first step in traditional money laundering schemes, known as placement. Once placed, the cash would be converted to dollars before being wired to the institution’s U.S. and European branches—the second step, designed to obscure ownership and origin of the money, known as layering. The final step, integration, occurred when Salinas would purchase real estate or any other valuable goods, reintroducing the illicit cash into the financial system in the form of legit investments.
Andres Oppenheimer, a renowned Argentine journalist who covered the events, says Raul was known as “Mr. 10 percent” because of his rampant corruption, but Oppenheimer “never saw any concrete evidence linking him to drug trafficking.” However, incriminating testimonies surfaced in U.S. Senate hearings and the Mexican press. In 2009 former Mexican president Miguel de la Madrid (1982-1988) publicly stated Raul had ties with drug lords; days later he retracted his comments, attributing them to his own declining health.
Juan Miguel Ponce Edmondson, who served as director of Interpol Mexico from 1990-1992 and from 1997-2002, conducted a full investigation on Raul Salinas. He tells Fusion he never found a connection to drug trafficking.
“In the strict sense of the word, it wasn’t even laundering, it was occulting illicit money,” he says, claiming the DEA spread those rumors to justify its own role in the investigation. “The cartel money laundering allegations are a DEA lie, they had to justify going after him because that’s their modus operandi: go into anything that can give them publicity.”
In 2000, Guillermo Gonzalez Calderoni, a top police commander during Salinas’ presidency, gave an interview to PBS where he alleged a connection between the ex-president, his brother, and drug capos Miguel Felix Gallardo of the Guadalajara cartel and Juan Garcia Abrego of the Gulf cartel. He was ordered by Mexican prosecutor Cuevo Trejo to pursue Abrego, to convince him to turn himself in.
He said that upon hearing the request Abrego asked: "Why are they chasing me if I served Salinas?” Calderoni said he fled Mexico because the FBI alerted the president that one of his commanders was talking too much. He lamented that his accusations had not changed anything. “They don't want to listen to me,” he said. On February 2003, a gunman murdered Calderoni at his residence in McAllen, Texas.
Undercover DEA agents do the laundering
In 2011 the New York Times reported DEA agents who had infiltrated Mexico’s cartels “handled shipments of hundreds of thousands of dollars in illegal cash across borders.”
“Drug trafficking profits are impossible to manage,” Michael Vigil, former DEA Chief of International Operations, tells Fusion. “Pablo Escobar’s brother claimed their cartel would lose 10 percent to rats that were eating the cash they hid in walls.” Vigil says that in the 1980s the Medellin cartel was spending $3,000 a year on rubber bands to tie bill bundles. He says drug money has to be laundered eventually through legitimate financial institutions; in fact it has been laundered through entire cities. “A clear example is Miami, which was primarily built with cocaine money.”
Vigil says the process has not changed and that it is only a daunting task because of the huge volumes of cash a cartel produces, not because regulations have been substantially tightened.
“When I was in the DEA we infiltrated many cartels and, yes, we did launder certain quantities.” Vigil says this is a common practice. “You follow the money and it leads to other organized crime members.” Vigil claims that during his watch they never lost track of a transaction.
Wachovia bank and the Sinaloa cartel
In March 2010 Wells Fargo-owned and Miami-based Wachovia bank agreed to pay $160 million in fines after it facilitated to be laundering money through Mexican currency exchange houses by failing to apply an "effective anti-money laundering policy or procedure to monitor these transactions to detect and report potential money laundering activity," according to a DEA press release.
Federal prosecutor Jeffrey Sloman said: “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations by laundering at least $110 million in drug proceeds.” The penalty was hailed as justice served.
Wachovia entered into a deferred prosecution agreement. Prosecutors could not conclude if Wells Fargo’s anti-money laundering policies were also deficient. Nevertheless, Wells Fargo failed to efficiently monitor Wachovia. The Guardian reports that on March 24, 2010 just one week after the bank agreed to the settlement, Wells Fargo stock rose by 1 percent.
The Deferred Prosecution Agreement document can be viewed here.
Zetas at the horse races and Bank of America
In 2012 the FBI found that the brutal Zetas cartel used Bank of America accounts to launder millions at horse races in New Mexico.
The FBI affidavit shows the investigation centered on Miguel Angel Treviño Morales, known as “Zeta 40,” and his brother Jose. The affidavit says the Zetas funneled an estimate of $1 million a month into the purchase of horses.
Jose Treviño used intermediaries to buy the horses at auctions in Oklahoma, New Mexico and California. According to the document “after the horses were purchased ownership would be placed in various nominee names” and the animals were scattered across different ranches. When certain horses became “profitable” they would be transferred to Treviño or other businesses under his name. He would buy these horses at very low prices. Yet the invoicing paperwork would have false dates to convey he had bought the animal before it entered a winning streak.
The document says Treviño’s earnings were deposited at a Bank of America account ending in 5000. Illicit wire transfers were then made through Mexican currency exchange houses. The investigation did not find Bank of America liable for any wrongdoing.
Marty Schladen, a reporter for El Paso Times who covered the case and sentencing, says he spoke to the feds and “they said a confidential informant had told them the Zetas were actively fixing races at the All American Futurity,” the biggest quarter horse racing event in the world.
Francisco Colorado Cessa, one of the individuals convicted, was accused by the feds on the second day of the sentencing of trying to bribe a federal judge with $1 million to get a reduced sentence. Schladen says, Robert Pitman, U.S. Attorney for the Western district said: “it’s important to show these guys this isn’t Mexico; justice is not for sale.”
An HSBC whistleblower
HSBC will have to pay $1.92 billion in fines and penalties to U.S. authorities for laundering Sinaloa cartel money and engaging in several banking law violations. The mechanisms of the scheme were unveiled after Everett Stern, an HSBC employee turned whistleblower, was hired in October 2010 as an anti-money laundering compliance officer and reported the information to the CIA and FBI.
Stern told Fusion that he immediately noticed these alleged anti-money laundering employees were unqualified to fulfill their duties. He details this in a document he submitted to the bank’s legal counsel where he states this was a measure “to fill the cubicles in its AML compliance program and to dupe the federal government into believing it was complying with the October 2010 Cease and Desist orders.” He explains HSBC hired debt collectors with no anti-money laundering experience and often lacking degrees.
These compliance officers would clear red flags to “close any inquiry into the underlying transaction,” according to Stern. HSBC would put “tremendous pressure and offered promotions and salary incentives for AML officers to close as many alerts as quickly as possible.” In short, “the goal was to close the Alerts and green-light the underlying transactions and avoid elevating the Alert to a Suspicious Activity Report.”
In December 2012, the Justice Department charged HSBC with several crimes. One of them, according to the document provided to Fusion by Mr. Stern: “severely understaffing its AML compliance function and failing to implement an anti-money laundering program capable of monitoring suspicious transactions and activities from HSBC Group Affiliates, particularly HSBC Mexico” from 2006 to 2010. The Sinaloa cartel was laundering millions through the Mexican branch.
“There is no question they hired me because of my inexperience,” Stern tells Fusion. At the time, he was 25-years-old, a fresh MBA grad. “There was no training, no tests, no nothing, I was sat in front of computer and shown what to type up.” Stern says he was three weeks into the job when he figured out what was going on. He says these debt collectors, posing as anti-laundering officers, would add dashes to the wire filters so they wouldn’t match and therefore the money would go through unnoticed. “Cartels were paying people at HSBC, they were walking into HSBC with cases full of cash and then the money would be withdrawn from U.S. accounts.” He says the bank “was actively enrolled” in the act.
Stern says that aside from the fines and penalties, the Department of Justice “doesn’t want to arrest people.” He believes they are afraid of triggering a financial crisis.
Stern claims he went to the CIA first because HSBC had actually hired a former FBI agent to supervise the programs. The Guardian reports that when US authorities announced they would fine HSBC, “its shares on the London stock exchange rose by 2.8p to 644p.”
Money laundering at large
Security analyst Alejandro Hope says the money laundering headline is often blown out of proportion. “I have come to believe most of the cash remains dirty and is reinvested into the illegal market.” In short, most cartel proceeds are used to corrupt officials and purchase weapons and drugs; the smaller percentage is laundered through legitimate business and institutions.
Hope mentions a 2007 Mexico City bust, where over 200 million in cash was found at the mansion of Chinese businessman Zhenli Ye Gon. He says these cash discoveries could indicate cartels are not as likely to launder their profits through legal channels as they are made out to be. Hope emphasizes, however, that when it comes to the formal market, cars constitute a big portion of narco investment decommissions. When drug lord Joaquin ‘Chapo’ Guzman was apprehended, the Mexican government seized 43 vehicles, their sum valued at $1.6 million. Cars, real estate, banks, entire cities, it is impossible to pinpoint were all that narco money ends up.
Former Mexico Interpol director Juan Miguel Ponce Edmondson concludes that “the easiest and most effective way to go after cartels is to hit their capital.” He believes financial institutions are increasingly tightening restrictions “which implies that there is a complicity with some banks or bankers” when this happens. He emphasizes it is not only the cartels we need to worry about and points out to the Oceanografia oil company case that involves Citigroup in a $400 million fraud in Mexico.
In spite of all these known injustices, Ponce Edmondson says we can expect more of the same. “It is not in the interest of banks to apply more restrictions, because that also affects their VIP clients which deposit a lot of money.” The system seems to be engineered in a way that it simply makes money laundering inherent and inevitable. To Edmondson it is logical, “if you have a restaurant you are not going to ask your customers if they washed their hands.” In the same way, we can continue to expect financial institutions not to ask too many questions when someone walks into their premises with a large sum of cash.