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Cartels use legitimate trade to launder money, U.S., Mexico say

DIRTY MONEY

Fruit, fabric and toys are purchased and then exported south, generating paperwork that gives drug money the appearance of lawful proceeds from a transaction, authorities say.

December 19, 2011|By Tracy Wilkinson and Ken Ellingwood, Los Angeles Times
  • Los Angeles County prosecutors indicted Blanca Cazares in 2008 on charges of heading a vast operation dedicated to processing illicit proceeds for the Sinaloa drug cartel.
Los Angeles County prosecutors indicted Blanca Cazares in 2008 on charges… (handout photo )

Reporting from Mexico City — It's fast becoming the money-laundering method of choice for Mexican drug traffickers, U.S. and Mexican officials say, and it involves truckloads not of cash, but of fruit and fabric.

Faced with new restrictions on the use of U.S. cash in Mexico, drug cartels are using an ingenious scheme to move their ill-gotten dollars south under the guise of legitimate cross-border commerce.

U.S. and Mexican authorities say trade-based money-laundering may be the most clever — and hardest to detect — way in which traffickers are washing and distributing their billion-dollar profits.

FULL COVERAGE: Mexico's drug war

"It's such a great scheme," said an undercover agent with the U.S. Immigration and Customs Enforcement, or ICE, agency. "You could hide dirty money in so much legitimate business, and they do. You can audit their books all day long and all you see is goods being imported and exported."

Here's one way it works: Instead of smuggling the money the old-fashioned way, by simply carrying it south in bags and trucks, teams of money launderers working for cartels use dollars to purchase a commodity, and then export the commodity to Mexico or Colombia. Paperwork is generated that gives a patina of propriety. Drug money is given the appearance of legitimate proceeds from a trade transaction.

By turning their mountain of proceeds into tomatoes, say, or bolts of Chinese fabric shipped and resold in Mexico, cartels accomplish two goals at once: They transfer earnings back home to pay bills and buy new drug supplies while converting dollars to pesos in a transaction relatively easy to explain to authorities.

Long used by Colombian cartels, the scheme is becoming more popular with Mexican traffickers after new efforts here to combat laundering by restricting the use of dollars. Those restrictions, plus proposed limits on cash purchases of big-ticket items such as houses and boats, make it less attractive for traffickers to hold trunks full of U.S. cash.

After many years of using dollars to buy luxury items and pay their suppliers and dealers, cartel capos have suddenly found themselves in need of pesos. Trade-based money-laundering solves that problem.

"It's a better way to conceal proceeds," said Raymond Villanueva, head of an ICE unit that investigates international money-laundering. "It's not going to raise so many flags."

The pioneer in the trade-based technique in Mexico may have been Blanca Cazares, the alleged queen of money-laundering for the multibillion-dollar Sinaloa cartel. Los Angeles County prosecutors indicted her in 2008 on charges of heading a vast operation dedicated to "processing illicit proceeds" for the cartel; a onetime resident of Bell, she remains at large, presumably in Mexico.

Several years ago, U.S. federal investigators allege, Cazares started using the import of silk from Asia to hide and launder drug dollars and turn them into pesos. She'd import bolts and bolts of Asian fabric to the Los Angeles area, investigators say, then export it to Mexico.

Back in Mexico, Cazares would sell the cloth at high prices in pesos in her chain of Chika's boutiques in the drug heartland state of Sinaloa and seven other states, investigators say.

The U.S. government placed her (along with her husband and three adult children) on its "designated kingpin" list, meaning U.S. firms and individuals are barred from doing business with her and her companies.

Although Mexican cartels are only now beginning to regularly employ trade-based laundering, Colombian traffickers perfected the scheme long ago, authorities say.

"The Mexicans are progressing rapidly. They have a fairly robust interaction with the Colombians, so they learn from the Colombians," said a senior U.S. law enforcement official based in Mexico City. "You're going to see them [Mexican cartels] going more and more toward the product [trade-based laundering]. They have to."

Not only is the tactic effective, but it is also difficult to prosecute.

Last year, U.S. federal officials indicted Los Angeles-based Angel Toy Corp., a firm better known for churning out plush teddy bears and Easter bunnies, on money-laundering charges. The company's three top executives were arrested.

According to the indictment and ICE investigators who worked the case, men arrived over the years at the company's downtown workshop toting duffel bags full of cash — wads of $5, $10 and $20 bills that investigators said was money from cocaine sales.

The men would refer to the money as "papers" or "candy" or "tires," with no mention of toys, court documents say.

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