Source: Los Angeles Times (CA) Contact: 213-237-4712 Website: http://www.latimes.com/ Pubdate: Tue, 19 May 1998 Author: David Rosnzweig, Mary Beth Sheridan - Times Staff Writers MEXICAN BANKS INDICTED IN DRUG MONEY PROBE Operating out of a storefront in a gritty neighborhood of Santa Fe Springs, undercover agents from the U.S. Customs Service carried out a three-year sting that ended Monday with the indictment of three Mexican banks and 107 people on charges of laundering millions of dollars for Latin American drug-smuggling cartels. The indictments returned by a Los Angeles federal grand jury represent "the culmination of the largest, most comprehensive drug money laundering case in U.S. law enforcement history," said Treasury Secretary Robert Rubin. "Today," he added, "we have hurt the drug cartels where it hurts most--in their pocketbooks." The announcement was a bombshell in Mexico, which has been buffeted in recent years by charges that drug traffickers have spread their influence into the top levels of government and business. The news sent Mexican stock and bond markets lower and forced radio and television broadcasters to cut into regular programming. Banking stocks plunged as much as 8.5% on the Mexican stock exchange after the announcement, which came as the country's banking sector is just beginning to recover from a virtual collapse after the country's devastating 1995 recession. In lightning raids that began over the weekend, federal and local law enforcement agents across the United States arrested 35 suspects, including 15 Mexican bank officials who were lured to meetings in Las Vegas and San Diego, and 16 members of the drug cartels of Cali, Colombia, and Juarez, Mexico. Authorities also seized $35 million from the American assets of the Mexican banks named in the indictments: Bancomer S.A., Banca Serfin S.A. and Confia S.A.--among the largest and most prestigious banks in Mexico. Forfeiture actions have been taken to seize an additional $81 million believed to be stashed in other U.S. accounts. In addition to the three banks charged, the indictments named managers at 12 of Mexico's 19 largest banking institutions as participants in the money laundering scheme. The Treasury Department said the case represents the first time Mexican banks and bank officials have been directly linked to laundering profits for the cartels. Stunned by the sweeping indictment, Mexican bankers vigorously denied that their companies were engaged in money laundering and pledged full cooperation with the probe. Carlos Gomez y Gomez, head of the Mexican Bankers Assn., told a news conference: "We consider that these operations were carried out by workers and employees acting individually and don't represent an institutional practice of Mexican banks. The banking system of our country has 140,000 employees, of whom 26 have been named as [being] involved in the practice of money laundering." Despite his assurances, the announcement was at the very least a severe embarrassment to Mexico's largest and most prestigious banks. Three of them were indicted directly; nine others were named because their employees were accused of laundering money for Mexican and Colombian drug cartels. Even Gomez y Gomez's own institution, Santander, was named. But he said the seizure of $35 million in allegedly dirty money in the U.S. operation would not affect the solvency or operations of Mexican banks. "The Mexican Bankers Assn. supports unconditionally all the measures taken to punish the guilty. We presidents and directors [of banks] share the concern to improve the controls in Mexican banks against money laundering," Gomez y Gomez told reporters. But Rogelio Ramirez de la O, a prominent economic consultant based in Mexico City, said, "I think [Treasury Secretary] Robert Rubin was one of the last persons to [realize] the Mexican banks were involved in laundering. This has been very much a suspicion in Mexico since 1995." U.S. authorities said the Mexican bankers were implicated in meetings with the undercover agents. Dubbed "Operation Casablanca," the investigation was launched in November 1995, when Customs Service investigators learned that drug cartel members were laundering proceeds from U.S. drug sales through branches of Mexican banks along the border. Passing themselves off as money launderers, the undercover agents established a front company in Santa Fe Springs and managed to get themselves hired as middlemen for the principal money brokers employed by the drug cartels of Cali, Colombia, and Juarez, Mexico. Through coded messages faxed by the money brokers from Colombia and Mexico, the undercover agents were instructed where to go to pick up drug proceeds and how to move the money out of the United States. Money was picked up in places as far away as Chicago, Miami and Milan, Italy, and then dispatched to the drug cartels through wire transfers or through surreptitious shipments of currency. To complete the laundering process, much of the drug money was then sent back to the United States with the help of the Mexican bankers who arranged for the issuance of untraceable bank drafts, according to prosecutors. The undercover agents were introduced to some of those bankers by Victor Manuel Alcala-Navarro, an alleged underling to a Juarez cartel money broker in Chicago. One meeting led to another and soon, prosecutors said, the agents had a long list of Mexican bankers eager to help them launder the money although the agents made it clear that the funds came from drug sales. In return for their assistance, the bankers were given a 1% commission. A federal prosecutor in Los Angeles said most of the bankers were not surprised when made aware of the source of the money and told the agents that laundering drug money was a common practice in Mexican banking. The investigation found that nearly 100 U.S. bank accounts were used by the drug traffickers, but authorities said they found no evidence that American banks were aware of the money laundering. If convicted, the defendants face penalties ranging up to life in prison. Michael McDonald, a former top IRS money laundering investigator, said Mexico had been a money laundering haven with few controls in past years. However, he said, the Mexican government--working closely with U.S. authorities--had implemented some of the toughest money laundering controls in the world, covering securities deals as well as banking transactions of more than $10,000. All banks have been issued manuals explaining how to spot suspicious transactions. An FBI-trained unit with 30 full-time members was created in January to investigate money laundering. Ramirez de la O, a prominent Mexican economic analyst, cautioned that however comprehensive the new money laundering regulations may be, "the Mexican bankers have demonstrated time and again that they find all these ways to go around the law." He also noted that there had long been a cozy relationship between the authorities and bankers, who "enjoy an unknown degree of protection from some government officials." McDonald, who now consults from Miami on money laundering issues, said: "This is going to materially disrupt the money laundering cycle of the Colombian and Mexican cartels, at least temporarily." He added, however, that "money laundering is like a water balloon. You step on one side, and it pops up on another." The Mexican attorney general's office and Finance Ministry joined the Bankers' Assn. in pledging full cooperation with the U.S. investigation. All of them appeared surprised by the announcement. In a separate development Monday, the Federal Reserve said it had issued "cease and desist" orders against five foreign banks, including two of those under indictment, for failing to address serious deficiencies in their anti-money laundering programs. Those banks are Banca Serfin, Bancomer, Banamex and Bital of Mexico and Banco Santander of Spain. Each operates offices in the United States. The order requires the banks to implement new anti-money laundering procedures. Rosenzweig reported from Los Angeles, Sheridan from Mexico City. Times staff writer Jim Smith in Mexico City contributed to this story. Copyright Los Angeles Times - --- Checked-by: (Joel W. Johnson)