DRUG CASH SUSPECTED IN TIJUANA LAND DEALS

Laundering Probe Looks For Links To Cartel Figure

TIJUANA -- Over the past decade, a land development and construction
business owned by the brother of a suspected drug cartel member quietly
bought dozens of acres near the border.

Ismael Labra Aviles' company reshaped Tijuana's landscape, building
shopping centers along a major thoroughfare and dressing up vacant lots for
businesses interested in locating near the Otay Mesa border checkpoint.

It wasn't until his brother, Jesus "Chuy" Labra, was arrested in March that
Calafia Constructora e Inmobiliaria came under scrutiny by Mexican
investigators interested in exploring a connection with the Tijuana-based
Arellano Felix drug cartel.

The possibility that money-laundering built this low-key Tijuana company,
just as it has built many other companies throughout the world, doesn't
surprise those familiar with the patterns of money launderers.

Mexico is considered a destination for some of the $300 billion to $600
billion laundered worldwide each year, mostly from drug transactions,
according to U.S. agencies.

Usually the ill-gotten money is funneled into banks, despite laws in many
nations that require banks to file reports on large transactions. From
there, it is wired through legitimate channels to businesses and front
companies and turned into spendable cash.

Dismantling these operations can paralyze a drug cartel's ability to wheel
and deal, and even slow the flow of drugs.

But the Mexican government's investigation of Calafia Constructora shows
how hard it can be to go after suspected companies.

In April, three anti-drug agents investigating Jesus Labra were tortured
and killed. The team was said to have been looking into the possibility
that Jesus Labra was using Calafia Constructora as a money-laundering
operation, a suspicion also harbored by U.S. Drug Enforcement
Administration agents. Two attorneys for Jesus Labra also have been killed.

Neither of the Labra brothers could be interviewed.

After Jesus Labra's arrest, payments suddenly stopped on one of Calafia
Constructora's purchases of land from a Baja California state redevelopment
agency.

Administrators with the agency justify their business dealings with Ismael
Labra by saying he had a sound business record and had not been convicted
of any crimes.

Still, federal officials continue to interview employees of the agency,
known as PRODUTSA. They also have confiscated the more than 50 properties
known to be owned by Calafia Constructora and members of the Labra family
until the case is resolved.

Peter H. Smith, director of Latin American Studies at the University of
California San Diego, said such investigations are a good sign because
money laundering is rarely given top priority in Mexico.

"Mexico is very busy responding to pressure from the United States, going
after cartels and leaders, fumigating and eradicating fields as fast as
they can," Smith said. "There are not a lot of other resources left to go
after money laundering."

Choice parcel

Ismael Labra, the founder of Calafia Constructora, had a keen interest in
developing land -- and deep pockets for projects that caught his fancy.

Where his money came from and how much land he bought is unclear. It is
common practice, however, for people wishing to remain anonymous to buy
properties using the names of friends and family members.

But Ismael Labra did leave paper trails.

The land he bought in the 1980s, before starting his company, came from
PRODUTSA, which was overseeing the development of property near a canal
project. The 550,000-square-foot parcel Labra bought was considered a prime
investment because it was in the center of the city and near a major roadway.

Labra paid cash, close to $300,000 in large payments spread over several
years. (Mexican government agencies now require payment by check to make it
harder for drug traffickers to launder money through real-estate transactions.)

In 1989, Labra formed Calafia Constructora with a team of investors and
equity of 30 million pesos at a time when the peso was extremely unstable.
In the company's early years, according to state business registration
documents, the company was interested in PRODUTSA's land offerings but
noted that "because of the economic situation of the current business
partners, it appears necessary to search for outside financing."

That's when the names of other Labras started to appear. A Jesus Labra
Felix -- not the same as Jesus Labra Aviles -- and a Leonel Labra Felix
bought shares from previous investors and pumped in large quantities of
their own money.

The company bought two small parcels in the canal redevelopment area in the
1990s, including one in 1996 for about $432,000, PRODUTSA officials said.
It also apparently bought more land in the area from others who had bought
land from PRODUTSA.

Land for rent or sale near border

The company did not limit itself to PRODUTSA properties.

Calafia Constructora's Web site lists land for rent or sale near the Otay
Mesa border checkpoint. The lots total about 2 million square feet.

The company also constructed retail buildings. In 1997, it built Los
Porticos, a $4 million shopping mall along the Via Rapida Poniente highway
that has an Office Depot as its anchor store, according to the Web site.

In 1998, Ismael Labra sold his shares in Calafia to the two other Labras,
who remained as the company's only shareholders, according to state records.

With the arrest of Jesus Labra this year, Mexican investigators began
trying to prove that the company was being used for money laundering. They
have collected state records of land sales to Calafia Constructora and met
with the state officials who handled the sales.

Investigators are also reportedly interviewing PRODUTSA officials who sold
land to Ismael Labra in the 1980s.

Jorge Ramos -- now second in command in the state government -- was in
charge of PRODUTSA during the 1996 sale to Labra. He did not return a
reporter's phone calls. But in an interview with El Universal newspaper, he
said that no state official personally benefited from the transaction, and
that he could not legally have refused to sell the land to Ismael Labra.

"I don't have the authority to consider the reputation of the clients," he
was quoted as saying. "Furthermore, I don't know if the relatives of Jesus
Labra are accused of anything, nor do I know if the brother is a delinquent."

Sergio Lujan Avalos, president of Tijuana's Chamber of Industry and
Construction, said state officials have a moral obligation to shun
companies suspected of money laundering. "They can say it's all legal, but
what happened was immoral," he said.

Others say the state agency is being unfairly targeted. They say the true
culprits are the banks that issued checks on the company's behalf.

Sergio Vasquez, current head of PRODUTSA, said his agency makes sure
businesses are properly registered, but "it is not our duty to investigate
how they pay as long as they use checks."

Increasing the pressure

Tracing dirty money is hard in any country, but Mexico poses particular
challenges.

In recent years, traffickers have infiltrated several Mexican banks,
including Bancomer, which issued checks for Calafia Constructora.

Investigators also face corruption within law-enforcement agencies and are
forced to rely on overburdened agents with little time to focus on
complicated tax laws, according to a recent report on money laundering by
the U.S. State Department.

Those hurdles prompted a controversial three-year undercover operation by
the U.S. Customs Service. In 1998, Operation Casablanca resulted in the
seizure of more than $103 million and charges against three Mexican banks.

Some employees from a Bancomer branch in Tijuana were implicated in the
money-laundering investigation, which linked the banks to the
Colombia-based Cali and Mexico-based Juarez drug cartels. Most of the 44
people arrested in the operation were convicted or pleaded guilty.

A Mexico City spokesman for Bancomer said he was unaware of a federal
investigation into the bank's business with Calafia Constructora, but said
the bank is "willing to work with authorities in any official investigation."

Like other banks implicated in Operation Casablanca, Bancomer was required
as a result of the investigation to set up internal mechanisms to make
money laundering more difficult.

Mexico also has beefed up its efforts against money laundering with new
laws and more aggressive investigations.

In 1996, the Treasury's money-laundering section conducted 68 audits and
recommended prosecution in 21. The Treasury also has assisted in U.S.
investigations.

In 1997, authorities were given the power to tap phones and use video
surveillance and to reduce the sentences of low-level drug traffickers who
cooperate in the prosecution of higher-level cartel members. Stricter
reporting requirements also were put into place for transactions of more
than $10,000.

No property?

When Jesus Labra was arrested, many were surprised to find that he had no
properties listed under his name.

That didn't make sense for a man who once owned hotels and restaurants
throughout Tijuana, or for someone suspected of being a top player in the
lucrative Arellano Felix drug cartel, believed to be the most vicious and
aggressive trafficking group in Mexico.

So, how did Jesus Labra earn money?

Two people who offered answers to that question didn't live long.

One of Jesus Labra's attorneys described his client's work as "once in a
while buying a little piece of property." That attorney was tortured and
killed soon after Labra's arrest.

The commander of the Mexican Attorney General's Office in Tijuana said in a
1996 interview that Labra collected dues from small drug traffickers. He
also said Labra is the nephew of drug trafficker Pablo Aviles and uncle to
the Arellano Felix brothers. That commander, Ernesto Ibarra Santes, was
shot to death five days later.

Jesus Labra is in a high-security prison outside Mexico City, waiting to
stand trial for a long list of drug-related charges. His connection with
his brother's land development business is under investigation.

Ismael Labra, the businessman who created Calafia Constructora in 1989, has
disappeared, officials said. So have the other family partners in the business.

And Calafia Constructora, once a big player in Tijuana's development, is
now shut down. Although its Web site is running, its phones have been
disconnected.