MEXICO OPPOSES U.S. PUSH FOR DRUG PENALTIES

WASHINGTON--The Mexican government is opposing a push by the U.S.
Congress to levy major penalties against businesses with ties to drug
traffickers, saying the sanctions could smear innocent firms and
damage U.S.-Mexican relations.

The legislation, approved by the Senate in July, would require the
Clinton administration to publish an annual list of major
international drug traffickers, their front companies and other
business associates. It would bar the listed firms and individuals
from doing business in the United States, cut off their access to
American banks and freeze their U.S. assets. It would also subject
U.S. firms that work with the listed companies to civil and criminal
penalties.

Administration officials say that, after initially opposing the
legislation, they are working with members of Congress to fashion a
version that the House and President Clinton can support.

Some of Mexico's biggest companies are leading a fierce lobbying
effort to defeat the proposal. And the Mexican government fears that
it is just the sort of unilateral action that, like the annual U.S.
certification of other nations' cooperation in the drug war, could
roil tensions between the two countries.

"It can become a nightmare for innocent people and for the spirit of
cooperation itself," Mexico's ambassador to the United States, Jesus
Reyes Heroles, said in an interview. "It's a whole process that can
undermine the spirit of cooperation that we have, and that is still
developing. That relationship needs to be nurtured. It's not solid as
a rock."

Although the sanctions would be global in scope, only the Mexican
government has aggressively opposed them. Reyes Heroles has met with
Sen. Paul Coverdell (R-Ga.), who introduced the legislation, and
administration officials to lobby for detailed amendments. In a July
letter to the White House drug policy director, Gen. Barry R.
McCaffrey, he requested the administration's help in blocking passage.

The legislation, offered as an amendment to an intelligence funding
bill, would expand to other countries sanctions first imposed on
Colombian businesses and narcotics traffickers in 1995. The original
sanctions focused on businesses with links to the four main leaders of
Colombia's Cali drug cartel on grounds that they presented an "unusual
and extraordinary threat to national security." (The same legal
authority was used to stop Americans from doing business with the
Panamanian leadership of Gen. Manuel A. Noriega and to freeze Iranian
assets after Americans were taken hostage in Tehran.)

Since 1995, the Treasury Department has compiled a list of more than
400 companies, relatives and associates linked to the Colombian
traffickers. After public disclosure, a number of the firms have gone
out of business, administration officials say. Others have been forced
to reorganize their holdings or change their names. A few have
successfully challenged their inclusion on the list. Proponents of the
legislation say the expanded list would be a valuable law enforcement
tool.

"Drug trafficking flourishes because it is anonymous," said Sen.
Dianne Feinstein (D-Calif.), who coauthored the legislation with
Coverdell. "This is an effort to take some of the anonymity away."

But the administration has worried all along that the legislation will
offend Mexico. "The political concern is that it would be bad for
legitimate businesses in the country and that it would be yet another
contentious issue in the bilateral relationship between Mexico and the
U.S.," a senior State Department official said. "Anything where the
U.S. is sitting in judgment is very problematic for any country, and
for Mexico in particular."

As a practical matter, Mexican drug traffickers are far harder to
isolate than those operating in Colombia, because they are deeply
enmeshed in the larger, multilayered Mexican economy.

The holdings of Cali cartel members became easier to track about five
years ago, when police teams backed by the Drug Enforcement
Administration and the CIA seized business records in a series of
successful raids. The U.S. intelligence community has not had similar
success in penetrating Mexican drug trafficking organizations. Even if
it does, U.S. officials are not eager to produce a list that could
hinder their ability to investigate further.

The Treasury Department has been vocal in expressing concerns that
such sanctions could affect legitimate U.S. businesses with ties to
Mexico, the largest U.S. trading partner after Canada.

Transportacion Maritima Mexicana, a Mexican firm that is one of Latin
America's largest shipping companies, has been particularly incensed
about the legislation. The company--which, along with U.S. and
Canadian firms, runs a railroad venture stretching from Mexico to
Canada--has complained that American intelligence has unfairly linked
it to drug trafficking in the past. It has retained a major Washington
lobbying firm in its effort to defeat the legislation or, failing
that, to amend it. Business groups, including the U.S. Chamber of
Commerce and the American Bankers Assn., also have expressed concern
about how the sanctions would be implemented.

"If you institute sanctions and restrictions, if you say that
companies in the U.S. are prohibited from doing business with these
companies, well, that sounds easy, but it could very well have a
negative economic effect on those businesses," said John Byrne, senior
counsel to the American Bankers Assn.

If approved, the legislation would globalize the sanctions the
administration has levied on Colombia. But it differs from the
existing law in one key respect: It would require that the president
submit the list to Congress.

The measure would require the Treasury secretary to compile a list of
major international drug traffickers and their associates by Jan. 1,
and by the same date in subsequent years.

The list would then be vetted by the White House drug policy director
and sent to the president. By March 1, the president would be required
to produce a winnowed list of traffickers to be sanctioned, as well as
a report to Congress explaining any changes made.

The Treasury Department's Office of Foreign Assets Control would
implement the sanctions.

"What's happened here is Congress has gone into the vacuum and said,
'Look, we're losing this war on drugs, and we're going to do some
things,' " said Rep. Porter J. Goss (R-Fla.), who has introduced
similar legislation in the House. "This idea that somehow you have to
tiptoe around the subject of honest dealing with Mexico because
somehow you might offend someone who's not honest strikes me as
absurd. The real truth is, we need more cooperation with Mexico in the
war on drugs, not less."