PROBE'S ABRUPT END STIRS CONCERN

Unproven claim mentioned general

WASHINGTON -- Early last year, as undercover U.S. Customs agents neared the
end of the biggest investigation ever into the illegal movement of drug
money, bankers working with Mexico's most powerful cocaine cartel
approached them with a stunning offer.

The agents, posing as money launderers from Colombia, had insinuated
themselves deeply into the Mexican underworld, helping the traffickers hide
more than $60 million.

Now, money men working with the cartel said they had clients who needed to
launder $1.15 billion more. The most important of those clients, they said,
was Mexico's defense minister.

The customs agents didn't know whether the money really existed or if any
of it belonged to the minister, Gen. Enrique Cervantes, officials said. But
having heard about U.S. intelligence reports pointing to corruption at high
levels of the Mexican military, the agents were mystified by what happened
next.

Rather than continue the undercover operation to pursue the deal, Clinton
administration officials ordered it shut down on schedule several weeks
later. No further effort was made to investigate the offer, and officials
said prosecutors have not even raised the matter with the traffickers, who
have pleaded guilty and are cooperating with the authorities.

"Why are we sitting on this kind of information?" asked the former senior
customs agent who led the undercover probe, William Gately. "It's either
because we're lazy, we're stupid, or the political will doesn't exist to
engage in the kind of investigation where our law-enforcement efforts might
damage our foreign policy."

Senior administration officials denied that foreign policy influenced their
decision to end the operation, saying they were moved primarily by concerns
for its security. They also emphasized that the agents were unable to
verify the Mexican traffickers' claims.

Other officials of the administration, which has based much of its Mexican
drug strategy on collaboration with Cervantes, said they are confident that
he is above reproach. A spokesman for the Mexican Defense Ministry, Lt.
Col. Francisco Aguilar Hernandez, dismissed the traffickers' proposal as
self-serving lies.

But a detailed account of the case -- based on confidential government
documents, court records and dozens of interviews -- suggests that U.S.
officials walked away from an extraordinary opportunity to examine
allegations of the official corruption that is considered the main obstacle
to anti-drug efforts in Mexico.

For nearly a decade, U.S. officials have been haunted by the spectacle of
Mexican officials being linked to illicit activities soon after they are
embraced in Washington.

Just weeks before the customs investigation, known as Operation Casablanca,
ended last year, administration officials received intelligence reports
indicating that the Mexican military's ties to the drug trade were more
serious than had been thought.

But when faced with the possibility that one of Washington's critical
Mexican allies might be linked to the traffickers, the officials gave the
matter little consideration.

They said they opted for a sure thing, arresting mid-level traffickers and
their financial associates and at least disrupting the money-laundering
system that drug gangs had set up. To reach for a general, they said, would
have added to their risks with no certainty of success.

"Obviously it was a significant allegation," Customs Commissioner Raymond
Kelly said in an interview. But he added: "There was skepticism about it.
Was it puffing? It just was not seen as being -- I won't use the word
credible, but it wasn't verified."

When senior administration officials announced the sting May 18, they took
a triumphant inventory: the indictments of three big Mexican banks and
bankers from a dozen foreign banks; the arrests of 142 suspects; the
confiscation of $35 million in drug profits; and the freezing of accounts
holding $66 million more.

The officials claimed the success as the result of a long-standing
administration fight against money laundering. But Gately, who retired from
the Customs Service Dec. 31, said his investigation ran a gantlet of
resistance from the start.