DRUG RING INFILTRATED MEXICO'S BANK SYSTEM

The cartel allegedly bought part of a financial institution,then used it to
launder about $400 million.

MEXICO CITY- Almost two years ago, Thomas Constantine, chief of the U.S.
Drug Enforcement Administration, riled the Mexican government when he said
drug barons were laundering huge sums through Mexican banks.

Over the past few days, information from Mexican officials seems to have
vindicated Constantine, with charges that the nation's most powerful cartel
laundered about $400 million through a Mexican bank it partly owned.

The scandal briefly ensnared architect Rodolfo Zedillo, the brother of
President Ernesto Zedillo. But more than anything, it forced the government
to admit what U.S. officials have said all along - that drug money has
tainted not only governors, lawmakers and the police in Mexico, but also
the banking system.

According to Mexican drug czar Mariano Herran Salvatti, the purchase of 20
percent of shares of the Finance Group Anahuac allowed the Juarez cartel to
launder money through electronic transactions in Mexico, Chile and Miami.

Until his death July 4, Amado Carrillo Fuentes ran the Juarez group. He was
characterized by U.S. intelligence as the world's most powerful druglord.

Carrillo died during plastic surgery in Mexico City, setting off a bloody
power struggle for control of the organization. The result has been the
deaths of dozens of people in Ciudad Juarez, across the border from El
Paso, Texas.

"Using Anahuac, the organization laundered money through bank branches in
the Cyman Islands, a financial paradise where it is difficult to get
records of transactions," Herran said. "One estimate of the amount reaches
$400 million."

Last week, the newspaper Universal reported that a second bank, Banco
Obrero, was under investigation for money laundering. Bank officials had no
comment.

Judges have issued 15 arrest warrants in the case, but only one suspect,
Juan Alberto Zepada Novelo, has been detained. Zepeda Novelo was the
director of oil projects at Bufete Industrial, one of Mexico's largest
construction companies, and was charged over the weekend with using drug
money to buy stock in Anahuac.

The presence of drug cartels in the heart of Mexico's financial system has
dismayed Mexican bankers. The cast of characters who have become trapped in
the scandal, however, provides a cautionary tale on the pitfalls of doing
business with strangers.

In 1995, Anahuac was a small, recently licensed bank, but it was careful to
hire a son and a nephew of Miguel de la Madrid, the former Mexican
president, to confer respectability on its operations and attract the right
kind of client.

De la Madrid's son, Federico, told the newspaper Reforma he knew nothing of
the alleged sale of Anahuac shares to drug traffickers. "I was hired to
promote new businesses and win clients. I was not privy to decisions taken
by members of the board," he said.

Meanwhile, Zepeda's son Juan, and his business partner, Jorge Bastida
Gallardo, who has evaded arrest, gained entry into Anahuac by bosting of
their close relationship with an influential trade-union leader who is also
a prominent member of the ruling Institutional Revolutionary party.

The two men then approached Rodolfo Zedillo, the president's brother, and
offered $50 million for a hotel project in the heart of Mexico City's
financial district. Architect Rodolfo Zedillo said the would-be financiers
"suddenly vanished" when his lawyers began making inquiries into the origin
of their funds.

"Organized crime does not respect hierarchies or professions," Rodolfo
Zedillo said. "We are all exposed to this threat."

Anahuac also raised suspicions because its brokerage charged extremely
small commissions. One representative of a European bank said: "We did
business through Anahuac for a while, but we began to suspect something was
amiss because we couldn't understand how they made a profit on such low
commissions."

Beginning in April, Mexican banks and brokerages will be required to report
this kind of "suspicion" to the National Banking and Securities Commission,
following the introduction of laws to detect and combat money laundering.

With Mexican cartels now controlling a third of the $50 billion market for
illegal drugs in the United States, according to U.S. officials, Mexican
banking regulators no longer doubt that drug money is being laundered
through Mexico's financial system, but decline to put a figure on it.

Charles Intriago, editor of Money Laundering Alert, a Miami-based
newsletter, agreed that accurate figures were hard to gauge, but said: "It
could be as much as $8 billion a year, which means $22 million a day."

Intriago believes most drug funds are spirited away to other financial
havens, but a significant portion stays in Mexico and is channeled into
real estate projects, car dealerships, transport companies,
foreigh-exchange bureaus and tourism developments.