DRUG LORDS INFILTRATING MEXICO'S BANKS

Officials Concede U.S. Suspicions; Cartels Seek Money-Laundering Bases

MEXICO CITY - For U.S. drug agents working in Mexico, talking publicly
about Mexico's dismal record in fighting the drug war is discouraged by
Washington for fear of straining relations between the two neighbors.

Almost two years ago, Thomas Constantine, chief of the U.S. Drug
Enforcement Agency in Washington riled the Mexican government when he said
that drug barons were laundering billions of dollars through Mexican banks.

Over the last few days, information from Mexican officials seems to have
vindicated Constantine, with charges that the nation's most powerful cartel
laundered $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 not
only tainted governors, law makers 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, the Juarez group was run by Amado Carrillo Fuentes,
characterized by U.S. intelligence as the world's most powerful drug lord.

Carrillo Fuentes died during plastic surgery in Mexico City, setting off a
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 Cayman 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.

In response to the U.S. crackdown on smuggling routs in the Caribbean,
Colombian drug traffickers have turned to Mexican gangs, which have gained
power at the expense of the Colombians.

Although Colombia still ranks as the world's top producer of cocaine and is
a big supplier of heroin and marijuana, the deaths or arrests of some of
its most notorious drug barons have strengthened the Mexican organizations,
police say. American authorities estimate that $30 billion worth of illegal
drugs reach the U.S. from Mexico each year.

According to police, Mexican cartels are getting bolder about distributing
drugs in the U.S. In Chicago, for example, instead of relying on gang
underlings, sources say cartel leaders are traveling from Mexico to Chicago
in a strategy aimed at taking control of direct distribution. Cartel
leaders easily blend in, officials say, because of the large Latino
population in the Chicago area.

Last week, authorities in Chicago arrested a former Mexican federal
judicial police officer with ties to the Juarez cartel. Roberto Orozco
Fernandez, according to the Mexican attorney general's office, had $2
million in cash when he was arrested. Mexico has requested his extradition.

"Orozco Fernandez is accused of being a member of a criminal organization
dedicated to narcotrafficking, the traffic of arms and money-laundering,"
the attorney general's office said.

With so much cash changing hands, police say it becomes almost physically
impossible for drug barons to handle.

In Mexico, the money-laundering bank scheme that allowed the Juarez cartel
buy a controlling interest in Anahuac in 1995-96 has revealed a web of
connections involving some of the nation's most powerful people.

Last Thursday, authorities arrested Juan Alberto Zepeda Novelo, reportedly
a key player in negotiations to buy the bank, on money-laundering charges.

Others caught up in the accusations are relatives of Miguel de la Madrid,
the former president of Mexico. Jorge Hurtado Horcasitas, his nephew, was
the bank's president when the cartel bought its shares. De la Madrid's son
Federico was a vice president of the bank.

Hurtado has issued no comment. Federico de la Madrid told reporters he
never knew drug traffickers were involved with the bank.

According to authorities, Jorge Bastida Gallardo was the cartel's chief
envoy in the negotiations to buy Anahuac. Bastida was a union leader.

Last week, a newspaper in Guadalajara published an article that linked
President Zedillo's younger brother, Rodolfo, to a property deal with
Bastida and Zepeda. Rodolfo Zedillo denied the allegations, saying, "They
laid a trap for me."

Herran said there was no proof Rodolfo Zedillo did anything wrong.

On Sunday, the news magazine Proceso outlined narco-traffickers' strategy
for infiltrating the presidential palace, Los Pinos, using cash.

Raul Salinas, the brother of former president Carlos Salinas, already is
in jail on murder charges and charges of illicit enrichment.

Authorities discovered tens of millions of dollars in foreign bank accounts
belonging to Raul Salinas and allegedly linked to drug lords.