Mexico Under Siege

DRUG CRACKDOWN HAS LITTLE EFFECT ON MONEY LAUNDERING

In Many Cases, the Network That Turns Ill-Gotten Gains into Legal
Tender, Crucial to Operations and Lavish Lifestyles, Continues to Spin
Unhindered.

For a B-team, Los Mapaches sure seemed to be living it up. The soccer
club from the small town of Nueva Italia in western Mexico had the
finest vehicles, new uniforms every game and unusually high salaries.

Little wonder, then, when the team's owner was arrested and accused of
laundering millions of dollars for one of Mexico's most powerful drug
gangs.

The team was one of many covers, federal prosecutors allege, that
Wenceslao Alvarez, alias El Wencho, used to hide and move millions of
dollars for the so-called Gulf cartel.

In the Mexican government's bloody, 2-year-old war on drug
traffickers, one component of the trade remains largely untouched:
money laundering. The network that helps turn ill-gotten gains into
legal tender is a crucial linchpin that enables traffickers to live
large, expand their operations deep into the U.S., pay off cops and
politicians and buy increasingly sophisticated weaponry.

"You can arrest thousands of [traffickers] but if you don't touch the
financial enterprises, the business just goes on . . . and becomes
more violent," said Edgardo Buscaglia, an expert on organized crime
who has advised both the United Nations and Mexican officials.

Until the government goes after traffickers' cash, Buscaglia and other
critics say, the networks will continue to grow and fortify
themselves, no matter how many state security forces are thrown at
them.

Money-laundering is the process of concealing the origin of illicit
drug profits by funneling them into businesses (legitimate or fake),
real estate and financial institutions.

Estimates vary widely, but as much as $20 billion is laundered and
stays in Mexico annually, with up to four times that amount continuing
to other destinations, experts and Mexican officials say.

Some of the money is stuffed in suitcases and walked across the border
into Mexico, or hidden in cargo containers and shipped. But
investigators also suspect international courier services are moving
the cash.

Banking controls are notoriously lax in Mexico, making it easier for
money to be wired or deposited into accounts, then spent on goods or
services. All-cash transactions are common, especially for big-ticket
items such as mansions, and Hummers and armored BMWs, and to pay the
legions who work for the drug mafias. The money also is increasingly
being sunk into artwork, gems, gold and commodities.

Blacklisted

Every year, the U.S. Treasury Department blacklists scores of
individuals and companies, most of them Mexican or Colombian, believed
to be involved in money-laundering or other activities supporting
drug-trafficking networks.

Rarely has the Mexican government acted on the information. Mexican
authorities cannot easily confiscate traffickers' property and assets,
a practice common in the U.S. and one that helped give the Colombian
government an upper hand in cracking that country's cartels.

"It is a very powerful tool against narco-traffickers because it hits
their interests -- their purchasing power and their ideal way of
life," Colombian Vice Minister of Defense Sergio Jaramillo Caro said
during a recent meeting here of Latin American public security
officials. A new law that would give Mexicans that authority has been
passed only in Mexico City; a national version is languishing in Congress.

The two main agencies that investigate and prosecute suspected money
launderers are hamstrung and underfunded. The Finance Ministry's
Financial Intelligence Unit and the attorney general's office are
required to communicate with each other in writing, a clumsy process,
and they are not allowed access to federal police reports, financial
records or other key databases to build organized-crime cases.

The case of the Mapaches (Raccoons) was more exception than rule.
Federal agents arrested El Wencho in October while he was in Mexico
City at the headquarters of a top soccer club. In addition to the
Mapaches, El Wencho's holdings included car dealerships, an avocado
export firm, hotels and restaurants, prosecutors say.

The alleged money-laundering operation, which authorities say extended
into six U.S. states and parts of Central and South America, came to
light in September as part of a U.S. federal indictment that named top
leaders of the Gulf cartel and led to the arrests of more than 500
people in the U.S., Mexico and Italy.

An estimated $7.6 million of El Wencho's assets were seized by U.S.
authorities in Atlanta and other U.S. cities, according to a senior
Mexican official who did not want to be named because such
investigations are kept secret until a formal indictment is issued.
Mexican and U.S. agents spent a year tracking El Wencho's movements
through tapped telephones and other surveillance, the official said.

The official said the soccer team was more of a "whim" and not
particularly effective at laundering large amounts of money because it
was too junior. It may have been a way for El Wencho to curry favor in
Nueva Italia, a typical ploy of traffickers who do good works for
their hometowns as a way to buy loyalty and protection.

Shrouded in Secrecy

Mexican officials say their financial system is relatively
unregulated, shrouded in secrecy laws and so complex that it is
difficult to penetrate. But critics wonder if politicians blanch at
changing those laws because too many of the country's elite would be
implicated.

They note that the interior minister, the second most powerful person
in the Mexican government, once helped defend a prominent banker who
was acquitted in one of the few high-profile laundering cases to reach
the courts.

There is also a general, if unspoken, tolerance of laundered money
among many Mexicans, who reason that if the dollars have passed
through other hands, it no longer is dirty money.

"It has been relatively useless to try to determine the amounts of
money being laundered in Mexico," President Felipe Calderon told
Congress last month. An official report that Calderon submitted to
lawmakers said the Finance Ministry had detected 60,000 suspicious
financial transactions in the 12-month period ending in June. But only
0.5% ended up in court.

A handful of money exchange houses are being prosecuted, but the
gradual dollarization of the Mexican economy has diminished the role
of exchange houses in suspect transactions, experts say.

Five years ago, Mexican authorities arrested accused money-launderer
Rigoberto Gaxiola. Yet, from prison, he continued to wash money for
traffickers from Sinaloa, the cradle of Mexican drug-running, as
recently as summer, U.S. and Mexican officials say. At that point, the
U.S. Treasury Department's Office of Foreign Assets Control
blacklisted Gaxiola along with 17 associates, including his wife and
three children, and 14 of his businesses. However, the Mexican
government has not made further arrests, shut down the businesses nor
announced any other sanctions.

Efforts to obtain comment from officials of the Financial Intelligence
Unit or from investigators with the attorney general's office were
unsuccessful.

U.S. officials, meanwhile, worry that money-laundering operations
could have deeper security implications.

"Once you've set up the scheme, you can launder anything," a senior
U.S. law enforcement official said, speaking on condition of anonymity
because of security concerns. "Human slavery, arms trafficking -- even
terrorists."