DRUG CASE COULD BACKFIRE IN MEXICO

Government Denies Claims That Seized Cash Was Tied to Ruling Party

MEXICO CITY - President Felipe Calderon's biggest bust in his biggest
battle - against drug traffickers who have taken over large swaths of
territory as they move narcotics to the U.S. - yielded no drugs and
no cartel kingpins.

Mexican and U.S. authorities seized more than $200 million from Mr.
Ye Gon's home in Mexico City in March. Authorities have called it the
largest cash seizure in history. When federal police raided a house
in an upscale Mexico City neighborhood, they found the largest stash
of alleged drug money in the history of the fight, the government
said. It came in at $205 million. Guns and equipment to make
amphetamine pills were also seized, authorities said. Seven people,
most household employees, were arrested.

The huge cash reserve came from the illegal sale of a restricted cold
medicine, pseudoephedrine, to narco labs that turn it into illegal
methamphetamine, officials said.

Zhenli Ye Gon, in New York last month, accused Mexico's ruling party
of using him to hoard illegal money. Mr. Calderon's approval rating,
boosted by the drug war in general, hit 65 percent.

But recent video images of the home's owner - the Mexican
nationalized Chinese native Zhenli Ye Gon - strolling New York
streets and accusing the ruling party of using him to hoard its
illegal money now threatens to taint the spectacular DEA-assisted seizure.

Mr. Ye Gon, 44, is charged with participation in organized crime and
eight other drug-related and weapons offenses. He has denied any
participation in the illegal drug trade and said his pharmaceutical
company was completely legitimate.

The official investigation against him and testimony from employees
and relatives, including his jailed wife, suggest cozy ties among the
Chinese businessman, politicians and even members of the military.
Anti-drug police allegedly extorted bribes from him but also warned
him to leave the country before the raid on his house.

Opposition parties have called for a congressional investigation into
possible links between the ruling National Action Party, or PAN, and
Mr. Ye Gon. On Wedneday, PAN legislators joined opposition members in
calling for an investigation into the Ye Gon case. As a result, the
public no longer sees a $205 million blow against the drug cartels
but a cesspool of collusion among drug operatives, politicians and
government officials, analysts said.

"In Mexico, reality is irrelevant and perception is everything," said
political commentator Raymundo Riva Palacio. "This is the ideal
situation for the opposition to argue why Felipe Calderon should not
be president for one more day. And it's the administration's worst
moment so far, because it's on the defensive."

The case is already being called "chino-gate" by some pundits, who
say the trickle of new allegations could tarnish Mr. Calderon's
public image as the man who took on the cartels, analysts said. "This
case shows that there is an enormous amount of corruption in Mexico,
but we don't know exactly who is involved," said historian and
political commentator Lorenzo Meyer.

A presidential spokesman, who spoke on condition of anonymity,
brushed off the allegations against the PAN and the Calderon
administration. "This is really a nonissue," he said.

Free in the U.S.

Meanwhile, U.S. authorities have not detained Mr. Ye Gon, angering
their Mexican counterparts, who insist U.S. authorities must act on
the warrant issued by Interpol, the international policy agency.

An official with the U.S. Drug Enforcement Administration in
Washington said it has not received the proper paperwork yet. "He
[Mr. Ye Gon] is on U.S. soil, but we really don't know exactly where
because we're not following him," said DEA spokesman Steven M.
Robertson. "We don't have an extradition order for him, and no arrest
warrant outstanding. There's a procedure here. It works that simple."

Mr. Robertson declined to say whether Mr. Ye Gon might be a potential
informant for the U.S. government. "Obviously, somebody who has been
associated with the largest cash seizure in the history of the world
would be of interest to us. But to the best of my knowledge we're not
talking to him," Mr. Robertson said.

From the mid-March money seizure until early July, Mr. Ye Gon had
been mostly off the media map. But this month, The Associated Press
published a videotaped interview with Mr. Ye Gon. In it, he accused
the PAN of threatening to kill him if he didn't stash steady $5
million increments of illegal campaign money during last year's
presidential election.

Mr. Ye Gon said a man named Javier Alarcon, allegedly current Labor
Minister Javier Lozano Alarcon, was the go-between. The alleged
campaign funds were never spent despite Mr. Calerdon's razor-thin
victory over leftist rival Andres Manuel Lopez Obrador.

Government officials and PAN leaders called the charges absurd, and
the labor minister said he will sue Mr. Ye Gon for defamation.

The AP said in its story that Mr. Ye Gon did not immediately
recognize a photo of Mr. Lozano Alarcon. Media fray

Since then, both sides have been firing away in the media. The New
York attorney for Mr. Ye Gon released a letter he wrote earlier this
month to Mr. Calderon calling for the two sides to sit down and negotiate.

"Delicately handling this 'hot potato' is in the best interests of
all parties," the letter by attorney Ning Ye said. The Mexican
attorney general's office, in a statement, called the proposed
negotiation "a useless attempt at blackmail."

In a telephone interview this week, Mr. Ye said he believes that he
can legally prevent Mr. Ye Gon from being extradited to Mexico. "He
has a reasonable fear of persecution which could include
assassination, torture or other bad things," he said.

Meanwhile, details of the official government investigation have been
leaking to the media. Witnesses allegedly link Mr. Ye Gon to the
import of nearly 70 metric tons of pseudoephedrine, some of which was
mislabeled as an innocuous chemical. About 50 tons of the cold
medicine was allegedly resold for $4,500 per kilogram (2.2 pounds) to
drug producers, netting more than $200 million, according to official
prosecution documents. Police also found a credential identifying Mr.
Ye Gon as an official Senate liaison for the Institutional

Revolutionary Party, or PRI, and prosecutors have testimony
suggesting that the Chinese businessman bragged of his close
relations with politicians and military officers who invited him to a
shooting range.

The authenticity of the Senate credential has not been established.