DRUG MONEY CHARGES HEAT UP TEXAS GOVERNOR RACE

HOUSTON (Reuters) - A potentially historic governor's duel has turned into a
Texas shootout amid charges by incumbent Republican Gov. Rick Perry that
wealthy Democratic opponent Tony Sanchez helped drug traffickers launder
money through his savings and loan association.

The charge, unusual even in the rough-and-tumble world of Texas politics,
prompted an angry response on Wednesday from Sanchez, who said Perry was
lying in a desperate bid to keep the job he inherited from President Bush
(news - web sites).

"Perry, because of your continuous lies, your credibility has been
destroyed," Sanchez said in a news conference at the Houston offices of his
Sanchez Oil & Gas Corp. "You need to apologize to the people of Texas for
lying," added Sanchez, bidding to become the first Hispanic governor in
modern Texas.

Perry, who was lieutenant governor when he succeeded George W. Bush when
then-Gov. Bush won the presidency in 2000, said in a newly released
television ad that Sanchez' Tesoro Savings and Loan laundered $25 million in
drug money in the mid-1980s.

The ad says the money was flown to Texas in suitcases, deposited in Tesoro
and eventually wired to "Manuel Noriega's Panama" against the wishes of
federal drug agents.

"Can Texans really trust Tony Sanchez?" the ad asks.

Sanchez said Tesoro did not knowingly take in money linked to drug dealers,
but fully cooperated with authorities once it became aware of a possible
connection. Money was sent to Panama at the request of depositors, he said,
and the association was bound by law at that time to do so.

"Perry knows that, not one, but two federal judges held that the savings and
loan had followed the law in its handling of the deposits," he said. "This
is a low point in the history of Texas politics," he added.

KEY DEMOCRATIC HOPEFUL

Sanchez, a political novice, is bankrolling his campaign for the November
election with an oil and banking fortune worth an estimated $1 billion and
is the anchor of Democratic hopes of recapturing a state that has become
solidly Republican in the last 10 years.

The party is betting his money and Hispanic heritage can overcome the
political power of the Christian right that has propelled the GOP to power
in Texas.

Perry, in a statement issued on Wednesday, accused Sanchez of "hiding behind
legal technicalities" and said the issue was less about law than morality.

"The truth is that Mr. Sanchez, a man who wants to be governor, had a moral
and ethical duty to help stop the drug cartel. Instead, his bank helped the
drug-money launderers wire their tainted funds to Panama."

The drug money allegations were only the latest mud to be slung in what has
been a nasty campaign from the start. Sanchez ads have linked Perry to the
bankrupt Enron Corp. and accused him of being bought and sold by big
business interests.

At the same time, both men have promoted their links to Bush, who governed
Texas for five years and remains popular here. Democrat Sanchez gave
campaign money to Bush, who in turn appointed him to the University of Texas
board of regents.

Sanchez supposedly has spent more than $30 million on his campaign. The drug
money ads show that the race is close and Perry is scared, he said. "He's
frantic, he is panicking ... the old saying is true: desperate men do
desperate things," Sanchez said.

A poll released earlier this month by the University of Houston Center for
Public Policy showed Perry leading by a margin of 46 to 32 percent, with 25
percent undecided.