December 26, 2009

War Without Borders

Along U.S.-Mexico Border, a Torrent of Illicit Cash 

By JAMES C. McKINLEY Jr. and MARC LACEY

LAREDO, Tex. — The streets of Laredo are awash in money, stacks of grimy bills tainted with cocaine residue, wrapped in plastic and stowed in secret compartments built into the trucks, buses and cars that flow south over the Mexican border daily like a motorized river.

Customs officials have discovered a host of ingenious hiding places, from $3 million secreted in the floor of a Mexican passenger bus to $1.6 million stuffed in duffel bags and balanced atop the heads of people wading across the Rio Grande to Mexico.

At border crossings and airports alone, American customs officers seized $57.9 million in the fiscal year ending Sept. 30, up 74 percent from the previous year. And once the money lands in Mexico, it is easily swept into a largely unregulated underground cash economy or laundered through seemingly legitimate businesses.

As the United States has tightened bank regulations and clamped down on sophisticated money-laundering schemes in the past 35 years, more of the money from illicit drug sales is being smuggled across the border to Mexico the old-fashioned way, law enforcement officials say.

American officials say stopping the bulk cash shipments and scuttling money laundering are critical to crippling the cartels in Mexico, which have unleashed a wave of violence that has claimed more than 15,000 lives since President Felipe Calderón began cracking down on their operations in December 2006.

Law enforcement officials and business owners in Mexico say that the assault on the cartels has driven drug traffickers to branch out into an array of other money-making ventures, setting up businesses like spas and day care centers to launder drug proceeds or selling new products like pirated movies or pilfered oil.

“It’s a natural evolution of criminal activity, just as with the mob in the 1950s,” said John Feeley, the deputy chief of mission of the United States Embassy in Mexico City. “They can’t continue to work on one illegal product.”

But Mexican authorities have yet to make much headway against money launderers, and customs officials say the cash they seize is still a trickle of what flows across the border.

Joint operations of customs, border patrol and immigration agents set up checkpoints on southbound lanes every day, fishing for money. Customs officials have assigned 25 more teams of dogs and handlers to the task in the past two years.

Mr. Feeley said that he expected Mexico and the United States to devote even more energy to going after the cartels’ profits.

Although United States authorities seized $138 million last year, that amount pales in comparison to the $18 billion to $39 billion a year the Drug Enforcement Agency estimates is being smuggled to Mexico every year.

“There is an enormous amount of money that is flowing undetected and uninterdicted,” said John T. Morton, the assistant secretary for immigration and customs enforcement. “We are trying to be a step ahead of the people moving the money. Unfortunately, right now we are a step behind.”

On the border, federal authorities play a constant cat-and-mouse game with the traffickers. The dealers employ spies to spot checkpoints, while informants tip off agents about the movement of cash.

Across the Border

In Mexico, the cash is relatively easy to launder, law enforcement officials say. Though the Mexican government has tightened bank regulations in the last nine months, drug cartels still buy real estate, businesses, automobiles, jewels and other luxuries in cash without any reports of suspicious activity being made to the government. The sellers then make giant but legal cash deposits to the banks, and the money flows into the economy, Mexican government officials and experts on laundering said.

“When the money is already integrated into the economy it’s very difficult to detect and the players there are not obligated to report it,” said Ramón García Gibson, a consultant to Mexican banks on money laundering.

Nor is it a crime in Mexico to buy and sell dollars on the street. Thousands of informal money brokers exchange cash, and while they are not allowed to handle more than $10,000 a day per client, the rule is often ignored.

The money launderers are still outrunning the Mexican authorities. Though the main agency in the finance ministry charged with tracking money laundering has tripled in size in the past two years, it remains weak and overwhelmed with thousands of reports of questionable activity, officials there say. In the past year, they have referred about 600 cases to prosecutors, but only 18 were presented to the courts.

“They just don’t have the capacity yet to do the investigation and make it stick in court,” said Shannon K. O’Neil, a Mexico analyst with the Council on Foreign Relations in New York.

No one knows precisely how much money is shipped across the border, but Mexican authorities say cash smuggled illegally into their country and then sent back to United States banks through Mexican financial institutions totals at least $10 billion a year.

A good portion of that is pooled by foreign exchange businesses and then shipped back to United States banks in armored trucks, experts on money laundering said. Money is also smuggled out of Mexico to Colombia and other countries to pay cocaine producers.

In September, the Mexican and United States authorities broke up a smuggling ring that had bought a chemical factory and was shipping $41 million from Mexico to Colombia. The cash, in $50 and $100 bills, was hidden in shipping containers holding an industrial chemical.

The cartels are also laundering money through such innocuous-sounding enterprises as a car wash in Guadalajara, the Perfect Silhouette spa in Mexico City, the Happy Child day care center in Culiacán, and the Biosport health club in Hermosillo, according to the Treasury Department, which has designated scores of such Mexican businesses as cartel operations.

In Monterrey, in Mexico’s north, a merchant explained how the Zetas, one of the country’s most feared organized crime groups, turned his small market stall into a wholesaler of pirated products, including movies and CDs. The cartels now produce copies themselves by the hundreds of thousands and sell them under their own label; a unicorn is the Zetas’ symbol.

“They tell you, ‘This store belongs to us now,’ ” said the jittery merchant, who insisted on anonymity to avoid the fury of his new bosses. The Zetas even installed closed-circuit cameras to track his sales.

“The Zetas pay me a wage,” he said. “It’s much less than I used to make when I worked for myself, but these are people you do not say no to.”

In June, Mexican federal authorities in Monterrey arrested 14 suspects accused of illegally copying movies and music and distributing them in Mexico. The ringleader, identified as Leon Ayala Romero, was dubbed the Zetas’ piracy czar and was accused of sending about $20 million in proceeds to Heriberto Lazcano, the top Zeta commander.

The lines between legal and illegal businesses remain fuzzy. Last year, Saulo Reyes Gamboa, 37, a Mexican businessman and police official from Ciudad Juárez, was sentenced to eight years in an American prison for bribing an undercover federal agent in the United States to ship nearly 2,000 pounds of marijuana to El Paso. The American government seized nearly $20,000 in currency and a vehicle from Mr. Reyes but was unable to get access to most of his other Mexican-based businesses, including Subway franchises, a sushi restaurant and a radio station.

Cat and Mouse

Drug cartels pay people to make money transfers through companies like Western Union, or simply deposit money in American bank accounts and withdraw it from ATMs in Mexico. Other schemes involve moving money to shell companies, which then buy durable goods like bicycles in the United States and ship them to South America.

In a new trend, some organized crime groups have taken to smuggling prepaid money cards rather than cash, law enforcement officials say. United States treasury officials are working to require prepaid cards loaded with more than $10,000 to fall under the same reporting requirements as cash. Right now, anybody can walk or drive across the border with the cards filled with more than $10,000, without breaking any laws.

In their continual war of attrition with smugglers, customs officers are using a panoply of new tools: hand-held meters that measure the density of objects, vans with X-ray equipment that scan cars headed to Mexico looking for hidden compartments.

But dogs specially trained to sniff out narcotics make the most discoveries. The dogs and their handlers also find money, since most of it has traces of narcotics embedded in its paper. Drugs and cash are often stored or transported in the same compartments.

There is an entire cottage industry devoted to building secret compartments in vehicles. Often the compartments will not open unless the driver takes a series of actions like pumping the brakes and turning on the dome light and the radio simultaneously.

Still, experts on money laundering are skeptical that the seizures, even on the order of more than $100 million a year, can put a dent in a business that counts its income in tens of billions of dollars.

“The interdiction program is a waste of all the money we are pouring into it,” said Fletcher N. Baldwin Jr., an expert at the University of Florida. “We have the longest borders in the world with two other countries, and it’s impossible to police those borders.”

Federal officials acknowledge that they are hamstrung by the volume of traffic over the Mexican border, both legal and illegal. About 16,000 vehicles cross each way every day in Laredo alone, and customs officials say they do not have enough personnel to adequately police them.

Spies for smugglers easily locate checkpoints, federal agents say. “We are always cognizant of spotters,” said Gene Garza, the Laredo port director for Customs and Border Protection. “You just have to work around it. It’s actually a game we play.”

The smugglers are adept players, keeping couriers in the dark about what they are carrying or the inner workings of the cartels.

In turn, the agents sometimes choose not to arrest the drivers, turning them loose and following in hopes of ensnaring people further up the chain of command, law enforcement officials said.

A few drivers agree to become informants. If a seizure is not publicized, the drivers find themselves under tremendous pressure from their bosses to prove they did not steal the money, law enforcement officials say, helping sow discord within the cartels.

“When they lose the money, they cannot just call the guys who paid them the money and say ‘Can you pay me again?’ ” said one longtime Laredo detective, who spoke on the condition of anonymity. “It just creates havoc.”

Agents sometimes have their own troubles proving a driver was smuggling. On Jan. 8, Aristeo Cavelaris Castillo, 32, from the Mexican state of Coahuila, was waved into an inspection station on the Lincoln Juarez Bridge here.

When a drug-sniffing dog became excited, the agents used an X-ray truck to scan his pickup and found $1.3 million in small bills hidden in compartments in the dashboard and the passenger cab.

But Mr. Cavelaris claimed he had borrowed the truck from someone he barely knew, and had just used it to do some shopping. Prosecutors dropped the charges without giving a reason.

Prosecutors and investigators declined to comment on specific cases, but said it was sometimes hard to prove the couriers knew the money was there. On the Southwest border, for instance, officers have arrested 95 people for bulk cash smuggling in the past year but have convicted only a third of those.

“We have to sometimes let these guys go because they didn’t do anything illegal,” said Stefan Cassella, a prosecutor with the Department of Justice.

Smugglers often recruit drivers at truck stops to move cash, and keep them ignorant of the details, defense lawyers in Laredo said. In February, José Eduardo Martínez from Nuevo Laredo, just across the border, was caught with $930,000 in a suitcase thrown in the sleeping area of his tractor trailer.

Christina Flores, a lawyer for Mr. Martínez, said he had been approached at a gas station and had been asked to carry the suitcase, with a payment promised after the trip. The smugglers planned to follow his truck in a separate car, she said.

“He accepted the proposition,” Ms. Flores said of her client, who pleaded guilty to bulk cash smuggling. “He had a big mortgage and credit card debt.”

Yet even when couriers plead guilty, they are usually unable to help investigators learn more about how the money laundering or cartels work.

“A lot of these cases, we find that even with the guys who do cooperate, they don’t know anything,” Mr. Morton said. “These people are fodder in a larger war.”

James C. McKinley Jr. reported from Laredo, and Marc Lacey from Mexico City, Ciudad Juárez and Culiacán, Mexico. Santiago Fourcade contributed reporting from Monterrey, Mexico, Elisabeth Malkin from Mexico City and Randal C. Archibold from Los Angeles.