Authorities said the chain of events that brought police to the mansion began in December, when they discovered a shipping container filled with barrels of pseudoephedrine on a storage lot at customs offices in Lazaro Cardenas, a port city about 175 miles northwest of Acapulco.

The chemicals had been manufactured in China and shipped to Mexico on a British-flagged vessel that was bound for Long Beach. The seizure led authorities to a chemical company, Unimed Pharm Chem, based in the city of Toluca, about 40 miles west of Mexico City. The company reported legally importing 32 tons of pseudoephedrine in 2004.

"The resulting investigation showed that this company illegally imported ... pseudoephedrine acetate from India," the attorney general's office said in a statement. "These chemicals are used to illegally produce methamphetamines."

Mexican Atty Gen. Eduardo Medina Mora said in a radio interview that one of the Chinese exporters involved in shipping the chemicals to Mexico is an illicit "shadow" company not registered with Chinese authorities.

Last year, Mexican authorities raided what they termed the largest methamphetamine lab in the Western Hemisphere at an industrial park in Guadalajara. The factory had 11 custom-designed pressure cookers capable of producing 400 pounds of the drug each day, about 20 times the production of a typical California lab.

U.S. officials estimate that 80% of the methamphetamine sold on U.S. streets is produced by Mexican criminal organizations.

For these drug cartels, whose business mushroomed when they became the middlemen in the shipment of Colombian cocaine to the United States, methamphetamine is a lucrative side business worth billions of dollars, analysts say.

Officials at the DEA's Office of Financial Operations estimated that 90% of the money transferred from the United States to Latin American suppliers of drugs leaves the U.S. as cash. Drug traffickers transfer $8 billion to $24 billion to Mexico each year, according to authorities.

$100 bills preferred

Most of the cash is carried across the U.S.-Mexico border by car or on foot as $10 and $20 bills and later converted to $100 bills, officials say.

Semesky said $100 bills are the preferred method for making large payments between drug organizations, because they are less bulky. With $20 bills, $1 million weighs 110 pounds.

"They don't want to build a storage location for 20s," the DEA's Semesky said of the drug traffickers. "You're talking about decreasing that bulk at least five times."

Before Friday, the largest reported amount of cash seized by Mexican authorities was $7 million, which was found inside electric appliances at Mexico City's international airport in 2005. The appliances were headed for Colombia.

Mexican officials said they worked past midnight Thursday to count the seized bills, which were hidden inside locked metal shelves, suitcases and closets. It was five times the amount that was seized in all of 2006 by Mexican authorities in anti-narcotic and money-laundering operations.

To provide a sense of the scale of the money involved, Mexican media compared the amount seized to various items in the 2007 federal budget.

The $205.6 million was more than the funding allocated to pensions for the handicapped by Mexico's social security agency. It exceeded the amount of public funds provided to Mexico's political parties for campaign spending and also surpassed the budget of the Mexican Senate.

"It's a lot of money, and we didn't know a thing," said one security guard assigned to a nearby property. "We work outside and can't even imagine what goes on inside these houses."

hector.tobar@latimes.com