COLUMN ONE : Crushing Waves of Dirty Cash : The Los Angeles area now rivals Miami as the nation’s capital of money laundering. Law enforcement is being overwhelmed; some drug dealers are, too.

Suitcases so heavy with money the handles break off. Cardboard boxes bursting with cash. Athletic bags stuffed with $100 bills. Walk-in vaults lined with neat stacks of currency. Four hundred million dollars rotting because it cannot be smuggled out of Los Angeles. Cash in car trunks, closets, rooms, airplanes and semi-trucks.

Drug dealing, the richest criminal enterprise in history, literally accumulates profits by the ton. And in recent years, the Los Angeles area has joined Miami as one of the two largest centers for changing these dirty dollars into legitimate funds--”money laundering” in the parlance of the trade.

The problem is worldwide: A recent report by the seven leading industrialized nations estimates that drug dealers in the United States and Europe earn $232,115 a minute. Never in a lifetime could they spend all the $5s, $20s or $100s that funnel into their coffers. To be useful, these mountains of cash must be moved into bank accounts and business investments, mingled into invisibility with honest money.

Just how much of this financial alchemy is performed in Southern California is unknown. The volume of dirty dollars moving through the area is so vast that federal officials confess they cannot even estimate the total. Ten million a day? A hundred million a week? Those are plausible estimates, officials think, but no one really knows. But the riches at stake have spawned enormous ingenuity and sophistication.

Many factors are responsible for the emergence of the Los Angeles area as a top money-laundering center. The desert contains more than 100 clandestine airstrips used routinely by smugglers. There is a long coastline, the nation’s busiest port, proximity to the Mexican border and 16 commercial airports. Plus, authorities say, the substantial Latin population provides cover for a trade dominated by Colombians and Mexicans.

As a result, a confidential 1989 analysis by the U.S. attorney’s office calls the seven-county Los Angeles area “a uniquely vulnerable target.” As much as 50% of the nation’s cocaine flows through the region. And with the drugs come the narco-dollars.

A ring based in the Los Angeles jewelry district, for example, laundered $1.2 billion for Colombian drug kingpins in 18 months--more than $2 million a day, $90,000 an hour, 24 hours a day. Drug money poured in from New York, Miami, Phoenix, Houston and Los Angeles. Cash was stacked on pallets before being deposited in local banks as business earnings and wired out of the country. The operation was nicknamed La Mina-- the gold mine.

Another group owned three check-cashing stores in South-Central neighborhoods. It used drug money to cash legitimate personal and government checks for unsuspecting customers. Prosecutors say “bundles and bundles” of money were laundered this way.

Stopping this tidal wave of illicit profits--or at least slowing it--is viewed by many as the biggest challenge confronting federal drug authorities today. There are a few signs of progress. Arrests and seizures of cash are up. Federal and local agencies are cooperating. Even banks, still the laundering vehicle of choice, are more vigilant.

Resources Limited

Yet top officials with the Internal Revenue Service and the Customs Service, the two agencies leading the charge against money laundering, acknowledge that resources are limited.

“There is so much money laundering going on that we don’t have enough agents to handle it,” says Quintin L. Villanueva, regional commissioner of the Customs Service for the Pacific region of the United States. “Literally, we are turning away cases.”

Money-laundering investigations are complex and time-consuming, almost always requiring an elaborate undercover operation or an informant and often involving tracking cash through banks here and abroad.

At Customs, Villanueva has 600 criminal investigators to cover seven states, stretching from the Mexican border to Canada, and including Hawaii and Alaska. And money laundering is only one of their duties. At any given time, the IRS has no more than 20 investigators working on money laundering in its Los Angeles district, the nation’s largest.

“We increase enforcement and they start finding different ways to stay ahead of us,” says Philip Xanthos, an IRS criminal division supervisor in Los Angeles. “It’s endless. It’s absolutely endless.”

On top of this, the leading voice on money laundering in Congress, Sen. John Kerry (D-Mass.), is critical of the Bush Administration’s failure to negotiate tougher regulations over how cash is handled in foreign countries.

“We are swimming upstream as long as we try to accomplish these goals by law enforcement and strict regulations in the United States alone,” Kerry says.

In the meantime, federal and local authorities are struggling to cope with the flood of dirty dollars in Los Angeles.

Near the end of a major drug sting called Operation Pisces in 1987, Drug Enforcement Administration agents traced $1.2 million in drug cash to a house in Westlake Village.

A later search discovered that the occupants were a Colombian named Mario Ernesto Villabona and his Danish wife, Helle Nielsen. Inside, agents found mobile telephones, pagers, weapons and suspicious documents, including records of seven Danish bank accounts containing $500,000.

No arrests were made. But DEA was watching when Villabona, Nielsen and an associate identified as Brian Bennett traveled to Copenhagen in December, 1987. Danish police tapped the phones at their hotel, Nielsen’s parents’ house and a nearby pay phone.

In calls to Los Angeles and Colombia, Villabona and Bennett employed a crude code: $1 million was a “green melon;” two drug distributors were “Tall Mike” and “Bald Mike;” a kilo of cocaine was a “cake.”

“It became obvious Villabona was moving multi-hundred kilos of cocaine,” says Dean G. Dunlavey, an assistant U.S. attorney. “It was mind-boggling.”

In one call, the feds learned that Villabona and Bennett owned three check-cashing stores in Los Angeles. According to court documents, the checks cashed with drug dollars were deposited in regular bank accounts and, presto, clean money.

Jimmie Washington, who ran the stores, complained to Villabona in one conversation, “You all been working the hell outta me (at these) check-cashing places.”

Unraveling the network, IRS criminal investigators found a wide variety of ways money was being laundered, ranging from the sophisticated check stores to simpler techniques.

Washington presented an escrow company with an athletic bag containing $184,000 in $100 bills as down payment on some commercial property. Villabona paid $29,000 cash for a new BMW car, a common way for drug dealers to convert modest amounts of money.

Other people, including some of Washington’s relatives, were used routinely as “smurfs,” exchanging cash for cashier’s checks at banks. The transactions were kept under $10,000 so the banks would not file currency transaction reports with the IRS.

For instance, on a single day the smurfs transformed $45,200 in drug cash into clean cashier’s checks at Los Angeles branches of Security Pacific National Bank and Wells Fargo. The checks were then deposited in other banks as legitimate funds and wired abroad.

Nearly $1 trillion a day is transferred electronically among the world’s banks each day, and there is no way at that point to distinguish dirty money from clean.

Another day, a Mexico City architect showed up at Villabona’s Fine Shoes on Ventura Boulevard in the San Fernando Valley to collect 48 cashier’s checks totaling $400,000. Villabona, who had a condo in Malibu, had hired the architect to renovate a luxury apartment in Mexico City. They also were partners in a real estate development there.

But such devices accounted for only relatively modest sums. The big money was shipped clandestinely and in bulk. Following Villabona’s money led federal agents to knock on the door of a house in Northern California in 1988.

Loads of Cash

“We heard a very loud bang that actually shook the house itself,” John S. Comer, an IRS agent, told a federal grand jury. “Upon entering the house, we determined that the two people who were inside were actually trying to move the bags of currency, but they were so heavy that when they dropped them it literally shook the entire house.”

The agents found $6.5 million in cash, plus money-counting machines and devices to seal money in plastic so airport dogs could not sniff the cocaine residue.

A wiretap on Villabona’s phones led federal agents to a huge cocaine buy at a Sheraton Hotel in Detroit. Two men were lugging a cardboard box down a hallway when police ordered them to halt. The men dropped the load and ran. The box split open, spilling cash on the floor. Seven other boxes were found in a nearby room. Total cash: $5.4 million.

Villabona and Bennett were both sentenced to life in prison without parole after a federal court jury in Los Angeles convicted them and five associates, including Washington. Four others pleaded guilty to related charges.

Wilmer Parker III is a federal prosecutor in Atlanta and chief of the drug task force for the Southeastern United States. He has a sure-fire method of predicting whether an investigation will be major or minor.

“You know you have a good case if it leads to Los Angeles, Miami or New York,” he says.

For instance, DEA agents working with Parker monitored an undercover meeting on the Caribbean island of Guadeloupe at which a Colombian money launderer told a startling story.

According to the launderer, Colombian drug lord Pablo Escobar once had $400 million in the basement of a Los Angeles house, but he could not find a way to export it. Eventually, said the money launderer, the money got wet and rotted.

“We heard this in 1988 and it seemed astronomical,” said Parker. “Now, I have reason to believe it.” He would not say more.

For years, the biggest problem launderers had was not hurting themselves as they lugged suitcases of cash into banks across the United States. A crackdown on banks in the mid-1980s and passage of a new federal money-laundering law have made things tougher. But money is a powerful incentive for innovation.

“As many ways as there are to move drugs in the world, there are many more ways to move money,” says Brian M. Bruh, director of the U.S. Treasury Department’s Financial Crimes Enforcement Network.

Fincen, as its called, was set up in 1990 as a sort of think tank to watch for the newest wrinkles in money laundering and develop targets for law enforcement agencies with limited resources. About 200 staff members, drawn largely from the intelligence divisions at IRS and Customs, are housed in a nondescript building in a Washington suburb.

Some of the work is high-tech, such as a classified contract with Los Alamos National Laboratory, where the atomic bomb was built. The lab is developing a computer model to track world money flows and identify suspicious cash movements through individual banks.

Other work involves spotting new trends. One emerging scheme, said Bruh, works this way: Colombian drug suppliers set up partnerships with businessmen who have operations in the United States. They take their drug cash to a businessman’s U.S. office, where it is commingled with legitimate earnings. In exchange, the businessman pays them pesos back in Colombia.

Another potential laundering spot that has caught Fincen’s eye is the hundreds of casas de cambio that dot Southern California and the border with Mexico. Set up to exchange dollars for pesos and vice versa and transmit money abroad, the casas handle enormous amounts of cash with far less regulation than banks.

Raul Velasquez, the president of Unimex, which operated four casas in the Los Angeles area, was convicted in February of using the operation to launder drug money. According to court records, Velasquez charged drug dealers 8% to deposit their funds with his legitimate cash at banks in Mexico and provide the dealers with cashier’s checks. He told IRS undercover agents that he was so inundated with drug money he did not know how to handle it all.

Al Ristuccia, supervisor of the IRS money laundering section in Los Angeles, said Unimex was laundering up to $30 million a month “and that didn’t even rank it in the top 10 casas “ suspected of laundering money.

Federal law enforcement authorities often say that blocking the flow of money back to the drug suppliers in Colombia and elsewhere is the most effective way to shut down their operations.

“It’s like any other business--if you stop the cash flow, they go belly up,” Quintin Villanueva of Customs says.

Yet others doubt that this part of the drug war can be won. Profits are so immense that multimillion-dollar seizures barely make a dent. And new individuals and organizations, with new ideas, are eager to replace those who fall.

“All you can do is make it difficult and expensive and risky,” says Mark A. R. Kleiman, a criminal policy expert at Harvard.

How Drug Money Is Laundered

There are many ways that drug dealers can “launder” their earnings. In this case, they channeled them through three check-cashing stores in Los Angeles.

1. Street dealers turn in their money to collectors for the money launderers, who accumulate the cash at a central location.

2. The cash is then taken to a check-cashing store owned by the money-laundering organization.

3. Unsuspecting customers come into the store to cash checks, such as government checks or payroll checks. In return for the checks, they receive the cash obtained from drug sales.

4. The store owners then deposit the cashed checks into the business’s regular bank account, where it shows up as legitimately earned money.

5. The scheme both launders the money and allows the check-cashing store to charge a fee to the people cashing the checks.

Sources: Federal court records and interviews

Drug Money: Rival for Big Business

Here are estimated revenues taken in by drug launderer’s in the U.S. and worldwide and a comparison with revenues for major businesses. Money Launderers General Motors Ford Exxon Royal Dutch IBM Toyota General Electric Mobil Hitachi Brit Pet Source: U.S. Customs Service