Ex-Mexico Prosecutor Left an Unfollowed Money Trail

J.J. Nieto said he didn’t think much of it when Mexico’s second-ranking law enforcement official showed up with $40,000 in cash to open a new account at Texas Commerce Bank here Dec. 2, 1993.

Wealthy and prominent Mexicans routinely deposited such sums with the silver-haired banker at his steel-and-glass branch office in Houston’s posh Galleria district, Nieto would later testify.

But during the next 13 months, transactions in the personal account of Mexico’s then-deputy attorney general, Mario Ruiz Massieu, raised his eyebrows.

Month after month, massive cash deposits were made that totaled more than $9 million--most of it $20 bills bundled in rubber bands, stuffed into suitcases and delivered every few weeks, hundreds of thousands of dollars at a time.

And most of it, a federal jury here ruled Saturday, was drug money.

The deposits, U.S. government witnesses testified last week, had all the earmarks of drug money from Mexico--deposits that Nieto’s bank dutifully reported to the U.S. government, which requires disclosure of all transactions involving more than $10,000.

But never during the time the money was flowing into Ruiz Massieu’s account did U.S. authorities--among them some of the same witnesses who took the stand here last week in an effort to prove that it was, in fact, drug money--act on the many warning signs that the account appeared to be laundering millions of dollars in drug proceeds, testimony in federal court here showed.

Last week, testimony by a procession of federal witnesses--U.S. Customs agents, a banker and even an Internal Revenue Service criminal investigator--provided a picture of how the elaborate mechanisms that the U.S. government has set up to prevent drug money from washing through the U.S. economy all appeared to have failed.

The testimony came in the U.S. government’s civil forfeiture trial to seize Ruiz Massieu’s $9 million, which ended Saturday evening when an eight-member federal jury ruled that the overwhelming majority of the $9 million was, in fact, from drug traffickers. The five-man, three-woman jury awarded $7.9 million to the U.S. government, deciding that all but the remaining $1.1 million was directly linked to Mexican drug corruption.

Prosecutors asserted during the five-day trial that Ruiz Massieu’s millions came from bribes he took in return for protecting major Mexican drug traffickers and the tons of Colombian cocaine they transship into the United States each year.

Ruiz Massieu, who is not charged with any crime in the United States, fought hard to keep all the money. On Friday, the former deputy attorney general flatly denied from the witness stand that he ever took a bribe. He testified that the deposits came from his family’s fortune and from generous government bonuses.

Ruiz Massieu’s attorneys, who said they will appeal Saturday’s verdict, also clearly showed during the trial that his chief aide complied with all U.S. currency-reporting laws in importing the money and making the deposits.

Halfway through the trial, however, U.S. District Judge Nancy Atlas, who is presiding over the case, concluded in a probable-cause ruling that the government had presented “credible evidence” that the money came from drug corruption. Among that evidence: testimony from a former Mexican federal police agent who said he delivered two suitcases filled with drug money to Ruiz Massieu in August 1994.

Beyond disclosures of just how widespread drug corruption has been in Mexico, extensive testimony showed how U.S. law enforcement broke down in the case of Ruiz Massieu’s millions.

That testimony came as the House of Representatives voted to censure Mexico for failing to wage the war on drugs effectively. Several U.S. and Mexican observers at the trial here privately said the testimony showed the flip side to the congressional criticism: the shortcomings of U.S. drug enforcement.

The testimony showed that on more than 20 occasions through 1994 and early 1995, Ruiz Massieu’s chief aide, Jorge Stergios, officially reported to U.S. Customs and the IRS the huge sums he brought into the country and later deposited at Nieto’s bank.

Each time he arrived with the bundles of cash at the airport, Stergios reported that he was carrying more than $10,000, in keeping with a federal requirement. He then met with airport customs inspectors and filled out Currency and Monetary Instruments Reports, forms created to track suspiciously large cash imports. Those CMIR reports, which are sent to a central database, are the backbone of the U.S. Treasury Department’s high-tech system to detect drug-money laundering.

Customs inspectors testified that they even saw and counted Ruiz Massieu’s money when it arrived in shipments--bundles of cash that one of the inspectors testified should have raised suspicion. But U.S. Customs apparently took no action other than calling Nieto’s bank once simply to confirm that Stergios was depositing the money there, testimony showed.

Even Nieto’s increasing concerns appeared to fall on deaf ears at customs.

Worried that the bank might be violating federal money-laundering laws through what is known as “willful blindness” toward Ruiz Massieu’s account, an official from Nieto’s branch called U.S. Customs agent Marcy Forman in 1994 to report the suspicious deposits, Forman testified.

Forman, who is based in Houston, testified that she told the bank officer that customs already knew about the cash. She indicated that customs took no further action.

When asked by Ruiz Massieu’s lawyer, Kathy Flemming, what she did as a result of the bank’s alert, Forman replied: “I said if there was anything else we could do, he should contact us again.”

The IRS also knew about the deposits. Each time Stergios brought suitcases full of cash to Nieto, they filled out Currency Transaction Reports that are required for deposits exceeding $10,000.

Bob Whalen, an IRS criminal investigator in the High Attention Drug Trafficking Squad in Houston, confirmed from the witness stand that the reports were on file. Whalen and other government witnesses testified that any experienced law enforcement agent should have suspected that the cash bundles in Stergios’ suitcases--low denominations wrapped in rubber bands and sometimes in cellophane--were “street money.” And the deposits, he testified, clearly were unusual.

Whalen did not explain why the IRS never questioned the source of the money during the year the deposits were being made. But he and several U.S. Customs officials testified that the U.S. government did not begin investigating Ruiz Massieu’s account until after the Mexican government targeted the former prosecutor in March 1995--a full 15 months after he opened the account.

Testimony showed that on March 2, 1995, Mexican officials asked the U.S. Embassy in Mexico City to have customs agents in Houston intercept Ruiz Massieu. It was the same day that Ruiz Massieu was interrogated for eight hours in Mexico City by Mexican federal prosecutors, who later charged him with illegal enrichment and obstructing justice.

Based on the Mexican government’s alert, U.S. Customs agents testified, they tracked Ruiz Massieu as he flew the next day from Houston to Newark, N.J. There, customs agents arrested him and charged him with failing to report the full $42,000 he had with him, charges that were later dismissed.

It was only then that U.S. and Mexican investigators in New Jersey “discovered” Ruiz Massieu’s Texas Commerce Bank account--and only, his lawyer asserted in court, because Ruiz Massieu himself disclosed it soon after his arrest.