Town Is Unlikely Star of Money-Laundering Probe

“ ‘This is a town without history,’ one often hears it said, ‘nothing has ever happened here.’ ”

--Town historian Francisco Gallegos

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This tidy community of well-to-do chicken farmers and thriving small businesses doesn’t look like the money-laundering capital of the Americas.

But the dryly worded indictments unsealed in federal court in Los Angeles on Monday portray Tepatitlan de Morelos as just that: the heart of the most extensive money-laundering probe undertaken by U.S. investigators.

If it had a few adjectives, the grand jury indictment of the drug lords and their banker-launderers might have made a great movie script.

In just this one city of 120,000 an hour east of Guadalajara, no fewer than four banks--local branches of some of Mexico’s largest and most respected national banking institutions--allegedly came to be enmeshed in cleansing cocaine money.

Of the 26 Mexican banking officials who were indicted, six worked for banks in Tepatitlan. The indictments record that the Tepatitlan banks laundered $31.2 million in drug money starting in 1996, the lion’s share of the money washed in the scam.

Yet Tepatitlan, which seems far smaller than it is, cannot easily be written off as an isolated outpost where sophisticated money-laundering might shock the good burghers. People here aren’t even very surprised.

“Everybody here knows everybody else, and we all knew there were problems,” said Sofia Maciel, a 50-year-old store cashier.

Indeed, Tepatitlan’s involvement in the case serves as a powerful example of the complex, sometimes dangerous linkages that have developed between the deepest reaches of rural Mexico and the biggest drug-ridden American cities: Los Angeles, Chicago, New York.

And it’s hardly a simple matter of exporting Mexican ills to infect healthy American values. Rather, the money-laundering saga suggests a thriving two-way flow of corrosive influences, the dark side of the flourishing interchange between Mexico and the United States.

One critical example: Tepatitlan sends a higher percentage of its people to work in the United States than any other town in Mexico, according to town historian Francisco Gallegos, who has written about the town’s rich history, which dates to 1530.

“I don’t know of any family here without a son or a cousin in the United States,” Maciel said. “The young people leave here healthy, hard working--and return with drug addictions and as prostitutes.”

Maciel’s own husband has been working in Los Angeles for two years since he was forced to sell his mechanic workshop during the 1994-95 recession. She now copes on her own with her eight children and worries about the town’s growing drug problem.

“But nobody says anything because we’re afraid of reprisals or kidnappers. It’s time they put a stop to all of this,” she said.

People here describe the local banking suspects as responsible family sorts, well-dressed and serious, not flaunting wealth. The bankers apparently charged 1% commissions for dirtying their hands--which would come to $310,000 for the $31 million purportedly laundered here.

That is not a vast amount in a town built on a nationally respected poultry industry (it supplies 70% of the eggs consumed in Mexico City), major cattle ranches and crop farming, as well as a considerable textile industry. Tepatitlan, with a population growing 3.5% a year, is prosperous enough to attract people from Guadalajara and Mexico City who prefer a quieter life.

But the lure of money, clean or otherwise, is strong.

The court documents describe how Tepatitlan resident Victor Manuel Alcala, alias Dr. Navarro, an alleged capo for the Juarez cocaine cartel, allegedly recruited local bankers to pass drug money through the banking system and return it to its owners in an untraceable, legitimate form.

In the end, Alcala and his boss, Jose Alvarez Tostado, unwittingly were funneling their narco-dollars through undercover agents of the U.S. Customs Service, who had set up a sting operation that ended with the arrests over the past week of more than 100 people and the seizure of more than $39 million.

Alcala, who also lived in Los Angeles, allegedly recruited several bankers here, starting with Jorge Reyes Ortega in mid-1996.

Reyes Ortega was manager of the local branch of Bancomer, Mexico’s second-largest retail bank, which is allied with Bank of Montreal. The modernistic Bancomer branch here, although an eyesore on the otherwise attractive Plaza de Armas, exudes solidity and security.

Reyes Ortega is accused of washing $19 million in drug money through Bancomer before he left last December and moved across the town square to manage the local branch of Santander Mexico, also part of a national retail bank system.

In addition to Bancomer, the money-laundering operation allegedly drew in the manager and assistant manager of the local branch of Banoro (later taken over by the national Bancrecer retail bank). About $1 million was washed through the Banoro branch and sent back to “clean” accounts in the United States and elsewhere.

And finally, Alcala apparently was able to recruit a lawyer and another employee at Confia, the ill-fated banking operation whose president is now in custody on unrelated fraud charges. Confia was since bailed out by the government and has just been sold to Citibank.

Between February 1997 and this month, Confia branch lawyer Miguel Barba Martin and employee Jorge Milton Diaz managed, the indictment says, to funnel $11 million in drug money deposits into false accounts and transform the funds into easily cashed bank drafts and other instruments.

These transactions were not without incident: At one point Reyes Ortega warned Alcala that new Mexican banking rules were going to make it more difficult to launder money in Mexico. He came up with a solution.

The indictments recount that $650,000 from one wash load went missing for several days in late 1996 before turning up belatedly in a phony business account set up in the Cayman Islands as part of the scheme. New accounts in false names were regularly opened and closed in various offshore locales to avoid detection.

Alcala, reportedly the Juarez cartel’s main laundering operative, allegedly set up a textile company as a front in Tepatitlan, which opened accounts at Banoro, where the branch manager also proved helpful.

Townspeople say they understand how someone can become corrupted.

“This is a very hard-working population. Its roots are in the soil. But we have been going through psychological changes,” said Carlos Rodriguez, a graphics artist who settled in the town from his native Guadalajara several years ago. “The easy road to economic power is the dirty road. So people get tempted by this easy road.”

And nobody might be the wiser. Given the historic and growing strength of the agriculture-based economy, Rodriguez said, “there is a lot of good, clean capital in the economy here. So it would not be difficult to mix in bad or dirty money given the constant flows of capital here.”

The Bancomer branch is in fact very busy with customers in suits mingling with those in farming overalls. The current branch manager, who succeeded Reyes Ortega when he moved to Santander last December, politely referred a visiting reporter to phone the head office in Mexico City for comment.

Despite the small-industry sprawl and new housing developments on the outskirts, the town center has managed to retain its colonial charm and its civility. Instead of traffic lights there are four-way stop signs at each corner.

The town still comes to a sun-baked halt for the midafternoon siesta, a practice that has faded in the big cities.

Father Salvador Zuniga of the San Francisco parish on the main square--founded in 1683 --said Tepatitlan is one of the most observant Catholic communities in the country.

Yet Zuniga echoed concerns about emigration and drug consumption among the young. He has helped set up a rehabilitation program to work with young people suffering from drug or alcohol problems, “and the church has rescued many.”

Marco Antonio Gomez, the private secretary to the mayor, said the community’s strong religious roots are a bulwark against drug consumption and the traffickers. But he doesn’t underestimate their reach.

“They have the money, the power, the arms, to manipulate and control anyone, even government officials,” Gomez said. “This could happen anywhere.”