A LOOK AHEAD: In a case that reveals the workings of drug cartels and poses far-reaching consequences south of the border, lawyers seek plea agreement even as they ready for . . . : The Landmark Trial in L.A. of 3 Prominent Mexican Banks

Amid speculation about last-minute plea agreements, three of Mexico’s most prominent banks are set to go on trial Thursday in Los Angeles federal court on charges of laundering millions of dollars for the Cali and Juarez drug cartels.

The trial, which could have far-reaching political and economic repercussions in Mexico, is the first of four stemming from Operation Casablanca, the U.S. Customs Service’s massive probe of international drug-money laundering.

Bancomer and Banca Serfin, Mexico’s second- and third-largest banks, and Banca Confia, which has sold off most of its assets to Citibank, have been engaged in intense plea negotiations with prosecutors in recent weeks.

Confia and Bancomer are reportedly close to a deal. Fueling the rumors was a notice to lawyers late Friday that the trial was being reset from today to Thursday. No explanation was given.

When the 2 1/2-year-long Operation Casablanca concluded in May with the indictment of 110 suspects, law enforcement authorities said evidence at trial would show links between drug cartels and Mexican banks.

If the government can prove that claim and the banks are convicted, they would face millions of dollars in fines on top of the $37.6 million that the U.S. government has already seized from them.

More significantly, Bancomer and Banca Serfin, which have operations in this country, would be subject to a license revocation hearing by the Federal Reserve Board. Confia has no such exposure because it does not operate in the United States. Being blacklisted in the United States would also make it extremely difficult for the banks to raise capital in the international markets, Banca Serfin’s defense lawyer observed in court recently. “And that,” he added, “would be the ultimate death penalty.”

Six Mexican bankers, businessmen and stockbrokers are scheduled to go on trial with the banks. Eleven Mexican bankers have already pleaded guilty. About 20 more are fugitives, including five Mexico has refused to extradite.

The case against the banks grew out of an elaborate sting in which undercover customs agents, aided by a paid informant with past ties to the Cali cartel, passed themselves off as money launderers seeking to funnel drug proceeds through the Mexican banking system.

Between 1996 and 1998, employees at a dozen Mexican financial institutions laundered about $100 million in drug money, receiving a 1% commission on the funds they handled, according to prosecutors.

The bankers would set up straw accounts into which the drug proceeds were deposited, and then issue cashier’s checks drawn on their own banks’ deposits in U.S. banks, the prosecution contends.

Cashier’s checks, payable in U.S. dollars, are highly liquid and almost impossible to trace. Moreover, they can be deposited in any U.S. bank without the depositor having to fill out a currency transaction report, normally required for sums of $10,000 or more.

Bankers recruited into the conspiracy were given what became known among investigators as the “Cali speech,” a pointed reminder that they were volunteering to launder funds from the Colombian drug syndicate. The Cali speech was secretly videotaped.

All told, the undercover agents videotaped more than 100 meetings with Mexican bankers and other suspects at the agents’ business front, Emerald Empire Corp., housed in a nondescript Sante Fe Springs industrial park.

The incriminating tapes pose a thorny problem for the six remaining individual defendants. Their defenses range from duress to entrapment.

There are no videotapes or documents, however, directly implicating high-level executives at the three indicted banks.

The case against the financial institutions is based largely on circumstantial evidence and government experts who are expected to testify that the sudden infusions and withdrawals of large sums of money should have alerted the three banks to the money laundering scheme.

In their pretrial briefs, the banks’ lawyers suggested that any illegal conduct was the work of rogue, low-level employees.

But in a trial memorandum filed with the court last week, prosecutors cited legal precedents that corporations can be held criminally liable for the misdeeds of even menial employees, especially if the conduct was intended to enrich the company.

Two indicted bankers are quoted in the undercover tapes as saying they were being pressured by their superiors at Bancomer and Banca Serfin to boost deposits at the banks. One said his boss openly condoned taking drug cartel money.

Although the banks’ lawyers have refused to talk about their trial strategy or anything else related to the case, some hints of a likely defense emerged during recent court hearings.

Bancomer and Banca Serfin argued that the customs agents orchestrated the money laundering in a way that made it difficult for the banks to detect. For example, the alleged drug money was wired to the Mexican banks through Bank of America, which cooperated in the investigation.

Coming via Bank of America, defense lawyers contended, the money appeared to be legitimate.

Bancomer, Banca Serfin and Banca Confia were the only financial institutions indicted among 12 Mexican banks that had employees implicated in the case.

Federal sources said the decision as to which banks to indict was based on a number of factors, including how much money was laundered, the rank of employees involved, whether the bank benefited from the money laundering and whether bank management fostered a climate conducive to corruption.

Under the Annunzio-Wylie Anti-Money Laundering Act of 1992, the Federal Reserve Board must initiate license-revocation hearings against any foreign bank convicted of money laundering. No hearings have been held since the law was passed.

Bancomer, with close to $30 billon in assets, provides corporate finance and securities brokerage services at its offices in New York, and maintains an agency in Los Angeles involved in commercial banking.

The bank is also a partner with the U.S. Postal Service in a program known as Dinero Seguro, which enables people in the United States to transfer money electronically to relatives in Mexico from post offices here.

U.S. authorities have already seized $16 million of Bancomer’s assets in the United States. They have filed a civil suit to recover $21.5 million more. Together, those sums represent the total amount of money prosecutors say was laundered through Bancomer.

The government has also seized $12.1 million from Banca Confia and $9.5 million from Banca Serfin through asset forfeiture actions. So far, about $68 million has been confiscated from 14 Mexican and Venezuelan banks. Civil damage suits are expected to be filed against many of the banks that were not indicted.

The indictments in May rocked the Mexican banking industry, which had still not fully recovered from the 1994 peso devaluation and a wave of bank failures not unlike the one that gripped U.S. savings and loan institutions in the 1980s. Accusations of fraud and mismanagement abounded.

Operation Casablanca also triggered angry protests from Mexican government officials who complained of being kept in the dark about the undercover sting. Customs investigators defended the secrecy, saying they feared a leak by corrupt Mexican law officers.

Three other Operation Casablanca trials are scheduled later this year. One involves suspected members of the Cali drug cartel; another targets alleged members of the Juarez cartel, and the third involves a small group of Venezuela-based bankers.