Hand-Over of Laundered $3 Million Sets Precedent in Drug Wars


With no pomp, no ceremony and no press, in an unmarked office building in suburban Miami, history was made this year in the global war on drugs.

In late February, at the Drug Enforcement Administration’s regional headquarters in south Florida, an official from this tiny eastern Caribbean island and the president of one of its largest offshore banks quietly handed over a check for more than $3 million made out to the U.S. government.

The money was part of a vast cocaine fortune amassed on U.S. streets by the late Mexican drug baron Amado Carrillo Fuentes before his July 1997 death, according to documents filed last year in federal court in Miami. The money had been hidden here in the booming Caribbean offshore banking industry, which U.S. law enforcement agencies call a haven for billions of dollars in profit from the illicit drug trade.

The check represented but a fraction of more than $100 million in Carrillo’s cocaine profits that, according to the court documents, were laundered first through a Mexico City bank that his money managers secretly had acquired in 1996 and then into several offshore bank accounts here and elsewhere in the global banking industry.


Targeting Banks

But the cashier’s check for $3,138,211.97 turned over to the DEA on Feb. 25 marked the first time that a Caribbean offshore bank voluntarily surrendered drug money to a U.S. government agency.

And it climaxed a case of unprecedented cooperation among U.S. and Mexican federal investigators, a major offshore bank and a Caribbean nation that had resisted handing over drug money to the U.S. in the past--indeed, a nation that was targeted last month by another U.S. agency for laxity in policing money laundering.

The U.S. Treasury Department warned American banks to use “enhanced security” in doing business with Antigua’s offshore banks, citing recent laws that it said had weakened controls on money laundering. In response, Antiguan Prime Minister Lester Bird said those laws will be reviewed by a special committee.


But mostly, Bird has since gone public about the hand-over of the $3-million check, citing it as proof that his nation is changing tack.

The case of Carrillo’s drug money also illustrates a new DEA priority in the drug war: targeting not just the cartel chiefs but their bank accounts through painstaking financial investigations in which agents are as likely to wield calculators as .357 magnums--a role that, until recently, rested solely with the U.S. Treasury Department.

In doing so, drug agents have sought to penetrate a booming and secretive global offshore industry that investigators say is home to more than one-third of the world’s wealth. And, as an added incentive to win foreign assistance in those investigations, the U.S. shares its seized proceeds with cooperating governments: Antigua and Mexico each will get one-third of the $3 million in the coming months.

“We’ve found that attacking the money launderers is pound-for-pound more effective than targeting the traffickers,” said David Tinsley, an investigator who heads the DEA’s Miami-based unit specializing in money laundering. “This case was an acid test for what the DEA can do in cooperation with other governments and the banks themselves.”

Tinsley’s praise stood in stark contrast to the criticism from the Treasury Department’s undersecretary for enforcement, James Johnson. He assailed Antigua for its incestuous relationship between its offshore bankers and its offshore government regulators in announcing the unusual warning against the island nation last month.

Despite these mixed signals from Washington, documents related to what has come to be known here as “the Mexican money case” do, however, provide a rare, detailed look at how drug money is laundered.

Investigators, Antiguan officials and the bank chairman responsible for last month’s breakthrough added in interviews that the case also highlights the many obstacles in the path of policing the practice, in which illegal profits are made to appear “clean” by transferring them through a series of accounts or investments in legitimate financial institutions.

The offshore industry, so named because its banks and other institutions conduct no business in the nation where they’re registered, offers tax exemptions and secrecy that have made it a prime conduit for money laundering, according to U.S. investigators and industry analysts.


In the Antiguan case, however, Tinsley and U.S. officials in Miami credit Texas-born banker R. Allen Stanford, who heads the Houston-based Stanford Financial Group, for taking a lead role in what the Antiguan government insists is a continuing effort to clean up the reputation of the island nation’s offshore banking industry.

His decision to hand over the Carrillo money, they say, was made all the more difficult by the delicate balance these islands and their bankers must maintain in an industry that most Caribbean nations see as a key to the diversification--and survival--of their economies, which rely on tourism.

In a recent interview here, Stanford said turning over the money was intended to send the message that “the government of Antigua and Barbuda is serious about dealing with money laundering.”

“It was the right thing to do morally, and it’s the legal thing to do,” added the 49-year-old businessman, who also owns the island’s domestic Bank of Antigua and a local newspaper and is spearheading construction here of a new airport and a hospital.

But he acknowledged that, for him--and for an industry created to protect billions of dollars’ worth of assets for hundreds of thousands of businesspeople worldwide in an atmosphere of confidentiality and anonymity--the decision was “a lose-lose situation.”

Stanford and other bankers insist that the majority of the more than $1 trillion invested in offshore accounts in the Caribbean comes from legal enterprises. Most investors, they say, are doctors, lawyers, business executives or other professionals who place assets in such accounts to shield them against legal judgments, taxes or even kidnap ransoms. And the bankers’ duty under Antiguan laws governing offshore industry is to shield not merely the money but also the identity of its owner.

“We are trying to strike a very delicate balance, trying to bring the clean money in and keep the dirty money out,” said Pat O’Brien, a retired U.S. Customs agent who was hired last year to do just that as a consultant to the Antiguan government’s new offshore regulatory authority. The body was created last fall by legislation aimed at cleaning up the offshore industry here.

“We don’t care who hides the money as long as we know who the owner is and we’re convinced they are honestly earned dollars,” O’Brien said.


Stanford insists that the $3 million in Carrillo’s drug money was “the first and only time we have ever had an active account where this has happened, and we run literally billions of dollars through our offshore banking institutions.”

But the Mexican money case, he and U.S. investigators said, shows how hard it can be to discern bad money from good.

In fact, Stanford said, when Mexican businessmen Juan Alberto Zepeda and Jorge Fernando Bastida approached Houston-based financial consultants at his Stanford International Bank in June 1997 looking to protect $3 million in assets, every indication was that they were “stand-up guys.”

It wasn’t until last year, after Mexican and U.S. investigators examined the records of a bank holding company that had acquired controlling interest in Mexico City’s Banco Anahuac, that they concluded that Zepeda and Bastida were laundering Carrillo’s cocaine-smuggling profits. Arrest warrants have been issued in the U.S. and Mexico for both men, who remain fugitives.

“During one month alone, November 1996, it was established that the [Carrillo] organization laundered approximately $100 million through three Banco Anahuac accounts,” asserts an affidavit filed in Miami federal court by Internal Revenue Service investigator Vincent Lozowicki, who teamed up with the DEA in the investigation.

And $3 million of that money, the affidavit concludes, ended up in Zepeda and Bastida’s accounts at Stanford International Bank. Mexican and U.S. investigators are still tracking the rest of the funds but, working together after years of shared suspicions, they sought judicial orders to freeze the accounts and request the funds from Stanford and the Antiguan government.

Stanford said he decided to forfeit the money to the U.S. when his own investigation showed that the funds probably were drug money. But the Antiguan government, which had to approve the forfeiture, was not so quickly convinced.

At first, Stanford and several Antiguan officials said, some government officials here wanted to keep all $3 million.

Bonanza for Antigua

Stanford and offshore consultant O’Brien stressed that Bird, who was reelected to a second five-year term in March, was not among the officials who opposed sending the $3 million to the U.S. And the DEA praised Bird’s government and Stanford for their cooperation.

O’Brien said half of Antigua’s $1-million share of the Carrillo money will go to marketing and developing its offshore industry. About a quarter of Antigua’s share will go to financing a new unit to combat money laundering, he said, and the rest to the nation’s treasury.

“It’s not to change the image,” O’Brien said of the government’s decision to cooperate with the DEA. “It’s to change the country. It’s to make the offshore banking system squeaky clean for honest dollars, for honest people.”

‘We’ve found that attacking the money launderers is pound-for-pound more effective than targeting the traffickers. This case was an acid test for what the DEA can do in cooperation with other governments and the banks themselves.’