Drug Money Laundering Trial Underway

The final trial growing out of Operation Casablanca, the biggest drug money laundering probe in U.S. history, got underway in earnest Wednesday with a skirmish over the government’s chief undercover informant.

From the outset, federal prosecutors sought to shore up the credibility of controversial informant Fred Mendoza, a former money launderer and drug trafficker from Colombia.

As the leadoff witness in the Los Angeles federal court trial of three Venezuelans, Customs Service Agent Steven Lovett said he conducted a thorough background check on Mendoza before signing him up as a paid undercover informant in 1995.

At that time, Lovett said, the only derogatory information known about Mendoza was that he had been involved in money laundering while operating an emerald business in Los Angeles’ downtown jewelry district during the 1980s.

But during cross-examination by defense lawyer Oscar Arroyave, Lovett acknowledged having written a recruitment memo describing Mendoza as someone familiar with transporting narcotics as well as money.

“I honestly don’t remember talking to him about narcotics trafficking,” the veteran agent said after being shown the memo.

On the stand Wednesday, Lovett also confirmed a new allegation about Mendoza’s links to the Colombian drug world--that he is the nephew of a Colombian drug lord.

Although Mendoza served as an undercover informant for the Customs Service from 1995 until the investigation concluded in 1998, federal prosecutors did not learn until March of this year that he had helped the Cali drug cartel airlift large amounts of cocaine into Mexico in the early 1990s.

The government’s belated discovery caused considerable embarrassment in the trial earlier this year of six Mexican bankers and businessmen. Mendoza’s credibility was a big issue in that trial, which ended with the jury convicting three defendants and acquitting three others.

Arroyave, co-counsel for defendant Esperanza de Saad, who headed the Miami office of Banco Industrial de Venezuela, pressed Lovett about why he did not administer a polygraph test before approving Mendoza as an informant. Lovett said it was not required.

“Either Fred Mendoza wasn’t honest or the Customs Service wasn’t doing its job. Which was it?” asked Arroyave. The agent said he could not agree with either conclusion.

Mendoza, who received more than $2.1 million compensation for his work and who stands to receive a still undetermined bonus, was credited with helping indict more than 100 people and three of Mexico’s most prominent banks.

Using Mendoza as a front man, undercover customs agents were able to win the confidence of Mexican and Colombian drug syndicates. They traveled across the country picking up millions of dollars in cash from illegal drug sales, then laundered the money into the banking system. They also carried out a sting targeting Mexican and Venezuelan banks and bankers.

Forty of those indicted were lured to the United States under various ruses last May and arrested. Most have pleaded guilty, including key money brokers for the Juarez and Cali cartels.