Drug crackdown has little effect on money laundering


For a B-team, Los Mapaches sure seemed to be living it up. The soccer club from the small town of Nueva Italia in western Mexico had the finest vehicles, new uniforms every game and unusually high salaries.

Little wonder, then, when the team’s owner was arrested and accused of laundering millions of dollars for one of Mexico’s most powerful drug gangs.

The team was one of many covers, federal prosecutors allege, that Wenceslao Alvarez, alias El Wencho, used to hide and move millions of dollars for the so-called Gulf cartel.


In the Mexican government’s bloody, 2-year-old war on drug traffickers, one component of the trade remains largely untouched: money laundering. The network that helps turn ill-gotten gains into legal tender is a crucial linchpin that enables traffickers to live large, expand their operations deep into the U.S., pay off cops and politicians and buy increasingly sophisticated weaponry.

“You can arrest thousands of [traffickers] but if you don’t touch the financial enterprises, the business just goes on . . . and becomes more violent,” said Edgardo Buscaglia, an expert on organized crime who has advised both the United Nations and Mexican officials.

Until the government goes after traffickers’ cash, Buscaglia and other critics say, the networks will continue to grow and fortify themselves, no matter how many state security forces are thrown at them.

Money-laundering is the process of concealing the origin of illicit drug profits by funneling them into businesses (legitimate or fake), real estate and financial institutions.

Estimates vary widely, but as much as $20 billion is laundered and stays in Mexico annually, with up to four times that amount continuing to other destinations, experts and Mexican officials say.

Some of the money is stuffed in suitcases and walked across the border into Mexico, or hidden in cargo containers and shipped. But investigators also suspect international courier services are moving the cash.


Banking controls are notoriously lax in Mexico, making it easier for money to be wired or deposited into accounts, then spent on goods or services. All-cash transactions are common, especially for big-ticket items such as mansions, and Hummers and armored BMWs, and to pay the legions who work for the drug mafias. The money also is increasingly being sunk into artwork, gems, gold and commodities.



Every year, the U.S. Treasury Department blacklists scores of individuals and companies, most of them Mexican or Colombian, believed to be involved in money-laundering or other activities supporting drug-trafficking networks.

Rarely has the Mexican government acted on the information. Mexican authorities cannot easily confiscate traffickers’ property and assets, a practice common in the U.S. and one that helped give the Colombian government an upper hand in cracking that country’s cartels.

“It is a very powerful tool against narco-traffickers because it hits their interests -- their purchasing power and their ideal way of life,” Colombian Vice Minister of Defense Sergio Jaramillo Caro said during a recent meeting here of Latin American public security officials. A new law that would give Mexicans that authority has been passed only in Mexico City; a national version is languishing in Congress.

The two main agencies that investigate and prosecute suspected money launderers are hamstrung and underfunded. The Finance Ministry’s Financial Intelligence Unit and the attorney general’s office are required to communicate with each other in writing, a clumsy process, and they are not allowed access to federal police reports, financial records or other key databases to build organized-crime cases.

The case of the Mapaches (Raccoons) was more exception than rule. Federal agents arrested El Wencho in October while he was in Mexico City at the headquarters of a top soccer club. In addition to the Mapaches, El Wencho’s holdings included car dealerships, an avocado export firm, hotels and restaurants, prosecutors say.


The alleged money-laundering operation, which authorities say extended into six U.S. states and parts of Central and South America, came to light in September as part of a U.S. federal indictment that named top leaders of the Gulf cartel and led to the arrests of more than 500 people in the U.S., Mexico and Italy.

An estimated $7.6 million of El Wencho’s assets were seized by U.S. authorities in Atlanta and other U.S. cities, according to a senior Mexican official who did not want to be named because such investigations are kept secret until a formal indictment is issued. Mexican and U.S. agents spent a year tracking El Wencho’s movements through tapped telephones and other surveillance, the official said.

The official said the soccer team was more of a “whim” and not particularly effective at laundering large amounts of money because it was too junior. It may have been a way for El Wencho to curry favor in Nueva Italia, a typical ploy of traffickers who do good works for their hometowns as a way to buy loyalty and protection.


Shrouded in secrecy

Mexican officials say their financial system is relatively unregulated, shrouded in secrecy laws and so complex that it is difficult to penetrate. But critics wonder if politicians blanch at changing those laws because too many of the country’s elite would be implicated.

They note that the interior minister, the second most powerful person in the Mexican government, once helped defend a prominent banker who was acquitted in one of the few high-profile laundering cases to reach the courts.

There is also a general, if unspoken, tolerance of laundered money among many Mexicans, who reason that if the dollars have passed through other hands, it no longer is dirty money.


“It has been relatively useless to try to determine the amounts of money being laundered in Mexico,” President Felipe Calderon told Congress last month. An official report that Calderon submitted to lawmakers said the Finance Ministry had detected 60,000 suspicious financial transactions in the 12-month period ending in June. But only 0.5% ended up in court.

A handful of money exchange houses are being prosecuted, but the gradual dollarization of the Mexican economy has diminished the role of exchange houses in suspect transactions, experts say.

Five years ago, Mexican authorities arrested accused money-launderer Rigoberto Gaxiola. Yet, from prison, he continued to wash money for traffickers from Sinaloa, the cradle of Mexican drug-running, as recently as summer, U.S. and Mexican officials say. At that point, the U.S. Treasury Department’s Office of Foreign Assets Control blacklisted Gaxiola along with 17 associates, including his wife and three children, and 14 of his businesses. However, the Mexican government has not made further arrests, shut down the businesses nor announced any other sanctions.

Efforts to obtain comment from officials of the Financial Intelligence Unit or from investigators with the attorney general’s office were unsuccessful.

U.S. officials, meanwhile, worry that money-laundering operations could have deeper security implications.

“Once you’ve set up the scheme, you can launder anything,” a senior U.S. law enforcement official said, speaking on condition of anonymity because of security concerns. “Human slavery, arms trafficking -- even terrorists.”




Previous coverage of Mexico’s drug war is available online.