Mitchell Barth

Mexican Cartel Money Laundering

Background

Mexico is the main supplier of marijuana and a major supplier of

methamphetamine into the United States. An estimated 90% of cocaine entering the
United States transits Mexico.i The cartels in Mexico have a network in the United
States that stretches from coast to coast and encompasses 231 cities, taking in $8.3-
24.9 billion dollars annually.ii The Mexican government reports that there are 7
cartels operating inside its boarders. In addition to the drug trade, the Mexican
cartels are responsible for numerous cases of human and arms trafficking, larceny,
kidnapping, and murder. Despite the efforts of the United States, Mexican cartels
have had success in bringing drugs into the US and extracting money out of the US.
For a cartel, the next step in the puzzle is how to launder the money without it being
noticed.

Non-Bank Methods of Laundering

On May 11th of this year, the Valley Morning Star newspaper published an
article on Mexican cartel money laundering. The newspaper reported that despite
the best efforts of the United States and Mexico, only about 1% of estimated drug
profits were seized. The precise number is 65.1 million dollars. In the same time,
they won only 37 convictions in money-laundering cases, out of 150 suspects
arrested or brought to trial, the records from the Attorney General's Office show.
Since Mexico enacted a highly touted law to seize the properties of drug traffickers
and cartel members nearly two years ago, not a single property has been seized
under the law. "It is typically a several year investigation in order to bring down a
network," said Adam Szubin, director of the U.S. Treasury Department's Office of
Foreign Assets Control. Szubin says drug cartels are now using everything from
soccer teams to beauty salons to launder money, but they particularly like trucking
and small air cargo firms, companies that can move both drugs and proceeds from
the sales. They also like pharmacies because they have both big cash flows and
access to precursor chemicals to make synthetic drugs. U.S. and Mexican authorities
recently said they uncovered a Sinaloa cartel laundering operation led by Jorge
Cifuentes Villa, who owned or controlled 44 companies in Colombia, Mexico, and
Ecuador ranging from an airline and real estate and consulting firms, even a dive
shop.iii

International Banks Turn a Blind Eye

While Mexican cartels are often creative in the way that they launder money,
as exhibited by some examples above, many times they simply outwit and find ways
around or through the US banking laws. Bloomberg News reported in June 2010
that Mexican drug smugglers laundered large amounts of money through Wachovia
Corp. and Bank of America Corp. Wachovia, in particular, was particularly egregious
in either their negligence or apathy. It did little to look for illicit funds in the
handling of $378.4 billion Mexican-currency-exchange houses. In Bank of America’s
case, the cartels used accounts at the bank to buy planes that carried 10 tons of
cocaine. DEA agents caught the cartels depositing funds across the country from
border towns like Brownsville to Midwest cities such as Chicago. The US banks are
not all to blame. European banks, too, have been dubbed or are just simply turning a
blind eye on the cartels as Mexican cartels used shell companies to open accounts in
the HSBS Holdings (Europe’s largest bank by assets).iv That being said, no bank,
according Bloomberg News, has been more closely connected to the cartels than
Wachovia. They failed to set up an effective money-laundering program from 2003-
2008 and have admittedly failed to monitor the $420 billion in transactions through
exchange houses. They were fined $160 million.

Wachovia’s Compliance

Wachovia’s issue was their failure to monitor the casas de cambio. The casas
de cambio, which are not banks, allow people and businesses in Mexico to exchange
or wire transfer the value of currency to bank accounts in the U.S. and other
countries, according to Wachovia’s 12-page factual statement entered with the
deferred-prosecution agreement.v “The nature of the CDC business allows money
launderers the opportunity to move drug dollars that are in Mexico into CDCs and
ultimately into the U.S. banking system,” Wachovia admitted. “Once the drug dollars
were placed into CDCs, they were readily wire transferred into bank accounts of
CDCs at Wachovia.” Wachovia admitted offering correspondent banking services to
22 CDCs through three methods: wire-transferring money on behalf of third-party
customers; accepting bulk cash transfers made by armored cars and other methods;
and accepting checks and traveler’s checks put in pouches or digitally scanned
through “remote deposit capture.” From May 2004 to May 2007, Wachovia
processed at least $373 billion in wire transfers on behalf of CDCs, the bank
admitted. It processed $4.7 billion in bulk cash and $47 billion in RDC deposits for
all correspondent-banking customers, including Mexican CDCs, Wachovia

i
CRS report for Congress, ‘Mexico’s Drug Cartels,’ by Collen W. Cook (analyst in Latin American
Affairs – Foreign Affairs, Defense, and Trade Division)
http://www.statealliancepartnership.org/Resources/CRS%20Report%20to%20Congress%20-
%20Mexico's%20Drug%20Cartels.pdf
ii
U.S. Department of Justice, National Drug Intelligence Center, National Drug Threat Assessment
2007, October 2006.
iii
"Mexico outfits on US money-laundering list thrive. " Valley Morning Star 13 May 2011, ProQuest
Newsstand, ProQuest. Web. 14 Sep. 2011.
iv
Smith, Michael, ‘Banks Financing Mexico Gangs Admitted in Wells Fargo Deal,’ Bloomberg News,
June 28, 2010.
admitted.vi Wells Fargo, Wachovia’s now parent company, has invested $42 million
to improve its anti-money-laundering programs.

Getting Around Anti-Money-Laundering Programs

Even with strict money-laundering programs, cartels find ways are the laws
and are still depositing money in banks. The cartels do things as simple as
burrowing holes underneath the fence that separates US and Mexico (specifically
along the Tijuana border). Couriers take cash from drug sales to Mexico, as much as
$29 million dollars a year according to the US Immigration and Customs
Enforcement.vii They hide it in cars and trucks to smuggle the money into Mexico.
Once in Mexico, the job gets easier. The cartels pay people to deposit some cash in
banks, both Mexican and international. The rest of the money is laundered through
money changers.

Money Changers

Money changers are these street corner stores where one can exchange
currencies. There are thousands of them in Mexico. They are policed by Mexico’s Tax
Service Administration which as no anti-laundering unit. The law in Mexico states
that the money changers have to demand ID from anyone exchanging over $500 and
report transactions higher than $5,000. viii Without any true police force, the cartels
easily circumvent the law, which is not to say that they would actually be stopped if
there were a police force. They literally have legions of people to convert small
amounts of dollars into pesos or to make deposits into local banks. From there,
cartels wire money to multi-national banks.ix

Conclusion

The cartels are creative, dangerous, and rich. They will use almost any means
necessary to smuggle their narcotics into the United States and employ many
different ways of laundering their profits. Most government reports only deal with
figures of how many drugs are coming into the country, how many drug users there
or in the US, and how much the cartels are probably making. The system does not
seem clueless about the money-laundering, just powerless to stop it. Mexico does a
poor job policing money in its borders and its laws lack the muscle necessary to stop
these powerful organizations. Money-changers and CDCs are too easily vulnerable

v
Voreacos, David, ‘Wachovia to Pay $160 Million to End Money Laundering Probe,’ Bloomberg News,
March 18, 2010
vi
Ibid. Most of this paragraph is simply a copy and paste of the Bloomberg News article.
vii
Smith, Michael, ‘Banks Financing Mexico Gangs Admitted in Wells Fargo Deal,’ Bloomberg News,
June 28, 2010.
viii
Ibid.
ix
Vulliamy, Ed, ‘ How a Big US bank laundered billions from Mexico’s murderous drug gangs,’ The
Guardian (UK), April 2, 2011
to laundering and the cartels have so many people at their disposal that they can
avoid detection.