Mexico outfits on US money-laundering list thrive

[May 14, 2011]  MEXICO CITY (AP) -- Business appeared slow on a recent night at the cavernous, marble-lobbied Numero Uno bar.

Neatly uniformed waiters were on hand ready to whisk plates from the extensive menu to dozens of tables; the exhaustive drinks list includes a rare and expensive 18-year-old whisky brand that is reportedly the favorite of Mexican drug lord Joaquin "El Chapo" Guzman.

Yet the owners may not mind that almost all the tables are empty. The U.S. Treasury Department says the Sinaloa cartel uses the Mexico City restaurant and a web of other companies ranging from a cattle ranch to an office supplies store to launder millions of dollars in drug profits each year.

Despite being listed in the U.S. as a money-laundering operation, Numero Uno is still open for business.

"We've really been hurt by the street work going on around here, more than by that list," said one of the bar's waiters, motioning toward a repaving project outside the front door.

In fact, many alleged fronts for drug cartel activity remain open around Mexico, despite the attempts of U.S. and Mexican officials to shut them down.

Experts say that cutting off operations that funnel illegal money into banks and other legitimate businesses is key to winning the country's bloody war against drug cartels. But the Mexican government, hampered by inefficient laws and few investigators, has seized less than 1 percent of the estimated annual $10 to $29 billion in drug profits moving through Mexico, despite recent measures such as strict limits on the use of U.S. dollars in cash.

From 2008 to mid-2010, prosecutors seized only $65.1 million in money laundering proceeds, mainly in dollars, but with smaller amounts in pesos, euros and gold, according to figures obtained by The Associated Press under a freedom-of-information request. 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.

No later figures were immediate available from the office.

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.

Judicial authorities say a mistake in the language of the law requires prosecutors to reveal their entire criminal case against a suspect in civil proceedings to seize his assets, something prosecutors are not willing to do for fear of endangering their cases. Amendments have been proposed to fix that shortcoming.

Mexico also has had limited success at seizing bulk cash shipments. About $100 million in suspect U.S. dollars is seized annually by Mexican inspectors at borders and airports and by police in raids on traffickers' houses, according to a government security report for the period from 2006 to mid-2009.

Experts say that bulk cash seizures are often random or lucky, based on a tip-off or a suitcase inspection. Such seizures yield little intelligence and seldom disrupt the cartels' money network, usually netting only low-level couriers.

The U.S. Foreign Narcotics Kingpin Act bans American businesses from having any dealings with 300 individuals and 180 companies that the Treasury Department's Office of Foreign Assets Control lists as being affiliated with cartels. While the act has helped disrupt some financial networks, it has done little for forfeitures or fines.

The Treasury Department cited only about $20,000 in fines in the last year for U.S. companies violating the ban. And since 2000, only about $15.7 million in accounts of people and businesses on the list has been seized by U.S. authorities.

Now average Mexicans, wearied by more than 35,000 deaths, mainly of low-level operatives in the conflict, are demanding the government go after the financial networks that pay for cartels' guns and assassins. It was one of the main demands by organizers of a march against violence last week that drew tens of thousands to Mexico City's central square.

"They (authorities) have to change their strategy," said Juan Carlos Rivas, 33, a Mexico City businessman who marched in the protest. "They have to go after the gangs' finances. If they don't this is never going to end."

Officials say part of the problem is the complexity and difficulty of money laundering cases.

"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. He apparently remains at large.

In June, Mexico set strict limits on exchanging or depositing dollars in cash, something that appears to be having an effect. But officials say it may be forcing those suspect transactions over Mexico's border into the southwestern United States and Central America.

The new measures limit cash dollar transactions for people who are not bank account holders to $1,500 per month, and $4,000 per month for those with established bank accounts.

Most Mexican banks now refuse to handle dollars in cash at all -- a big change from just a couple of years ago when, as one bank spokesman recalled, people would show up at banks to deposit briefcases full of dollars.

The measures are forcing launderers to move their operations to Central America, where countries -- principally Guatemala and Honduras -- have reported a spike of incoming U.S. cash of about one billion dollars since Mexico imposed the restrictions, according to a high-ranking Mexican official, who was not authorized to be quoted by name for security reasons.

U.S. authorities say they have also received reports of about 700 instances in which suspicious money transfers were changed in an apparent attempt to get around the Mexican restrictions, including attempts to break big cash movements into a series of smaller transfers.

There are also indications that the suspicious transfers are increasingly being sent to banks in the border region on the U.S. side, where dollars can be changed more easily into pesos in towns with large numbers of currency exchanges.

Overall, the Treasury Department says there has been a decline the amount of U.S. cash dollars returned by banks in Mexico to U.S. Federal Reserve offices, a key indicator of the total amount of U.S. dollars moving through Mexico.

The administration of President Felipe Calderon has proposed similar limits on peso cash transactions, banning cash transactions of over 100,000 pesos ($8,500), or cash purchases of real estate.

But congress is still debating that. In a country whereas much as 70 percent of the economy is cash-based or under-the-table, a rule prohibiting cash purchases for big-ticket items could cause significant economic pain.

"You can buy a house, a car, a high-value item today in cash," said Mexican Bankers Association President Luis Robles Miaja. "In Mexico ... a lot of illicit money from drug cartels is laundered simply through commercial transactions, not through banks."

[Associated Press; By MARK STEVENSON and E. EDUARDO CASTILLO]

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