Feds: Tampa car dealer received more than $3 million in Hezbollah-related money-laundering scheme

By Danny Valentine
Times Staff WriterTampa Bay Times

A Tampa used car dealer received more than $3 million from Hezbollah-related organizations as part of a large money-laundering scheme designed to funnel cash to the terrorist group, the U.S. government claims.
Mansour Brothers Auto Trading Inc., which specializes in exporting vehicles, is one of 30 used car dealers that were wired at least $329 million over a four-year period, according to the complaint.
The case, filed late last week by the U.S. Attorney's office for the Southern District of New York, is seeking the seizure of those proceeds — including the $3 million sent to Mansour Brothers, located on Kennedy Boulevard. It follows an investigation led by the U.S. Drug Enforcement Agency.
Mansour Brothers received 40 wire transfers totalling about $3.25 million between 2007 and 2011, according to the complaint. It does not allege that any of the used car dealerships, including Mansour Brothers, knew about the money laundering, and they are not being charged criminally.
Tim Shusta, a Tampa attorney who represents Sammy Mansour of Mansour Bros., said Saturday that his client had no knowledge of the scheme.
He also said the money was wired to buy cars and ship them to Africa. They didn't make a profit of $3 million from the transactions.
"It's not clear to me that they have the right to recover the $3 million," Shusta said.
Federal authorities described the operation this way: Lebanese financial institutions, including a bank and two exchange houses linked to Hezbollah, wired funds to the United States, where the money was used to buy cars. The cars were then shipped to West Africa and sold for cash.
The cash from those car sales was then taken, along with money from drug trafficking and other crimes, to Lebanon. Hezbollah members and supporters were involved at various points, including financing and facilitating the purchase of some of the used cars.
"The intricate scheme laid out in (the) complaint reveals the deviously creative ways that terrorist organizations are funding themselves and moving their money," said Preet Bharara, U.S. Attorney for the Southern District of New York.
Hezbollah is a radical Islamic group that aims to create an Iranian-style Islamic republic in Lebanon. It is strongly anti-Israel and has been linked to bombings at a U.S. embassy and Marine barracks in the 1980s. Hezbollah, which holds about 10 percent of the seats in the Lebanese Parliament, receives weapons, money and organizational support from Iran, according to the U.S. Department of State.
Shusta said his client had no way of knowing that money was being passed to him by anyone who had anything to do with terrorism.
"They are an innocent party in the whole thing," Shusta said. "There are no allegations that allege that our client did anything wrong."
Shusta said Mansour Bros. is a very small company that's been open since 2005.
His client has been living in Tampa for about 30 years, he said.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at http://www.launderingmoney.com/ and on twitter at : http://twitter.com/#!/LaunderingMoney http://moneylaunderingworld.blogspot.com/   and http://launderingmoney.com/

Hezbollah Money Laundering Probe Focuses On Tulsa Car Dealership

Havonnah Johnson,

News 9

The DEA launches an investigation into a multi-million dollar money laundering scheme which starts in Oklahoma and involves Americans helping terrorists.

The scheme begins at used cars lots which are used as a cover for drugs and illegal activity.

Federal agents say it is a complicated scheme to cover the funding of terrorists. It involves 20 states and least 30 used car lots. The investigation is just beginning.

Undercover agents closed in on one used car dealership in Tulsa Friday. It is but one of dozens officials say are involved in a multi-layered money laundering scheme

Fifty-six terrorists groups all over the world are looking for new sources of funding. One of the ways they can find it is through drug sourcing activities.

Here is how it works. Used cars are shipped from the U.S. to several West African countries. After they are sold at a 15- to 20-percent mark-up, the profit goes to Hezbollah. Some money then gets returned to the United States to buy more cars.

In all, 30 domestic companies are being investigated. The red flag for the deal? A small call dealership in Tulsa. Authorities say Ace Auto in Tulsa received more than $20 million in wire transfers.

A joint terrorism task force is looking for more than $480 million dollars from Lebanese institutions.

No one was arrested in Tulsa, but authorities should reveal more in the coming weeks

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at http://www.launderingmoney.com/ and on twitter at : http://twitter.com/#!/LaunderingMoney http://moneylaunderingworld.blogspot.com/   and http://launderingmoney.com/

Beirut Bank Seen as a Hub of Hezbollah’s Financing

By Jo Becker
New York Times

Last February, the Obama administration accused one of Lebanon’s famously secretive banks of laundering money for an international cocaine ring with ties to the Shiite militant group Hezbollah.
Now, in the wake of the bank’s exposure and arranged sale, its ledgers have been opened to reveal deeper secrets: a glimpse at the clandestine methods that Hezbollah — a terrorist organization in American eyes that has evolved into Lebanon’s pre-eminent military and political power — uses to finance its operations. The books offer evidence of an intricate global money-laundering apparatus that, with the bank as its hub, appeared to let Hezbollah move huge sums of money into the legitimate financial system, despite sanctions aimed at cutting off its economic lifeblood.
At the same time, the investigation that led the United States to the bank, the Lebanese Canadian Bank, provides new insights into the murky sources of Hezbollah’s money. While law enforcement agencies around the world have long believed that Hezbollah is a passive beneficiary of contributions from loyalists abroad involved in drug trafficking and a grab bag of other criminal enterprises, intelligence from several countries points to the direct involvement of high-level Hezbollah officials in the South American cocaine trade.
One agent involved in the investigation compared Hezbollah to the Mafia, saying, “They operate like the Gambinos on steroids.”
On Tuesday, federal prosecutors in Virginia announced the indictment of the man at the center of the Lebanese Canadian Bank case, charging that he had trafficked drugs and laundered money not only for Colombian cartels, but also for the murderous Mexican gang Los Zetas.
The revelations about Hezbollah and the Lebanese Canadian Bank reflect the changing political and military dynamics of Lebanon and the Middle East. American intelligence analysts believe that for years Hezbollah received as much as $200 million annually from its primary patron, Iran, along with additional aid from Syria. But that support has diminished, the analysts say, as Iran’s economy buckles under international sanctions over its nuclear program and Syria’s government battles rising popular unrest.
Yet, if anything, Hezbollah’s financial needs have grown alongside its increasing legitimacy here, as it seeks to rebuild after its 2006 war with Israel and expand its portfolio of political and social service activities. The result, analysts believe, has been a deeper reliance on criminal enterprises — especially the South American cocaine trade — and on a mechanism to move its ill-gotten cash around the world.
“The ability of terror groups like Hezbollah to tap into the worldwide criminal funding streams is the new post-9/11 challenge,” said Derek Maltz, the Drug Enforcement Administration official who oversaw the agency’s investigation into the Lebanese Canadian Bank.
In that inquiry, American Treasury officials said senior bank managers had assisted a handful of account holders in running a scheme to wash drug money by mixing it with the proceeds of used cars bought in the United States and sold in Africa. A cut of the profits, officials said, went to Hezbollah, a link the organization disputes.
The officials have refused to disclose their evidence for that allegation. But the outlines of a broader laundering network, and the degree to which Hezbollah’s business had come to suffuse the bank’s operations, emerged in recent months as the bank’s untainted assets were being sold, with American blessings, to a Beirut-based partner of the French banking giant Société Générale.
Of course, a money-laundering operation does not just come out and identify itself. But auditors brought in to scrub the books discovered nearly 200 accounts that were suspicious for their links to Hezbollah and their classic signs of money laundering.
In all, hundreds of millions of dollars a year sloshed through the accounts, held mainly by Shiite Muslim businessmen in the drug-smuggling nations of West Africa, many of them known Hezbollah supporters, trading in everything from rough-cut diamonds to cosmetics and frozen chicken, according to people with knowledge of the matter in the United States and Europe. The companies appeared to be serving as fronts for Hezbollah to move all sorts of dubious funds, on its own behalf or for others.
The system allowed Hezbollah to hide not only the sources of its wealth, but also its involvement in a range of business enterprises. One case involved perhaps the richest land deal in Lebanon’s history, the $240 million purchase late last year of more than 740 pristine acres overlooking the Mediterranean in the religiously diverse Chouf region.
The seller was a jet-set Christian jeweler, Robert Mouawad, whose clientele runs from Saudi royalty to Hollywood royalty. The buyer, at least on paper, was a Shiite diamond dealer, Nazem Said Ahmad.
In fact, according to people knowledgeable about Beirut real estate, the development corporation’s major investor was a relative of a former Hezbollah commander, Ali Tajeddine. The investor, in turn, received money that flowed through the bank from companies the United States has since designated as Hezbollah fronts, and from dealers implicated in the trade in so-called conflict diamonds and minerals, the Americans and Europeans with knowledge of the matter said. The Lebanese Canadian Bank provided a crucial loan.
And the deal fit a pattern, highly controversial in this religiously combustible land, in which entities tied to Hezbollah have been buying up militarily strategic pieces of property in largely Christian areas, helping the movement quietly fortify its geopolitical hegemony.
In a recent interview at his home in Taybeh, just north of the border with Israel — or as the signs here say, “Palestine” — Hezbollah’s chief political strategist and a member of Parliament, Ali Fayyad, denied that his organization was behind the Chouf purchase or other, similar land deals. He dismissed the American drug-trafficking allegations as politically motivated “propaganda,” adding, “We have no relationship to the Lebanese Canadian Bank.” The United States, he said, was simply persecuting innocent Shiite businessmen as a way “to punish us because we won our battle with Israel.”
For the United States, taking down the bank was part of a long-running strategy of deploying financial weapons to fight terrorism. This account of the serpentine, six-year inquiry and what has since been revealed is based on interviews with government, law enforcement and banking officials across three continents, as well as intelligence reports and police and corporate records.
As the case traveled up the administration’s chain of command beginning in the fall of 2010, some officials proposed leaving the Hezbollah link unsaid. They argued that simply blacklisting the bank would disrupt the network while insulating the United States from suspicions of playing politics, especially amid American alarm about ebbing influence in the Middle East. But the prevailing view was that the case offered what one official called “a great opportunity to dirty up Hezbollah” by pointing out the hypocrisy of the “Party of God” profiting from criminal activity.
Certainly the United States had ample cause to want to dirty up Hezbollah, Iran’s armed proxy and a persistent irritant to American interests in a chronically troubled region. (Just last week, in fact, Hezbollah’s long-running feud with the Central Intelligence Agency heated up when the organization broadcast what it said were the names of 10 American spies who had worked in recent years at the embassy in Beirut. )
The time was ripe, too, for taking on Hezbollah — a moment that crystallized its ascent but also its vulnerability. Just weeks before, Hezbollah’s political wing had played Lebanese kingmaker, engineering the fall of Prime Minister Saad Hariri, an American ally, and installing its own choice in his stead. At the same time, though, a United Nations tribunal was preparing to indict Hezbollah members in a spectacular bombing that killed Mr. Hariri’s father, former Prime Minister Rafik Hariri, in 2005.
John O. Brennan, the president’s counterterrorism adviser, recalled the debate in a recent interview. “I thought that if Hezbollah was involved in the drug trade,” he said, “let’s make sure that gets out.”
A State Within a State
Founded three decades ago as a guerrilla force aimed at the Israeli occupation of southern Lebanon, Hezbollah has never before had such a prominent place in the country’s official politics. Yet much of its power, and its ability to operate with some impunity, derives from elsewhere: from its status as a state within the Lebanese state.
Its militia is considerably stronger than the national army. Its social service agencies perform many of the functions of government, and it controls the international airport and the smuggling routes along the Syrian border, as well as the budgets of the government agencies charged with policing them.
In an interview, the chief of Lebanese customs’ drug and money-laundering unit, Lt. Col. Joseph N. Skaf, described a Sisyphean task: Passengers are allowed to bring in unlimited amounts of cash without declaring it. He has only 12 officers to search for drugs, and scanners at the airport and seaport do not work. “My hands are tied,” he said.
That this sliver of a country would be a crossroads for all manner of trade owes much to the flourishing of a worldwide diaspora; more Lebanese live abroad than at home. Through criminal elements in these émigré communities, Hezbollah has gained a deepening foothold in the cocaine business, according to an assessment by the United Nations Office on Drugs and Crime described in a leaked 2009 State Department cable.
From a trafficking standpoint, the émigrés were in the right places at the right time. As demand increased in Europe and the Middle East, the cartels began plying new routes — from Colombia, Venezuela and the lawless frontier where Brazil, Paraguay and Argentina meet, to West African countries like Benin and Gambia. From there, drugs moved north through Portugal or Spain, or east via Syria and Lebanon.
According to Lebanon’s drug enforcement chief, Col. Adel Mashmoushi, one path into the country was aboard a weekly Iranian-operated flight from Venezuela to Damascus and then over the border. Several American officials confirmed that, emphasizing that such an operation would be impossible without Hezbollah’s involvement.
In South America and in Europe, prosecutors began noticing Lebanese Shiite middlemen working for the cartels. But the strongest evidence of an expanding Hezbollah role in the drug trade, that it was not just the passive recipient of tainted money, comes from the two investigations that ultimately led to the Lebanese Canadian Bank.
The trail began with a man known as Taliban, overheard on Colombian wiretaps of a Medellín cartel, La Oficina de Envigado. Actually, he was a Lebanese transplant, Chekri Mahmoud Harb, and in June 2007, he met in Bogotá with an undercover agent for the Drug Enforcement Administration and sketched out his route.
Cocaine was shipped by sea to Port Aqaba, Jordan, then smuggled into Syria. After Mr. Harb bragged that he could deliver 950 kilos into Lebanon within hours, the undercover agent casually remarked that he must have Hezbollah connections. Mr. Harb smiled and nodded, the agent reported.
(Jordanian officials, after extensive surveillance, later told the D.E.A. that the Syrian leg of the shipment was coordinated by a Syrian intelligence officer assigned as a liaison to Hezbollah. From there, multiple sources reported, Hezbollah operatives charged a tax to guarantee shipments into Lebanon.)
Soon the cartel was giving the agent money to launder: $20 million in all. But before Mr. Harb could reveal the entire scheme and identify his Hezbollah contacts, the operation broke down: The C.I.A., initially skeptical of a Hezbollah link, now wanted in on the case. On the eve of a planned meeting in Jordan, it forced the undercover agent to postpone. His quarry spooked. In the end, Mr. Harb was convicted on federal drug trafficking and money-laundering charges, but the window into the organization’s heart had slammed shut.
It was “like having a girl you love break up with you,” one agent said later, adding, “We lost everything.”
A New Target
Actually they had not. Before long, a new target emerged.
A call had come in to a wiretapped phone tied to Mr. Harb and the cartel. The caller had arranged for cocaine proceeds to be picked up at a Paris hotel and laundered back to Colombia. The meeting turned out to be a sting.
“He says, ‘I just lost a million euros in France,’ ” recalled one of the agents listening in. “The way he talked — no one loses a million euros and is so nonchalant about it. Usually, there are bodies in the street.”
Agents had known that there was a major money launderer whose phone sat in Lebanon. Now they had a name: Ayman Joumaa, formerly of Medellín, now owner of the Caesars Park Hotel in Beirut. He was a Sunni Muslim, but cellphones seized at the Paris hotel linked him to Shiites in Hezbollah strongholds in southern Lebanon, according to Interpol records.
He was also known to Israeli intelligence. Israeli intercepts showed him in contact with a member of Hezbollah’s “1,800 Unit,” alleged to coordinate attacks inside Israel. Mr. Joumaa’s contact, in turn, worked for a senior operative who the Israelis believed handled Hezbollah’s drug operations.
His name was Abu Abdallah, and he had popped up in the Harb wiretaps, too: At one point, as Mr. Harb was complaining about “the sons of whores I owe money to,” a relative from his hometown warned that the “people of Abu Abdallah, the people we do not dare have problems or fight with,” were looking for him, wanting money.
Eventually an American team dispatched to look into Mr. Joumaa’s activities uncovered the used-car operation. Cars bought in United States were sold in Africa, with cash proceeds flown into Beirut and deposited into three money-exchange houses, one owned by Mr. Joumaa’s family and another down the street from his hotel. The exchanges then deposited the money, the ostensible proceeds of a booming auto trade, into the Lebanese Canadian Bank, so named because it was once a subsidiary of the Royal Bank of Canada Middle East.
But the numbers did not add up. The car lots in the United States, many owned by Lebanese émigrés and one linked to a separate Hezbollah weapons-smuggling scheme, were not moving nearly enough merchandise to account for all that cash, American officials said. What was really going on, they concluded, was that European drug proceeds were being intermingled with the car-sale cash to make it appear legitimate.
Hezbollah received its cut either from the exchange houses, or via the bank itself, according to the D.E.A. And the Treasury Department concluded that Iran also used the bank to avoid sanctions, with Hezbollah’s envoy to Tehran serving as go-between.
In Washington, after a long debate over when to act and what to make public, the administration decided to invoke a rarely used provision of the Patriot Act. Since the bank had been found to be of “primary money-laundering concern,” the Treasury Department could turn it into an international pariah by forbidding American financial institutions to deal with it. President Obama was briefed, and on Feb. 10, Treasury officials pulled the trigger.
As for Mr. Joumaa, the indictment announced Tuesday goes beyond the Europe-based operation outlined in the Lebanese Canadian Bank case. It charges him with coordinating shipments of Colombian cocaine to Los Zetas in Mexico for sale in the United States, and laundering the proceeds.
Whether he will ever face trial is an open question. The United States has no extradition treaty with Lebanon, and Mr. Joumaa’s whereabouts are unknown. He did not respond to several messages left at his hotel by The New York Times. Around Beirut, rumors abound.
Growing Skepticism
The Americans had identified only a handful of drug-tainted accounts at the Lebanese Canadian Bank. The search for further trouble began over the summer, after the Société Générale de Banque au Liban, or S.G.B.L., agreed to buy the bank’s assets.
As part of its own agreement with Treasury officials, Lebanon’s Central Bank set up a process to scrub the books. But compliance officers at S.G.B.L.’s French partner, Société Générale, were skeptical of the Central Bank’s choice of investigators. One of them, the local affiliate of the international auditing firm Deloitte, had presumably missed the drug-related accounts the first time around, when it served as the Lebanese Canadian Bank’s outside auditor.
And, according to people knowledgeable about Lebanese banking, the central bank’s on-the-ground representative had been recommended to that post by Hezbollah.
As an extra step, to reassure wary international banks, the chairman of S.G.B.L., Antoun Sehnaoui, commissioned a parallel audit, with the help of Société Générale’s chief money-laundering compliance officer. And to make sure that his bank did not run afoul of Treasury officials by inadvertently taking on dirty assets, he also hired a consultant intimately familiar with the Patriot Act provision used to take the bank down: John Ashcroft, the former attorney general whose Justice Department wrote the law.
Identifying suspicious accounts is not a subjective business. Banks rely on internationally recognized standards and software that contains certain triggers.
For the assets of the Lebanese Canadian Bank, the process worked this way, according to the Americans and Europeans knowledgeable about the case:
Initially, the auditors looked only at records for the past year. As they began combing through thousands of accounts, they looked for customers with known links to Hezbollah. They also looked for telltale patterns: repeated deposits of vast amounts of cash, huge wire transfers broken into smaller transactions and transfers between companies in such wildly incongruous lines of business that they made sense only as fronts to camouflage the true origin of the funds.
Each type of red flag was assigned a point value. An account with 1 or 2 points on a scale to 10 was likely to survive. One with 8 or 9 cried out for further scrutiny. Ultimately, the auditors were left with nearly 200 accounts that appeared to add up to a giant money-laundering operation, with Hezbollah smack in the middle, according to American officials. Complex webs of transactions featured the same companies over and over again, most of them owned by Shiite businessmen, many known Hezbollah supporters. Some have since been identified as Hezbollah fronts.
At the center of many of these webs were companies trading in diamonds, which experts say are fast replacing more traditional money-laundering vehicles because they are easy to transport and are generally traded for cash. Large transactions leave no paper trail, and values can be altered through bogus transactions. A number of these dealers had been implicated in the buying of “conflict diamonds” and other minerals used to finance civil wars and human-rights abuses in Africa.
In some cases, money moved in amounts — tens of millions of dollars at a clip — that made no sense, given the business models and potential sales of the companies involved.
“It’s like these guys no one had ever heard of became the most successful multimillionaires overnight,” said one person with knowledge of the investigation. “It’s Hezbollah’s money.”
Mr. Sehnaoui closed the deal in September. He declined to discuss details, but said: “We bought certain assets of the Lebanese Canadian Bank, and only the clean ones. We did not take any even slightly questionable clients.”
Lawyers for Mr. Ashcroft’s firm said all the problematic accounts had been excised, even though it meant losing nearly $30 million a year in interest and fees. “As current and potential problems have been uncovered, he has not hesitated to act,” Mr. Ashcroft said of his client.
From the Treasury Department’s perspective, the case is a victory, albeit an incremental one, in the battle against terrorism financing. Lebanon’s Central Bank showed that it was willing to shut down the Lebanese Canadian Bank and sell it to a “responsible owner,” said Daniel L. Glaser, assistant Treasury secretary for terrorism financing. An important avenue to Hezbollah has been blocked.
Still, Treasury officials have no illusions that their work here is done. From the beginning, the blacklisting was also intended as a wider warning to a banking industry that, with secrecy to rival the Swiss, forms the backbone of Lebanon’s economy: henceforth, other bankers did business with Hezbollah at their peril.
“What the Central Bank hasn’t fully demonstrated, and the jury is still out, is whether they will use this as a launching pad to ensure that these illicit actors aren’t migrating elsewhere,” Mr. Glaser said.
The signs are not terribly encouraging. The Central Bank governor, Riad Salameh, cut short an interview when asked about the aftermath of the American action, calling it an “old story.” As for those nearly 200 suspect accounts, Mr. Salameh would only say that he does not involve himself in such commercial questions.
Privately, he has played down the findings to the Treasury Department, attributing much of the suspicious activity to peculiarities in the way business is done in Africa. Those accounts he did deem problematic, he told the Americans, have been referred to Lebanon’s general prosecutor. But the prosecutor refused to comment, and his deputy, who handles money-laundering inquiries, said last week that he had received nothing.
In fact, as Treasury officials acknowledge, on Mr. Salameh’s watch, most of the accounts were simply transferred to several other Lebanese banks.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at http://www.launderingmoney.com/ and on twitter at : http://twitter.com/#!/LaunderingMoney http://moneylaunderingworld.blogspot.com/   and http://launderingmoney.com/

12 charged with laundering money from behind prison bars

By Jennifer van der Kleu

     

The Santa Clara County District Attorney’s Office, in partnership with the Santa Clara County Sheriff’s Department, has uncovered a money laundering scheme within the walls of the Milpitas-based Elmwood Correctional Facility  that has left 34 victims with a total of $17,000 in losses.
According to County District Attorney Jeffrey Rosen and Deputy District Attorney Tom Flattery, an Elmwood inmate identified as 26-year-old Darin Volk of Turlock headed up the scheme with 11 others.
Volk allegedly enlisted the help of fellow inmates for the use of their commissary and telephone accounts to launder money obtained from stolen credit card accounts. Commissary accounts are given to inmates in prison and allow them to either deposit funds they earn from prison jobs, or allow friends and family to deposit funds for them, which can then be used to purchase items from the prison’s commissary store. Inmates can also authorize friends and family on the outside to withdraw money from their commissary accounts.
According to the District Attorney’s Office, one of Volk’s co-conspirators on the outside, Brian Hoar of Turlock, used stolen credit card accounts to deposit money into the commissary and telephone accounts of Volk and several other inmates.
Volk would then direct three other co-conspirators—Heather Murphree of Turlock, Shanna Conroy of San Jose, and Jaimelynn Sakoda of San Jose—to withdraw a portion of the funds from the inmate accounts. If the inmates authorized the withdrawals from their accounts, they were rewarded by retaining the remainder of the funds, as payment for their cooperation.
“Jail personnel followed standard procedure and issued Santa Clara County checks to the three women without knowing that the accounts had been funded by fraud,” District Attorney Rosen said in a statement about the case.
Volk and his co-conspirators are being charged with conspiracy to commit identity theft, and identity theft.
Rosen also said that Volk and several others are being charged with “conspiracy to possess a cell phone in jail,” which is a crime.
“It is also alleged that, for a short time, Volk and other inmates had the use of a contraband cell phone inside the Elmwood facility,” said Rosen.
From April 24 to May 3, of this year, Rosen explained that the contraband cell phone was used to make 1,375 unauthorized calls from within jail, including 367 calls placed to online retailers, banks and shipping businesses.
“It is alleged that Volk arranged fraudulent commissary trust account deposits as payment for access to the contraband cell phone,” Rosen said.
The Elmwood money laundering scheme is not Volk’s first foray into the world of identity theft—the District Attorney’s Office said that, at the time he committed these crimes, Volk was serving time at Elmwood for a large-scale, multi-jurisdictional, counterfeit credit card manufacturing scheme.
For his part in the money laundering scheme, Volk faces an additional 25 years of local incarceration. Deputy District Attorney Flattery says Volk has been arraigned, and all of the defendants are scheduled to appear in court for a plea date on Wednesday, Dec. 21.
This case comes on the heels of a big announcement California Attorney General Kamala Harris is expected to make today in San Jose, regarding a new task force she is forming dedicated to investigating technology crimes and identity theft.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at:


 www.launderingmoney.com
 and on twitter at : http://twitter.com/#!/LaunderingMoney
 http://moneylaunderingworld.blogspot.com/
 http://launderingmoney.com/

Alert over rise of ‘money mules’ used to launder criminals’ cash

Criminals  are increasingly using “money mules” to launder cash through bank accounts, new research has revealed.

Often those who get involved are innocently lured into the practice without realising they are being duped by criminals to pay money into their personal accounts and transfer it on, allowing illegal gains to disappear into the system.
Sometimes those involved know exactly what is happening but there are concerns fraudsters are persuading innocent people to do personal favours or are offering what appears to be a genuine job to people in return for a small fee but, in fact, they are laundering cash.
In a recent development, the UK’s fraud prevention service said companies are also being used, with crooks hijacking an established name to dupe victims into illegally moving money under the pretext they will be working for the well-known company.
Sending emails and other information claiming to be from an established firm with a good name encourages the victim to believe they are being paid to do a genuine role.
Often those carrying out the frauds only realise what has been going on when they are contacted by their bank. By this time the fraudster has disappeared and the victim is left to shoulder the blame and persuade the authorities he or she had no idea what was going on.
One such student, who cannot be identified, answered a job advert on the internet for staff needed to work at home.
“Obviously, extra amounts of money for only a few hours work per week from home seemed ideal,” she said. “I never questioned it, as there seemed nothing untoward: I would be a sales and delivery agent for some legitimate goods, working for a small company.
“For arranging some ‘sales’ and sending the goods, I’d receive a cheque for pay and costs, and then forward money to my ‘employer’. The first few months were fine when – after a very successful month – I got a phone call from my bank saying that the cheque for my pay and costs that had just been paid in was fraudulent and investigations had proved that the account from which it was drawn was fraudulent too.
“I was out of pocket and suspected of being ‘in on it’ of course.”
Figures from Cifas, the UK’s fraud prevention service, show there has been a 12 per cent hike in the numbers of accounts legitimately obtained but later used fraudulently, in the first ten months of this year, in comparison with 2010. Over the same period there has been a six per cent increase in the misuse of personal current accounts.
Cifas says a large proportion of these frauds display the hallmarks of money laundering.
In one recent case the boss of a well-established travel company discovered that crooks had hijacked her company’s good name, sending out emails claiming to be from her company, giving the impression the victim was working for her.
She said: “Although they’re using my corporate and not my personal details to defraud another company, the situation is practically identical: duping others into acting criminally under the pretence of working for me. All, of course, using the internet – making it even harder to track the culprits down and stop them.”
Richard Hurley, Cifas communication manager, said: “Whether they are referred to as scams or frauds, the effect is the same: people are duped into committing fraud. This often leaves the innocent victim who acted as the mule needing to prove that they were duped. This can be a truly traumatic experience for the mule victim: committing fraud can have some very serious consequences, as businesses have a regulatory and commercial requirement to suspend or close accounts that are involved in fraud.
Mr Hurley added: “Being asked to receive and then pay monies while keeping a fee for your services – whether for an individual or company – will almost always prove to be nothing more than a scam designed to use your good name and financial records to mask someone else’s criminal greed. And it is the mules, even the innocent ones, not the fraudsters, who are left to sort out the consequences.”

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at http://www.launderingmoney.com/ and on twitter at : http://twitter.com/#!/LaunderingMoney http://moneylaunderingworld.blogspot.com/   and http://launderingmoney.com/

Leader of Zapata drug trafficking, money laundering organization convicted

By Jim Kouri,

Public Safety Examiner

Pedro Navarro Jr., of Zapata, Texas, pleaded guilty Thursday before U.S. Magistrate Judge Guillermo Garcia to his roles in distributing marijuana and methamphetamine and then laundering proceeds from those drug sales.

The 36-year old Navarro is the leader of a drug trafficking and money laundering organization operating out of the Zapata, Texas, area from approximately June 2006 through June 2011.

During his plea hearing Thursday, Navarro admitted that between February 2008 and June 2011, he was responsible for transporting numerous shipments of controlled substances from the Zapata area to other parts of Texas and beyond.

Some of these drug shipments were interdicted by law enforcement, including numerous loads of marijuana totaling thousands of kilograms and approximately five kilograms of methamphetamine which was seized in Beasley, Texas, on April 5, 2011.

During his plea hearing, Navarro also confessed to being a member and leader of the drug trafficking conspiracy responsible for these marijuana and methamphetamine loads. In addition to being responsible for transporting drugs, he also admitted he used a residence on Falcon Lake to store the marijuana after it had been smuggled from Mexico into the United States.

This marijuana would normally be ferried across the lake from Mexico at night in small boats, which would pull up to his residence on the lake where individuals would then unload the marijuana. Later, Navarro would then ensure the marijuana was loaded into passenger vehicles at the residence which would be driven to wherever the drugs were destined

Navarro also admitted that he conspired with others to launder money, which represented the proceeds of his drug trafficking. He agreed to transport large amounts of United States currency, which were the proceeds of drug trafficking, from the Zapata area to Mexico, and did so with the intention of promoting the continued operation of his drug trafficking business.

Navarro specifically agreed to help transport this money to Mexico, where it would be given to other members of the drug trafficking and money laundering conspiracies.

These persons provided the drugs which were being trafficked as well as provided them the money in question, thereby ensuring their illegal drug trafficking business would continue in operation. One of the specific loads of money for which Navarro was responsible included approximately $23,425 seized at or near Hebbronville, Texas, on March 9, 2010.

Navarro also used some of the proceeds he made from drug trafficking to build a residence in Zapata. During the course of the drug trafficking conspiracy, the members of conspiracy were responsible for generating proceeds from that activity in the amount of at least $18 million.

Navarro's sentencing date has yet to be scheduled.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at http://www.launderingmoney.com/ and on twitter at : http://twitter.com/#!/LaunderingMoney http://moneylaunderingworld.blogspot.com/   and http://launderingmoney.com/

Anti Money Laundering report on Cyprus published

Property and precious metals and stones dealers may be undermining efforts to prevent money laundering in Cyprus, according to a new report.
The findings of the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) are published today.
The MONEYVAL report states: “Concerns remain that real estate and dealers in precious metals and stones may not be fully implementing the anti-money laundering requirements.
The committee does welcome additional measures taken by Cypriot authorities to fight money laundering and the financing of terrorism. It notes also the increased number of convictions for money laundering, together with helpful case law on the freezing and confiscation of assets.
The MONEYVAL report also confirms that the country’s financial sector appears to be adequately monitored but notes “the noticeable decrease in the past years of the number of on-site visits in some parts of the financial sector is of concern.” The full report can be seen HERE

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at http://www.launderingmoney.com/ and on twitter at : http://twitter.com/#!/LaunderingMoney http://moneylaunderingworld.blogspot.com/   and http://launderingmoney.com/

Nigeria tops List of Money Laundering Nations

By Agaju Madugba
Daily Champion

Nigeria is leading seven other West African countries with highest rate of money laundering.

A report by the Inter-Governmental Action Group Against Money Laundering in West Africa (GIABA) in 2010 put Nigeria on the top of seven countries of the region which lose an estimated sum of US$73 billion (about N11.6 trillion) annually through laundering of illicit money from the national economies of the affected countries.
"Nigeria is by far the dominant driver of illicit flows from the sub-Saharan region and Nigeria's influence is also behind illicit flows from the group of fuel exporters," pioneer Director of the United Nations African Institute for the Prevention of Crimes (UNAFR), Prof Femi Odekunle, said yesterday.
Odenkule spoke in Zaria at GIABA's annual public lecture on Anti-Money Laundering and Combating the Financing of Terrorism, at the Ahmadu Bello University (ABU).
A breakdown of the figure shows that the countries lose US$43 billion and US$20 billion via tax evasion and corruption respectively and US$2 billion and US$612 million via drug trafficking and private sector fraud respectively while another sum off US$280 million is lost through human trafficking and related crimes.
He said: "The direct impact of money laundering is that it deprives the local economies of urgently-needed funds for development and it drains hard currency reserves, heightens inflation, reduces tax collection, cancels investment and undermines free trade."
He said efforts to reduce poverty and boost economic growth will continue to be thwarted as long as illicit capital continues to flow out of poor African countries.
In his address, GIABA Director-General, Dr. Abdullahi Shehu, said the annual lectures on money laundering and terrorism financing at tertiary institutions across the region were designed to ensure that a large segment of the population is sensitized on the effects of money laundering and terrorism financing.
He said: "The establishment of GIABA is one of the main responses and contributions of ECOWAS in the fight against money laundering and terrorist financing in the sub-region.
"Over the past several years, political upheavals due to resource control or simple greed have left many parts of the region in total chaos, with resources for reconstruction inadequate or unavailable.
"Within the framework of its 2011-2014 Strategic Plans, GIABA accords the promotion of strategic partnerships with stakeholders, including the civil society organizations, the media and development partners".

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at http://www.launderingmoney.com/ and on twitter at : http://twitter.com/#!/LaunderingMoney

Money Laundering Crackdown Flounders in Mexico, But Does it Really Matter?

By Patrick Corcoran

Insight Crime

Despite a gathering consensus around the idea of making financial ops a key part of Mexico's anti-drug strategy, cracking down on money laundering will never be able to make a real impact on organized crime in the country.A series of articles published by the Los Angeles Times last weekend illustrate how Mexican criminal groups use the global system to move billions of dollars from the U.S. to Mexico on an annual basis, with both governments thus far unable to make much of a dent in the illicit flow of cash.

As the Los Angeles Times reports:

Even President Felipe Calderon, who sent the army into the streets to chase traffickers after taking office in 2006, an offensive that has seen 43,000 people die since, concedes that Mexico has fallen short in attacking the financial strength of organized crime.

"Without question, we have been at fault," Calderon said during a meeting last month with drug-war victims. "The truth is that the existing structures for detecting money-laundering were simply overwhelmed by reality."

The report also delivers a series of statistics demonstrating the government's failure to crack down on the proceeds of the drug trade. According to the articles’ authors, the amount of illicit cash seized by Mexican authorities peaked in 2008 at $71.4 million. The figure dropped to less than $60 million in 2009, $24 million in 2010, and the government is on pace to seize just $12 million this year. Estimates of the amount of cash laundered in Mexico run from roughly $10 billion to $45 billion annually, which suggests that in its best year in recent memory, the government was able to seize, at best, no more than 0.7 percent of all the illicit cash in the country.

In light of these statistics, the logical conclusion might be that neither the U.S. nor the Mexican government is doing enough to tamp down on money laundering. However, it’s also worth considering another possibility: the figures are so paltry because anti-money laundering (AML) efforts are exceedingly difficult, which makes it unlikely that AML will ever be a significant tool in the fight against organized crime. Therefore, increasing the government resources dedicated to cracking down on dirty money could divert resources away from more fruitful methods of attacking criminal groups.

The impediments to tracking illicit money were documented for InSight Crime by Alejandro Hope several weeks ago: the small size of the drug trade relative to the economy as a whole -- Mexico’s annual GDP is more than a trillion dollars in nominal terms, and almost $1.6 trillion by purchasing power parity -- makes tracking dirty money akin to searching for a needle in a haystack. Furthermore, the fact that gangsters cannot finance their purchases on credit means that they need to immediately reinvest a high proportion of their revenues to keep themselves in operation. This further reduces the amount of dirty money laundered in the legal economy, and further complicates AML efforts.

Another problem is the size of the informal economy. The IMF, for instance, estimates that 30 percent of Mexico’s economy is informal, and other Latin American nations have a similarly high rate. Such a huge space for cash-only, virtually untraceable transactions offers a ready sanctuary for gangs looking to hide the proceeds of drug sales. Not coincidentally, one of the more significant criminal trends in recent years is gangs like the Zetaa increasingly involving themselves in pirate merchandising.

As the LA Times reported, trade between Mexico and the U.S. provides another avenue for gangs looking to pass illicit cash across the border. But with legitimate commerce between the two nations estimated at $400 billion annually, the playing field will always be tilted toward the gangsters who want to move tens of thousands of dollars at a time.

Even beyond the operational obstacles to cracking down on criminal revenues, there are conceptual problems. Neither Mexico nor the U.S. government has adequately defined the goal of AML: is it to reduce the amount of revenues, or is it to dismantle existing gangs?

If it is merely to reduce the profits, it’s worth noting once again the tiny size of the amounts seized thus far. Is the legislation being proposed going to lead to exponentially larger amounts of dirty cash being seized? The seems an unlikely result. This doesn’t make stricter AML laws a bad idea, but government officials and analysts alike would do well to temper their enthusiasm and weigh the potential benefits against the costs to the legitimate economy.

If the primary goal is to dismantle existing groups, then the question becomes whether AML is successful where other law enforcement tactics -- infiltrating smuggling networks, electronic surveillance, etc. -- fail to bring about a criminal group’s demise. While there may be some isolated instances of this dynamic, they are the exception rather than the rule. In any event, no one arguing for stronger AML provisions is making this case.

An alternative argument for AML laws is that captured criminals and their families should be prevented from enjoying ill-gotten wealth. This may be valid, but it means that attacking dirty money is essentially an after-the-fact, punitive measure rather than the head of the law enforcement spear.

Many analysts point to crackdowns on terrorist financing as evidence of the AML’s potential for organized crime, but there is an important difference between the two: money is a terrorist group’s means to the end, i.e. launching terrorist attacks. Governments do not worry about terrorist groups having large bank accounts, per se, but rather about them being more able to carry out attacks on civilians. AML efforts reduce the ability of terrorist groups to kill civilians, even if they don’t necessarily lead to prosecutions.

The dynamic with organized crime groups is fundamentally different. A large bank account is the end in and of itself for a capo like Joaquin Guzman, alias "El Chapo." Therefore, attacking his assets doesn’t reduce his ability to harm society the way it does for a terrorist boss. If anything, in fact, it does the opposite; a capo could very well compensate for a marginal reduction in his profits by ramping up production of illegal drugs and flooding the market with more merchandise.

Most of the contenders for the 2012 Mexican presidential election --including the overwhelming favorite, Enrique Peña Nieto -- have also paid lip service to the idea that stronger AML efforts are a vital part of the next administration’s security strategy. From the standpoint of politics, this makes sense; calling on the government to go after the criminals’ financial networks sounds determined and serious. But advocates of AML have made little effort to justify what remains a relatively novel and untested approach.

With regard to stopping money laundering, neither the "how" nor the "why" have been fully answered.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at www.launderingmoney.com and on twitter at : http://twitter.com/#!/LaunderingMoney

Relatives of former soft drink maker found guilty of money laundering

The wife and son of the former head of bankrupt soft drink maker Le-Nature’s were found guilty Tuesday of laundering millions of dollars to buy expensive diamonds, sapphires and even patio furniture.
Karla S. Podlucky was convicted of three money laundering counts but was found not guilty of conspiracy and another money laundering count. Her 30-year-old son, G. Jesse Podlucky, was convicted of one count of conspiracy and four counts of money laundering.
Defense attorneys had argued that Karla Podlucky was a stay-at-home mom and her son a lower-level employee who didn’t know about the widespread fraud at Le-Nature’s, which went bankrupt in 2006, idling 240 workers. The jury heard over three weeks of testimony in the case.
Former CEO Gregory Podlucky was sentenced last month to 20 years in prison for a massive fraud scheme that vastly overstated the company’s revenues so the Latrobe-based Le-Nature’s could get $800 million in loans. Meanwhile, prosecutors said, Podlucky looted the company and underreported his income. Authorities said $33 million was siphoned off to buy jewelry for Karla Podlucky.
Assistant U.S. Attorney James Garrett said the family tax returns showed income that could not support the massive jewelry collection.
Garrett said the suspicious ways the defendants handled various transactions — moving money through multiple accounts, buying a car out of state, using different post offices and addresses — seemed to give the jury enough circumstantial evidence to conclude that the family members knew the money came from fraud.
The Podluckys will be sentenced April 26 and are free on bond, with electronic monitoring.


Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at http://www.launderingmoney.com/ and on twitter at : http://twitter.com/#!/LaunderingMoney

Internet escort companies charged with money laundering

The United States Attorney's Office for the Middle District of Pennsylvania announced that Philadelphia-based corporations, R.S. Duffy, Inc. and National A-l Advertising, Inc., pleaded guilty on Nov. 22 in federal court in Williamsport before United States District Court Judge Christopher C. Conner.
Pursuant to a plea agreement with the Government National A-1 Advertising and R.S. Duffy pleaded guilty to the money laundering conspiracy charge in the Information, will serve a probation term of 18 months, and pay a $1,500,000 fine.
In addition, under the terms of the plea agreement, the defendants agreed to the criminal forfeiture of $4.9 million in cash derived from the unlawful activity, as well as forfeiture of the domain name. Escorts.corn, all of which represent property used to facilitate the commission of the offenses.
Sentencing has been scheduled for March 1, 2012.
According to United States Attorney Peter J. Smith, on November 1, 2011, an Information was filed in Williamsport, alleging that the corporate defendants operated an Internet enterprise called Escorts.corn which facilitated interstate prostitution activities.
The defendants developed and operated an Internet web site, using the domain name Escorts.corn, and created an on-line network for prostitutes, escort services, and others to advertise their illegal activities to consumers and users of those services.
The defendants received subscription fees and payments in the form of money orders, checks, and credit card credits, and wire transfers from users of Escorts.corn throughout the nation.
The funds the defendants received were the proceeds of violations of federal laws prohibiting interstate travel in aid of racketeering enterprises, specifically prostitution, and aiding and abetting such travel.
The money laundering conspiracy charge alleged that the defendants agreed to engage in monetary transactions in property of a value greater than $10,000 derived from those unlawful activities. In addition, the Information alleged that in connection with the operation of Escorts.corn, the defendants created and maintained a network of Internet customer service accounts which facilitated and caused the transfer and movement of the proceeds of these unlawful activities from locations throughout the United States, including the Middle District of Pennsylvania, to the defendants' business operations at 106 South 7th Street in Philadelphia and to the defendants' accounts at financial institutions, investment funds, and financial services providers.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at www.launderingmoney.com and on twitter at : http://twitter.com/#!/LaunderingMoney

International banks have aided Mexican drug gangs

 

 

Raul Salinas de Gortari, brother of former President Carlos Salinas de Gortari, used a maze of accounts in New York-based Citibank and other U.S. banks to secretly transfer millions of dollars to Switzerland in the 1980s and '90s, when he was employed as a middle-ranking bureaucrat.

Despite strict rules, some banks have failed to 'know their customer' or ask about the source of large amounts of cash, allowing billions in dirty money from Mexico to be laundered.

By Tracy Wilkinson and Ken Ellingwood,
Los Angeles Times

Money launderers for ruthless Mexican drug gangs have long had a formidable ally: international banks.

Despite strict rules set by international regulatory bodies that require banks to "know their customer," make inquiries about the source of large deposits of cash and report suspicious activity, they have failed to do so in a number of high-profile cases and instead have allowed billions in dirty money to be laundered.

And those who want to stop cartels from easily moving their money express concern that banks that are caught get off with a slap on the wrist.

Banking powerhouse Wachovia Corp. last year agreed to pay $160 million in forfeitures and fines after U.S. federal prosecutors accused it of "willfully" overlooking the suspicious character of more than $420 billion in transactions between the bank and Mexican currency-exchange houses — much of it probably drug money, investigators say.

Federal prosecutors said Wachovia failed to detect and report numerous operations that should have raised red flags, and continued to work with the exchange houses long after other banks stopped doing so because of the "high risk" that it was a money-laundering operation.

Wachovia was moving money on behalf of the exchange houses through wire transfers, traveler's checks, even large hauls of bulk cash, investigators said. Some of the money was eventually traced to the purchase of small airplanes used to smuggle cocaine from South America to Mexico, they said.

"Wachovia's blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations," U.S. Atty. Jeffrey H. Sloman said in announcing the case last year, hailed at the time by authorities as one of the most significant in stopping dirty money from contaminating the U.S. financial system.

Wachovia paid the $160 million in what is called a deferred-prosecution agreement; no one went to prison, and the fines represented a tiny fraction of the money the bank had filtered. In court documents cited by the U.S. Drug Enforcement Administration, Wachovia acknowledged serious lapses.

In a similar case, another banking giant, HSBC Bank, is being monitored by U.S. regulators after a probe last year focused on bulk cash that the bank's U.S. branch received from Mexican exchange houses, money suspected to be drug proceeds.

One of the regulators, the U.S. Office of the Comptroller of the Currency, said HSBC had "critical deficiencies" in its 2006-2009 reporting of suspicious activities and its monitoring of bulk-cash transfers.

The OCC issued a cease-and-desist order against HSBC, noting, "The bank's compliance program and its implementation are ineffective, and accompanied by aggravating factors, such as highly suspicious activity creating a significant potential for unreported money-laundering or terrorist financing."

After U.S. federal prosecutors issued grand jury subpoenas, some believed that regulators might try to use the HSBC case to set an example and prosecute individual bankers. Instead, HSBC agreed to strengthen its compliance program and has said it is cooperating with investigators, without acknowledging wrongdoing, part of a so-called consent order.

Bryan Hubbard, a spokesman for the OCC, said last month that "OCC examiners continue to monitor actions by the bank to correct deficiencies and comply with that [consent] order."

In Mexico, authorities say they have taken steps to control and monitor money-laundering. Banking regulations in force since 1997 require reporting and canceling of suspicious accounts, and additional measures last year that put limits on dollar deposits in banks further tightened the restrictions.

"We have been able to establish a system of prevention that is quite robust," Jose Alberto Balbuena, head of the Finance Ministry's Financial Intelligence Unit, said in an interview. "We have a much clearer picture today of what dollars are entering the financial system, where they came from, where they are."

The restrictions have also forced traffickers and their launderers to channel more money into other sectors, such as real estate and commerce, avoiding banks altogether. Mexican and U.S. officials are looking to plug those gaps.

Complicity by banks has a deep history that still resonates in Mexico.


U.S. congressional investigators alleged that Raul Salinas' wife personally carried check after check to the bank, where Citibank executives asked no questions — despite rampant rumors that linked Salinas to drug lords, and even when Salinas was held on charges that he masterminded the assassination of a top politician. The Salinases claimed that they were victims of a political persecution, the Justice Department and Switzerland investigated, and there were calls for reform of banking secrecy laws.

No criminal charges of money-laundering or illicit enrichment were filed against Salinas. He is a free and wealthy man today. In 2008, Switzerland, which had frozen his bank accounts, returned most of the money.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at http://www.launderingmoney.com/ and on twitter at : http://twitter.com/#!/LaunderingMoney

Mexico seeks to fill drug war gap with focus on dirty money

By Ken Ellingwood and Tracy Wilkinson,
Los Angeles Times

The evolving anti-laundering campaign could change the tone of the Mexican government's battle by striking at the heart of the cartels' financial empire, analysts say.

Tainted drug money runs like whispered rumors all over Mexico's economy — in gleaming high-rises in beach resorts such as Cancun, in bustling casinos in Monterrey, in skyscrapers and restaurants in Mexico City that sit empty for months. It seeps into the construction sector, the night-life industry, even political campaigns.

Piles of greenbacks, enough to fill dump trucks, are transformed into gold watches, showrooms full of Hummers, aviation schools, yachts, thoroughbred horses and warehouses full of imported fabric.

Officials here say the tide of laundered money could reach as high as $50 billion, a staggering sum equal to about 3% of Mexico's legitimate economy, or more than all its oil exports or spending on prime social programs.

Mexican leaders often trumpet their deadly crackdown against drug traffickers as an all-out battle involving tens of thousands of troops and police, high-profile arrests and record-setting narcotics seizures. The 5-year-old offensive, however, has done little to attack a chief source of the cartels' might: their money.

Even President Felipe Calderon, who sent the army into the streets to chase traffickers after taking office in 2006, an offensive that has seen 43,000 people die since, concedes that Mexico has fallen short in attacking the financial strength of organized crime.

"Without question, we have been at fault," Calderon said during a meeting last month with drug-war victims. "The truth is that the existing structures for detecting money-laundering were simply overwhelmed by reality."

Experts say the unchecked flow of dirty money feeds a widening range of criminal activity as cartels branch into other enterprises, such as producing and trading in pirated merchandise.

"All this generates more crime," said Ramon Garcia Gibson, a former compliance officer at Citibank and an expert in money-laundering. "At the end of the day, this isn't good for anyone."

Officials on both sides of the border have begun taking tentative steps to stem the flow of dirty money. For Instance, last year Calderon proposed anti-laundering legislation, after earlier announcing restrictions on cash transactions in Mexico that used U.S. dollars.

The evolving anti-laundering campaign could change the tone of the government's military-led crime crusade by striking at the heart of the cartels' financial empire, analysts say. But the effort will have to overcome a longtime lack of political will and poor coordination among Mexican law enforcement agencies that have only aggravated the complexity of the task at hand now.

"If you don't take away their property, winning this war is impossible," said Sen. Ricardo Garcia Cervantes of the Senate security committee and Calderon's conservative National Action Party. "You are not going to win this war with bullets."

The good news for Mexican and Colombian traffickers is that drug sales in the United States generate enormous income, nearly all of it in readily spendable cash. The bad news is that this creates a towering logistical challenge: getting the proceeds back home to pay bills, buy supplies — from guns to chemicals to trucks — and build up the cartels' empires without detection.

Laundering allows traffickers to disguise the illicit earnings as legitimate through any number of transactions, such as cash transfers, big-ticket purchases, currency exchanges and deposits.

Much of that money still makes its way back into Mexico the old-fashioned way: in duffels stuffed into the trunks of cars. But Mexican drug traffickers are among the world's most savvy entrepreneurs, and launderers have proved nimble in evading authorities' efforts to catch them, adopting a host of new techniques to move the ill-gotten wealth.

For example, Mexican traffickers are taking advantage of blind spots in monitoring the nearly $400 billion of legal commerce between the two countries. The so-called trade-based laundering allows crime groups to disguise millions of dollars in tainted funds as ordinary merchandise — say, onions or precious metals, as they are trucked across the border.

In one case, the merchandise of choice was tons of polypropylene pellets used for making plastic. Exports of the product from the United States to Mexico appeared legitimate, but law enforcement officials say that by declaring a slightly inflated value, traders were able to hide an average of more than $1 million a month, until suspicious banks shut down the operation.

The inventive ploys even include gift cards, such as the kind you get your nephew for graduation. A drug-trafficking foot soldier simply loads up a prepaid card with dollars and walks across the border without having to declare sums over the usual $10,000 reporting requirement, thus carrying a car trunk's worth of cargo in his wallet.

Tainted cash is almost everywhere. In western Mexico, a minor-league soccer club known as the Raccoons was part of a sprawling cross-border empire — including car dealerships, an avocado export firm, hotels and restaurants — that U.S. officials said was used by suspect Wenceslao Alvarez to launder money for the Gulf cartel. Alvarez was arrested by Mexican authorities in 2008 in a rare blow against laundering and remains in prison while fighting the charges.

Even the most unlikely street-corner businesses may be used to scrub money. A pair of tanning salons in the western state of Jalisco were among 225 properties seized from drug suspect Sandra Avila Beltran, the so-called Queen of the Pacific and one of the few women allegedly to reach upper cartel echelons.

Avila, arrested in 2007, is still behind bars on the money-laundering charges as she also fights extradition to the U.S., but she has been exonerated of organized-crime and weapons charges.

The salons, with their all-cash, high-volume turnover, were allegedly used to hide drug money. The chain, called Electric Beach, has outlets all over Mexico City.

Mexico's efforts against money-laundering are hobbled by staff shortages, a failure to investigate adequately and skimpy laws that have exempted from scrutiny a number of industries often used to clean dirty money, independent assessments by financial experts and academics have found.

Javier Laynez Potisek, Mexico's fiscal prosecutor, lamented during a September conference on money-laundering, "Our system allows someone to come in with a suitcase full of money and buy four armored pickups for 600,000 pesos [about $42,000], and we don't have a minimum requirement to identify or report them."

A 2009 report issued by the Financial Action Task Force, an international anti-money-laundering agency, noted that Mexican authorities had won only 25 convictions for money-laundering in the two decades it has been a crime. From the beginning of 2009 to mid-2010, as overall drug-war arrests soared, prosecutors won convictions of only 37 people for money-laundering.

Part of the problem is that only Mexico's Finance Ministry has had access to financial data crucial to potential money-laundering inquiries, and prosecutors have not been allowed to open their own money-laundering investigations without a complaint from finance officials.

There is also stubborn resistance among those who profit from their role as middlemen for big transactions.

One such group is notaries, who in Mexico have a function much like attorneys in the U.S. They handle nearly all real estate transactions and have battled a proposal that would require them to report how each purchase was paid for. Notaries say launderers would probably respond by skipping the paperwork altogether when buying cars and houses, only adding to the black-market economy.

"The only thing that worries us notaries is that [the proposed reporting requirements] would create an alternative market … that brings benefits to no one," said Hector Galeano, finance secretary of Mexico's notaries association.

Some observers suggest that one reason previous Mexican governments were slow to attack money-laundering was fear of harming the rest of the economy.

Edgardo Buscaglia, a scholar who studies organized crime, estimates that in a nation where three-quarters of all transactions are cash, drug money has infiltrated 78% of the sectors constituting the formal economy.

In Sinaloa, the prosperous coastal state considered the cradle of the Mexican narcotics trade, economist Guillermo Ibarra estimates that drug money sustains nearly a fifth of the region's economy, from fancy subdivisions dotted with "narco-mansions" to vast farms.

Sinaloa is a well-known produce grower; in fact, its license plate features a tomato. But it would take an awful lot of tomatoes to account for the kind of over-the-top opulence on display in the state.

The moves to turn the tide in dirty money have generally taken place out of public view. But they could mark an important shift in the drug-war strategy.

A year ago, a small group of Mexican officials and U.S. counterparts met and selected six money-laundering cases to investigate jointly in an experimental offensive. U.S. agents here say the first arrests, involving a network in the northern border state of Chihuahua, could come by year's end.

Separately, U.S. Customs officials familiar with sophisticated money-laundering techniques have begun training Mexican tax inspectors who will be assigned to ferret out launderers. In addition, nearly 500 individuals and Mexican companies, from mines to milk producers, have been placed on a U.S. Treasury Department blacklist for alleged laundering activities.

And the Mexican Congress, after years of government inaction on the issue, is weighing a series of legislative proposals based on Calderon's anti-laundering package that would make it more difficult to cleanse dirty money. In the meantime, the restrictions on the use of U.S. cash in Mexico appear to be altering the flow of drug-tainted dollars for the first time, officials on both sides of the border say.

Under the proposed legislation, a specialized unit added to the attorney general's office, with advice from U.S. officials, would be authorized to take the lead in money-laundering cases and inspect a wide variety of businesses in search of illicit profits.

In addition, the government nearly a year ago replaced the Finance Ministry official in charge of such cases with a veteran Washington-based diplomat, Jose Alberto Balbuena, who had spent many months working with U.S. financial officials and is said to have a better grasp of what's at stake and a good working relationship with top prosecutors.

To date, Mexican reporting requirements have applied only to banks. Under legislation approved by the Senate last year and now before the lower Chamber of Deputies, a range of other industries would also be required to report large cash or suspicious transactions using unexplained funds.

These include real estate, car dealerships, betting parlors, art galleries, notaries, and, possibly, religious institutions. Mirroring "know your customer" regulations in the banking world, the rules would require disclosure of cash purchases for more than 200,000 pesos, or about $14,000, of numerous goods and place a cap of 1 million pesos, or about $70,000, on cash purchases of real estate.

Law enforcement experts say the proposed legislation could fill a yawning gap in Mexico's crime fight.

"It's going to counteract the financial and economic power of the criminals," said Ricardo Gluyas, a professor at the National Institute of Criminal Sciences, which trains Mexico's organized-crime prosecutors. "The new law has teeth. It covers a broad spectrum."

One potentially powerful tool, an asset-forfeiture law that allows authorities to seize property and accounts of traffickers and launderers, was approved by Congress in 2008. A similar law made a big difference in crime fights in Colombia and Italy, allowing authorities in those countries to confiscate and resell properties of drug traffickers and Mafiosi.

"Without firing a shot, you can generate a lot more results by seizing the fortunes of the big capos," Gluyas said.

But critics say the Mexican asset-forfeiture law threatens the due-process rights of owners. So far, it has been little used: Courts had approved only two cases by late this summer, with more than a dozen pending.

Perhaps more than any other measure, the government's move last year to restrict bank deposits of U.S. cash appears to have slowed the entry of dollars to Mexico's financial system. Bank-account holders were no longer allowed to deposit more than $4,000 a month.

In response, traffickers and their launderers are shifting tactics, including keeping money in the United States, officials say. And U.S. officials say that since Mexico announced the new rules, more money appears to be going elsewhere, especially to the Caribbean and Guatemala, where officials have detected a surge in circulating U.S. bank notes.

"That's the big question," Balbuena said. "Where is the money?"

A possible explanation can perhaps be gleaned from an Oct. 5 incident: Customs inspectors in Tijuana stopped an armored car full of plastic bags stuffed with $915,000 in cash. There was no documentation for the money, law enforcement sources familiar with the discovery said.

But it wasn't headed into Mexico. It was headed north, into San Diego.

Michael Hearns an Anti Money Laundering specialist with over 24 years of AML experience can also be found at:
 www.launderingmoney.com 
and on twitter at :
 http://twitter.com/#!/LaunderingMoney