In recent weeks Mexican cartel money laundering operations in the United States have been exposed as imaginative and daring. In the two principal cases uncovered, very different devices were used by the drug trafficking managers. These cases are an introduction to the breadth of mechanisms available to turn dirty money clean.
Perhaps the operation that had the most elaborate cover, yet a still relatively simple financial structure, was the most forward-looking. One of the top figures in Mexico's Los Zetas drug organization, Miguel Angel Trevino Morales, had a younger brother who liked horses, needed a job, and was available to manage a ranch (bought through an intermediary with drug profits) south of Oklahoma City.
Along with his wife and three children, young José Treviño Morales set about to establish himself as an owner/breeder of quarter horses. He paid for everything in cash or by using false names and accounts of supposed partners. Treviño Morales and his considerable ranch staff of fourteen built a reputation of fair bargaining and quick payment. The 400-plus horse enterprise was the envy of many other breeders with less deep pockets, but any annoyance was quickly salved by the fair and generous business practices of the Treviño Morales operation.
Meanwhile millions of dollars in cash accrued by the drug trafficking operation of the Zetas was "cleansed" in the accounting for the high maintenance quarter horse breeding and racing business. The stable's reputation grew as it began to turn out serious winners on the track and at the auctions in Oklahoma, Texas, New Mexico, and California. The overall operation was incorporated since 2008 as Tremor Enterprises LLC -- and they paid all their bills on time.
The New York Times once again appears to have had an inside source within law enforcement, for when it broke the story on June 12 citing its "investigations lasting months" and anonymous sources, federal authorities, including FBI Special Agents, swooped in on the ranch the same day. They were able to arrest only 7 of the 14 indicted, including José Treviño Morales and his wife. Whether this was due to the Times's early publication has not been surfaced. At this point, however, the U.S. Government has seized 41 of the choicest horses and is arranging for the care of the other 384.
While the Treviño Morales horse breeding operation reportedly successfully "cleaned" tens of millions of dollars -- and won some very large racing purses on the side -- another less romantic money laundering and drug trafficking dance was in process in nearby Western and Midwestern states. Due to the United States' tightening of controls on the production of chemicals used in the making of methamphetamine, the manufacture and shipment of meth from Mexico has grown exponentially.
Many mid-sized American gangs purchase cargos of meth either directly from Mexican cartel producers or intermediaries who have illegally transported the product over the Mexican/U.S. border using both witting and unwitting truck drivers. The meth is then carried from border sites to middlemen in California, Colorado, and elsewhere central to the customer base. One such operation, according to the DEA, owned both a legitimate trucking company and an import/export firm. The latter carried licenses to import goods from China, thus allowing a legal route for money to flow to China and then return in goods or money transfers to Mexico -- and the cycle would begin again.
While there are several versions of the foregoing used in money laundering, one of the most reliable remains the utilization of the real estate market. Purchase and resale of high-end real estate properties (residential or commercial) has been a natural route for cleaning dirty money. Resale at an appropriate price to a bona fide entity creates a cleansed account and money that can be transferred anywhere in the world.
There are many mechanisms now employed by the drug cartels to clean up the cash they obtain through illicit drug sales in the United States and Canada. All that is needed is an intermediary that can maintain the appearance of a legitimate cash flow (such as service and import/export concerns), and careful accounting takes care of the rest. Casinos and high volume restaurants are always an attractive money laundering target. While new and different mechanisms always become available, funneling money into the American stock and commodity markets remains a high priority objective.
The establishment of a legitimate-appearing identity is the sole criterion for creating an investment account allowing considerable sums to be moved around domestically and internationally. Clean identities have evolved through repeated transfers of money from Mexico and other Latin American sources to the Gulf States of the Middle East, China, Southeast Asia and eventually to the usual small countries with discreet banking and taxation laws. It takes quite a bit of imaginative accounting, but it's worth the effort to cover the original sources.
Thus it is the establishment of an acceptable identity that is the key to all illegal money movement. It need not be as elaborate as horse breeding; it can be as simple as what the KGB used to call a "documented legend" that involves a birth certificate, Social Security number -- or equivalent -- and exclusive club membership plus well-distributed cash. This and a few other accoutrements and the money launderer is ready to have a respected friend call his local hard-charging broker with a new client. The securities business swears it's much harder than that, but the Bernie Madoff case showed how social connections and well-covered accounting make a swindle work. The laundering con works the same way.