Big Bust in Los Angeles, the “Epicenter of Narco-Dollar Money Laundering”

Thursday, September 11, 2014
Cash seized in raid (photo: U.S. Department of Justice)

When the U.S. and Mexico cracked down on the shipping of illicit money across the border in 2010, international drug cartels looked around for ready-made money laundering operations and found a good fit in the downtown Los Angeles garment district.

On Wednesday, 1,000 local and federal authorities swarmed the area in Operation Fashion Police, arrested nine people and seized at least $65 million in cash and money stashed in banks.

Warrants were executed at more than 40 locations, including 19 storefront businesses, six warehouses and several homes in the Southland. Some of the defendants lived in Beverly Hills. Agents reportedly found $35 million in an L.A. condominium and $10 million in a duffel bag at a Bel-Air home.

“Los Angeles has become the epicenter of narco-dollar money laundering with couriers regularly bringing duffel bags and suitcases full of cash to many businesses,” Assistant U.S. Attorney Robert E. Dugdale said in a statement afterward.

Three federal indictments laid out allegations that Mexican black market peso brokers sought out legitimate businesses in Mexico who would buy goods in Los Angeles. The L.A. wholesaler is paid in dollars by the Sinaloa Cartel and the importer pays the broker in pesos. The broker takes his cut and passes the rest to the cartel. The scheme, which is apparently very popular, is called Black Market Peso Exchange (BMPE) and Trade-Based Money Laundering.

The cartel gets its laundered money, peso brokers skim off their profit, Mexican businesses buy their goods (perhaps at an attractive price), L.A. wholesalers sell their wares and Americans get their illegal drugs and some low-income garment industry jobs.

Everybody is happy, except law enforcement and people who would rather not have cartels selling illegal drugs through a proficient black market in their country.

In one of the three indictments, a U.S. citizen and business owner who had a cartel shipment of 100 kilograms of cocaine seized by the authorities on his watch was kidnapped by the cartel until ransom was raised. The man was allegedly waterboarded, shocked with electricity, beaten and shot at a ranch in Culiacan, Sinaloa, until relatives came up with $140,000.

According to the indictment, the money was paid to QT Fashion Inc., which funneled it through 17 other businesses in the garment district. In Mexico, clothing and accessories company Maria Ferre S.A. de C.V. allegedly directed the money’s distribution.

The Federal Bureau of Investigation (FBI), the Internal Revenue Service (IRS) and the U.S. Drug Enforcement Administration (DEA) participated in the QT investigation.

The other two cases were more conventional BMPE schemes. Courthouse News Service said the cartels are also fond of using wrecked cars, sold at exorbitant prices, to launder their money using the technique.

–Ken Broder


To Learn More:

Federal Agents Raid Los Angeles Garment Businesses Allegedly Linked to Drug Cartels (by Tamara Audi, Wall Street Journal)

L.A. Is “Epicenter” of Cartel Money Laundering, U.S. Official Says (by Victoria Kim, Joe Mozingo, Los Angeles Times)

L.A. Money Laundering Haul Is $75 Million and Growing, Feds Say (Courthouse News Service)

Mexican Drug Cartel Diversifies . . . to Coal  (by Noel Brinkerhoff and David Wallechinsky, AllGov)

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