The Drug War Transformed

Connie Mack and the "Terrorist Insurgency" in the Americas

by TOM BARRY

 

“This is a terrorist insurgency,” says Connie Mack, the Republican who chairs the Western Hemisphere Subcommittee of the House Foreign Affairs Committee.

Mack, who introduced the Enhanced Border Security Act in mid-December, believes that the Merida Initiative has failed and that the administration needs to revamp the counterdrug assistance program to include a “counterinsurgency plan.”

Explaining why his Enhanced Border Security bill is needed, Mack said: “The Mexican drug cartels have evolved into what some call the greatest national security threat faced by the United States with the ability to severely damage the U.S. economy.”

Adopting the language of the Obama administration’s new strategy to “combat transnational organized crime,” Mack warns that both Mexico and the United States are facing a “terrorist insurgency” waged by transnational criminal organizations “along our southern border, with operations across Mexico and Central America as well as in over 1,000 U.S. cities.”

Five years after President Felipe Calderón launched Mexico’s drug war in December 2006 and three years into the Merida Initiative counterdrug assistance program, there is widespread anxiety in Mexico that the government is not gaining the upper hand on the drug cartels and that the drug-related violence, which has left a toll of 50,000 dead, will continue into the next sexenio, the six-year presidential term.

Whatever their politics, most close observers of the drug war in Mexico would agree with the Republican firebrand from Florida that the last five years of Mexico’s drug war have done little to increase governmental security and social stability. Most assessments of the Merida Initiative’s impact on Mexico and Central America are similarly negative.

The basic facts of the drug-related crisis in Mexico are clear enough, but what’s not so evident is its character and identity.

As President Calderón’s sexenio draws to an end and as the U.S. government evaluates its involvement in Mexico’s drug war and its border policy, new questions are being asked about drug threat and about the proper response.

Mack insists that traditional counternarcotics strategies are insufficient and out of step with the changing character of the drug trade in Mexico and in Central America.

What we are seeing in the region is not simply the business and violence of drug-related crime, says Mack. Instead, Mexico and the drug transit countries of Central America are facing insurgency and terrorism that threatens the security of region and of the United States.

Mexico has vociferously rejected Mack’s contention that the drug cartels represent an existential threat to state power.

But the basic facts of the drug war – widespread territorial loss of effective governing power, the involvement of local drug bosses in politics, the massive deployment of the military, the increasing firepower of the cartels, the war-level loss of life, and the use of horrific violence to make statements – seem to support Mack’s contention that Mexico is facing what he variously calls a “terrorist insurgency” and a “criminal insurgency.”

The inability of the Obama administration’s expanded border-security operations to significantly obstruct the crossborder flow of drugs from Mexico also points to the inadequacy of the U.S. response, whether at home or in Mexico.

Mack is, of course, not alone in his characterization of the Mexican drug-trafficking organizations (DTOs) as insurgents and narcoterrorists. Nor is he the only major public figure who is raising alarm about an increased threat to U.S. national security.

Two retired U.S. generals, including the former chief of the U.S. Southern Command, came to similar conclusions in a recent report commissioned by the Texas state government alarmingly titled Texas Border Security: A Strategic Military Assessment.

There’s no disputing the severity of the drug-related violence in Mexico and Central America. Yet the increasing discussion of the security implications of illegal drug trade also relates to the Obama administration’s own attempt to redefine the domestic and international drug problem as a battle against transnational criminal organizations.

The Transformed Drug Threat
The U.S. government has traditionally referred to Mexican and other Latin American drug cartels as drug trafficking organizations (DTOs). But the Obama administration has altered the nomenclature of the drug trade, and the DTOs are now routinely categorized as transnational criminal organizations (TCOs).

By newly designating the Mexican DTOs as transnational criminal organizations, the Obama administration has opened new political room for foreign policy hawks and anti-drug hardliners like Connie Mack to credibly argue that the U.S. needs to respond differently and more aggressively to the evolving drug trade scenario in the hemisphere.

Obama counternarcotics officials have dropped the term “war on drugs.” Instead, the four-decade war has been superseded by the newly organized “combat against transnational crime” and transnational organized criminal organizations – as spelled out this year by the White House in the Strategy to Combat Transnational Organized Crime.

The shift in the terminology to describe the U.S. national and international enforcement of its drug control laws – shedding an embarrassing military metaphor and adopting a more appropriate law-enforcement one – was long overdue.

Wars, after all, are fought to win not to flounder — with nary a sign of victory after four decades of drug war-fighting. In contrast, crime-fighting is accepted as a constant slog where no final victory is ever expected.

President Obama, however, insists, that the combat against the drug-trafficking TCOs is a matter of urgent national security, promising to prioritize the targeting of TCOs that represent a “high national security risk.”

In keeping with new parlance of the administration, Connie Mack, who chairs the Western Hemisphere Subcommittee, contends that the U.S. and Mexican governments no longer simply confront drug trafficking organizations but now face powerful transnational criminal organizations that threaten not only the region’s security but also U.S. national security.

In contrast to Mack, other critics, apart from those of the right wing, lambast the Merida Initiative for contributing to widespread human rights violations by the Mexican military and for continuing drug war strategies that are based on failed drug prohibition policies.

Counting on Connie Mack
During his seven years in Congress, Mack has won strong support from his conservative constituency for his hardline positions on U.S. Latin America policy, particularly with his shrill anti-communist critiques of Castro in Cuba, Chávez in Venezuela, and Zelaya (removed by military-backed coup) in Honduras.

As chairman of the Western Hemisphere subcommittee, Mack has won a larger megaphone for a view of hemispheric relations in which U.S. hegemony persists. In language reminiscent of the imperial era politics in Latin America, Mack states: “You can count on me to challenge these tyrants wherever they are and always stand on the side of freedom, security and prosperity.”

Mack’s hawkish views on Mexico represent an ideological continuity in that he regards the TCOs as insurgents who challenge the established order. Yet his new focus on Mexico and the border security also have more immediate political origins – including an opportunity to bash the Obama administration and an attempt to assuage anti-immigrant constituents outraged over Mack’s criticisms of the repressive Arizona immigration law as threat to “freedom-loving conservatives.”

Mack may see his hawkish stances on border security and on the Mexico drug war as restoring the trust of his conservative constituents and helping him in his likely bid to to unseat Democratic Senator Bill Nelson.

In a Sept. 16 letter to the State Department complaining about the failures of the Merida Initiative, Mack wrote that “the transformation of drug cartels into TCOs and their attempts to undermine the Mexican government through tactics labeled as characteristics of an insurgency” required an overhaul of the Merida Initiative to address the new security environment.

Mack told the State Department:

The failure of this Administration to set performance measures, target dates or tangible goals to measure the success of U.S. programs has made it impossible to claim ‘success’ on the initiative itself. Meanwhile, the Mexican drug cartels have capitalized on the United States’ sluggish assistance to actively undermine the Mexican state through insurgent activities such as violence, corruption, and propaganda.

Both the Calderón and Obama administrations insist that the battle against the cartels – called drug war in Mexico and combat against transnational crime in the U .S. – is making steady progress toward the goal of reducing the threat of the drug-trafficking organizations.
Responding to Mack’s letter, the State Department wrote:

We believe the [Merida] Initiative is already having a positive impact. Through its bold efforts, with U.S. support, the Mexican government has successfully dismantled drug smuggling routes, seized major amounts of illicit drugs and jailed drug kingpins.

Critiquing the Merida Initiative, Mack says, “If we are unable or unwilling to identify the problem correctly, then we are unable to properly put a policy forward to combat the issue at hand.  The security and safety of the American people depend on it.”

That’s exactly right. But it is not a problem that began with the Merida Initiative or with the Obama administration.  Mack only compounds the problem of incorrectly identifying the issue at hand in Mexico and at the border by introducing new identifiers such as “terrorist insurgency” and “criminal insurgency.” Such terms confuse tactics and methods with objectives and goals, while leading both countries down the path of increased militarization.

The Obama administration also confiscates the drug-related crisis in Mexico by raising the specter of transnational crime as a national security threat and by identifying the Mexican drug trafficking organizations as the cause of the crisis rather than as largely a product of America’s own drug war and drug prohibition policies.

Banks Financing Mexico Drug Gangs Admitted in Wells Fargo Deal

Published on 06-29-2010
Source: Bloomberg Just before sunset on April 10, 2006, a DC-9 jet landed at the international airport in the port city of Ciudad del Carmen, 500 miles east of Mexico City. As soldiers on the ground approached the plane, the crew tried to shoo them away, saying there was a dangerous oil leak. So the troops grew suspicious and searched the jet. They found 128 black suitcases, packed with 5.7 tons of cocaine, valued at $100 million. The stash was supposed to have been delivered from Caracas to drug traffickers in Toluca, near Mexico City, Mexican prosecutors later found. Law enforcement officials also discovered something else. The smugglers had bought the DC-9 with laundered funds they transferred through two of the biggest banks in the U.S.: Wachovia Corp. and Bank of America Corp., Bloomberg Markets reports in its August 2010 issue. This was no isolated incident. Wachovia, it turns out, had made a habit of helping move money for Mexican drug smugglers. Wells Fargo & Co., which bought Wachovia in 2008, has admitted in court that its unit failed to monitor and report suspected money laundering by narcotics traffickers -- including the cash used to buy four planes that shipped a total of 22 tons of cocaine. The admission came in an agreement that Charlotte, North Carolina-based Wachovia struck with federal prosecutors in March, and it sheds light on the largely undocumented role of U.S. banks in contributing to the violent drug trade that has convulsed Mexico for the past four years. ‘Blatant Disregard’ Wachovia admitted it didn’t do enough to spot illicit funds in handling $378.4 billion for Mexican-currency-exchange houses from 2004 to 2007. That’s the largest violation of the Bank Secrecy Act, an anti-money-laundering law, in U.S. history -- a sum equal to one-third of Mexico’s current gross domestic product. “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” says Jeffrey Sloman, the federal prosecutor who handled the case. Since 2006, more than 22,000 people have been killed in drug-related battles that have raged mostly along the 2,000-mile (3,200-kilometer) border that Mexico shares with the U.S. In the Mexican city of Ciudad Juarez, just across the border from El Paso, Texas, 700 people had been murdered this year as of mid- June. Six Juarez police officers were slaughtered by automatic weapons fire in a midday ambush in April. Rondolfo Torre, the leading candidate for governor in the Mexican border state of Tamaulipas, was gunned down yesterday, less than a week before elections in which violence related to drug trafficking was a central issue. 45,000 Troops Mexican President Felipe Calderon vowed to crush the drug cartels when he took office in December 2006, and he’s since deployed 45,000 troops to fight the cartels. They’ve had little success. Among the dead are police, soldiers, journalists and ordinary citizens. The U.S. has pledged Mexico $1.1 billion in the past two years to aid in the fight against narcotics cartels. In May, President Barack Obama said he’d send 1,200 National Guard troops, adding to the 17,400 agents on the U.S. side of the border to help stem drug traffic and illegal immigration. Behind the carnage in Mexico is an industry that supplies hundreds of tons of cocaine, heroin, marijuana and methamphetamines to Americans. The cartels have built a network of dealers in 231 U.S. cities from coast to coast, taking in about $39 billion in sales annually, according to the Justice Department. ‘You’re Missing the Point’ Twenty million people in the U.S. regularly use illegal drugs, spurring street crime and wrecking families. Narcotics cost the U.S. economy $215 billion a year -- enough to cover health care for 30.9 million Americans -- in overburdened courts, prisons and hospitals and lost productivity, the department says. “It’s the banks laundering money for the cartels that finances the tragedy,” says Martin Woods, director of Wachovia’s anti-money-laundering unit in London from 2006 to 2009. Woods says he quit the bank in disgust after executives ignored his documentation that drug dealers were funneling money through Wachovia’s branch network. “If you don’t see the correlation between the money laundering by banks and the 22,000 people killed in Mexico, you’re missing the point,” Woods says. Cleansing Dirty Cash Wachovia is just one of the U.S. and European banks that have been used for drug money laundering. For the past two decades, Latin American drug traffickers have gone to U.S. banks to cleanse their dirty cash, says Paul Campo, head of the U.S. Drug Enforcement Administration’s financial crimes unit. Miami-based American Express Bank International paid fines in both 1994 and 2007 after admitting it had failed to spot and report drug dealers laundering money through its accounts. Drug traffickers used accounts at Bank of America in Oklahoma City to buy three planes that carried 10 tons of cocaine, according to Mexican court filings. Federal agents caught people who work for Mexican cartels depositing illicit funds in Bank of America accounts in Atlanta, Chicago and Brownsville, Texas, from 2002 to 2009. Mexican drug dealers used shell companies to open accounts at London-basedHSBC Holdings Plc, Europe’s biggest bank by assets, an investigation by the Mexican Finance Ministry found. Following Rules Those two banks weren’t accused of wrongdoing. Bank of America spokeswomanShirley Norton and HSBC spokesman Roy Caple say laws bar them from discussing specific clients. They say their banks strictly follow the government rules. “Bank of America takes its anti-money-laundering responsibilities very seriously,” Norton says. A Mexican judge on Jan. 22 accused the owners of six centros cambiarios, or money changers, in Culiacan and Tijuana of laundering drug funds through their accounts at the Mexican units of Banco Santander SA, Citigroup Inc. and HSBC, according to court documents filed in the case. The money changers are in jail while being tried. Citigroup, HSBC and Santander, which is the largest Spanish bank by assets, weren’t accused of any wrongdoing. The three banks say Mexican law bars them from commenting on the case, adding that they each carefully enforce anti-money-laundering programs. HSBC has stopped accepting dollar deposits in Mexico, and Citigroup no longer allows noncustomers to change dollars there. Citigroup detected suspicious activity in the Tijuana accounts, reported it to regulators and closed the accounts, Citigroup spokesman Paulo Carreno says. Criminal Empires On June 15, the Mexican Finance Ministry announced it would set limits for banks on cash deposits in dollars. Mexico’s drug cartels have become multinational criminal enterprises. Some of the gangs have delved into other illegal activities such as gunrunning, kidnapping and smuggling people across the border, as well as into seemingly legitimate areas such as trucking, travel services and air cargo transport, according to the Justice Department’s National Drug Intelligence Center. These criminal empires have no choice but to use the global banking system to finance their businesses, Mexican Senator Felipe Gonzalez says. “With so much cash, the only way to move this money is through the banks,” says Gonzalez, who represents a central Mexican state and chairs the senate public safety committee. Gonzalez, a member of Calderon’s National Action Party, carries a .38 revolver for personal protection. “I know this won’t stop the narcos when they come through that door with machine guns,” he says, pointing to the entrance to his office. “But at least I’ll take one with me.” Subprime Losses No bank has been more closely connected with Mexican money laundering than Wachovia. Founded in 1879, Wachovia became the largest bank by assets in the southeastern U.S. by 1900. After the Great Depression, some people in North Carolina called the bank “Walk-Over-Ya” because it had foreclosed on farms in the region. By 2008, Wachovia was the sixth-largest U.S. lender, and it faced $26 billion in losses from subprime mortgage loans. That cost Wachovia Chief Executive Officer Kennedy Thompson his job in June 2008. Six months later, San Francisco-based Wells Fargo, which dates from 1852, bought Wachovia for $12.7 billion, creating the largest network of bank branches in the U.S. Thompson, who now works for private-equity firm Aquiline Capital Partners LLC in New York, declined to comment. As Wachovia’s balance sheet was bleeding, its legal woes were mounting. In the three years leading up to Wachovia’s agreement with the Justice Department, grand juries served the bank with 6,700 subpoenas requesting information. Not Quick Enough The bank didn’t react quickly enough to the prosecutors’ requests and failed to hire enough investigators, the U.S. Treasury Department said in March. After a 22-month investigation, the Justice Department on March 12 charged Wachovia with violating the Bank Secrecy Act by failing to run an effective anti-money-laundering program. Five days later, Wells Fargo promised in a Miami federal courtroom to revamp its detection systems. Wachovia’s new owner paid $160 million in fines and penalties, less than 2 percent of its $12.3 billion profit in 2009. If Wells Fargo keeps its pledge, the U.S. government will, according to the agreement, drop all charges against the bank in March 2011. Wells Fargo regrets that some of Wachovia’s former anti- money-laundering efforts fell short, spokeswoman Mary Eshet says. Wells Fargo has invested $42 million in the past three years to improve its anti-money-laundering program and has been working with regulators, she says. ‘Significantly Upgraded’ “We have substantially increased the caliber and number of staff in our international investigations group, and we also significantly upgraded the monitoring software,” Eshet says. The agreement bars the bank from contesting or contradicting the facts in its admission. The bank declined to answer specific questions, including how much it made by handling $378.4 billion -- including $4 billion of cash-from Mexican exchange companies. The 1970 Bank Secrecy Act requires banks to report all cash transactions above $10,000 to regulators and to tell the government about other suspected money-laundering activity. Big banks employ hundreds of investigators and spend millions of dollars on software programs to scour accounts. No big U.S. bank -- Wells Fargo included -- has ever been indicted for violating the Bank Secrecy Act or any other federal law. Instead, the Justice Department settles criminal charges by using deferred-prosecution agreements, in which a bank pays a fine and promises not to break the law again. ‘No Capacity to Regulate’ Large banks are protected from indictments by a variant of the too-big-to-fail theory. Indicting a big bank could trigger a mad dash by investors to dump shares and cause panic in financial markets, says Jack Blum, a U.S. Senate investigator for 14 years and a consultant to international banks and brokerage firms on money laundering. The theory is like a get-out-of-jail-free card for big banks, Blum says. “There’s no capacity to regulate or punish them because they’re too big to be threatened with failure,” Blum says. “They seem to be willing to do anything that improves their bottom line, until they’re caught.” Wachovia’s run-in with federal prosecutors hasn’t troubled investors. Wells Fargo’s stock traded at $30.86 on March 24, up 1 percent in the week after the March 17 agreement was announced. Moving money is central to the drug trade -- from the cash that people tape to their bodies as they cross the U.S.-Mexican border to the $100,000 wire transfers they send from Mexican exchange houses to big U.S. banks. ‘Doesn’t Stop Anyone’ In Tijuana, 15 miles south of San Diego, Gustavo Rojas has lived for a quarter of a century in a shack in the shadow of the 10-foot-high (3-meter-high) steel border fence that separates the U.S. and Mexico there. He points to holes burrowed under the barrier. “They go across with drugs and come back with cash,” Rojas, 75, says. “This fence doesn’t stop anyone.” Drug money moves back and forth across the border in an endless cycle. In the U.S., couriers take the cash from drug sales to Mexico -- as much as $29 billion a year, according to U.S. Immigration and Customs Enforcement. That would be about 319 tons of $100 bills. They hide it in cars and trucks to smuggle into Mexico. There, cartels pay people to deposit some of the cash into Mexican banks and branches of international banks. The narcos launder much of what’s left through money changers. The Money Changers Anyone who has been to Mexico is familiar with these street-corner money changers; Mexican regulators say there are at least 3,000 of them from Tijuana to Cancun, usually displaying large signs advertising the day’s dollar-peso exchange rate. Mexican banks are regulated by the National Banking and Securities Commission, which has an anti-money-laundering unit; the money changers are policed by Mexico’s Tax Service Administration, which has no such unit. By law, the money changers have to demand identification from anyone exchanging more than $500. They also have to report transactions higher than $5,000 to regulators. The cartels get around these requirements by employing legions of individuals -- including relatives, maids and gardeners -- to convert small amounts of dollars into pesos or to make deposits in local banks. After that, cartels wire the money to a multinational bank. The Smurfs The people making the small money exchanges are known as Smurfs, after the cartoon characters. “They can use an army of people like Smurfs and go through $1 million before lunchtime,” says Jerry Robinette, who oversees U.S. Immigration and Customs Enforcement operations along the border in east Texas. The U.S. Treasury has been warning banks about big Mexican- currency-exchange firms laundering drug money since 1996. By 2004, many U.S. banks had closed their accounts with these companies, which are known as casas de cambio. Wachovia ignored warnings by regulators and police, according to the deferred-prosecution agreement. “As early as 2004, Wachovia understood the risk,” the bank admitted in court. “Despite these warnings, Wachovia remained in the business.” One customer that Wachovia took on in 2004 was Casa de Cambio Puebla SA, a Puebla, Mexico-based currency-exchange company. Pedro Alatorre, who ran a Puebla branch in Mexico City, had created front companies for cartels, according to a pending Mexican criminal case against him. Federal Indictment A federal grand jury in Miami indicted Puebla, Alatorre and three other executives in February 2008 for drug trafficking and money laundering. In May 2008, the Justice Department sought extradition of the suspects, saying they used shell firms to launder $720 million through U.S. banks. Alatorre has been in a Mexican jail for 2 1/2 years. He denies any wrongdoing, his lawyer Mauricio Moreno says. Alatorre has made no court-filed responses in the U.S. During the period in which Wachovia admitted to moving money out of Mexico for Puebla, couriers carrying clear plastic bags stuffed with cash went to the branch Alatorre ran at the Mexico City airport, according to surveillance reports by Mexican police. Alatorre opened accounts at HSBC on behalf of front companies, Mexican investigators found. Puebla executives used the stolen identities of 74 people to launder money through Wachovia accounts, Mexican prosecutors say in court-filed reports. ‘Never Reported’ “Wachovia handled all the transfers, and they never reported any as suspicious,” says Jose Luis Marmolejo, a former head of the Mexican attorney general’s financial crimes unit who is now in private practice. In November 2005 and January 2006, Wachovia transferred a total of $300,000 from Puebla to a Bank of America account in Oklahoma City, according to information in the Alatorre cases in the U.S. and Mexico. Drug smugglers used the funds to buy the DC-9 through Oklahoma City aircraft broker U.S. Aircraft Titles Inc., according to financial records cited in the Mexican criminal case. U.S. Aircraft Titles President Sue White declined to comment. On April 5, 2006, a pilot flew the plane from St. Petersburg, Florida, to Caracas to pick up the cocaine, according to the DEA. Five days later, troops seized the plane in Ciudad del Carmen and burned the drugs at a nearby army base. ‘Wachovia Knew’ “I am sure Wachovia knew what was going on,” says Marmolejo, who oversaw the criminal investigation into Wachovia’s customers. “It went on too long and they made too much money not to have known.” At Wachovia’s anti-money-laundering unit in London, Woods and his colleague Jim DeFazio, in Charlotte, say they suspected that drug dealers were using the bank to move funds. Woods, a former Scotland Yard investigator, spotted illegible signatures and other suspicious markings on traveler’s checks from Mexican exchange companies, he said in a September 2008 letter to the U.K. Financial Services Authority. He sent copies of the letter to the DEA and Treasury Department in the U.S. Woods, 45, says his bosses instructed him to keep quiet and tried to have him fired, according to his letter to the FSA. In one meeting, a bank official insisted Woods shouldn’t have filed suspicious activity reports to the government, as both U.S. and U.K. laws require. ‘I Was Shocked’ “I was shocked by the content and outcome of the meeting and genuinely traumatized,” Woods wrote. In the U.S., DeFazio, who had been a Federal Bureau of Investigation agent for 21 years, says he told bank executives in 2005 that the DEA was probing the transfers through Wachovia to buy the planes. Bank executives spurned recommendations to close suspicious accounts, DeFazio, 63, says. “I think they looked at the money and said, ‘The hell with it. We’re going to bring it in, and look at all the money we’ll make,’” DeFazio says. DeFazio retired in 2008. “I didn’t want anything from them,” he says. “I just wanted to get out.” Woods, who resigned from Wachovia in May 2009, now advises banks on how to combat money laundering. He declined to discuss details of Wachovia’s actions. U.S. Comptroller of the Currency John Dugan told Woods in a March 19 letter his efforts had helped the U.S. build its case against Wachovia. ‘Great Courage’ “You demonstrated great courage and integrity by speaking up when you saw problems,” Dugan wrote. It was the Puebla investigation that led U.S. authorities to the broader probe of Wachovia. On May 16, 2007, DEA agents conducted a raid of Wachovia’s international banking offices in Miami. They had a court order to seize Puebla’s accounts. U.S. prosecutors and investigators then scrutinized the bank’s dealings with Mexican-currency-exchange firms. That led to the March deferred-prosecution agreement. With Puebla’s Wachovia accounts seized, Alatorre and his partners shifted their laundering scheme to HSBC, according to financial documents cited in the Mexican criminal case against Alatorre. In the three weeks after the DEA raided Wachovia, two of Alatorre’s front companies, Grupo ETPB SA and Grupo Rahero SC, made 12 cash deposits totaling $1 million at an HSBC Mexican branch, Mexican investigators found. Another Drug Plane The funds financed a Beechcraft King Air 200 plane that police seized on Dec. 29, 2007, in Cuernavaca, 50 miles south of Mexico City, according to information in the case against Alatorre. For years, federal authorities watched as the wife and daughter of Oscar Oropeza, a drug smuggler working for the Matamoros-based Gulf Cartel, deposited stacks of cash at a Bank of America branch on Boca Chica Boulevard in Brownsville, Texas, less than 3 miles from the border. Investigator Robinette sits in his pickup truck across the street from that branch. It’s a one-story, tan stucco building next to a Kentucky Fried Chicken outlet. Robinette discusses the Oropeza case with Tom Salazar, an agent who investigated the family. “Everybody in there knew who they were -- the tellers, everyone,” Salazar says. “The bank never came to us, though.” New Meaning The Oropeza case gives a new, literal meaning to the term money laundering. Oropeza’s wife, Tina Marie, and daughter Paulina Marie deposited stashes of $20 bills several times a day into Bank of America accounts, Salazar says. Bank employees got to know the Oropezas by the smell of their money. “I asked the tellers what they were talking about, and they said the money had this sweet smell like Bounce, those sheets you throw into the dryer,” Salazar says. “They told me that when they opened the vault, the smell of Bounce just poured out.” Oropeza, 48, was arrested 820 miles from Brownsville. On May 31, 2007, police in Saraland, Alabama, stopped him on a traffic violation. Checking his record, they learned of the investigation in Texas. They searched the van and discovered 84 kilograms (185 pounds) of cocaine hidden under a false floor. That allowed federal agents to freeze Oropeza’s bank accounts and search his marble-floored home in Brownsville, Robinette says. Inside, investigators found a supply of Bounce alongside the clothes dryer. Guilty Pleas All three Oropezas pleaded guilty in U.S. District Court in Brownsville to drug and money-laundering charges in March and April 2008. Oscar Oropeza was sentenced to 15 years in prison; his wife was ordered to serve 10 months and his daughter got 6 months. Bank of America’s Norton says, “We not only fulfilled our regulatory obligation, but we proactively worked with law enforcement on these matters.” Prosecutors have tried to halt money laundering at American Express Bank International twice. In 1994, the bank, then a subsidiary of New York-based American Express Co., pledged not to allow money laundering again after two employees were convicted in a criminal case involving drug trafficker Juan Garcia Abrego. In 1994, the bank paid $14 million to settle. Five years later, drug money again flowed through American Express Bank. Between 1999 and 2004, the bank failed to stop clients from laundering $55 million of narcotics funds, the bank admitted in a deferred-prosecution agreement in August 2007. Western Union It paid $65 million to the U.S. and promised not to break the law again. The government dismissed the criminal charge a year later. American Express sold the bank to London-based Standard Chartered PLC in February 2008 for $823 million. Banks aren’t the only financial institutions that have turned a blind eye to drug cartels in moving illicit funds. Western Union Co., the world’s largest money transfer firm, agreed to pay $94 million in February 2010 to settle civil and criminal investigations by the Arizona attorney general’s office. Undercover state police posing as drug dealers bribed Western Union employees to illegally transfer money, says Cameron Holmes, an assistant attorney general. “Their allegiance was to the smugglers,” Holmes says. “What they thought about during work was ‘How may I please my highest- spending customers the most?’” Smudged Fingerprints Workers in more than 20 Western Union offices allowed the customers to use multiple names, pass fictitious identifications and smudge their fingerprints on documents, investigators say in court records. “In all the time we did undercover operations, we never once had a bribe turned down,” says Holmes, citing court affidavits. Western Union has made significant improvements, it complies with anti-money-laundering laws and works closely with regulators and police, spokesman Tom Fitzgerald says. For four years, Mexican authorities have been fighting a losing battle against the cartels. The police are often two steps behind the criminals. Near the southeastern corner of Texas, in Matamoros, more than 50 combat troops surround a police station. Officers take two suspected drug traffickers inside for questioning. Nearby, two young men wearing white T-shirts and baggy pants watch and whisper into radios. These are los halcones (the falcons), whose job is to let the cartel bosses know what the police are doing. ‘Only Way’ While the police are outmaneuvered and outgunned, ordinary Mexicans live in fear. Rojas, the man who lives in the Tijuana slum near the border fence, recalls cowering in his home as smugglers shot it out with the police. “The only way to survive is to stay out of the way and hope the violence, the bullets, don’t come for you,” Rojas says. To make their criminal enterprises work, the drug cartels of Mexico need to move billions of dollars across borders. That’s how they finance the purchase of drugs, planes, weapons and safe houses, Senator Gonzalez says. “They are multinational businesses, after all,” says Gonzalez, as he slowly loads his revolver at his desk in his Mexico City office. “And they cannot work without a bank.” To contact the reporter on this story: Michael Smith in Santiago, Chile, atmssmith@bloomberg.net.

Prolonging the Failed War on Drugs

Just the other day, the US drugs chief told top Irish drug officials the War on Drugs was over. I didn't believe it.

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Obama prolongs a failed war
By RHONDA SWAN
Tuesday, June 1, 2010

Forty years. One trillion dollars. Hundreds of thousands of lives. That's the cost of the U.S. war on drugs. And the tab continues to rise.

Last week, President Barack Obama announced that he will send 1,200 National Guard troops to boost security along the U.S.-Mexico border. He also will request $500 million for border protection and law enforcement. That's a lot of Benjamins for a failed policy.

Like President George W. Bush before him, Obama is sending in the troops to secure the border against illegal immigration. And, like Bush, he's trying to steer cautiously through the election year minefield that is immigration reform.

He's not likely to get comprehensive reform done this year. The troops are the backup plan. He has to show that he's doing something about the problem. In 2006, Bush sent 6,000 National Guard troops to the border. He, too, wanted comprehensive immigration reform. But it was an election year.

Beyond the immigration issue, however, is the drug issue. As in 2006, a major role of the National Guard is to support efforts to block drug trafficking. In fact, the Mexican government issued a statement saying it hoped the troops would be used to fight drug cartels and not enforce immigration laws.

The troops sent under Bush, however, didn't quell the drug-trafficking violence. There's no reason to believe that the outcome will be any different under Obama.

Mexican drug cartels wouldn't exist if the U.S. decriminalized drugs. There would be no drug wars. And far less drug violence. Sure, it sounds radical. But isn't it insane to keep doing what we've been doing and expect different results?

Consider that in the 1920s, prohibition of alcohol simply created a huge illegal market for alcohol. Drug prohibition has created the same illegal market for marijuana, heroin and cocaine, the majority of which comes from Mexico. By the end of the 1920s, there were more alcoholics and illegal juke joints than before Prohibition. There also was more crime.

Prohibition was repealed because the paradise envisioned by a country without alcohol didn't materialize. And during the Great Depression, the government realized that it needed the money from taxing alcohol.

The war on drugs also has not produced a crime-free society. The U.S. has the highest rate of marijuana and cocaine use in the world. And as history repeats itself, the Great Recession has states such as California eyeing the money it could get from taxing marijuana.

In 2001, Portugal became the first European country to abolish all criminal penalties for personal possession of drugs, replacing jail time with the offer of therapy.

In the five years after personal possession was decriminalized, illegal drug use among teens declined; rates of new HIV infections caused by sharing dirty needles dropped; the number of people seeking treatment more than doubled.

Obama promised to "reduce drug use and the great damage it causes" with a new policy that, like Portugal's, treats drug use more as a public health issue than a criminal justice one. It's also been a stated priority of Gil Kerlikowske, a former Port St. Lucie, Fla., police chief who heads the Office of National Drug Control Policy, to get the country to focus more on treatment than incarceration.

"We must be smarter about our nation's drug problem," Kerlikowske said at last year's conference of the International Association of Chiefs of Police. "It's time to recognize drug abuse and addiction for what it is -- not just a law enforcement and criminal justice issue but also a complex and dynamic public health challenge."

The Obama administration, however, has increased spending on interdiction and law enforcement to record levels -- $10 billion of the $15.5 billion drug control budget. Where is the change Obama promised? I don't expect him to call for the decriminalization of drugs. That would be too bold and politically risky. I do expect him to put our money where his mouth is.