Authorities seize more than $100 million in raids of downtown Los Angeles shops
The business are located in the city's bazaar-like fashion district
International drug cartels allegedly use a "trade-based money laundering" scheme
Couriers brought "duffel bags and suitcases full of cash to many businesses," feds say
Los Angeles is known as the nation’s capital of many things. Entertainment. Gangs. Even the creative capital of the world.
Add this: The City of Angels is now the nation’s “epicenter” for money laundering by international drug cartels.
Federal officials made such an announcement this week after they raided downtown businesses and seized an estimated $100 million in cash and from bank accounts around the world that were part of forfeiture actions in the ongoing probe.
Some of the laundered money included ransom payments to the Sinaloa drug cartel that allegedly kidnapped and tortured a U.S. citizen at a ranch in Mexico.
“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.
California Attorney General Kamala Harris also was blunt.
“California is the gateway to the rest of the United States,” Harris said. “California is and always will be an attractive target for these kinds of activities because we have the largest population of any state in the United States. The seventh-largest economy in the world.”
Use of peso brokers
The cartels used a scheme known as “trade-based money laundering” or “black market peso exchange,” federal officials said.
On Wednesday, 1,000 law officers swept through a section of downtown Los Angeles known as the “fashion district,” which is known more for its dense bazaar-like maze of shops than for any catwalks or haute couture.
Authorities initially seized $65 million, but the figure grew Thursday to more than $100 million, said Thom Mrozek, a spokesman for federal prosecutors.
In the “Operation Fashion Police” raids, nine people were arrested in the investigation into laundering drug proceeds for cartels, authorities said. Three of the arrests were among seven individuals facing federal indictments for alleged conspiracy to launder money and other charges; the other three defendants are from a business in the Mexican state of Sinaloa and are being sought, authorities said.
The defendants’ attorneys couldn’t be reached for comment.
“We have targeted money-laundering activities in the fashion district based on a wealth of information that numerous businesses there are engaged in black market peso exchange schemes,” Dugdale said.
Kent Smith, executive director of the LA Fashion District, told the Los Angeles Times that 4,000 businesses generate billions in economic activity each year.
“It’s unfair to paint the rest of the legitimate businesses … with what a small number of businesses may be doing in terms of illegal activity,” Smith told the Times.
An $18 billion sector of downtown
Authorities also say the “vast majority” of L.A.’s $18 billion garment district is legitimate and operates lawfully. But the federal crackdown clearly “portend(s) a profoundly troubling trend,” said Claude Arnold, special agent in charge of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations unit in Los Angeles.
“The scope of this current case and its potential long-term impact are truly unprecedented,” Arnold said.
A major tipoff to the illegal activity came when the Sinaloa drug cartel used a fashion district firm as a conduit to launder and accept ransom for the release of a U.S. drug dealer who was kidnapped and tortured by narco thugs.
“The victim was held captive at a ranch in Sinaloa, where he was beaten, shot, electrocuted and water-boarded. The hostage was released after relatives paid $140,000 in ransom” through the fashion district business, authorities said in a statement.
The raids capped a two-year investigation, and Attorney General Harris called “transnational gangs” like those behind money laundering “the number one threat to California’s public safety.”
How it worked
Under the scheme, a peso broker would work with a U.S.-based drug dealer or another conspirator who needs to send dollars to Mexico or another country, authorities said.
To do so, the broker would find businesses in Mexico that buy goods from U.S.-based firms such as those in the Los Angeles’ fashion district. The Mexican merchants would send dollars to the Los Angeles fashion district stores, authorities said.
In return, the fashion shops sent goods to the Mexico businesses, which then sold the products and gave the proceeds in pesos to the broker and eventually the cartels, authorities said.
Cartels allegedly use the scheme to avoid “the risk of smuggling bulk amounts of U.S. currency across the Mexican border and without having to convert and wire the U.S. currency through established financial institutions, which not only carries transaction fees, but also a threat their illegal activity will be detected,” prosecutors said in a statement.
“It also gives them a presence in the United States they otherwise wouldn’t have, indeed a presence in our business industry,” Dugdale said.
Also, in June 2010, Mexico announced anti-money laundering regulations “that restrict the amount of physical cash denominated in U.S. dollars that Mexican banks may receive,” a grand jury indictment said.