At The Border, The Drugs Go North And The Cash Goes South

Mar 20, 2014
Originally published on March 20, 2014 11:07 am

The international drug trade goes in two directions: Narcotics go north and money goes south. All the drug profits made on the streets of U.S. cities like Chicago and Atlanta and Dallas are funneled down to ports of entry on the U.S.-Mexico border where they're smuggled back into Mexico. In 2012, one federal agency alone, Immigration and Customs Enforcement, seized $411 million in cash hidden in vehicles, mostly heading south.

Once the bundles of U.S. banknotes are delivered to the cartel, the money flows in many directions. Growers, warehousers, smugglers, assassins and corrupt police and politicians must be paid. Mostly, the dollars have to be laundered. Dirty money has to somehow be injected into the legal economy.

The prosperous city of Culiacán, on Mexico's northern Pacific coast, is a good place to see how U.S. drug dollars are spent in Mexico. This is home to the Sinaloa Cartel, the most powerful and richest drug cartel in the world. Its leader, Joaquin "El Chapo" Guzman, was arrested last month after 13 years on the run, but few analysts in Mexico believe his capture will cripple the mafia he created.

Dollars Into Pesos

The U.S. State Department reported in 2013 that Mexican drug mafias send to Mexico between $19 billion and $29 billion a year from proceeds of marijuana, cocaine, heroin and methamphetamines sold in the United States.

Traditionally, one of the easiest ways to convert drug dollars to pesos has been casas de cambio, or currency exchange houses. As part of a crackdown on money laundering, federal agents shut down 21 casas de cambio in Culiacán in 2008, but on a visit last month, they were all back in business. Young women in tight dresses stand in the street hustling drive-by customers.

"We're only permitted to change up to $5,000 now," one money changer, who didn't give her name, says through an open car window.

Miguel Angel Vega, a journalist for the local newspaper Riodoce, is skeptical of her claim. "If you know them, they can go to your house," he says, driving away, "and you tell them, 'I have like $50,000. Let's do the exchange here in my house.' And they'll do it because the more they change, the more they make."

Money laundering is a study in trickle-down economics in a city like Culiacán. Traffickers put a lot of cash into circulation. They build palatial homes, they buy dresses and jewelry for their wives and girlfriends, and they really like flashy vehicles. One avenue in Culiacán is lined with luxury car dealerships. The new Jaguar agency sells a red convertible XKR-S for $213,000, and the receptionist says they'll take cash.

Business Connections

Narcos also invest in legitimate businesses as another way to convert dollars to pesos. They become partners in shopping centers, residential developments, hotels, restaurants, farms and almost any other type of money-making enterprise. Former Sinaloa Gov. Juan Millan once stated that 62 percent of the Sinaloan economy is permeated with drug money.

"In Culiacán, the underground economy and the normal economy are the same thing. It's everywhere," says a 19-year-old university student who gives her name as Marisa. On the positive side, she says, "You can see a lot of nightclubs, and the nightclubs are excellent, really." On the dark side, she continues, "Myself, two times I was in a shooting. Once I was with my mom in a car. It's normal — 'Oh, another shooting.' It's bad to say but it's true."

The Office of Foreign Assets Control, or OFAC, part of the U.S. Treasury Department, has identified 35 businesses in Culiacán as being part of financial networks connected to Sinaloa kingpins. There are certainly many more than this, but Mexico maintains no public database of suspected cartel companies. The OFAC charts indicate that money-laundering networks are usually family-based: A trafficker uses his wealth to set up his wife or kids or in-laws in business.

For instance, OFAC states that one of two wives of kingpin Juan Jose Esparragoza, who goes by El Azul (or Blue), is in a group that owns seven gas stations in Culiacán.

In a visit to the station owned by Buenos Aires Servicios on Guillermo Batiz Paredes Boulevard, a heavy-set man in a Pemex uniform walked up and identified himself as Fabian Guzman, the manager.

"The owner is not here, and I've only been here a few months," he said nervously. "I saw this [drug-money allegation] in the newspaper, but I don't know anything about it. I don't know who the owner is."

Managers at a shopping center and a children's day-care facility — also on OFAC charts — expressed similar bewilderment when approached by a reporter.

Government Response

Public officials in Sinaloa have an entirely different explanation of their economic mainstay.

"The thing about laundering money, I can't deny that it doesn't exist," says state legislator Gómer Monárrez, "but I can tell you that in el Valle de Culiacán, we have four out of the 10 biggest companies that produce and export vegetables to the United States."

It's true. Sinaloa is known as "the granary of Mexico," and the state symbol is the tomato.

But then you have to wonder: How many tomato farmers drive $200,000 Jag convertibles?

"Agriculture is very important, but it's not as big as they say," says local author and journalist Javier Valdez, who has written five books about narcotrafficking. "What drives the economy is organized crime. Without the narcos, there would be more unemployment, fewer companies, less income, and not as much money in circulation."

Last summer, the Mexican Finance Ministry began enforcing stringent new anti-money-laundering rules.

They're supposed to limit such things as bulk cash purchases and currency exchanges at casas de cambio. A ministry lawyer in Mexico City said in an interview that money-laundering complaints have jumped 140 percent since the new law went into effect. The Mexican federal attorney general's office did not respond to an email asking how many of those complaints resulted in criminal cases.

Does the Mexican government have any interest in disrupting the narcotized economy in Culiacán or anywhere else?

"It's very difficult to close down these financial networks because of insufficient evidence that will stand in a court of law and probably because there is some officials at many levels [who] might be complicit with those networks," said Alejandro Hope, a security analyst and former federal intelligence agent in Mexico City.

Cause Of Death

The trail of U.S. drug dollars at work in Mexico ends, appropriately, at the graveyard. Cartel lieutenants tend to die young in this business. When they do, their families spend lavishly to construct mausoleums that look like small condos.

In the Jardines del Humayo cemetery, you find row upon row of fabulous funerary temples with marble steps, glass walls, air conditioning and even bathrooms for the family members who come to mop, polish and remember their lost loved ones.

A mason who gives his name as Carlos is overseeing a crew building a new tomb. He is asked about the young men who are memorialized in this city of the dead.

"They died of natural causes," he says with a chuckle. "In Culiacán, that means by bullets."

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DAVID GREENE, HOST:

This is MORNING EDITION from NPR News. With Renee Montagne, I'm David Greene.

STEVE INSKEEP, HOST:

And I'm Steve Inskeep.

For all of its fortifications, the walls and cameras, the U.S.-Mexico border on which we're standing is easy to cross. We've been learning as we travel the border the stories of what crosses here - people, goods, drugs, and one more thing we're going to talk about with NPR's John Burnett, who's joined us here in the border city of Laredo, Texas.

John, would you just describe Laredo for people?

JOHN BURNETT, BYLINE: Hey, Steve.

We're standing here at one of the international bridges that leads from Laredo into Nuevo Laredo, Mexico. This is a historic border city with these lovely 19th century buildings and churches downtown. But what's important about Laredo is it's the busiest land port on the U.S.-Mexico border. And the international drug trade goes two ways. Drugs go north but money goes south.

All those drug profits made on the streets of Chicago and Atlanta and Dallas are funneled down to crossings like this, where they're smuggled back into Mexico.

INSKEEP: So we're talking about bags or virtually pallets of cash that may be in some of the vehicles crossing this bridge right in front of us, according to the authorities.

BURNETT: One federal agency, Immigration and Customs Enforcement, in 2012 seized $411 million in cold cash from different vehicles heading south.

INSKEEP: That's just what they caught, or course, we should mention. Now what about the rest of it? You wanted to find out where that goes.

BURNETT: So I did what reporters do, I followed the money. And in this case, I went to Culiacan, Sinaloa, the headquarters of the Sinaloa cartel, the richest drug cartel in the world.

If you head west-southwest from Laredo, across the Sierra Madres, you reach Sinaloa on the northern Pacific Coast. This state is known as Mexico's Sicily because it's the homeland of so many storied drug lords. That includes the big fish, Joaquin Chapo Guzman, who was arrested last month after 13 years on the lam.

(SOUNDBITE OF MEN SINGING)

BURNETT: In front of a gas station in the capital of Culiacan, street musicians sing nightly of the narcos' exploits.

(SOUNDBITE OF MEN SINGING)

BURNETT: The U.S. State Department reports that Mexican drug mafias annually send between $19 and $29 billion in proceeds from marijuana, cocaine, heroin and meth from the United States to Mexico. It's dirty money. This is the story of how it's laundered.

The easiest way to convert drug dollars to pesos has traditionally been casas de cambio, currency exchange houses. The money changers we approach on the street are cautious.

UNIDENTIFIED WOMAN: (Foreign language spoken)

BURNETT: A local journalist, Miguel Angel Vega, who is showing me around town, handles the negotiation.

So she said that we can change up to $5,000 a day.

MIGUEL ANGEL VEGA: If you know them, they can even go to your house and tell them, you know what? I have like $50,000 - let's do the exchange here in my house. And they'll do it because the more they change the more they make.

BURNETT: Money laundering is pure trickle-down economics. Traffickers put a lot of cash into circulation, building palatial homes, buying dresses and jewelry for their wives and looking for new toys.

(SOUNDBITE OF VEHICLES)

BURNETT: I'm standing in front of the new Jaguar dealership that opened last month. Inside, you can spend $213,000 on an XKR-S convertible. And the receptionist says they'll take cash.

Narcos also invest in legitimate businesses as another way to convert dollars to pesos. They become partners in shopping centers, residential developments, hotels, restaurants, farms; really, any type of money-making enterprise.

Former Governor Juan Millan once stated that 62 percent of the Sinaloan economy is permeated with drug money. Here in Culiacan, the underground economy and the normal economy are indistinguishable.

MARISA: (Foreign language spoken) They are the same thing. It's in everywhere.

BURNETT: A 19-year-old university student named Marisa, who only gave her first name, says there's a dark side and a good side to the drug trade for Culichis, as natives call themselves. Violence between cartel rivals leads to fearsome shootouts in the streets. But on the other hand...

MARISA: You can see a lot of nightclubs. The nightclubs are excellent, really.

(LAUGHTER)

BURNETT: The U.S. Office of Foreign Assets Control, or OFAC, has identified 35 businesses in Culiacan as being part of financial networks connected to Sinaloa kingpins. There are certainly many more than this, but Mexico maintains no public database of suspected cartel companies. As the OFAC charts indicate, money laundering networks are usually family-based.

(SOUNDBITE OF VEHICLES)

BURNETT: So we just pulled up to a gas station here in Culiacan that the U.S. Treasury Dept says is owned by a Sinaloa Cartel leader by the nickname of El Azul - Blue.

OFAC says this is one of seven gas stations reportedly controlled by a group that includes a wife of trafficker Juan Jose Esparragoza.

Hello. (Foreign language spoken)

After a couple of minutes, a heavy-set man in a Pemex uniform walks up, warily, and says he's the manager.

FABIAN GUZMAN: (Spanish spoken)

BURNETT: Fabian Guzman says he's only been there for a couple of months; he saw this accusation in the newspaper, but he doesn't know anything about drug money bankrolling this filling station.

Managers at a shopping center and a children's daycare facility - that are also on OFAC charts - expressed similar bewilderment when accosted by a reporter.

Of course, public officials in Sinaloa have an entirely different explanation of their economic mainstay. Gomer Monarrez is a state legislator.

GOMER MONARREZ: The thing about laundering money, I can't deny that it doesn't exist, but I can tell you that en el Valle de Culiacan, we have four out of the 10 biggest companies that produce and export vegetables to the United States.

BURNETT: It's true. Sinaloa is known as the granary of Mexico. And the state symbol is the tomato. But then you have to wonder, how many tomato farmers drive $200,000 Jag convertibles?

JAVIER VALDEZ: (Foreign language spoken)

BURNETT: Agriculture is very important, but it's not as big as they say, says Culichi author and journalist Javier Valdez, who's written five books about narco trafficking.

What drives the economy is organized crime, he says. Without the narcos, there would be more un-employment, fewer companies, less income, and not as much money in circulation.

VALDEZ: (Foreign language spoken)

BURNETT: Last summer, the Finance Ministry, which regulates banks in Mexico, began enforcing stringent new anti-money laundering rules. They're supposed to limit such things as bulk cash purchases and currency exchanges at casas de cambio.

A ministry lawyer in Mexico City said in an interview that money laundering complaints have jumped 140 percent since the new law went into effect. The Mexican federal attorney general's office did not respond to an email asking how many of those complaints resulted in criminal cases.

I asked Alejandro Hope, a former federal intelligence agent in Mexico City, if the government had any interest in disrupting the narcotized economy in Culiacan, or anywhere else.

ALEJANDRO HOPE: It's very difficult to close down these financial networks because of insufficient evidence that will stand in a court of law and probably because there is some officials at many levels might be complicit with those networks.

BURNETT: My final stop on the trail of American drug dollars at work in Mexico, ends - appropriately - at the graveyard. Cartel lieutenants tend to die young in this business. When they do, their families spend lavishly to construct mausoleums that look like small condos.

Here, in the Jardines de Humayo cemetery, you find row upon row of fabulous funerary temples, with marble steps, smoky glass walls, air conditioning, and even bathrooms for the family members who come to mop, polish and remember their lost loved one.

(SOUNDBITE OF CONSTRUCTION)

BURNETT: A mason named Carlos, who's building a new tomb, is asked about the young men who are memorialized in this city of the dead.

CARLOS: (Spanish spoken)

(LAUGHTER)

BURNETT: They died of natural causes, he says with a chuckle. In Culiacan, that means by bullets.

(SOUNDBITE OF MUSIC)

GREENE: That's NPR's John Burnett, reporting from Culiacon, Mexico.

Later today on ALL THINGS CONSIDERED, John reports on how the Sinaloa Cartel used a major international bank to launder drug dollars in the United States.

(SOUNDBITE OF MUSIC)

GREENE: You're listening to MORNING EDITION from NPR News. Transcript provided by NPR, Copyright NPR.