Borderlands
4:45 am
Thu March 20, 2014

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

Originally published on Thu March 20, 2014 10:07 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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