Thursday, December 22, 2011

Investigate this: Export businesses play big role in cartel money laundering

Grits mentioned how pleased I was to see the Senate Criminal Justice Committee assigned money laundering as one of its interim charges (subjects they're assigned to study during the year between Texas' biennial sessions), and a Dec. 19 headline from the Los Angeles Times, "Cartels use legitimate trade to launder money, US, Mexico say," prompts me to suggest the committee consider focusing on the state's export sector as they investigate how money laundering occurs and what Texas-side facilitation the state might conceivably disrupt. This notable excerpt from the Times story captures the key mechanism to examine:
Here's one way it works: Instead of smuggling the money the old-fashioned way, by simply carrying it south in bags and trucks, teams of money launderers working for cartels use dollars to purchase a commodity, and then export the commodity to Mexico or Colombia. Paperwork is generated that gives a patina of propriety. Drug money is given the appearance of legitimate proceeds from a trade transaction.

By turning their mountain of proceeds into tomatoes, say, or bolts of Chinese fabric shipped and resold in Mexico, cartels accomplish two goals at once: They transfer earnings back home to pay bills and buy new drug supplies while converting dollars to pesos in a transaction relatively easy to explain to authorities.
The focus on goods exported to Mexico jumped out at me in particular because of another recent article, this one from Texas Monthly, on the causes of Texas' economic "miracle" which included this notable tidbit: "Of the $207 billion worth of goods Texas exported in 2010, more than a third were sold to Mexico, which adds up to an amount three times greater than those of our fellow border states (California, Arizona, and New Mexico) combined."

So exporting goods to Mexico is a key money laundering technique and Texas leads the other border states, by a wide margin, in exports to Mexico. In fact, Texas exports more, by dollar amount, than any other state.

For my part, I doubt that's a complete coincidence. Over the summer, Grits published a post titled, "The real secret behind Texas' economic boom: Drug trafficking." If I had it to do over I'd have put a question mark on the end of that title, since Texas' economic success is caused by a confluence of factors. But my main argument stands: That Texas' role as a drug distribution and money laundering hub funneled billions of dollars into the economy over the last decade, much of which propped up "legitimate" businesses laundering money for cartels. As I wrote then:
Not just cartels but also mid-level distributors set up front companies that lose money as a practical matter but serve as vehicles through which they can launder drug cash, making it a lot easier to distribute either back to Mexico or to other stakeholders in the US. This is happening today on a fairly widespread basis and it means a lot more marginal businesses stay afloat - how many, no one can tell - to perform what amount to retail-level money laundering functions.
Adding the Times' analysis into the mix, it's a small leap to guess that many Texas businesses propped up by drug money are likely in the export business. As it turns out, reports the Times, dollars are harder to spend in Mexico these days than in the past, and cartels have a pressing need need to convert their holdings to pesos, for a variety of reasons discussed in the story. So bringing dollar bills across the border in a suitcase isn't good enough anymore. Thus the increased reliance on the export trade.

Examining the details arising from criminal cases is probably the best way to study how money laundering is occurring on the ground, and a significant number of those involve export businesses. Of all the examples I've heard of, though, one recent export-based money laundering scheme stands out above all others in Texas centered around the federal Ex-Im Bank. The story was well-covered for a time back in 2007 by reporter Byron Harris at WFAA in Dallas (but hardly anyone else) and Grits has written about it extensively. But somehow it never got traction the way Fast and Furious did; there were no Congressional hearings to investigate, and the people involved not only didn't lose their jobs but got promoted, while "reforms" resulted in only "voluntary guidelines" for lenders that did not forbid the same practices in the future. (Selling guns to cartels makes bigger ruckus, for whatever reason, than the government making nine-figure loans to drug runners that we never collect, or the DEA conspiring to launder their profits.)

The Ex-Im Bank is a federal agency that gives loans to businesses, including foreign companies, to purchase US exports. They made hundreds of millions in bad loans to Mexican companies during the Bush Administration, many of which went to non-existent front companies or outfits associated with drug cartels. Soon after the problems were discovered, and papered over, ironically, the chair of the Ex-Im Bank was named chief investment officer of the TARP fund that bailed out Wall Street. I'm only aware of one criminal prosecution stemming from the episode - a federal money laundering case (pdf) out of San Antonio that has now had time to play out.

To seriously tackle money laundering, then, the focus perhaps shouldn't be as much on suitcases of cash crossing checkpoints - a tactic that's already relatively well policed and less optimal for drug cartel liquidity - so much as crates of cargo leaving DFW Airport or in ships from the Port of Houston. Unlike investigations into drug smuggling, the Texas-side targets in money laundering schemes are more likely members of the local Chamber of Commerce, or else perhaps corporate or government bureaucrats, than tattooed gangbangers..

But will a "less government" Legislature be willing to proscribe, regulate or criminalize activities of seemingly legitimate export businesses, only a fraction of which engage in money laundering, in order to get to the bad eggs? For that matter, can a state regulate exports sufficiently to make a dent in the problem, or is that more properly and practically a federal role? Which reaches the even larger question: Besides southbound checkpoints aimed at seizing cash, what is the state role in investigation and prosecution of transnational money laundering? What can Texas do that the feds can't, or aren't doing? I suppose that's what the Senate Criminal Justice Committee will be discussing at the hearing on their interim charge.


Anonymous said...

One thing Texas can do is investigate those that are set up as Texas corporations, and see who operates under that umbrella. They can have a look at their sales tax, exemptions for business purchases, (if any) and movement of their inventory holdings throughout the year. That way, you could find out if they are legitimate companies, or just trading drug money for inventory, and then moving it across the border.

Anonymous said...

WOW! Great post GFB and very enlightening. I agree 100% and it appears as if the good ol' Rep. party could care less how profits are generated (legally or illegally) as long as we can stand up and say "Texas is better off economically than any other State."

Elected officials look like they are really tough on shutting down drug trafficking by over emphasizing beefing up border checkpoints. By expending resources a checkpoints and not at the corporate on US side sort of opens the door for trade. Sort of like a misdirectional football play, fein left but turn right.

Anonymous said...

The drug money is an insignificant part of the Texas economy. Mainly because the majority of the money doesn't stay here. This isn't Afghanistan, and we aren't growing poppies. Even without the drug money, Texas is still economically way better off.

Anonymous said...

8:38 - LMAO! Naturally someone would say it is insignificant. Especially when corporate can barely make an investing dime anywhere else right now. My bet is that US doesn't want to touch the drug business with Mexico right now. Laundering Drug money and bad crony loaning from the government is what is keeping corporate America afloat righ now.

Way better off than Afganistan, you may have a point.

Gritsforbreakfast said...

Insignificant, 8:38, really? Read this and then explain to me how insignificant it is.

Gritsforbreakfast said...

One more thing, 8:38: If the method of laundering money is to, say, buy a crate of tomatoes in Texas in dollars and re-sell it in Mexico for pesos, how can you credibly argue that "the majority of the money doesn't stay here"? Under this scenario, billions of dollars in Texas/US goods are being purchased that wouldn't otherwise be sold. How can you claim that doesn't boost Texas' economy? To deny that strikes me as either naivete or just living in willful denial.

Anonymous said...

The article you referred to speaks of the money worldwide. Foreign banks are much more lenient that ours regarding the origin of assets. Especially, since the IRS is informed of ANY deposits of noteworthy size.

And, most of the money doesn't stay here. Unless, of course, you are claiming that the cartel operations are taking place here, and not in Mexico.

And, if you think the money is staying here, it shouldn't be any problem for the IRS to catch up with it at tax time. You can't have it both ways.

And, 08:50, try investing in oil and gas. It's booming right now in NE Texas, NW Louisiana, and NW Oklahoma.

Gritsforbreakfast said...

Not trying to have it both ways, 10:08, just read the LA Times story. That's just what's happening. They buy goods here, sell them in Mexico. So because money isn't a zero-sm game but has a multiplier effect, they can BOTH buy goods in Texas AND convert them to pesos in Mexico, paying whatever tariffs are involved (not many, after NAFTA) as a cost of doing business.

As for the worldwide drug trade, Texas is the biggest drug hub of the border states because it's central with lots of highways, rail, etc., going everywhere from here. Meanwhile, the US is the biggest customer nation for drug smugglers, by far. So if Texas is the largest transit/money laundering hub for the largest (collective) customer of the international drug trade, a ton of that money is coming through this state, and the laundering process boosts the economy, particularly the export trade. Sorry if reality conflicts with your dismissive sensibilities, but it's true.

Anonymous said...

10:08 -- Don't feel to smug about your oil business. There are a lot of legitimate business but don't be so foolish as to suggest that the "booming oi industry" doesn't have its diry little hand in the laundering business.

Any Sheriff along Southern border of Texas will tell you that oilfield service companies are the best mules for carrying $$ and dope further into US.

But once again, its hands off because the "oil industry has saved our asses."

Anonymous said...

Doubt very seriously if the IRS could find its ass even if the hands were duck taped to it.

That logic didn't hold true with all the corporate rip-offs we have seen in the last 5 years.

Anonymous said...

The IRS can darn sure find mine, and I'm the least of their worries.

Anonymous said...

I'm well-vested with a lot of history in oil/gas and oilfield service companies. I know a few owners personally. Would you care to share some company names which you claim are drug mules?

Anonymous said...

Quicker and closer to the source if you will just go visit with your sheriffs who live within 100 miles of the border who have lots of drilling in their counties.

You stated..."well-vested with a lot of history in oil/gas and oilfield service companies"

If this is true than a good second choice would be to visit with the companies that you know and ask them to tell you if what I am saying isn't true and see if they will give up any specific named companies.

NOTE - I did not say everyone in Oil Industry... and credited that there are a lot of legitimate businesses in existence.

Anonymous said...

oK I see the solution, legalize marijuana. Just grow and sell it here. That way all the money would turn over in the US. Similar to the California Co Ops for the Medical Marijuana. The dispenceries can only sell what is produced under license. Sorry, no cartel profits. And the taxpayers benefit a lot of ways.


Bank Lending Criteria said...

Money laundering can also involve small non-financial businesses knowingly providing similar services to violent criminals, as in the case of trucker smuggling large bundles of currency out of the country for drug traffickers. This story is not hidden from the public and we must be observant with this.