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Narco News 2001

February 3, 2001

Operation Casablanca

Investigation of Money Launderers

Stopped When It Reached Too High

"One of the most successful anti-narcotics operations was Operation Casablanca, a U.S. Customs initiative which targeted, and caught, dozens of money launderers, including three Mexican banks.
"The Mexican government exploded with protests in middle 1998, protests that were quickly followed by the U.S. Government disavowing their own agents and tanking the investigation. The senior levels of both the U.S. and Mexican governments were principally offended because they were not informed of the long undercover investigation. Among those not informed were Secretary of State Madeleine Albright, Drug Czar retired General Barry McCaffrey and the Justice Department.
"Which is why, of course, the operation succeeded.
"The Drug War proceeds with record levels of arrest and incarceration, very few involving the kingpins, investors or money launderers..."
-- Columnist Jack McNamara, August 24, 2000 in the Big Bend Sentinel
Links and Facts on the History of this Case
What is Money Laundering and How Is It Done?
See Report by Letitia Foong of St. John's University
What Banks and Bankers Were Busted in Operation Casablanca?
From the June/July 1998 issue of Money Laundering Alert
Bank/ Bank funds sought to be forfeited
Banamex**/. $3,318,868.43
Banca Serfin*/ 9,582,523.14
Banco Confia*/ 12,187,224.13
Banco Industrial de Venezuela**/4. 4,007,891.28
Bancomer*/16,287,086.72
Bancopromex**/2,028,706.10
Banco Santander**/897,797.00
Banoro**/ 1,101,761.00
Banorte**/ 7,323,103.51
Banpais**/ 2,682,004.19
Bilbao Vizcaya**/236,820.00
Bital**/ 3,901,798.96
CBI Casa de Bolsa**/1,000,000.00
Caribbean America Bank**/4,260,385.57
Total/$68,815,970.03
* Indicted for money laundering under Title 18, USC Sec. 1956(a), facing civil penalty lawsuit under Title 18, USC Sec. 1956(b) and civil forfeiture action under Title 18, USC Secs. 981 & 984.
** Facing civil penalty lawsuit under Title 18, USC Sec. 1956(b) and civil forfeiture action under Title 18, USC Secs. 981 & 984.
From the June/July 1998 issue of Money Laundering Alert
Bankers indicted under the U.S. money laundering law*
Name\Position\Bank Affiliation
Jose Angel Cazares\Employee\Banamex
Oscar Monraz Sustaita\Manager\Banamex
Armando Medrano Rayas\Manager\Banca Serfin
Manuel Pazzi Salas\Manager\Banca Serfin
Manuel Gandara Farias\Branch Manager\Banco Bilbao Vizcaya
Miguel Barba Martin\Manager\Banco Confia
Jorge Milton Diaz\Employee\Banco Confia
Esperanza de Saad\Executive Vice President\Banco Industrial de Venezuela
Fernando Barragan Reyes\Employee\Banco Interacciones
Carlos Escoto Alcala\Financial Operations Manager\Bancomer
Manuel Barraza Leon\Manager\Bancomer
Jose Jesus Tostado Ramirez\Manager\Banco Mercantil del Norte
Rigoberto Ley Gutierrez\Group Executive\Bancopromex
Jose Calderon Fernandez\Manager\Bancopromex
Jose Reyes Ortega Gonzalez\Manager\Banco Santander and Bancomer
Jose Arnoldo Muga Gonzalez\Branch Director\Banco Santander Mexicano
Leonardo Favela Quezada\Director\Bancrecer
Eliseo Arechiga Fregoso\Manager\Banoro
Javier Nava\Assistant Manager\Banoro
Alberto Estrada Gonzalez\Funds Manager\Banoro
Jose Angel Ponce\Account Executive\Banpais
Juan Carlos Perez\Account Executive\Banpais
Sergio Licon Gandara\Account Executive\Banpais
Gildardo Martinez Lopez\Executive\Bital
Luis Carlos Rivas\Employee\Bital
Marco Tulio Henriquez\Employee\Caribbean American Bank
Katy Kissel Belfer\Employee\CBI Casa de Bolsa
Enrique Mendez Urena\Employee\Union Capital
Mario Valdovinos Ramirez\Owner\Vaco Plus
* Title 18, USC Sec. 1956(a)(1), (2) & (3).
U.S. STING OF MEXICAN BANKERS FOR DRUG MONEY LAUNDERING LEADS TO DISPUTE AT U.N. DRUG SUMMIT
In his remarks on June 8, Zedillo expressed anger over a three-year U.S. undercover investigation, known as "Operation Casablanca," where U.S. officials investigated major Mexican banking institutions for laundering illicit drug profits. The U.S. did not inform Mexican officials of the investigation or adhere to Mexican law. "We all must respect the sovereignty of each nation so that no one becomes a judge of others, so that no one feels entitled to violate other countries' laws for the sake of enforcing its own," Zedillo said. Zedillo and Clinton met later in the day to discuss the dispute (Stanley Meisler and Jonathan Peterson, "Acrimony Is Tinging Statement on Drugs by U.S. and Mexico," Los Angeles Times (Washington Edition), June 9, 1998, p. A2; David LaGesse, "Mexico leader attacks U.S. acts in drug war," Dallas Morning News, June 9, 1998; Nancy Mathis, "U.S., Mexico mend fence over sting," Houston Chronicle, June 9, 1998
"Operation Casablanca" led U.S. Customs agents to arrest 22 high-ranking and mid-level bankers from 12 of Mexico's largest banks when they traveled to the U.S. in mid-May. Some Mexican officials were drawn to the U.S. because the sting operation was disguised as a banking conference. Others were drawn to a staged casino grand opening in Nevada. The investigation culminated in 160 indictments, including 3 Mexican banks and 26 Mexican bankers (Don Van Natta Jr., U.S. Indicts 26 Mexican Bankers in Laundering of Drug Funds," New York Times, May 19, 1998, p. A6; Douglas Farah, "Mexican Banks Laundered Drug Money, U.S. Charges," Washington Post, May 19, 1998, p. A1; Douglas Rosenzweig and Mary Beth Sheridan, "Mexican Banks Indicted in Drug Money Probe," Los Angeles Times (Washington Edition), May 19, 1998, p. A1; Julia Preston, "Mexicans Belittle Drug-Money Sting," New York Times, May 20, 1998, p. A6; Joel Millman, "Drug Charges Hurt Mexico's Bid to Lift Bank Supervision," Wall Street Journal, May 21, 1998, p. A10).
Mexican officials accused "Operation Casablanca" of violating Mexican laws and sovereignty. Mexico Attorney General Jorge Madrazo Cuéllar said Mexico may pursue legal action against people involved in the operation. On May 26, White House spokesperson Michael McCurry said, "President Clinton expressed regret that better prior consultation had not been possible in this case." On June 11, Secretary of State Madeleine Albright asked Mexico to refrain from indicting U.S. agents. A Los Angeles Times editorial said, "Washington should not stage operations in Mexico without the approval of President Zedillo or one of his Cabinet ministers" (Julia Preston, "Mexico Faults U.S. Secrecy In Bank Sting Of Drug Profit," New York Times, May 22, 1998, p. A3; Associated Press, "U.S. Fumbled On Mexico Sting, Clinton Says," New York Times, May 27, 1998, p. A3; Julia Preston, "Mexico to Prosecute U.S. Agents Who Ran an Anti-Drug Sting," New York Times, June 4, 1998, p. A5; Tim Golden, "U.S. Drug Sting Riles Mexico Imperiling Future Cooperation," New York Times, June 11, 1998, p. A1; Stanley Meisler, "U.S., Mexico Stress Relations, Cooperation at Conference," Los Angeles Times (Washington Edition), June 11, 1998, p. A3; Stanley Meisler, "Albright Urges Mexico to Drop Threat in Sting," Lost Angeles Times (Washington Edition), June 12, 1998, p. A2, Editorial, "A Costly Sting in Mexico," Los Angeles Times (Washington Edition), June 12, 1998, p. A22).
Remarks by Senator Charles E. Grassley of Iowa
on the Floor of the United States Senate
June 10, 1998: [pp. S6011-6012, Congressional Record]
Mr. President, I am puzzled. In the last week or so, we have seen U.S. Customs' agents wrap up one of the most successful undercover operations in history. This effort, Operation Casablanca, has nailed a bunch of international bankers, mostly in Mexico, who have been laundering drug money. These white collar drug thugs have violated United States law, Mexican law, and international law. They have violated their trust. They have abetted one of the nastiest businesses on the planet. And they have conspired to do all of this to make an illegal dollar. Drug traffickers are bad enough. But their financial advisers and bankers are truly despicable. Thus, the Customs' undercover operation that exposed some of these low lifes is to be celebrated. My hat is off to the agents and informants that risked their lives to help defend our institutions and bring these pinstripe bandits to justice.
But I am still puzzled. What has me scratching my head is the reaction of the Mexican Government to this event. Instead of joining hands in congratulating efforts to protect the integrity of our international banking institutions and our shared concern to stop drug trafficking, what have they done. The Foreign Minister of Mexico has called the law enforcement people the criminals. She has raised the banner of so-called national sovereignty to provide cover to criminal activities of Mexican nationals. Mexico has called for the extradition of the law enforcement people in this operation, claiming they have violated Mexican law. What is wrong with this picture? Let me count the ways.
First, money laundering is the illegal act we are talking about. It is, by its nature, an activity without borders. It is also illegal in every legitimate country on the planet.
Second, the bankers in Mexico who engaged in laundering drug money, did so with knowledge of the illegality of their acts. They did so in a manner aimed at avoiding detection. They did so in defiance of bank regulations and Mexican law.
Third, these bankers engaged knowingly in using their expertise to violate United States law. And they provided the facilities of their banks to move money around the globe in violation of international law.
Fourth, we know they did this because it's on tape. We know they did it knowingly because the indictments spell it out.
Fifth, they used their expertise to try to improve the ease with which the money was laundered. They provided advice on how to avoid Mexican law.
They acted with criminal intent and used the interconnectivity of the modern banking system to hide their acts. They committed these acts in this country, in Mexico, and elsewhere, either in person or by using computers.
Now, the Foreign Secretary in Mexico would have it that in exposing these activities and in tracking the process, United States agents violated Mexican sovereignty and law. It would seem, in her view, that this means the undercover operatives committed criminal acts by engaging in money laundering. But in this country and most others, a criminal act involves intent. There is no criminal intent involved here by U.S. law enforcement. Just the reverse. Thus, law is not offended.
As to sovereignty, well, if we insist on this point, whose sovereignty is violated? Sovereignty is not meant to be a shield for criminality. It would be a fine world if that were the principle. It is not. I can think of few more useful tools for drug traffickers, money launderers, and thugs of every description than to find a safe haven in some country willing to use its sovereignty to harbor international criminality. What has happened here, is that bankers have violated the laws of this country by using the international banking system to freely commit crimes. They have done this in person in this country and they have done it electronically across borders. These are the criminals, not the law enforcement people who have corralled this gang of crooks.
But according to the Foreign Secretary of Mexico, it is the law enforcement folks who are to be labeled villains. In some of the most intemperate rhetoric I have seen from a senior government official, the Foreign Secretary not only castigates the good guys, but is calling for their extradition. I find this situation outrageous. I am equally concerned about the response from our own State Department. I have a letter here that our Secretary of State has sent to the Secretary of the Treasury. I will submit this for the Record. Instead of congratulating the law enforcement effort and joining hands with Secretary Rubin, Secretary Albright complains about inadequate consultation with Mexico. What is wrong with this picture?
Given the important steps Mexico and the United States have taken to improve bilateral cooperation and to go after the real thugs in the story, I hope we can get past this case quickly. I hope the Foreign Secretary of Mexico and Secretary of State of the United States wake up and smell the coffee.
Mr. President, I ask unanimous consent that the letter from Secretary Albright to Secretary Rubin be printed in the Record.
There being no objection, the letter was ordered to be printed in the Record...
Madelaine Albright to the Defense of the Money Launderers
May 1998 Letter from US Secretary of State to Treasury Secretary
Mex Prez Zedillo's Motives for Complaining About Operation Casablanca, says Albright, are related to "charges from the opposition that it is attempting to bail out a corrupt banking system."
The Secretary of State, Washington, DC, May 22, 1998.
Hon. Robert Rubin, Secretary of the Treasury.
Dear Secretary Rubin:
I know that both you and Attorney General Reno are aware of the negative reaction in Mexico to the announcement of Operation Casablanca and have had contact with Mexican officials about this. I spoke May 21 with Foreign Secretary Rosario Green who expressed her government's deep resentment for not having been informed of the operation prior to the public announcement. Other Mexican officials have voiced concern that the activities undertaken by U.S. agents in Mexico may have been illegal under Mexican law or contrary to understandings between the United States and Mexico.
Mexico's reaction is a product of many factors, not least of which is great sensitivity within the Zedillo government to preexisting charges from the opposition that it is attempting to bail out a corrupt banking system. However, I am concerned about the negative tone this development introduces into the relationship and that Mexican cooperation on several fronts, particularly counternarcotics, may be affected.
We might have achieved more favorable results if we had brought Attorney General Madrazo and a few others into our confidence a few days before the public announcement. In this regard, I believe State should have been consulted. We would have been able to offer some advice that could have ameliorated the negative reaction.
I would appreciate being kept personally informed of developing investigations in Mexico and other foreign countries that could have a significant foreign policy fallout. I do not wish to interfere with your law enforcement work, but I do believe we need to do a better job of coordination.
It is essential that in the coming days you find ways in your public statements and private contacts with Mexican officials to indicate that we are actively working to avoid similar difficulties in the future. I hope to discuss this with you soon.
Sincerely, Madeleine K. Albright.
Federal Reserve Board "Cease and Desist Order" vs. Four Mexican Banks
From an Announcement by the Fed
Release Date: May 18, 1998
For immediate release
The Federal Reserve Board announced today the issuance of enforcement actions against five foreign banking organizations with banking offices in the United States to address serious deficiencies in their anti-money laundering programs. Temporary Cease and Desist Orders were issued against Banco Nacional de Mexico (Banamex), Mexico; Banca Serfin, S.A., Mexico; Banco Internacional, S.A. (Bital), Mexico; Bancomer, S.A., Mexico; and Banco Santander, Spain. Each of these foreign banks operates one or more branches or agencies in the United States.
The enforcement actions result from an extensive undercover "sting" operation conducted by the U.S. Department of Justice and U.S. Department of the Treasury. The Federal Reserve assisted these law enforcement agencies. In connection with the undercover operation, the Departments of Justice and Treasury announced today the indictment and arrest of several bankers charged with laundering approximately $70 million in the United States and abroad. They also announced the indictment of two of the Mexican banks subject to the Board's enforcement actions (Bancomer, S.A. and Banca Serfin, S.A.).
The Board's Temporary Cease and Desist Orders require the banks, among other things, to implement new anti-money laundering policies and procedures designed to correct the deficiencies in their current programs. Federal Reserve examiners will continue to monitor the activities of the banks subject to the enforcement actions to ensure full compliance with all applicable money laundering-related laws and regulations
Federal Reserve C&D proceedings unaffected by bank guilty pleas
From the May 1999 issue of Money Laundering Alert
The money laundering guilty pleas by two of the largest Mexican banks, Bancomer and Serfin, does not affect the proceedings they face before the Federal Reserve Board that were launched by the issuance of Temporary Cease and Desist Orders on the day the Operation Casablanca cases were announced on May 18, 1998 (MLA, Jun./Jul. 1998). Four other foreign banks also confront the same Federal Reserve administrative enforcement actions: Banamex (Mexico), Banco Industrial de Venezuela, Bital (Mexico), and Banco Santander (Spain).
The six banks are subject to Federal Reserve supervision because they conduct operations in the U.S. They will be required to appear before the Fed next month to report on the status of the enhanced money laundering controls the C&D requires them to implement including "steps, practices, measures, policies and procedures that have been and will be implemented" to ensure that money laundering "is not occurring and will not occur in the future."
The C&Ds capture the prime fear of regulators about banks involved in money laundering: "(F)inancial institutions that are linked to money laundering activities suffer loss of reputation and are subject to runs on their accounts, the loss of valuable customers, dissipation of assets and other adverse financial consequences."
A "Notice of Charges," which accompanied the six Temporary C&Ds and have the appearance of a civil indictment, says "(the bank's) practices... are contrary to accepted standards of banking operations and may result in an abnormal risk of loss to (the bank) or prejudice the interests of its customers."
At the conclusion of the hearings and deliberations, the Fed will issue a Permanent Cease and Desist Order containing its decision and a prescription of additional steps the banks must take. A civil money penalty may also be imposed.
The Fed has enormous power over the fate of foreign banks that operate in the U.S., including the authority to expel a bank from the country. That fate was suffered by the Bangkok Metropolitan Bank, of Thailand, which Federal Reserve examiners found seriously wanting in its money laundering controls and Bank Secrecy Act compliance among other things (MLA, Aug. 1996).
The eight other banks caught up in Casablanca that face sizeable forfeitures and money laundering civil penalty actions by the U.S. Attorney's Office in Los Angeles are not subject to Federal Reserve C&Ds because they do not conduct operations here. Confia, S.A., which was indicted last May along with Bancomer and Serfin, is in that group. It will pay a civil forfeiture of $12.2 million as the resolution of the criminal case.
The best known Fed C&D in the laundering field was against American Express Bank International in September 1993. It led to a $950,000 civil penalty against the U.S. bank on top of civil and forfeiture sanctions of $35 million in 1994 upon the laundering conviction of two of its private bankers (MLA, Dec. 1994).
Fed issues 'C & D' orders to six banks for actions of employees
From the June/July 1998 issue of Money Laundering Alert
In what may appear to some as a classic case of closing the barn door after the horse has escaped, the U.S. Federal Reserve Board last month issued "temporary cease and desist orders" against six foreign banks implicated in Operation Casablanca.
The orders, which were issued on May 18 and 20 against Bancomer, S.A., Banca Serfin, S.A., Banco Nacional de Mexico (Banamex), Banco Internacional, S.A. (Bital), the Mexican affiliate of the Spanish bank, Banco Santander, and the Venezuelan bank, Banco Industrial de Venezuela, say that alleged money laundering activity of their employees raises "serious questions" about the banks' ability to operate in compliance with the requirements of the U.S. Bank Secrecy Act and money laundering laws.
The six banks also face multi-million dollar forfeiture orders and civil money penalty lawsuits under a provision of the U.S. money laundering law (Title 18, USC Sec. 1956(b)). Of the six institutions only Bancomer and Banca Serfin have been indicted for money laundering. Banco Confia, another Mexican bank indicted for laundering and facing the forfeiture and civil lawsuits, does not do business as a financial institution in the U.S. and is therefore not subject to supervision by the Fed or to a cease and desist order.
The Federal Reserve and other U.S. bank regulatory agencies use cease and desist orders for a range of issues, including "safety and soundness" and compliance deficiencies, among banks they supervise.
One of the best known Federal Reserve C&Ds in the money laundering field was issued against American Express Bank International in September 1993. The order was the culmination of a finding by Fed examiners of weaknesses in BSA compliance procedures and money laundering controls at the bank. It ended up costing AEBI a $950,000 civil penalty and followed civil and forfeiture sanctions the bank suffered in 1994 following the money laundering conviction of two of its private bankers (MLA, Dec. 1994).
The Casablanca C&Ds require the six banks to submit to the Fed a description of their anti-laundering procedures and their "understandings regarding the deficiencies in such policies and procedures that could have given rise to the actions taken by (their) employees...."
The orders capture in a nutshell the fear regulators harbor about banks involved in money laundering: "(F)inancial institutions that are linked to money laundering activities suffer loss of reputation and are subject to runs on their accounts, the loss of valuable customers, dissipation of assets and other adverse financial consequences."
The orders requires the banks to submit an acceptable plan detailing "steps, practices, measures, policies and procedures that have been and will be implemented" to ensure that money laundering "is not occurring and will not occur in the future."
At the same time, the Fed served the banks with a "Notice of charges and of hearing issued pursuant to the Federal Deposit Insurance Act." The notices reiterate allegations contained in indictments and affidavits filed in the Casablanca criminal cases in Los Angeles calling them "unsafe and unsound practices."
The notices say the banks "have failed to use prudent (anti-money laundering) procedures," and have placed themselves in danger of having their assets and their customers' accounts seized and their reputations tarnished.
"(The bank's) practices... are contrary to accepted standards of banking operations and may result in an abnormal risk of loss to (the bank) or prejudice the interests of its customers," say the notices.
The Fed will hold a hearing on July 13, 1998, to receive evidence pertaining to the cease and desist orders. The banks must file answers to the notice within 20 days of receipt.
International Narcotics Control Strategy Report, 1998
Released by the Bureau for International Narcotics and Law Enforcement Affairs, U.S. Department of State
Washington, DC, February 1999
Operation Casablanca
On May 18, 1998, the Secretary of the Treasury and the Attorney General of the United States announced the culmination of Operation Casablanca, the largest, most comprehensive and significant drug money laundering case in the history of U.S. law enforcement.
This three-year, undercover money laundering investigation resulted in the arrest of 167 individuals, the seizure of over $103 million in U.S. currency, over four tons of marijuana and two tons of cocaine. The indictment, which was issued in the U.S. District Court in Los Angeles, charged 26 Mexican bank officials and three Mexican banks, Confia, Serfin, and Bancomer with laundering drug money. The indictment alleges that officials from 12 of Mexico's largest 19 banking institutions were involved in money laundering activities. Additionally, bankers from two Venezuelan banks, Banco Industrial De Venezuela and Banco Del Caribe were charged in the money-laundering scheme.
Court orders were obtained allowing for the seizure of the total amount of drug money laundered through the accounts and the amount of commission money paid to the bankers. The total was approximately $110 million dollars. Because the Mexican bank drafts were drawn on the U.S. accounts of the Mexican banks, court orders were obtained allowing for the seizure of the aforementioned funds from those U.S. accounts.
At the conclusion of the investigation, the Federal Reserve Board issued temporary cease and desist orders against six of the foreign banks that they supervise and that were implicated in Casablanca. These banks are Bancomer, Banca Serfin, Banamex, Banco International, Banco Santander and Banco Industrial De Venezuela.
Prosecution of the people and institutions implicated in Operation Casablanca is pending.
SELECTED DEVELOPMENTS IN LATIN AMERICA AND THE CARIBBEAN
IN ANTI-MONEY LAUNDERING
by Bruce Zagaris
C. Enforcement Cases
1. Operation Casablanca
On May 18, 1998, the U.S. Secretary of the Treasury and the Attorney General announced the culmination of Operation Casablanca. According to the International Narcotics Control Strategy Report, it represented the largest, most comprehensive and significant drug money laundering case in the history of U.S. law enforcement.
The three-year, undercover investigation resulted in the arrest of 167 individuals, the seizure of more than $103 million in U.S. currency, more than four tons of marijuana and two tons of cocaine. The indictment, issued in the U.S. District Court in Los Angeles, charged 26 Mexican bank officials and three Mexican banks, Confia, Serfin, and Bancomer with laundering drug money. The indictment alleges that officials from 12 of Mexico's largest 19 banking institutions were involved in money laundering activities. In addition, bankers from two Venezuelan banks, Banco Industrial De Venezuela and banco Del Caribe were charged in the case.
Court orders required the seizure of the total amount of drug money laundered through the accounts and the amount of commission money paid to the bankers, which was approximately $110 million. Since the Mexican bank drafts were drawn on the U.S. accounts of the Mexican banks, court orders were obtained allowing for the seizure of the funds from those U.S. accounts.
The Federal Reserve Board issued temporary cease and desist orders against six of the foreign banks that they supervise and that were implicated in Casablanca: Bancomer, Banca Serfin, Banamex, Banco International, Banco Santander and Banco Industrial De Venezuela \.
President Ernesto Zedillo complained that the U.S. should have informed Mexican authorities about the sting operation, stating that no cause "can justify the violation of our sovereignty nor of our laws." U.S. President Bill Clinton expressed regret that better prior consultation had not been possible in the case. U.S. law enforcement officials stated they did not notify Mexico out of fear of endangering agents.\
On June 3, 1998, the Mexican Government advised the U.S. it will prosecute U.S. Customs agents and informers who executed an undercover money laundering operation on Mexican territory and will seek the agents' extradition in connection with the charges.
Mexican officials are angry that indictments were only against Mexican banks and bankers, while U.S. bank names in the investigation went unindicted. The indictments also reinforced perceptions of corruption in Mexican law-enforcement institutions and undermined efforts by the Zedillo Administration to strengthen Mexican agencies responsible for monitoring and combating money laundering.
In February 1999, a Mexican judge denied the extradition of the five bankers whose extradition the U.S. requested for their role in money laundering in Operation Casablanca.
The Mexican Government has promised to prosecute them under Mexican law.
Through the development of guidelines for consultation on sensitive law enforcement activities by the two Attorneys General as set forth in a July 2, 1998 letter between the Presidents and a bilateral agreement signed in February 1999, the policy issues affecting the binational relationship were largely resolved.
What is "The Fed's Death Penalty"?
From the May 1999 issue of Money Laundering Alert
Mexican banks will be first to face bank death penalty proceedings
Dear MLA:
I am the CEO of a medium-sized U.S. bank and have read about the conviction of two Mexican banks for money laundering. Didn't Congress pass a law that imposes a "death penalty" on banks that are convicted of laundering? What are the next steps that must be taken with those banks? Are domestic banks like ours treated any differently than foreign banks under that law? Does it also apply to Bank Secrecy Act violations? What are the regulators authorized to do?
Jittery about our license
Dear Jittery:
If there is any signal that banks need about the seriousness of the U.S. policy on money laundering controls it is the "death penalty" law that can lead to revocation of a bank's charter, license or deposit insurance, whether it is domestic or foreign. There are several such laws with similar language, each focused on different types of financial institutions (Title 12, USC Secs. 1818(w), 1821 and 3105(I)).
Since 1992, when Congress passed the "death penalty" law, the figurative electric chair has gotten rusty from lack of use. Only one bank has been convicted of laundering since enactment of the law, Banque Leu, of Luxembourg, which was sold to Credit Suisse soon after the laundering occurred but before it was uncovered by the U.S. government (MLA, Jan. 1994). As a result, Credit Suisse was treated as an "innocent purchaser" and the death penalty proceedings were never commenced.
Now, the two Mexican banks that pleaded guilty to laundering in Operation Casablanca will be the first to be subjected to the law's provisions.
Revocation of a license or federal insurance is not mandatory upon conviction. The law provides "wiggle" room to the regulators. The process begins with notification by the Attorney General to the Federal Deposit Insurance Corporation for state-chartered banks and the Office of the Comptroller of the Currency for national banks, about the laundering or BSA conviction of the institution.
The FDIC or OCC, in the case of a money laundering conviction (Title 18, USC Secs. 1956 & 1957) must then issue a notice to the institution of its intention to revoke the charter. They "may" issue such a notice for a BSA conviction. The statute says the agencies "shall" take five mitigating factors into consideration, including the involvement of senior officers, the adequacy of policies and procedures to prevent such crimes, the level of cooperation with the government, the implementation of new controls, and the impact on the availability of banking services to the local community.
The Federal Reserve follows a similar approach in dealing with the U.S. operations of foreign banks. Although they are not specifically mentioned in the statute that applies to foreign banks, the Federal Reserve, by inter-statute reference, is permitted to take the above factors into account, except for the latter one (Title 12, USC Sec. 3105(e) and 1818(w)(2)).
The Federal Reserve is not required to conduct a hearing. It must "issue a notice to the (bank) of (its) intention to commence a termination proceeding..." in the case of money laundering or BSA violations (Title 12, USC Sec. 3105(I)(1)). Presumably, the foreign bank's written response to the Fed's notice and the assurances the bank has given to the Justice Department and the Fed could resolve the matter.
Good luck.
MLA
From the September 2000 issue of Money Laundering Alert
Justice Department bestows highest award on Operation Casablanca legal team
U.S. Attorney General Janet Reno last month presented the John Marshall Award, the highest honor that the department bestows, to thirteen Justice Department attorneys for their efforts in the money laundering and asset forfeiture cases that resulted from the undercover investigation, Operation Casablanca.
Reno presented the awards during a July 28 ceremony to Supervisory Assistant United States Attorney Janet C. Hudson; Assistant U.S. Attorneys Duane R. Lyons, Joseph A. Brandolino, Julie J. Shemitz, Diana L. Pauli, Robert E. Dugdale, and Gregory Staples; Office of the Deputy Assistant Attorney General Special Assistant Lee Jeffrey Ross, Jr.; Attorney-Advisor Wendy J. Silberberg; Senior Trial Attorney Susan Lea Smith; Trial Attorney A.J. "Jack" deKluiver; and Asset Forfeiture and Money Laundering Section Assistant Chiefs Lester M. Joseph and Stefan D. Cassella.
Casablanca has logged the conviction of 40 persons and two Mexican banks, Bancomer and Banca Serfin (MLA, May 1999). Eleven other banks have faced U.S. forfeiture, civil and administrative actions (MLA, Jun./Jul. 1998). It has also produced some stinging setbacks for the government in forfeiture actions, civil money laundering penalty cases and prosecutions.
In announcing the awards Justice said Casablanca "significantly disrupted the activities of drug cartels operating throughout the U.S. and has deterred the cartels from using the Mexican and Venezuelan banking systems to launder vast amounts of drug proceeds. In addition, (it) has resulted in financial institutions paying greater attention to their anti-money laundering procedures."
Statement of Bonni G. Tischler
Assistant Commissioner, Office of Investigations
United States Customs Service
Before the Subcommittees on Financial Institutions and General Oversight

Madame Chairman, Chairman King, and Members of the Subcommittees, Good Morning. I am pleased to join my colleagues from the Departments of Justice and Treasury to discuss our efforts in combating money laundering...
The Customs Service has made some stunning seizures of bulk cash shipments in the past few years. Shortly after the takedown of Operation Casablanca in May of 1998, we began receiving reports that some drug trafficking organizations were having difficulty in collecting and transporting currency out of the United States as a result of having their infrastructure disrupted...

Ex-Customs Agent Says U.S. Ignored Evidence
April 2000 from the CBS TV News Program 60 Minutes
(CBS) A former U.S. Customs agent tells Ed Bradley that when he tried to determine the validity of evidence he says could implicate Mexico's secretary of defense in drug money laundering, his superiors stopped his investigation to avoid an international incident. The ex-agent, William Gately, appears in his first television interview on 60 Minutes on Sunday, April 16.
According to Gately, if the allegations could be proven, U.S. Customs may have been able to catch one of the really big fish in Mexico's drug trade. But it never followed up on a covert video showing a corrupt Mexican banker alleging that Mexico's secretary of defense wanted to launder $1 billion in drug money.
"It is the only time that law enforcement had an opportunity to deal directly with that kind of money and those people who protect the mafia and the financial institutions of Mexico," says Gately. "They blew their big chance."
That chance came during "Operation Casablanca," U.S. law enforcement's largest investigation into drug money laundering, a sting executed without the knowledge of the Mexican government that eventually landed dozens of Mexican bankers in jail.
Gately organized and ran Casablanca. He says that when he told his bosses at the Treasury Department about the allegations concerning Mexico's secretary of defense, they weren't interested. In fact, he tells Bradley, his bosses refused to let him investigate the allegations. Gately believes the Clinton administration did not want to provoke an incident with Mexico.
Customs Commissioner Raymond Kelly insists politics had nothing to do with shutting down Casablanca. He says the allegations concerning Mexico's secretary of defense were vague and unreliable.
But former Justice Department prosecutor Lawrence Barcella, after reviewing the videotape transcripts, disagreed. "You've just identified the person's position...One person...holds that position. You don't have to be a genius to figure out who they're referring to," says Barcella.
Mexico's secretary of defense is Gen. Enrique Cervantes, whom U.S. officials say is America's key partner in the drug war.
Commissioner Kelly says the main reason Casablanca was shut down was that leaks to the media about the operation were putting agents' lives at risk.
But Gately says, "[Kelly] didn't punish anyone for leaking." The real reason, says Gately, was that nobody really wanted to target the Mexican government. "The undercover phase of this thing ended and there was a hue and cry not only from the Mexican government...Our own secretary of state, Madeleine Albright...[and] drug czar Gen. McCaffrey both took the side of the Mexican government," Gately tells Bradley. "So I believe everyone thought that Mexico gets a pass...We don't want to hear about it. So they didn't follow up on it."
From the Transcript of the 60 Minutes story:
BRADLEY: (Voiceover) Several top law enforcement officials tell us they were astonished that hardly any effort was made to pressure indicted suspects to testify against higher-ups in the drug cartels and the Mexican government. For instance, one of the indicted suspects was Ernesto Martin, the man Gately's informant sent to Mexico to meet with the people claiming to represent the secretary of Defense.
Mr. GATELY: Deals were made with Martin so-for his testimony against a couple of bankers. But he was never even asked what his dealings were with the representatives of the general's people in Mexico City.
BRADLEY: In the end, not one indicted suspect testified against anyone who hadn't already been arrested. The arrests-based in part on the work of undercover US agents in Mexico-triggered diplomatic protests that Operation Casablanca had violated Mexico's sovereignty.
(Footage of President Bill Clinton; Madeleine Albright; Barry McCaffrey)
Mr. GATELY: (Voiceover) There was a hue and cry, not only from the Mexican government at every level, including the president, but our own secretary of state, Madeleine Albright, our drug czar, General McCaffrey.
Both took the side of the Mexican government, also hammering the operation. So I believe that everyone thought that that meant Mexico gets a pass, 'You don't follow up on this stuff. Nobody cares. We don't want to hear about it.' So they didn't follow up on it.
(Footage of Janet Reno)
BRADLEY: (Voiceover) Attorney General Janet Reno even signed an agreement which assured Mexico that the US would never again mount an undercover operation in Mexico without first telling the Mexican government. In other words, no more Casablancas, even though the attorney general and Commissioner Kelly acknowledged that Operation Casablanca had accomplished something unprecedented in US law enforcement.
Mr. KELLY: Bill Gately did a fine job in this investigation.
BRADLEY: (Voiceover)) And when it was over, Commissioner Kelly awarded Gately a merit certificate and a $10,000 bonus.
Mr. KELLY: Bill Gately was clearly a-a major mover, a motivator for the investigation.
BRADLEY: Is anyone more responsible than Gately, any one person more responsible?
Mr. KELLY: As far as I know, no.
Mr. GATELY: It is the only time that law enforcement has had an opportunity to deal directly with that kind of money and those people who protect the Mafia and the financial institutions in Mexico. It's the only time.
BRADLEY: So this was a big chance for the United States, and you're saying that US law enforcement blew it.
Mr. GATELY: They blew their biggest chance.
BRADLEY: In a letter to us, the Mexican government says the allegations against General Cervantes are unfounded and false and points to US rejections of those allegations as unsubstantiated and speculative. And even though no one has ever produced evidence that Cervantes is actually involved with narcotics, when Bill Gately became convinced that the US was not going to investigate further, he resigned from the customs service.

Banking on the Facts