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?
What Banks and
Bankers Were Busted in Operation Casablanca?
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.
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
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
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
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
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
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"?
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
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
(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