Story by : ALEX GESHEVA
Guadalajara Reporter
An investigation into allegations of money laundering by a Mexican firm could spell trouble for clients of some local exchange houses (casas de cambio) trying to wire money to the United States and Canada.
In September 2007, a U.S. registered Gulfstream II jet carrying 3.3 tons of cocaine crashed in Mexico’s Yucatan Peninsula. A year earlier, the Mexican Army seized a DC-9 aircraft with 5.7 tons of cocaine from Venezuela. Both crafts were purchased through Casa de Cambio Puebla, a Mexican exchange house.
Authorities soon detained Pedro Alatorre, a branch manager described as a financial operator for the Pacific Cartel headed by the notorious Joaquin “Chapo” Guzman, and another compliance officer.
By the time Forbes Associate Editor Nathan Vardi wrote an article on the operation last November, law enforcement officials had linked Alatorre to a 2.7-million-dollar account at Harris Bank, the Chicago arm of Canada’s BMO Financial Group. The U.S. government then froze 11 million dollars of the exchange firm’s assets in 23 different Wachovia branches.
The tale has some grim implications. At the time of the scandal, Casa de Cambio Puebla was fully licensed by Mexican banking regulators and boasted a solid 22-year history. It had 17 branches in Mexico and maintained 46 U.S.-dollar accounts at Wachovia branches in Miami and New York. In short, it’s exactly the kind of convenient, affordable, professional establishment expatriates routinely use to wire money home and avoid the queues and hassles of local banks.
“There has always been a need for money transfers, so large financial institutions [in the United States] also get in on it, find a way to make them attractive,” Michael Hearns,a veteran Florida police officer and instructor, told the Guadalajara Reporter. “And then they practice some willful blindness.”
That blindness is proving expensive, now that U.S. federal investigators are targeting U.S. banks connected to Mexican exchange houses used to launder drug profits. Union Bank of California recently paid 31.6 million dollars in fees for not screening their business partner, Mexico-based Ribadeo Casa de Cambio. Mexican authorities closed down Ribadeo, soon after its president was found shot dead in the back of a car. Just last year, American Express agreed to pay 65 million dollars in penalties in connection with U.S. Justice Department claims that their international private banking group was used to launder 55 million dollars of Colombian drug money.
Part of the problem, said Hearns, is the difficulty of separating the mice from the elephants, the ordinary client from the nefarious criminal in cyberspace.
“All money transfers look alike. Your small funds go into an electronic vat of hundreds of millions of dollars, so often asking us to pick out the laundered money is like trying to pick one particular strand of spaghetti from a bowl,” Hearns explained. “The functionality of the expat sending money home to family or for bills is very different from the functionality of a money-launderer who is trying to hide a trail and make it as convoluted as possible. But on paper the two transfers look alike.”
Unfortunately for Mexican exchange houses and their convenience-addicted customers, Wachovia has decided to solve the dilemma by playing it very safe. In late January, the bank announced that it was terminating its partnerships with many Mexican exchange firms, and closing the accounts involved.
“It’s had a negative, horrible impact,” said Alejandro Espinoza, exchange director at Sterling Casa de Cambio, one of Guadalajara’s largest and most reputable firms. “A lot of exchanges here dealt with Wachovia. The U.S. banks have the mechanisms to detect laundered money and they are in control of that aspect of it. They give us parameters and we comply, but these have started changing very quickly, with them asking for more and more details.”
And while Espinoza describes the services Sterling has always received from North American banks as wonderfully professional, those halcyon days of two-day money transfers may become a thing of the past.
“We’re dealing with our national banks now for transfers and we still haven’t found a partner to send Canadian dollars to Canada. We’re recommending people use their bank for those transactions for now,” says Espinoza.
But many Mexican banks require customers to have at least a one-year history a the branch before authorizing a wire transfer.
There is some hope: neither Hearns nor Espinoza believe that the current transfer difficulties can last.
“Remittances coming back to Mexico are being delayed,” says Espinoza. “The delays may hurt us, but I actually think it will hurt businesses up north more, if people just start sending cash. This is temporary, just like the peso crisis was temporary.”
“Wachovia and Harris have a large share of the market,” said Hearns. “But if you move out of a house, someone will move in – so it doesn’t stay empty. As long as there’s a need for that service, someone will offer it, and there’s a lot of money coming across that border.”
Not to mention, Hearns added, that fees that seem awe-inspiring to the common man are small change to banks, particularly compared to the profits to be made from the several-billion-dollar-strong remittance industry.
For now, expats wishing to send wire transfers home may find the task a little trickier than usual and Mexican exchange houses a little bit more defensive.
“We don’t have an opinion, we don’t have a comment, we don’t discuss anything we do,” the head of public relations for Eurofimex in Mexico City rushed to explain. “Please go away.”
In the short term at least, customers may be forced to comply.
Curious about the winding road your money may have traveled? Visit Michael Hearns’ website at www.launderingmoney.com. You can also try a simple but highly educational exercise: track the velocity and duration of your money by visiting www.wheresgeorge.com, a website that allows you to follow the adventures of your bills by their serial numbers.
http://www.guadalajarareporter.com/fullcover.cfm?id=21
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