Lynch, Leanne --- "Cafe Americain-style: money laundering" [1999] AUFPPlatypus 13; (1999) 63 Platypus: Journal of the Australian Federal Police, Article 5

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Cafe Americain-style: money laundering

In the 1942 movie Casablanca, refugees conducted their business at Rick's Caf Americain, selling their diamonds and any other possessions they had to get money for exit visas.

Fifty-three years later, US Customs set up their own version of the popular piano bar — a firm called the Emerald Empire — as part of Operation Casablanca. But instead of refugees, their customers were the South American cartels, laundering the proceeds of illicit drug sales.

By Leanne Lynch

Combating money laundering, seen by some as a boring cat and mouse game for accountant types, is actually one of the most exciting, high-stakes games around.

And the stakes don't come any higher than those played during Operation Casablanca, one of the biggest drug-money laundering operations ever undertaken by the US Customs Service.

By the time the operation wrapped up in May last year, 18 financial institutions had been identified as being involved in laundering drug money, 162 arrests had been made, 32 bankers and three banks were indicted, and US$97.3 million in cash, 1,754kg of cocaine and 4 tonnes of marijuana were seized.

The man who took on the Mexican banking system and some of the region's most powerful drug traffickers — and won — was in Canberra recently to address participants of the AFP's Management of Serious Crime course.

Bill Gately joined the US Customs Service in 1978 after serving eight years with Washington's Metropolitan Police Department and three years as a US Marine. From 1992 until 1998 Mr Gately was assigned as the Assistant Special Agent in Charge for narcotics smuggling and money laundering investigations in Los Angeles, California.

Much of that time was devoted to Operation Casablanca, beginning with the planning stage in 1993–94. Approval to go ahead took 12 months, with jurisdictional squabbles, budgetary concerns and sheer fear at the size of the opponent being targeted all getting in the way.

Indeed the budget of his Los Angeles-based undercover task force — normally between US$1.4 and $1.8 million — totalled US$100 million over Casablanca's operational phase, which ran from 1995 until mid-1998.

However, during the seven years of Mr Gately's assignment his task force — which comprised 10 undercover agents, 22 surveillance teams of 10 members each, two accountants and three intelligence analysts — brought in a staggering US$242 million in revenue, a significant proportion of which resulted from Operation Casablanca.

Until the mid-1990s, traditional undercover operations focused on ‘targets of opportunity'. This usually meant the money laundering cells and cell managers — or ‘small fry' — because the kingpins and their organisations were much harder to access.

These operations, while successful in many ways, often left the mechanisms for money laundering in place. Furthermore, money launderers are good learners, who do not ignore the lessons of previous sting operations but rather adapt and improvise constantly — forcing law enforcement to do the same or be left behind.

After being stung in 1992 by Operation Omega, which resulted in about 3,000 arrests and the seizure of US$155 million and 15 tonnes of cocaine, drug traffickers and their money launderers abandoned their traditional placement set-ups in the ‘big five' financial centres — Miami, Chicago, Houston, Los Angeles and New York — and began dealing instead with Mexican banks.

Later, US Attorney-General Janet Reno was quoted in the Miami Herald as insisting that such [illegal] arrangements were not an indictment of Mexican banking. But in a country whose currency — the peso — devalues almost daily, the opportunity for its banks to have a steady income in US dollars would have been irresistible.

The plan was simple. After being smuggled out of the USA, drug money was deposited in a complicit Mexican bank before being wire- transferred or shipped back over the border legally and deposited safely in unwitting banks both in the USA and abroad. Bank cheques issued to the launderers from the Mexican banks' US accounts were then couriered to brokers in Colombia who re-sold the cheques to ordinary business people and citizens at a discounted rate.

Months would go by before these cheques were presented, and in fact the exclusive use of these cheques as legal tender in the Colombia–Panama area was estimated at one stage to involve about $US7 billion a year. Meanwhile, the Mexican banks on whose accounts the cheques were drawn not only earned interest on the undrawn dollars but also commission from the grateful cartels.

The cartels and their launderers had adapted, and continued to flourish. But undercover agents had also learnt a few lessons.

Aware of the decline in US-based placement of funds and in possession of a number of suspect bank cheques, the task force turned to ‘systems targeting', a method which relies on a high-level introduction to a key element within a money laundering system and the ability of undercover operatives to become major players.

Federal undercover operations in the US are governed by a law that allows agents to act outside restrictions normally placed on government employees. They may appropriate or even earn money from businesses established as part of undercover operations, and may actually engage in criminal enterprise with exemption from prosecution.

In 1995 Customs agents set up a fictitious import-export company called the Emerald Empire 24km south of Los Angeles in a city called Santa Fe Springs and secured an introduction to Oscar Armando Saavedra, broker for Colombia's Cali Cartel.

Within a short time, Saavedra had not only offered the agents pickups in the USA, Europe and the Asia-Pacific, but had also introduced them farther up the food chain. Among those introduced were Gustavo Chavarriaga — a highly-placed member of the Cali Cartel who once boasted that he laundered more than US$3 million in drug money each day — and Carmen Salima Yrigoyen, a Venezuelan attorney with links to both legitimate businesses and the drug world.

By August 1995 the agents were laundering money for the Cali Cartel via New York, Chicago, Miami, Los Angeles, Houston, Italy, and Tokyo. But not Mexico. To get connected with the Mexican banks required an introduction of the highest level — that of either a politician or a crime boss.

Then in November 1995 Saavedra delivered just over US$1.1 million to the agents on behalf of Amado Carrillo Fuentes, then head of Mexico's Juarez Cartel.

Carrillo Fuentes was known as the ‘Lord of the Skies', due to his success at airborne drug transhipments. He was a cautious man, however, and the agents dealt mostly with Jose Alvarez Tostado, known as ‘Compadre' (who would take over the Juarez Cartel in 1997), and Victor Alcala Navarro, cell manager for Los Angeles, Chicago and Houston who was known as ‘The Doctor'.

Tostado was a frequent visitor to the USA and even had dinner on a number of occasions with the undercover agents. So close did the business relationship become, in fact, that Tostado soon trusted the undercover agents more than he trusted his own broker.

Throughout 1996 the agents laundered money through their storefront in Sante Fe Springs and attended meetings in both the US and abroad. Despite being compromised in Spain and Puerto Rico, their cover held. They were now the cartel's number one money launderers and could secure the introduction they required to Mexican banks.

By January 1997 Operation Check Mark — the movement of pickup money and investment money through Mexican banks — was underway, as were meetings with Venezuelan bankers who were interested in getting in on the action. Spin off investigations were also begun on the Carrillo Fuentes organisation and a number of private companies suspected of involvement with the cartels.

From late 1996, the cartels became subject to seizures of substituted assets, money, drugs and, in one instance, 300 Rolex watches. Cases were made based on information gained in separate investigations to avoid tipping off the cartels to the undercover operation.

The exception was Chicago. By September 1997, millions of dollars had been ‘picked up' in the windy city, yet no seizures effected. Finally, ASAC Gately made the decision to establish a Casablanca Task Force in that city, virtually taking over Chicago's law enforcement assets and directing all subsequent actions relating to the operation.

Needless to say, this did nothing for federal–state law-enforcement relations. In fact Mr Gately often remarks "the only place I am more unpopular than Chicago is Mexico".

Throughout all of this, the relationship between the men of the Emerald Empire and the head of the Juarez Cartel remained strong. Worried by the seizures and not trusting his own people, in November ‘Compadre' requested that the agents store his money — in the undercover warehouse in Chicago!

The prime objective of the operation, however, was the system used to launder the drug money. Information had been painstakingly compiled on the money laundering packages on offer from the Mexican and Venezuelan banks, the extent of knowledge and involvement of US banks, and the links between the cartels and various business enterprises.

It was about this time that final planning was in hand to lure as many of the corrupt bankers as possible into the USA where they could be arrested. In December 1997, ‘The Doctor' attended a meeting in Colombia with a Customs operative referred to as ‘El Patron' and was offered a sizeable commission to gather his banker friends in Los Angeles for a meeting.

The bait was an enormous money laundering job that would earn all involved profitable commissions.

Casablanca reached its climax in May 1998. On May 16, an undercover agent accompanied the Juarez's Ernesto Martin to four separate meetings with Mexican bank officials in San Diego. At the conclusion of the meetings, Martin and the agent flew on to Las Vegas and the luckless bankers were arrested in their wake.

That evening the pair met up with more bankers at the Casablanca resort hotel. The bankers had been flown to Vegas for the meeting and taken to the resort by limousine.

En route to an apres-dinner bordello, however, the men were arrested and taken to Nellis Air Force Base for interviewing. The only woman banker in the group was arrested the following morning.

On May 18, following the weekend arrests, warrants were served on more than 50 targets in New York, Chicago and Vancouver. Simultaneously, the Asset Forfeiture Group swooped on banks in San Francisco, Los Angeles, Buffalo, New York, Washington, Miami, McAllen, San Antonio, Houston, Dallas and Norman, where account seizures were made — although no evidence was found that officials from the US banks were aware that the money came from drug dealing.

Further arrests were made by US Customs in Aruba and Colombia with the cooperation of foreign officials. Finally, the Cali's broker Oscar Armando Saavedra and several associates from Venezuela, including the attorney Carmen Yrigoyen, were arrested in Miami and Los Angeles.

Customs officials also flew to Mexico City from May 18–20 to share information about Operation Casablanca with the Mexican government and gain their cooperation in the arrests of fugitive bankers and cartel members.

Altogether, agents arrested employees from 12 of Mexico's largest 19 banks. Two of Mexico's biggest banks — Bancomer (No. 2) and Banca Serfin (No. 3) — along with the smaller Confia bank were involved so deeply in the system that they were eventually indicted as institutions, had funds seized under Substitution of Assets provisions and their remaining funds frozen. Nine other Mexican banks were identified as offering money laundering packages to the cartels but escaped indictment (as did three Venezuelan banks).

There was a great deal of criticism in the Mexican press of the manner in which the operation was carried out. The Mexico City newspaper La Jornada said in a May 1998 editorial that "US authorities began and carried out the investigation in isolation, without informing their Mexican counterparts of such a serious affair — this in spite of the ‘cooperation' that both countries always emphasise is needed when it comes to fighting narcotics and related crime". A popular editorial column inReforma that same month went even further, asking "Is this the way two countries collaborate, or is this an indication of the depth of distrust the fair-skinned ones have?"

US Treasury officials said at the time that they kept the operation confidential to protect the lives of scores of undercover agents drawn from the US Customs Services and other agencies. Bill Gately, however, insists that he flew to Mexico at the behest of his superiors in the planning stages of Operation Casablanca — that is, in 1994 — and received no support whatsoever.

An interesting postscript to Operation Casablanca is the mystery and intrigue surrounding the July 1997 death of Amada Carrillo Fuentes — 47-year-old head of the Juarez Cartel and ‘Lord of the Skies' — following plastic surgery and liposuction to change his appearance.

Likened by the Dallas Morning News in 1996 to a head-of-state, the paper noted that Carrillo Fuentes had "loyal, heavily armed guards who would, and sometimes do, die for him in a flash", ultra-sophisticated communications equipment and a propensity to send advance teams wherever he went.

Although suspected by the US Drug Enforcement Agency of being one of the leading suppliers of illicit narcotics to Texas, Carrillo Fuentes' discreet, business-like approach to his drug operation, public support, and success in corrupting officials had made him almost untouchable. Operation Casablanca would have changed all that, with enough evidence gathered on his money laundering activities to have successfully indicted the crime boss along with his colleagues — if he had lived.

Described variously as a "billionaire drug trafficker" and "one of the most powerful smugglers Mexico has ever seen", this was the man whose body remained undiscovered until 4am the day after his operation in Mexico City's ritzy Santa Monica clinic. Furthermore, the clinic in which he died and the funeral home to which his body was later taken were both owned by prominent politicians, in a country where US agents believed he had hundreds of former and current officers and officials on his payroll.

The DEA quickly confirmed the identity of the body (using a thumbprint on file from a 1985 application for a US border pass), and denied claims made by a Chilean newspaper (and repeated in the Washington Post and on the Internet) that Carrillo Fuentes was alive and being held by them in return for his cooperation in drug investigations.

There are also those who maintain that the thumb print on the card was not that of Carrillo Fuentes at all, but that of his cousin — murdered in cold blood so that the Sky Lord could retire safely with his billions.

Adherents of all alternative theories to that of a simple surgical misadventure point to the fact that the three doctors who performed the operation disappeared soon afterwards.

The bodies of two were positively identified after being discovered by maintenance workers in November 1997 in large, cement-filled drums which had been left along the Mexico–Acapulco highway, while Mexican authorities suspect a body in a third drum is that of the remaining surgeon. The victims had had their fingernails pulled out and had burn marks on their chests; two were strangled with cables and one had been shot in the head.

Although the doctors had reportedly disappeared right after the operation, the wife of one claimed that he had been living openly in Mexico City but had then been detained by agents of Mexico's anti-drug agency — something denied "emphatically" by agency-head Mariano Herran Salvatti.

Interestingly, this did not stop the government from charging the doctors with Carrillo Fuentes' murder two weeks after their disappearance and just a few days before their bodies were discovered, despite the fact that their initial suspicion fell on a bodyguard and that the doctors had supposedly never been so much as interviewed.

So — were the doctors murdered by the Juarez Cartel in retaliation for the death of their boss, or by Carrillo Fuentes himself to ensure that the secret of his continued existence was kept? Or — were authorities merely over-zealous in their attempts to extract information from the trio?

There may be those who know the ‘real' story behind the demise of Amado Carrillo Fuentes — if in fact there is one — but will they ever dare to speak out?

Acknowledgements

The author would like to thank Mr Bill Gately for his informative presentation and comments on this article.

Also invaluable was the information contained in the online journals Weekly Update on the Americas, Money Laundering Alert andCrime & Justice International. Other online sources included ABCNEWS.com, and extracts from the Washington Post, Dallas Morning News, Cox News Service, and Miami Herald.