LA fashion district firms raided in cartel money laundering probe – Los Angeles Times
Sinaloa cartel bosses had a problem. They were holding a hostage and needed to get the $140,000 ransom his family agreed to pay from the United States to Mexico in the form of pesos.
Worried a wire transfer would alert authorities, the drug traffickers turned to an unlikely business: Q.T. Fashion, a wholesaler of maternity clothing in downtown Los Angeles.
The hostage’s family was directed to give the ransom money to the business, which used it to pay for clothing shipments to a Sinaloa importer, federal officials said. The importer then paid for the goods in pesos — to the cartel.
Federal agents raided Q.T Fashion and numerous other businesses in the downtown fashion district Wednesday, cracking down on a scheme that cartels are increasingly relying on to get their profits — from drug sales, kidnappings and other illegal activities — back to Mexico, authorities said.
Nine people were arrested in raids targeting 75 locations, and $90 million was seized — $70 million in cash. In one condo, agents found $35 million stuffed in banker boxes. At a mansion in Bel-Air, they discovered $10 million in duffel bags.
Federal officials said they believe that the drug organizations have used businesses throughout Los Angeles to convert their vast earnings into pesos, turning the city into a hub for “trade-based money laundering.”
Such schemes and others were used widely during the Colombian cocaine trade in Florida in the 1980s. Now federal agents view Los Angeles as the new Miami.
“Los Angeles has become the epicenter of narco-dollar money laundering with couriers regularly bringing duffel bags and suitcases full of cash to many businesses,” said Robert E. Dugdale, the assistant U.S. attorney in charge of federal criminal prosecutions in Los Angeles.
Agents with Immigration and Customs Enforcement infiltrated peso brokerages operating in Los Angeles, authorities said Wednesday. They said they focused on the fashion district because it was a concentrated area where taking drug money had become routine. The undercover officers went to storefronts with bundles of cash, sometimes shrink-wrapped in grocery bags, one time splattered with what looked like blood, authorities said, noting the agents even mentioned that the money came from drug trafficking.
No one blinked at taking it, they said.
The FBI came became involved when the kidnapping victim’s family notified them of what was going on. The IRS examined the methods that businesses used to flout its reporting requirements for large cash transactions.
The practice of laundering drug profits through legitimate trade has dramatically increased since Mexico restricted the use of American dollars in 2010 by limiting deposits of U.S. currency at banks, brokerages and exchange houses.
Cartels can no longer have bulk shipments of cash sent home to be spent and deposited as they pleased.
Black market peso brokers filled the gap. The brokers contact legitimate Mexican importers who want to buy goods in Los Angeles. If an importer wants to buy $30,000 worth of shirts the broker directs a drug contact in the United States to pay the bill to a shirt wholesaler in dollars. The importer in Mexico then pays the broker, in pesos, who takes a cut and pays the rest to a cartel.
The State Department estimates drug trafficking organizations send between $19 billion and $29 billion to Mexico annually from the United States.
The flow of cheap goods from the Pacific Rim through the county’s two ports, as well as Los Angeles’ proximity to the border, makes the area a natural center for the black market peso exchange.
Last year, banks filed 1,510 “suspicious activity reports” about trade-based money laundering. More than half of those came from California, according the Treasury Department’s Financial Crimes Enforcement Network. Of all suspicious activity reports filed nationwide — targeting all types of money laundering and fraud — nearly 11% came from Los Angeles County alone.
The fashion district has become more of a transit point for goods than a manufacturing center.
Ilse Metchek, president of the California Fashion Assn., said retail exports to Mexico have grown over the years in part due to Mexico’s protectionist stance on apparel and shoes coming from China.
“The importers bring it into the U.S. from China, and then ship to Mexico,” Metchek said.
Kent Smith, executive director of the LA Fashion District, said there are 4,000 businesses in the area that generate billions of dollars a year in economic activity.
“It’s unfair to paint the rest of the legitimate businesses … with what a small number of businesses may be doing in terms of illegal activity,” he said.
As law enforcement officers swarmed the fashion district early Wednesday, a line of business owners and workers gathered across the street from C’est Toi, a womenswear outlet on Wall Street. Officers moved in and out of the store.
“I’ve known that things like this [money laundering] happened in the fashion district, more or less, but never knew who,” said the owner of a women’s denim store in Mandarin.
His employee, saleswoman Julie Rodriguez, said she was concerned customers might shy away from the area. “I think it might be bad for my business,” she said.
Despite the number of locations raided Wednesday, only four local businesses were named in indictments.
ICE agents targeted the owners of Yili Underwear and Gayima Underwear for allegedly taking $82,000 in drug proceeds, then depositing the money in many small amounts to avoid IRS rules that require detailed reports of any cash transaction of $10,000 or more.
In the world of ill-gotten gains, the latter offense — avoiding 10K deposits — is a well-known trick of the trade, known as “structuring transactions” or “smurfing.”
The underwear wholesalers, Xilin Chen, 55, and his son Chuang Feng Chen, 24, both of Temple City, were arrested Wednesday and charged with nine felony counts related to money laundering and structuring, and lying on naturalization forms. Xilin’s daughter, Alixia Chen, is at large in China, federal authorities said.
The owners of Pacific Eurotex Corp. were accused of hiding $2.6 million in drug money over two years by dividing it into 363 separate deposits, all under the $10,000 reporting requirement. Hersel Neman, 55, of Westwood; his brother Morad Neman, 54, of Westwood; Mehran Khalili, 45, of Beverly Hills; and Alma Villalobos, 54, of Arleta, were arrested and charged with 10 felony counts related to money laundering and structuring.