You won’t find them scrambling across rooftops in their underwear or cowering inside cupboards as the Swat team breaks down the door: Mexico’s money-laundering moguls are smartly dressed members of the country’s business elite, featured in society columns and feted at charity events.
“The aim of the cartels is to legalise their wealth, integrate it into the legal economy and pay tax,” said Edgardo Buscaglia, a law professor and consultant on organised crime.
“When this occurs, their success is complete.”
The beating heart of Mexico’s ever expanding mafia does not lie in the coca plantations of the Peruvian highlands or the processing plants in Tijuana, or even the safe houses in Sinaloa. It can be found in major banks, currency exchange centres and legal companies willing to turn a blind eye in return for a share of the proceeds.
The sums involved are staggering: in 2010, when the US-based Wachovia bank was investigated over suspicious money transfers from Mexico, the amount involved over a five-year period was $378.4 billion (€337.7 billion)– equivalent to one-third of Mexico’s gross national product.
Under a deferred prosecution agreement, Wachovia only had to pay a fine of $160 million (€143 million). No one was charged with wrongdoing and the case never went to court.
In his novel American Psycho, Brett Easton Ellis presents a character's job as "murders and executions", a mishearing of "mergers and acquisitions". These days, the billions of dollars flowing from organised crime in Mexico are all about murder and acquisitions.
In rural Mexico, businesses pay “taxes” to criminal gangs while relatives of kidnap victims quietly sign over properties in the hope of their safe return. The mafia also threatens local governments; in Michoacán state it has demanded a 10 per cent share of local government budgets.
Even as unwanted bodies are hidden in remote ranches, the cash is converted into visible assets – apartments, restaurants and shopping centres – that fuel economic growth.
“The hand that throws a grenade at Mexican soldiers or civilians is also that of the above- board businessman who finances all this,” said Buscaglia.
In November, José Luis Abarca, mayor of Iguala, a town in Guerrero state, was detained and charged with the disappearance of 43 students in September. Abarca and his wife, also jailed, own 31 houses and apartments, nine businesses and 13 jewellery shops. They had also built a $23 million shopping centre in Iguala, on land donated by the Mexican army.
It was only when the case of the missing students forced the government to act against the Abarcas that attention fell on their inexplicable wealth.
The cartel bosses regard their accountants as business partners, in sharp contrast to the police and politicians whom they bribe and regard with contempt.
Travel to any mid-sized town in rural Mexico and you will find a branch of British bank HSBC, often occupying a prominent site close to government buildings. There are 42 branches in Veracruz state alone.
In 2012, HSBC admitted that it had failed to implement money-laundering controls on $60 trillion in wire transfers over a three-year period, during which $670 billion came from Mexico. The bank agreed to pay a fine of $1.9 billion in a 2012 settlement.
The HSBC scandal and its resolution highlights the manner in which legal and illegal fortunes blend discreetly inside the world of global finance.
After the case was heard, a US justice department prosecutor admitted that if criminal charges had been pursued, HSBC would have lost its banking licence in the US: “The future of the institution would have been under threat and the entire banking system would have been destabilised.”
Mexico has approved a number of important reforms in its attempt to monitor capital flows. In 2010 the government imposed a $7,000 limit on cash dollar deposits. The Mafia responded by depositing money in US banks on behalf of legitimate companies and wiring it back in pesos under the guise of international trade.
President Enrique Peña Nieto soon lifted the restrictions on cash deposits, saying the transfer limits harmed honest businesses.
Mexico has all the legal instruments required to intervene and seize illicit assets. But the prospect of zealous oversight holds no attraction for the nation’s business leaders, who enjoy monopoly control over key sectors of the economy and reward their political allies at election time.
Illegal proceeds
In July 2013 a Mexican law aimed at identifying and preventing the use of illegal proceeds came into operation.
The AML, as it is known, provides for criminal liability as well as other sanctions, banning certain cash transactions and imposing reporting requirements on others. Soon after it came into effect, art dealers and auctioneers experienced declines of up to 30 per cent in sales.
However, cartel operators have simply gone back to the traditional method of walking into Mexican banks to deposit large sums of cash. Mexico’s financial intelligence unit reported a leap of 32 per cent in the number of suspicious transactions in 2013, confirming the trend.
Dr Buscaglia and a team of investigators examined efforts to control illicit cash flows across 109 countries, drawing up guidelines for best practice.
There are four key areas where the state can effectively undermine mafia revenues: a strong, independent judicial system, anti-corruption measures, the protection of whistle blowers, and active civilian oversight.
Mexico’s judicial system barely functions, with just three out of every 100 cases coming to resolution. Corruption is rife, no one is safe and active citizens are regarded as the chief obstacle to the smooth running of the country.
Mexico’s ministry of finance is concerned that confiscating assets in the legal economy will affect economic growth. However, research shows that pension funds and other legitimate sources of investment will flow toward Mexico once they are assured that they run no risk of being mixed up with criminal funds.
The Sinaloa Cartel, Mexico’s most powerful criminal organisation, has some 3,000 legally constituted companies. The thousands of mafia-related arrests each year do not lead to an investigation into bank accounts, companies or trust funds.
Until that time comes, Mexico’s mafia will enjoy the legal benefits of their ill-gotten gains, along with their sponsors, willing or otherwise, in the world of legitimate finance.
