$65 Million Seized From Los Angeles Businesses Linked to Cartel Money Laundering

More than $65 million in bank deposits and cash from businesses in Los Angeles’ fashion district as approximately 1,000 law enforcement officials fanned out across the district Wednesday to execute dozens of search and arrest warrants linked to businesses suspected of using “Black Market Peso Exchange” (BMPE) schemes to launder narcotics proceeds for transnational drug cartels.

Led by Immigration and Customs Enforcment (ICE) Homeland Security Investigations (HSI) special agents, Wednesday’s enforcement actions resulted in the arrest of nine defendants and seized cash and bank deposits pursuant to asset forfeiture actions filed as part of the ongoing investigations.

“We have targeted money laundering activities in the fashion district based on a wealth of information that numerous businesses there are engaged in Black Market Peso Exchange schemes,” said Assistant US Attorney Robert E. Dugdale, who oversees the criminal division in the Central District of California. “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. Because Los Angeles is at the forefront of this money laundering activity, law enforcement in Los Angeles is now at the forefront of combatting this issue.”

According to ICE, Wednesday’s operation involved the execution of warrants arising from three separate criminal investigations, including a probe spearheaded by HSI. That case, dubbed “Operation Fashion Police,” resulted in the indictment of four individuals associated with Pacific Eurotex, Corp., a wholesale firm based in Los Angeles’ garment district.

The four defendants, who were taken into custody Wednesday, are charged with conspiracy to launder money; conspiring to structure currency transactions to avoid reporting requirements; and failing to file reports of currency transactions of more than $10,000. The indictment alleges the defendants utilized Pacific Eurotex as a repository to receive bulk cash they knew or believed consisted of drug money; that they later laundered those drug proceeds to foreign countries through a trade-based money laundering scheme; and that they failed to report the receipt of this bulk cash, as required under anti-money laundering laws.

They structured deposits of the bulk cash to avoid still other anti-money laundering bank reporting requirements that would have required banks to file suspicious transaction reports to the Financial Crimes Enforcement Network.

HSI special agents also served seizure warrants on more than 30 bank accounts containing approximately $19 million in deposits allegedly derived from trade-based money laundering. The HSI special agents also discovered and seized what is conservatively estimated to be more than $50 million in bulk cash, including $35 million in bills that were stacked and stashed in filing boxes found inside a Los Angeles condominium.

“These arrests and seizures should serve as a sobering warning to companies that seek to bolster their bottom line by doing business with drug traffickers — you will pay a high price for your complicity,” said Claude Arnold, special agent in charge of HSI in Los Angeles. “Unscrupulous companies that help cartels cover their financial tracks by laundering their illicit funds are contributing to the devastation wrought by the international drug trade.”

“In a BMPE scheme,” ICE explained in an announcement, “a peso broker works with an individual engaged in illegal activity, such as a drug trafficker, who has currency in the US he needs to bring to a foreign country, such as Mexico, and convert into pesos. The peso broker finds business owners in the foreign country who buy goods from vendors in the US and who need dollars to pay for those goods. The peso broker arranges for the illegally obtained dollars to be delivered to the United States-based vendors, such as the stores in the fashion district, and these illegally obtained dollars are used to pay for the goods purchased by the foreign customers. Once the goods are shipped to the foreign country and sold by the foreign-based business owner in exchange for pesos, the pesos are turned over to the peso broker, who then pays the drug trafficker in the local currency of the foreign country, thus completing the laundering of the illegally obtained dollars.”

BMPE schemes, also known as trade-based money laundering, has frequently been used by Mexico-based drug cartels for decades to collect money from their drug sales in the United States without having to risk smuggling bulk US currency across the Mexican border and without having to convert and wire the currency through established financial institutions, which not only carries transaction fees, but also the threat that their illegal activity will be detected by the banks, which must strictly adhere to anti-money laundering laws that require them, by regulations, to report certain transactions.

BMPE laundering schemes have become popular once again because Customs and Border Protection has gotten much better at detecting and finding bulk cash hidden in vehicles bound for Mexico.

The indictment alleges that “Pacific Eurotex received, laundered and structured approximately $370,000 in bulk cash delivered on four separate occasions by an undercover agent posing as a money courier,” ICE said. “The indictment alleges that defendants laundered the money after being specifically advised by HSI special agents that bulk cash payments were frequently derived from illegal activity and that they were required to report cash transactions involving more than $10,000 in currency. According to the indictment, the defendants laundered money, despite the fact that, on one occasion, some of the bulk currency appeared to be spattered with blood.”

ICE also said, “Asecond case unsealed Wednesday alleges the Sinaloa Drug Cartel used a fashion district business to accept and launder ransom payments to secure the release of a US citizen who was kidnapped by that narcotics organization, held hostage, and tortured at a ranch in Mexico."

In the criminal case related to the laundering of ransom money for the Sinaloa Cartel, three people were arrested Wednesday for their roles in a BMPE scheme based at a fashion district wholesaler named QT Fashion, Inc., (which did business under the names QT Maternity and Andres Fashion). The indictment in this case also alleges that a Sinaloa, Mexico-based business, Maria Ferre S.A. de C.V., was involved in the scheme to launder ransom money. Following the kidnapping of the US citizen by the Sinaloa Cartel, QT Fashion allegedly accepted bulk cash and funneled the money through 17 other fashion district businesses at the direction of Maria Ferre.

Three defendants linked to Maria Ferre are wanted by authorities: Luis Ignacio Orozco Munoz (aka Nacho), 50, of Culiacan, Sinaloa; Armando Arturo Chavez Gamboa, 43, of Culiacan, Sinaloa; and Daisy Corrales Estrada, 30, also from Culiacan, Sinaloa.

According to indictment, the Sinaloa Cartel ordered the kidnapping of the victim after authorities in the US seized more than 100 kilograms of cocaine that he was responsible for distributing. The victim was held at a ranch in Culiacan, Sinaloa where he was beaten, shot, shocked and waterboarded. The hostage, who was released after relatives paid $140,000 in ransom, is currently in the United States.

The investigation into the money laundering scheme related to the kidnapping was conducted by the FBI, IRS Criminal Investigation and Drug Enforcement Administration (DEA).

The “arrests and searches should send a message to international drug cartels that the FBI and our partners won’t tolerate the exploitation of American businesses for the purposes of illicit financial transactions that fund hostage-taking and the distribution of narcotics,” said Bill L. Lewis, the assistant director in charge of the FBI’s Los Angeles Division. “In addition, [our] actions should send a warning to American businesses who turn a blind eye to the crime they facilitate, while avoiding reporting requirements, transaction fees and law enforcement scrutiny.”

The fashion district “takedown sends a clear message that law enforcement will not tolerate the actions of those who use the cover of legitimate business to conceal bulk cash obtained directly from drug trafficking and associated acts of violence,” said DEA Associate Special Agent in Charge Stephen G. Azzam. “These indictments and arrests deal a massive blow to complex trade-based money laundering schemes in general, and will therefore severely impair the ability of drug cartels to realize profits and further entrench themselves in our nation’s socioeconomic fabric.”

In the third case announced Wednesday, three members of a Temple City family — Xilin Chen, 55; Chuang Feng Chen (aka “Tom”), 24, who is Xilin Chen’s son; and Aixia Chen, 28, who is Xilin Chen’s daughter — have been charged with conspiring to launder monetary instruments, money laundering and various immigration offenses for their roles in running various businesses in the fashion district that were used in BMPE schemes.

Xilin Chen and Chuang Chen were arrested, but Aixia Chen is a fugitive currently being sought by authorities.

According to ICE, the indictment related to the Chens’ businesses — Yili Underwear and Gayima Underwear — alleges they received bulk cash from a narcotics trafficker in Los Angeles and from an undercover agent posing as a drug trafficker. The Chens allegedly laundered the money to drug trafficking organizations outside of the United States through use of the BMPE scheme and “structured” the deposits of the bulk cash they received at their businesses to avoid bank currency reporting requirements.

Structuring bulk cash deposits involves frequent or consecutive deposits under anti-money laundering currency deposit thresholds that banks must report.

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