After 100 kilograms of cocaine were seized by the US authorities in October 2012, the drug trafficker responsible was taken captive by his bosses from the notorious Sinaloa cartel. As he was being beaten and tortured at a ranch in Mexico, the man’s family in the US were told they could buy his freedom by delivering $140,000 (£86,000) in cash to an improbable Los Angeles address: QT Fashion, a clothing wholesaler specialising in maternity wear.
According to a US federal indictment unsealed this week, the ransom money was laundered and delivered to the cartel, and the victim was released. On Wednesday, QT Fashion was raided as around 1,000 police officers descended on Downtown LA businesses suspected of laundering cartel profits. The authorities said they had seized about $100m in cash. At one location, they came across 35 bank boxes each containing $1m; elsewhere, $80,000 was found stuffed into a bag of dog food.
According to Robert Dugdale, the assistant US attorney responsible for the city’s federal criminal prosecutions, “Los Angeles has become the epicentre of narco-dollar money laundering, with couriers regularly bringing duffel bags and suitcases full of cash to many businesses.”
The US State Department has estimated that as much as $29bn is transferred from the US to Mexico each year, much of it via “trade-based money laundering.” Last year, of 1,510 suspicious activity reports filed by US banks about the illicit scheme, more than half were in California, which has the largest population of any state in the US.
The boom in trade-based money laundering is believed to have begun in 2010, when the Mexican government limited the size of US dollar deposits at the country’s banks, forcing cartels to filter their dollar profits through black-market peso brokers.
To transfer cash from US-based conspirators to a cartel in Mexico, a broker recruits legitimate businesses involved in the import and export of goods between the two countries. A Mexican business sends US dollars to a counterpart in LA, which sends back goods. The Mexican business sells the goods, and passes on the profits to the broker and their cartel bosses.
Prosecutors said the laundering scheme meant cartels no longer had to risk “smuggling bulk amounts of US currency across the Mexican border [or] having to convert and wire the US currency through established financial institutions, which not only carries transaction fees, but also a threat their illegal activity will be detected.”
The practice was rife in Downtown LA’s bustling “Fashion District”, which is home not to haute couture brands, but to some 4,000 low-cost merchants and wholesalers, many of which trade regularly with partners south of the border.
Undercover customs agents infiltrated local peso brokerages and delivered bundles of cash to stores in the neighbourhood. As many as 75 businesses were targeted in this week’s raids, dubbed “Operation Fashion Police”, but only four were named in the indictments, including two underwear wholesalers and QT Fashion, whose owner and manager were charged with money laundering and smuggling goods.
If convicted, they could face up to 30 years in prison.