How Mexican Officials Launder Money

GUEST BLOGGER

Dennis Lawrence, CFE

Lawrence is a Denver-based risk consultant.

Mexico has rightfully earned its reputation as a hotbed for chaos and corruption. Home to the world’s most powerful drug cartels, both local and national political figures live in constant fear of upsetting the wrong person. Compounded with a weak rule of law in many regions and a complicated relationship with big business, it is no surprise that government officials routinely exploit their positions for personal economic gain. Whether they can figure out a way to successfully launder corrupt payments, however, is a less certain affair.

Financial institutions are cracking down on money laundering in Mexico in light of increasing pressure from regulatory authorities, and it is perhaps more challenging today than ever for government officials to keep bribes undetected. Here are a few real life stories (and methods) of the worst offenders who got caught.

Governor Recruits Broker
Former governor of Quintana Roo, Mario Villanueva, spent the latter half of the 1990s amassing a fortune by authorizing the Juarez cartel to smuggle hundreds of tons of cocaine from Colombia to the U.S. via the Yucatan Peninsula. In exchange for a minimum of $400,000 in cash per load, Villanueva directed state and federal police to offload, transport, store and protect drug shipments destined for American consumers. In search of a way to protect his growing fortune, the governor enlisted the help of Lehman Brothers broker Consuelo Marquez to create several offshore corporations of which Villanueva and his son were beneficiaries. Each was carefully designed to conceal the names of its true owners (entities owned by layers of other companies or trusts is a favorite tactic). Marquez then established brokerage accounts at Lehman Brothers in the names of those offshore corporations and coordinated transfers of drug trafficking proceeds into and out of the accounts at the direction of the governor. Nearly $19 million was laundered through the firm. Villanueva disappeared days before the end of his term in 1999, and was discovered by Mexican police in a remote part of the Yucatan two years later. According to the Federal Bureau of Prisons, the ex-governor is currently incarcerated in Lexington, Kentucky, and is scheduled for release in 2019.

Trusted Intermediaries
Between 2005 and 2011, former Secretary of Finance for the Mexican state of Coahuila, Javier Villarreal, increased the state government’s public debt from $27 million to $2.8 billion, likely with the help of former Governor Humberto Moreira, who has yet to be officially charged with any crimes. According to court records, Villarreal obtained fraudulent state loans amounting to $250 million using falsified documents before tasking his wife and other relatives to open bank accounts in the U.S. The accounts collectively received millions in cross-border transfers from Mexico, likely from entities funneling money to obfuscate the origin of official government funds. Family members went on to create several LLCs for purchasing both commercial and residential properties in Texas.

Villarreal’s mistress, Altagracia Daniela Rodriguez-Garcia, was placed in charge of opening a particularly strategic bank account at a JPMorgan Chase branch in Brownsville, Texas. As instructed, she waited one year prior to quietly adding Villarreal’s name as an authorized signer. Shortly thereafter, Villarreal traveled to the same branch to open an offshore investment account held in Bermuda. The pieces of the puzzle came together when it was learned that he and a co-conspirator held a meeting with JPMorgan Chase bankers in Mexico where they inquired as to whether wire transfers could be deleted from bank systems so that no transactions would be seen going from Mexico to Bermuda via the U.S. Villarreal was arrested by Mexican authorities in 2012 as part of a public corruption investigation, but disappeared for two years before surrendering to U.S. authorities on the international bridge between Juarez and El Paso. In September 2014, he pleaded guilty to money laundering charges in a Texas federal court.

Corporate Fronts
Located in Northern Mexico, the lawless border state of Tamaulipas has been the site of numerous massacres and beheadings in recent years. According to U.S. law enforcement officials, the deterioration in security can be partially attributed to the tenure of former governor Tomas Yarrington who allowed drug cartels to operate freely in Tamaulipas without police interference. Apart from payments related to drug trafficking, Yarrington received an abundance of bribes for public works projects. In exchange for the rigged awarding of contracts, construction company owner Fernando Cano purchased real estate for the governor using front names. As Yarrington’s trust in Cano grew, the wealthy businessman became responsible for personally guaranteeing a $2.5 million loan on an airplane acquired using ill-gotten gains through a front company set up by another conspirator. He subsequently guaranteed numerous other loans linked to real estate opportunities involving similar modus operandi where shell companies were created by individuals in Yarrington’s inner circle and used to obtain expensive properties in the U.S. and Mexico. The governor’s demise came when, in the midst of divorce proceedings, Cano’s angry ex-wife spoke openly about the two mens’ wrongdoings. Yarrington disappeared in 2012 and remains on the run.

Financial crimes involving members of government are certainly not limited to Mexico, but as it stands today, the country is a magnet for public corruption. With that said, perhaps the sole commonality among almost all political figures who launder money is that they can’t do it alone. Family members, confidantes, bribe givers and the occasional corrupt financial services employee all play a role in the process… not to mention the banks that safeguard the funds themselves. Consequently, it only takes one mistake at the bank resulting in a Suspicious Activity Report, one angry colleague-turned-police informant or one careless act in an otherwise perfectly run multi-year operation to trigger the downfall of another elected official. The only question is, who’s next?

[Note: All figures are in U.S. dollars.]

The Top 5 Frauds of 2013

AUTHOR’S POST

Mandy Moody, CFE
ACFE Social Media Specialist

As we say farewell to one year and look ahead to a new one, we would like to look back and take note of the top fraud cases that brought many people, cities, states and countries together. While these top five fraud stories of 2013 seemingly highlight the “bad guys,” we would like to pay tribute to all of the “good guys” out there who saw these cases through investigation, prosecution and, for some, sentencing. So here’s to all of the investigators, fraud examiners, attorneys, auditors, accountants and government officials who worked behind the scenes to get these stories where they belong: on the front pages of Financial Crime sections all over the world.

Here are our top five frauds of 2013:

  1. Cars, Houses & Horses
    Dubbed as “one of the worst abuses of public trust” in the state of Illinois’ history, the embezzlement case involving a devoted city bookkeeper stole international headlines when it was finally settled in February. Rita Crundwell was sentenced to almost 20 years, the same duration as her fraud, for stealing $53 million from the small town of Dixon, Ill. Crundwell used her home town’s hard-earned money almost as a weekly allowance to pay for vacations, properties, cars and an extravagant horse-breeding hobby. Thankfully, even all bad things must come to an end.
  2. Ahab’s Whale Wounded
    The Hunt for Steve Cohen began years ago, but it wasn’t until July that his company, SAC Capital was officially indicted on four counts of securities fraud and one count of wire fraud for insider trading dating back to 1999. The future looks grim for the already shrinking company facing some long and grueling legal battles.
  3. The Citadel Falls
    In June, a cyber gang responsible for creating a massive network of malware came crashing down. “Citadel,” the name of the network of botnets, stole more than $500 million from the bank accounts of more than 5 million infected computers over an 18-month period. Microsoft led the coordinated effort with more than 80 other entities worldwide to take down one of the largest cyber crime rings in the world. Lights out, Citadel.
  4. The GlaxoSmithKline of 2013 Award Goes To…
    Last month, Johnson & Johnson, one of the U.S.’s biggest pharmaceutical companies, settled one of the largest health care settlements in the country’s history. J&J agreed to pay $2.2 billion ($1.72 billion for civil settlements and $485 million in criminal fines and forfeited profits) for promoting three drugs not approved by the Food and Drug Administration (FDA). This quote from Zane Memeger, U.S. Attorney for the Eastern District of Pennsylvania, pretty much sums it up: “J&J's promotion of Risperdal for unapproved uses threatened the most vulnerable populations of our society - children, the elderly and those with developmental disabilities.”
  5. Biggest Mortgage Fraud Settlement Ever
    Also last month, JPMorgan Chase settled the U.S.’s largest-ever mortgage fraud case for $13 billion. Picking up Bear Stearns and WaMu might have seemed like a great idea in 2008, but the ghosts of the financial crisis’ past came back to haunt JPMorgan. Oh yeah, and they were also responsible for millions of faulty mortgages. One victory in a battle sure to go on longer than the Game of Thrones.

Want to read other stories from 2013? You can find more of the year’s top fraud headlines on our news blog, FraudInfo.com

How Hard the Mighty Can Fall

LETTER FROM THE PRESIDENT

James D. Ratley, CFE
ACFE President and CEO

Sometimes there seems to be no end to the list of corporate giants crippled or demolished by fraud. All too often these companies should have seen it coming, but did not. Two recent examples illustrate just how hard the mighty can fall.

The former chairman and owner of Taylor, Bean & Whitaker in June drew a 30-year sentence for his pivotal role in a $2.9 billion mortgage fraud scheme that brought down his firm and Colonial Bank, which once were leaders in, respectively, the privately held mortgage lending and banking sectors.

Only a week later, JPMorgan Chase & Co. entered into a non-prosecution agreement with the U.S. Department of Justice, acknowledging responsibility for a fraud scheme in which some of its employees illegally manipulated bids in the municipal bond market from 2001 to 2006. As part of the agreement, Chase will pay federal and state agencies $228 million in restitution, penalties and disgorgement of profits.

These incidents and others like them highlight a growing crisis: Many large organizations, despite their size and sophistication, are in dire need of well-informed anti-fraud leadership. With the right training and support from a best-of-breed professional association, their employees can fill that gap and mitigate frequently unchecked fraud risks. The missing ingredient in building such cadres of in-house fraud fighters is an arrangement — customized to meet the needs of large companies — for simplifying the process of obtaining and maintaining professional certification for groups of individuals.

In response, the ACFE has developed the Corporate Alliance Program, which makes it easier for large organizations to help their employees obtain the CFE credential. Imagine what your team, certified and sharing a common vocabulary and body of knowledge, could do to improve your company's fraud awareness program and internal controls.

Read the full Letter from the President here.