US federal prosecutors say a real-estate investment firm accepted millions in drug money, revealing how high-end real-estate ventures are being used to launder dirty cash at scale.
The case was settled on January 12, when Sefira Capital LLC -- a Florida-based investment firm -- agreed to forfeit around $30 million to resolve a charge that Sefira and 31 of its subsidiaries accepted millions in drug profits laundered through a scheme known to law enforcement officials as the Black Market Peso Exchange, according to a Department of Justice (DOJ) news release. It was one of three investment companies to forfeit around $50 million in similar cases.
According to the federal complaint against Sefira, the Drug Enforcement Administration (DEA) used undercover accounts and directed informants to transfer drug proceeds through money-laundering brokers. The transfers resulted in millions of dollars being moved to Sefira accounts, prosecutors said. Sefira accepted this money from DEA's unnamed accounts without any attempt to inquire into the source of their ownership -- a direct violation of financial risk regulations.
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The seized assets were spread out over 31 bank accounts belonging to Sefira subsidiaries, in amounts of up to $8.7 million per account, according to the complaint.
As part of the settlement, Sefira committed to “conduct reasonable due diligence on future investors, and not accept investment funds” from anyone except actual investors.
In announcing the settlement, New York US Attorney Audrey Strauss explained in a statement that the "Black Market Peso Exchange facilitates the laundering of vast sums of drug trafficking proceeds." The forfeiture signals not only the surrender of millions in laundered proceeds, "but also the agreement of corporate defendants to exercise due diligence to ensure they are not assisting in or facilitating money laundering," she said.
InSight Crime Analysis
The Black Market Peso Exchange is nothing new, but the recent settlement underscores that the system has evolved to include the investment of dirty dollars within the United States into legal, high-end, profit-earning real estate.
The Black Market Peso Exchange (BMPE) refers to a trade-based money laundering system to convert drug dollars into local Latin American currencies.
BMPE became a mainstay of money laundering in the 1980s, as organized crime adapted to increasingly strict financial regulations requiring traditional banks to know their customers and ensure that their income source was legitimate.
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BMPE is different from other money-laundering mechanisms because its aim is not to get dirty money into the banking system undetected but to circumvent traditional financial institutions altogether. Money laundering brokers are at the center of the scheme, buying dirty dollars from trafficking groups at a discount, taking out a commission, and then selling the dollars on to Latin American traders.
To pay for their US-based dollars, these Latin American importers usually deposit pesos into an informal exchange house, where trafficking groups pick them up. In a 2017 Miami-based case, however, Colombian importers would pay the cartel directly, once they received their American retail goods, according to a USA Today investigation.
BMPE is pervasive in the fashion district of Los Angeles, for instance, where despite government crackdowns, thousands of businesses continue to accept bulk cash in exchange for exporting goods, ranging from clothes to flowers, to Mexico. The advantage of BMPE is that no money actually crosses the border.
In the early 2000s, the US government started to combat BMPE actively. American exporters were put on notice: from now on, it would be their responsibility to make sure that exports were not financed by “black peso” dollars. Yet, by 2015, little had changed -- with a federal official telling PBS that the BMPE continued to be “perhaps the largest, most insidious money-laundering system in the Western Hemisphere.”
Now, instead of relying on exports to transfer the value of the dirty dollars to Latin America, money laundering brokers are cleaning them in the United States by investing in real estate. COVID-19 has likely quickened this shift. In the first half of 2020, non-essential businesses' shuttering caused a huge backup in the Mexican BMPE. As a result, drug cartels lost millions to seizures in the Los Angeles fashion district alone.
Purchasing high-end real-estate from undiscerning brokers provided an elegant solution -- goods were no longer needed to cross closed borders and the dirty dollars would instead be invested in one of the few US markets that experienced a record-breaking boom.
What’s more, according to the complaint against Sefira, the real estate holdings were packaged as equity interests in special purpose vehicles (SPVs) -- structures rife for abuse.
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