Some business leaders and companies in the Mexican state of Sinaloa continue to pay their state taxes, even though the US Treasury Department has linked them to organized crime. Who is turning a blind eye to this, and why?
Among the US agencies that fight organized crime, there is one that has a relatively low profile, but goes after the very heart of organized crime. This is the Office of Foreign Assets Control (OFAC), part of the US Department of the Treasury.
The OFAC operates on the basis of the Foreign Narcotics Kingpin Designation (known as the Kingpin Act), which prohibits US citizens from conducting financial or commercial transactions with individuals designated thus, and orders the freezing of assets that drug traffickers may have in US jurisdictions.
Since June 2000, the Treasury Department has included more than a thousand people and businesses on their list. Both categories include many Mexicans.
This is the second part of an article which originally appeared in Emeequis, in partnership with Connectas, and was translated, edited for clarification, and reprinted with permission. See Spanish original here. Read part one of InSight Crime's translation here.
Several cases are illustrative. One is that of Rosario Niebla Cardoza. She is the wife of Ismael El Mayo Zambada, who is currently recognized as the leader of the Sinaloa Cartel.
SEE ALSO: El Mayo Profile
Four of El Mayo's children are also on the US Treasury list: Serafin Zambada Ortiz, Vicente Zambada Niebla, Ismael Zambada Imperial, and Ismael Zambada Sicarios.
El Mayo, the successor to Joaquin "El Chapo" Guzman after Guzman's arrest in 2014, owns numerous ranches, water parks, agricultural projects, kindergartens, as well as businesses of various types and locations.
US agents have designated, at the very least, the following:
- Nueva Industria de Ganaderos de Culiacan SA (producers of the Santa Monica milk brand)
- Establo Puerto Rico SA
- Jamaro Constructores SA (a construction company)
- Arte y Diseño de Culiacan SA (an art and design company)
- Autotransportes JYM SA (a transport company)
- Rancho Agrícola y Ganadero Los Mezquites SA
- Centro Comercial y Habitacional Lomas SA (a shopping and hose center)
- Estancia Infantil Niño Feliz SC (a day care)
- Producciones Pesqueras Doña Mariela SA (a fishery)
- Parque Acuatico Los Cascabeles SA (an amusement park with pools, slides and rest huts).
All of these companies keep their commercial operations up to date and are registered as active contributors in Sinaloa's payroll tax census, despite US authorities hinting that, at the very least, their presence on the OFAC list would force them to close the business, or else prompt the Mexican government to act.
On July 30, 2013, when adding some Mexican businesses to the list, Drug Enforcement Agency (DEA) special agent Doug Coleman said, "The Sinaloa Cartel cannot hide behind front companies like a water park and agriculture business. We are working with the Office of Foreign Assets Control to reveal these traffickers' companies for what they really are -- illegal businesses that fuel the drug trade, its violence, and corruption."
And although its economic strength hasn't been diminished, one company has seen its market share drop: milk producer Santa Monica, which is currently in an apparent crisis, with little distribution and neglected facilities. A few years ago, before it was put on the OFAC list, it had no competition and its product flooded grocery stores in Sinaloa capital, Culiacan.
The company has suffered negative publicity, but only that. The authorities have done nothing more.
Sinaloa Cartel Front Companies
The businesses linked in some way or another to El Mayo and his family were added to the OFAC list, bit by bit. But no drastic changes were made. The authorities received the news, but little was changed. The residents of Culiacan found out but, almost without exception, they went on as normal.
The only exception was Jose Antonio Nuñez Bedoya, a lawyer and notary public in Culiacan, designated by the US Treasury Department.
Treasury charged Nuñez Bedoya of helping El Mayo create front companies in order to launder drug money, describing him as "a Mexican attorney and notary public who helps to create front companies in order to conceal and launder assets on behalf of Zambada Garcia, members of Zambada Garcia's family, and other members of the Sinaloa Cartel."
Nuñez Bedoya defended himself. In July 2013, he told Sinaloan newspaper El Debate, “They are not fictitious companies, they are currently operating. One cannot guess for what purpose they are established.”
According to El Debate, the water park, Los Cascabeles, was established by Núñez Bedoya in the office of the public notary on February 17, 2006.
A day care center,Estancia Infantil Niño Feliz, owned by El Mayo's daughter Maria Teresa Zambada Niebla, was also established by Núñez Bedoya on August 2, 2001. Another business, Establo Puerto Rico, was created under the same circumstances, and was added to the OFAC list on May 18, 2007.
In Bedoya's interview with El Debate, he asked that authorities investigate if these companies were created in order to launder money, but he denied having any knowledge of further details.
He also insisted on two things. The first being that “they are not fantasy businesses, they are currently in operation and are sources of employment.” The second, that “they are paying taxes, they are not fake.”
SEE ALSO: Sinaloa Cartel News and Profile
Drug Traffickers in the Sinaloa Tax Census
In the lengthy tax census for Sinaloa state -- which the state Secretariat of Administration and Finance handed over to Emeequis via a freedom of information act request -- one can find the names associated with some of Mexico's oldest organized crime dynasties.
One such name is Miguel Angel Guzman Loera, brother of El Chapo Guzman. When members of the Army arrested him on June 15, 2005, he looked like the father of a typical family, celebrating his daughter's fifteenth birthday at a Chinese restaurant, Tai Pei, in Culiacan.
Following his capture, however, Miguel Guzman Loera was accused of collaborating with El Chapo in sending large quantities of drugs by air to the United States. He was also accused of buying vehicles and furniture for safehouses.
Still in prison, Miguel Angel Guzman Loera is registered in the tax census as an active “contributor” who is obligated to pay his taxes.
The Secretariat of Administration and Finance did not respond to interview requests, but other names of incarcerated individuals do appear in the census -- including Carlos Beltran Leyva, a member of the Beltran Leyva Organization (BLO).
Beltran Leyva was arrested on January 2, 2010, just 14 days after his brother and BLO leader, Arturo Beltran Leyva, was killed by Mexican Marines in a confrontation in Morelos.
There had been previous signs things were not going well for the Beltran Leyva family. On December 12, 2009, the OFAC designated the Beltran Leyva brothers and some 20 businesses that appeared to be front companies to launder money.
SEE ALSO: Beltran Leyva Organization Profile
“The Beltran Leyva Organization operators and their associates who were designated today control companies involved in air and vehicle shipping, electronics retailing, import/export of health products, business consulting and hospitality services,” the Treasury stated in a press release.
OFAC Director Adam Szubin noted the designation “aims to disrupt their ill-gotten gains, targeting a wide network of commercial entities used to move, launder, and conceal proceeds of their crimes."
One of the businesses included in the OFAC list was Fabridiesel, based in the coastal city Los Mochis, which continues to pay taxes in Sinaloa.
The decline of the BLO led to the rise of a splinter group, the Meza Flores network, allegedly run by Fausto Isidro Meza Flores, alias “El Chapo Isidro.” The Meza Flores drug trafficking network has grown so rapidly, the United States has called it a cartel.
SEE ALSO: Chapo Isidro Profile
The Meza Flores network attracted so much attention that in January 2013 the Treasury Department placed it to the kingpin list.
“By targeting the leaders of this extremely violent Sinaloa-based drug trafficking organization we are protecting the U.S. financial system from yet another source of illicit money tied to the narcotics trade,” Szubin stated.
According to the Treasury, the new criminal group “engaged in an extremely violent turf war with the Sinaloa Cartel, which has resulted in the quadrupling of drug war killings in the last four years... within the state of Sinaloa.”
In addition to El Chapo Isidro, US authorities included his wife, his father, his mother, his sister, and three of his uncles, one of whom was arrested in Mexico the previous year for distribution of narcotics.
Three businesses were also designated: a seed transport company (Autotransportes Terrestres SA), a gas station (Auto Servicio Jatziry SA), and a construction company (Constructora Jatziry de Guasave SA). The construction company has done public work projects in Guasave, which is where the Meza family is from.
According to US Treasury, these businesses form part of the commercial structure that allows this new cartel to traffic large amounts of methamphetamine, heroin, marijuana, and cocaine into the United States.
Of these three companies, only the gas station is still in business. According to public records, Auto Servicio Jatziry SA supplied gasoline to the mayor's office in Guasave from 2011 to 2013. The gas station is registered on the 2014 tax census as an active tax payer.
Operation Fashion Police
Maria Ferre, one of the thousands of businesses registered in the Sinaloa tax census, couldn't have a better public image. In 2008 the Secretariat of Labor gave it an "inclusive business" award -- a recognition earned by companies that apply good labor practices, like equal opportunity employment and a no-discrimination policy.
Maria Ferre, one of the thousands of businesses registered in the Sinaloa tax census, couldn't have a better public image.
Maria Ferre sold plus-size clothing for women, and -- until recently -- was considered a successful business and an example for other franchises to follow. In little time, the company had opened 31 stores in 10 states across Mexico.
The federal government incorporated Maria Ferre in the National Franchise Program, and the company's success allowed its owner, Luis Ignacio Muñoz Orozco, to meet Sinaloa's business elite. Even better, it enabled Muñoz to rub shoulders with the state's high-level politicians.
Muñoz' good luck began in 1999, when he was chosen to run the National Chamber of Commerce in Culiacan. His fame as a businessman grew, and a few years later he had his big break. Fellow Sinaloan and business owner Heriberto Felix Guerra was assigned by then-President Felipe Calderon to form part of the president's cabinet, and was made head of the Secretary for Social Development (Sedesol).
That was the peak for Ignacio Muñoz. Felix Guerra made him head of Sedesol's advisory board. It capped off twenty years of hard work.
But all good things come to end. On September 10, 2014, the FBI and DEA conducted Operation Fashion Police, in which over 1,000 federal agents worked to dismantle a sophisticated money laundering network run by the Sinaloa Cartel in Los Angeles, California.
According to the ongoing investigation, in 2012, 100 kilos of cocaine were seized from a Sinaloa Cartel distributor in the United States. The loss enraged this distributor's business partners, and the distributor was kidnapped and tortured on a ranch close to Culiacan.
The demands that would have allowed for his release were not easy to meet: the distributor's family had to pay $140,000 for the lost drugs in order for him to be freed. However, family members were able to pay the ransom and the distributor was later released.
But the ransom payment left a footprint, and the FBI and DEA were able to follow the trail. According to US authorities, clothing manufacturers in Los Angeles received the $140,000 payment and had previously received money from drug sales.
Through a money laundering scheme known as the Black Market Peso Exchange, the Sinaloa Cartel picked Maria Ferre to be the business that would receive profits from drug sales in Los Angeles.
SEE ALSO: Coverage of Money Laundering
When the DEA and the Treasury Department found out about the network, Muñoz fled, and he is currently a fugitive from justice. Despite what happened, Maria Ferre remains operational, the company continues to pay its monthly taxes, and the stores are doing well.
“Everything is good. All perfect,” one of the employees at the Culiacan store recently said. The employees must be very active.
'There is Still Much to be Done'
Antonio Mazzitelli, head of the UN Office on Drugs and Crime in Mexico, has extensive experience dealing with money laundering. He has worked in Africa and Latin America to dismantle organized crime structures.
Although he is now in a diplomatic role, that does not stop him from saying what he thinks. That is why he is comfortable commenting on how strange it is to him that state governments act as if Mexico was free of corruption.
“On the state level, little to nothing is done in terms of financial investigations,” Mazitelli said.
Mazitelli highlighted that in addition to the federal government, the only state entity that has a financial intelligence unit is the Federal District.
“And I ask myself, how can one effectively combat money laundering when the money is going, for example, into farmhouses or other properties that cannot be monitored here in Mexico City, since they are registered in their own territory,” Mazitelli told Emeequis.
Mazzitelli knows that the true war against drug trafficking should be fought against the finances of criminal groups. "Without money, criminals cannot corrupt, and not being able to corrupt exponentially increases the risks involved,” Mazzitelli said.
Nevertheless, Mazzitelli recognized that Mexico has made advances in terms of combating money laundering. More financial controls exist in the banks, there is a new detection system, as well as a financial intelligence unit within the Secretary of Finance. The Secretary of Finance did not respond to an interview request for this story.
Yet, Mazzitelli said “there is still much to be done,” notably in the handling of seized assets belonging to criminal groups. In countries where Mazzitelli has worked, such as Italy and Colombia, property seizure laws have not only hurt the financial structures of criminal organizations, they have also generated employment in local communities.
“In Italy, one of the biggest businesses right now is the court in Calabria, due to how many assets have been seized. I am not referring to money, I am talking about businesses like supermarkets or construction companies that belonged to organized crime."
Now these businesses produce wine, olive oil, and olives. “They went from being an illicit to a licit business. Young people are getting jobs, it is strengthening the economy and is creating a culture of respect for the law.”
Mazzitelli emphasized that the government cannot seize assets without ensuring that these businesses produce goods, because the general population needs work. That is why state governments in Mexico need to be more proactive.
“The state governments should take more initiative on this, [in order to create more jobs] as well as to finance government agencies," he said.
If the local governments seek him out, Mazzitelli could assist them in combating organized crime. This is currently taking place in Chiapas, where he is helping elaborate a property seizure law. The local government in Chiapas' capital, Tuxtla Gutierrez, also frequently asks for his assistance.
But in Culiacan, nothing. Not even a phone call.
How Much Revenue Does the Payroll Tax Earn?
According to information obtained via a freedom of information act request, revenue from the payroll tax has increased significantly in the last eight years. The payroll tax earned 212 million pesos in 2006, which is commonly regarded as the beginning of Mexico's drug war under former President Felipe Calderon. That figure reached 496 million pesos in 2013, the first year under the administration of current President Enrique Peña Nieto.
*This is the second part of an article written by Silber Meza for the magazine Emeequis as part of the Investigative Reporting Initiative in the Americas by the International Center for Journalists (ICFJ), in partnership with Connectas. See Spanish original here. See the first part of InSight Crime's translation here.