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Mom-and-Pop Stores: Perfect Money Laundering Vehicles on US-Mexico Border

FEATURED / 15 MAR 2022 BY JASON BUCH EN

The $215,520 began its journey south in the parking lot of a Meijer grocery store in Louisville, Kentucky, a 19-hour drive northeast from its eventual destination on the US-Mexico border.

A local drug dealer handed a courier wrinkled, mostly $20 bills bound with rubber bands, loosely wrapped in a plastic bag and stuffed in a backpack.

The courier, posing as the driver of a wrecker truck which hauled totaled vehicles across the country, brought the backpack to the border city of Laredo, Texas.

In Laredo, he handed the cash off to a middle-aged woman. She drove downtown, where two international bridges connect the city’s historic center with the broad, plaza-lined Avenida Guerrero in Nuevo Laredo, just across the Rio Grande in the Mexican state of Tamaulipas.

Within sight of the bridges, she stopped.

Other money smugglers might tape the cash to their bodies and walk past the outlet mall overlooking the Rio Grande floodplain to the pedestrian Bridge of the Americas. Or they might stow it in a secret compartment in their vehicle and drive across the Lincoln-Juárez Bridge, where Interstate 35 ends at the riverbank.

Instead, she parked her car in front of a perfume store and broke $40,000 off from the bricks of cash. Stepping inside, she handed it to the store’s owners. A few blocks away, at another store, she repeated the same transaction.

The perfume she was paying for was already in Mexico, bought on credit from stores advertising their wares as mayoreo y menudeo, or “wholesale and resale,” that line the narrow streets of downtown Laredo.

The boxes of LaCoste, Bulgari and Hugo Boss fragrances had been loaded into a white van and driven half a dozen miles to a warehouse in the sprawling free trade zone on the edge of town. From there, they were packed into an 18-wheeler and driven across the World Trade International Bridge, one of two commercial crossings on Laredo’s northwest reaches that make the city the busiest commercial port on the US-Mexico border.

The perfume made its way to Mexico City and Guadalajara, where it was sold in outdoor markets for pesos. Those pesos then went to the drug traffickers who’d supplied the Kentucky crack cocaine dealer.

An Old School Money Laundering Tool

This convoluted series of transactions, detailed recently in federal court documents, shows that in addition to relying on bulk cash smuggling, illegal wire transfers and currency exchange houses, criminals in Mexico are still using one of the oldest ways drug traffickers have washed their dirty money: the black market peso exchange.

In their most well-known form, the trade-based money laundering scheme uses the sale of drug dollars in the United States for the purchase of local currency, most often Colombian or Mexican pesos.

The Laredo scheme allowed drug traffickers to convert dollars from US narcotics sales to pesos that can be deposited in Mexican financial institutions, and it also spared them the risk of bringing dollars across the bridge. It also gave the money the appearance of coming from a legitimate business transaction, in this case, the sale of perfume.

Started in the 1950s by Colombian coffee exporters as a way to sidestep foreign currency restrictions, the black market peso exchange was popularized by the Medellín and Cali cartels in the 1980s. As an undercover customs agent in the 1990s, Aristedes Jimenez posed as a black market money changer to identify drug traffickers and the legitimate businesses they used to wash dirty money. His undercover operation targeted the top financial adviser to Cali Cartel figure José Santacruz Londoño, who would tell Jimenez where to pick up cash and in which commodities to invest it.

“I used frozen chicken, appliances, TVs, microwaves, electronic appliances. Tires. Air conditioners. Flowers,” said Jimenez, who later worked for Homeland Security Investigations (HSI) in Mexico and Texas.

The black market peso exchange was given renewed life a decade ago when Mexico set strict limits on foreign currency transactions, making it harder for drug traffickers to deposit dollars from US narcotics sales. Flourishing international trade keeps it relevant as well, according to Luis Reyna, a special agent with the Internal Revenue Service’s Criminal Investigation Division.

“It will still exist because the trade transactions … can provide that cover of legitimacy for laundering these monies through the financial system here in the United States and even Mexico,” Reyna told InSight Crime.

The schemes have grown more sophisticated over the decades. Last year, an international real estate investment firm agreed to pay the US Justice Department $29 million as part of a civil settlement over allegations it had accepted investments from black market money changers. But Jimenez said washing cash through small businesses, like the perfume shops in downtown Laredo, remains a viable way of laundering money.

SEE ALSO: Black Market Peso Exchange Evolving in United States

“When you go to mayoreo y menudeo, people want to haggle. Anything that’s cash-intensive is a target," he said.

This is largely because smaller, less sophisticated businesses often lack the internal controls of large corporations and are more likely to face financial stress. “People in need are more willing to bend the rules,” Jimenez added.

Prosecutors say they’ve uncovered multiple money laundering schemes using Laredo business owners over the last 10 years. By the time of that cash handoff in late-2012 in the Meijer parking lot in Kentucky, the Drug Enforcement Administration (DEA) had infiltrated that particular black market peso exchange. Investigators had flipped a member of the conspiracy tasked with delivering the cash to local stores. At their instruction, she introduced her boss to an undercover agent who went to work as a courier.

Before the money was delivered in Laredo, it made a side trip to a DEA office in Kentucky where the cash was counted and photographed as evidence. When the Laredo woman whose job it was to deliver the money to storefronts in downtown Laredo walked into the El Reino perfume store to drop off $40,000, she was being followed by law enforcement officers. An agent was inside pretending to be a customer. Under her arm was a small black leather purse with a microphone in it. What appeared to be a chrome button was in fact a camera lens.

The four-week trial of El Reino’s owners, along with the proprietor of another perfume store, two money couriers and a warehouse employee in 2019 gave a particularly clear picture of how traffickers used legitimate businesses on both sides of the border to launder money. A number of people charged in the case remain fugitives, and last year the United Arab Emirates expelled a fourth shop owner to the United States to face money laundering conspiracy charges in south Texas. He pleaded guilty in December and was sentenced to 40 months in prison in February of this year.

That's How It's Done

Since the middle of the 20th century, Laredo's downtown has drawn immigrants from all over the world. High tariffs on consumer items like electronics made them scarce in Mexico, so black marketeers traveled to the United States to purchase them at downtown storefronts and smuggle them south.

Local business owners purchased merchandise for their Mexican customers at wholesale markets in New York. Salespeople at those markets saw an opportunity and moved south, opening their own businesses and tapping into the mostly cash retail market in Laredo. Today, online retail and pandemic travel restrictions have hollowed out downtown Laredo's retail economy. But a number of stores selling artificial flowers, consumer electronics, toys and perfume catering to clients in Mexico are still hanging on. And they still rely heavily on cash sales.

“That’s just the way business has operated downtown for years and years,” said Roberto Balli, a former city councilman whose district included downtown Laredo. Balli is also a lawyer who represented one of the couriers charged in the black market peso exchange case.

That was the economy Ravinder Gudipati found when he arrived in the border city in 1993.

Gudipati had immigrated to the United States from India three years earlier. He moved to New York and took a job unloading merchandise and stocking shelves at a perfume store on Broadway. He worked his way up to sales, and within three years Gudipati’s boss wanted him to open a new store in Laredo. What was supposed to be a six-month gig kept going for three more years. During the trial, Gudipati described customers from Mexico showing up early every week to place orders of $10,000 to $35,000, which they paid in cash. He met an employee at the store next door, a fixture in the downtown retail scene named Corina Blake.

Gudipati moved to New Jersey in 1996 and managed the perfume company’s wholesale warehouse. But he had an idea to start his own business. He quit his job and moved back to Laredo, where he opened NYSA Impex, a brightly lit store taking up half a block of downtown Laredo that still operates today.

“I knew the place. I knew the people here, and they were so kind, they were so good,” Gudipati testified. “Actually, I thought, okay, this will be a better place for my retirement.”

Many of his customers followed him to the new store.

Sometimes his customers sent him money through casas de cambio, or exchange houses that Mexican criminal groups have often exploited to launder ill-gotten funds. Other times they wired him money. It wasn’t unusual to be paid in cash, Gudipati testified.

In June 2012, some of his customers told him they’d no longer bring the cash themselves. It would be delivered by Blake, the woman who’d worked at the store next door to his back in the early-1990s and who would deliver the $40,000 to El Reino perfume store later that same year.

Infiltrating the Organization

Corina Blake was a fixture among the community of Laredo’s downtown merchants. She started her career as a salesperson at a duty free store in 1988. She worked for a trucking company and ran her own packing company, taking orders online for items she’d purchase at the mayoreo y menudeo shops then shipping them to her customers in Mexico. Gudipati said he recommended her shipping services to his customers.

Blake testified she was slowly drawn into the scheme to trade drug dollars in the United States for pesos in Mexico. Initially, a former client from her days at the duty-free store contacted her in 2011 about going into business on a new packing company. Out of work, she agreed to meet him in the parking lot of a Best Buy in north Laredo. He gave her tens of thousands of dollars and asked her to deliver the money to a perfume store.

“There was something wrong with that money, obviously,” Blake testified in 2019. “It wasn’t money that was clean.”

Soon after that delivery, Blake said, she was receiving calls from other perfume sellers in Guadalajara and Mexico City, asking her to deliver cash to other stores. A week after the meeting in front of Best Buy, someone else left nearly $1 million in a suitcase at her house. She dropped the money off at half a dozen stores, including well-known duty-free chains. In return, she was paid a commission of half a percent of the money she delivered, or around $5,000.

Not long after, she started receiving calls from a man she knew as Tio Polo. He increased the cash deliveries and upped her cut to one percent. The secretary for a Mexican perfume vendor told her Tio Polo was somehow coordinating the cash deliveries with a drug cartel in Mexico, Blake said.

In August 2011, Tio Polo called her and asked her to pick up $185,000 from a trucker in the sprawl of warehouses and truck stops northeast of downtown Laredo. Shortly afterward, federal agents pulled her over. A task force officer, an employee of the local district attorney assigned to work with the DEA, asked her to follow him.

In his office at Laredo’s federal building, Francisco Lozano played her a recording of her phone conversation with the trucker coordinating the cash pickup. Lozano presented her with a choice: work for him or get arrested. Blake, who couldn’t be reached for comment but testified with Lozano at the 2019 trial, agreed to cooperate.

An Inside Look

Blake went on to let agents listen to her phone calls. She also kept them apprised of when cash deliveries were planned, and they watched as the money from up north arrived in Laredo and was distributed to local businesses. Prosecutors later alleged the conspiracy laundered more than $4 million, according to court records.

The shape of the organization began to take form as well. Tio Polo was known among the community of entrepreneurs who buy consumer goods in US border towns as a big-time seller of clothes and backpacks in the central Mexican city of Guadalajara. According to prosecutors, his name is Hipolito Ochoa Rivera, and he had gathered together a small group of merchants who purchased wholesale in Laredo and sold their goods at tianguis, or open-air markets in Mexico. Ochoa dealt with drug traffickers in Mexico, arranging to have them use the dollars owed by their US distributors to pay off the debts his consortium had incurred at the downtown Laredo shops, according to the testimony. In exchange, the vendors in Mexico would pay the traffickers back in pesos from the sale of their goods at the tianguis.

According to the testimony, Ochoa Rivera ran a similar operation in Los Angeles. Prosecutors said the scheme was a boon for everyone involved.

“For their participation, the American exporters receive additional sales, the Mexican importers avoid taxes and get a better exchange rate from the [drug trafficking organization] than they would elsewhere, and the peso brokers and couriers receive a percentage of the transaction,” a federal prosecutor later wrote in a court filing.

While the drug trafficking organizations do take a loss, they’re focused on the long term. Ultimately, their illegal proceeds are cleaned and the large-scale dollar transactions are made to look legitimate, providing them cover from law enforcement.

SEE ALSO: In-Depth Coverage of the US/Mexico Border

The evidence submitted at trial focused largely on the US side of the operation, but there were hints of how things operated in Mexico. In 2012, investigators listening to Blake’s phone overheard a Laredo freight forwarder telling her that Ochoa Rivera’s brother had been killed. According to the freight forwarder, the shooting was retaliation for losing $500,000 agents had seized from a courier. However, InSight Crime could not locate any news report or record of the murder.

Justice Department officials said they couldn’t comment on which drug trafficking organizations were involved because that information wasn’t presented in court. Keith Liddle, the trial attorney for the Justice Department’s Money Laundering and Asset Recovery Section, who prosecuted the Laredo case, would only speak broadly about the profile of black market money changers.

“[The brokers] typically have some sort of financial background,” he told InSight Crime. “They also, of course, need to have connections to the Mexican business community, and they need to have … some kind of connections, direct or indirect, to the drug cartels. My experience has been typically … they fancy themselves as money brokers, as financial people. And of course, they want to stay away from the drugs.”

Investigators went to the Treasury Department and requested copies of the declarations the shop owners in Laredo filed disclosing cash transactions of more than $10,000, as is required by US law. Sometimes they failed to disclose Blake’s deliveries. Other times, they listed the name of the customer whose account was being paid off, not Blake, who actually delivered the money.

In June 2012, agents told her they wanted to infiltrate the money laundering organization with one of their own. So she suggested to Tio Polo that he hire her cousin, a wrecker company owner named “Cuate.” Cuate, however, was in fact Lozano, the DEA task force officer. Soon, he was driving across the United States to pick up drug money from dealers in places like Jackson, Mississippi; Cincinnati, Ohio; Atlanta, Georgia; and New York City. The money was recorded, then turned over to Blake. At trial, jurors were shown videos of Blake handing off bundles of cash to Harsh and Neeru Jaggi, the owners of El Reino, as well as Gudipati.

But the agents were concerned they didn’t have enough evidence to convict Gudipati and the Jaggis. So on May 8, 2013, Blake again walked into El Reino, and with the recorder running in her purse, told Harsh and Neeru Jaggi four times that the money she was dropping off was “narcodinero,” or drug money.

“Can we declare the money?” Harsh Jaggi responded. Jaggi’s wife Neeru gave Blake a receipt for the $52,000 she had dropped off, then she left. A few months later, she had a similar conversation recorded with Gudipati at NYSA Impex.

Money Laundering Crackdown

Nearly five years passed without cash deliveries from Blake. Then, in January 2018, after the statute of limitations had passed for crimes she committed before she was on the DEA’s payroll, federal agents began rounding up the conspiracy’s participants.

It was just the latest time federal prosecutors targeted border retailers. In 2012, federal prosecutors in Houston indicted nine people they said ran a less complex scheme that featured aspects of a black market peso exchange involving US shell companies and bank accounts. According to prosecutors, a peso broker would negotiate an exchange rate with traffickers in Mexico. Drug money was dropped off at an office in a strip center on Houston’s eastern edge and deposited in US bank accounts, then the agreed upon amount was wired to drug traffickers in Mexico.

Again, prosecutors never named the Mexican drug traffickers or the organizations they belonged to.

And in 2016, a judge in Laredo sentenced another downtown shop owner to three years of probation for failing to file the same cash reporting forms prosecutors said the Jaggis and Gudipati had failed to, or just improperly, filled out.

Using Blake’s and Lozano’s information, agents arrested seven people in 2018, including the owner of a warehouse where the perfume was stored, the freight forwarder who shipped it to Mexico and one of his employees. They also arrested several couriers, the Jaggis and Gudipati.

At trial, prosecutors played recorded phone calls with Blake, Ochoa and couriers. They showed the videos from the camera hidden in Blake’s purse. Among their witnesses were the warehouse owner where the perfume was stored and the drug dealer who gave Lozano, posing as Cuate, the $215,520 in Kentucky. They said the store owners knew the money was dirty and intentionally left Blake’s name off the forms they filed with the Treasury Department.

The defense countered by arguing that the store owners, whose first language is Hindi, didn't understand the reporting requirements and didn’t grasp the significance of what Blake was saying in Spanish. The people on whose behalf she was delivering money were long-time customers. Nothing about the transactions seemed suspicious to them. Their lawyers presented them as hard-working entrepreneurs living a classic American immigration story. Gudipati and the Jaggis started successful small businesses so their children could go to college and earn business degrees or attend medical school.

In the end, much of the case turned on the one conversation each had with Blake in which she told them the money she was dropping off was drug money.

“If he would have had cleaner accounting and the minute she said narcodinero, he pushed that money back and said, ‘I don't want you in my store anymore,’ I don't think he'd be where he is today,” said Scott McCrum, Gudipati’s lawyer.

But cutting off Blake wouldn’t have been easy. Many of Laredo’s merchants sell on credit.

“They’re caught in a circle,” said Kush Samtani, the owner of Special Electronics and a longtime proprietor in the district. “They have to feed the customer merchandise or they won’t pay” their outstanding accounts.

“Everybody crosses the bridge with cash,” he added. “How do you know where it’s from?”

In the end, the jury convicted all six people on trial. The Jaggis and Gudipati received 80-month prison terms. In 2020, in the midst of the global COVID-19 health pandemic, a judge ordered Harsh and Neeru Jaggi, who didn’t respond to requests for comment, released from prison under supervision. As lawful permanent residents, they’re now facing deportation and appealing their convictions. Gudipati was released on bond pending the outcome of his appeal. On December 9, 2020, after the Fifth Circuit Court of Appeals upheld his conviction, he surrendered to the federal prison in Oakdale, Texas.

The Mexico Connection

While the records released in the Texas cases didn’t give any indication of which criminal groups in Mexico benefited from the schemes, a trial in New York 10 years ago provided some insight into how the black market peso exchange operates south of the border.

In 2010, DEA agents targeting perfume sellers in Florida, New Jersey, and Texas started investigating Vikram Datta, a Laredo resident who owned stores in three border states. He was eventually arrested in January 2011 on charges related to an international money laundering conspiracy. Prosecutors later alleged that Datta laundered money for the Sinaloa Cartel, although trial transcripts show that the man claiming to be a Sinaloa Cartel operative purchasing perfume from his stores was actually an undercover agent.

Another witness in Datta’s 2011 trial gave a more detailed explanation about how the Mexico side of the operation worked.

Faustino Garza González, a money changer in Nuevo Laredo, told jurors that he offered a currency exchange service to perfume sellers in Mexico. He took their pesos, changed them for dollars at banks and exchange houses, then had couriers carry them across the border and pay off accounts at Laredo’s perfumerias. Aspects of the business were legitimate. The couriers declared their money to US customs agents at the bridge. Garza couldn’t operate the business in Mexico because he had a prior conviction in Texas for money laundering, so he had an employee register with the appropriate authorities, he testified.

In 2009, he started buying dollars from two businessmen in Mexico who offered a better rate than the banks and casas de cambio. Garza testified that he knew the dollars were dirty, simply because they were sold on consignment and at a cheaper rate.

“When you say the money is bought on consignment, it’s obvious that the money had been ill-gotten or gotten through drug dealing, and later I would be given time to pay it back off,” Garza testified.

It’s not clear if prosecutors ever brought charges against Garza’s clients, likely working on behalf of Mexican organized crime groups.

The United States is reluctant to pursue black market peso exchange investigations that might impact international trade, said Bill Gately, a former customs agent. In the 1990s, Gately oversaw Operation Casablanca, which uncovered a $1 billion money laundering operation by Mexican bankers using the black market peso exchange.

He called the money laundering through the perfume stores in Laredo “nickel and dime operations.” US officials are willing to take on “low-hanging fruit,” Gately said, but not the bigger players.

*Buch is an independent journalist based in Texas with extensive experience covering the US-Mexico borderlands.

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