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Fashion Hub Raids Target Cartel Money Laundering

Robert Dugdale, Assistant U.S. Attorney, Chief Criminal Division, explains the workings of the "black market peso exchange," scheme, also known as trade-based money laundering, as used by Mexico-based drug trafficking organizations to collect money from their United States drug sales, during a news conference in Los Angeles Wednesday, Sept. 10, 2014. Federal authorities arrested nine people and seized roughly $65 million U.S. dollars in a Wednesday crackdown on suspected drug money laundering in the fashion district of Los Angeles. (AP Photo/Damian Dovarganes)
Robert Dugdale, Assistant U.S. Attorney, Chief Criminal Division, explains the workings of the “black market peso exchange,” scheme, also known as trade-based money laundering, as used by Mexico-based drug trafficking organizations to collect money from their United States drug sales, during a news conference in Los Angeles Wednesday, Sept. 10, 2014. (AP Photo/Damian Dovarganes)

AMY TAXIN, Associated Press

LOS ANGELES (AP) — Federal authorities arrested nine people and seized about $90 million Wednesday in raids in the fashion district of Los Angeles, marking an unprecedented crackdown on Mexican cartels’ increasing reliance on international trade to launder money from drug sales in the United States.

About 1,000 law enforcement officers fanned out across the city’s downtown to search dozens of businesses suspected of taking bulk cash funneled by drug cartels for clothing exported to Mexico.

The raids came after three separate federal indictments in the biggest investigation to date into trade-based drug money laundering, said Thom Mrozek, a spokesman for the U.S. attorney’s office in Los Angeles.

Of the approximately $90 million seized, some $70 million of it was in cash, he said.

Since Mexican authorities tightened financial regulations in 2010, U.S. officials say drug cartels have sought new ways to launder proceeds from sales of cocaine, methamphetamine and other drugs in the U.S. and are increasingly turning to international trade.

Los Angeles is a shipping point for narcotics and also a hub for traffickers to consolidate proceeds once the drugs are sold, said Robert E. Dugdale, chief of the criminal division at the U.S. attorney’s office in Los Angeles. Officials believe money laundering is prevalent in the city’s 3,000-business fashion district because of the sheer volume of trade with Mexico, he said.

“They produce cheap wares that can be sold down in Mexico,” Dugdale said. “The fashion district in particular seems to be where this is thriving at the moment.”

During the sweep, agents searched approximately 50 businesses and seized massive amounts of cash stored in cardboard boxes and duffel bags, officials said.

Kent Smith, executive director of the LA Fashion District, said most businesses in the district are legitimate and the area generates more than $10 billion a year in economic activity, according to a 2009 study. He also said most businesses sell clothing within the United States.

“All of us are very surprised by this,” he said.

The three indictments announced Wednesday include charges related to money laundering and other financial violations — for example, breaking up large sums of money into smaller deposits in an attempt to elude authorities.

Outside the nine people arrested, authorities were searching for four others accused in the scheme, including three in Mexico, federal prosecutors said.

“We are stepping up our efforts to go after their money, which is the lifeblood of these criminal organizations,” Dugdale said.

In one case, the Sinaloa Cartel had $140,000 in ransom payments funneled through businesses in the fashion district for a hostage who was beaten and tortured in Mexico, said Bill Lewis, assistant director in charge of the FBI’s office in Los Angeles.

Fashion district wholesaler QT Fashion Inc. is accused of taking the cash and channeling it through 17 other district businesses at the direction of a Mexican company tasked with laundering the money, officials said.

Messages left for lawyers for QT Fashion’s owner, Andrew Jong Hack Park, and business manager, Sang Jun Park, weren’t immediately returned. Another man authorities say was affiliated with the business, Jose Isabel Gomez Arreola, was not involved and will plead not guilty, said his attorney, John Targowski.

In another case, the chief executive and financial officers of Pacific Eurotex Corp., one of their relatives and an employee were accused of receiving $370,000 in cash and splitting up the funds into smaller deposits in an effort to avoid detection by authorities, said Claude Arnold, special agent in charge of Immigration and Customs Enforcement’s homeland security investigations.

Arnold said the defendants accepted the money even after two of them attended an outreach meeting with ICE and Internal Revenue Service officials to review financial reporting requirements. He said agents began investigating after noting businesses in the fashion district were dealing in large amounts of cash.

A message left for Pacific Eurotex’s lawyer, Ariel Neuman, wasn’t immediately returned.

 

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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