Human-smuggling rings from Mexico turning to new tactics
Arizona authorities say other states, feds must help squeeze cash pipeline
by Sean Holstege - Jul. 13, 2008 12:00 AM
The Arizona Republic
Mexican human-smuggling rings are sidestepping Arizona's campaign to choke off their pipeline of illegal cash as they collect billions of dollars for sneaking illegal immigrants into the state.

Arizona investigators crack down, and the smugglers counter, shifting where and how they collect payments from illegal immigrants. The two sides repeat their sparring, like two grand masters mapping out their paths on a chessboard.

The cartels' shifting tactics show how the smuggling of people increasingly has become an organized business. Typically, a Mexican immigrant pays a smuggler $1,500 to $2,000 in fees, paying a portion up front to reach and then cross the Mexico border. Then a coyote takes the immigrant to a drophouse in Phoenix and holds him or her hostage until the final balance is wired from a friend or relative in the U.S.

Arizona investigators targeted payments wired to Western Union stores in the state and seized millions of dollars. But since then the smugglers have begun having the money transmitted to certain Western Unions in other states and Mexico. They also launder the cash through quickly closed checking accounts at large commercial banks and ferry bags of cash south across the border.

One way or another, at least $1.7 billion a year flows to Arizona's drophouse rings, federal and state investigators estimate. The money sustains illegal immigration, a big business characterized by gunbattles among smugglers and attacks upon immigrants. Every few months coyotes kill an immigrant.

The money maneuvers have frustrated Arizona investigators. Focusing on unscrupulous Western Union outlets, they had slashed wire transfers to smugglers from a peak of $500 million in 2002 to less than $50 million in 2006.

Western Union says it does everything it can to help. The company monitors its business thoroughly for money laundering and reports any problems to authorities, said Joseph Cachey III, the company's vice president for global compliance.

"We try to run a national anti-money-laundering program, and we feel it is significant and thorough," Cachey said.

The state continues to chisel away at the smugglers' network. Earlier this month, an Arizona Court of Appeals ruling allowed state investigators to open a new front in their campaign: sifting and seizing certain Western Union transactions to Sonora. Arizona Attorney General Terry Goddard hailed the ruling as "very important."

But he admits it's not enough. Arizona stands alone in combating illegal profits from smugglers. No other state, nor any federal agency, has systematically targeted coyote money. Goddard has asked other border states to copy Arizona's campaign, but none has.

He now is urging Mexican authorities to clamp down on smugglers and unscrupulous Western Union operators in Sonora, but it's unknown how far any cooperation will go.


Targeting the cash

Arizona's crackdown began in 2001, when undercover agents watched coyotes walk out of Western Union outlets in the state with tens of thousands of dollars in cash. Often, they didn't bring valid ID to get cash and picked up payments wired to dozens of illegal immigrants.

As investigators tightened the net, coyotes starting bringing illegal immigrants to some Western Union shops to sign for the cash in smaller amounts. Store clerks took bribes and kept loose records, investigators testified.

Over the next five years, investigators tracked wired money and chased the evidence that emerged. Detectives pieced together a picture of drophouses, coyotes and smuggling rings. They collected troves of smuggling lists, interrogated thousands of immigrants and coyotes and conducted undercover stings of coyotes and Western Unions in Arizona. All the evidence pointed in the same direction: Vast amounts were being laundered.

The effort led to the largest money-laundering case of its kind. In January a grand jury indicted Bruce Dennis Love, a Phoenix-area Western Union franchisee, on money-laundering and other charges. Love has not entered a plea, pending a ruling on whether he is mentally competent to stand trial.

Statewide, about 5 percent of Western Union outlets were responsible for 80 percent of the most suspicious transactions, investigators with the state financial-crimes task force say. Transaction records and follow-up investigations show that two- to three-dozen stores depended on the coyote business.

"We haven't finished (prosecuting) the highly corrupt Western Union agents," said Cameron Holmes, senior litigation counsel at the Attorney General's Office.


Sonoran connection

In spring 2006, state investigators studied a two-month sample of Western Union transfers from U.S. states to Sonora. They counted $28 million from the same 28 states that had previously wired money to coyotes in Arizona. Money went to Sonora from the same places, in the same amounts and proportions as they had in Arizona.

The transfers showed that families in, say, New York or Atlanta paid Arizona coyotes the way they always had but sent the money farther south.

Further evidence included:


• Most transactions were posted in a handful of small smuggling towns, such as Caborca, Altar and Cananea. A few individuals picked up thousands of dollars in multiple transactions every day. One man picked up $194,000 in two months.


• Money transmissions to Sonoran Western Unions fluctuated with the smuggling season, spiking in spring and late fall, just as they had in Arizona.


• Sonora, a smuggling haven for decades, has 100 Western Union outlets, more than Mexico City, which is four times as populous. Investigators said the imbalance showed Sonoran stores were collecting coyote money rather than legal remittances.


• In one case, investigators used logbook notes and transaction records to link the murder of an immigrant in a Phoenix drophouse to a Western Union branch in Caborca. He was shot in the head, testicles and midriff while complaining on the phone to his brother about being extorted.

The Caborca branch sits at the back of a store that sells appliances and motorcycles. Investigators said it cleared 20 times the amount as the next busiest Western Union in Sonora.

Later in 2006, Arizona investigators got a warrant to seize suspicious transactions from U.S. states to Sonora.

Western Union filed an emergency motion in court to halt the seizures, arguing that data search was too broad and would interfere with the privacy of people who legitimately wire money.

A Maricopa County Superior Court judge agreed, but on July 1 the state Court of Appeals overturned his ruling, saying Arizona could search the data and intercept suspicious transactions. The court said the evidence linked the money in Sonora to crimes in Arizona.

Western Union has not yet said whether it will appeal.


Expanding to other states

Mexican smuggling cartels have countered Arizona's pursuit of Sonora transactions by spreading the risk: They have moved drophouse operations and wired payment of smuggling fees to other states, including Nevada.

In Las Vegas, patrol officers have been stopping more vans full of illegal immigrants on the highways leading to the city, Arizona Department of Public Service officials said.

Immigrants and coyotes have told Arizona investigators that increasingly people are ordered to send money to Western Union stores in the Las Vegas area. Investigators sought but did not receive court permission to seize records of those transactions, so it's not known how much Arizona money has shifted north.

Likewise, U.S. Immigration and Customs Enforcement agents say an unknown amount of money has shifted to California and New Mexico. Goddard recently asked his counterparts in bordering states to launch parallel investigations, but none has. He did not provide details about any talks with counterparts in other states, and officials in Texas, California and Nevada declined comment to The Arizona Republic.

The New Mexico Attorney General's Office said it has found only small volumes of money wiring.

Federal agencies have limited their actions to administrative fines of Western Union and smaller-scale seizures of coyote money.

Western Union is regulated by the USA Patriot Act, the Bank Secrecy Act and state laws. Store agents are required to file reports of suspicious activity, log withdrawals larger than $2,000 and document efforts to split a single payment into smaller transactions.

In 2003, the U.S. Treasury Department's Financial Crimes Enforcement Network determined that "Western Union's failures to file suspicious activity reports were willful" and fined the company $3 million.

Regulators in California and New York also found Western Union's methods lacking and fined the company.


Using bank accounts

In more recent cases, evidence has emerged that coyotes are increasingly smuggling money through large commercial banks.

Historically, criminal organizations shied away from banks because reporting requirements are stricter and better enforced.

Since Arizona's crackdown on wire remitters, cartels have turned to checking accounts, suspects and extortion victims told investigators.

A coyote will set up numerous checking accounts with small amounts of cash. When relatives are ready to pay the smuggling fee for an illegal immigrant, coyotes give them the account number and tell them to deposit cash in a drive-through teller. When the money clears, the immigrant is released.

As quickly as possible, money launderers then withdraw the money. It's a high-volume, quick-turnaround operation that draws suspicion from bank security teams, but coyotes usually shut down the accounts after a couple of months, before bankers catch on.


Western Union at center

Western Union says it has been a cooperative partner in cracking down on money laundering.

Cachey, the vice president for global compliance, touted the company's efforts to train its 335,000 franchise agents on how to spot laundering and how to build a better compliance program. He added that regulators have to better warn money-wire firms about emerging risks.

While Arizona presents unique challenges, Cachey said, Western Union tracks money-laundering attempts around the globe, including to terrorist organizations.

Still, he says the company has cooperated with Arizona, and it's helped. He cites the Bruce Love case.

"We reported the problems to the government and terminated our relationship with him," Cachey said.

"We have programs in Sonora and all along the U.S.-Mexico border looking for suspicious patterns of activity so we can deal with that," Cachey said.

Goddard and state investigators take a dimmer view of Western Union's role.

In 2006, the Arizona Department of Financial Institutions found Western Union agents failed to identify 28 customers and had incomplete records for 47 more. The state fined Western Union $3 million and ordered it to shut down eight stores, including two run by Bruce Love, and put on probation six more. Regulators found no willful or intentional wrongdoing.

"It is troubling to me that a major commercial enterprise can facilitate criminal activity the way the money transmitters do," Goddard said. "A greater effort is needed from them to clear up their activities. I've been angry for the last four years."

Goddard agrees with ICE and state investigators that only extensive cooperation beyond Arizona can put another dent in human smugglers' money laundering. They all say that without collaboration, it's getting harder to follow the hidden cash in the never-ending battle of wits and tactics between smugglers and law officers.

"We are the rock in the stream, not the dam," Goddard said of Arizona's enforcement. "We need to get to the dam."


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