-Caveat Lector-
Top Mexican Off-Limits to U.S. Drug Agents
By TIM GOLDEN
WASHINGTON -- Early last year, as undercover U.S. Customs agents neared the
end of the biggest investigation ever conducted into the illegal movement of
drug money, bankers working with Mexico's most powerful cocaine cartel
approached them with a stunning offer.
The agents, posing as money launderers from Colombia, had insinuated
themselves deeply into the Mexican underworld, helping the traffickers hide
more than $60 million. Now, money men working with the cartel said they had
clients who needed to launder $1.15 billion more. The most important of those
clients, they said, was Mexico's powerful defense minister.
The customs agents didn't know whether the money really existed or if any of
it belonged to the minister, Gen. Enrique Cervantes, officials said. But
having heard about American intelligence reports pointing to corruption at
high levels of the Mexican military, the agents were mystified by what
happened next.
Rather than continue the undercover operation to pursue the deal, Clinton
administration officials ordered to shut it down on schedule several weeks
later. No further effort was ever made to investigate the offer, and officials
said prosecutors have not even raised the matter with the suspects in the
case, who have pleaded guilty and are cooperating with the authorities.
"Why are we sitting on this kind of information?" asked the former senior
customs agent who led the undercover probe, William F. Gately. "It's either
because we're lazy, we're stupid, or the political will doesn't exist to
engage in the kind of investigation where our law-enforcement efforts might
damage our foreign policy."
Senior administration officials denied that foreign policy influenced their
decision to end the operation, saying they were moved primarily by concerns
for its security. They also emphasized that the agents were unable to verify
the Mexican traffickers' claims.
Other officials of the administration, which has based much of its Mexican
drug strategy on collaboration with Cervantes, said they are confident that he
is above reproach. A spokesman for the Mexican Defense Ministry, Lt. Col.
Francisco Aguilar Hernandez, dismissed the traffickers' proposal as self-
serving lies.
But a detailed account of the case -- based on confidential government
documents, court records and dozens of interviews -- suggests that U.S.
officials walked away from an extraordinary opportunity to examine allegations
of the official corruption that is considered the main obstacle to anti-drug
efforts in Mexico.
For nearly a decade, American officials have been haunted by the spectacle
of Mexican officials being linked to illicit activities soon after they are
embraced in Washington. And just weeks before the customs investigation, known
as Operation Casablanca, ended last year, administration officials received
intelligence reports indicating that the Mexican military's ties to the drug
trade were more serious than had been previously thought.
But when faced with the possibility that one of Washington's critical
Mexican allies might be linked to the traffickers, the officials gave the
matter little consideration. They said they opted for a sure thing, arresting
mid-level traffickers and their financial associates and at least disrupting
the money laundering system that drug gangs had set up. To reach for a
general, they said, would have added to their risks with no certainty of
success.
"Obviously it was a significant allegation," Customs Commissioner Raymond W.
Kelly said in an interview. But he added: "There was skepticism about it. Was
it puffing? It just was not seen as being -- I won't use the word credible --
but it wasn't verified."
When senior administration officials announced the sting last May 18, they
took a triumphant inventory: the indictments of three big Mexican banks and
bankers from a dozen foreign banks; the arrests of 142 suspects; the
confiscation of $35 million in drug profits and the freezing of accounts
holding $66 million more.
The officials claimed the success as the result of a longstanding
administration fight against money laundering. But Gately, who retired from
the Customs Service on Dec. 31, said his investigation ran a gantlet of
resistance from the start.
The Justice Department, uncomfortable with cases in which undercover agents
laundered more money for drug traffickers than they ultimately seized, were
imposing new limits on the time that such operations could run and the money
they could launder, officials said. And though the restrictions did not apply
to Customs, a branch of the Treasury, Justice Department officials continued
to play strong, skeptical roles in supervising cases throughout the
government.
One federal official, who spoke on the condition of anonymity, admitted that
he initially dismissed Gately's plan as a nonstarter. "You're out of your
mind," the official remembered saying.
Several colleagues said it was the sort of response that Gately, 49, tended
to see as a challenge. A decorated former Marine who enlisted for service in
Vietnam at the age of 17, he had already been at the center of several cases
that mixed internal struggle and public success. Friends and critics described
him in similar terms: driven, sometimes abrasive and unusually creative.
After leading an investigation that revealed ties between the Italian mafia
and Colombian cocaine cartels, Gately co-wrote a 1994 book about the case,
"Dead Ringer," that cast him as a lonely crusader surrounded by small-minded
bureaucrats. "It is the story of one man who refused to succumb to
corruption," the prologue reads, "who believed in his oath and mission, and
the consequences he paid for believing in what he was doing."
As the senior customs drug investigator in Los Angeles, Gately said, he
first heard from an informant in 1993 about an important shift in the way that
Mexican and Colombian drug traffickers were converting their cash into funds
that could be freely spent.
The informant said traffickers were depositing their money with corrupt
Mexican bankers, who sent it back to them in almost untraceable cashier's
checks drawn on the American accounts that the Mexican banks used to do
business in the United States.
Gately hoped his informant could infiltrate that system -- collecting
illicit cash from drug wholesalers in the United States and then wiring it to
corrupt bankers in Mexico. The bankers would issue drafts for the money, and
customs would develop evidence against suspects on both ends of the
transaction.
Many customs officials, however, were skeptical that the ruse would work.
Drug-enforcement agents wanted to use the informant in another case. One
federal prosecutor opposed using him at all because he had a criminal past and
threatened to indict him in a 10-year-old case.
Even when Gately was eventually able to recruit another informant, a
Colombian known by the pseudonym "Javier Ramirez," a senior Justice Department
official, Mary Lee Warren, pressed him to limit the operation's scope, Gately
and others said.
"What she wanted to know was, when was this going to be over?" he recalled.
"What was our endgame?"
In November 1995, Colombian drug contacts introduced the undercover agents
to Victor Alcala Navarro, a representative of Mexico's biggest drug mafia, the
so-called Juarez cartel.
The customs agents, posing as money launderers from a dummy company called
Emerald Empire Corp., began picking up the Mexican's profits and laundering
them as planned.
In February 1997, at meetings in Mexico, Ramirez was introduced to Alcala's
boss. A few months later, the customs informant found himself chatting by
phone with the head of the cartel, Amado Carrillo Fuentes.
Over scores of meetings and million-dollar deals, the traffickers grew more
open about the official protection they enjoyed in Mexico, law-enforcement
officials and government documents indicate.
At one meeting in Mexico City on May 16, 1997, the traffickers brought along
16 federal police agents as bodyguards. At another meeting, a man who
identified himself as an official of the Mexican attorney general's office
picked up $1.7 million in cash, including $415,000 that the undercover agents
had brought for the cartel boss himself.
During a later meeting in New York, Alcala told the agents that like
Mexico's drug-enforcement chief, who had been arrested for collaborating with
the Juarez cartel, the defense minister, Cervantes, was in league with the
competing Tijuana cartel.
Customs officials said they remained skeptical of what the agents heard,
including the traffickers' claim that Carrillo Fuentes had actually faked his
own death in 1997. But in December 1997, Ramirez invited Alcala to Colombia
for an elaborately staged meeting that seemed to raise their partnership to a
new level.
At a heavily guarded hacienda overlooking Bogota, an informant acting as
Ramirez's Colombian boss, Carlos, said he and his partners had $500 million of
their own to launder. They wanted to know whether the Mexican bankers used by
Alcala's boss, Juan Jose Castellanos Alvarez-Tostado, could help.
"Alvarez called us right back," Gately recalled. "He said, 'Let me send you
my very best people, and we will get it done.' "
On March 6, 1998, Alcala arrived with several businessmen at the tastefully
furnished offices of Emerald Empire in an industrial suburb of Los Angeles.
This time the businessmen brought a big deal of their own.
One of the men, David Loera, said he knew "a general" who had $150 million
in Mexico City to invest. Would Ramirez -- who had told the traffickers he
owned part of a Nevada casino used to launder money -- care to help?
Over the next six weeks, according to government documents and the accounts
of Gately and several officials, the deal was discussed in three more meetings
and three telephone conversations between Ramirez, the undercover agents and
the traffickers. All of the contacts were secretly tape-recorded and
transcribed, officials said.
In one call, two senior investment managers at Mexico's second-largest bank
told the customs operatives that the money belonged not just to "a general"
but to the minister of defense. Later, the two Mexicans advised Ramirez that
the minister was sending "his daughter" (a woman later said to be a friend) to
meet with them, along with an army colonel and a third person.
However, the investment managers said, the amount to be laundered was much
more than they had discussed: the minister had $500 million in cash in New
York and another $500 million in the Netherlands, in addition to the $150
million in Mexico City.
Customs officials said they queried the CIA, which works closely with the
Mexican military on drug-control and other programs. The CIA responded tersely
that they had no such information about Cervantes, an assessment that other
officials have since reiterated.
But while Cervantes has not been a focus of suspicion, Mexican and American
officials said several senior generals close to him have been under scrutiny
by investigators from both the Mexican attorney general's office and a special
military intelligence unit.
On Feb. 6, analysts at the Drug Enforcement Administration briefed Attorney
General Janet Reno on intelligence indicating that senior Mexican generals
might indeed be cooperating with Carrillo Fuentes' organization, officials
said. And in a separate customs case in Houston, undercover agents had been
approached about laundering millions of dollars for an unnamed Mexican army
general, officials said.
On April 9, Alcala visited Emerald Empire with a cousin, who had just
returned from Mexico with a message. "He was very nervous about the deal,"
Gately said. "He said it could be very dangerous if it got screwed up, because
the money belonged to 'all of them, including the president,' " Ernesto
Zedillo. (A spokesman for Zedillo, David Najera, dismissed the claim as
baseless.)
Later that month, Gately went to Washington to brief officials including
Kelly -- who was then about to take over the Customs Service after overseeing
it as the Treasury Undersecretary for Enforcement.
"Kelly said, 'How do we know it's really him?' " Gately recalled, referring
to Cervantes.
"I told him, 'We don't know,' " Gately said. " 'We can't substantiate it.
But we have no reason to believe they're telling us anything other than what
they know.'
"They weren't trying to impress us, they were trying to make deals with us,"
Gately added. "So whoever had this money, I thought it was worth pursuing --
whether it was the defense minister of Mexico or somebody we'd never heard
of."
People familiar with the discussions said they did not go much further. The
general's supposed emissaries were to meet Ramirez in Las Vegas on April 22.
They did not arrive, and the traffickers reported that they had gotten
nervous.
Kelly acknowledged that he had been pressing for months to wrap up the
investigation; he said he had grown increasingly concerned that information
about it might leak out, endangering the undercover agents. The final sting
had already been postponed twice because federal prosecutors were still
preparing indictments.
James E. Johnson, who succeeded Kelly as undersecretary and has closely
supervised Treasury's relationship with Mexico on enforcement issues, added a
cautionary note that several officials said seemed to underscore his concern
for the political stakes. Unless the agents had proof of Cervantes' role,
several officials quoted him as warning, they should not bandy his name about
in connection with the case.
"We need to be very careful about how we talk about this sort of thing," a
senior law-enforcement official, who would not speak for attribution, quoted
him as saying. "If we don't have the goods, it makes us look like we're
overreaching."
The operation had already navigated a series of sizable obstacles.
Gately and some other agents were worried that their boss in Los Angeles,
John Hensley, had leaked information about the secret operation to
congressional aides and others; Hensley had also pressed hard to bring the
operation to an end, officials said.
For his part, officials said Hensley had accused his strong-willed
subordinate of transgressions ranging from traveling without authorization to
stealing millions of dollars. Kelly acknowledged that the charges were
investigated and found baseless; Hensley declined any comment.
As discussions about the supposed $1.15 billion were going on, the
undercover operation also suffered a serious setback with the capture of a key
Juarez operative in Chicago. The arrest brought money deliveries to a halt
while the cartel hunted for a mole.
On Saturday, May 16, more than two dozen Mexican traffickers, bankers and
other operatives who had been invited to the United States by the undercover
team were rounded up in San Diego and at the Casablanca Casino Resort in
Mesquite, Nev. And officials said whatever thoughts they had that the
allegations about Cervantes might be pursued were dropped in the diplomatic
backlash that followed.
While the Mexican authorities were asked to arrest about 20 suspects
indicted in the case, they initially located only six. One was the partner of
Loera, the fugitive businessman who first proposed the deal with "the
general." The partner was found dead in a Mexican jail from injuries that the
police described as self-inflicted. Alvarez-Tostado has never been found; his
deputy, Alcala, awaits trial in Los Angeles.
Soon after the operation, American officials said, they showed the Mexican
government some of their information on apparent corruption in the case. They
said they kept silent about more explosive evidence to avoid exacerbating the
furor that had broken out over their decision not to warn Mexico about the
operation.
Still, the officials said that none of the information was ever pursued, and
the Mexican attorney general, Jorge Madrazo Cuellar, obliquely dismissed the
allegations in a little noticed statement issued last July.
Madrazo said in an interview that the Americans told him only about unnamed
federal agents and a money laundering scheme involving "a general who had a
daughter." He said the name of Cervantes, who has no daughter, was never
mentioned.
"With the information that they gave me, what could I possibly have done?"
Madrazo asked. "Gone and looked for a general with a daughter?"
Tuesday, March 16, 1999
Copyright 1999 The New York Times
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