Noth­ing re­moves stub­born drug-money stains bet­ter than gold

Melted-down metal and fal­si­fied in­voices make cash look le­git “There’s just way too much gold go­ing through Mi­ami”

Bloomberg Businessweek (Asia) - - CONTENTS - Alan Katz The bot­tom line Gold is hard to trace and can be eas­ily con­verted to cash, which makes it a use­ful tool for money laun­der­ing.

Mex­i­can drug car­tels op­er­at­ing in the U.S. have a prob­lem: get­ting the prof­its home. Some­times they try send­ing cash through banks, but that’s grown dif­fi­cult as the gov­ern­ment forces fi­nan­cial in­sti­tu­tions to beef up an­ti­money-laun­der­ing ef­forts. So at least one in­ter­na­tional or­ga­ni­za­tion moved its money on a river of molten gold.

The Si­naloa car­tel, once led by se­rial prison es­capee Joaquin “El Chapo” Guz­man, used some of its pro­ceeds from sell­ing drugs in the U.S. to buy gold in pawn shops, ac­cord­ing to al­le­ga­tions in court records. It shipped more than $98 mil­lion in gold to a Florida com­pany that had it melted down and sold for cash. Then the car­tel used fake in­voices to jus­tify send­ing the pro­ceeds to a com­pany in Mex­ico.

Court doc­u­ments, plus in­ter­views with peo­ple fa­mil­iar with the al­leged scheme, paint an unusu­ally de­tailed pic­ture of how gold can be used to hide an il­licit money trans­fer.

“If I had a lot of money to laun­der, I would choose gold,” says John Cas­sara, a for­mer U.S. Trea­sury special agent and au­thor of books on money laun­der­ing. “There re­ally isn’t any­thing else like it out there.” Once it’s melted down, the com­mod­ity’s ori­gins are dif­fi­cult to trace. It can quickly be con­verted to cash. Many of the com­pa­nies that deal in gold aren’t held to the same com­pli­ance stan­dards as banks.

Part of the sus­pected money laun­der­ing op­er­a­tion is laid out in doc­u­ments from a fed­eral court case in Chicago. Peo­ple in­clud­ing al­leged Si­naloa mem­ber Car­los Parra-Pe­droza, who’s among those fac­ing charges, are ac­cused of ar­rang­ing for couri­ers to col­lect drug pro­ceeds and then buy up gold bars and scrap pieces from jew­elry stores and busi­nesses in the Chicago area. Parra-Pe­droza has pleaded not guilty, and his at­tor­ney didn’t re­spond to re­quests for com­ment. Ac­cord­ing to the Chicago doc­u­ments, mem­bers of the group shipped the gold via FedEx to an un­named com­pany in Florida to be melted down for cash.

Between 2011 and 2014, the Chicago com­plaint says, the com­pany al­legedly took in hundreds of boxes sent from the car­tel, which used aliases such as Chicago Gold or Shop­ping Sil­ver. The Florida com­pany col­lected a com­mis­sion of 1 per­cent, then for­warded the re­main­ing money to a com­pany in Mex­ico Parra-Pe­droza owned called De Mex­ico Bri­tish Metal, court doc­u­ments al­lege. The records also say that fal­si­fied pa­per­work made it look like De Mex­ico Bri­tish Metal sold the gold

to the un­named Florida com­pany, help­ing to make the trans­ac­tions ap­pear le­git­i­mate.

That un­named com­pany, say two peo­ple fa­mil­iar with the mat­ter, was

Natalie Jew­elry, which was the sub­ject of a sep­a­rate case in fed­eral court in Florida. The trail that led U.S. au­thor­i­ties to the com­pany be­gan with a mod­est ques­tion, says one of the peo­ple who knows the case.

Lou Bock, a re­tired agent for the Depart­ment of Home­land Se­cu­rity, says Cus­toms records posed a co­nun­drum: “There’s just way too much gold go­ing through Mi­ami,” he says. He prod­ded his for­mer agency to look into the uptick, which was sus­pi­cious, he be­lieved, be­cause vir­tu­ally no jew­elry is made in Mi­ami.

In Jan­uary 2014, based on Cus­toms re­ports show­ing dis­crep­an­cies between the vol­ume and value of gold pro­cessed by the com­pany, fed­eral agents con­verged on Natalie Jew­elry’s of­fice in an in­dus­trial park just north of Mi­ami. They seized cash and hundreds of kilo­grams of gold and sil­ver. The agents had un­cov­ered a tax-eva­sion scheme, ac­cord­ing to two of the sources. Natalie Jew­elry’s records re­vealed money-laun­der­ing links to drug rings in­clud­ing the Si­naloa car­tel, the peo­ple say.

Natalie Jew­elry own­ers Jed and Natalie Ladin had set up an of­fice for their com­pany in Mex­ico City, court doc­u­ments in the Florida case show. Natalie Jew­elry would sell the gold it re­ceived to other com­pa­nies, known as re­fin­ers. Re­fin­ers col­lect their own com­mis­sion when they melt down scrap gold, then send pro­ceeds back to the gold trader.

The Ladins pleaded guilty to con­spir­ing to laun­der money on be­half of a sep­a­rate Mex­i­can drug dealer. They haven’t been charged with laun­der­ing funds for the Si­naloa car­tel. Jed, who was sen­tenced to three years in prison, de­clined to be in­ter­viewed. Natalie was sen­tenced to time served and su­per­vised re­lease; she also de­clined an in­ter­view re­quest, through her lawyer.

There was a bizarre in­ci­dent dur­ing the Florida bust. With cars flash­ing blue lights and a SWAT team in front of the ware­house, a black sedan pulled up. A man got out, popped the trunk, pulled out a brief­case, and walked to­ward Natalie Jew­elry’s door, a per­son who was at the scene says.

“I just need to drop off this gold and get a re­ceipt,” the man was heard to say. “I need a re­ceipt.” The man walked into the Natalie Jew­elry of­fice and dropped off the brief­case, which was full of gold. If he was a car­tel courier, his in­sis­tence on doc­u­men­ta­tion may be un­der­stand­able: In a sur­rep­ti­tious record­ing, Parra-Pe­droza de­scribed one courier who ad­mit­ted los­ing money, af­ter claim­ing it was seized by au­thor­i­ties. “I think they even cut his fin­gers off,” he said.

The man in Florida left with his re­ceipt.

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