Mexican Toy Dealer Pleads Guilty in Drug Money Laundering Case
August 1 (LOS ANGELES) - A Mexican businessman pleaded guilty today in federal court to conspiring with the owners of a Los Angeles area toy wholesaler to launder thousands of “narco dollars” for drug trafficking organizations in Mexico.
Luis Ernesto Flores Rivera, 54, of Guadalajara, Mexico, faces up to 20 years in prison after pleading guilty to one count of conspiring to launder financial instruments. As a result of today’s guilty plea, Flores becomes the first defendant to be convicted in Los Angeles on money laundering charges arising from this type of scheme, which is commonly referred to as a “black market peso exchange.”
Flores was among eight defendants, including Woody Toys in the City of Industry, indicted in April for allegedly using “structured” cash deposits in the United States to launder illicit proceeds generated by drug trafficking organizations based in Mexico and Colombia. A “structured” deposit is less than $10,000 and is designed to avoid laws that require any cash transaction of at least $10,000 to be reported to federal authorities. According to his plea agreement, between 2008 and 2011, Flores conspired with Woody Toys to launder between $70,000 and $120,000.
“This investigation has brought to light the extreme methods used by drug dealers to hide their illegal profits, and how the complex web of drug trafficking reaches well beyond the neighborhood drug seller,” commented Drug Enforcement Administration Acting Special Agent in Charge Briane M. Grey.
As part of the money laundering scheme, the indictment in the case alleges that foreign toy retailers in Colombia and Mexico would contact currency brokers to buy discounted U.S. dollars, which they would use to purchase merchandise from Woody Toys. The dollars being sold were allegedly proceeds from illegal drug sales that had been deposited in the toy company’s accounts or had been delivered to the business in the form of bulk cash. To complete the circle, the Colombian and Mexican pesos used by the foreign toy retailers to purchase the discounted U.S. dollars were remitted by currency brokers to drug trafficking organizations.
“Money laundering is an nefarious practice that plays an integral role in narcotics trafficking,” said United States Attorney André Birotte Jr. “Here, Mr. Flores stooped to using children’s merchandise as part of a scheme to hide illegal proceeds – a practice that serves to demonstrate how desperate drug trafficking organizations are to evade law enforcement’s efforts to cut off their flow of money.”
“Those who conspire to help launder profits for drug trafficking organizations should be on notice there will be a high price to pay for enabling these dangerous criminal enterprises,” said Claude Arnold, Special Agent in Charge for Homeland Security Investigations (HSI) Los Angeles. “HSI will continue to aggressively target individuals and businesses whose actions are contributing in no small way to the devastation wrought by the international drug trade.”
Leslie P. DeMarco, Special Agent in Charge of IRS-Criminal Investigation’s Los Angeles Field Office, stated “Mr. Flores attempted to put illegally generated ‘narco dollars’ into the legitimate financial system by structuring his cash deposits, and then he used that tainted money to purchase toys from Woody Toys. This is money laundering and it will not be tolerated by the federal government. IRS-Criminal Investigation is working hard to ensure criminals do not use the United States banking system to legitimize their illegal profits.”
According to the indictment in this case, Woody Toys took in approximately $3 million in out-of-state cash between 2005 and December 2011 without filing the required paper work with the government. During that same time, Bank of America records show that another $3 million in out-of-state cash was deposited into Woody Toys’ accounts at the financial institution.
Flores pleaded guilty before United States District Judge R. Gary Klausner, who is scheduled to sentence the defendant on October 15. As a result of his guilty plea, Flores faces a statutory maximum sentence of 20 years in federal prison.
In addition to Woody Toys and Flores, the other defendants charged in the case include the owners of Woody Toys – Jia “Gary” Hui Zhou, 43, and Dan “Daisy” Xin Li, 43 – three of the company’s employees, and another Mexico-based toy dealer (see: http://www.justice.gov/dea/pubs/states/newsrel/2012/la041612a.html). The remaining seven defendants are scheduled to go on trial on October 16 before Judge Klausner.
The probe targeting Woody Toys began in November 2010 based on evidence uncovered during a similar investigation into another Los Angeles area toy wholesaler, Angel Toys (see: http://www.justice.gov/usao/cac/Pressroom/2012/021.html). Several former employees of Angel Toys subsequently went to work for Woody Toys.
Investigators say the “black market peso exchange” benefits criminal organizations by giving them a means to launder illicit proceeds using international trade. The system also gives foreign retailers access to discounted U.S. currency, which enables the foreign retailers to avoid steep exchange rates and other fees. And, for the U.S. based company, the scheme is a way to substantially increase sales volume.Today’s guilty plea by Flores is the latest development stemming from a long-term probe by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI), IRS - Criminal Investigation, and the multi-agency Southern California Drug Task Force, which is spearheaded by the Drug Enforcement Administration.