September 10, 2014
Contact: SA Timothy Massino
Phone Number: (213) 621-6700
L.A. Garment District Money Laundering Cartel Scheme Exposed
LOS ANGELES - Approximately 1,000 law enforcement officials, including the DEA Los Angeles’s Field Division’s High Intensity Drug Trafficking (HIDTA) Southern California Drug Task Force, fanned out across the Fashion District in downtown Los Angeles and executed dozens of search and arrest warrants linked to businesses suspected of using a trade-based money laundering scheme known as the “Black Market Peso Exchange” to accept and conceal narcotics proceeds for international drug cartels. Authorities today arrested nine defendants and seized what is estimated to be at least $65 million in cash and from bank accounts around the world.
In a BMPE system, a peso broker works with an individual engaged in illegal activity, such as a drug trafficker, who has currency in the United States that he needs to bring to a foreign country, such as Mexico, and convert into pesos. The peso broker finds business owners in the foreign country who buy goods from vendors in the United States and who need dollars to pay for those goods. The peso broker arranges for the illegally obtained dollars to be delivered to the United States-based vendors, such as the stores in the Fashion District, and these illegally obtained dollars are used to pay for the goods purchased by the foreign customers. Once the goods are shipped to the foreign country and sold by the foreign-based business owner in exchange for pesos, the pesos are turned over to the peso broker, who then pays the drug trafficker in the local currency of the foreign country, thus completing the laundering of the illegally obtained dollars.
BMPE- also known as Trade-Based Money Laundering - is often used by Mexico-based drug trafficking organizations to collect money from their drug sales in the United States without having to take the risk of smuggling bulk amounts of cash across the Mexican border or wire it through established financial institutions.
One of the cases unsealed today alleges the Sinaloa Drug Cartel used a Fashion District business, QT Fashion Inc., to accept and launder $140,000 to secure the release of a U.S. citizen who they held hostage and tortured at a ranch in Mexico. Utilizing a BMPE scheme, QT Fashion allegedly accepted the bulk cash ransom and funneled it through 17 other Fashion District businesses at the direction of Maria Ferre, a Mexico-based business. The Sinaloa Cartel ordered the kidnapping after the DEA seized more than 100 kilograms of cocaine s/he was responsible for distributing. The victim was held at a ranch in Culiacan, Sinaloa, where s/he was beaten, shot, electrocuted, and tortured. The hostage was released after the Cartel received the ransom.
The defendants related to QT Fashion that were arrested this morning are Andrew Jong Hack Park, 56, Sang Jun Park, 36, and Jose Isabel Gomez Arreoloa, 49. Three defendants linked to Maria Ferre are still wanted by authorities. They are Luis Ignacio Orozco Munoz, 50, Armando Arturo Chavez Gamboa, 43, and Daisy Corrales Estrada, 30, all of Culiacan, Mexico. These six defendants were charged in a three-count indictment accusing them of conspiracy to launder money and other charges. If convicted, each defendant would face a maximum penalty of 30 years in federal prison.
“Today’s Fashion District takedown sends a clear message that law enforcement will not tolerate the actions of those who use the cover of legitimate business to conceal bulk cash obtained directly from drug trafficking and associated acts of violence,” said DEA Associate Special Agent in Charge Stephen G. Azzam. “These indictments and arrests deal a massive blow to complex trade-based money laundering schemes in general, and will therefore severely impair the ability of drug cartels to realize profits and further entrench themselves in our nation’s socioeconomic fabric.”
The investigation into the money laundering scheme related to the kidnapping was conducted by DEA/HIDTA, FBI, and the IRS Criminal Investigation Division.
In a second indictment, three members of a family who ran a women’s underwear business in the LA Fashion District - Xilin Chen, 55; Chuang Feng Chen, 24, and Aixia Chen, 28 - are charged with conspiring to launder monetary instruments, money laundering, and various immigration offenses. Xilin and Chuang Chen were arrested this morning; Aixia Chen is a fugitive currently being sought by authorities.
The indictment alleges the Chens utilized their lingerie business to receive bulk cash from DEA undercover agents posing as drug dealers. They subsequently laundered the money to narcotics trafficking organizations outside of the United States through use of the BMPE scheme, and “structured” the deposits of the bulk cash they received at their businesses to avoid currency reporting requirements that would have alerted law enforcement to their criminal conduct. Each faces decades in prison if convicted.
“We have targeted money laundering activities in the Fashion District based on a wealth of information that numerous businesses there are engaged in Black Market Peso Exchange schemes,” said Robert E. Dugdale, the Assistant United States Attorney who oversees the Criminal Division in the Central District of California. “Los Angeles has become the epicenter of narco-dollar money laundering with couriers regularly bringing duffel bags and suitcases full of cash to many businesses. Because Los Angeles is at the forefront of this money laundering activity, law enforcement in Los Angeles is now at the forefront of combatting this issue.”
The case was investigated by the Drug Enforcement Administration and the IRS Criminal Investigation Division under the auspices of the Southwest Border Initiative.
In a third case, a business in the Fashion District named Pacific Eurotex, Corp. and four related defendants are charged with conspiracy to launder money and illegally structure currency transactions to avoid reporting requirements. According to the indictment, these defendants utilized Pacific Eurotex as a repository to receive bulk cash they knew or believed consisted of drug money and laundered those overseas through a trade-based money laundering scheme. The four arrested this morning are Hersel Neman, 55 of Beverly Hills, Pacific Eurotex’s chief financial officer; Morad Neman, 54, its chief executive officer; Mehran Khalili, 45,; and Alma Villalobos, 52.
Pacific Eurotex allegedly received, laundered and structured approximately $370,000 in bulk cash delivered on four separate occasions by an undercover agent posing as a money courier, despite being specifically advised by other Homeland Security (HSI) agents that bulk cash payments were frequently derived from illegal activity and that they were required to report cash transactions involving more than $10,000 in currency.
California State Attorney General Kamala D. Harris commented: “Transnational gangs are the number one threat to California's public safety. These predatory criminal organizations destabilize our communities with drugs, guns and human trafficking. Today marks a major victory in our ongoing fight to keep California safe from these predators.”
The Pacific Eurotex investigation was led by HSI and the IRS Criminal Investigation Division. Substantial assistance was provided by the Los Angeles Interagency Metropolitan Police Apprehension Task (LA IMPACT); the Los Angeles, Long Beach, Gardena, Torrance, El Segundo, and Monterey Park police departments; along with the Westside High Tech Task Force.
The defendants arrested today are scheduled to be arraigned this afternoon in United States District Court.