ST. LOUIS, March 6 (Thomson Reuters Accelus) - Mexican drug cartels are using armored-car firms to help shield their efforts to smuggle and launder billions of cash dollars into legitimate-looking business profits, U.S. authorities believe, and financial regulators are seeking to crack down.
The Treasury's anti-money laundering unit, the Financial Crimes Enforcement Network (FinCEN), is preparing guidance for banks on how they should report receipt of large sums of cash from customers via armored-car deliveries, a Treasury official said. Current reporting practices have allowed for gaps in tracking the money.
The goal is to give law-enforcement authorities access to better information about the people involved in large cash transactions, which increasingly include large sums of currency repatriated having been smuggled to Mexico by drug traffickers eager to hide their source.
"Based on some of the activity we've seen as a result of the currency restrictions in Mexico, the activity of armored-car companies and the different business models that they use, we've begun to think about how we should be dealing with that industry as a whole," said FinCEN official Jamal El Hindi.
U.S. authorities estimate that cartels smuggle tens of billions of dollars across the U.S.-Mexico border every year. U.S. anti-money laundering rules make it hard for cartels to deposit large sums of cash generated by illicit drug sales in the United States directly into U.S. banks.
So the cartels smuggle the cash into Mexico and turn it over to money launderers who own or control front companies such as money changing outfits that can claim the cash as legitimate business proceeds.
The money launderer then ships the cash to the United States, either by plane or armored car, so that it can be deposited into a U.S. bank account belonging to a seemingly above-board Mexican business.
If the U.S. bank receiving the cash does not collect sufficient information from the armored-car firm it becomes harder to determine the origin of the funds.
Concerns about the use of armored cars grew after Mexican banking regulations in late 2010 limited domestic deposits of U.S. dollars. That measure was aimed at weakening the cartels, which are engaged in open warfare with the Mexican government.
Those regulations have compelled the drug cartels to return more of their cash to the United States under the guise of legitimate commerce, according to a FinCEN advisory issued last year and interviews with former law enforcement officials.
In carrying out such laundering, U.S. banks are feared to be unwittingly accepting drug-money overflow via armored car deliveries originating from Mexico as well as U.S. cities along the border.
The role of armored cars was highlighted last March when Homeland Security agents seized $2 million from a company called Rochester Armored Car in the South Texas border town of Pharr, a suburb of McAllen. The company has not been accused of wrongdoing.
Federal prosecutors say the money belongs to Mexican national Filemon Garcia Ayala, who is suspected of laundering money for drug cartels. Garcia, 64, and several of his companies were blacklisted by the Treasury Department last month. He is a fugitive wanted by Mexican authorities.
Garcia was duped by federal agents pretending to be U.S.-based money launderers and he planned to pass the $2 million to them to be cleaned, according to a complaint seeking forfeiture of the assets. The complaint was filed in federal court in Orlando, Florida.
The document says that between January 2010 and January 2012, Garcia used a Mexico-based money changing business he owns called Prodira Casa de Cambio, which also operates out of Colorado, to funnel $130 million in drug money into the U.S. financial system.
"The funds were then taken by armored car and deposited into U.S. bank accounts held by money-service businesses or other companies who contracted with Prodira to move its money," the complaint states.
Finally, the money was reportedly wired through Garcia's accounts around the world to disguise its illicit origin.
Miami lawyers representing Prodira confirmed in a court filing that Garcia is part owner of the company, but they denied involvement in money laundering.
Scrutiny of armored-car companies' roles in cartel laundering schemes comes as Treasury is developing broader rules to force U.S. banks and non-bank financial institutions to find out more about customers' identities and financial activities.
As for armored cars, it has been unclear for some time how banks should be completing the so-called Currency Transaction Reports they must file with Treasury after accepting more than $10,000 in cash from an armored-car delivery. The uncertainty has limited the usefulness of the documents to law enforcers.
One issue FinCEN has examined is whether banks should be using the names of armored-car drivers to complete the reports, or whether they should instead record the names of the armored-car firms and company officials aware of who owned the money being carried.
Banks should be recording the name of the armored car company, said Larry Sabbath, Executive Director of the National Armored Car Association (NACA), which represents major U.S. firms and has met with FinCEN to discuss the matter.
"Having the driver's name doesn't tell them anything. What is important from a law enforcement perspective is where the money originated. That information is with the armored car company. There is a pretty good chain of custody that we keep, of course, because we're talking about pretty significant money," he said.
FinCEN is working with regulators to produce guidance that will provide "some relief" to banks by instructing them on what information to collect in situations involving armored cars, El-Hindi told a Miami conference on anti-money laundering issues in February.
The agency may have additional steps in mind, El-Hindi suggested, but he stopped short of saying that it is contemplating new requirements that the armored-car industry develop anti-laundering systems and report suspicious activity, as is required of money transmitters, check-cashers, and other non-bank industries that handle a lot of cash.
Editing by Randall Mikkelsen and David Brunnstrom