What Recent Money Laundering Cases Reveal About Legal Loopholes Used by Mexican Kleptocrats in Texas

In February 2012, an investigator for the Texas attorney general’s office walked into a Chase Bank branch on San Antonio’s north side with a search warrant containing stunning allegations: Eight business accounts, according to an affidavit he wrote in support of the warrant, contained a total of $6.5 million that had been stolen from the taxpayers of Mexico’s Coahuila state.

That same day, a grand jury at the federal courthouse in downtown San Antonio handed up an indictment against a Laredo businessman accused of acting as an intermediary between corrupt politicians and organized crime figures in the state of Tamaulipas.

These actions signaled a new, more aggressive posture being taken by investigators in Texas in the 2010s. The state investigator was part of a task force led by federal agents in Houston and San Antonio targeting former officials and businessmen from four Mexican states: Aguascalientes, Coahuila, Tabasco, and Tamaulipas. Federal and local prosecutors working with that task force would later allege in court that assets across the state worth about $100 million had been purchased or funded with money robbed from taxpayers on the other side of the border.

Those prosecutions, which The Texas Observer spent two years chronicling with support from the International Center for Journalists and the Border Center for Journalists and Bloggers, came after the Obama administration put a premium on deterring foreign kleptocrats from laundering money in the United States. Unlike high-profile investigations by the U.S. Department of Justice’s Kleptocracy Team — such as the prosecution of officials from Malaysia’s development bank, which resulted in $1 billion being repatriated — the task force’s Operation Politico Junction, and a similar investigation by the Department of Homeland Security dubbed Operation Green Tide, were prosecuted by assistant U.S. attorneys and on two occasions the offices of local elected district attorneys.

Not only did operations Green Tide and Politico Junction announce that the U.S. was suddenly very interested in the flow of illicit money northward from Mexico, it showed that complex money laundering and kleptocracy investigations could be undertaken by regional U.S. attorney’s offices. The Houston-based Southern District of Texas and San Antonio-based Western District are two of the busiest in the country, and both are known more for run-of-the-mill drug and immigration prosecutions. Prosecutors in those offices were showing that more ambitious investigations needn’t be left to officials in Washington D.C., or in New York and Florida, which have long been leaders in targeting dirty money.[1]

The investigators in Houston and San Antonio were operating in what might be called a target-rich environment. South Texas has long been a safe haven for Mexico’s elite, and the increase in organized crime-related violence in the early 2000s drove more business owners to relocate not only there, but to metropolitan areas like Houston and Austin and resorts like South Padre Island. Hidden among ordinary businesses, beach houses, and suburban mini mansions, prosecutors would later allege, were professional money launderers and corrupt politicians who concealed their wealth through real estate investments. On two separate occasions over the course of the investigation, federal agents raided different homes in the same San Antonio gated subdivision.

Yet Green Tide and Politico Junction also brought controversy. To prove the money laundering charges in Texas, investigators had to show that their targets had previously committed other crimes in Mexico. Prosecutors relied heavily on civil asset forfeiture, filing lawsuits against property itself and essentially daring the owners to come forward and defend themselves. In cases where the owners were also fugitives from U.S. criminal charges, prosecutors argued they shouldn’t be allowed to defend their property in civil proceedings. Prosecuting current or former elected officials and other functionaries also opened the U.S. up to criticism that it was playing politics in Mexico. “We’re going to basically accuse and find you guilty of violating the laws of your country as a mechanism that will allow us to try and seize assets in this country, which is a bridge too far,” argued one attorney who has represented defendants in kleptocracy cases.

Despite that, the Texas investigators enjoyed almost five years of courtroom successes, seizing tens of millions of dollars and indicting nearly 20 people. Then, in 2017, prosecutors in Corpus Christi suffered a string of courtroom defeats in their case against the wife of Tabasco’s former finance minister; she was eventually acquitted of all charges. Over the next few years, prosecutors quietly dismissed two indictments, settled some lawsuits, and cut plea deals.

That change in posture coincided with the arrival of the Trump administration, with its increased focus on immigration and disdain for white collar criminal investigations. In the U.S. and Mexico, key investigators and prosecutors had retired or moved on to new posts.

Suddenly progress on the cases in Texas virtually stopped, showing how the personalities and specialized skill sets of ground-level officials can impact money laundering strategy as much as policies set in Washington. “An agent doesn’t want to sit at their desk,” one investigator said. “They want to run around and bop people on the head. I’d come in at 9 o’clock, 10 o’clock in the morning. I would sit at that desk sometimes until 9 at night just looking at the papers.”

Yet the cases pursued under both Green Tide and Politico Junction left behind a treasure trove of documents. Taken together, the thousands of pages of court records, filed in dozens of civil and criminal proceedings in federal and state district court, open a window into investigative techniques and the methods used to launder money. They also provide insight into what the U.S. can do to make its financial system less attractive to foreign kleptocrats.

The court records show the officials at some banks were more than willing to do business with corrupt officials and business owners despite red flags. The cases exposed shortcomings in U.S. banking regulations and suggest a reticence by prosecutors to target financial institutions that fall short.

In response to Operation Politico Junction, the Financial Crimes Enforcement Network expanded its real estate regulations, but the court records show even those new regulations are woefully inadequate. FinCEN is currently considering an unprecedented rewrite of those rules, which anti-money laundering experts have greeted with enthusiasm.

The problems haven't stopped. State governments in Mexico have hired personal injury attorneys, including bombastic Houston litigator Tony Buzbee, to file lawsuits in Texas and Florida against real estate they alleged was purchased with stolen taxpayer money (though most of the cases were later dismissed or dropped). Mexico’s federal government separately hired its own attorney to try to recover assets they allege were purchased with money stolen by former public security head Genaro García Luna. So far, that strategy of governments hiring private attorneys and using U.S. civil courts to recover assets has yielded few results.

In the latest development, the Justice Department has said it plans to return $26 million it recovered in funds stolen from Coahuila. But that’s raised a whole new set of complex questions about who should get the money — the state where taxpayers still carry the burden of the debt created by embezzlement and money laundering, or the federal government — and how the U.S. can responsibly repatriate the proceeds of corruption.

[1] Operation Green Tide, which targeted former Tamaulipas Governor Tomas Yarrington Ruvalcaba, recently provided fodder for Center for the United States and Mexico Director Tony Payan's analysis of the United States’ “using its jurisdiction to prosecute” senior Mexican officials, acting outside the formalities of diplomacy in the binational relationship.

Jason Buch, an Austin-based freelance journalist, is the author of the five-part series Follow the Money, which ran in the Texas Observer as well as 30 Latin America news organizations that are part of the McAllen-based Border Center for Journalists and Bloggers. The Observer, one of the nation’s oldest nonprofit news organizations, is supported by donations and its members.

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.