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Financial Crimes
09/09/2014

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Large-scale law enforcement effort targets downtown Los Angeles businesses linked to money laundering for drug cartels

HSI special agents seize more than $65 million in bank deposits and cash
Los Angeles businesses linked to money laundering for drug cartels
Los Angeles businesses linked to money laundering for drug cartels
Los Angeles businesses linked to money laundering for drug cartels

LOS ANGELES — Approximately 1,000 law enforcement officials fanned out across the Fashion District in downtown Los Angeles Wednesday to execute dozens of search and arrest warrants linked to businesses suspected of using "Black Market Peso Exchange" (BMPE) schemes to launder narcotics proceeds for international drug cartels.

During Wednesday's enforcement actions, authorities arrested nine defendants and seized what is estimated to be at least $65 million in cash and bank deposits stemming from asset forfeiture actions filed as part of the ongoing investigations.

"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 Assistant U.S. Attorney Robert E. Dugdale, 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."

Wednesday's operation involved the execution of warrants arising from three separate criminal investigations, including a probe spearheaded by U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI). That case, dubbed "Operation Fashion Police," resulted in the indictment of four individuals associated with Pacific Eurotex, Corp., a wholesale firm based in Los Angeles' garment district. The four defendants, who were taken into custody Wednesday, are charged with conspiracy to launder money; conspiring to structure currency transactions to avoid reporting requirements; and failing to file reports of currency transactions of more than $10,000. The indictment alleges the defendants utilized Pacific Eurotex as a repository to receive bulk cash they knew or believed consisted of drug money; that they later laundered those drug proceeds to foreign countries through a trade-based money laundering scheme; that they failed to report the receipt of this bulk cash, as required; and that they structured deposits of the bulk cash to avoid bank reporting requirements that would have drawn the law enforcement scrutiny of their actions.

In conjunction with the operation, HSI special agents served seizure warrants on more than 30 bank accounts containing approximately $19 million in deposits allegedly derived from trade-based money laundering. Additionally, HSI special agents discovered and seized what is conservatively estimated to be more than $50 million in bulk cash, including $35 million in bills that were stacked and stashed in filing boxes found inside a Los Angeles condominium.
"These arrests and seizures should serve as a sobering warning to companies that seek to bolster their bottom line by doing business with drug traffickers – you will pay a high price for your complicity," said Claude Arnold, special agent in charge for Homeland Security Investigations in Los Angeles. "Unscrupulous companies that help cartels cover their financial tracks by laundering their illicit funds are contributing to the devastation wrought by the international drug trade."

In a BMPE scheme, a peso broker works with an individual engaged in illegal activity, such as a drug trafficker, who has currency in the U.S. 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 U.S. 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.

This BMPE scheme – which is 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 U.S. currency across the Mexican border and without having to convert and wire the U.S. currency through established financial institutions, which not only carries transaction fees, but also a threat their illegal activity will be detected.

The four individual defendants named in the Pacific Eurotex indictment are: Hersel Neman, 55 of Beverly Hills, the chief financial officer of Pacific Eurotex; Morad Neman, 54, of the Westwood District of Los Angeles, the chief executive officer of Pacific Eurotex and brother of Hersel Neman; Mehran Khalili, 45, of Beverly Hills, who is a brother in law of the Nemans; and Alma Villalobos, 52, of Arleta.

The indictment alleges Pacific Eurotex received, laundered and structured approximately $370,000 in bulk cash delivered on four separate occasions by an undercover agent posing as a money courier. The indictment alleges that defendants laundered the money after being specifically advised by HSI special 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. According to the indictment, the defendants laundered money, despite the fact that, on one occasion, some of the bulk currency appeared to be spattered with blood.

In addition to HSI, the probe targeting Pacific Eurotex involved IRS - Criminal Investigation, with substantial assistance provided by the Los Angeles Interagency Metropolitan Police Apprehension Task Force (LA IMPACT); the Los Angeles, Long Beach, Gardena, Torrance, El Segundo, and Monterey Park police departments; along with the Westside High Tech Task Force. This case is being prosecuted by Assistant U.S. Attorney Julie Shemitz.

A second case unsealed Wednesday alleges the Sinaloa Drug Cartel used a Fashion District business to accept and launder ransom payments to secure the release of a U.S. citizen who was kidnapped by that narcotics organization, held hostage, and tortured at a ranch in Mexico.

In the criminal case related to the laundering of ransom money to the Sinaloa Cartel, three people were arrested Wednesday for their roles in a BMPE scheme based at a Fashion District wholesaler named QT Fashion, Inc., (which did business under the names QT Maternity and Andres Fashion). The indictment in this case also alleges that a Sinaloa, Mexico-based business, Maria Ferre S.A. de C.V., was involved in the scheme to launder ransom money. Following the kidnapping of a United States citizen by the Sinaloa Drug Cartel, QT Fashion allegedly accepted bulk cash and funneled the money through 17 other Fashion District businesses at the direction of Maria Ferre.

According to indictment, the Sinaloa Drug Cartel ordered the kidnapping of the victim after authorities in the U.S. seized more than 100 kilograms of cocaine that he was responsible for distributing. The victim was held at a ranch in Culiacan, Sinaloa, where he was beaten, shot, shocked and waterboarded. The hostage, who was released after relatives paid $140,000 in ransom, is currently in the United States.

"Today's arrests and searches should send a message to international drug cartels that the FBI and our partners won't tolerate the exploitation of American businesses for the purposes of illicit financial transactions that fund hostage-taking and the distribution of narcotics," said Bill L. Lewis, the assistant director in charge of the FBI's Los Angeles Division. "In addition, today's actions should send a warning to American businesses who turn a blind eye to the crime they facilitate, while avoiding reporting requirements, transaction fees and law enforcement scrutiny."

Three defendants related to QT Fashion were arrested Wednesday – Andrew Jong Hack Park (aka Andres Park), 56, of La Canada-Flintridge; Sang Jun Park, 36, of La Crescenta; and Jose Isabel Gomez Arreoloa (aka Chabelo), 49, of downtown Los Angeles.

Three defendants linked to Maria Ferre are wanted by authorities. They are Luis Ignacio Orozco Munoz (aka Nacho), 50, of Culiacan, Sinaloa; Armando Arturo Chavez Gamboa, 43, of Culiacan, Sinaloa; and Daisy Corrales Estrada, 30, of Culiacan, Sinaloa.

The six individual defendants were charged in a three-count indictment returned under seal by a federal grand jury June 19. The indictment, which was unsealed Wednesday morning, accuses the defendants of conspiracy to launder money; conspiracy to operate an unlicensed money transmitting business; and operating an unlicensed money transmitting business. If they are convicted of the charges in the indictment, each defendant would face a statutory maximum penalty of 30 years in federal prison.

The investigation into the money laundering scheme related to the kidnapping was conducted by the FBI, IRS – Criminal Investigation and the Drug Enforcement Administration. The case is being prosecuted by Assistant U.S. Attorney Angela Scott.

"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."

In the third case announced Wednesday, three members of a Temple City family – Xilin Chen, 55; Chuang Feng Chen (aka "Tom"), 24, who is Xilin Chen's son; and Aixia Chen, 28, who is Xilin Chen's daughter – have been charged with conspiring to launder monetary instruments, money laundering, and various immigration offenses for their roles in running various businesses in the Fashion District that were used in BMPE schemes. During Wednesday's operatoin, Xilin Chen and Chuang Chen were arrested. Aixia Chen is a fugitive currently being sought by authorities.

The indictment related to the Chens' businesses – Yili Underwear and Gayima Underwear – alleges they received bulk cash from a narcotics trafficker in Los Angeles and from an undercover agent posing as a drug trafficker. The Chens allegedly laundered the money to drug 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.

IRS – Criminal Investigation's Special Agent in Charge Erick Martinez said, "Through our collective efforts, we are gaining access to more and more information on the abusive practices of individuals and businesses involved in the laundering and structuring of drug proceeds through the Los Angeles Fashion District, and you can expect us to use all of our enforcement tools to stop this abuse. IRS - Criminal Investigation is working hard to ensure criminals do not use the United States financial system to legitimize their illegal profits."

If they are convicted, Xilin Chen would face a statutory maximum sentence of 100 years in federal prison, Chuang Chen would face up to 40 years, and Aixia Chen could be sentenced to as much as 80 years.

The case naming the Chens was investigated by the Drug Enforcement Administration and IRS – Criminal Investigation under the auspices of the Southwest Border Initiative. The case is being prosecuted by Assistant U.S. Attorney John Kucera and Assistant U.S. Attorney Vicki Chou.

The defendants arrested Wednesday morning are scheduled to be arraigned Wednesday afternoon in U.S. District Court.

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Last Reviewed/Updated: 12/20/2018