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 Wednesday'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' sentencing is set for October 15.
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. "Structured" deposits involve amounts of less than $10,000 that are designed to avoid laws that require all cash transactions of $10,000 or more to be reported to federal authorities. According to the plea agreement, between 2008 and 2011, Flores personally conspired with Woody Toys to launder somewhere between $70,000 and $120,000.
"Money laundering is a nefarious practice that plays an integral role in narcotics trafficking," said U.S. 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."
The plea is the latest development stemming from a long-term probe by U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI), the Internal Revenue Service (IRS) Criminal Investigation, and the multi-agency Southern California Drug Task Force, headed by the Drug Enforcement Administration (DEA).
"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 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."
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 into Woody Toys' 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.
"Mr. Flores attempted to put illegally-generated "narco-dollars" into the legitimate financial system by structuring his cash deposits, and then used that tainted money to purchase toys from Woody Toys. This is money laundering and it will not be tolerated by the federal government," stated Special Agent in Charge Leslie P. DeMarco of IRS-Criminal Investigation's Los Angeles Field Office. "IRS-Criminal Investigation is working hard to ensure criminals do not use the United States banking system to legitimize their illegal profits."
"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," said DEA Acting Special Agent in Charge Briane M. Grey.
According to the original case indictment, Woody Toys' cash receipt books reveal that between 2005 and December 2011, the company took in approximately $3 million in out-of-state cash without filing the required IRS forms. Additionally, during that same timeframe, Bank of America (BoA) records indicate another $3 million in out-of-state cash was deposited into Woody Toys' BoA accounts in structured amounts.
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. The trial for those remaining seven defendants is scheduled to begin Oct. 16.
The probe targeting Woody Toys began in November 2010 based on evidence uncovered during a similar investigation targeting another Los Angeles-area toy wholesaler, Angel Toys. 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.
For more information, visit www.ice.gov.