'Following the Money' can prove devastating to critics of the illegal trade.
Mark SchapiroA new counteroffensive has been launched in the drug war: Financiers have begun to retaliate against allegations of money laundering and drug trafficking by suing the messengers. If successful, the suits could hinder future investigations into the G spot of the drug trade, where billions of dollars in illicit profits meet the highest precincts of international finance.
Research support provided by the Investigative Fund of the Nation Institute.
At the heart of the legal assault are a Mexican billionaire and majority owner of a Texas bank, Carlos Hank Rhon, of the powerful Hank family (frequently referred to as the "Mexican Rockefellers"), and Roberto Hernández, president of Banamex, Mexico's second-largest bank. The suits are being fought out in US courts, pitting scions of the Mexican elite against an American journalist, a scholar and a little-known agency of the US government.
Carlos Hank Rhon is the eldest son of Carlos Hank González, who parlayed friendships with former Mexican President Carlos Salinas and his predecessor into a multibillion-dollar financial empire. Hank González died in August at the age of 73; his two surviving sons, Carlos Hank Rhon and Jorge Hank Rhon, now oversee a multinational conglomerate that includes holdings in real estate, television, manufacturing, trucking and banking. In the mid-1990s Incus, a Caribbean-based holding company controlled by Carlos Hank, engineered the purchase of the Laredo National Bank of Texas, in one of the most significant expansions of Mexican capital into the United States in the NAFTA era.
Carlos Hank's takeover of Laredo, however, ignited the interest of the Federal Reserve Board and the suspicions of the National Drug Intelligence Center (NDIC), which supplies intelligence and analyses to law enforcement agencies. In a draft summary of an 800-page report detailing the links between drug traffickers and top Mexican politicians and financial figures, the NDIC drew connections suggesting that Hank was involved in the drug trade and included reports of his involvement in money laundering for Mexican drug organizations. The report, compiled at the request of the FBI and the Drug Enforcement Administration, was dubbed Operation White Tiger, in reference to an attempt by Carlos Hank to smuggle an endangered white tiger into Mexico in the back seat of his Mercedes in 1991.
In the spring of 1999 the contents of the leaked White Tiger draft summary–including the assertion that Hank posed "a significant criminal threat to the United States" and that his enterprises helped facilitate cocaine and heroin shipments into the United States–broke in a series of articles in the Washington Times's weekly magazine Insight, the Washington Post, the Mexican newspaper El Financiero and a feisty quarterly journal of Hispanic politics and culture, El Andar, based in Santa Cruz, California, which has been dogging the Hanks with investigative reports over the past two years. The Laredo bank immediately threatened legal action against El Andar, which has a circulation of some 10,000 readers, demanding a retraction, $10 million and the bank's approval of any future articles. Julia Reynolds, author of the story and editor of El Andar, refused, and continued to write about the bank's funding and connections to Texas political figures–including George W. Bush. After publicity on the threat against El Andar appeared in the Los Angeles Times, Laredo backed off its threat to sue.
The news about the Hanks was explosive, breaking just as then-Attorney General Janet Reno and then-White House drug czar Gen. Barry McCaffrey were visiting Mexico for a series of meetings on US-Mexican cooperation in the drug war.
The White Tiger findings would generate more attention to the NDIC than at any time in its short, mostly obscure history. Based in Johnstown, Pennsylvania, the center, with a staff of some 200 scholars and researchers, was created by George Bush senior as an arm of the Justice Department to signal his commitment to fighting drugs (and as a signal of Democratic Congressman John Murtha's commitment to providing employment for his constituents). Until recently, its investigators have been mostly nameless, the millions of words issuing from its government-issue red-brick offices mostly anonymous.
But that changed when the NDIC was hit with a multimillion-dollar lawsuit by Laredo's American president, Gary Jacobs. In the suit, filed this past May 23 in federal court in Laredo, Texas, Jacobs demands $129 million from the NDIC on the grounds that the center's leak of the White Tiger summary constituted a violation of the Privacy Act, which prohibits the leak of classified government documents. Jacobs terms the NDIC's allegations "life-shattering lies." His attorney, Patrick McLaughlin, contends that the information in White Tiger was little more than "unproven and uncharged allegations" contained in an "unvetted" report that was "illegally disseminated to the news media." White Tiger, he says, "assassinated my client's character." On August 20 the Justice Department filed suit in federal district court in Laredo asking that the case be dismissed.
Though Jacobs's name is on the lawsuit, it is Carlos Hank Rhon who is the unseen player behind the legal machinations. Carlos Hank's company, Incus, has controlled 70 percent of the shares in Laredo, and it is Hank's name that surfaces most prominently in the White Tiger and related stories. Jacobs's suit was filed a week before the settlement of a longstanding Federal Reserve Board civil complaint against Hank and Incus accusing him of using the names of relatives and associates to cover up his financial interest in Laredo. The settlement does not require Hank to admit guilt, but he is required to turn over his controlling shares in the bank to an independent trust. And he agreed to pay $40 million in penalties–the second-biggest fine in the Federal Reserve's history.
That was not Hank's first run-in with the Fed. In the mid-1990s, as reports similar to those later contained in White Tiger began surfacing in Mexico and the United States, the Fed launched an investigation into Laredo's bid to purchase the Mercantile Bank of Brownsville, Texas. After a lengthy investigation Laredo withdrew its bid.
Jacobs's suit against the NDIC followed, by less than a year, a legal blitzkrieg that transformed the life of a mild-mannered political scientist named Donald Schulz. Currently chairman of the political science department at Cleveland State University, Schulz worked for eight years as a specialist on Latin America and national security for the Strategic Studies Institute at the US Army War College. While researching an academic book exploring the links between the drug trade and Mexican politicians, Schulz interviewed several officials at the National Drug Intelligence Center, one of whom sent him a copy of the draft executive summary of White Tiger containing material on the Hanks. Jacobs filed suit against Schulz in August 2000, accusing him of violations of the RICO act, alleging that he was involved in an "enterprise…designed to…unlawfully acquire, use and disseminate top secret, predecisional, law enforcement sensitive information…to the direct detriment of plaintiffs," that the assertions in White Tiger constituted defamation and that release of the draft report was a violation of Justice Department regulations prohibiting unauthorized release of documents considered "law enforcement sensitive." In essence, Jacobs accuses Schulz of "infiltrating" the NDIC and providing researchers there with "disinformation" that was later leaked to the press in White Tiger.
Laredo's lawyer, Ricardo Cedillo, denies the White Tiger allegations and asserts that they have resulted in deep damage to Jacobs's professional standing. "Gary Jacobs is a border banker with an impeccable reputation," Cedillo said in a telephone interview from his office in San Antonio. "Suddenly, he's not being invited to the seminars and programs on both sides of the border, he's not enjoying the fruits of his labor. He has been on a first-name basis with ambassadors from the United States and Mexico, and now he is [treated like] a pariah after being associated [in White Tiger] with money launderers."
Schulz denies providing any such information or leaking the report. Schulz's trial, when it commences in August 2002, will revolve not necessarily around the truth of such assertions but whether he leaked the report and whether he conspired to interject allegedly defamatory information into the contents of the NDIC report. Schulz says he didn't receive a copy of the summary until late March of 1999 (the court record indicates it was sent to him on March 25), and the Insight magazine story–the first to publish the White Tiger allegations, and running at almost 4,000 words–appeared on March 29. The author of the story, Jamie Dettmer, has declined to name his source, but he insists that it wasn't Schulz. An internal investigation by the Justice Department determined that the source of the leak–and the person who sent the draft summary to Schulz–was the supervisor of the White Tiger project, an NDIC agent named Daniel Huffman; Huffman, a former FBI agent, resigned under pressure last year.
Whoever was the source, the leaks were not popular in Washington, which was on the verge of certifying Mexico as a "partner" in the drug war. In a letter to former Senator Warren Rudman, who as a Hank lobbyist on Capitol Hill had disputed the White Tiger allegations, Attorney General Janet Reno disassociated herself from the findings in the report. Shortly afterward, Schulz's work on Mexico at the War College was terminated, and he was diverted to research on Colombia as the wheels of Plan Colombia were grinding their way through Congress. White Tiger itself was shelved by the NDIC when a new director took over in June 1999.
For Schulz, the lawsuit has had a devastating impact. He has spent, thus far, some $25,000 on legal costs and has received no assistance from either the NDIC or the US Army War College; his appeal to the government for legal help has now been sitting with the Justice Department for more than eight months. If the case goes to trial, Schulz, 59, says it will eat up all his retirement savings. Ironically, Schulz and the NDIC, which tried to distance itself from him after he was sued last year, have now been thrown together as parallel defendants in the legal offensive launched by Jacobs. "It doesn't matter whether I win or lose; I lose," Schulz says. "My time, my costs to lawyers–I will have lost even if I'm vindicated in the end." In June Schulz filed a countersuit for "harassment" against Laredo, asking $1 million in damages and demanding that Carlos Hank Rhon's name be added to Jacobs's complaint as a plaintiff. As the majority owner and chairman of Laredo, and as a primary target of Operation White Tiger, Hank, Schulz argues, dodged behind Jacobs. Keeping Hank's name off the suit, asserts Schulz, protects him from being deposed and keeps information about his business activities in the United States and Mexico from being entered into the legal record.
Cedillo discounts this charge: "Jacobs is no surrogate for Carlos Hank Rhon." Rather, he says, the reason the Mexican mogul has kept his name off the suit is that he "has a thick skin, and didn't want to aggravate Mexican press attention at a time when his father was ill." Indeed, the Mexican press has had a voracious appetite for stories on the Hank family–ranging from serious corruption investigations to salacious tabloid reports, in which they are cast as a symbol of the PRI oligarchy that dominated Mexico for seven decades.
Jacobs's legal offensive appears to be the culmination of a campaign foreshadowed on national television when, in an interview with PBS's Frontline for its fall 2000 special on the drug war, he announced, "With the lawsuits I [am] getting ready to file, these cockroaches in the government are going to run for cover." Jacobs's choice of "cockroaches" appears to be based on the potential for sending a warning signal to any future investigators–from the government or the press. The Washington Times never heard from Jacobs's legal team. After being contacted by Carlos Hank's lawyers, the Washington Post printed a "clarification" of its earlier story by saying it had mistakenly identified a trucking company as a Hank property. (The Post stands by the rest of its reporting on the White Tiger findings concerning Hank family links to the drug trade.)
Schulz says the suit against him "is part of a larger campaign of intimidation against journalists, scholars and US government researchers who have researched or written about the Hanks. It's an attempt to intimidate and silence everything from El Andar to the US government, or those who speak with the US government. If it succeeds, simply threatening a lawsuit could be used by others to deter government or journalistic investigations."
Another case wending its way through the courts involves a Mexican banker's legal attack against a US journalist, Al Giordano, the editor and publisher of Narco News (www.narconews.com), an Internet magazine that for the past year has been covering the intersection between corruption and the drug war in Latin America. Giordano is facing a libel suit filed by Banamex, Mexico's second-largest bank, for a series he wrote last year asserting that the bank's president, Roberto Hernández, was involved with drug trafficking and money laundering.
Giordano's reports were based on stories in the Mexican newspaper Por Esto!, based in Yucatán. The author of the Por Esto! series was the newspaper's founder and editor, Mario Menéndez, a veteran Mexican journalist who was briefly imprisoned in 1968 after publishing details about the massacre of students demonstrating in Mexico City's Tlatelolco Plaza before the 1968 Olympics.
Por Esto!'s most explosive charges–which Giordano went on to repeat, describing them as "what lawyers call beyond a reasonable doubt"–concerned the appearance of several bales of cocaine on land owned by Hernández along the Yucatán coast. Hernández himself is a leading figure of the Mexican old guard allied to the PRI, having purchased the government's shares in Banamex in 1991, turning that investment into a financial empire. There was no proof of Hernández's knowledge of the shipment, but the Por Esto! series, which ran from 1996 through 1999, included photographs of the cocaine seized on Hernández-owned property and of containers frequently associated with drug-running along the Yucatán coast that were found on Hernández-owned beachfront. The stories proved particularly embarrassing when President Clinton traveled to Yucatán in 1999 for an antidrug conference attended by then-Mexican President Ernesto Zedillo and hosted by Hernández at a local resort.
Banamex responded by suing Mario Menéndez for libel and slander. Two years later, a Mexican judge ruled against the bank; that decision was upheld in May 2000 on appeal (a subsequent effort to pursue Menéndez on criminal libel charges was thrown out of court in Mexico City last October). Having failed to discredit the charges in Mexico, in August 2000 Banamex shifted venue, filing suit on the same grounds against Giordano, Narco News and Menéndez in a state court in New York. The defendants, allege Banamex, defamed the bank and issued "false statements" that interfered with the bank's "prospective economic advantage," based on the fact that the journalists repeated their charges during an interview on New York public radio station WBAI and during a Columbia University conference on Latin America in March of 2000. According to the bank's filing, "Neither Banamex nor its Chairman and General Director are or ever have been engaged in illegal drug trafficking…nor is it funded with such money."
The case represents an unprecedented turn of events for Internet journalism. Narco News, produced and written in English from a town in Mexico, has broken some important stories related to the drug war–including an exposé of the CIA's hiring of mercenaries in Peru, months before an airplane with an American missionary family aboard was shot down by one of those private CIA-contractor teams in the Peruvian jungle. "You've got a Mexican Internet magazine, published in English, being sued in an American court," comments veteran civil liberties lawyer Thomas Lesser, who is defending Narco News. "If they can get away with this, nobody on the Internet will be safe from legal harassment." The suit has been a nerve-rattling experience for Giordano, a former political correspondent for the Boston Phoenix. With no legal insurance and operating on a bare-bones budget, he is conducting a joint defense with Lesser, representing Narco News, and David Atlas, representing Menéndez.
"What was said here in New York about Banamex is mild when compared with what was said about Hernández in Mexico," comments Atlas, who is with the New York law firm of Frankfurt, Garbus, Kurnit, Klein & Selz, noted for its defense of First Amendment cases. "And Mexican courts decided three times that what Menéndez published was not defamatory to Banamex. This is purely an attempt to intimidate journalists, this time in an entirely new venue." In a hearing at the New York Supreme Court in Manhattan on July 20, Atlas, Lesser and Giordano argued that Banamex's suit should be thrown out of court on jurisdictional grounds and because New York law requires malice, which they deny. The judge is considering their request.
The accuracy of all these stories will in the end be determined by a court of law. In the meantime, there is one revealing element common to all the legal actions. It is a financial institution that is far closer to home than any of the Mexican enterprises operating south of the Rio Grande: Citibank. It was Citibank that brought Carlos Hank Rhon to the attention of the Fed during the Mercantile Bank investigation because of his ties to Raul Salinas, brother of then-Mexican President Carlos Salinas. Hank Rhon introduced Raul Salinas to the top banking agent in Mexico for Citibank, which Treasury Department investigators claim helped facilitate the laundering of some $200 million that Raul Salinas skimmed off Mexican government food programs, corrupt procurements and drug payoffs during his brother's tenure as president. (Raul Salinas is currently serving a twenty-year sentence in a Mexican prison for murder and illicit enrichment; Carlos Salinas is living in self-imposed exile in Ireland.)
Most pungently, on May 18 Citibank, now Citigroup, announced that it was purchasing Banamex for $12.5 billion in cash and stock–making Hernández, overnight, one of the richest men in the Americas.
"How can they [Banamex] claim that I've ruined their reputation when they've just done a massive deal with Citibank?" exclaimed Giordano, interviewed by telephone from his office in Mexico shortly after the sale was announced.
The Citibank-Banamex deal now joins the largest US financial institution–which was criticized by the Federal Reserve Board during Senate subcommittee hearings in 1999 as having lacked the proper procedures to detect Salinas's and other corrupt Mexican politicians' money-laundering activities–with a bank that has been excoriated in the Mexican and US press for its corrupt ties to the PRI. (Responding to widespread criticisms of its monitoring of suspect accounts, this past spring Citigroup hired one of the Fed's top experts on money laundering, Rick Small, to oversee its compliance office.) A further irony: When Citigroup chairman Robert Rubin was Treasury Secretary during the Clinton Administration, he authorized a comprehensive assault on money laundering that was dubbed Operation Casablanca. Among the tens of millions of dollars identified as having illicit origins over the course of Casablanca's multipronged investigation (which was partly immortalized in the film Traffic) was $3.3 million seized during a sting against none other than Banamex, which the DEA, in coordination with Mexican law enforcement, alleged was drug money from a northern Mexican smuggling operation.
In many ways, all these cases are also united by the phenomenon of NAFTA's having opened the door to Mexican capital flowing north, just as US capital and jobs have been flowing south. Follow the money far enough across the ever-more-open US-Mexican frontier, these challenges suggest, and journalists and scholars alike, not to mention the federal government itself, could face a new NAFTA-inspired boomerang of unintended consequences. Giordano now claims that if his case goes to trial, it will not be just him but "the entire drug war" that will be going on trial.
The guiding principle of Operation Casablanca was to "follow the money" that helps fuel the drug trade. Whatever the courts decide, the three pending cases offer an ominous warning sign to anyone who tries to do just that. Congressional investigators estimate that as much as $500 billion is laundered through the US financial system each year. But attempting to draw the links between the legitimate and illegitimate economies, the great untold secret of the drug war, remains a dangerous business.
Mark SchapiroTwitterMark Schapiro’s latest book, Seeds of Resistance, on the struggle to control the worlds seeds, will be published in 2018. He is also a Lecturer at the UC Berkeley Graduate School of Journalism.