MADRID | Tue Jul 26, 2011 2:15pm EDT

http://www.reuters.com/article/2011/07/26/us-spain-drugs-idUSTRE76P5JF20110726

(Reuters) - Spanish police have broken up the money-laundering operation of one of Latin America's biggest drug cartels and arrested the wife of Colombia's top drug baron, police said Tuesday.

Police arrested nine suspects and had bank accounts blocked in an operation against the money-laundering activities of the cartel of Colombia's "Don Lucho," a police spokesman said.

Those detained included four Spaniards, four Colombians and one Armenian. Warrants have also been issued for the international arrest of a further seven people, the police said in a separate statement.

Luis Agustin Caicedo Velandia, "Don Lucho" -- in jail in the United States -- is considered the leader of Colombia's largest drug trafficking and money-laundering network.

Between 2005 and 2009, he laundered more than $1.5 billion, the police said.

The investigation into his cartel's activities in Spain began in 2010 when the police discovered a false business network operating in Catalonia, Valencia and Alicante, which was laundering "huge amounts" of drug-related money, they said.

The organization in Spain was based in Ribarroja del Turia, in Valencia, on the eastern Spanish coast and run by Velandia's wife, although she was advised and protected by the drug baron's closest confidantes, who were also arrested, the police said.

The group set up fake companies to launder drug-related money from Colombia, Mexico and Panama and also managed a company in Alicante, about an hour along the coast from Valencia, which bought gold and pawned jewels.

The gold was melted, made into bars and treated with chemicals to give it a black-copper color before being smuggled out of Spain, the police said.

Lucho was arrested in Argentina in April 2010 and extradited to the United States where he was convicted for bringing hundreds of tonnes of cocaine into the country from Colombia, via Mexico.

Colombia, plagued by a decades-long guerrilla conflict, remains the world's No. 1 cocaine producer and many armed groups are engaged in the drug trade.