5:19 p.m., Dec. 10, 2011

http://www.signonsandiego.com/news/2011/dec/10/san-diego-drug-case-involves-dea-money-laundering/?page=2#article

A two-year drug investigation that spanned five countries and involved U.S. federal agents laundering millions of dollars in narcotics money on behalf of a drug lord connected to the Sinaloa cartel has been quietly working its way through San Diego federal court.

In May, a federal grand jury in San Diego handed up a 51-count indictment naming 29 people on drug and money-laundering charges. The lead defendant targeted in the case is Victor Manuel Felix Felix, a principal money launderer for the Sinaloa cartel headed by Joaquin “Chapo” Guzmán.

The case also spotlights the U.S. Drug Enforcement Administration’s practice of laundering drug proceeds as part of sting investigations into cartels. While U.S. Justice Department officials defend the laundering as a closely monitored and necessary tactic against cartels, some see it as aiding the traffickers.

Court records detailing the case show that U.S. officials want $13 million forfeited — a sum that represents the amount of money laundered by federal agents during the investigation. The total could be half of that, however, because the same transaction is charged as both money laundering and engaging in unlawful monetary transactions of more than $10,000.

The money was deposited into a DEA-controlled bank account in San Diego, then wire-transferred to bank accounts designated by the cartels, including many to an account at Deutsche Bank in New York, according to court filings.

The issue gained traction last week when Rep. Darrell Issa, chairman of the House Oversight and Government Reform Committee, launched an investigation into the practice. His action was prompted by a Dec. 4 story in The New York Times about the DEA laundering money.

Issa, a Republican from Vista, likened the money laundering to the botched “Fast and Furious” operation, in which agents with the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives intentionally let guns bought in the United States go back to Mexico, hoping they would lead to cartel kingpins. Instead, many of the weapons ended up at crime scenes in Mexico’s lethal drug war, including one involving the killing of U.S. Border Patrol Agent Brian Terry in Arizona.

Frederick Hill, a spokesman for Issa, said Saturday that neither Issa nor the committee has raised any concerns about the Felix-Sinaloa case. He declined further comment.

Justice Department and DEA officials have defended the use of undercover money-laundering operations, saying they have been a valuable investigative tool for years.

In a Dec. 6 statement, the DEA said such tactics have been undertaken with collaboration from the Mexican government and have resulted in seizing “illicit transnational criminal organization money all around the world.”

John Fernandes, former special agent in charge of the DEA office in San Diego until 2006, said investigations where the DEA would launder money were standard. He said they were designed to give authorities clues about the core workings of the drug networks.

“You get a chance to follow the money,” Fernandes said. “What happens when it goes into accounts? What are they using that money for? It’s critical to tie all that to the head of the organization and the network.”

These investigations are closely monitored by prosecutors and DEA officials who weigh the risks against the expected outcome — cracking a network or catching high-ranking drug lords, he said.

“It’s bang for the buck,” Fernandes said. “If you can launder $15 million but take down an organization, that’s a good investment.”

Mexican authorities have identified Felix, also known as “El Senor,” as a main money launderer for Guzmán and a significant trafficker in his own right. He is the father-in-law of one of Guzmán’s sons and the godfather, or compadre, to one of Guzmán’s children — a close relationship in many Latin American cultures.

Guzmán is one of the world’s most wanted fugitives, with a $5 million reward offered by the U.S. State Department for information leading to his arrest. In recent years, the Sinaloa cartel that he heads has grown into the dominant drug-trafficking group in Baja California.

Court filings in the San Diego case detail an investigation that stretched from Ecuador to Canada. At its center was an undercover DEA agent who posed as a manager of a criminal organization that could move tons of drugs and launder money on behalf of the cartels.

Prosecutors said they confiscated about $6 million in drug proceeds and seized more than 7 tons of drugs.

The U.S. Attorney’s Office in San Diego declined to comment on the Felix case because it is ongoing.

Federal authorities in Mexico arrested Felix in March, along with several other high-ranking figures named in the indictment. That was about two months before the San Diego grand jury handed up its indictment in secret.

In September, U.S. authorities began the process of seeking Felix’s extradition from Mexico so he could face charges in San Diego. He is being held in a prison in Mexico City.

So far, 10 people named in the indictment have been arrested and have appeared in court since July, when the indictment was unsealed. Defense lawyers for several defendants described them as essentially couriers who shuttled money on behalf of the cartel. A protective order in the case prohibited the lawyers from commenting extensively on it.

The investigation began in 2009 and continued until March of this year, just before Felix was arrested. The indictment details numerous instances when arrangements were made to collect cash in U.S. and often Canadian dollars.

The money was carted around in duffel bags or more unusual containers. In one instance, $109,000 was dropped off to an undercover agent in a detergent bucket. The money was deposited into the DEA-controlled bank account and then wired to the drug-trafficking network’s account in New York.