Bank accounts figure in drug probe

A Mexican cocaine-trafficking cartel used accounts at Bank of America Corp. to hide money and invest illegal drug-trade proceeds in U.S. racehorses, the Federal Bureau of Investigation said.

The alleged ties between the violent drug gang known as Los Zetas and the second-largest U.S. bank by assets were described in a 35-page affidavit filed in federal court in Texas last month. According to an FBI agent, a horse-buying and training business created to launder drug money had accounts at the Charlotte, N.C., bank.

A U.S. citizen who is the brother of a top Zetas leader and allegedly served as the front man for the drug cartel's horse operation moved money in and out of one of these Bank of America accounts and a separate personal Bank of America account, the FBI said in the court filing.

The FBI agent's sworn statement describes roughly a dozen transactions since December 2009 in which more than $1.5 million was deposited or withdrawn from two accounts at the bank.

Bank of America hasn't been accused of any wrongdoing and is cooperating with authorities in the case, according to people familiar with the case.

During a roughly two-year period, according to the FBI agent, the Zetas allegedly funneled about $1 million a month into the purchase of quarter horses, which specialize in sprinting short distances.

In September 2010, one of the horses alleged to be financed by the cartel, a long shot named Mr Piloto, won the $1 million first-place prize in the sport's biggest race, the All American Futurity at Ruidoso Downs, N.M. After the win, a check from the racetrack for $899,549.70 was deposited into a Bank of America account held by Tremor Enterprises LLC, the drug cartel's alleged horse business, according to the FBI.

Tremor bought Mr Piloto with a $100,000 check drawn on the same Bank of America account, the FBI said, citing bank records.

A spokesman for the U.S. Attorney for the Western District of Texas couldn't be reached for comment. A Bank of America spokesman said: "We have robust anti-money laundering processes and procedures that comply with regulatory and legal requirements. When we become aware of suspicious activity conducted through customer accounts, we take immediate action and report it to the appropriate authorities."

U.S. banks are obligated under the Bank Secrecy Act to report to federal authorities any suspicious activity or cash transactions of more than $10,000. Banks also must have elaborate systems designed to detect criminal activity within their networks. Failure to comply can lead to penalties or prosecution.

Regulators have been paying closer attention to security lapses at banks since the Sept. 11, 2001, terrorist attacks.

In 2010, HSBC Holdings PLC's North American unit was ordered to improve risk management and compliance with money-laundering laws after an investigation found subpar procedures. The bank agreed to improve controls and procedures.

Wells Fargo Co.'s Wachovia Bank unit reached a $160 million settlement with the Justice Department in 2010 related to allegations that a failure in bank controls enabled drug traffickers to launder money by shifting it between Mexican currency-exchange houses and the bank. Wachovia admitted that it failed to monitor and report the money laundering.

"You cannot bank blind," said Martin Woods, a former anti-money-laundering executive at Wachovia and now the owner of consulting firm Hermes Forensic Solutions Ltd. in London.

The affidavit doesn't indicate where or how the two Bank of America accounts were opened. Tremor is based in Balch Springs, Tex., and was allegedly run by Jose Trevino Morales. Last week, he pleaded not guilty at a court hearing in Austin, Texas, to a federal money-laundering charge. A judge ordered him to be jailed as a flight risk.

David Finn, a lawyer representing Mr. Morales, said he doesn't know why his client opened the Bank of America accounts because the lawyer hasn't been able to do his own investigation. Mr. Morales is a "family man" with no criminal history, Mr. Finn added. "This case is more about my client's brothers than it is about him."

In criminal indictments last month against 14 people tied to the alleged money-laundering conspiracy, Miguel Angel Trevino Morales and Oscar Omar Trevino Morales were accused of steering money from drug trafficking into U.S. racehorses into order to conceal the source of the cash. The two brothers allegedly are high-ranking Zetas. They remain at large in Mexico.

The Zetas cartel ships thousands of pounds of cocaine into the U.S. each year, according to the FBI. It also has a ruthless reputation. Authorities said earlier this year that the gang dumped 49 headless, handless bodies in garbage bags along highways in Mexico.

In 2009, President Barack Obama tagged the Zetas as a narcotics trafficker under the Foreign Narcotics Kingpin Designation Act, which freezes any U.S. assets and prohibits American citizens from conducting any transactions with the group. The U.S. Treasury Department's Office of Foreign Assets Control classified Miguel Angel Trevino Morales and Oscar Omar Trevino Morales as narcotics traffickers in 2009 and 2010, prohibiting U.S. citizens from doing any business with them.

According to the FBI, the Zetas turned to the U.S. horse industry in 2009 as a money-laundering strategy. Many people bid on horses for the cartel, and ownership was transferred to Jose Trevino Morales, often at "no or minimal purchase price," the FBI agent said. The maneuver allowed Mr. Morales to show "large, apparently legitimate profits."

Bank records cited by the FBI show that he opened an account under Tremor's name at Bank of America in December 2009. Some money in the account was used for stables, trainer fees, insurance and other routine horse-related expenses.

The FBI also said Mr. Morales shuffled funds between different accounts as a "wash to demonstrate personal income from his business."

Mr. Finn, the lawyer representing Mr. Morales, declined to comment on specific transactions.

"If you are going to launder dirty money, there are much easier ways to do it than being involved in the quarter horse industry," he said.

(Published by WSJ - July 9, 2012)