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The narcotics empire of Mexican drug lord Joaquin Chapo Guzman was considered the most powerful in the world. Guzman was captured last month. And as part of the series "Along the Borderland," we're hearing today about the cash flow of the Sinaloa cartel.
NPR's John Burnett began that reporting today on MORNING EDITION. Now he tells us how the cartel has used the global banking system to launder billions of dollars in drug profits. Here's John with a look back at one of the biggest money laundering cases in history.
JOHN BURNETT, BYLINE: The Sinaloa Cartel, headquartered on Mexico's northern Pacific Coast, is constantly exploring new ways to launder its profits, its gargantuan profits. The State Department reports that $19- to $29 billion in U.S. drug proceeds is sent back to Mexico every year by Mexican trafficking syndicates. And Sinaloa is reportedly the richest of them all.
JIM HAYES: So it's very important for them to get that money into the banking system and do so with as little scrutiny as possible.
BURNETT: Jim Hayes is special agent in charge of homeland security investigations for the New York office of Immigration and Customs Enforcement, or ICE. He was lead agent in the 2012 case that revealed how Sinaloa money men used HSBC, one of the world's largest banks, as their private vault.
Mexico standup I'm standing in front of an HSBC bank on Bravo Street in downtown in Culiacan. This is a Mexican branch of the British multinational bank that was accused of allowing the Sinaloa Cartel and a Colombian cartel, to wire-transfer more than $880 million in illegal drug proceeds into U.S. accounts. A U.S. federal prosecutor said Sinaloa operatives would sometimes deposit hundreds of thousands of dollars in cash in a single day, using boxes designed to fit the exact dimensions of the teller's window here at HSBC in Mexico.
The bank ignored basic anti-money-laundering controls, as the investigation found. In 2007 and 2008, HSBC Mexico wired $7 billion to corresponding U.S. dollar accounts in New York, yet no red flags were raised. A bank official later described a lack of a compliance culture in the Mexico affiliate. Moreover, the dollar transfers earned HSBC hefty fees.
A U.S. Senate investigation quoted an HSBC email that lamented how the bank was losing $2.6 billion in revenue from its U.S. dollar accounts that it was forced to close because of the Mexico fiasco.
Again, senior ICE agent Jim Hayes.
HAYES: When I was told that there could be in the billions of dollars being moved through these accounts, it was very difficult to believe. A lot of people have asked, was this complicit? We don't believe that they knew for certain that the money being moved was drug money, but they should have known.
BURNETT: In Culiacan, the capital of Sinaloa, where people live cheek by jowl with the cartel, even they were shocked that narco-dollars could be laundered so brazenly.
JAVIER VALDEZ: (Foreign language spoken)
BURNETT: You see the building, the office, the cars, the men in suits, says Javier Valdez, an author and journalist in Culiacan who writes about narco-trafficking. Everything looks legal. That's what frightens us.
ALEJANDRO HOPE: I mean, the DEA loves to sell the idea that these guys are super-sophisticated criminal masterminds.
BURNETT: Alejandro Hope is a security analyst in Mexico City and a former federal intelligence agent.
HOPE: It's so simple. It's so unsophisticated. That is what, to me, is the most disturbing part of this, is that these guys are not even trying that hard.
BURNETT: The consequences for ignoring the torrent of dirty money in Mexico were severe for HSBC. The bank paid $1.9 billion in fines and forfeitures. Of course, with $2.6 trillion in assets, for HSBC this represented a man with a hundred dollars in his pocket paying a fine of seven cents. HSBC was also faulted for hiding prohibited transactions with nations like Iran and Cuba.
The bank emailed a statement to NPR: HSBC has made progress in remediating anti-money-laundering deficiencies. But we recognize that protecting against financial crime is an ongoing journey.
Other banks took notice. They increased know-your-customer rules and, in some cases, dumped hi-risk clients, which might make you think: Well, now they've got money laundering under control.
KIERAN BEER: Despite all of the efforts, banks are still vulnerable to money laundering and it's kind of an age-old thing.
BURNETT: Kieran Beer is editor of MoneyLaundering.com.
BEER: The drug trade is just overwhelming in terms of how that money finds paths, like water, to come into the global financial system.
BURNETT: HSBC wasn't the first or the last bank money-laundering scandal. In 2010, prosecutors detailed how Wachovia Bank had been used by Mexican currency exchange houses to launder at least $110 million in drug profits. In 2012, an FBI affidavit, reported on in The Wall Street Journal, laid out how the Zetas Cartel used Bank of America to launder cash through a racehorse operation in Texas. And last month, Western Union agreed to do more to beef up vulnerabilities in its money transfer business along the southwest border.
Back in Culiacan, and throughout Mexico, currency exchange houses operate under strict new rules that are supposed to limit the size of dollar transactions. Investigators are watching to see what the narcos next money laundering ploy will be.
John Burnett, NPR News.
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