June 2010


Sought to Deny Reporter Access to Kagan’s Brother Irving, Teacher at Hunter College High School

Judicial Watch, the public interest group that investigates and prosecutes government corruption, announced today that it has obtained documents from Hunter College High School regarding a White House effort to deny New York Times education reporter Sharon Otterman access to Supreme Court nominee Elena Kagan’s brother Irving, who currently teaches at the New York school. Otterman requested and received permission from both the school and Irving Kagan to attend one of Mr. Kagan’s constitutional law classes before White House Deputy Press Secretary Joshua Earnest intervened. “I’m definitely not comfortable with that at this point,” Earnest wrote to Ms. Otterman on May 11, 2010.

Earnest instructed Irving Kagan in an email on May 11 to direct press inquiries directly to the White House:

This reporter says she has permission from you and from the school to sit in on your class. I’ve articulated my concerns to the [Hunter College public relations representative] Meredith [Halpern] – who now says she agrees with me. I’ve articulated my concerns to the reporter, who’s feeling misled that we’re telling her no and she says she was told yes.

In the future, it’s important to direct all reporter inquiries to the White House. It’ll be easier for you to stay out of the middle of these conversations if you send them directly to us without responding.

Irving Kagan appeared to have no issues with Ms. Otterman’s presence in his classroom. “I told my folks at school I was willing to participate, but only with your agreement. Was that a mistake? If I hadn’t [been] willing to do it, I would have just said no, and not wasted your time.”

There was no indication in any of the documents regarding the White House’s specific objections to Ms. Otterman’s request.

“The Obama White House has no business interfering with independent press investigations of Ms. Kagan,” said Judicial Watch President Tom Fitton. “These documents show that the Obama White House could care less about transparency on the Kagan nomination and is no friend of an independent media.”

Supreme Court nominee Elena Kagan graduated from Hunter College High School in 1977.

IBD Editorials

The administration is ready to sign a treaty stripping us of our ability to defend ourselves against enemy nuclear missiles, including Iran’s and North Korea’s. In space, no one can hear you surrender.

On Monday, the ground-based Terminal High Altitude Area Defense system, part of the U.S. missile defense shield, successfully shot down a ballistic missile launched from a ship’s deck off Kauai, Hawaii. The test simulated an Iranian SCUD launched from the deck of a ship off the U.S. coast, which, if armed with a nuke, could devastate the American heartland.

The simulated Scud was launched from the deck of the decommissioned 603-foot amphibious assault ship Tripoli. U.S. Army soldiers of the 6th Air Defense Artillery Brigade from Fort Bliss, Texas, successfully intercepted it with a Terminal High Altitude Area Defense (THAAD) interceptor.

Missile defense, the dream of President Reagan, is a successful reality. With a layered system of ground-based, long-range interceptors, the sea-based Aegis system and theater systems such as the Patriot and THAAD, we can defend against — rather than just avenge — a ballistic missile attack.

Yet our disarmer in chief, President Obama, stands ready to strip us naked before our enemies by signing a treaty designed to demilitarize space. Since interceptors such as THAAD are designed to hit their targets on the edge of space and can be modified to kill satellites, such a treaty would effectively ban their use.

Almost simultaneously on Monday, the Obama administration unveiled a new space policy that reverses the Bush administration policy of unrestricted access to and operations in space. The Bush policy, released in August 2006, said it “rejects any limitations on the fundamental right of the United States to operate in and acquire data from space.” We had a right to defend ourselves.

That right will be surrendered unilaterally by a new space policy under which the U.S. will “consider proposals and concepts for arms control measures if they are equitable, effectively verifiable and enhance the national security of the United States and its allies.”

Such fairness is in the eyes of the beholder, and this administration does not have a good track record of enhancing the national security of the United States. For example, it has cut the number of ground-based interceptors planned for Alaska and Hawaii, both within range of North Korea’s Taepodong-2.

It has also betrayed our Polish and Czech allies by scrapping plans for a similar system in Europe. And it has scrapped tested and ready systems like the Air Force’s Airborne Laser (ABL), a modified Boeing 747-F that can be deployed anywhere in the world, loitering off an enemy’s coast to destroy its missiles in their vulnerable boost phase. And it’s reusable.

These “proposals and concepts” could come soon in the form of the PAROS (prevention of arms race in space) treaty. Like the nuclear freeze once proposed at the height of the Cold War, these Munich clones are designed not to prevent war, but to disarm America. Russia, China, North Korea and Iran, among others, would like to see us unilaterally give up our ability to render their huge investments in nuclear missiles irrelevant.

A simple Iranian Scud missile, with a nuclear warhead, could be fired from an inconspicuous freighter in international waters off our coast and detonated high above the U.S. It would wreak near total devastation on America’s technological, electrical and transportation infrastructure. The ship could then be scuttled, taking the identity of the attacker with it.

If a hostile power detonated a nuclear weapon high over the U.S., generating an electro-magnetic pulse that would fry virtually every circuit and electronic device in the country, America and its economy could be sent back a century or more.

Iran has practiced launching and detonating Scuds in midflight from ships in the Caspian Sea. Iran has also tested high-altitude explosions of its Shahab-3 ballistic missile, a test consistent with an EMP attack.

Surrendering missile defense through such a treaty amounts to more unilateral disarmament in the face of dangerous and hostile enemies. The president wants us to rally around a white flag.

Phillip Matier–Andrew Ross

It turns out that San Francisco’s eco-conscious Mayor Gavin Newsom and his wife, Jennifer Siebel Newsom, own a piece of the deepwater rig at the center of the gulf oil disaster.

According to the mayor’s most recently filed economic disclosure statement, last year the couple invested between $10,000 and $100,000 in Transocean Inc. – the company whose ruptured deepwater rig, which is leased to BP, is spewing millions of gallons of oil, endangering wildlife and beaches all along the Gulf Coast.

Just last month, Newsom told the San Diego area East County Magazine that “the environmental catastrophe devastating the Gulf of Mexico is a tragic reminder of why we must take a stand against the oil companies and oppose all offshore drilling off California’s precious coast.”

The Jennifer Lynn Siebel Trust also listed a half dozen other $10,000-to-$100,000 energy-related investments, including stock held last year in three companies involved in oil and gas exploration: Dorchester Minerals, Resolute Energy and Schlumberger Ltd.

The portfolio also includes stock in Petroleo Brasileiro, Brazil’s largely state-owned oil company that has been looking to the United States to help finance exploration of a huge offshore oil discovery near Rio de Janeiro.

In all, the couple’s 2009 trust portfolio listed 43 investments that, in addition to energy, included some of the biggest players in finance, pharmaceuticals, telecommunications and health care. The trust produced more than $100,000 in income last year for the couple, according to the report.

The economic disclosure filing shows that the Transocean bond investment was made two months after Siebel turned 35 and had control of the trust. And it was eight months before the explosion on the company’s Deepwater Horizon rig killed 11 workers and resulted in the nation’s worst-ever oil spill.

On Tuesday, Newsom campaign spokesman Dan Newman said “the mayor had no role administering his wife’s trust,” but stopped short of saying who did.

Newman said the mayor’s “courage taking on Big Oil shows that (the trust) has no bearing on his consistent support for clean energy” and “solutions that would drive the value of dirty energy investments into the bottom of the ocean.”

Presumably, those would be some of the very investments they own.

Yahoo News

WASHINGTON – House Democrats, who are trying to pass a long-stalled war funding bill this week, have attached $10 billion to help local school districts avoid teacher layoffs when schools reopen.

The approximately $70 billion measure is anchored by President Barack Obama’s $30 billion request for the troop surge in Afghanistan and contains money for disaster aid accounts, foreign aid and disability benefits for Vietnam veterans exposed to Agent Orange.

The bill’s release late Tuesday night was the surest signal yet that House leaders are committed to passing it this week, despite great resistance among many Democratic lawmakers and deepening anxiety over the Afghanistan war effort among Obama allies such as House Speaker Nancy Pelosi, D-Calif.

The Senate passed an almost $60 billion version of the bill last month. Successful action by the House would send the measure into negotiations aimed at producing a final measure next month for Obama’s signature.

The difficulty in passing the bill in the House is magnified by disagreement between Republicans supportive of the war — who insist the measure be “clean” of unrelated spending — and Democrats who want funding for the unpopular war to carry unrelated party priorities. Republicans are threatening to withhold support for the overall package if Democratic add-ons are included.

Democrats such as Appropriations Committee David Obey of Wisconsin, who’s deeply skeptical of the Afghanistan effort, are insisting the measure carry billions of dollars in funding to help revenue-starved school boards avoid teacher layoffs. A $23 billion, debt-financed plan has been scrapped over deficit concerns, but has been replaced with a $10 billion “education jobs fund” financed by multiple cuts from prior spending bills, including last year’s stimulus bill.

There’s also more than $500 million in new money to hire more border patrol agents and pay for other security initiatives along the U.S.-Mexico border — though $200 million in previously appropriated money for a border fence, popular with Republicans, would be rescinded.

And there’s $18 billion in new Energy Department loan guarantees, to be evenly split between nuclear and renewable energy projects.

Defense Secretary Robert Gates has been agitating for the war money, requested in February, but the real deadline for Congress isn’t until the August recess.

Part of the delay has been over finding offsetting budget cuts to finance the teacher jobs initiative. The sometimes combative Obey has been wrestling with the White House budget office over the cuts.

The package unveiled Tuesday includes unspent defense funds, as well as money cut from community development and rural Internet projects.

Reuters

WASHINGTON — U.S. Attorney General Eric Holder arrived in Kabul Wednesday to discuss rooting out corruption and other law enforcement matters with senior Afghanistan and U.S. officials, the Justice Department said.

“Fighting corruption and supporting the rule of law in Afghanistan are top priorities for this administration, and we will continue to assist the Afghan government in creating and sustaining the effective criminal justice system to which the Afghan people are entitled,” Holder said in a statement.

The Justice Department has teams of lawyers and law enforcement agents in the country providing training and support to Afghan government officials as they grapple with terrorism, corruption, organized crime and drug cases.

The trip to Kabul by Holder, the first by an American attorney general, comes at a tough time for the Obama administration, which has been dealing with the change in command of the U.S.-led forces there fighting the Taliban and other militant insurgents.

By Mail Foreign Service

You’ll definitely need a head for heights if you’re planning on visiting the 1,000m high AlpspiX viewing tower, which is to open in southern Germany on July 4.

The towering structure is situated in the Garmisch-Partenkirchen region of the country and provides panoramic views of surrounding Hoellental and Garmisch.

Workers make finishing touches to the AlpspiX viewing platform in Garmisch-Partenkirchen, southern Germany 

Workers make finishing touches to the AlpspiX viewing platform in Garmisch-Partenkirchen, southern Germany

The arms of the platform cross in an 'X' shape above a 1,000m abyss  

The arms of the platform cross in an ‘X’ shape above a 1,000m abyss

Each arm of the tower is 24m long, crossing in an ‘X’ shape over an abyss at the base of the Alpspitze mountain, while jutting out 13m over an empty void, with the other 11m anchored in rock.

At the end of each arm, a glass wall offers a unique view of the alpine surroundings.

Each arm of the ‘X’ is just 3m wide and formed of a grid, which will allow snow to pass through it during winter. 

Each platform arm ends in a glass wall, offering unobscured views of the Alpine surroundings  

Each platform arm ends in a glass wall, offering unobscured views of the Alpine surroundings

The breath-taking structure is due to open on July 4 

The breath-taking structure is due to open on July 4

alpine viewing platform 

Vision: An artist’s impression of the 3metre-wide viewing platforms which are suspended above the drop

By Ralph R. Reiland

With job creation in the U.S. basically at a standstill aside from some government hiring of temporary Census workers, even after a trillion-plus in stimulus spending, Hillary Clinton’s answer for more growth and more jobs is to remove even more money from the people who earned it and hand it over to the federal government.

In a recent address at the Brookings Institution, Mrs. Clinton succinctly delivered her recipe for reducing unemployment: “The rich are not paying their fair share in any nation that is facing the kind of employment issues [the U.S. is] — whether it’s individual, corporate or whatever the taxation forms are.”

That’s consistent with the economic thinking that candidate Obama revealed during an unscripted moment in the presidential campaign: “I think when you spread the wealth around, it’s good for everyone.”

Hillary went on to cite Brazil as a model to imitate. “Brazil has the highest tax-to-GDP rate in the Western Hemisphere, and guess what — they’re growing like crazy,” she said. “And the rich are getting richer, but they’re pulling people out of poverty.”

In fact, Brazil doesn’t have the highest tax-to-GDP rate in the Western Hemisphere. Cuba wins that race to fully bloated statism and excessive confiscation of income and wealth. And guess what — they’re not growing like crazy and there’s still a shortage of fish even though the country is surrounded by water.

Fishing isn’t easy, explains Nick Miroff, a correspondent who covers Cuba for GlobalPost.com, when “Cuba’s communist government is so paranoid about illegal departures to the United States that it strictly controls who can own or use boats.”

Imagine a nice day on the water. You’re nothing, a peon, and the government is everything. You’re on a dinky raft held together by some inner tube strips from a ‘59 Chevy, trying to hook a fish for dinner when some gun-toting government enforcers pull up in a speed boat. “Hey, nutso,” they holler (that’s “estar mal de la azotea” in Spanish, i.e., “to be off one’s nut”), “you a mental case, crazy enough to try to escape to the U.S. hell from the workers’ paradise?”

Then the water cops confiscate your fishing rod and you feel lucky that you weren’t dropped in a dungeon for 10 years for excessive individualism and trying to steal a sea trout from the people.

Hillary also got it wrong about Brazil growing fast by way of excessively squeezing the rich and by having the highest tax-to-GDP rate. The top marginal tax rate on income in Brazil is 27.5 percent, a substantially lower rate than the 35 percent (and soon to be 39.6 percent) top rate in the United States.

Similarly, the top corporate tax rate in Brazil is 34 percent, lower than the combined federal and state corporate tax of 39.1 percent in the United States, the second-highest rate in the industrialized world (only Japan’s 39.5 percent combined rate is higher than the U.S. rate, but 24 states in the U.S. have a combined corporate tax rate higher than top-ranked Japan). 

In other words, if Hillary Clinton is saying that the U.S. should copy Brazil’s tax structure in order to get the economy moving and stimulate job creation, that would mean a cut in the U.S. corporate tax rate and a one-third cut in the top U.S. income tax rate, the opposite of her call for higher taxes on the rich.

More broadly, Mrs. Clinton is ignoring the volumes of evidence that show a negative correlation between tax hikes and economic growth.

Bloomberg

Just before sunset on April 10, 2006, a DC-9 jet landed at the international airport in the port city of Ciudad del Carmen, 500 miles east of Mexico City. As soldiers on the ground approached the plane, the crew tried to shoo them away, saying there was a dangerous oil leak. So the troops grew suspicious and searched the jet.

They found 128 black suitcases, packed with 5.7 tons of cocaine, valued at $100 million. The stash was supposed to have been delivered from Caracas to drug traffickers in Toluca, near Mexico City, Mexican prosecutors later found. Law enforcement officials also discovered something else.

The smugglers had bought the DC-9 with laundered funds they transferred through two of the biggest banks in the U.S.: Wachovia Corp. and Bank of America Corp., Bloomberg Markets magazine reports in its August 2010 issue.

This was no isolated incident. Wachovia, it turns out, had made a habit of helping move money for Mexican drug smugglers. Wells Fargo & Co., which bought Wachovia in 2008, has admitted in court that its unit failed to monitor and report suspected money laundering by narcotics traffickers — including the cash used to buy four planes that shipped a total of 22 tons of cocaine.

The admission came in an agreement that Charlotte, North Carolina-based Wachovia struck with federal prosecutors in March, and it sheds light on the largely undocumented role of U.S. banks in contributing to the violent drug trade that has convulsed Mexico for the past four years.

‘Blatant Disregard’

Wachovia admitted it didn’t do enough to spot illicit funds in handling $378.4 billion for Mexican-currency-exchange houses from 2004 to 2007. That’s the largest violation of the Bank Secrecy Act, an anti-money-laundering law, in U.S. history — a sum equal to one-third of Mexico’s current gross domestic product.

“Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” says Jeffrey Sloman, the federal prosecutor who handled the case.

Since 2006, more than 22,000 people have been killed in drug-related battles that have raged mostly along the 2,000-mile (3,200-kilometer) border that Mexico shares with the U.S. In the Mexican city of Ciudad Juarez, just across the border from El Paso, Texas, 700 people had been murdered this year as of mid- June. Six Juarez police officers were slaughtered by automatic weapons fire in a midday ambush in April.

Rondolfo Torre, the leading candidate for governor in the Mexican border state of Tamaulipas, was gunned down yesterday, less than a week before elections in which violence related to drug trafficking was a central issue.

45,000 Troops

Mexican President Felipe Calderon vowed to crush the drug cartels when he took office in December 2006, and he’s since deployed 45,000 troops to fight the cartels. They’ve had little success.

Among the dead are police, soldiers, journalists and ordinary citizens. The U.S. has pledged Mexico $1.1 billion in the past two years to aid in the fight against narcotics cartels.

In May, President Barack Obama said he’d send 1,200 National Guard troops, adding to the 17,400 agents on the U.S. side of the border to help stem drug traffic and illegal immigration.

Behind the carnage in Mexico is an industry that supplies hundreds of tons of cocaine, heroin, marijuana and methamphetamines to Americans. The cartels have built a network of dealers in 231 U.S. cities from coast to coast, taking in about $39 billion in sales annually, according to the Justice Department.

‘You’re Missing the Point’

Twenty million people in the U.S. regularly use illegal drugs, spurring street crime and wrecking families. Narcotics cost the U.S. economy $215 billion a year — enough to cover health care for 30.9 million Americans — in overburdened courts, prisons and hospitals and lost productivity, the department says.

“It’s the banks laundering money for the cartels that finances the tragedy,” says Martin Woods, director of Wachovia’s anti-money-laundering unit in London from 2006 to 2009. Woods says he quit the bank in disgust after executives ignored his documentation that drug dealers were funneling money through Wachovia’s branch network.

“If you don’t see the correlation between the money laundering by banks and the 22,000 people killed in Mexico, you’re missing the point,” Woods says.

Cleansing Dirty Cash

Wachovia is just one of the U.S. and European banks that have been used for drug money laundering. For the past two decades, Latin American drug traffickers have gone to U.S. banks to cleanse their dirty cash, says Paul Campo, head of the U.S. Drug Enforcement Administration’s financial crimes unit.

Miami-based American Express Bank International paid fines in both 1994 and 2007 after admitting it had failed to spot and report drug dealers laundering money through its accounts. Drug traffickers used accounts at Bank of America in Oklahoma City to buy three planes that carried 10 tons of cocaine, according to Mexican court filings.

Federal agents caught people who work for Mexican cartels depositing illicit funds in Bank of America accounts in Atlanta, Chicago and Brownsville, Texas, from 2002 to 2009. Mexican drug dealers used shell companies to open accounts at London-based HSBC Holdings Plc, Europe’s biggest bank by assets, an investigation by the Mexican Finance Ministry found.

Following Rules

Those two banks weren’t accused of wrongdoing. Bank of America spokeswoman Shirley Norton and HSBC spokesman Roy Caple say laws bar them from discussing specific clients. They say their banks strictly follow the government rules.

“Bank of America takes its anti-money-laundering responsibilities very seriously,” Norton says.

A Mexican judge on Jan. 22 accused the owners of six centros cambiarios, or money changers, in Culiacan and Tijuana of laundering drug funds through their accounts at the Mexican units of Banco Santander SA, Citigroup Inc. and HSBC, according to court documents filed in the case.

The money changers are in jail while being tried. Citigroup, HSBC and Santander, which is the largest Spanish bank by assets, weren’t accused of any wrongdoing. The three banks say Mexican law bars them from commenting on the case, adding that they each carefully enforce anti-money-laundering programs.

HSBC has stopped accepting dollar deposits in Mexico, and Citigroup no longer allows noncustomers to change dollars there. Citigroup detected suspicious activity in the Tijuana accounts, reported it to regulators and closed the accounts, Citigroup spokesman Paulo Carreno says.

Criminal Empires

On June 15, the Mexican Finance Ministry announced it would set limits for banks on cash deposits in dollars.

Mexico’s drug cartels have become multinational criminal enterprises.

Some of the gangs have delved into other illegal activities such as gunrunning, kidnapping and smuggling people across the border, as well as into seemingly legitimate areas such as trucking, travel services and air cargo transport, according to the Justice Department’s National Drug Intelligence Center.

These criminal empires have no choice but to use the global banking system to finance their businesses, Mexican Senator Felipe Gonzalez says.

“With so much cash, the only way to move this money is through the banks,” says Gonzalez, who represents a central Mexican state and chairs the senate public safety committee.

Gonzalez, a member of Calderon’s National Action Party, carries a .38 revolver for personal protection.

“I know this won’t stop the narcos when they come through that door with machine guns,” he says, pointing to the entrance to his office. “But at least I’ll take one with me.”

Subprime Losses

No bank has been more closely connected with Mexican money laundering than Wachovia. Founded in 1879, Wachovia became the largest bank by assets in the southeastern U.S. by 1900. After the Great Depression, some people in North Carolina called the bank “Walk-Over-Ya” because it had foreclosed on farms in the region.

By 2008, Wachovia was the sixth-largest U.S. lender, and it faced $26 billion in losses from subprime mortgage loans. That cost Wachovia Chief Executive Officer Kennedy Thompson his job in June 2008.

Six months later, San Francisco-based Wells Fargo, which dates from 1852, bought Wachovia for $12.7 billion, creating the largest network of bank branches in the U.S. Thompson, who now works for private-equity firm Aquiline Capital Partners LLC in New York, declined to comment.

As Wachovia’s balance sheet was bleeding, its legal woes were mounting. In the three years leading up to Wachovia’s agreement with the Justice Department, grand juries served the bank with 6,700 subpoenas requesting information.

Not Quick Enough

The bank didn’t react quickly enough to the prosecutors’ requests and failed to hire enough investigators, the U.S. Treasury Department said in March. After a 22-month investigation, the Justice Department on March 12 charged Wachovia with violating the Bank Secrecy Act by failing to run an effective anti-money-laundering program.

Five days later, Wells Fargo promised in a Miami federal courtroom to revamp its detection systems. Wachovia’s new owner paid $160 million in fines and penalties, less than 2 percent of its $12.3 billion profit in 2009.

If Wells Fargo keeps its pledge, the U.S. government will, according to the agreement, drop all charges against the bank in March 2011.

Wells Fargo regrets that some of Wachovia’s former anti- money-laundering efforts fell short, spokeswoman Mary Eshet says. Wells Fargo has invested $42 million in the past three years to improve its anti-money-laundering program and has been working with regulators, she says.

‘Significantly Upgraded’

“We have substantially increased the caliber and number of staff in our international investigations group, and we also significantly upgraded the monitoring software,” Eshet says. The agreement bars the bank from contesting or contradicting the facts in its admission.

The bank declined to answer specific questions, including how much it made by handling $378.4 billion — including $4 billion of cash-from Mexican exchange companies.

The 1970 Bank Secrecy Act requires banks to report all cash transactions above $10,000 to regulators and to tell the government about other suspected money-laundering activity. Big banks employ hundreds of investigators and spend millions of dollars on software programs to scour accounts.

No big U.S. bank — Wells Fargo included — has ever been indicted for violating the Bank Secrecy Act or any other federal law. Instead, the Justice Department settles criminal charges by using deferred-prosecution agreements, in which a bank pays a fine and promises not to break the law again.

‘No Capacity to Regulate’

Large banks are protected from indictments by a variant of the too-big-to-fail theory.

Indicting a big bank could trigger a mad dash by investors to dump shares and cause panic in financial markets, says Jack Blum, a U.S. Senate investigator for 14 years and a consultant to international banks and brokerage firms on money laundering.

The theory is like a get-out-of-jail-free card for big banks, Blum says.

“There’s no capacity to regulate or punish them because they’re too big to be threatened with failure,” Blum says. “They seem to be willing to do anything that improves their bottom line, until they’re caught.”

Wachovia’s run-in with federal prosecutors hasn’t troubled investors. Wells Fargo’s stock traded at $30.86 on March 24, up 1 percent in the week after the March 17 agreement was announced.

Moving money is central to the drug trade — from the cash that people tape to their bodies as they cross the U.S.-Mexican border to the $100,000 wire transfers they send from Mexican exchange houses to big U.S. banks.

‘Doesn’t Stop Anyone’

In Tijuana, 15 miles south of San Diego, Gustavo Rojas has lived for a quarter of a century in a shack in the shadow of the 10-foot-high (3-meter-high) steel border fence that separates the U.S. and Mexico there. He points to holes burrowed under the barrier.

“They go across with drugs and come back with cash,” Rojas, 75, says. “This fence doesn’t stop anyone.”

Drug money moves back and forth across the border in an endless cycle. In the U.S., couriers take the cash from drug sales to Mexico — as much as $29 billion a year, according to U.S. Immigration and Customs Enforcement. That would be about 319 tons of $100 bills.

They hide it in cars and trucks to smuggle into Mexico. There, cartels pay people to deposit some of the cash into Mexican banks and branches of international banks. The narcos launder much of what’s left through money changers.

The Money Changers

Anyone who has been to Mexico is familiar with these street-corner money changers; Mexican regulators say there are at least 3,000 of them from Tijuana to Cancun, usually displaying large signs advertising the day’s dollar-peso exchange rate.

Mexican banks are regulated by the National Banking and Securities Commission, which has an anti-money-laundering unit; the money changers are policed by Mexico’s Tax Service Administration, which has no such unit.

By law, the money changers have to demand identification from anyone exchanging more than $500. They also have to report transactions higher than $5,000 to regulators.

The cartels get around these requirements by employing legions of individuals — including relatives, maids and gardeners — to convert small amounts of dollars into pesos or to make deposits in local banks. After that, cartels wire the money to a multinational bank.

The Smurfs

The people making the small money exchanges are known as Smurfs, after the cartoon characters.

“They can use an army of people like Smurfs and go through $1 million before lunchtime,” says Jerry Robinette, who oversees U.S. Immigration and Customs Enforcement operations along the border in east Texas.

The U.S. Treasury has been warning banks about big Mexican- currency-exchange firms laundering drug money since 1996. By 2004, many U.S. banks had closed their accounts with these companies, which are known as casas de cambio.

Wachovia ignored warnings by regulators and police, according to the deferred-prosecution agreement.

“As early as 2004, Wachovia understood the risk,” the bank admitted in court. “Despite these warnings, Wachovia remained in the business.”

One customer that Wachovia took on in 2004 was Casa de Cambio Puebla SA, a Puebla, Mexico-based currency-exchange company. Pedro Alatorre, who ran a Puebla branch in Mexico City, had created front companies for cartels, according to a pending Mexican criminal case against him.

Federal Indictment

A federal grand jury in Miami indicted Puebla, Alatorre and three other executives in February 2008 for drug trafficking and money laundering. In May 2008, the Justice Department sought extradition of the suspects, saying they used shell firms to launder $720 million through U.S. banks.

Alatorre has been in a Mexican jail for 2 1/2 years. He denies any wrongdoing, his lawyer Mauricio Moreno says. Alatorre has made no court-filed responses in the U.S.

During the period in which Wachovia admitted to moving money out of Mexico for Puebla, couriers carrying clear plastic bags stuffed with cash went to the branch Alatorre ran at the Mexico City airport, according to surveillance reports by Mexican police.

Alatorre opened accounts at HSBC on behalf of front companies, Mexican investigators found.

Puebla executives used the stolen identities of 74 people to launder money through Wachovia accounts, Mexican prosecutors say in court-filed reports.

‘Never Reported’

“Wachovia handled all the transfers, and they never reported any as suspicious,” says Jose Luis Marmolejo, a former head of the Mexican attorney general’s financial crimes unit who is now in private practice.

In November 2005 and January 2006, Wachovia transferred a total of $300,000 from Puebla to a Bank of America account in Oklahoma City, according to information in the Alatorre cases in the U.S. and Mexico.

Drug smugglers used the funds to buy the DC-9 through Oklahoma City aircraft broker U.S. Aircraft Titles Inc., according to financial records cited in the Mexican criminal case. U.S. Aircraft Titles President Sue White declined to comment.

On April 5, 2006, a pilot flew the plane from St. Petersburg, Florida, to Caracas to pick up the cocaine, according to the DEA. Five days later, troops seized the plane in Ciudad del Carmen and burned the drugs at a nearby army base.

‘Wachovia Knew’

“I am sure Wachovia knew what was going on,” says Marmolejo, who oversaw the criminal investigation into Wachovia’s customers. “It went on too long and they made too much money not to have known.”

At Wachovia’s anti-money-laundering unit in London, Woods and his colleague Jim DeFazio, in Charlotte, say they suspected that drug dealers were using the bank to move funds.

Woods, a former Scotland Yard investigator, spotted illegible signatures and other suspicious markings on traveler’s checks from Mexican exchange companies, he said in a September 2008 letter to the U.K. Financial Services Authority. He sent copies of the letter to the DEA and Treasury Department in the U.S.

Woods, 45, says his bosses instructed him to keep quiet and tried to have him fired, according to his letter to the FSA. In one meeting, a bank official insisted Woods shouldn’t have filed suspicious activity reports to the government, as both U.S. and U.K. laws require.

‘I Was Shocked’

“I was shocked by the content and outcome of the meeting and genuinely traumatized,” Woods wrote.

In the U.S., DeFazio, who had been a Federal Bureau of Investigation agent for 21 years, says he told bank executives in 2005 that the DEA was probing the transfers through Wachovia to buy the planes.

Bank executives spurned recommendations to close suspicious accounts, DeFazio, 63, says.

“I think they looked at the money and said, ‘The hell with it. We’re going to bring it in, and look at all the money we’ll make,’” DeFazio says.

DeFazio retired in 2008.

“I didn’t want anything from them,” he says. “I just wanted to get out.”

Woods, who resigned from Wachovia in May 2009, now advises banks on how to combat money laundering. He declined to discuss details of Wachovia’s actions.

U.S. Comptroller of the Currency John Dugan told Woods in a March 19 letter his efforts had helped the U.S. build its case against Wachovia.

‘Great Courage’

“You demonstrated great courage and integrity by speaking up when you saw problems,” Dugan wrote.

It was the Puebla investigation that led U.S. authorities to the broader probe of Wachovia. On May 16, 2007, DEA agents conducted a raid of Wachovia’s international banking offices in Miami. They had a court order to seize Puebla’s accounts.

U.S. prosecutors and investigators then scrutinized the bank’s dealings with Mexican-currency-exchange firms. That led to the March deferred-prosecution agreement.

With Puebla’s Wachovia accounts seized, Alatorre and his partners shifted their laundering scheme to HSBC, according to financial documents cited in the Mexican criminal case against Alatorre.

In the three weeks after the DEA raided Wachovia, two of Alatorre’s front companies, Grupo ETPB SA and Grupo Rahero SC, made 12 cash deposits totaling $1 million at an HSBC Mexican branch, Mexican investigators found.

Another Drug Plane

The funds financed a Beechcraft King Air 200 plane that police seized on Dec. 29, 2007, in Cuernavaca, 50 miles south of Mexico City, according to information in the case against Alatorre.

For years, federal authorities watched as the wife and daughter of Oscar Oropeza, a drug smuggler working for the Matamoros-based Gulf Cartel, deposited stacks of cash at a Bank of America branch on Boca Chica Boulevard in Brownsville, Texas, less than 3 miles from the border.

Investigator Robinette sits in his pickup truck across the street from that branch. It’s a one-story, tan stucco building next to a Kentucky Fried Chicken outlet. Robinette discusses the Oropeza case with Tom Salazar, an agent who investigated the family.

“Everybody in there knew who they were — the tellers, everyone,” Salazar says. “The bank never came to us, though.”

New Meaning

The Oropeza case gives a new, literal meaning to the term money laundering. Oropeza’s wife, Tina Marie, and daughter Paulina Marie deposited stashes of $20 bills several times a day into Bank of America accounts, Salazar says. Bank employees got to know the Oropezas by the smell of their money.

“I asked the tellers what they were talking about, and they said the money had this sweet smell like Bounce, those sheets you throw into the dryer,” Salazar says. “They told me that when they opened the vault, the smell of Bounce just poured out.”

Oropeza, 48, was arrested 820 miles from Brownsville. On May 31, 2007, police in Saraland, Alabama, stopped him on a traffic violation. Checking his record, they learned of the investigation in Texas.

They searched the van and discovered 84 kilograms (185 pounds) of cocaine hidden under a false floor. That allowed federal agents to freeze Oropeza’s bank accounts and search his marble-floored home in Brownsville, Robinette says. Inside, investigators found a supply of Bounce alongside the clothes dryer.

Guilty Pleas

All three Oropezas pleaded guilty in U.S. District Court in Brownsville to drug and money-laundering charges in March and April 2008. Oscar Oropeza was sentenced to 15 years in prison; his wife was ordered to serve 10 months and his daughter got 6 months.

Bank of America’s Norton says, “We not only fulfilled our regulatory obligation, but we proactively worked with law enforcement on these matters.”

Prosecutors have tried to halt money laundering at American Express Bank International twice. In 1994, the bank, then a subsidiary of New York-based American Express Co., pledged not to allow money laundering again after two employees were convicted in a criminal case involving drug trafficker Juan Garcia Abrego.

In 1994, the bank paid $14 million to settle. Five years later, drug money again flowed through American Express Bank. Between 1999 and 2004, the bank failed to stop clients from laundering $55 million of narcotics funds, the bank admitted in a deferred-prosecution agreement in August 2007.

Western Union

It paid $65 million to the U.S. and promised not to break the law again. The government dismissed the criminal charge a year later. American Express sold the bank to London-based Standard Chartered PLC in February 2008 for $823 million.

Banks aren’t the only financial institutions that have turned a blind eye to drug cartels in moving illicit funds. Western Union Co., the world’s largest money transfer firm, agreed to pay $94 million in February 2010 to settle civil and criminal investigations by the Arizona attorney general’s office.

Undercover state police posing as drug dealers bribed Western Union employees to illegally transfer money, says Cameron Holmes, an assistant attorney general.

“Their allegiance was to the smugglers,” Holmes says. “What they thought about during work was ‘How may I please my highest- spending customers the most?’”

Smudged Fingerprints

Workers in more than 20 Western Union offices allowed the customers to use multiple names, pass fictitious identifications and smudge their fingerprints on documents, investigators say in court records.

“In all the time we did undercover operations, we never once had a bribe turned down,” says Holmes, citing court affidavits.

Western Union has made significant improvements, it complies with anti-money-laundering laws and works closely with regulators and police, spokesman Tom Fitzgerald says.

For four years, Mexican authorities have been fighting a losing battle against the cartels. The police are often two steps behind the criminals. Near the southeastern corner of Texas, in Matamoros, more than 50 combat troops surround a police station.

Officers take two suspected drug traffickers inside for questioning. Nearby, two young men wearing white T-shirts and baggy pants watch and whisper into radios. These are los halcones (the falcons), whose job is to let the cartel bosses know what the police are doing.

‘Only Way’

While the police are outmaneuvered and outgunned, ordinary Mexicans live in fear. Rojas, the man who lives in the Tijuana slum near the border fence, recalls cowering in his home as smugglers shot it out with the police.

“The only way to survive is to stay out of the way and hope the violence, the bullets, don’t come for you,” Rojas says.

To make their criminal enterprises work, the drug cartels of Mexico need to move billions of dollars across borders. That’s how they finance the purchase of drugs, planes, weapons and safe houses, Senator Gonzalez says.

“They are multinational businesses, after all,” says Gonzalez, as he slowly loads his revolver at his desk in his Mexico City office. “And they cannot work without a bank.”

By Robert B. Bluey

Volunteer fire departments are about as American as apple pie. But under legislation moving quickly in Congress, this staple of American life could soon be a thing of the past.

House Majority Whip James Clyburn (D.-S.C.) wants to include the Public Safety Employer-Employee Cooperation Act as part of the war supplemental coming before the House this week. The bill forces state and local governments to collectively bargain with police, firefighters and emergency workers. Its critics say it would compel volunteer firefighters to join unions, threatening the survival of America’s nearly 26,000 volunteer fire departments.

The act would affect some states more than others. In North Carolina and Virginia, for example, collective bargaining is currently prohibited. Eighteen other states have limitations on bargaining. The legislation would likely force those governments to abandon merit-based promotions for public safety workers and shift instead to a collectively bargained seniority schedule, which unions prefer.

By including the legislation in the much larger supplemental appropriations bill, which funds the wars in Afghanistan and Iraq, Clyburn would avoid a contentious fight with conservatives and appease unions with a legislative victory. And because the Senate has already passed the supplemental, Republicans would have no opportunity to amend it. In other words, the only way to stop the Public Safety Employer-Employee Cooperation Act is to keep it out of the supplemental.

The House previously approved the measure in 2007 with the support of 98 Republicans. Senate Majority Leader Harry Reid (D.-Nev.) tried and failed to attach it to the Senate version of the war supplemental in May. At least six Republican senators have signaled their support for the bill. They include Sens. Scott Brown (Mass.), Susan Collins (Maine), Judd Gregg (N.H.), Mike Johanns (Neb.), Lisa Murkowski (Alaska) and Olympia Snowe (Maine).

None of the Senate Republican co-sponsors hail from states that limit collective bargaining. Johanns, normally a solid conservative with an American Conservative Union rating of 95%, told the Wall Street Journal: “For several years now, we’ve seen the benefit of a similar policy in Nebraska which prevents public employees from going on strike while helping to establish reasonable compensation ranges.”

Critics of the bill call it anything but reasonable. The Heritage Foundation’s James Sherk documented the consequences to volunteer firefighters last time the bill was this close to passage in 2007. Sherk noted that nationwide 72% of firefighters are volunteers, serving mostly communities with fewer than 25,000 people.

Under the Public Safety Employer-Employee Cooperation Act, also known as PSEECA, the International Association for Fire Fighters stands to gain. The union, which represents career firefighters, strongly opposes volunteers and prohibits its members from belonging to volunteer departments, even when they’re not on duty.

“Firefighters unions vehemently oppose volunteer firefighters because they reduce the need for paid firefighters,” Sherk said. “They levy stiff internal fines against unionized firefighters who volunteer off-duty. By requiring all states and localities to collectively bargain, PSEECA would make it easier for unions to crack down on volunteer firefighting.”

Boosting membership at public-sector unions is a top priority for Big Labor. Last year they surpassed private-sector unions and represent an area of growth for the labor movement. Of course, the costs are steep as governments grapple with higher salaries and expensive benefits.

Like most labor unions, the International Association for Fire Fighters is also a major supporter of liberals, having given 82% of its political donations to Democrats over the past 20 years.

Conservatives aren’t alone in opposing the legislation. The National League of Cities and National Sheriffs’ Association criticized the bill when Reid attempted to attach it to another piece of legislation earlier this year. They worry about the encroachment of the Federal Labor Relations Authority, which would intervene in states and localities without collective bargaining laws.

“We believe that employment decisions are best made at the state and local level,” said Ron Loveridge, mayor of Riverside, Calif., and president of the National League of Cities.

In an alert to its members, the National Sheriffs’ Association attacked the legislation for imposing an unnecessary federal mandate: “To force sheriffs and other public safety officers to adhere to a ‘one-size fits all’ federally mandated labor-management guidelines is to impede the ability of public safety offices to function most effectively and allocate valuable resources to the maintenance of public safety.”

The bill’s problems extend beyond the encroachment on states’ rights. The growing power and cost of public-sector unions is already straining government coffers. Sherk estimates that unionized state and local government employees make up to 12% more than their non-union counterparts and have more expensive benefit packages. Even without the legislation, the cost to states and localities is already adding up.

Next Page »