In 2007, the Gulf Cartel of Mexico smuggled more cash generated by its criminal enterprises through Texas ports than the state of Texas paid out in lottery claims, spent on capital outlay and even doled out for claims and judgments.
The cartel was able to smuggle between $30 million and $50 million every month that year through the ports that connect Texas to Mexico via Laredo, Brownsville and McAllen, according to "Money Laundering and Bulk Cash Smuggling: Challenges for the Mérida Initiative," a recently released report from the Woodrow Wilson International Center for Scholars. Though efforts have been made since then to curb the smuggling of cash — which is largely used to bribe government officials, hire assassins and purchase arms — the report contends that not only are the methods undertaken by the U.S. and Mexico falling short but that neither side comes close to knowing exactly how much is earned from the drug trade.
“While Mexico has taken significant steps to allow the state to seize illicit funds and goods obtained from illicit funds, the near-unanimous consensus … is that very little is effectively being done to either impede the movement of drug money into the formal economy or significantly reduce the flow of bulk cash across the U.S.-Mexico border,” says Douglas Farah, the author of the report, which is part of a multi-volume treatise on Mexico called "Shared Responsibility: U.S.-Mexico Policy Options for Confronting Organized Crime."
Since 2007, changes within the Gulf Cartel have helped propel other criminal organizations to prosperity. But no matter who's in power in what region or which alliances have emerged, the report says, the amount of cash smuggled into Mexico is still in the billions annually.
“The Sinaloa cartel now operates on an even larger scale. If one adds the Juárez organization … the Zetas, the Familia Michoacán, Tijuana and other groups, one could conservatively estimate that at least $250 million in bulk cash is shipped to Mexico each month ($3 billion per year) and $2 billion a year paid out in bribes,” the report says. Of those major organizations, at least four — Juárez, Sinaloa, Gulf and Los Zetas — have a significant presence along the Texas-Mexico border. That's why Texas is the preferred smuggling route for the cartels, Farah says.
“The Tijuana folks are a lot tighter over in California, so the vast bulk of it flows through Texas. How to quantify that — whether it’s 80 percent or 62 percent — I don’t know,” he says. “But there is no question that Texas is by far the favorite or the most convenient [route]. Texas is the place to be.”
Farah says that though the majority of the profits from drugs — which U.S. Ambassador to Mexico Carlos Pascual said recently could be as high as $29 billion annually — is laundered, invested or transferred electronically, cartel operations desperately need “walking-around money.”
“They are going to bribe people, hire their hit men, pay the border guards. They need cash for that,” he says. “If you are running the plaza in Ciudad Juárez, you need cash to pay your halcones [lookouts] on the other side of the border. If you are going to pay the cops, pay the army, you need that.”
The problem from the Mexican side is how easily traffic flows south. Cars and pedestrians making their way into Mexico are randomly stopped for inspection but at a rate far less than the suggested 10 percent. Additionally, Farah notes, few lanes are closed for the purpose of searching vehicles, and lookouts can easily alert cash smugglers to enforcement activity.
“The sheer numbers of vehicles and pedestrians crossing the border each day helps illustrate the magnitude of the problem of identifying and interdicting illicit cargo, akin to searching for the proverbial needle in a haystack,” Farah wrote in the report.
Like Ambassador Pascual, Farah can only estimate the amount of cash being smuggled. Few if any reliable measurement mechanisms exist. “It’s a process that, after all these years, we don’t understand very well. If you look at the domestic and academic literature, it’s all over the place,” he says.
In the United States, there's a Bulk Cash Smuggling Center operated by Immigration and Customs Enforcement, but even that clearinghouse can’t provide accurate data, Farah says. “They couldn’t give me figures and that’s all they do. The FBI doesn’t give them their figures, DEA doesn’t always give them their numbers, [and neither do] local and state cops,” he says. “The lack of comprehensive data that we gather on this side is really striking."
In Mexico, the problem is similar, and the estimates vary just as wildly. The report explains that Mexico is the greatest source of dollars repatriated by a foreign country to the U.S. Inflows from Mexico usually exceed outbound reporting linked to noncriminal enterprises and create a gap associated with smuggling cash earned through criminal activity.
“The challenge is to accurately assess the size and meaning of that gap," the report says. “While the Mexican government estimates the amount at about $11 billion a year, the financial services firm KPMG estimates the amount at $25 billion, while the estimates of respected academics range from $6 billion to $36 billion.”
The money that the Mexican government allocates to its financial intelligence unit, the Unidad de Inteligencia Financiera, has been as low as $7 million annually, or less than one half percent of the budget allocated for the country’s ministry of finance and credit. Through the Mérida Initiative, a $1.4 billion aid package initiated by then-President George W. Bush and designed to help Mexico, Central America and Haiti combat drug gangs and other organized crime within their borders, Mexico was promised $5 million in technological capabilities to help intercept cash.
The gains since have been modest but are still celebrated by government officials. The Department of Homeland Security announced last week that the first-ever class of U.S.-trained Mexican customs agents graduated from a 10-week course taught in South Carolina. Twenty-four members of Mexico's Tax Administration Service and Customs completed the inaugural session of their training effort, which was funded by Mérida. But by the government’s own admission, the aid package is falling short of its loftier goals. A review of the effort by the U.S. Government Accountability Office found that Mérida lacks “some of the key attributes that would facilitate assessing whether agencies are making progress toward meeting strategic goals.”
As both governments debate funding and tactics, the attempts to send cash south continue. Last month, the U.S. attorney's office for the Southern District of Texas announced the arrest of 14 people, including seven American citizens, who allegedly conspired to smuggle $3.1 million in undeclared currency from Hidalgo, Texas, into Mexico. A spokeswoman for the U.S. attorney said court records do not directly connect the alleged smugglers to any organized crime outfit operating out of Mexico but that indictments were returned against the group last week. That seizure followed an interception of more than $1 million in cash during a southbound inspection at the Laredo port of entry in July.