L.A. Textiles Executives Sentenced to Prison for Laundering Mexican Cartel Drug Money
The owners of Pacific Eurotex Corp., a textile company in Los Angeles, were sentenced to federal prison after they pleaded guilty last year to federal money-laundering and tax-evasion charges.
Four years ago, Pacific Eurotex and about 75 other companies were caught up in a vast raid by more than 1,000 federal and state agents who fanned out across the Los Angeles Fashion District to crack down on a long-running money-laundering scheme benefiting two drug cartels in Mexico. The total amount of cash and property seized was more than $140 million.
During the Fashion District raid, called Operation Fashion Police, law-enforcement officers found $35 million in cash stuffed in cardboard boxes at a condo, whose owner was not named. At a Bel-Air mansion, again whose owner was not named, another $10 million in cash was found stuffed in duffel bags. More than 30 bank accounts with approximately $19 million were also seized in the raid that covered multiple companies.
In some instances, the Fashion District money-laundering scheme involved money drops of millions of dollars in cash to various companies, often delivered in plastic-wrapped bundles. As much as $80,000 in cash was delivered in a dog-food bag, authorities said.
In a courtroom packed with the friends and relatives of the defendants, U.S. District Judge John A. Kronstadt on Dec. 18 sentenced Morad “Ben” Neman, 58, the chief executive of Pacific Eurotex who lives in Westwood, to two years in prison, fined him $200,000 and imposed three years of supervised release once he leaves prison.
His brother, Hersel Neman, 59, Pacific Eurotex’s chief financial officer who lives in Beverly Hills, was sentenced to 18 months in prison plus six months’ home confinement, fined $60,000 and given three years of supervised release once he leaves prison.
Pacific Eurotex, which was named as a defendant in the case and whose revenues totaled $40 million a year, was given three years’ probation with stringent conditions and fined $400,000. The company and the Neman brothers will forfeit $3.18 million to the United States, which includes the narcotics proceeds they allegedly received and deposited in structured cash transactions.
After the raids on Sept. 10, 2014, the Nemans were accused of hiding some $3.2 million in drug money over two years by dividing it into 384 separate bank deposits. Some $370,000 of that money was delivered in 2013 on four separate occasions by an undercover agent posing as a money courier.
Court documents showed the money was turned into mostly $8,800 deposits to various bank accounts, skirting the rule that banks must report deposits that total $10,000 or more.
When the Neman brothers pleaded guilty on Dec. 21, 2017, they admitted they instructed other individuals to deposit the cash into a personal Wells Fargo bank account opened by Hersel Neman’s wife, Mojgan Neman.
In the case, Morad Neman pleaded guilty to four counts: conspiring to structure monetary transactions with a domestic financial institution, conspiring to defraud the United States by obstructing the lawful functions of the Internal Revenue Service, subscribing to and filing a false 2013 tax return understating income he received from Pacific Eurotex, and aiding and assisting in the filing of another false 2013 tax return.
Hersel Neman pleaded guilty to three counts: conspiring to launder money, conspiring to defraud the United States by obstructing the lawful functions of the IRS, and subscribing to and filing a false tax return.
Along with the Nemans, two other individuals were indicted in the same case. They were Mehran Khalili, who is a brother-in-law of Hersel Neman, and Alma Villalobos, the in-house accountant and bookkeeper for Pacific Eurotex. Khalili pleaded guilty to conspiring to structure cash transactions, and Villalobos pleaded guilty to conspiring to launder money. Both are scheduled to be sentenced next month.
In court documents, the government said that Pacific Eurotex and its principals started laundering drug money in 2012 and continued to do so up until the 2014 raid.
Prosecutors said the defendants in the case would receive cash they knew was illegal from unknown third parties in payment for open invoices of goods Pacific Eurotex sold, which was part of a black-market peso exchange system of trade-based money laundering.
To keep this activity secret, the company kept two sets of books, court documents claim. Prosecutors said the second unofficial set of books kept track of the cash received from the drug cartels and concealed this cash from the company’s accountants to avoid paying taxes on the income.
Federal agents started their investigation in 2013 after confidential informants alerted federal authorities to the scheme being undertaken by a number of businesses in the L.A. fashion industry.
The money-laundering scheme worked this way: Los Angeles companies would import apparel and textiles into the United States with U.S. dollars left by the drug cartels or manufacture goods in the United States. Those goods were then exported to Mexico and sold at local stores for pesos. Those pesos were deposited in Mexican bank accounts, reportedly for the Sinaloa and Knights Templar drug cartels.
A few years earlier, this plot was popular among toy companies based in Southern California. In 2010, the owners of Los Angeles–based Angel Toy Corp. were accused of receiving duffel bags stuffed with alleged cocaine-sales proceeds and laundering them into pesos. They pleaded guilty.
In 2012, the owners of Woody Toys Inc. in City of Industry, Calif., were accused of taking large sums of drug money that later were credited to accounts of toy dealers in Mexico and Colombia.
This elaborate kind of transaction became increasingly popular after 2010, when Mexico changed its banking regulations stipulating that deposits in U.S. dollars for regular customers must be limited to no more than $7,000 in cash a month. The regulations were devised to stop drug cartels from shuffling their drug money into Mexico.