MANUFACTURING | LEGAL
Investigators Raise Tally to $140 Million in Fashion District Cartel Money-Laundering Scheme
After 1,000 federal and state agents fanned out across the Los Angeles Fashion District last fall to crack down on a long-running money-laundering scheme benefiting two drug cartels in Mexico, the total amount of cash and property seized has inched up to $140 million.
Most of that—$90 million—was in cash, but another $37.5 million was found in bank accounts in the United States and as far away as Hong Kong. Property and merchandise seizures rounded up the count to nearly $140 million, said Thom Mrozek, spokesman for the U.S. Attorney’s office in Los Angeles, which is prosecuting a number of the money-laundering cases in U.S. District Court.
Raids on Sept. 10 on 75 fashion and textile businesses unveiled the culmination of a drawn-out federal investigation into people dropping off bags of cash to Los Angeles clothing and textile companies who then took the money, paid for garments and shipped them to Mexico, where they were sold in stores for pesos. Those pesos eventually made their way to the Sinaloa and Knights Templar drug cartels, which were selling drugs in the United States but had a hard time getting their dollars discretely out of the United States and back into Mexico. This system of converting dollars into pesos is called trade-based money laundering.
Initially, the raid was believed to have netted $70 million in cash, which included $35 million found in boxes in a condo on the south edge of downtown Los Angeles and $10 million in cash stuffed in duffel bags discovered at a Bel-Air mansion.
While 10 people have been indicted for money laundering, Mrozek said there are more investigations into businesses suspected of money laundering in the Fashion District. “There may be future arrests, and there are ongoing investigations into businesses down there,” Mrozek said.
Following the raids, the Financial Crimes Enforcement Network, which is part of the U.S. Department of the Treasury, imposed a geographic targeting order on businesses in the Fashion District. The 180-day order, which went into effect Oct. 9, required additional reporting and recordkeeping requirements on companies in the area.
Normally, all cash transactions that total more than $10,000 must be reported to the government. Under the geographic targeting order, that amount was reduced to $3,000.
The order, a rare tool used by the federal government, was lifted on April 6. The government thought the order made a significant dent into the cash deliveries and money laundering going on.
“Information and intelligence show that there was a substantial decline in large cash transactions at businesses in the Fashion District, which has had an impact on shutting down the flow of money to drug-trafficking organizations in Mexico and other countries,” Mrozek said, noting the order was one of the most extensive of its kind, covering at least 2,000 businesses.
A similar order went into effect April 28 for 700 electronics exporters in Miami suspected of money laundering for two Mexican drug cartels—the Zetas and the Sinaloa.
Seven months after the raids, the 10 people arrested and arraigned in the money-laundering scheme are out on bail and awaiting trials in Los Angeles federal court.
Morad Ben Neman, known as Ben Neman, chief executive of Pacific Eurotex Corp., and his brother, Hersel Neman, chief financial officer of the textile company, posted a $500,000 bond each. Their brother-in-law, Mehran Khalili, was released on a $50,000 bond. Employee Alma Villalobos was also out on bail.
They are accused of hiding $2.6 million in drug money over two years by dividing it into 363 separate deposits. Some $370,000 of that money was delivered 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 to report $10,000 in cash proceeds. A trial had been set for June 2, but now a status conference is scheduled for June 11.
It was unclear how the indictment would affect a $25-million deal closed nearly a year ago by Neman Real Estate Investments, headed by Ben Neman, to buy a car wash at the very heavily trafficked intersection of Olympic Boulevard and Figueroa Street, next to the Hotel Figueroa and near Staples Center. At the time, a 476,000-square-foot mixed-use project with condominiums and a hotel was being considered.
In the case against Yili Underwear and Gayima Underwear, a court date has been set for June 16. Three members of the same family—Xilin Chen; his son, Chuang Feng Chen; and Xilin Chen’s daughter, Aixia Chen—have been charged with taking $82,000 in cash and laundering it.
Yili Underwear and Gayima Underwear, which are part of a larger Hong Kong–Chinese corporation, continue to operate from their offices at 424 Stanford Ave., just beyond the border of the Los Angeles Fashion District.
After the raid at Q.T. Fashion, the three people there who were indicted for money laundering were released on bond and have a court date set for March 1, 2016. The Q.T. Fashion people arrested were Andrew Park, owner of QT Fashion; Sang Jun Park, a manager at the company; and Jose Isabel Gomez Arreoloa.
The Q.T. Fashion case was different from the other two. Allegedly, the laundered money was used to pay a ransom freeing a kidnap victim being held in Mexico by the Sinaloa cartel. The kidnap victim, a drug distributor, had a 100-kilo shipment of cocaine seized by U.S. authorities, court documents said.
He was being held on a $140,000 ransom, which was paid by his family through Q.T. Fashion, which operated under the names Q.T. Maternity and Andres Fashion. They imported apparel from China and sent it to Mexico.
Q.T. Fashion’s telephone number at its office at 800 E. 12th St. has been disconnected.