Drug cartels may cash out in Mexico, cash in on Las Vegas

The headlines drip with blood and gore.

"21 killed in Mexican gang battle near U.S. border," calls one.

"Killing escalates in Mexican drug war," shouts another.

Turn away from those headlines if you wish, but don't deny the essential connection between Mexico's murderous drug cartels and America's insatiable craving for their products.

While law enforcement and the press have focused on the drug pipeline connecting the two countries, lately another underground river is finally getting the attention it deserves: It's the torrent of illicit cash flowing from the United States to Mexico and back.

Mexican drug cartels battle over a multibillion-dollar industry. But while the cartels scoff at law enforcement and military attempts to stop them, a little-publicized change in the law south of the border could hit them where it really hurts: in their fat wallets.

On June 15, the Mexican finance ministry announced new anti-money laundering regulations that will restrict the amount of U.S. dollars banks there may receive.

"These new Mexican regulations are intended to mitigate risks of laundering proceeds of crime tied to narcotics trafficking and organized crime," a June 21 Department of Treasury Financial Crimes Enforcement Network (FinCEN) advisory states.

While the new regulations aren't foolproof, they focus on the flow of cash, bushels of which are smuggled south and wind up returning north.

Although FinCEN's advisory attempts to remind the reader Mexico and America conduct plenty of legitimate business, "Nonetheless, a significant portion of the U.S. currency in Mexico is derived from illegal activity, specifically the sale of narcotics in the United States, some of the proceeds of which are smuggled as bulk cash into Mexico."

What, you might ask, does all this have to do with Las Vegas?

Those new regulations will surely make banks on both sides of the border more careful, and that means the cartels will be under greater pressure than ever to find a way to launder their cash fortunes. Las Vegas is considered the most cash-intensive city in the United States.

The move in Mexico and expected adjustment in America have been duly noted by Las Vegas IRS Special Agent in Charge Paul Camacho.

"This is a major game change for them," Camacho said. "My guess is that they will now focus on getting currency into the banking system so they then can then transfer outside the country. To do this, they first have to make the currency appear it came from a legitimate source."

That process is increasingly complicated, and that's likely to mean more scrutiny of businesses in Las Vegas where the cash and good times flow. The regulated casino industry is only one part of the picture.

"We are going to be mindful of cash-intensive establishments such as nightclubs, massage parlors, strip clubs, wire remitters, and restaurants that show unusual spikes in currency deposits," Camacho said. "One way we will see this is through Currency Transaction Reports that banks are required to file on their customers. The fact we are in a down economy makes large currency spikes even more suspicious."

He said law enforcement investigative efforts aren't helped by Nevada's opaque Limited Liability Corporation laws, which are popular with startup businesses but also are used by shell corporations, drug traffickers, scam operators, and money launderers to conceal their identities and the source of their finances.

The battle is ongoing. FinCEN officials anticipate cartel frontmen will attempt to counter the banking changes, possibly by moving large sums of cash in coming weeks. American banks could be hit with an intriguing influx of new customers, or the money could flow to other nations.

Back in Las Vegas, seemingly so far from Mexican drug cartel activity, cash is still king. And the action never sleeps.

John L. Smith's column appears Sunday, Tuesday, Wednesday and Friday. E-mail him at Smith@reviewjournal.com or call (702) 383-0295. He also blogs at lvrj.com/blogs/smith.