Pubdate: Sun, 20 Aug 2000 Source: San Diego Union Tribune (CA) Copyright: 2000 Union-Tribune Publishing Co. Contact: PO Box 120191, San Diego, CA, 92112-0191 Fax: (619) 293-1440 Website: http://www.uniontrib.com/ Forum: http://www.uniontrib.com/cgi-bin/WebX Author: Anna Cearley, Staff Writer DRUG CASH SUSPECTED IN TIJUANA LAND DEALS Laundering Probe Looks For Links To Cartel Figure TIJUANA -- Over the past decade, a land development and construction business owned by the brother of a suspected drug cartel member quietly bought dozens of acres near the border. Ismael Labra Aviles' company reshaped Tijuana's landscape, building shopping centers along a major thoroughfare and dressing up vacant lots for businesses interested in locating near the Otay Mesa border checkpoint. It wasn't until his brother, Jesus "Chuy" Labra, was arrested in March that Calafia Constructora e Inmobiliaria came under scrutiny by Mexican investigators interested in exploring a connection with the Tijuana-based Arellano Felix drug cartel. The possibility that money-laundering built this low-key Tijuana company, just as it has built many other companies throughout the world, doesn't surprise those familiar with the patterns of money launderers. Mexico is considered a destination for some of the $300 billion to $600 billion laundered worldwide each year, mostly from drug transactions, according to U.S. agencies. Usually the ill-gotten money is funneled into banks, despite laws in many nations that require banks to file reports on large transactions. From there, it is wired through legitimate channels to businesses and front companies and turned into spendable cash. Dismantling these operations can paralyze a drug cartel's ability to wheel and deal, and even slow the flow of drugs. But the Mexican government's investigation of Calafia Constructora shows how hard it can be to go after suspected companies. In April, three anti-drug agents investigating Jesus Labra were tortured and killed. The team was said to have been looking into the possibility that Jesus Labra was using Calafia Constructora as a money-laundering operation, a suspicion also harbored by U.S. Drug Enforcement Administration agents. Two attorneys for Jesus Labra also have been killed. Neither of the Labra brothers could be interviewed. After Jesus Labra's arrest, payments suddenly stopped on one of Calafia Constructora's purchases of land from a Baja California state redevelopment agency. Administrators with the agency justify their business dealings with Ismael Labra by saying he had a sound business record and had not been convicted of any crimes. Still, federal officials continue to interview employees of the agency, known as PRODUTSA. They also have confiscated the more than 50 properties known to be owned by Calafia Constructora and members of the Labra family until the case is resolved. Peter H. Smith, director of Latin American Studies at the University of California San Diego, said such investigations are a good sign because money laundering is rarely given top priority in Mexico. "Mexico is very busy responding to pressure from the United States, going after cartels and leaders, fumigating and eradicating fields as fast as they can," Smith said. "There are not a lot of other resources left to go after money laundering." Choice parcel Ismael Labra, the founder of Calafia Constructora, had a keen interest in developing land -- and deep pockets for projects that caught his fancy. Where his money came from and how much land he bought is unclear. It is common practice, however, for people wishing to remain anonymous to buy properties using the names of friends and family members. But Ismael Labra did leave paper trails. The land he bought in the 1980s, before starting his company, came from PRODUTSA, which was overseeing the development of property near a canal project. The 550,000-square-foot parcel Labra bought was considered a prime investment because it was in the center of the city and near a major roadway. Labra paid cash, close to $300,000 in large payments spread over several years. (Mexican government agencies now require payment by check to make it harder for drug traffickers to launder money through real-estate transactions.) In 1989, Labra formed Calafia Constructora with a team of investors and equity of 30 million pesos at a time when the peso was extremely unstable. In the company's early years, according to state business registration documents, the company was interested in PRODUTSA's land offerings but noted that "because of the economic situation of the current business partners, it appears necessary to search for outside financing." That's when the names of other Labras started to appear. A Jesus Labra Felix -- not the same as Jesus Labra Aviles -- and a Leonel Labra Felix bought shares from previous investors and pumped in large quantities of their own money. The company bought two small parcels in the canal redevelopment area in the 1990s, including one in 1996 for about $432,000, PRODUTSA officials said. It also apparently bought more land in the area from others who had bought land from PRODUTSA. Land for rent or sale near border The company did not limit itself to PRODUTSA properties. Calafia Constructora's Web site lists land for rent or sale near the Otay Mesa border checkpoint. The lots total about 2 million square feet. The company also constructed retail buildings. In 1997, it built Los Porticos, a $4 million shopping mall along the Via Rapida Poniente highway that has an Office Depot as its anchor store, according to the Web site. In 1998, Ismael Labra sold his shares in Calafia to the two other Labras, who remained as the company's only shareholders, according to state records. With the arrest of Jesus Labra this year, Mexican investigators began trying to prove that the company was being used for money laundering. They have collected state records of land sales to Calafia Constructora and met with the state officials who handled the sales. Investigators are also reportedly interviewing PRODUTSA officials who sold land to Ismael Labra in the 1980s. Jorge Ramos -- now second in command in the state government -- was in charge of PRODUTSA during the 1996 sale to Labra. He did not return a reporter's phone calls. But in an interview with El Universal newspaper, he said that no state official personally benefited from the transaction, and that he could not legally have refused to sell the land to Ismael Labra. "I don't have the authority to consider the reputation of the clients," he was quoted as saying. "Furthermore, I don't know if the relatives of Jesus Labra are accused of anything, nor do I know if the brother is a delinquent." Sergio Lujan Avalos, president of Tijuana's Chamber of Industry and Construction, said state officials have a moral obligation to shun companies suspected of money laundering. "They can say it's all legal, but what happened was immoral," he said. Others say the state agency is being unfairly targeted. They say the true culprits are the banks that issued checks on the company's behalf. Sergio Vasquez, current head of PRODUTSA, said his agency makes sure businesses are properly registered, but "it is not our duty to investigate how they pay as long as they use checks." Increasing the pressure Tracing dirty money is hard in any country, but Mexico poses particular challenges. In recent years, traffickers have infiltrated several Mexican banks, including Bancomer, which issued checks for Calafia Constructora. Investigators also face corruption within law-enforcement agencies and are forced to rely on overburdened agents with little time to focus on complicated tax laws, according to a recent report on money laundering by the U.S. State Department. Those hurdles prompted a controversial three-year undercover operation by the U.S. Customs Service. In 1998, Operation Casablanca resulted in the seizure of more than $103 million and charges against three Mexican banks. Some employees from a Bancomer branch in Tijuana were implicated in the money-laundering investigation, which linked the banks to the Colombia-based Cali and Mexico-based Juarez drug cartels. Most of the 44 people arrested in the operation were convicted or pleaded guilty. A Mexico City spokesman for Bancomer said he was unaware of a federal investigation into the bank's business with Calafia Constructora, but said the bank is "willing to work with authorities in any official investigation." Like other banks implicated in Operation Casablanca, Bancomer was required as a result of the investigation to set up internal mechanisms to make money laundering more difficult. Mexico also has beefed up its efforts against money laundering with new laws and more aggressive investigations. In 1996, the Treasury's money-laundering section conducted 68 audits and recommended prosecution in 21. The Treasury also has assisted in U.S. investigations. In 1997, authorities were given the power to tap phones and use video surveillance and to reduce the sentences of low-level drug traffickers who cooperate in the prosecution of higher-level cartel members. Stricter reporting requirements also were put into place for transactions of more than $10,000. No property? When Jesus Labra was arrested, many were surprised to find that he had no properties listed under his name. That didn't make sense for a man who once owned hotels and restaurants throughout Tijuana, or for someone suspected of being a top player in the lucrative Arellano Felix drug cartel, believed to be the most vicious and aggressive trafficking group in Mexico. So, how did Jesus Labra earn money? Two people who offered answers to that question didn't live long. One of Jesus Labra's attorneys described his client's work as "once in a while buying a little piece of property." That attorney was tortured and killed soon after Labra's arrest. The commander of the Mexican Attorney General's Office in Tijuana said in a 1996 interview that Labra collected dues from small drug traffickers. He also said Labra is the nephew of drug trafficker Pablo Aviles and uncle to the Arellano Felix brothers. That commander, Ernesto Ibarra Santes, was shot to death five days later. Jesus Labra is in a high-security prison outside Mexico City, waiting to stand trial for a long list of drug-related charges. His connection with his brother's land development business is under investigation. Ismael Labra, the businessman who created Calafia Constructora in 1989, has disappeared, officials said. So have the other family partners in the business. And Calafia Constructora, once a big player in Tijuana's development, is now shut down. Although its Web site is running, its phones have been disconnected. - --- MAP posted-by: Jo-D