State battles money laundering by human smugglers

Human smugglers, forever trying to conceal the money in their multimillion-dollar operations, have created a convoluted new system to collect their fees for bringing undocumented immigrants across the border into Arizona.

Rather than having the money wired directly to them, the coyotes now have the cash sent to border cities in northern Mexico and brought to them.

Smugglers adopted the system, known as triangulation, after state investigators began monitoring wire transactions at Western Unions in Arizona, the state Attorney General's Office says.

The state's years-long investigation of wire transactions has led to the seizure of huge sums of laundered money and provided data used to attack criminal organizations. It also has led to a court battle with Western Union, which dominates the business of financial wire transfers.

Attorney General Terry Goddard's office says the company does not report suspicious activity, as it is required to do. The company says it is being given a black eye unfairly by zealous authorities trying to crack down on illegal immigration.

Metropolitan Phoenix is considered the hub for human-smuggling operations. An estimated 3,000 illegal immigrants enter the state daily. Known as pollos (chickens), they are guided across the border, driven to the Valley and held in drophouses until coyote fees are paid.

The money, about $1,600 per border crosser, is usually sent via wire by friends or relatives who already live in the United States. In court papers, state Department of Public Safety investigator Daniel Kelly estimates the annual smuggling revenues in Arizona at $1.7 billion.

Goddard said state agents have intercepted more than 15,000 suspected coyote wire transfers into the state in the past few years, seizing upward of $17 million.

"We have successfully disrupted at least that part of the money exchange," Goddard said. "They are now morphing into other ways of doing it."

The state Financial Crimes Task Force released records this year documenting the flow of cash into Arizona. Western Union agents in states with the highest illegal-immigrant populations were sending 36 times as much money into Arizona as they were receiving.

In 2003, for example, wires to Arizona from six key Mexican states totaled $113 million. Wires from Arizona to those states amounted to $3 million. "Western Union has been unable to provide a legitimate commercial explanation for the Arizona phenomenon," according to documents the state has filed in court.

In an e-mail, Sherry Johnson, director of media relations for the Western Union Co., said Arizona's allegations are a "grossly unfair and inaccurate representation" of the company and its customers.

"We believe we have a best-in-class compliance program and work with both law enforcement and regulators around the world on a daily basis to ensure that Western Union meets or exceeds its compliance obligations," she said.

Frozen funds

Several years ago, task force investigators began obtaining warrants to freeze suspicious wire transfers. Recipients cannot get their money unless they demonstrate to police that it is legitimate. Unclaimed funds are forfeited under racketeering statutes and used for law enforcement.

Goddard said wire transactions are screened to avoid interfering with legitimate commerce. However, some advocacy groups for Hispanics and immigrants claim benign transfers are getting snagged.

Juan Salgado, executive director at Chicago-based Instituto Del Progresso Latino, said he is concerned that Western Union customers are being profiled based on their last names. "Once you've become a target," he said, "it's very difficult to get your money back."

Joshua Hoyt, executive director with the Illinois Coalition for Immigrant and Refugees Rights, said Goddard is using a "drive-by machine-gun approach" instead of targeting known criminals.

"There are all kinds of problems with the current procedure, and all kinds of innocent people have had their money taken and not been able to get it back," Hoyt said. "The attorney general set up a program that is hurting people."

Goddard acknowledged that millions of Mexican immigrants in the United States send money south of the border to help impoverished family members. However, he said those remittances are easily distinguished from smuggling fees.

The Attorney General's Office said that more than four-fifths of the seizures go unchallenged and that not one person has recovered funds by going to court.

Money trail

With wire-transfers as an entry point, the task force, using undercover operatives and wiretaps, investigated numerous smuggling rings. Scores of coyotes have been imprisoned, along with corrupt business associates. The government also seized Western Union stores, auto dealerships and drophouses.

The crackdown forced smugglers to devise more-complex tactics. Money-laundering specialists started using false IDs and dividing payments into several transactions to avoid detection. One example: A woman in Nogales used 63 spellings of her name in dealings with a Western Union agent.

The Attorney General's Office countered with more-detailed computer analyses to identify criminals. "It's very much a cat-and-mouse quest," Goddard said. "The money is the key to this whole thing. If you don't have the money, you aren't going to have the coyotes."

Last year, according to Kelly's affidavit, Western Union wires to Phoenix suddenly plummeted 90 percent, even though Border Patrol statistics indicated no decline in illegal immigration. Suspecting that smugglers had developed a new system to avoid detection, the Attorney General's Office issued a subpoena for Western Union wires sent to Sonora.

Records from March and April 2005 showed more than $28 million sent from the United States, most of it to select Western Union outlets in border towns such as Agua Prieta, Nogales and Altar, "secondary hubs for smuggling organizations."

Kelly's affidavit says the triangulation method works like this:

After a pollo is taken to a Valley drophouse, family members are no longer instructed to send the ransom directly to coyotes in Phoenix. Instead, funds are wired to Sonora, where confederates pick up the cash. A phone call is made to Phoenix, clearing the pollo for release.

Early this year, the Attorney General's Office demanded more Western Union records involving cash sent to Sonora. In two months, there were 13,549 wires. Much of the money originated from places like Illinois, New York, Georgia and Florida, "corridor states" for illegal immigration. One payee in Caborca received more than $500,000 in 10 weeks. Another in Altar, the staging area for border crossings, took in $68,000. The data show Western Union wires to Sonora increased 25 percent in 12 months.

Big profits

Kelly's affidavit says that someone who sends $10,500 via Western Union pays a $470 fee, compared with a bank processing charge of about $35 for the same transaction. Twenty percent of the fee is split by agents who send and receive the funds, while Western Union retains the rest.

Noting that banks require far more identification, Kelly concludes: "Trafficking organizations in the past five years caused billions of dollars to be sent through Western Union to receivers in Arizona because it was convenient, rapid and relatively safe."

A sting operation conducted in 2001-02 serves as an illustration: Undercover agents laundered $350,000 at three Valley wire-transfer outlets. The affidavit says workers at each store took bribes in return for accepting false IDs, filing fraudulent records and helping supposed coyotes avoid financial reporting requirements. At times, the corrupt payoffs totaled $10,000 per day. When the operation ended, four Western Union agents admitted guilt, and the company terminated eight high-volume franchises.

Company lawyers cooperated with Arizona investigators for nearly five years in a bid to prevent criminal transactions. They also launched a special training program to combat criminal wires in Arizona and recently banned wires of more than $450 bound for the state.

The money-laundering probe became public at a delicate time for Western Union, which last month broke away from First Data Corp. to become a separate company, first listed on the New York Stock Exchange on Oct. 2. Stock analysts began asking questions about the company and the role of smuggling transactions in its revenue stream.


Legal battle


When the attorney general sought more data on Sonora business in April, Western Union balked. In court papers, the company argued that Arizona officials have overstepped their authority and are interfering with private business based on "rank speculation" and "salacious but baseless conclusions." Western Union contends that the state is fishing for crimes and that the company is obliged to protect innocent customers from government intrusion and seizures.

Goddard said his office focused on Western Union only because it is by far the nation's biggest wire transfer company. MoneyGram, the next-largest operator, does only a fraction of the business and has not challenged warrants from the Attorney General's Office.

Kelly's affidavit suggests that some of the money laundering resulted from company failures to report suspicious transactions, as required by law.

Although Arizona investigators began sharing their investigative findings, Kelly wrote, "Western Union's corporate compliance section has for at least the past three years inadequately reported."

In court, Western Union asked that Kelly's affidavit be stricken from the record or ignored because it is "irrelevant, misleading or inaccurate . . . unfounded, contradictory and inflammatory."

The legal dispute is being heard in Maricopa County Superior Court. This month, the company won a temporary order blocking the state's effort to freeze and seize suspected money transfers. A hearing on that issue is scheduled for Monday.