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Feds Monitor LA's Fashion District After Money Laundering Raid

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RACHEL MARTIN, HOST:

Law enforcement officials in Los Angeles think they've found something nefarious in the world of high fashion - money laundering from Mexican drug cartels. Last month a raid in the fashion district ended up as the biggest-ever cash seizure by U.S. law enforcement in a single day. Starting today, the U.S. Treasury Department will impose stricter rules on the businesses there to try to stop the fraud.

NPR's Kelly McEvers has the story.

KELLY MCEVERS, BYLINE: Here are some crazy numbers from that raid - a thousand agents get warrants to search 50 businesses and find $90 million in cash plus 50 million more in property and other assets. At one single location, the feds say agents found 37 boxes, each with a million dollars cash inside.

Let's head into the fashion district to explain how the money laundering works.

Right now I'm sitting in this kind of open-air marketplace lined by tiny little shops with names like Lix, Solar, Minx, Pollianna Plus, Elusive and another one called the QT Maternity, which was targeted a month ago in that raid by the feds.

Here's how the feds say it works. Let's say you run a cartel in Mexico and you sell drugs here in the U.S. You make a lot of cash money, but it's hard to get that money back into Mexico. So the feds say, you hire a middleman to bring the cash to where I'm sitting in the garment district and use that cash to buy a large amount of product, say a bunch of T-shirts, a bunch of dresses, a bunch of these leopard-skin leggings that I'm looking at. And they send that bulk product to a company in Mexico. The company in Mexico sells the clothes for pesos and gives those pesos to the drug cartel. The feds call it trade-based money laundering.

Robert Dugdale is chief of the U.S. attorney's criminal division here. He says not only did stores take money from drug sales, but one, QT Fashion, also took ransom money.

ROBERT DUGDALE: This case involved a United States citizen who was kidnapped.

MCEVERS: After losing 100 kilos of cocaine, he says, that belonged to the Sinaloa cartel.

DUGDALE: They held him hostage and they tortured him by beating him, electrocuting him and waterboarding him down in Mexico.

MCEVERS: The cartel demanded $140,000. The feds say QT Fashion laundered the money for the cartel and the cartel released the victim. Dugdale says new rules that go into effect today that will require businesses in the fashion district to record foreign cash transactions over $3,000, down from the usual $10,000. He says the idea is to let businesses know they're being watched and to identify which businesses are trying to hide their transactions.

DUGDALE: If you remember, Walter White in "Breaking Bad" had millions and millions of dollars that he accumulated and there was nothing he could do other than put them in barrels that he buried in the desert.

MCEVERS: What happened to that TV character, Dugdale says, is what the feds want to happen to the cartels, that they won't be able to spend their money.

David Shirk is a security expert at the Woodrow Wilson Center's Mexico Institute. He says the U.S. government used to focus on seizing drugs and catching bad guys. Now, he says, it's good to see officials trying new ways to target cartels. But, he says the cartels are probably already one step ahead. He remembers a colleague who convinced a Colombian cartel to tell him how they laundered money.

DAVID SHIRK: And months later, he went back and was talking to these same guys. He said, you know, why did you even tell me how you ran your money laundering operations? And they said, that's not how we do it anymore. If we told you how we did it now, we'd have to kill you.

MCEVERS: Shirk says as long as American customers buy the cartel's drugs, it's going to be hard to stop them.

Kelly McEvers, NPR News, Los Angeles.

MARTIN: It's MORNING EDITION from NPR News. Transcript provided by NPR, Copyright NPR.

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