Part I: Los Zetas and the Treviño's Personal Laundering Network

"redlogarythm" for Borderland Beat                     Use this hyperlink for Part II

Note from redlogarythm: This post is part of a series on the money laundering network Los Zetas had in place in the U.S. between 2008 and 2012 when they operated a Quarter horse breeding business. I would like to thank Borderland Beat contributor "MX" for supplying some of the info used here. 

Every illicit network needs a constant flow of money for three reasons: the first one is to continue to fund their criminal operations. The second one is to accumulate reserves/investments to use them in times of need. The third one is for pure personal benefit (i.e. increase personal wealth). According to the type of illicit network and the activities engaged by it, the structures, channels and laundering strategies will be different.

Al Qaida, ISIS or the Tamil Tigers used Hawala (or Hundi/Fei Chien scheme) for transferring funds to outside operatives. The Basque terrorist organization ETA used local cooperatives in the French border to launder the ransoms and contributions obtained by the financial cells in Spain. The Provisional IRA controlled a dozen pubs in Dublin's downtown and at least one taxi company until the 1990s. Colombian drug traffickers use the Black Market Peso Exchange (a complicated compensation payment mechanism) in order to obtain pesos and leaving the dirty cash in the U.S. to local businessmen. The examples are almost endless.

In Mexico the cartels are not an exception. Each organization is divided in cells and each cell has at least an accountant interacting with local businessmen, who act as de facto money launderers. These people are referred as Operadores Financieros (Financial Operatives) and the criminal structures cannot operate without their aid/assistance. These people gather cash coming from kidnappings, prostitution, local drug distribution, extortion, contraband or (and these ones are the real key players) large quantities of cash coming from large-scale drug distribution.

Examples abound: the CJNG controls several sushi restaurants; the Sinaloa Cartel invests its money through public contracts with the government (or through local petrol stations); Los Viagras control the construction market and its license-granting; and the Northeast Cartel launders money through Texan insurance companies. Los Zetas were not an exception.

On June 2012, several properties located in the U.S. were seized by federal agents. Dozens of people were arrested and at least 500 extremely expensive Quarter horses were seized in an operation directly under Zetas's second-in-command: Miguel Ángel Treviño Morales.

Los Zetas: origins and independence
Los Zetas were formed in the 1990s after Osiel Cárdenas Guillén, the former leader of the Gulf Cartel, gathered members of the Mexican military to work for him as enforcers and personal guards. Led by Arturo Guzmán Decena ("Z-1") and his second-in-command Heriberto Lazcano Lazcano ("Z-3"), the enforcement cell quickly expanded recruiting people of local pandillas (gangs). Among these new recruits was a young crook from Nuevo Laredo called Miguel Ángel Treviño Morales. He was a member of a local gang specialized in the smuggling of drugs and contraband across the border.

By 2008, Miguel Ángel was second-in-command of Los Zetas behind Lazcano; at the time Los Zetas had become powerful (mainly for their pivotal role in combating the Sinaloa Cartel’s enforcer group Los Negros in Tamaulipas) that the tacit alliance between the Gulf Cartel and the Zetas was known as La Compañía (The Company).

At some point between 2008 and 2009, Los Zetas' degree of independence became so high that they started operating without taking into consideration some of the Gulf Cartel's decisions. They kept a loose alliance, but Los Zetas started operating as like if it were its own group.

Mugshot of Miguel Ángel Treviño Morales when he was younger

By this point Miguel Ángel started operating his own businesses. In this new environment of independence, Miguel Ángel and his brother Óscar Omar ("Z-42") developed their own laundering networks to hide the revenues they obtained as Zetas "heavy hitters". 

By 2008, Los Zetas were smuggling significant quantities of cocaine through Tamaulipas into the U.S. Much of this trade was directly overseen by Miguel Ángel himself, who started building a laundering system in the U.S. with several close allies and his brother José, a hard-working bricklayer who at the time had nothing to do with the carnage and tragedy directed by his brothers.

In the end, Miguel Ángel thought about how he could launder cocaine sale profits in the U.S. in a way that the funds could appear clean and totally uncorrelated with drug trafficking so that he could use those reserves for the future. The answer was simple: he laundered his money in the American Quarter Horse business.

The Network Begins
Miguel Ángel had to keep his and his brother's earnings in the hands of trusted individuals (like José), which meant they could not rely in too many people. José was not under suspicion and was not connected to the drug trade in Mexico; he a businessman who was married and had four children in the U.S. But in order to introduce José into the Quarter horse business, they had to rely on an individual with contacts and experience in this sector. This man turned out to be Ramiro Guajardo Villarreal ("El Gordo"), a Mexican national who worked as a horse purchaser for wealthy Mexicans.

Once the initial purchase man was found, Los Zetas needed a network of individuals in the U.S. who could act as legal owners of the horses. These people were essentially strawmen and sometimes would even manage one or more companies after they bought a horse from El Gordo. Another of their roles was to make payments for the feeding, breeding and training of the horses to maintain the network fully operative. Borderland Beat was able to identify nearly 20 individuals (some by their real names and others with aliases) that were the owners of the horses or of the companies owning the horses. In the end these strawmen would end up buying the horses themselves following direct instructions told over the phone from Tamaulipas by Miguel Ángel himself.

Now we must add a third party for the equation: the money providers, the ones who would pay for the purchase of the horses. There were two means of paying for the horses after auctions. In some cases, it was José who paid for the horses through checks written by himself from his personal bank accounts at Bank of America. He deposited the checks in accounts of Heritage Foundation (the company in charge of auctions). Nevertheless, in most of the cases it was a network of three Mexican businessmen transferring the money from companies they controlled in Mexico. These people were Francisco "Pancho" Colorado Cessa (who paid through his company ADT Petroservicios), Alejandro Barradas Lagunes (who paid through a company called Grupo Aduanero Intergral, Agencia ADU) and El Gordo, the same individual who initially purchased some horses through wire transfers coming from a casa de cambio (money exchange business) in Monterrey. We will further discuss the story of these funding providers, analyzing in detail their business profiles and background.

In the end, the whole network was designed to benefit José and his wife. From 2009 to 2011, both managed three businesses: Tremor Enterprises LLC, 66 Land LLC and Zule Farms LLC. Borderland Beat was able to identify three bank accounts from Tremor Enterprises LLC and one from 66 Land LLC; all of them were opened in Bank of America. These bank accounts constantly received wire transfers and cash deposits (most of them of less than US$10,000 in order to avoid detection) from the network’s strawmen and Mexican financiers and even from several horse race tracks when their horses started winning races.

Miguel Ángel's cocaine network

Miguel Angel’s cocaine distribution network provided a large deal of money that was channeled through this laundering scheme. Between 2008/2009, Los Zetas were quite autonomous from the Gulf Cartel. A decade at their service must have been enough to build strong contacts with Colombian, Bolivian or Peruvian providers who started supplying cocaine smuggled through Central America (where Los Zetas had a strong network, as shown in Guatemala). At the same time, they contacted several 'Ndrangheta mafia members who were demanding cocaine shipments in Europe (Project Reckoning would reveal an extensive cocaine trade between the Gulf Cartel and the 'Ndrangheta in 2008). In the legal documents, there were three people who testified about these cocaine arrangements. In this report, they will be referred to as Confidential Informants (CI) number 1, 2 and 3.

CI#1: This individual was working for the Piedras Negras plaza boss (a suspect known as "Moy") in 2008 as drug distributor in the U.S. At a certain point Oscar Omar killed Moy because he was stealing from him. CI#1 owned several Quarter horses since 2000 and used to organize races in Mexico. Another high-ranking Zetas member, Jesús Enrique Rejón Aguilar ("El Mamito" and/or "Z-7"), shared his passion for horses and it was through him that CI#1 competed in horse races on several occasions with Oscar Omar (although he always lost for fear of retaliation if he won). After developing friendship ties, Oscar Omar told CI#1 that since he was a drug distributor in the U.S. and had contact, he and another individual named Celso Martinez would be granted with 200 kg of cocaine. It was at this moment that CI#1 met the top boss, Miguel Angel and one of his associates, a man called Carlos Nayen, who at the time was also dealing in cocaine for Miguel Angel in Dallas, Houston and San Antonio by smuggling it through Laredo, Texas.

From October 2010 to January 2011, CI#1 gave Nayen 25 kgs. of cocaine every two weeks (at the time Nayen was also purchasing 100/200 kgs. from another Zetas supplier and smuggling nearly 1.5 tons of cannabis through Laredo Ports of Entry). One of CI#1 operatives was CI#2, who was in charge of receiving, counting and storing of drug proceeds. Each week he would receive between US$1,500,000 to US$2,000,000 (one time they received US$5,000,000) CI#2 counted the money bill by bill, separating those bills containing marks or strange signs (these bills would later be used in order to pay bribes at the border or to make payments for the distribution network’s maintenance). The rest of the money was hidden in ice chests and handed over to "Cuno", Miguel Angel’s personal accountant, who would take them to unknown locations.

Chart showing the cash-flow between the dealing U.S.-based cells and the businessmen

CI#3 oversaw bulk currency pickups in Chicago, Houston and Dallas coming from the drug proceeds supplies by Los Zetas. CI#3 would take the cash to Piedras Negras, Coahuila. CI#3 helped separate the money into $20, $50 or $100 bills, rejecting any type of bill who looked marked or old which would then be used for bribery payments. Cuno would then pick up the cash and take it to money exchanges in Mexico.

CI#3 told investigators sometimes the money would be directly sent to the strawmen responsible for maintaining the horses. CI#3 explained that one of their main clients was operating from Dallas. Once in June/July 2010, CI#3 organized a meeting between the client’s crew and Jose at a Walmart, where they delivered US$100,000/$150,000. CI#3 described how Jose was waiting in dark with his car lights on. Once the money was given to him, he used it for paying for the horses’ maintenance.

By 2009, Miguel Angel and Omar were selling high quantities of cocaine to local distributors in the U.S. This trade generated a considerable amount of cash which was smuggled back to Tamaulipas. There it would be ordered and classified according to different bills denominations and handed over to Cuno, who would launder it in money exchange businesses and via other methods.

According to CI#1, many purchases were done through bank accounts owned by several legitimate Mexican businesses who were allied or linked to Miguel Angel. Some used their corporate bank accounts to pay for the horses in the U.S. to show they were making clean purchases. It was after the payments had been done that Miguel Angel would compensate the businessmen involved in the scheme by paying with the cocaine proceeds.

This mechanism is very common in the money laundering industry. It is called Compensation and is extremely popular because it enables the parties involved to avoid the traditional three-step laundering process of placement, layering and integration. By using the compensation mechanism, the drug dealer (or the party with dirty cash) can obtain funds coming from already established and apparently innocuous businesses and use them to purchase whatever he/she wants. Then the dealer must hand the money to the party who did the payment. This party, since it owns a legitimate established business, should not have any problem cashing the dirty money to make it appear as the same income he gave to the dealer. This mechanism is very common not only for illegitimate transactions. It is used in a widespread basis in lots of countries in Asia, the Middle East and in immigrant communities in Europe. It even legal in the United Arab Emirates, where it is known as Hawala.

Money laundering profiles

There were three main individuals making the payments from Mexico. The first and by far the most interesting one was Colorado Cessa. He was a business entrepreneur from the State of Veracruz. According to the trial documents he was a close associate and friend of late Zetas member Efrain Teodoro Torres ("Z-14"), the Veracruz plaza boss during the 2000s. During the 2013 trial, Torres’s accountant Jose Carlos Hinojosa ("Charly") testified that Colorado Cessa and Torres founded ADT Petroservicios, the company that would be used by Colorado Cessa to horse purchases from Mexico. According to Hinojosa’s statement it was agreed since the very first moment that Hinojosa would contribute with drug money from Torres and that Colorado would be the legitimate face of ADT Petroservicios.

Immediately after being founded, ADT Petroservicios started receiving public contracts from the state-owned oil company PEMEX. It must be pointed that ADT Petroservicios was not a company involved in oil extraction. Because of the economic deregulation and liberalization imposed in the 1990s by Presidents Salinas de Gortari and Zedillo, PEMEX started getting rid of daily activities such as road construction, mapping, and facilities cleaning. They outsourced such activities in the form of public contracts to the private sector. ADT Petroservicios was involved in the management of these activities. To get assigned a project from PEMEX, companies usually need political contacts and a lot of money to bribe officials to favor that company during a bid. This bribery payment was exposed during trial when Hinojosa testified that he knew that Colorado Cessa and Torres had contributed with $12,000,000 to the campaign of the Veracruz Governor candidate Fidel Herrera (2004-2010).

According to public records, ADT Petroservicios won at least 30 contracts worth millions of dollars. In the Herrera administration, the company won 22 contracts from Veracruz’s Agricultural, Rural and Fishing Development Department for US$1.7 million. Their largest bid and their jewel of the crown was the contract they signed with PEMEX, which consisted of 5 industrial drill projects. It was a US$91 million contract. For this project, ADT Petroservicios created a subsidiary called MTTM Servicios Petroleros, which partnered with the Canandian-based Xtreme Energy.

According to the initial deal, Xtreme Energy would manufacture the drills and ADT, through MTTM, would deal with PEMEX and the Mexican government. As a good faith gesture PEMEX paid ADT Petroservicios US$4.6 million as an advance payment. ADT transferred these US$4.6 million to Xtreme Energy. In the end Xtreme went bankrupt and only made 3 of the drills. ADT sued Xtreme but both companies gathered forces to appeal the sanction imposed by PEMEX for the breach of the contract. By the time the U.S. laundering network started working, ADT Petroservicios had 4 known headquarters in Mexico: 3 in Veracruz and 1 in Tamaulipas.

Chart showing the Mexican entrepreneurs who sent money in the scheme

The only information we were able to find locates Barradas as a Gulf Cartel financial operator using a customs business to smuggle containers filled with drugs through the Gulf coast. This customs business might be Grupo Aduanero Integral Agencia ADU, a customs firm in charge of wiring millions of dollars to the Quarter horse auctions being held in the U.S. At some point Barradas refused to play as strawman for the Treviño network and Miguel Angel ordered his assassination.

The third businessman was called Ramiro Guajardo Villarreal (“El Gordo”), the man who started buying the horses during the first stages of the network’s existence. How did El Gordo send the money from Mexico to the auctions in the U.S.? According to legal documents, El Gordo used a money exchange house in Monterrey. This business was called Basic Enterprises S.A. de C.V., was located at Jose Vasconcelos Avenue #1501 in the town of San Pedro Garza Garcia (Monterrey’s most exclusive suburb). The company was owned by two brothers: Arturo Sergio Paez Muñoz, an equity partner in the business; and Mauricio Gerardo Paez Muñoz, who ran the day-to-day operations.

El Gordo would drive to Monterrey with a car filled with cash in a hidden compartment. Upon arrival, he identified as the owner of several import businesses and sent one of his envoys, a man known as Francisco Rodriguez, to Basic Enterprises with the money and instructions of the accounts at which the money should be wired (minus the commission to Basic Enterprises). After being forced by the Treviño brothers to sell them some Quarter hoses, El Gordo was captured by U.S. authorities and agreed to work as an informant. He was found dead inside his car in Nuevo Laredo on January 2011.

The fourth Mexican businessman involved in the scheme was Alfonso del Rayo from Veracruz. He was kidnapped by a Zetas cell and forced to work against his own will. Released nine days later, he was forced to pay $4.5 million and had to undergo facial surgery after surviving beatings from Zetas members. Several months after these events he was approached by Carlos Nayen (one of the strawmen), who suggested that to avoid having his family hurt he should move to Oklahoma City and bid for horses. Once in the U.S. he was contacted by Fernando Garcia-Solis, who instructed him o make the winning bid for Blues Ferraro (a horse owned by Jose). Del Rayo bought the horse for US$310,000. During the auction, an organizer claimed Del Rayo looked haunted and took a picture of him with his cellphone. The fact that Los Zetas extorted Del Rayo indicted that there could have been some money shortage.

In our next series, we will analyze how the horse purchasing process worked and how Los Zetas managed these assets. In addition, we will look at the different disguising methods they used to hide the illegal nature of their assets.

Sources: Guadalupe Correa-Cabrera (2012); Eduardo Salcedo-Albarán & Luis J. Garay-Salamanca (2019); Joe Tone (2012); Reporte Indigo (May 2013 and July 2013); Proceso (2018); U.S. Indictment (2012)