The Mexico Report
Christopher Whalen
whalenc@l-r-i.com
www.rcwhalen.com


Vol.III No.20 
October 7, 1994

 The September 28, 1994 assassination of the secretary-general of
Mexico's ruling party, Francisco Ruiz Massieu, is the second major
political killing in that country this year.  The attack is also one
of literally thousands of kidnappings, murders and other violent
incidents directed against members of the country's business and
political elite, as well as the political opposition, by the bosses of
Mexico's thriving underworld.  In the most simplistic sense, the
murder of Ruiz is a challenge by the leading drug lords in
Guadalajara, Tijuana and Matamoros to the existing political order.
But the daylight execution of Ruiz, the former governor of the state
of Guerrero, also represents a feud among familiars; a fratricidal
rivalry whereby politicians aligned with one narco gang are being hit
by other rival groups that make up the Mexican drug Mafia.

 For example, most foreigners do not know that Ruiz's family is deeply
involved in the Acapulco, Guerrero, business community, which in turn
is dominated by the local drug lords.  Just two weeks before the
former governor of Guerrero was gunned down, police directed by his
brother, Mario Ruiz Massieu, who is the official in the Mexican
Attorney General's office responsible for combating drug activities,
closed a number of nightclubs owned by various drug capos (bosses) in
the seaside resort city.  One local observer says that some of the
managers of these clubs were "set up;" police planted cocaine in their
offices and arrested them on trumped-up drug charges.  According to
the source, the closures were the last straw in a running feud between
Ruiz and the local drug capos, and provoked this act of retaliation
against the number two man in Mexico's ruling party.

 Foreign observers, particularly the expatriate press, naively
attribute the rising levels of violence in Mexico to political
motives, but such easy explanations ignore the significant new factor
that has entered that country's politics over the past decade:
cocaine.  Whereas in the past, members of the ruling party and their
friends, relatives and allies in the criminal world settled disputes
behind closed doors, today the fighting is being done in public, in
front of hotels and in poor barrios.  The head of the railway workers
union was also killed in front of a Mexico City hotel in 1993, and
dozens of other police officials, journalists and opposition members
have died violently over the past five years.

 The uprising in Chiapas and the murder of presidential candidate Luis
Donaldo Colosio on March 23, 1994, in a poor neighborhood in Tijuana
are only the most extreme examples of how Mexico's social and civic
institutions are crumbling under the pressure of drug-related
lawlessness and corruption, factors that are making Mexico a very
dangerous place even for members of the ruling elite.  Indeed, the
same environment of lawlessness and impunity that has allowed Mexico's
ruling party, known as the PRI, to govern for over 65 years is now
aiding the expansion of the influence of the narcotics trade.

 There are 19 distinct drug cartels in Mexico and four dominant
groups, the largest of which is the Gulf or Matamoros group.  It is
widely assumed by savvy observers that the Grupo del Gulfo led by Juan
Garcia Abrego, engineered this latest assassination.  As with the
Colosio case, a man who is said to be the actual perpetrator of the
Ruiz assassination was apprehended almost immediately, but the real,
intellectual authors of the crime will probably never see justice.
Notably, in this latest assault Mexican officials did not even try to
pretend, as they did with the Colosio slaying, that this gangland hit
was a random act, a senseless display of violence.  Most Mexicans know
otherwise.

 Federico Reyes Heroles, editor of the monthly magazine Este Pais,
says bluntly that the killing of Ruiz was a deliberate hit by Mexico's
powerful drug lords.  News reports in the days following the killing
included numerous off-the-record comments by government officials
confirming the suspicion that the killing was a hit organized and paid
for by drug traffickers.

 Another prominent Mexico City editor, speaking off-the record, goes
even further, saying that the killing of Ruiz, a close associate of
President Carlos Salinas and other powerful figures in and out of the
Mexican government, particularly Agriculture Minister Carlos Hank
Gonzalez, was part of a continuing political dispute between Mexico's
biggest drug cartels and their partners in the Salinas
government. "Carlos Hank is the biggest money launderer in Mexico,"
says the veteran journalist. "This killing was a reprisal for the
murder of Colosio, a tragic event which many people believe was
engineered by Hank and other officials around Salinas."  He goes on to
say that as in Colombia, Mexican politicians are being killed off
because of a power struggle related to money and drugs, not over
questions such as democracy and human rights. Beyond the death of
Colosio, however, another explanation exists: the need to maintain the
appearance of "fighting drugs" to placate Washington.

 In Mexico and other parts of Latin America, the term lavadolares
means money launderers or those "who wash money."  Just two weeks
before the killing of Ruiz, Treasury Secretary Lloyd Bentsen told an
audience in Mexico City that the U.S. currently has no less than 12
separate investigations underway concerning money laundering
operations based in Mexico. He said the governments of Mexico and the
U.S. have recently intensified efforts to exchange information on
illicit drug and cash laundering operations in an attempt to clamp
down on the growing business.  This announcement shocked Mexicans
generally and sent a wave of fear over the country's drug lords, who
rightly fear that the new Zedillo government will launch an anti-drug,
anti- corruption campaign early in 1995 in order to repair Mexico's
image and persuade the U.S.  government that Zedillo is serious about
fighting drugs.  In this scenario, the Ruiz killing is a direct
warning to Zedillo and his backers, particularly dinosaurio Carlos
Hank, from the drug trade. The message: Don't even think of arresting
a member of the cartel or their people inside the Salinas government
to appease the Clinton Administration.

 Of course, most Americans are shocked and appalled by the suggestion
that officials of Mexico's reformist, Harvard-educated government
would actually plan to murder members of their own party or have
direct business relationships with Mexico's cocaine lords.  The fact
is, however, that the violence linked to the drug trade in Mexico is
less a civil war than a family squabble; a form of vicious attrition
that hurts Mexico's dearly purchased image as a leader among the
"emerging markets" around the world.

 In a recent interview, President Salinas himself admitted that the
annual flow of cocaine and other illicit drugs through Mexico totals
some $100 billion annually. The Drug Enforcement Agency (DEA) and
local sources in Mexico, such as the opposition daily La Jornada,
estimate that the profits from this flow of drugs (90 percent of which
comes from cocaine) amount to some $25-30 billion a year.  In other
words, the profits from drugs moving through Mexico into the
U.S. every year are more than twice the total revenues of Mexico's
petroleum industry and will roughly equal the cost of servicing
Mexico's total, $160 billion- plus foreign debt for 1994.

 The rise of the drug lords as sources of political power in Mexico is
a relatively recent development, but one that was helped and assisted
by the fact that the country's political system was already hopelessly
corrupt. For decades members of the PRI have enriched themselves
through corruption and dirty dealing at home, while borrowing from
foreign banks and secreting the dollar proceeds into offshore bank
accounts.  Now, with the passage of the North American Free Trade
Agreement (NAFTA), the door has been opened for a vast expansion of
the drug trade into the United States.

 "The NAFTA is now openly referred to as the 'North American Drug
Agreement' by U.S.  Customs and Drug Enforcement Agency personnel,"
wrote former Customs chief William von Raab last year.  "This overt
skepticism reflects discontent over the fact that national security
concerns have been neglected in the NAFTA negotiations . . .  Nothing
we [see leads] us to believe that Mexico has tackled 'hard
enforcement,' i.e.  arresting significant drug figures, cracking down
on money laundering or disrupting drug enterprises. Without a real
hard-enforcement anti-drug effort by the Mexicans, NAFTA will hurt
[the U.S.]."
 
 Fraud on route to and at the ballot box has been used to preserve the
very profitable political status quo, creating a poisonous political
situation tailor made for the drug traffickers, who have been able to
assimilate themselves easily into the existing power structure.  "It
has become fashionable to speak of the 'Colombianization' of Mexico
due to narcotics because of the recent wave of assassinations in the
last month that included two former state attorney generals, a judge,
and which culminated in the March 1993 assassination of Cardinal Juan
Jesus Posadas in Guadalajara," wrote Alicia Ely Yamin, a lawyer who
spent several years in rural Mexico working as a human rights advocate
among the poor.  "But the problem of drugs has its own dynamic in
Mexico and has existed for a long time. The endemic corruption in the
Mexican government, the incredible sums of money to be made in the
drug trade and political pressure from the United States have combined
to make the drug war a lethal cancer that is quickly spreading
throughout Mexican society... Two days after the murder of Posadas, a
high official in the Attorney General's Office admitted to me: You
can't speak of infiltration in Mexico. Here the authorities and the
drug traffickers are the same people. Permeation, but not
infiltration."

De la Madrid's Faustian Bargain

 The de facto alliance between the Mexican political system and the
leaders of the drug trade dates back more than a decade to a time
before the advent of cocaine as the major commodity, when marijuana
and heroin were the primary drugs coming into the U.S. from Mexico.
In the old days, the police and army sold a little bit of marijuana
and later heroin, according to one former police official, but it was
relatively small compared with other parts of the economy.  Today, the
cocaine money is so big that narcotraficantes are actually challenging
the existing leadership of the PRI for national control.

 On June 11, 1993, a lawyer and writer named Luis Javier Garrido
published a stunning article in La Jornada called simply "The Narco
System."  This courageous overview of the historical and political
roots of government cooperation and backing of drug production and
transshipment in and through Mexico was translated by the CIA and
circulated among U.S. governmental agencies, but received little
attention in the craven foreign press.  Both Garrido and other
observers in Mexico say that during the depths of the 1980s debt
crisis, when Mexico's rulers were cut off from foreign credit, the de
la Madrid government arranged a secret concordat with the drug lords.
The deal: In return for keeping their billions of illicit dollars in
the country's nationalized commercial banks, the drug lords would be
left unmolested.

 The go-between between the drug trade and the de la Madrid government
allegedly was Manuel Bartlett Diaz, the former head of the Interior
Ministry who is now governor of Puebla.  Along with Enrique Alvarez
del Castillo, the Former Attorney General, and Juan Arevalo Gardoqui,
the Former Secretary of Defense, Bartlett Diaz has been accused of
being involved with the torture and murder of DEA agent Enrique
Camarena. In her 1988 book "Desperadoes," Time correspondent Elaine
Shannon tells the story of how Camarena traced the connection between
the drug lords and their patrons in the Mexican political system, and
died a martyr's death as a result.

 Bartlett, Alvarez and Gardoqui are said to have acted as some of the
de la Madrid government's chief intermediaries with the drug trade
throughout the 1980s, right up to the start of the Salinas presidency.
For his part, the former Interior Minister declares his innocence and
says that "there is no concrete evidence" to connect him with the
Camarena slaying.  But Bartlett also avoids visits to the U.S., where
it is unclear whether or not he might be subject to detention or
arrest.  "The charges," says Bartlett, "are made with falsehoods,
calumnies and without fundamental facts, just like all of the
accusations made during these flawed proceedings."

 Despite such denials, however, it is clear that the Mexican
government is very concerned about any allegation of connection
between Bartlett and the narcos.  When journalist Zachary Margoulis of
the English- language Mexico City daily, The News, wrote a report of
the charges against Bartlett, the order immediately went out from the
office of the President that the writer be terminated -- an edict that
was followed almost immediately by the owner of The News.

 Indeed, when Bartlett took office as governor of Puebla in 1993,
President Salinas himself attended the swearing-in ceremony and, in an
extraordinary display of official insecurity, personally attested to
the "honesty" of the man who had helped him obtain and hold onto power
through the fraud-tainted 1988 elections.  Those attending included
outgoing U.S. Ambassador John D.  Negroponte and Canadian envoy David
Winfield, Papal nuncio Geronimo Prigione, and national and state level
PRI and business leaders.  Salinas made attendance at the ceremony
mandatory for members of the PRI, a test of loyalty to the government.

 Such exaggerated displays of support are necessary because rumors
continue to implicate Bartlett in the murder of journalist Manuel
Buendia as well as DEA agent Enrique Camarena. The respected Monterrey
daily El Norte reported in January 1993: "With his image clouded by
the shadow of drug trafficking, the DEA's threat to bring him before a
U.S. grand jury on a charge of drug trafficking and complicity in the
torture- murder of Camarena hangs over Bartlett.  Significantly,
insurgent, anti-government political groups in the state of Puebla
have circulated a 'black book' with newspaper clippings describing
Bartlett's connection with drugs and these other alleged crimes."

 According to El Norte, the "black book" was compiled by former
Interior Minister Fernando Gutierrez Barrios, a veteran Mexican
warlord and long-time familiar of the CIA who succeeded Bartlett in
that key position in late 1988.  Some believed that Bartlett would
remain governor in Puebla for a year or so to save face, and then
resign.  But he has not done so, in part because of Salinas' political
debt to the man who fixed the 1988 election and in part because
Bartlett is part of former President Miguel de la Madrid's political
circle.  "This group has some very powerful members," notes one press
report, "including [former] Interior Secretary Patrocinio Gonzalez
Garrido (1992-1993) and current Transport Minister Emilio Gamboa
Patron, another man who has had a meteoric political career."

 "The production and sale of narcotics has been, as we know and as
many studies have shown, a 'lifesaver' for the Mexican economy," wrote
Garrido last year.  "As a result, the most recent governments have
tolerated and even sponsored it, thus turning it into a major
political factor. Relations between the United States and Mexico thus
became marked by fundamental disagreements not only over the growing
immigration of Mexicans seeking jobs on the other side of the border
but also over the production and export of narcotics, particularly
because the Mexican authorities regard these two things as essential
elements of their economic policy.  Hence the fears that under a North
American FTA the drug trade will intensify, not diminish.  Given the
shortcomings of the Mexican economy, drugs have furthered the agenda
of the [PRI] technocrats by creating jobs, raising the income and
living standards of poor peasants, contributing to local causes among
low-income earners, building schools, clinics, or roads, and thus
gaining the support of entire communities."

 Garrido and others now argue that successive Mexican governments have
encouraged an increasingly close relationship with the drug
traffickers, for one purpose: the PRI "system" needed them and their
dirty money during the 1980s.  Better to ally with the boys in
Guadalajara and Tijuana, de la Madrid and his cronies reasoned, and
use their money to maintain one-party rule.  A key player in making
this decision was the then- personal secretary to de la Madrid, Emilio
Gamboa Patron, who controlled the flow of information in and out of
the President's office, and thereby became a prime target for
subversion by the drug cartels.

 In the years since the 1984 deal was struck with the drug lords by
Manuel Bartlett, various agencies of Mexico's federal and state
governments were gradually infiltrated and the line between them and
the network of drug traffickers became blurred. Interior Minister
Jorge Carpizo MacGregor and Finance Minister Pedro Aspe, two of the
most respected members of the Mexican government, have explicitly
confirmed this frightening analysis in public remarks.  In his
previous position as Attorney General, Carpizo explicitly stated
numerous times in the Mexican press that he and his trusted aides were
"surrounded by traitors" inside the Attorney General's office who are
allied with the drug cartels .

 Ricardo Pascoe, a senior official in the center-left Party of the
Democratic Revolution, says the ties between the government and the
drug trade are not an isolated situation.  "This is no sub-Mafia, no
renegade operation," says the well-known political activist.  "The
connections between the drug trade and the Mexican government
represent a deliberate decision by Miguel de la Madrid to seek an
alliance with the drug barons in order to raise money.  Salinas has
continued this relationship.  The state has made a decision that the
way to stay in power is to get access to money. Without foreign money,
the PRI structure would crumble overnight."

 He continues: The assassination of Cardinal Posadas in Guadalajara
has to do with this very question of money and power...  The Posadas
murder was related to the financial situation because of the common
link to drugs.  The story in Guadalajara is that the Cardinal had
evidence of the government's relationship with the drug trade and was
getting ready to give the information to the head of the church.  He
was killed in the midst of all the confusion by a highly skilled,
well-trained operative sent to get him.  Remember, like the drug
lords, the government must also maintain physical control over certain
parts of the underworld.  There is always the problem of enforcement
in the bottomless pit of the drug trade, and the government must
constantly enforce on the enforcers, in effect, to keep the system
under control."

 Andrew Reding, Director of the North America Project of the World
Policy Institute, believes that the killing of Cardinal Posadas was
deliberate; a direct challenge to the ruling elite in Mexico.
"Posadas was the only major authority figure in Guadalajara not owned
by the narcotics traffickers," notes Reding. "The drug barons killed
him to send a message to the government. Posadas was an outspoken
critic of drugs and guns. They actually opened the doors of the car in
order to murder him.  The Mexican government does not want it to
become known that the drug traffickers have such influence.  What we
have seen here is a very scary demonstration of the drug cartel's
growing strength and power."  Even today, the Salinas government's
propaganda machine continues to maintain that daylight shooting was
accidental, but few Mexicans believe this version of events.

The Salinas Gang

 Even with a flood of new foreign investment coming into Mexico under
the Salinas Administration, there is no indication that the influence
of the drug lords has been diminished. Quite the contrary, recent
revelations indicate that the cartels have established working
relationships with several members of the Salinas inner circle and
have provided financing for a number of privatization deals.

 Eduardo Valle, former aide to Interior Minister Jorge Carpizo, has
given to the Mexican government documents and testimony allegedly
linking government officials and drug traffickers to the assassination
of presidential candidate Luis Donaldo Colosio.  The former official,
who is known as "the owl" (el Buho), worked as a senior official
directing Mexico's anti-drug efforts.  He says that Colosio was
murdered March 23 in Tijuana by members of the Grupo del Gulfo cocaine
cartel, with the involvement of Colosio campaign officials close to
Communications and Transportation Minister Emilio Gamboa.  Included
with the documents provided by Valle during testimony given on August
25 at the Mexican consulate in Washington was a DEA report about
telephone calls last December by cartel members to the offices of the
presidency.

 Valle fled to the United States in August, 1994, saying he feared
reprisals and wanted to protect important documents.  He continues to
accuse Gamboa and other officials of maintaining direct connections
with the so- called Gulf Cartel in Mexico.  But Valle is not the only
Mexican making such allegations.  In a recent column in the daily
Reforma, Raymundo Riva Palacio asked with his usual puckish humor:
"Why is [Transport Minister Emilio] Gamboa Patron so nervous?"

 "In good order he must explain his relationship with Marcela
Bodenstock Perlick, whose dealings and relationships offer some of the
more picturesque episodes in recent political life," he
explained. "More than anything else, the interest in Mrs. Bodenstock
comes because she works for the Cartel del Golfo, headed by Juan
Garcia Abrego and allied with the Cali cartel, the narcotics
organization based in Colombia."

 Riva Palacio reminded readers that Eduardo Valle has described the
role played by Bodenstock in the largest single cocaine organization
south of the border. "Marcela is an ex-police official and the woman
of Marcelino Guerrero, the former agent in the federal judicial police
who works under one of the chief lieutenants of Garcia Abrego, Oscar
Malherve," Valle told the influential weekly Proceso.

 Riva Palacio's revelations show just how close the drug lords have
come to the very top of the PRI power structure: "The reconstruction
of the relationship between Gamboa and Bodenstock, which now touches
the highest levels of the government, begins in the late 1980s when
the current transport minister was a high official of Televisa.
Marcela Bodenstock Perlick also had excellent relations with the
Executive Branch and, apparently, was well known by the [U.S.] drug
enforcement agency, known as the DEA."

 "None of this seemed to bother Gamboa.  On the contrary, according to
the version of events now circulating at the highest levels of the
government, Gamboa introduced her to the former head of the Office of
the President, Jose Cordoba Montoya.  This first introduction was not
the last. In the middle of 1990, Jose Cordoba was attending a bull
fight, which he follows with great enthusiasm.  Gamboa also attended
and was accompanied by Marcela Bodenstock, who immediately became
close to the adviser to the president.  The relationship flourished
and over a long period of time they were seen together in society,
particularly at parties in Mexico City and elsewhere.  There is no
precise date for the end of the relationship, but sources remember
them being together all of last year."

 These revelations are not the first nor the most troubling indication
of official complicity in the drug trade in Mexico.  In the state of
Vera Cruz in November of 1991, two years after Carlos Salinas had
taken power and two years before the NAFTA vote, Mexican soldiers
captured and executed over a dozen U.S. trained Mexican drug agents at
a remote airstrip.  When the federales landed to arrest the occupants
of the drug ferrying aircraft that they had been following, Mexican
Army regulars, who were apparently waiting to refuel the drug-carrying
plane, bound the hands of their fellow citizens and executed them at
close range.  Many of the dead were found to have powder burns on
their palates.  The Washington Post reported that a U.S.  Customs
Service plane had trailed the first two aircraft, filmed the incident
and was subsequently hit by ground fire, but returned safely to the
U.S. The mysterious video tape capturing these crimes has never been
released.

 Aside from the alarming facts of this case, consider the issue raised
by the simple act of refueling the drug-carrying plane.  Legally there
are only two outlets for aviation fuel in Mexico, the state airport
monopoly and the military.  Since drug traffickers apparently have no
problem refueling literally hundreds of aircraft annually for trips
between Mexico and Colombia to deliver product to the Mexican cartels,
one must assume that they obtain the fuel with official acquiescence.
Overall, illegal air traffic in Mexico increased by 55 percent in
1992, according to a report prepared for the Mexican government. The
report, entitled Evaluacion y seguimiento sobre el control de drogas
en Mexico, says officials confiscated 40 tons of cocaine during 1992,
but admitted that the total amount flowing through the country has
mushroomed.
 
 Indeed, Eduardo Valle says that during 1988-1989, the peak years of
the Grupo del Golfo, three planes, each loaded with 6 tons of cocaine,
were landing weekly in Matamoros in order to transship the drugs into
the United States.  He explains why no action was taken to stop this
huge cocaine operation by then- Attorney General Enrique Alvarez del
Castillo.  Valle calls the former Attorney General "a scoundrel" whose
appointment "was a mockery to the country" because he shielded the
cocaine traffickers from prosecution.

 The vast amount of money generated by the drug trade must be
legitimized or laundered, and the recent privatization process has
provided the perfect mechanism to handle the billions of dollars in
profits that flow from illegal narcotics.  A practice used by the drug
trade during the Salinas sexenio has been to buy the equity and debt
issued to finance the sale of former state-run enterprises,
particularly the commercial banks and large commercial enterprises
such as Telmex.  Another favorite avenue for laundering drug money is
real estate.

 Businessmen who did not have much money a decade ago, many of whom
helped to finance the PRI presidential campaign in 1988, are now among
the wealthiest people in the world, with no apparent reason for or
legitimate sources of their new wealth.  The collapse in early
September 1994 of the Cremi Union financial group illustrates one such
situation.  Carlos Cabal Peniche was a businessman of little apparent
wealth or influence until the beginning of the six-year term or
sexenio of Carlos Salinas.  In a matter of months, he amassed
sufficient financing to acquire several banks as well as a large part
of the operations of the U.S. agribusiness Del Monte in Mexico and
Central America.  Fraudulent business practices and insider loans
eventually caused his bank tofail, but the episode still leaves
unexplained how this obscure individual came to be considered one of
Mexico's leading business men with a reported net worth over $1
billion.

 Today, Cabal Peniche is a fugitive from justice and his financial
empire lies in ruins with hundreds of millions of dollars in losses
for the government and investors. Officials in the Mexican Attorney
General's office are investigating a suspected connection between
Cabal Peniche and money laundering, according to La Jornada.  An wise
veteran observer of the Mexican business scene alleges that most of
the money behind the purchase of Del Monte came from illicit sources.
"We don't ask any questions in Mexico," he confides.  "You could walk
into a bank with millions in cash and, in most cases, nobody would say
a word."

 Cabal's apparent connection with drugs and money laundering is
reinforced by his relationship with Emilio Gamboa.  Mexican Federal
Deputy Alejandro Encinas, who sits on the commission investigating the
Colosio assassination, says: "In Mafia terms, Gamboa Patron was Cabal
Peniche's 'godfather.' This relationship, first personal, then
political, allowed the emergence overnight of a very strong economic
group that bought the Cremi and Union Banks and established a new
financial consortium in southeastern Mexico."  The PRD official
alleges that "although Gamboa now denies it, his relationship with
Carlos Cabal Peniche has long been in evidence, ever since the days
when Carlos worked in the Presidency when Emilio Gamboa was private
secretary to former President Miguel de la Madrid Hurtado."

 The fact is that there are literally dozens of business people and
government officials in Mexico whose apparent wealth vastly exceeds
any possible legal sources and, in fact, arises from their political
relationships.  An alliance of convenience has been forged between
drug traffickers and technocrats, with the additional upshot that
Mexico's financial institutions would lose a great deal if money
laundering were halted.  Former Transport Minister Andres Caso
Lombardo, who has never held a significant private sector job, owns
ranches, commercial properties, homes and aircraft valued in the many
millions of dollars.  But perhaps the most notable example currently
in the Salinas Cabinet is Agriculture Minister Carlos Hank, a career
civil servant with only modest business experience whose apparent
personal fortune now totals in the billions of dollars. Though his
name does not appear among the Forbes list of 24 Mexican billionaires,
he is without question one of the most powerful men in the country.

 Carlos Hank Gonzalez has visible ties to the Gulf Cartel through
Marcelino Guerrero.  Eduardo Valle describes Guerrero as one of
Mexico's biggest money launderers and says the drug trafficker is
involved in development projects all over Mexico, including resorts in
Cancun "which are tied to investments by Jorge Hank Rhon," the son of
Hank Gonzalez. In addition, Valle has provided telephone records
showing that an associate of Guerrero "makes and receives calls from
people in the office of the President, among them Arturo Salgado
Cordero, coordinator of giras presidenciales, and the former head of
the Office of the Presidency, Jose Cordoba.

 The "Grupo Hank" has vast business interests in Tijuana and all along
the U.S.- Mexico border.  Another son of Hank Gonzalez, Carlos Hank
Rhon, recently purchased control of the parent of Laredo National Bank
in Texas.  Over a year ago, Hank sold his interest in Taesa, Mexico's
third largest airline, but news reports continue to question whether
he still controls the highly profitable and surprisingly liquid
airline.  A recent report in El Norte asks "who is the real owner of
Taesa" in direct reference to Hank Gonzalez and notes that the DEA has
focused a great deal of attention on searching the company's planes
for contraband.

 Hank, however, is only one of many members of the political-business
elite who works in apparent cooperation with the drug traffickers.
Earlier this year, the daily Excelsior carried the following report by
Cesar A. Renteria: "Mayor Victor Perez Ruiz declared today that the
tourist development area of Nuevo Vallarta in the municipality of
Bahia de Banderas has become a 'money- laundering' center, created by
the drug traffic operating on the state of Nayarit's southern coast
and in some of the country's other states.  He claimed that sums of
money in the millions from drug producing and distribution rings have
been invested in industries such as hotel and restaurant businesses in
the aforementioned tourist complex, the largest in the state."

 "Victor Perez Ruiz stressed that one of the leading 'entrepreneurs'
is the notorious drug trafficker Joaquin 'El Chapo' Guzman, the 'lord
and master' of the entire municipality of Bahia de Banderas. His power
embraced the entire Vallejo sierra and lowlands, where El Chapo owns
large expanses of land planted with marijuana. The mayor asserted that
the newly opened five-star Hotel Paraiso Radisson was built with money
contributed by El Chapo, through a front man, noting that he is the
main stockholder of the property, located in the Nuevo Vallarta
complex. He added that other drug traffickers hold shares in the
Puerta del Sol Hotel and other large establishments in the
municipality of Bahia de Banderas.  He considered it incongruous that
this application of funds, 'backed and promoted by Celso Humberto
Delgado's administration,' should have become a 'money laundering'
operation involving the proceeds of drug dealing and sales. "Perez
Ruiz concluded by stating that this [money laundering] might be the
reason that Nuevo Vallarta is a leading resort on the national level,
offering tourists comforts and luxuries similar to those found in
Acapulco, Cancun and Puerto Escondido."

 In a related story, the regional daily El Maqana of the state of
Tamaulipas puts the case very bluntly: "The infiltration of
narcotrafico in political, public and private institutions represents
a deadly threat to democracy in Mexico. As a consequence, it is
necessary to change the laws to target the [financial] resources of
the drug trade that are interfering with the productive activities of
the country. The problem is to establish a culture of drug prevention
while at the same time dealing with those already caught up in
addiction or trafficking. The drug organizations have the ability to
marshal enormous financial resources, behind which can come repressive
actions."

Over There, Over Here

 Most Americans, while conceding the obvious peril from drugs, still
prefer to think of Mexico's problem with narcotics as a distant
concern that does not threaten them directly.  Think again.  The vast
money flowing from the drug trade through Mexico is not only
destroying that country's civic and legal institutions, corrupting its
leaders and blocking the transition to democracy, but is rapidly
moving to acquire influence north of the border.

 In the recent elections in Mexico, the ruling PRI spent $72 for every
vote officially cast in its favor, a level that will be rivaled in the
U.S. only by the fierce California Senate race between Democrat Diane
Finestein and millionaire GOP challenger Michael Huffington.  The
ruling party's presidential effort cost 36 times more than that of the
center-right PAN, and over 300 times more than that spent on the
election effort of Cuauhtemoc Cardenas and the center-left PRD.  The
PRI's expenditure for the election was gigantic by any measure, but
keep in mind that the $250 million figure represents only direct,
officially reported spending and does not include the billions of
dollars directed by Salinas through government agencies such as
Pronasol and business groups aligned with the PRI.

 In state and local races, opposition parties on the left and the
right have alleged that drug money was also used to buy or intimidate
voters, a troubling twist in a system many already call a "narco
democracy."  But don't believe that the Mexican drug lords limit their
influence to Mexico or mere local officials.  From San Diego to
Washington, huge investments can be found in American banks, companies
and real estate that are secretly tied to Mexico's drug groups.  One
need only take the trouble to look for the telltale flow of dirty
money.

 The Wall Street Journal reports that U.S.  authorities are
investigating several Wall Street investment houses for links with
money laundering, including Dean Witter, Prudential Securities, Paine
Webber, and Bear, Stearns & Co. Code named "El Dorado," the
investigation is part of a larger effort that includes the prosecution
of two officers of American Express Bank, who were recently convicted
for helping members of the Gulf Cartel move money through U.S. banks.
Officials at the Treasury say that the U.S. is planning raids on a
number of banks operating along the border in an operation code named
"Condor."

 In testimony in Brownsville, Texas, in May of this year, Francisco
Perez Monroy alleged that his cousin and business partner, Juan Garcia
Abrego, paid "millions of dollars" to Javier Coello Trejo and other
senior officials of Mexico's justice apparatus to allow free shipment
of cocaine through the Gulf Cartel in Northern Mexico into the U.S.
Not only does Perez Monroy's sworn testimony confirm the allegations
made by Eduardo Valle about official complicity in drug trafficking,
but sheds new light on a scheme to launder $25 million in Gulf Cartel
drug money through Bankers Trust and American Express Bank.

 Bankers, however, are not policemen, nor are the problems of drugs
and money are limited to Wall Street.  Consider the example of the
Gangster Disciples, a Chicago street gang that was virtually unknown
18 months ago but which now controls the vast cocaine trade in South
Chicago.  The Gangster Disciples recently established a political
action committee, "21st Century Vote," which is under investigation by
the FBI.  The leader of the organization, Larry Hoover, who operates
from a prison cell (like some of his counterparts in Mexico) says that
he plans to use his group's political power to win several seats on
the city council.

 The Gangster Disciples, which boasts an estimated 30,000 members in
the Chicago area alone, is just one of dozens of groups around the
U.S. that derive their power from the torrents of money generated by
the cocaine trade.  The Chicago Tribune reports that "a variety of
politicians -- black and white, liberal and conservative -- has
courted the PAC's influence, confident that the group can register
voters, raise money and elect mayoral and aldermanic candidates."
Sound familiar?

 Other than the difference in location and language, there is no
fundamental difference between the way the drug trade has perverted
Mexico's political system and the erosion now visible inside nearly
every major American city -- and in Washington itself.  The fact is
that many of the policies and decisions taken in Washington over the
past decade, from supporting single-party rule in Mexico to ignoring
the exploding drug trade, have directly contributed to the growth of
the "narco system."  As was the case with the American Mafia during
the Prohibition years, short of full legalization, no form of
government action seems to be effective in controlling the financial
and political power of these modern-day outlaws.

 "After 1968 the Mexican police were selling marijuana to the middle
classes," Eduardo Valle comments.  "That is just for starters. Now,
what happened when the Vietnam war people, who were directing
strategies in Southeast Asia, took control of the narcotics bureaus in
New York and other cities after the Kennedy assassination? What
happened after the CIA started using drugs to finance the
counterrevolutionary movements in Latin America? There you have a long
story of perversion. The United States has an enormous responsibility
in all of this [drug business]."

Net Note: Christopher Whalen writes from Washington, where he
publishes The Mexico Report, a fortnightly newsletter on Mexico and
serves as Treasurer of Legal Research International, a firm that
provides litigation management, cross-border due diligence and
communications strategy with respect to Mexico and other emerging
markets.