The Mexico Report Christopher Whalen firstname.lastname@example.org 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.