3 Convicted, 3 Acquitted in Money Laundering Trial

A federal jury convicted three Mexican nationals and acquitted three others Thursday in connection with Operation Casablanca, the biggest drug money laundering investigation in U.S. history.

The split verdicts were an obvious blow to prosecutors in a showcase trial intended to demonstrate a link between Mexican bankers and Latin American drug cartels.

The six defendants were among 110 people and three of Mexico’s largest banks indicted in May 1998 after a 2 1/2-year undercover probe by the U.S. Customs Service.

This was the first of four trials scheduled in the case, and it was built around more than 100 hours of secretly recorded videotapes purporting to show the defendants agreeing to launder money for the Cali drug cartel.

But the tapes turned out to be ambiguous at many crucial points, allowing some defendants to argue that they believed that they were being recruited for a legitimate business deal.

Defense lawyers also attacked the government’s chief undercover operative who supervised the recruitment of Mexican bankers, accusing him and his associates of entrapment and intimidation.

Katy Kissel Belfer, a 27-year-old stockbroker from Mexico, burst into tears and fell into the arms of her father, Teodor, when U.S. District Judge Lourdes G. Baird announced her acquittal.

“Thank God, thank God,” she cried. A Spanish-language court interpreter embraced her as well.

Kissel, jailed since her arrest more than a year ago, took the stand in her own defense and testified that she was lured to a meeting with undercover operative Fred Mendoza, believing that it was to discuss legitimate investments.

When she arrived in Los Angeles, she said, she was told that Mendoza was a member of the Cali cartel and, fearing for her life, she reluctantly went along with the scheme.

Kissel also testified that one of Mendoza’s subordinates threatened her later when she talked about pulling out.

“I’m just thrilled for Katy,” said Michael Pancer, her lawyer, “but I feel badly for the other defendants who were convicted. They are all very decent human beings.”

Javier Alcala Navarro gave a thumbs up and flashed a big grin to his lawyer, Terry Amdur, and Fernando Barragan Reyes cried and hugged his lawyer, Manuel Araujo, when their acquittals were announced.

Araujo said it seemed apparent that the jurors discounted the testimony of Mendoza and other government witnesses and focused on the tapes that he said were replete with omissions and ambiguities.

U.S. Atty. Alejandro N. Mayorkas and Assistant U.S. Atty. Duane R. Lyons, the lead prosecutor, declined to comment on the verdicts, noting that the jury has not been discharged. The panel was instructed by Baird to return Tuesday to consider asset forfeiture actions against the three convicted defendants.

“Until then, we cannot comment,” Mayorkas said.

Known unofficially as the Mexican bankers case, the trial got underway two months ago with a thinned-out cast of defendants. The main targets, Bancomer and Banca Serfin, Mexico’s second and third largest banks, entered guilty pleas just before the start of the trial, while a third bank, Confia, was dropped in a civil settlement with the government.

Eleven other Mexican bankers, stockbrokers and businessmen indicted in the case pleaded guilty. About 20 more bankers are fugitives, including five whom Mexico has refused to extradite.

Operating out of a Santa Fe Springs warehouse under the name of Emerald Empire Corp., the undercover Customs investigators passed themselves off as drug money launderers, getting business from the Cali and Juarez cartel.

After establishing themselves, they launched an elaborate sting to penetrate the Mexican banking establishment, relying on Mendoza and others with tawdry backgrounds to recruit bankers willing to launder drug proceeds.

According to prosecutors, employees at a dozen Mexican financial institutions laundered about $100 million in drug money between 1996 and 1998 and received a 1% commission on the funds they handled.

After the verdicts were returned Thursday, Baird ordered the acquitted defendants released from the Metropolitan Detention Center as quickly as they can been processed.

Two of those convicted, Jose Reyes Ortega Gonzalez and Manuel Barraza Leon, will remain in custody, while a third convicted defendant, Alfonso Labrada Gurrola, was allowed to remain free on bond.