Some say he got away with everything. Others say he was nailed to the wall. That could be the corrido of Carlos Hank Rhon—the ballad of the rich man’s son. On May 31, the Federal Reserve Board agreed to a settlement that hit Hank Rhon with one of the largest fines the Fed ever levied. The board had gone after the scion of one of Mexico’s most powerful families for violations of laws regarding his control of Laredo National Bank (LNB) in Texas. After two years of postponements, the case was settled behind closed doors.
A spokesman for the Fed was happy: He claimed the Board got everything it wanted. Hank Rhon was fined $40 million and would lose control of his Texas bank. But the Hank camp was celebrating, too. Forty million to a well-connected Mexican billionaire is pocket change. And the permission the Fed said it would require before Hank Rhon acquired another U.S. bank, has, as one journalist pointed out, always been the procedure for foreign buyers of U.S. banks.
What was lost and can never be regained with this settlement was a chance to get a glimpse of documents that might have answered important questions about the rise of the transnational drug cartels and their ties to Mexican and U.S. banks. In the exhibits list for this hearing that never saw the light of day were documents purportedly showing that $4.5 million was transferred from Hank Rhon to accounts held in Deutsche Bank by Raúl Salinas, the jailed brother of former Mexican president Carlos Salinas—transfers allegedly made with the friendly assistance of a top official at Citibank in New York. But with the settlement, these exhibits will never make it into the public record. The flow of $4.5 million in cash from the son of a powerful politician into an account, held under a pseudonym, of the ex-president’s brother will now most likely disappear into oblivion, and these new details of the relationship between U.S. and Mexican business and the hemispheric drug trade will remain hidden.
What we do know is that the relationship has blossomed since the passage of NAFTA. In the shadow of the promise of prosperity, binational criminal business enterprises have flourished. They are often drug-related, involving money-laundering or the hiding of ill-gotten assets. Brookings Institution research fellow Peter Andreas has warned that the merging of crime with legitimate business is “the less celebrated—and rarely acknowledged—‘underside’ of U.S.-Mexico economic integration.”[1]
But “rarely acknowledged” as this underside may be, journalists in Mexico have become relentless in their coverage of activities involving big business and crime. During the last decade, reporters have managed to dig up a number of cases involving prominent business and political figures. Keeping up with the country’s new mood of democratic transparency, Mexico’s press has begun flexing its muscle. During the presidency of Ernesto Zedillo, scandals showed up on Mexico’s front pages like flies at a picnic. One investigation came perilously close to the highest levels of the ruling party: A Guadalajara newspaper published copies of contracts showing that the investment bank Grupo Anahuac had sunk $8 million into a construction project with President Zedillo’s brother; Anahuac was also found to have been infused with money from the Juárez drug cartel. Although the President’s brother was never indicted, he did end up spending much of the Zedillo presidency “banished” in San Antonio, Texas.
Throughout the Salinas and Zedillo eras, the privatization of Mexico’s major industries led to ever more scandals as too much money exchanged hands too quickly and, often, too secretly. Even after Vicente Fox took office, new developments continued to unfold involving old PRI stalwarts such as Raúl Salinas or banker-turned-fugitive Carlos Cabal Peniche, accused of funneling illegal Zedillo campaign donations through Mexican banks. And just this past May, Mario Villanueva, the former governor of the Yucatán-peninsula state of Quintana Roo, was arrested on charges of accepting payoffs from the Juárez cartel. Villanueva was a partner in major transportation projects in Panama with Hank Rhon’s father, the billionaire PRI insider, Carlos Hank González, also a recurring target of corruption investigations. Villanueva now faces extradition to the United States on drug-related charges.
Early on, a common thread emerged in the corruption exposés: Many of those involved were businessmen who had become billionaires thanks to the massive sell-off of government-controlled companies by President Salinas in the late 1980s. It was stockbroker Roberto Hernández who scored the deal of the decade under Carlos Salinas’ freewheeling privatization of essential industries. In 1991, Hernández led a group of investors who bought Mexico’s top national bank for $2.3 billion. “This says a lot for a person who couldn’t afford a credit card in 1980,” says Yucatán journalist Mario Menéndez.[2] The institution Hernández acquired had long been a symbol of nationalistic passion. It was the venerable Banco Nacional de México, or Banamex. When the sale went through, Mexicans were furious. To sell the Banco Nacional was to sell Mexico. But under Salinas, the move was inevitable. The daily El Universal could only mourn the loss of the “jewel in the crown of Mexico’s banking system.”
Then hard times fell with the 1994 peso crash. Banamex was among the many privatized institutions that turned, tails between their legs, to the government for help. And they got it. Most of the country’s top corporations received billions in financial bailouts under a program called the Banking Fund to Protect Savings (FOBAPROA). By the late 1990s, Mexicans—many of whom saw their own small, family businesses collapse—were outraged at seeing public funds going to salvage the ruling party’s wealthiest cronies. But politicians argued that to keep Mexico’s economy going, the FOBAPROA bailouts had to continue. Across the board, billions in debts were forgiven or restructured under generous terms. Banamex was able to get $3 billion in overdue debts covered by the FOBAPROA plan.
This past May, it was announced that Banamex had been sold to the U.S. giant, Citibank, for $12.5 billion. Roberto Hernández, estimated to own more than half the bank’s parent company, walked away from the deal with at least $6 billion in his pocket, plus a seat on Citicorp’s elite board of directors. Among the many shocking revelations that continue to surface about FOBAPROA, the Citibank deal is one of the worst. Citibank had lent Mexico large amounts of money to bail out institutions such as Banamex, and in the end, made a nice profit doing so. In 1998, for example, the bank lent $2.5 billion to FOBAPROA to help Mexican business recover from the peso crash. “Citi” counted on receiving five years’ worth of payments with hefty interest, estimated to be $120 million per year for the life of the loan. But in May 2000, FOBAPROA’s successor, now called the Institute for Protection of Bank Savings (IPAB), abruptly paid off the balance—and used a loan from Banamex to do it. Facing the prospect of losing millions in interest, Citibank furiously went after IPAB with a lawsuit. The case was finally settled when IPAB issued Citi a $3.09 billion ten-year maturity note. Now, a year later, the U.S. bank was buying a debt-free, bailed-out Banamex, and Mexican taxpayers, through IPAB, were repaying the bailout loans to both Citibank and Banamex.
Bad as it was, the bailout was not the worst scandal Banamex has weathered. In 1998, the bank found itself cast as the most prominent victim of Operation Casablanca, the largest money-laundering sting in U.S. history. The bust was dramatic, full of intriguing characters, and made news around the world. A mysterious mortician called “Dr. Navarro” had set up meetings with U.S. undercover agents and Mexican bankers. Together, they brokered deals to launder money for Colombia’s Cali drug cartel. More than 160 people were arrested—though many were later acquitted—and Banamex was indicted on money-laundering charges. To the chagrin of the Mexican government, Treasury Secretary Robert Rubin (now a director of Citibank) and Attorney General Janet Reno proudly announced the arrests at a Washington press conference. Banamex pleaded guilty and was slapped with fines and a cease-and-desist order to halt practices that facilitated money laundering. The Citibank-owned Banco Confía was also indicted. It forfeited $12 million in seized funds.
Citibank, too, has been under money-laundering lenses for setting up offshore accounts on behalf of the ex-president’s brother Raúl Salinas. And in both U.S. and Mexican media, Citibank has been linked to Mexican dirty money, to Juárez Cartel operations in South America, and to the Hank family’s purchase of Laredo National Bank with questionable funds and, according to the Federal Reserve Board, illegal methods.[3] But Citibank, with high-level players like former Treasury Secretary Robert Rubin on board, has quietly survived the money-laundering inquiries for half a decade now. It has preferred to lie low and let the press vent away, even while it faces congressional probes and law enforcement investigations in four countries. So far, the bank has come up smiling.
President Vicente Fox is clearly delighted with the Citibank-Banamex merger. “We consider that this step, this investment by Citibank with Banamex, will promote more optimism, more growth,” he said when the news broke. Fox’s critics, however, have charged that the merger means that 80 to 90% of Mexico’s financial infrastructure will be foreign-owned. For Mexico’s first non-PRI president in over 70 years, the outraged reaction to his Citibank stance may well signify that his honeymoon is over.
When Citicorp’s purchase of Banamex went through, it acquired yet another thorny problem. Banamex is in the process of suing two journalists in Mexico who had published detailed reports of cocaine deliveries found on ex-CEO Roberto Hernández’s private Cancún beach. Citicorp not only acquired the bank, it also acquired a defamation lawsuit and all the problems that entails.
Unlike Citibank, a number of Mexican corporations, including Banamex, have decided not to turn the other cheek to media criticism and investigation. They are counterattacking, and they are using the U.S. legal system to do it. This is a trend that really began to take hold in the late 1990s. First, there were what one congressman called the “narco-lobbyists.”[4] He was referring to the well-connected Washington law firm of Akin, Gump, Strauss, Hauer and Feld, which represented the Mexican transport giant TMM. According to DEA and other investigations, TMM has been the shipper of choice for a number of confiscated drug cargoes. In 1999, tired of negative press, the company hired Akin Gump to lobby against a new bill called the Drug Kingpin Act. The controversial act empowers law enforcement officials to put together a list of foreign businessmen believed to be linked to drug trafficking. The idea is to keep the targeted individuals, including such notables as Tijuana cartel heads Ramón and Benjamín Arellano Felix, from conducting business activities in the United States. When the bill was first under consideration, TMM officials worried their company might show up on the hot list. So they hired Akin Gump to lobby congress. The goal was to weaken or even kill the bill, which was also under attack by civil libertarians, due to its potential for McCarthyesque abuse.
Akin Gump was not the only lobbyist trying to dilute the bill. Rumor had it that law enforcement agents were also aiming to put Carlos Hank Rhon on the hot list. So Hank Rhon’s Texas bank hired Bush family friend Ben Barnes to lobby when the act came up for budgetary approval in early 2000. In the end, the “narco-lobby” efforts didn’t work; the Drug Kingpin Act passed and was funded, though when the list came out, neither TMM nor Carlos Hank Rhon were on it. Hank Rhon’s bank then began battling its perceived enemies on other fronts, most notably the courtroom. In 1999, LNB initiated a lawsuit against investment consultant and sometimes muckraking reporter Christopher Whalen, who testified about the Hank family’s alleged ties to drug trafficking before a senate subcommittee. Whalen was hit with a suit that charges him with “tortious interference” in the bank’s business affairs. As that case unfolds in south Texas, evidence has emerged that shows Whalen was also set up in an elaborate entrapment plan—a phony business deal—engineered by the bank in an attempt to gather evidence against him. The case is still underway in Laredo, Texas.
As of press time, judges there appear to favor the bank. No evidence regarding Whalen’s entrapment, for instance, has been allowed into the court record, even though a key witness admitted in a Federal hearing that he was hired by the bank to go after Whalen because he “had published articles that were negative toward the Hank family.”[5] Ironically, on May 31, the same day Hank Rhon and the Fed announced their settlement, Whalen struck back and filed a counter-suit, charging Carlos Hank and his bank with libel, abuse of process and causing emotional distress.
Meanwhile, another lawsuit by LNB on behalf of Carlos Hank Rhon and his top employee Gary Jacobs drives the attacks into a new realm: academia. The suit was filed against professor Donald Schulz at Cleveland State University. Schulz is a researcher of international military issues and is author of a study titled “Narcopolitics in Mexico.” Schulz had been identified by the Wall Street Journal as the probable source of a government document called “White Tiger,” which included a summary of various criminal investigations of the Hanks and Jacobs. In early 1999, the White Tiger summary began to fall into the hands of reporters who described some of its allegations. Most inflammatory was a section of the document that called the Hanks “a significant criminal threat to the United States.” It was a quote heard round the world, and the Hanks and their bank decided to hit back.[6]
Schulz received a threatening letter from the Hanks’ lawyer, demanding he give reasons why Carlos Hank Rhon shouldn’t sue him. Schulz says he had “a sinking feeling in the pit of the stomach.” A few months later, a man came to the door with a thick packet. “He informed me I was being sued,” says Schulz, “and I think my response was ‘Lovely.’”[7] Schulz is charged with spreading false and defamatory information on the Hanks and their businesses and associates.
LNB’s lawyers have indicated that journalists who reported on the White Tiger documents will be made to depose in the Cleveland case, among them Dolia Estévez of El Financiero, Douglas Farah of the Washington Post and Insight magazine’s Jamie Dettmer. With ten unnamed co-defendants—called “John Does” for now—and the bank’s lawyers calling for damages of over $100 million, the case is “almost surreal,” says Schulz. “The object,” he wrote to his academic colleagues, is “to intimidate other researchers, scholars and journalists in order to deter them from investigating the Hanks and their associates.... Whalen, myself and probably others are to be made object lessons to those who might be tempted to write or provide information on these matters.” Schulz worries that others will be encouraged to adopt similar tactics.[8]
Now Banamex has joined the fray. It filed a defamation suit last year against Yucatán journalist Mario Menéndez, who publishes the daily newspaper Por Esto!, and Al Giordano, publisher of a lively, rabble-rousing Website called Narco News. Giordano is an expatriate New Yorker and former writer for the Village Voice and the Boston Phoenix, now living “somewhere in a country called América”—in Mexico, actually.
Menéndez has a long and colorful history of covering insurgent movements in Mexico, and in earlier times, he was jailed and his newspaper shut down because of his outspoken reporting. So it was no surprise that he would tackle the big boys in Yucatán. His team dug up some interesting evidence on what he calls the “Cocaine Peninsula” of Yucatán. Por Esto! reporters found remnants of cocaine packages, along with bits of debris manufactured in Colombia, washed up on a beach owned by Roberto Hernández. The paper covered the story with huge photos of the property, next to images of stacks of kilos of cocaine, and the Mexican Air Force corroborated that arrests had been made there. Menéndez believes that the Banamex president’s property and airstrip were the delivery site for large cocaine shipments from Colombia. Hernández has simply claimed he has no responsibility for what washes up on his shore.
Banamex tried to sue Menéndez twice in Mexico for libel, but both attempts were thrown out of court. One of the judges refused to try the case because, he said, “all the accusations [in the newspaper]…were based on fact.”[9] Having lost at home, Banamex took the case to the United States, and several factors were used to place the trial in New York. First, Menéndez and Giordano had appeared at a speaking engagement in the city; both were interviewed by a reporter from the Village Voice; and finally, as an Internet site, Narco News can be read on computers in New York, just as anywhere else. It is this last bit of logic that raises the hackles of civil libertarians and Internet publishers.
The case brings up serious questions regarding Web sites and legal jurisdiction. Giordano sees this as cause for concern for all Internet publishers: “If a Mexican bank can sue a Website published from Mexico, uploaded directly to a data center in Maryland, over stories that were reported, investigated and written in Mexico, where all the facts and supporting witnesses and evidence are in Mexico, and they can somehow bring suit in New York, then no journalist or Website anywhere is safe from this kind of harassment.”[10]
The suit has “devastating implications,” says Giordano. “A big chill will occur, especially regarding reporting on banks and other large institutions, if Banamex is allowed to proceed.… Banamex wants to be untouchable, so that you can’t touch them, not even with the petal of a rose.” Giordano promises an interesting discovery phase. He plans to subpoena Alfredo Harp Helú, chairman of Banamex, and ask him what internal investigations were conducted by the bank concerning the allegations against Hernández. “Later comes the fun part,” Giordano says, “the depositions and the trial. Fun, I say, because Banamex and Akin Gump have inadvertently handed us a way to get the facts out there internationally.”[11] Now that Citibank has become a party to the suit, he plans to subpoena depositions from Robert Rubin and Amy Elliot, the “private banker” who handled secret offshore accounts for Raúl Salinas and Carlos Hank Rhon. Tom McLish, the Akin Gump attorney representing Banamex in the case, did not return phone calls asking for comment.
The Narco News case has begun to attract attention in the United States. Gary Webb, the reporter who broke the story of CIA-Contra-cocaine links in his “Dark Alliance” series in the San José Mercury News, wrote a support letter for Giordano’s defense. “Make no mistake. This court fight isn’t about any particular story Narco News has done,” wrote Webb. “It’s about ALL of them, and all of the ones yet to come. And it’s a battle over the continued independence of Internet journalism as well.”[12]
So far, the courts have upheld the banks, allowing them to file what many see as frivolous charges against individuals they perceive as threatening. In both countries, journalists hold their breath, awaiting the fates of the researchers and reporters accused. Professor Schulz worries that he cannot afford the drawn-out legal wars ahead. Menéndez, however, is confident he will triumph, and is ready for the long fight. “They never imagined that I would go as high as the Supreme Court to defend myself,” he told Mexican investigative reporter José Martínez.[13]
Giordano is vocal in his backing of Menéndez.[14] “They see him as a threat,” he says. “And he is a threat to the Salinistas, the Zedillistas and the Foxistas, because they can’t control him. Nobody can.” Gary Webb believes that in the courtroom, the real story of the ties between business and the narco industry may begin to emerge. “If this case goes to trial,” he says, “that’s when Narco News will triumph. And all of us will win with it, as the real facts of the corruption of the international drug war come to light in the media center of New York.”[15] Giordano is confident: “This is going to be very interesting when and if Mario and I take the witness stand in New York.”
ABOUT THE AUTHOR
Julia Reynolds is the editor of El Andar magazine and recipient of the 2000 New California Media Award for investigative reporting.
NOTES
1. “Does free Market Reform Unintentionally Undermine Drug Market Prohibition? The U.S.-Mexico Experience,” Testimony of Peter Andreas, Research Fellow, the Brookings Institution, before the House Subcommittee on Crime, U.S. House of Representatives, January 25, 1996.
2. Interview with Mario Menéndez, by José Martínez, January 15, 2001: “Banamex, the shot from the barrel: Roberto Hernández, Economic Power, and Narco-Politics,” translated from El Boletín Mexicano de La Crisis, and published on NarcoNews Website: www.narconews.com.
3. The 60+ page Federal Reserve document orginally filed on the case found that Carlos Hank Rhon violated banking laws.
4. The Associated Press State & Local Wire November 5, 1999 quotes Rep. Bill McCollum. R-FL: “Sadly, we have discovered in this Congress that we are not insulated from efforts of the kingpins to buy influence and corrupt our political institutions. Their narco-lobbyists were paid well to try to shape and gut this bill through this process. Well, they have not succeeded, fortunately.”
5. Halmos declaration, May 2000, Federal Reserve Board in The Matter of Incus Co. Ltd.
6. Ricardo Cedillo and Gary Jacobs have said in several interviews that they decided to fight back against their detractors; Jacobs told Lowell Bergman of PBS, “those cockroaches in the government are gonna pay.”
7. Telephone interview with Donald Schulz, April 2001.
8. Letter from Schulz to American Political Science Association, December 2000. Published on www.apsanet.org.
9. See El Boletín Mexicano de La Crisis, January 15, 2001.
10. Email interview with Al Giordano, May 2001.
11. Email interview with Al Giordano, May 2001.
12. Open letter from Gary Webb, published on NarcoNews Website: www.narconews.com.
13. Interview with Mario Menéndez, by José Martínez, January 15, 2001: “Banamex, the shot from the barrel: Roberto Hernández, Economic Power, and Narco-Politics,” translated from El Boletín Mexicano de La Crisis, and published on NarcoNews Website: www.narconews.com.
14. Email interview with Al Giordano, May 2001.
15. Email interview with Al Giordano, May 2001.
