US Treasury Department steps in to cut drug money laundering in LA fashion district

Federal officials are cracking down to try and curb money laundering in Los Angeles's fashion district after a big bust last month.

The United States Treasury department is clamping down and trying to track drug dollars funneled through the fashion district, which officials call the epicenter for drug money laundering in the area.

Some 2,000 businesses in the L.A. fashion district will now have to do a lot more reporting of cash deals.

Those businesses will be required to report transactions whenever more than $3,000 cash trades hands. The Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, issued the order this afternoon. It's called a Geographic Targeting Order, or GTO.

Piles of cash — as in millions and millions

More than a thousand federal, state and local law enforcement officers raided the L.A. fashion district last month. Agents hauled out $90 million — much of it in cash — with piles and piles of bills stuffed in duffle bags, file boxes, backpacks and the trunk of a Bentley.

“It’s sort of mind boggling the amount of money that goes through the system through the illicit trafficking of drugs,” said Robert Dugdale, chief of the criminal division at the U.S. Attorney’s Office in Los Angeles.

He described the fashion district as the epicenter for the illicit activity known as “trade-based money laundering,” or the “black market peso exchange.” Under the scheme, he said drug dealers here buy cargo containers full of televisions, T-shirts and other goods. The stuff is exported south of the border and sold for pesos.

“These businesses in Los Angeles collect this huge amount of narco dollars,” he said. “They ship their product down to a business in Mexico. When the business in Mexico receives that product and sells it, they pass on the proceeds in pesos to the traffickers.”

So no dirty money enters the financial system or moves across the border where it might be detected by authorities or seized, Dugdale said.

The U.S. Attorney’s office is working with other federal agents from the  Department of Homeland Security, Immigration and Customs Enforcement and the Internal Revenue Service to fight the schemes.

"The issuance of this Geographic Targeting Order will assist law enforcement agencies in ferreting out money launderers,” said IRS Criminal Investigations Chief Richard Weber.

“International drug cartels generate billions of dollars a year in profits, but all that cash is virtually worthless unless traffickers can find a way to funnel it clandestinely back into the monetary system,” said Claude Arnold, special agent in charge for homeland security investigations in L.A., in a written statement. “Unscrupulous companies that help the cartels cover their financial tracks are contributing in a major way to the devastation wrought by the international drug trade and they will be held to answer for their actions.”

This story has been updated.