National Drug Intelligence Center   Los Angeles High Intensity Drug Trafficking Area Drug Market Analysis 2008   June 2008   UNCLASSIFIED

Abuse

Methamphetamine is by far the principal drug of abuse in the Los Angeles HIDTA region. California Outcomes Measurement System (CalOMS) data--formerly the California Alcohol and Drug Data System (CADDS) data--indicate that the number of drug-related treatment admissions for methamphetamine as the primary substance of abuse in the HIDTA region was significantly higher than for any other drug, including alcohol, every year since at least Fiscal Year (FY) 2005. (See Table 8.) Heroin was the second most popular primary drug of abuse each year during that period but the number of heroin-related treatment admissions declined annually during that period. The number of marijuana-related treatment admissions in the HIDTA region, which surpassed the number of cocaine-related treatment admissions for the first time in FY2005, increased annually from FY2005 through FY2007. The number of cocaine-related treatment admissions in the Los Angeles HIDTA region fluctuated at relatively stable levels during that 3-year period.

Table 8. Treatment Admissions in the Los Angeles HIDTA Region, by Primary Drug of Admittance, FY2005-FY2007^a

Source: California Outcomes Measurement System.
a. Fiscal Year (FY)-July 1 through June 30.

Illicit Finance

Mexican DTOs and criminal groups--the primary money launderers in the Los Angeles HIDTA region--often smuggle bulk quantities of cash and monetary instruments generated through their drug trafficking activities into Mexico using the same private, rental, and commercial vehicles used to smuggle illicit drugs into the Los Angeles HIDTA region. They prefer this method because smuggling currency and other illicit goods into Mexico is relatively easy since outbound searches by CBP officers at POEs usually are limited because of manpower shortages. They smuggle additional quantities of bulk drug proceeds using private and commercial aircraft, ocean freighters, containerized cargo vessels, and express shipping into Mexico to be laundered. When their operations involve containerized cargo, the currency often is smuggled in vehicles manifested for South America and Asia. Much of the proceeds they smuggle are intermingled with proceeds generated in the other U.S. drug markets that they service. Once in Mexico, the proceeds often are deposited into Mexican financial institutions, including casas de cambio (exchange houses) and banks, for eventual physical transportation back to the United States or electronically through wire transfers and declared as legal funds. They launder additional funds through the Black Market Peso Exchange (BMPE) and/or by structuring deposits (also known as smurfing). In a typical BMPE exchange, agents or money brokers in the United States receive proceeds generated through drug trafficking and other illicit means, provide those funds to merchants, usually Colombian, to purchase U.S. goods, which are then converted into seemingly legitimate funds. Other criminal groups, street gangs, OMGs, prison gangs, and independent dealers also transport drug proceeds in bulk from the region, but to a lesser extent than Mexican DTOs and criminal groups.

Mexican and various other DTOs and criminal groups exploit traditional financial institutions and money services businesses (MSBs) in the Los Angeles HIDTA region by transferring vast sums of illicit funds to international locations, including Mexico and South America. Their utilization of this money laundering mechanism is evident in Los Angeles' notoriety as a principal area for Currency Transaction Report (CTR) and Suspicious Activity Report (SAR) filings in the United States.¹⁷ Although these filings may indicate suspicious activities, the specific origin of illicit funds, such as drug trafficking or illegal alien smuggling, cannot be determined, which makes detection by law enforcement difficult.

DTOs and criminal groups, primarily Mexican and Asian, in the Los Angeles HIDTA region also launder drug proceeds through money transmittal businesses located in their own communities. Some transfer funds using small, local businesses or commercial businesses such as Western Union; others maintain private transmittal businesses to further their criminal enterprises. Owners of the large number of money transmittal businesses in the HIDTA region serve the sizable Hispanic population in the area by legitimately wiring money to requesters' family members in Mexico, which helps those that use the service for illicit purposes more easily blend with the high volume of legal transfers. Additionally, some traffickers, particularly Asian criminal groups, launder money through informal value transfer systems (IVTS),¹⁸ including hawala, hundi, and fei ch'ien.

Traffickers in the Los Angeles HIDTA region also regularly launder illicit proceeds through a variety of other methods. They commonly commingle illicit proceeds with funds from legitimate businesses such as automobile dealerships, retail stores, real estate companies, and restaurants; purchase high-value assets with the funds; and use gaming casinos to launder drug proceeds. Traffickers also are using the Internet more often to launder money using electronic pay and/or transferring accounts. The anonymity afforded by Internet transactions allows traffickers to launder drug proceeds with minimal risk of law enforcement detection.

End Notes

17. Financial institutions in the United States are required to complete Suspicious Activity Reports (SARs) for various suspicious transactions, including those totaling $5,000 or more that involve potential money laundering violations or violations of the Bank Secrecy Act (BSA). Financial institutions and money services businesses (MSBs) in the United States are required to file Currency Transaction Reports (CTRs) for all cash and coin transactions exceeding $10,000.
18. Informal value transfer systems (IVTS) refer to any network or mechanism that can be used to transfer funds or value from place to place either without leaving a formal paper trail of the entire transaction or without going through regulated financial institutions. IVTS are legitimate businesses and are considered to be official MSBs. They must register with Financial Crimes Enforcement Network (FinCEN) and are subject to the same regulatory requirements as all other MSBs. Nonetheless, many of them may be unregistered and operate without the scrutiny of law enforcement. This type of IVTS is commonly referred to as a hawala--an Arabic word meaning transfer--and is based on trust. Hawalas usually provide money transfers to and from areas in which modern financial services are often unavailable, inaccessible, or unaffordable. Hawala businesses may be operated at virtually any business location or private residence that has access to a communications network; modernized or contemporary hawalas use the services of traditional financial institutions.

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