National Drug Intelligence Center   Los Angeles High Intensity Drug Trafficking Area Drug Market Analysis 2009   April 2009

Abuse

Methamphetamine is the principal drug of abuse in the Los Angeles HIDTA region. Data from the California Outcomes Measurement System (CalOMS)--formerly the California Alcohol and Drug Data System (CADDS)--indicate that the number of drug-related treatment admissions to publicly funded facilities in the HIDTA region for methamphetamine as the primary substance of abuse was significantly higher than that for any other illicit drug from 2006 through 2008, despite a steady decline of reported admissions during the same period. (See Table 8.) Heroin was the second most popular primary drug of abuse each year from 2006 through 2008, but the number of heroin-related treatment admissions declined annually during that period. The number of marijuana-related treatment admissions in the HIDTA region increased annually from 2006 through 2008. The number of cocaine-related treatment admissions in the Los Angeles HIDTA region trended downward but remained relatively stable during the 3-year period.

Source: California Outcomes Measurement System.

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Illicit Finance

Mexican DTOs and criminal groups are the primary money launderers in the Los Angeles HIDTA region. They 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. Moreover Mexican DTOs and criminal groups smuggle bulk drug proceeds using private and commercial aircraft, ocean freighters, containerized cargo vessels, and express shipping into Mexico. Operations involving containerized cargo often have currency smuggled in vehicles manifested for South America and Asia. Most of the proceeds smuggled from the region are intermingled with proceeds generated in the other U.S. drug markets. Once in Mexico, the proceeds 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. Additional funds are laundered 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 and 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, which is a principal area for Currency Transaction Report (CTR) and Suspicious Activity Report (SAR) filings in the United States.13 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 who use the service for illicit purposes to blend more easily with the high volume of legal transfers. Additionally, some traffickers, particularly Asian criminal groups, launder money through informal value transfer systems (IVTSs),14 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 are also 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.

Footnotes

13. 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.
14. Informal value transfer systems (IVTSs) are 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. IVTSs 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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