More on When US Corruption Collides with Mexican Corruption (Part II)

Les Schaffer schaffer at
Sun Feb 18 18:58:12 MST 2001

[ Part II ]

Estévez cited the date of the memo (August 3, 1995) as well as the
pages that referred to the Hanks. And in fairness to the Hanks, she
reminded her readers that the committee is chaired by Senator Jesse
Helms, widely known to have a strong anti-Mexico disposition. Hank
González, she wrote, was a close associate of President Salinas and
leader of the Dinosaurios -- the retrograde defenders of position,
power, and the old politics of the P.R.I. Some of the huge fortune
amassed by former president Carlos Salinas de Gortari, now in
self-imposed exile in Ireland, was deposited at Laredo National Bank,
according to the Foreign Relations Committee report Estévez cited.
Last June Estévez reported that the Hanks were the target of a drug
task force investigation documented in a report leaked to her from a
source at the National Drug Intelligence Center. The story was quickly
picked up by the Washington Post, and although no one at the
intelligence center will discuss the report, its existence was
confirmed when the D.E.A. investigation extended to Costa Rica.

Kathleen Daly at the U.S. Embassy in San José told the press the
report was "extremely confidential" and could not be released. "As a
final point we were informed that the investigation of the Hank
González organization in the United States is ongoing and therefore it
is not appropriate to comment on any possible accusations of criminal
activity," she said in an interview quoted in Proceso.

In November, Proceso published the full text of a confidential U.S.
Customs Service Report on Operation White Tiger, which referred to the
white Siberian tiger customs officials confiscated from Jorge Hank
Rhon in 1991, when he tried to smuggle the animal into Mexico through
San Ysidro, California. Carlos Hank González' younger son is the
enfant terrible of the Hank family. Jorge Hank owns the Agua Caliente
horse track in Tijuana and several off-track betting parlors in
Mexico. "My only vice is animals," he told Proceso, referring to the
horse track, the tiger, and a chimp and gorilla he was caught
illegally shipping into Mexico -- as well as a separate incident at
the Mexico City airport where customs agents discovered his suitcase
was packed full of skins of rare, protected animals.

Jorge Hank also owns the Tijuana daily, El Heraldo. Since 1988, he has
been the indirect subject of a standing ad in the Tijuana weekly Zeta.
Paid for by Zeta publisher Jesús Blancornelas, the ad has nothing to
do with the fights over circulation and ad revenue that normally
animate fights between rival publications. It demands that the
government prosecute the "intellectual author" of the assassination of
Héctor "el Gato" Félix, the Zeta co-editor and columnist murdered by
Antonio Vera Palestina and Victoriano Medina. At the time of the
murder, Vera Palestina, the former bodyguard of Carlos Hank González,
was Jorge Hank Rhon's bodyguard. Medina worked as a security agent at
Jorge Hank Rhon's Tijuana racetrack. Both men are serving prison terms
for the murder.

(Blancornelas himself was shot and critically wounded in a 1997
assassination attempt in which his bodyguard was killed while shooting
at the assailants.)
The customs report reprinted in Proceso also focuses on Transportacíon
Marítima Mexicana, a shipping company controlled by Carlos Hank; the
Tijuana race track; and Laredo National Bank. It also provides details
about alleged drug dealing and money laundering by the Hank
enterprises.  None of this has anything to do with federal banking
law, but Federal Reserve lawyers would have to be blind to miss
it. "The enforcement and supe supervision] people at the Fed don't do
criminal investigations," a former Fed employee said. "They license
and supervise banks, it's all financial. But they do pay attention to
this sort of stuff."

It appears that they are paying attention. A Fed legal staff
memorandum subpoenaed in the Washington proceeding cites a September
11, 1996, news story in which Reuters reported that "Mexican officials
have discovered additional U.S. bank accounts belonging to former
President Carlos Salinas' brother Raúl Salinas that may have been used
to launder illegal drug money.

Reforma, a Mexico-City daily, reported that one of the accounts being
investigated by Mexican and U.S. officials is at the LNB], which is
located just over the border in Texas and owned by Mexican financier
Carlos Hank Rhon.... The government documents show Salinas may have
used the U.S. accounts to transfer money to and from large secret bank
accounts in Switzerland that were discovered late last year."

Subpoenas issued by the Federal Reserve staff also request information
dating from 1991 for eighteen companies, including Incus, Kline, and
Grupo Financiero Interacciones (a Hank family holding company). The
Hanks began acquiring LNB shares in 1991. Also subpoenaed are records
of transactions believed to be related to money laundering involving
Mr.  Hank Rhon, Raúl Salinas, and Juan Gómez. Juan Gómez is the name
on a Mexican passport Swiss authorities seized from a safety deposit
box in a bank in Zurich. On the passport was a photo of Raúl Salinas,
the brother of former Mexican President Carlos Salinas. Swiss
authorities seized $90 million from Raúl Salinas' accounts. Raúl
Salinas is in prison in Mexico.

"After taking into account the size of Hank Rhon's financial
resources, his good faith, the gravity of the violations, the history
of previous violations, and such other matters as justice may require,
the Board of Governors hereby assesses a civil money penalty of
$10,000,000 against Hank Rhon...." reads the complaint. In similar
language, the Fed's legal staff recommends $31,100,000 in fines for
Incus, the Hank's holding company in the British Virgin Islands.

"We intend to have this matter taken off the table," said Richard
Bickler, the Fulbright & Jaworski attorney representing Hank Rhon. In
an abbreviated telephone interview, Bickler said the Fed's charges
have no merit. (He has returned no calls since an initial conversation
and is speaking through Robert Siegfried of New York.) Should they
lose the first round, Hank Rhon and Incus can appeal before the
Federal Reserve Board, and then in the Federal Court of Appeals in
Washington, D.C.

In Court in laredo?
What does all this have to do with Christopher Whalen? LNB alleges
that Whalen cost the bank its opportunity to purchase Mercantile in
Brownsville, which was ultimately acquired by Norwest Bank.  Whalen,
who once published a business newsletter called The Mexico Report,
wrote about the Hanks, and was on one occasion called before a House
Banking subcommittee, where he testified about their business
interests. The bank's lawyers claim he later provided the Federal
Reserve Board with information that damaged the bank -- and that he
did it for his own personal gain.

Yet one document in possession of the Federal Reserve's Washington
legal staff and Hank Rhon's Washington lawyers suggests that Citibank
might have pointed the Fed toward Laredo. The Fed's summary describes
a meeting the Fed's staff held with Citibank -- at the request of
Citibank. "At the meeting, the Citibank representative provided
information concerning possible violations of banking laws and
misrepresentations to the Board that had come to the attention of
Citibank's attorneys."

Citibank -- for years the only U.S. bank with a branch office in
Mexico -- has had problems of its own. It was through "Citi" that Raúl
Salinas moved much of his money out of Mexico and on to
Switzerland. The New York Times and the Washington Post have reported
on Salinas' dealings with Amy Elliott, his personal banker in
Citibank's New York office. It has also been reported in the Mexican
and U.S. press that Carlos Hank Rhon provided Raúl Salinas suggestions
on how to get his money out of Mexico.

LNB's suit against Whalen is still focused on jurisdiction -- whether
the case can be tried in state district court in Texas. In a court
appearance on February 23, Laredo National Bank's attorney Richard
Cedillo argued the merits of a long-arm provision of Texas law, which
holds out-of-state defendants responsible for actions committed in
another state if the effects of the action are felt in Texas. He also
claimed that Whalen's ownership of a Texas corporation, Legal Research
International, makes him subject to Texas tort law.

Whalen's local counsel, John Convery, argued that Whalen never owned a
Texas business. He had once considered a joint business venture with a
Houston resident. When the company was incorporated, Houston
businessman Billy Flanigan listed Whalen as officer -- admittedly (in
Flanigan's deposition) without Whalen's consent. Flanigan, the elderly
co-defendant from Houston, seemed bewildered and angry to have been
dragged into court to provide Laredo National Bank with Texas

His February 7 deposition is antagonistic, hostile, and filled with
monosyllabic responses. One non-responsive response Flanigan offered
summed up his frustration. "No," he said to a question about contacts
with government officials. He added, "I believe that I have been
wrongfully named. My company has been wrongfully named. And I am not a
party to this case." He is. Unless the judge dismisses him. Or Laredo
National Bank drops him, which would eliminate one of their
jurisdictional claims to keep the case in a Texas court.

Christopher Whalen's deposition was ultimately held in Judge Salinas'
courtroom. It's more revealing than Flanigan's, in part because Whalen
was too forthright. And it returns to the backstory of the Fed's
investigation of LNB: drugs and federal drug enforcement officials.

In 1998, in a statement he now regrets, Whalen advised a Florida
investor shopping for a bank that LNB's request to buy Mercantile
National bank would not be approved by the Fed. "In terms of your
negotiating strategy," Whalen wrote in a letter to the potential
buyer, "you should be mindful of the fact that the Fed, through
regulatory inaction, did not permit LNB to purchase Mercantile Bank in
Brownsville (through my efforts and those of others)..." Whalen claims
his comment "through my efforts" was hyperbole. "It was overblown and
inflated. It was hyperbole on my part." Laredo National Bank isn't
buying Whalen's hyperbole argument.

The "others" were federal drug enforcement agents, whose names Whalen
tried to avoid revealing until Judge Salinas ordered him to provide
them. In his deposition, Whalen states that because he knew Mexican
finance, he was contacted by D.E.A. agents inquiring about Carlos Hank
Rhon. (The officers named, according to D.E.A. agent Vincent Rice in
San Diego, were local police officers assigned to D.E.A. task forces.)
Whalen passed the contacts on to the Fed when their investigators
called on him. Throughout his deposition, Whalen repeated that it was
the Hank family and not Laredo National Bank that investigators from
the D.E.A.  and the Fed wanted talk about. "I indicated to him that I
had been contacted in the past by a variety of law enforcement
organizations, primarily the D.E.A., who had interest in or ongoing
investigations of connections between the Hank family and drug
trafficking and money laundering," Whalen said. Whalen also said he
once asked former U.S.  ambassador to Mexico Jim Jones about the Hanks
and was told "I really don't think there's anything there." (An odd
fact revealed in questions about the Fed is that Whalen's father is a
longtime friend of Fed Chairman Alan Greenspan.)

Their bank's attorney also pressed Whalen for information about
Citibank. Does he have any relationship with Citibank? Does he know a
Citibank employee named Amy Elliott? "Any relationship with Philip
Jordan? Do you know who Phil Jordan is?" Whalen answered no to each
question, which suggests that he might not be the best source on
current affairs in Mexico. As has been widely reported in the
U.S. press, Amy Elliott is the bank officer in New York who handled
the personal affairs of Raúl Salinas. Philip Jordan is a former
D.E.A. agent living in El Paso, who has been openly critical of the
agency's failure to aggressively pursue big players in Mexico and is
frequently quoted in drug-related stories.

LNB's lawyers are also looking for information from federal drug
agents.  Richard Cedillo subpoenaed fourteen separate items from
federal drug enforcement agencies. The Assistant U.S. Attorney in
Laredo responded by promptly moving the subpoena to federal court in
Laredo: "Laredo National Bank had a long laundry list, a long list,"
Hector Ramírez said. "And the agencies said we can agree to release
documents listed in items one and two. And we released the documents
in items one and two, and that's where we are." Ramírez said the
U.S. attorney's office provided Laredo National Bank with some
information from the National Drug Intelligence Center and implied
that further requests for drug agency information will have to be

Whalen was also asked about his contacts with the press: Knute Royce
of Newsday, Michael Allen of the Wall Street Journal, and finally
Dolia Estévez of Financiero, who has written extensively on the Hanks.
Estevéz is the only Mexican reporter writing extensive stories about
the Hank's fight with the Federal Reserve. She has even briefly
covered the Laredo Bancshares suit against Whalen.

Attempts to speak to Gary Jacobs in Laredo, Richard Cedillo in San
Antonio, and attorneys representing Hank Rhon and Incus in Washington,
D.C., resulted in a response from a public relations firm in New York.
Responding to calls and faxed questions sent to Akin Gump and
Fulbright & Jaworski's Washington offices, and to Richard Cedillo's
office in San Antonio, bank spokesperson Robert Siegfried responded
for all three lawyers, by telephone and email:

<Your questions appear to confuse two separate actions -- Laredo
National Bancshares litigation against Christopher Whalen and the
Federal Reserve's inquiry conducted by its staff with respect to
Carlos Hank Rhon of which Laredo National Bank is not a party. With
respect to the Whalen litigation, Laredo National Bank clearly lays
out its charge that Whalen specifically interfered with an executed
contract of purchase between Laredo and Mercantile and that, as a
result, Laredo has been harmed by this interference. Laredo National
Bank has brought these proceedings to prove just that. Beyond this, we
have no further comment, other than to say that the facts and
information in this case speak for themselves. In terms of the Federal
Reserve inquiry with respect to Mr.  Hank, Mr. Hank and his
representatives have made it quite clear that the inquiry is without
merit and will be shown to be just that. In summary, neither
litigation is determinative of the other.>

Siegfried also called the Fed action inconsistent with of the "intent
and spirit of NAFTA."

Whalen's attorneys point to a timeline they claim will establish that
he could not have interfered with the case before the Fed, and argue
that no one individual can move the Federal Reserve in the way the
plaintiffs claim -- unless that individual is Alan Greenspan. (Part of
LNB's claim is that information provided by Whalen so slowed the Fed's
consideration of the attempt to acquire Mercantile that the
opportunity was lost.) In Judge Salinas' courtroom, Whalen's lawyers
said their client was contacted by Fed investigators and asked for
information. He put them in touch with the D.E.A. officers who had
called him earlier to inquire about the Hanks, the lawyers insist. The
Federal Reserve, they add, is responsible for LNB's problems.

The lawsuit in Texas is grinding forward and thus far has amounted to
discovery, depositions, and two court hearings. After one hearing that
included a loud, angry discussion at the judge's bench, John Convery
stopped at the back of the courtroom and commented on the cattle
custody suit heard earlier in the day.

"What a great plaintiff," Convery said. "The kind of guy every lawyer
wants on the stand. Honest, sincere, eloquent."  In Laredo, Judge
Salinas is expected to rule on jurisdiction for the Whalen suit within
a month. In Washington, the Hanks and Incus requested a private
hearing, claiming that the "'airing of private and personal business
affairs' could act as a disincentive for foreign investors with
unidentified repercussions in Mexico." The Federal Reserve Board
rejected the request and ordered a public hearing, scheduled for

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