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

Les Schaffer schaffer at
Sun Feb 18 19:01:12 MST 2001

[ bounced > 30 kB from aabdo at (Tony Abdo) ]

Here are two articles that provide an overview of how corruption from
two different elites collide on The Border.

Tony Abdo

by John Bendel • Senior Editor
On Free Trade

Laredo: Bottleneck On The Rio Grande
-Mexican customs brokers have a vested interest in preserving

La Posada Hotel in Laredo, TX, looks across the Rio Grande to Mexico.
Below its terraces, burgeoning U.S.-Mexican trade slows to a crawl for
all to see. The scene resembles a hill of giant ants.

Big trucks inch across the Juarez-Lincoln International Bridge, where
I-35 comes to an end. On the Mexican side, under an animated electric
sign worthy of Times Square, trucks creep through Mexican customs. And
behind the new kennel for drug-sniffing dogs, a slow-motion line-dance
of heavy trucks inches past a U.S. checkpoint.

Visible congestion and increasing trade were much discussed here
during the September conference of the North American Transportation
Alliance — a coalition of carriers, shippers and interested
organizations working to further trucking commerce among the U.S.,
Canada and Mexico under the North American Free Trade Agreement.  But
there is a deeper problem in Laredo — much on the minds of many
conference participants — that was avoided in the public sessions of
the conference.

Since the mid 1980s, Mexico has required that all freight entering
Mexico by truck be pre-cleared for Mexican customs and that all
tariffs and duties be paid before crossing the border. That means
every truck headed for Mexico must stop on the U.S. side for
pre-clearance by Mexican customs brokers.

Even though that function is performed on U.S. soil, Mexican law
demands these brokers be Mexican nationals. The result is an exclusive
and wealthy community of Mexican customs brokers, ostensibly based
across the river in Nuevo Laredo, but with extensive real estate
holdings, lucrative financial relationships and considerable influence
on the U.S. side. NAFTA, which recognizes this system, has increased
trade bringing even more business — and wealth — to the brokers.

Critics claim the customs brokers have unofficial "gentlemen's
agreements" among themselves and with government officials on both
sides of the Rio Grande. That, they say, amounts to a cartel with an
incentive to keep the cross-border traffic moving through Laredo —
very slowly.

Border experts point out the more time it takes to complete Mexico's
pre-clearance requirements, the longer freight can sit in a customs
broker's Laredo warehouse or on a trailer parked in a custom broker's
yard, all the time running up a storage tab paid by shippers.

And brokers traditionally ferry freight across the river in
inefficient one-way hauls using local drayage companies they either
own or have partnerships with. Trailers return empty or tractors
bobtail home, creating more work for the carriers and running up
additional tolls at the crossing bridges. The border cities receive a
piece of the toll money, which along with increased drayage costs are
paid by shippers.

This would remain a local matter but for one thing: U.S.-Mexican trade
is now a $157 billion business and 40% of all U.S.  exports to Mexico
pass through this strategic Texas border town. Laredo is the second
busiest cargo border-crossing (after Detroit and Windsor, Ontario) in
North America. We're talking about a lot of money here, an exorbitant
bill paid by U.S. (and Canadian) corporations and passed on to
consumers on both sides of the border.

Interests on both sides are trying to change the Laredo status quo,
but success is by no means certain. Critics know that for many
reasons, many people don't want things to change.

"I can't say I've been threatened with violence or anything like
that," said a border expert who has been openly critical of the Laredo
brokers. "But I have been warned to tone it down, that there's a file
on me in Mexico City — things like that."

Why wasn't the broker issue a subject of open debate at the Alliance

Good question.

(from The Texas Observer)
Carlos Hank's NAFTA Bank
by Louis Dubose

It's owned by Incus?
-- That's correct?
Who holds the majority of the stock?
-- Incus.
Who owns Incus?
-- Carlos Hank Rhon

On the third floor of Laredo's palatial new court house, in a room
appointed with rose-colored faux marble, extravagant drapery, and dark
hardwood bar, bench, and tables, a plaintiff was telling a cattle
rustling tale. Though it was a tale of modern cattle rustling --
involving show cattle, high-dollar auctions, the implantation of
fertilized eggs, and a business partner doing the rustling -- it was a
case you would expect to be tried in one of the old architectural
monuments Laura Bush is trying to preserve in rural Texas. And if the
claim that "with embryo transfer there is no limit as to how many calves
you can get from one cow" seemed as over the top as Laredo's four-story
monument to justice and county government, the plaintiff was earnest,
eloquent, and compelling. Judge Elma Salinas Ender ruled on a
substantial default judgment that provided $75,000 and attorneys' fees
for the plaintiff and enjoined the defendant from selling any more cows
owned in partnership. The quick resolution of the case provided one of
those sweet moments in a courtroom, when equity is efficiently delivered
and justice is served -- even if the defendant was nowhere to be seen.

It also provided a stark contrast to the case that would follow:
Laredo National Bank's claim that a New York investment banker had
queered the deal when LNB set out to acquire Mercantile National Bank
of Brownsville. Neither of the principals was present -- only the
attorneys. The defense counsel told the judge the plaintiff's counsel
had been "childish and rude." The plaintiff's counsel -- who had
walked out of a deposition in San Antonio after complaining "this is
bullshit" -- told the judge the defense counsel was an
"obstructionist." The judge was being asked to schedule the deposition
in her courtroom, where she could mediate fights between lawyers. No
attorney had yet mentioned the facts and the law. And Judge Salinas,
no doubt looking forward to her next case (a sullen defendant in
handcuffs and an orange jumpsuit, waiting to be escorted into the
courtroom by a deputy sheriff), was only being asked to settle a
question of jurisdiction.

This particular episode of Laredo National Bancshares vs. Richard
Christopher Whalen -- sandwiched between an animal husbandry tort and
a pre-trial hearing of a felony prosecution -- was all pre-trial
posturing. It is also the smaller of two oddly related lawsuits. Part
of LNB's complaint against Christopher Whalen alleges that he provided
the Federal Reserve Board with information damaging to the bank. The
Fed's legal staff, in a separate legal procedure, has taken aim at the
bank's owners. And Whalen is being pressed by the bank's attorneys to
tell them who he talked to at the Fed, and when he talked.

It is evident that the real action is in Washington, where the Federal
Reserve Board is attempting to take Laredo National Bank from its
owner, Mexican industrialist and investor Carlos Hank Rhon. Attorneys
in the Fed's enforcement division have built a detailed factual case
against Hank Rhon, alleging that he played an elaborate shell game
with bank shares and lied about who owns Laredo National Bank. If LNB
wins in Laredo, the bank's lawyers might wring a few million dollars
out of Christopher Whalen. If the Fed wins in Washington, it can
collect $41 million from Hank Rhon, order him to divest himself of his
71 percent ownership in LNB, and bar him from bank ownership in the
U.S. "This is a really big deal," said one former Fed employee in

It is a big deal that involves the Washington offices of two powerful
Texas law firms: Fulbright & Jaworski, which bears the name of
one-time Watergate Special Prosecutor Leon Jaworski; and Akin Gump,
best known for one of its senior partners, former Democratic Party
Chair Bob Strauss of Dallas. There is even a New York public relations
firm hired to do the talking for the Hanks, the bank, and the

It's a big deal because it involves "los Hank," one of Mexico's
richest and politically powerful families. The Federal Reserve Board
is asking, "who owns the bank?" It is also quietly asking, "who are
the Hanks?" The Fed's case is straightforward and built on charges of
misrepresentation about the ownership of the Laredo bank. Yet its
investigation involves the D.E.A., the National Drug Intelligence
Center, and local police department drug task forces -- agencies
rarely involved in chartering federal banks.

Who Owns the Bank?
Through an offshore holding company, which owns Laredo National
Bancshares, which in turn owns Laredo National Bank, Hank Rhon
"controls" 71 percent of the border bank. Bank ownership structure can
be complex, so there is nothing out of the ordinary about shares
moving through Switzerland, the U.S., Mexico, and the British Virgin
Islands.  It's a global economy, and if you think a friendly local
holding company in North Carolina owns your hometown bank in Texas,
you're wrong.

But the Bank Holding Company Act requires banks to provide a full
accounting of who owns controlling interest, and the Fed retains the
right to approve or reject buyers. For decades, Laredo National Bank
had been locally owned. As a large border bank it appealed to wealthy
Mexicans in the habit of keeping dollar-denominated accounts. It has
branch offices as far away as Houston and is the third largest
independently owned bank Texas. Until 1990 LNB had been owned by the
Alexanders and Mandels of Laredo. When Gary Jacobs married into the
Mandel family, he went to work at his father-in-law's bank and
ultimately became president -- a position he still holds today.

In 1990 major shareholders were bought out by what the Fed describes
as "nominees" for clients from Mexico and several European
countries. In 1991, Hank Rhon advised the Federal Reserve that he was
buying 74,000 shares of Laredo National Bancshares Holding Company
stock for $7.4 million. What Federal Reserve board investigators have
learned since, they allege in their "notice of enforcement," is that
Rhon paid an extra $1.2 million for the stock and threw in a luxury
car to sweeten the deal for the seller.

It was the beginning of a bewildering series of moves that seem to
make it impossible to determine who owns Laredo National Bank. Hank
Rhon, the Fed's lawyers also allege, acquired another 93,250 shares of
LNB stock, which he failed to disclose at the time of the
transactions. He also used what in Mexico are known as prestanombres
(borrowed names), acquiring LNB shares in the name of his daughter
Graciela Hank González; his accountant, Agustín López Morales; and
Arturo Mart?nez de la Mora, who managed other Hank Rhon businesses. In
what appears to be a bit of wry humor in their complaint, Fed
attorneys observe: "In arranging to have the shares purchased in the
name of López Morales, Hank Rhon had forgotten that López Morales was
a director of Kline, and therefore was also barred by the commitment
from acquiring additional shares, even if López Morales had held them
on his own behalf." Kline was a Hank Rhon holding company expressly
prohibited, the Fed's lawyers observe, from buying additional stock at
the time.

Money and shares, according to the Fed, moved in circles and those
circles moved. Follow, for example, $10 million, that seems to move from
Laredo to New York to Switzerland and back to Laredo, all according to
allegations in the Fed complaint, at the direction of Carlos Hank Rhon
(who either was or wasn't bringing Mexico City newspaper publisher
Gabriel Alarcón Velázquez into the LNB ownership scheme):

Alarcón agreed to participate in the acquisition of LNB's stock at or
shortly after the time of Hank Rhon's invitation. To fund his
purchase, Alarcón requested that Laredo National Bank grant him a $10
million loan. Laredo National Bank's management agreed to make the
loan, and it was funded on November 19, 1993.  Hank Rhon told Alarcón
to send the funds to Citibank, N.A., where upon Hank Rhon's
instructions, the funds were placed in the escrow account established
to hold in consideration for the shares that Incus had contracted to
purchase from the Swiss shareholders. At the same time, Hank Rhon
instructed Citibank to release back to him $10 million worth of the
peso-denominated mutual fund shares that he had represented to the
Board would be the source of funds for the acquisition.

In 1994, David Peñaloza Sandovál, C.E.O. of one of the largest
construction companies in Mexico, purchased a $21 million interest in
LNB and failed to report it for two years, according to court
documents filed by Federal Reserve lawyers. Two years after the fact,
Hank Rhon, Peñaloza, and a New York law firm drafted contracts
documenting the sale.

Hank Rhon and Peñaloza even established an escrow account, "which
purported to hold the $21,161,845 in escrow, with Hank Rhon as the
escrow agent."

"In fact, the escrow account was a sham," the Federal Reserve
complaint continues, "designed to make it appear that Peñaloza's
acquisition of an equity interest in Incus was pending the Board's
approval, rather than completed, as it actually had been in 1993 and
1994.... Hank Rhon treated the funds in this 'escrow' account as his
own, transferring balances to and from his personal accounts at Laredo
National Bank and at Interacciones" [another Hank Rhon company].

Loans made by LNB also tended to move in circles. The Fed document
describes a $3.5 million loan made to Carlos Oilmon Meraz, Hank Rhon's

"Approximately $3.5 million of this loan were transferred to Palenque,
Ltd., a company of which Hank Rhon was the beneficial owner." Two
years later, in 1993, Oilmon borrowed another $1.5 million. In 1994
the loan balance was transferred to Oilmex, a corporation owned by
Oilmon. "In 1995, that loan went into default, and Laredo National
Bank wrote off at least $2.8 million...," according to the Fed's court
filings.  Listed in the Fed's long and detailed complaint are numerous
incidents in which millions of dollars moved in mysterious ways, many
alleged to be in violation of federal banking law. It was all in the
family. If the extended Hank family of business associates,
brothers-in-law, and close friends worried lawyers at the Fed's
enforcement division, the alleged unauthorized participation of Hank
Rhon's father, Carlos Hank González, could present a problem when Hank
Rhon and his legal team stand before the Federal Reserve Board of
Governors -- a.k.a. Alan Greenspan and the Six Dwarves. Carlos Hank
González, according to the Fed complaint, at one time bought $20
million of LNB stock, without reporting it to federal regulators.

Who are the Hanks?  Hank patriarch Carlos Hank González was born into
fairly modest circumstances. He owes his fortune, which Forbes
estimates at $1.3 billion, to the Institutional Revolutionary Party
that has ruled Mexico for seven decades. He was a schoolteacher and
party operative who went on to serve as a federal congressman from the
state of Mexico, mayor of Mexico City, mayor of Toluca, secretary of
tourism, secretary of agriculture, and director of Mexico's federal
commodities distribution program. (Hank González' c.v. is not unusual
in a country with a constitutional ban on holding any elected office
twice. Because of term limits, politicians move from one office to

It has been observed that Hank González was never president of Mexico
only because his father was born in Germany. The Mexican constitution
requires the president to be the child of Mexican-born citizens of

Manuel Buendía, a nationally syndicated Mexico City columnist who was
assassinated in the eighties, once wrote a wry humorous column about
Hank González' frustration with the constitutional provision that
denied him his six years in Los Pinos -- Mexico's White House. A
Mexican congressman, Buendía wrote, convened a panel of scholars and
ordered them to look for proof that the word "Hank" had its origin in
the language of the Mazahua, an indigenous Amerindian group from the
region around the state of Mexico. When the report was delivered to
Toluca (the state Hank González represented in Congress) the eager
congressman opened the envelope and read that the word Hank was indeed
Mazahua. In that language it meant: "He who came from Germany."

It has also been observed that "El Professor" González amassed a
billion-dollar fortune while working as an elected or appointed
government official. According to the Mexican newsweekly Proceso, Hank
González made much of his fortune investing in companies who did
business with the government.

González and his son, Hank Rhon, were also two of the power brokers
behind disgraced Mexican president Carlos Salinas de Gortari.

None of this would disqualify los Hank from owning a "beneficial
interest" in a U.S. bank. But if the Hanks were found to be engaged in
illegal activities, there could be a problem with the "character test"
in the law governing bank ownership.

LNB attorneys have asked Christopher Whalen about conversations he has
had with federal drug enforcement agencies concerning Laredo National
Bank. And the Federal Reserve's legal staff seems to be pursuing
reports that first appeared in the Mexico City daily El Financiero and
later in the Washington Post. Both papers reported on
U.S. drug-enforcement investigations linking the Hank Clan to alleged
drug dealing and money laundering.

Dolia Estévez is the Washington correspondent for El Financiero and a
particular favorite of American sources leaking information they
decide needs to be reported in the Mexican press. Her stories often
travel a circular route similar to the one the Fed alleges Hank's
money follows -- from the U.S. to Mexico and back to the U.S. In 1995,
she reported on a Senate Foreign Relations Committee internal memo
that accused Hank Rhon of laundering money for Mexican
narcotraficantes. The document Estévez cites makes the same claim
about Hank González, describing him as "a principal intermediary
between narcotraficantes and the political system."

[ end Part I ]

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