LOS ANGELES—Nearly 1,000 federal and local law-enforcement agents swept into the Fashion District here on Wednesday morning as part of a long-running investigation into alleged money laundering for Mexican drug cartels.
Nine people were arrested and $65 million was seized in the raid, part of a probe called Operation Fashion Police, federal officials said. According to court documents unsealed Wednesday, garment businesses allegedly aided the cartels in getting proceeds from drug sales in the U.S. back into Mexico.
In one case, owners of a business allegedly laundered money as ransom payment for a cocaine-dealing relative who was held hostage and tortured at a ranch in Mexico by the Sinaloa cartel.
In the past decade, U.S. and Mexican banks have tightened financial-reporting requirements in an effort to stymie terrorism and the flow of illicit cash across borders. Cartels have attempted to smuggle cash from drug sales in the U.S. back across the border by hiding it in vehicles, but federal investigators in recent years have stepped up enforcement there, too.
That has forced cartels to look for more creative ways to get their money back to Mexico, said Claude Arnold, special agent in charge of U.S. Immigration and Customs Enforcement's Homeland Security Investigations unit in Los Angeles.
Cartels have used garment and toy companies in Los Angeles in the past, but "the scope of this current case and its potential long-term impact are truly unprecedented," said Mr. Arnold. While the "vast majority" of L.A.'s $18 billion garment industry is legitimate, Wednesday's busts "portend a profoundly troubling trend," he said.
The investigation continues, federal officials said.
According to court documents, L.A. garment businesses allegedly accepted U.S. cash from drug cartels and repaid the cartels in Mexican pesos through brokers after selling the garment businesses' clothing in Mexico. That process effectively cleaned the money for the cartels.
"Los Angeles has become the epicenter of narco-dollar money laundering with couriers regularly bringing duffel bags and suitcases full of cash to many businesses," said Robert Dugdale, an assistant U.S. attorney for the Central District of California.
Agents executed warrants at more than 40 locations, including 19 storefront businesses, six warehouses and several homes in the region. At one home searched in the tony Bel Air neighborhood, agents discovered $10 million stuffed inside duffel bags, Mr. Arnold said.
Officials arrested three Southern California residents connected to QT Fashion, a garment business in L.A. According to an unsealed indictment, the business allegedly accepted cash from the Sinaloa cartel and funneled it back into Mexico on behalf of the cartel through 17 other businesses. According to the indictment, the business owners agreed to pay $140,000 in ransom money for a relative, a U.S. citizen, held hostage by the cartel. The hostage was released and is back in the U.S., federal officials said.
A lawyer for Jose Isabel Gomez Arreoloa, arrested Wednesday and charged with conspiracy to launder money and operating an unlicensed money-transmitting business in connection with QT Fashion, said his client is "going to plead not guilty and fight these charges."
Three other Mexican citizens allegedly involved in the scheme are wanted by officials. A grand jury charged all six with conspiracy to launder money and operating an unlicensed money transmitting business, according to the indictment.
In a second case, two members of one family connected to two businesses—Yili Underwear and Gayima Underwear—were arrested. The businesses allegedly accepted cash from an undercover agent posing as a drug trafficker.
Four people connected with a third business, Pacific Eurotex Corp., were arrested and charged with conspiracy to launder money and illegally structuring financial transactions to avoid reporting requirements.
Owners of Yili, Gayima and Pacific Eurotex couldn't immediately be reached on Wednesday.
