On November 15 1995, an elegantly dressed Mexican woman in her early 40s entered the headquarters of one of Geneva’s most venerable private banks. Pictet Cie had been dealing discreetly with wealthy clients since it was founded in 1805 and her husband was one of them. Two years earlier, on their honeymoon, she had gone with him to deposit some papers in the bank’s vaults. Now, he wanted the papers back.
This time, accompanied by her younger brother, she was told there was a hitch: an electrical fault was barring access to the vaults. But there was no such fault - the bank, acting on prior instructions, alerted the police and the pair were arrested at the railway station that day as they tried to leave the city.
The woman’s name was Paulina Castanon Rios Zertuche de Salinas and the police were acting on a tip-off from the US Drug Enforcement Agency (DEA). When officers later opened safety deposit box number 137, they found two false Mexican passports, carrying different names but both bearing photographs of the same man, her husband, Raul Salinas, by then one of the most notorious men in Mexico.
In the police file photo taken after her arrest, Castanon appears exhausted, her fair shoulder-length hair hanging listlessly over a check jacket. Her look is of a woman whose fortunes have taken a sudden and cruel turn. Two years earlier, she had married one of Mexico’s most influential men, the wealthy playboy brother of the country’s dynamic reformist president, Carlos Salinas. A year earlier, she told police, her husband had given her an $11m “wedding present”, transferred into a Swiss bank account.
Now, Raul Salinas was languishing in solitary confinement in a Mexican prison, accused of organising the murder of his sister’s former husband. Carlos had gone into voluntary exile, blamed for a deep economic crisis that hit Mexico a few weeks after he handed power to a new president. The family she had married into had become the most reviled in Mexico.
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Her arrest marked the start of a decade-long money laundering investigation ranging across at least five countries on two continents. The Swiss would allege that Mexico under the Salinases had been a virtual narco-state, with Raul Salinas making $500m in return for protecting all the cocaine that ever passed through the country on its way to the US. And, despite this, they would prove nothing. Ten years later, Paulina Castanon, looking much happier, appears once more in the society pages of Mexico City newspapers. Raul is still in prison but the attempts to link his hidden riches in Switzerland to criminal acts are almost exhausted.
The investigation failed in spite of unusual high-level support from US, Mexican and Swiss authorities. An examination of the evidence suggests that that in their zeal to condemn Salinas, investigators overreached. But it also illustrates how hard it is for any international money laundering investigation to yield results: a message of comfort to all those, terrorist, tyrant or thief, who use the international banking system to shelter funds.
Castanon and her brother, Antonio, endured a month of interrogation in Switzerland after their arrest. Meanwhile, financial investigators, armed with further information from the DEA suggesting that Raul Salinas had been making regular big payments to Swiss bank accounts, started the hunt for her husband’s money.
Within months they had frozen 48 bank accounts, all controlled by Raul Salinas, his family or his close associates. The web of accounts seemed to cover the entire Swiss banking system. Under the names of various companies, they included Swiss Bank Corporation, UBS, Rothschild, Credit Suisse, Julius Baer, Lombard Odier, as well as Swiss branches of Citibank and Bankers Trust. One Citibank account in Geneva, controlled by Salinas and Castanon, was held in the name of “Bonaparte”. Others were held by Cayman Islands shell companies. On its way to Switzerland, the money had passed through banks in Mexico, the US, England, Luxembourg, Germany and France. These accounts, together with a Citibank account in London, contained some $130m.
Raul Salinas, a qualified engineer, had worked almost all his career as a civil servant and academic, with only a brief stint in business. The task was to find how he could possibly have accumulated such a fortune. Carla del Ponte, Switzerland’s attorney-general, took control of the investigation. She was assisted by Valentin Rorschacher, the Zurich prosecutor then in charge of drugs investigations at the federal justice ministry. When Del Ponte was appointed chief prosecutor at the International Criminal Tribunal for the Former Yugoslavia in The Hague in 1999, Rorschacher took over as attorney-general and assumed responsibility for the investigation.
Del Ponte, brought up speaking Italian, was not shy about taking on organised crime. Earlier in her career, she had narrowly escaped an assassination attempt that claimed the life of a Sicilian judge, after making efforts to prosecute members of the Cosa Nostra. For the Salinas case, she asked for help from the DEA and the Mexican attorney general’s office.
Already, politicians in both Mexico and Switzerland had an interest in linking the money to the drugs trade. The Mexican government could not tolerate a return of the money to Raul. But an investigation into another possible source for the money - corruption and graft - would have been daunting for a new and weak government, potentially implicating powerful business figures and even its own officials, many of whom had worked in the Salinas administration. From a Swiss perspective, accusations that Swiss banks had stolen money from Holocaust survivors were just beginning to cause political controversy in the US and a successful investigation could help repair the industry’s reputation. And if a link to drugs could be proven, Switzerland would get to keep the money.
Under questioning in Geneva, Castanon, Salinas’s third wife, said she did not believe the funds had come from drug payments. “I never thought it had to do with drug money,” she told Swiss investigators, “but just commission money, that’s to say bribes.”
Del Ponte flew to Mexico in December 1995, to interrogate Raul in his prison cell. By then, Raul was vying with his brother for the title of Mexico’s most hated man. The incoming president, Ernesto Zedillo, who had taken over from Carlos Salinas a year earlier, had enjoyed only a few weeks in the job before the country was hit by a financial crisis that would lead to the virtual collapse of the banking system and a $50bn US-led bail-out. Mexicans held the Salinases responsible.
They felt betrayed by the former president, a man who promised to take Mexico into the first world, says political scientist Denise Dresser. “The final straw for them was the discovery of his brother’s accounts in Switzerland.”
Even though Carlos’s presidency led to changes that economists argue are paying big dividends now for Mexico, his disapproval ratings are still around 90 per cent. He still lives outside Mexico - he has an expensive home in London - and his every visit to his homeland turns into a media event.
Even when Carlos was in office, Raul Salinas had become known as el hermano incomodo, or the embarrassing brother, for his playboy lifestyle and for the many accusations that he was involved in graft and influence-peddling. Now Zedillo, originally nominated by Salinas, needed to distance himself from the previous regime. Throwing Raul into jail - and breaking the unwritten iron rule of Mexican politics that former presidents and their family need never face a reckoning - achieved this perfectly.
Mexico had become the prime route for sending Colombian cocaine to the US, and the suggestion was that the traffickers had political help at high levels. Along with vague reports about connections with various drug bosses, there were rumours of a photograph of Raul with Juan Garcia Abrego, then the head of the Gulf cartel. But that picture has never come to light.
Raul protested to Del Ponte that the Mexican authorities were concocting evidence. “Prosecutor, you can cut off my head and slash my veins in front of you if that photo exists, because it’s false.” The money, he said, came from personal sources, such as his share from a company that was sold, and a bequest. The rest was from entrepreneurs who put up money to invest in a fund he was setting up.
Yet three years later, in October 1998, after interviewing 45 witnesses, Del Ponte’s prosecuting team made some astonishing allegations. Their report, of which the Financial Times has a copy, indicted not just Raul Salinas and his family but also Mexico’s entire government. It described the Salinas family as a mafia clan. Its patriarch was Raul’s father, the former cabinet minister and senator, Raul Salinas Lozano. Raul, the family rake, was the instigator, the brain and the cash collector while Carlos provided the political and public image. Another brother, Enrique - to be murdered in macabre fashion in Mexico City in December 2004, apparently while being blackmailed by Mexican federal agents over an arrest warrant issued against him last year in France - dealt with intermediaries and in real estate.
According to Del Ponte’s team, Raul Salinas was the point man for all the cocaine passing through Mexico, maintaining relationships with organisations otherwise murderously at odds with each other. He used his influence to guarantee safe passage for Colombian drug shipments to four cartels in northern Mexico, making airstrips available on his ranches. The Swiss estimated that in total, cartels paid Salinas more than $500m over a decade.
But despite these grave allegations, and almost a decade after the case started, the Swiss have given up trying to prosecute Salinas on narcotics charges. They have never been tested in court. All that remains is an appeal by the Mexican government against a court ruling that the funds were not embezzled from the government either. Money laundering charges have been levelled in France, through which some of his money passed on its way to Switzerland - it was this case which produced the arrest warrant against Enrique - but the likelihood of successful prosecution there appears remote.
Money laundering investigations are complicated by nature and the complexities multiply when more than one legal jurisdiction is involved. When the cases have a high profile, publicity can help drive an investigation by giving it political momentum - but can also kill it by leading to disclosures that discourage international co-operation. When an investigation touches a ruling elite, it can often implicate those who initiate the investigation, who then put obstacles in its way.
Enrico Monfrini, a Geneva-based lawyer who has been closely involved in some high-profile international monetary laundering cases, says such investigations “are like a machine that needs only a small piece of sand to stop it and many people are trying to throw a lot of sand into the system”.
Governments are also sensitive to sharing information with others even if there is a so-called Mutual Legal Assistance Treaty between them. For an application for assistance to be successful, there must be solid documentation and a properly organised paper trail. “Governments are very touchy about fishing expeditions,” Monfrini says. “In most cases, the documents have been destroyed by the people concerned.”
Everyone involved in the Salinas investigation seems to have a different explanation for why it failed. Salinas’s is the simplest: he was framed in Mexico - “a kingdom of hangmen” - on trumped-up charges. Others argue that it should have focused on corruption rather than drugs. Investigators complain variously of procedural mistakes by the Swiss, corruption in Mexico and the frequent unwillingness of US law enforcement to share information with their foreign counterparts.
It is clear though that some US law enforcement agents, frustrated by the lack of progress through conventional channels, offered information directly to the Swiss prosecutors, bypassing checks and balances that might have sifted out implausible claims. The most damaging allegations in the Swiss report rested on the testimony of only a few witnesses, whose version of events seemed to have been accepted uncritically.
In February 1997, Del Ponte told her Mexican counterpart in a letter that Raul “received enormous amounts of money for his help in connection to drug trafficking”. Yet it was only after that - in late 1997 - that the Swiss investigating team met the witnesses that got them closest to nailing Raul. The gravest charges in the Swiss report rest on their evidence and their credibility.
The four most damaging witnesses were convicted criminals. Guillermo Pallomari, a prized defector from the Cali cartel, told Del Ponte that between 1990 and 1992 his cartel had paid Raul Salinas more than $40m, and presents such as diamonds and watches. Salinas, he said, would organise “green light days” when federal law enforcement turned a blind eye to the traffickers’ activities. Alex Ramos, once in charge of distributing cocaine in Houston for the Medellin cartel and serving two life terms in prison, came forward to say that Salinas agreed safe passage for cocaine in exchange for $300,000 per shipment. Through him came the only piece of significant documentary evidence in the case: an explosive ledger, lightly coded, purporting to show that the Salinases and associates were paid $103.4m in 1987 and 1988. Ramos’s statements were backed by his wife, Luz Salazar, who claimed she had made out the ledger. And Carlos Sanin, allegedly a one-time enforcer and “bagman” for the Medellin cartel and at the time in jail for assault, said he had passed money to Raul Salinas in the back of a car.
Yet, the likelihood this evidence would have survived a competent cross-examination is low. In 1997, US attorneys complained of “uneven and at times suicidal behaviour” by Pallomari, who believed US prosecutors had reneged on a deal to free him. Anguished hand-written letters sent from jail in 1997 bespeak a desperate and lonely man, worrying for the safety of his children. Only later did he begin to talk of Salinas, two years after giving himself up. As for Ramos and Salazar, they took at least six years after their arrest in 1990 before accusing Salinas, foregoing many earlier opportunities. The ledger - neat and legible, unlike other ledgers Salazar said she authored - was not among papers seized when they were arrested and does not appear to have entered the public record before 1996. The two also talked from their respective jails before talking to prosecutors. Sanin’s evidence alone would have been difficult to pick apart.
Such was the evidence put before Paul Perraudin, the investigating judge in Geneva who had to decide whether charges should be brought and the funds confiscated. Perraudin established to his satisfaction that the money in the Swiss accounts had entered the international banking system in Mexico. In an interview this year, he said the investigation found that Salinas could have raised such large sums of money in only three ways: drug trafficking, corruption or misappropriation of public funds. Asked if it was possible that all this money had been come by honestly, he said: “The investigation didn’t show that.” But he said he could not be more conclusive because the credibility of some important witnesses could be properly examined only by the Mexican authorities.
Perraudin faced practical problems, as he made clear in an April 2002 summary of his findings. Raul’s request for more than 100 witnesses to testify, combined with the fear of reprisal among many prosecution witnesses, in effect ruled out proceedings in Switzerland.
Meanwhile, the Mexican attorney general’s office had offered Perraudin the theory that the money had simply been taken by Raul from the president’s discretionary account, controlled by his brother. Mexico wanted the money to stay frozen pending an investigation. If the case could be proved, under law the money would revert to the Mexican treasury, and not stay in Switzerland, as it would if it were found to be drugs money.
In May 2002, Perraudin sent the case back to Mexican authorities, though his findings hardly constitute a ringing acquittal. The investigators had, he said, constructed a framework “to confirm the direct implication of the structures of the Mexican government (police, army and government officials) in activities protecting trafficking in drugs, among whom the Salinas clan, and particularly Raul, were at the very least silent accomplices of narco-traffickers on Mexican soil.” But he added: “Technical verifications and the various operations of the police do not formally confirm the participation of Raul Salinas in criminal acts.” In other words, there was circumstantial evidence, but the case had simply not been made.
The Swiss authorities agreed last year to return the bulk of the money to Mexico, but the embezzlement case has so far not fared well. A panel of Mexican judges ruled last year that “in the terms of the complaint put before us”, it had “not been established, even on the basis of probability” that the money had been stolen from public funds. A Mexican prosecutor is trying again to make the case, but if it fails the current administration of President Vicente Fox faces a dilemma. That money must belong to someone. Must they return it to Raul Salinas, still one of Mexico’s most despised figures? Before that can happen, Salinas needs to provide a convincing account of where the money really came from.
In the first face-to-face interview he has given a foreign journalist since his arrest in 1995, Raul Salinas makes an attempt to do just that. He looks greyer but also trimmer than in his 10-year-old press photos (cameras are not allowed in Santiaguito prison). Now 58, he cuts a neat figure in his beige prison uniform.
The interview takes place in the prison governor’s office, just above a border of roses that Salinas tends in his capacity as a prison gardener. He arrives carrying in one hand a large brown envelope with his complete published works. They include several academic works on promoting trade and agricultural development, as well as a novel, a collection of short stories and a volume of love poetry. “You see,” he says, “there was a time when I was known for much more than my extravagance and being the president’s brother.”
In his other hand, he carries two thick legal folders covering the murder of his former brother-in-law, Jose Francisco Ruiz Massieu, for which he is serving a 27-year prison sentence. He speaks with the urgency of a man who believes that some kind of vindication is at hand. Firmly believing that he will achieve his liberty soon, he is determined to make the case that he had nothing to do with the murder of the father of his nephews and nieces, and maintains that he was only convicted on the evidence of a witness who had been bribed by the prosecutor. The outcome of his latest appeal, which could lead to his freedom, could come any day.
Prison seems to have taught him a lot. He has learned that prison teachers need to moonlight in two other jobs to afford a house, and that prison guards can still not afford a home of their own after 20 years on the job. He admits that he now has a much better understanding of Mexico’s deep economic injustices than he had during his privileged existence at liberty. And he understands the need to apologise.
”The people have reason to be angry,” he says. “And I understand that all the errors I committed, of which I am now so ashamed, have provoked that anger and rage. I am ashamed to face my children, and I am ashamed to face the people. But what is unacceptable is that the solution has been for the authorities to fabricate and lie, and construct cases against me with false evidence.”
Obtaining the false passport is the only crime to which he is prepared to confess (and, ironically, one for which he has never been punished). Looking deeply embarrassed, as he is being interviewed in front of his son, Juan Jose, who is also one of his lawyers, he says it was to help hide his tangled love life.
In 1988, years before meeting Paulina Castanon and only recently married for the second time, “for reasons of machismo or power or a mixture of those things, I started a parallel relationship with another woman, who had family, children and everything”. So that they could travel together in secret, they decided to obtain false passports, a task which Salinas undertook himself.
As for the bank accounts and the shell companies, he says they were opened for him by Citibank’s private banking service in New York, in his real name, and that all had their own financial logic - one for dollars, one for international bonds, one to back his American Express platinum card and so on.
But could the money really have been intended for an investment fund, as Salinas has always said? The Swiss dismissed the idea. No documents show that a formal fund was set up, as everything was agreed with handshakes. And why start a fund by scattering the money across several different Swiss bank accounts?
In the interview, he maintains his story. He also denies ever having even met a drug trafficker. But he now admits that what he was doing was wrong, even while denying it was illegal. He says he was in a “truly privileged position” in late 1993. He was close to Mexico’s richest men, benefiting from the friendships his father had built up with Mexico’s most powerful industrial families; and his brother was due to take the helm of the World Trade Organisation. Carlos had also bestowed the governing party’s nomination to take over as president on Luis Donaldo Colosio, Raul’s closest friend.
He proudly shows off photos of himself taken with Colosio - who was shot dead at an election rally in March 1994, leading to the hurried nomination of Zedillo in his stead - at Christmas 1993, and even photos of the two of them relaxing on one of his ranches with Jeb Bush. Colosio’s daughter Mariana was named after Raul’s. “We decided, ahead of this opportunity, that I was going to be able to play not a political role but a business role. The idea was first to create the fund outside of Mexico, so as not to put at risk either the Salinas presidency or the Colosio candidacy, but to have it set up outside, and from abroad generate jobs in Mexico once there was a new situation.”
He denies hiding the fund. “No, we didn’t hide it, we simply put it in an investment fund, but it was in my legal name. We weren’t going to make a declaration to the press about it to create a political problem; we were going to act with total prudence.” He does admit that there was “certainly an ethical problem in all of this”.
Several businessmen have signed affidavits swearing they gave the money to the fund, providing details of dates and amounts transferred. All are friends of the Salinas family almost since birth, and all profited mightily under Carlos Salinas’s administration. They include Carlos Hank Rhon, a billionaire whose father, a legendary politician nicknamed “Professor Hank”, coined the aphorism “un politico pobre es un pobre politico” - a poor politician is a bad politician.
Raul’s childhood friend Carlos Peralta says he paid the most, almost $50m. The owner of two Mexican baseball teams, his wealth chiefly stems from President Salinas’s decision to award him the franchise for a second mobile phone company in Mexico, which he later sold to Bell Atlantic and Vodafone for $1.97bn. He denies that the $50m was a quid pro quo for winning the franchise.
Salinas says the contents of his accounts should go to the businessmen who gave him the money - although if they should choose to let it go to Mexico’s treasury, perhaps easing much of the pain for the Fox government in the process, that is up to them. Peralta, for one, is determined to retrieve his funds. A 500-page document he sent to the Swiss investigators demonstrated how his money, derived from legal transactions, found its way, via his Isle of Man holding company, to the Salinas Swiss accounts.
According to Salinas, then, the money frozen in Switzerland represents the fruits of crude crony capitalism - but not the proceeds of a criminal enterprise. He now waits to see whether his countrymen, conditioned over the decade to think him capable of almost anything, will believe his story.
John Authers is an FT correspondent in Mexico City and Stephen Fidler is the FT’s chief reporter.
