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SPRING 2001 ISSUE
by Julia Reynolds
above right: Chris Whalen
are no heroes in the war on drugs, only martyrs.
The hit movie Traffic and last years PBS special Drug Wars drove home this grim fact. Perhaps for the first time, Americans saw the incredibly complex forces at war in what used to seem a simpler problem: stamping out drugs.
The most recent group to join the ranks of the martyrs are journalists and scholars who investigate the drug trade. These days, those suspected of money laundering and other crimes linked to Américas narcosistema dont send out hit men or mob lawyers to take care of nosy reporters and researchers. Instead, they employ former FBI agents, private investigators and high-powered Washington law firms to keep a rein on the media. They spy, they entrap, and they use lawsuits not bullets to silence the press.
And so far, the tactics are working.
The Road to Entrapment
Christopher Whalen is an international business consultant and former editor of The Mexico Report newsletter of politics and finance, which he published from the early to mid-1990s. Whalen would often expose the seamy connections between banks, drug cartels and money laundering. It was a small publication. I had a couple hundred subscribers. I just decided to do a little truth-telling and it was advertising for my consulting practice. Thats when he became something of an expert on Mexicos powerful Hank family and the law enforcement investigations linking them to drug money; he even testified about the Hanks before a U.S. Senate committee. The Mexico Report dug up some interesting dirt, but for Whalen it was a side gig. He was a consultant in the investment sector.
In mid-1998, Whalen was approached by Lee J. Seidler, a well-known investment banker at Bear Stearns and Co., where Whalen worked. Seidler wanted Whalen to meet a potential client named Peter Halmos, a crazy rich guy from West Palm Beach, Florida. Whalen didnt know it yet, but he was about to enter a trap that would evolve into a binational legal labyrinth of bizarre and epic proportions. He was about to tangle with the Hank family.
Whalen and his new client got together in July. According to Whalen, Halmos presented himself as a wealthy investor interested in buying the Hank-owned Laredo National Bank in Texas. But Halmos was concerned about Carlos Hank Rhon and his familys alleged links to the drug trade. He needed savvy guidance perhaps Chris could help, since he was an expert on Mexican business and the Hanks. Because the deal involved the Hanks, something didnt smell right, Whalen thought, but what harm could come from a meeting or two?
Whalen, Halmos and other Laredo National Bank associates met aboard the yacht Legacy at Pier 59 in New York, probably the biggest sailing yacht thats been in New York harbor, says Whalen. An extraordinary boat.
They served me black pasta with clams, pasta vongole, Whalen recalls. They knew my tastes. They professed to be non-experts, and then they proceeded to quote chapter and verse on all my work. Thats when Chris felt an unnerving twinge maybe these men who knew too much were in on some kind of setup.
Although he had become suspicious, Whalen continued to meet with Halmos, partly trying to warn him off, and partly trying to figure out what was going on. I told Halmos that this guy [Carlos Hank Rhon] is reputed to be involved in illegal activities, he says. But Halmos was insistent, trying to get me involved.
Then Whalen made a mistake he would come to regret. In a note to Halmos, Whalen wrote in a bragging tone that through my efforts and those of others, a bid by Carlos Hank Rhon to buy another Texas bank had been blocked by the Federal Reserve Board. Whalen had provided some background information on the Hanks to the Fed, but it was a stretch for him to claim credit for the Boards decision. It was a statement that would come back to haunt Whalen.
In late 1998, right after a meeting with Halmos and Laredo National Bank president Gary Jacobs, Whalen says he was contacted by a Drug Enforcement Agency agent who asked about the Hanks and their reputation for connections to alleged drug trafficking and/or money laundering. Soon after, Halmos and Whalen had a meeting with Carlos Hank Rhon himself. Whalen mentioned to Hank Rhon he had been contacted by the DEA, but the millionaire bank owner appeared relaxed and unfazed.
Afterward, Halmos called Whalen, saying that Hank Rhon was going to war to protect his name in the U.S. And then the contacts ended.
In August, LNB filed suit against Whalen on grounds of tortious interference, which means the deliberate harming of anothers business. He was going to spend the next year being dragged through South Texas courtrooms.
LNBs Gary Jacobs described the Halmos meetings to the Laredo court, under oath, in February 2000. He characterized Whalen as someone trying to hustle a deal, and told the court that Whalen tried to convince me that Peter Halmos would be a good investor in my holding company. Straight-faced, Jacobs added, And I was trying to convince him I didnt need any more investors.
Whalen was incredulous Halmos had introduced him to LNB, not the other way around. Then he and his attorney were startled by news from Washington: Halmos admitted he had investigated Whalen on behalf of LNB. And he said it on the record, in court.
At an ongoing Federal Reserve Board hearing investigating Carlos Hank Rhon for illegal banking activities, Halmos said that he had misrepresented himself to Whalen.
It turned out that in early 1998, LNB had set up a contract with Halmos and his Intelligence Services Corporation, via an intermediary. Halmos said he was hired to provide services in connection with negative publicity in the news media about LNB and Carlos Hank Rhon. Specifically, Halmos said, he was to target Chris Whalen, who had published articles that were negative toward the Hank family.
And through Halmos, LNB had gotten a copy of Whalens note in which he boastfully took credit for the Feds blocking LNB plans for expansion. (Whalen later admitted the note was inartfully worded.)
Note in hand, LNBs lawyers believed they had a confession of sorts: they would use it as evidence of a Whalen-led campaign to stop the Hanks from doing business in the United States. It was also ammunition to fight what they saw as a vast conspiracy to falsely associate the Hank family and its banking operations with the drug trade. (Ironically, it was not Whalen, but New York Citibank officials who first warned the Fed that LNBs owners had a less-than-stellar reputation, back in October 1996.)
For the court, Halmos produced the contract that sealed the deal between him and Gary Jacobs at LNB. Halmos told the court that his steps to lure Whalen into LNBs sphere were part of my effort to obtain information from Whalen, pursuant to my engagement for LNB. I did not advise Whalen during these meetings that I was engaged on behalf of LNB.
Stephen Meyer, the Federal Reserve Boards counsel, wrote that if the undisputed facts didnt make it clear that Halmos was hired to pose as a buyer for LNB, we dont know what else it would take. He added that the LNB contract alludes to a success fee for Halmos. Indeed, Meyer wrote, they appear to have filed a lawsuit against Mr. Whalen, based on Mr. Halmoss undercover operation.
Meanwhile, in the Texas court, LNB president Jacobs never mentioned to the judge that Halmos had been in his hire to investigate Whalen. When he said, Christopher Whalen was promoting me, I thought, trying to convince me that Peter Halmos would be a good investor in my holding company, Jacobs clearly wasnt telling all he knew to the Laredo court.
Whalen and his attorney knew they had to get the Texas court to admit Halmoss testimony to try to demonstrate that Jacobss statements were false and misleading.
But in a trial that grows more bizarre by the minute, when Whalens lawyer tried to admit the Halmos testimony, LNBs lawyer objected on the grounds that it was hearsay. Visiting Judge Rey Pérez, sitting in while the regular judge was on vacation, upheld the objection.
Neither Peter Halmos nor LNB attorney Ricardo Cedillo have returned phone calls from El Andar.
Laredo National Bank and the Hanks have always been represented by prestigious and well-connected attorneys. Theyve hired Washingtons best: Akin, Gump, Strauss, Hauer and Feld, along with former Senator Warren Rudman, to represent them in their Fed case.
Thats the difference between the movie Traffic and reality, says Whalen. These guys dont use mob lawyers any more. They use top-shelf national law firms and former government officials and lobbyists.
Whalen speculates that the Hanks may be counting on their chummy relationship with the Bush administration to ease their woes with the Fed: Gary Jacobs was, after all, one of Bushs top donors in the Texas governors races. And the Zachry family of Texas long-time Bush friends have just inked a partnership with Carlos Hank Rhon for a multi-million dollar energy project in Mexico, called Mérida III.
The Professors Tale
Today, Whalens case drags on in Laredo, where the national press pays little heed to the goings-on.
It has its dramatic moments. Whalen testified in the Laredo court that Gary Jacobs had threatened the life of reporter Dolia Estévez. Jacobs is a man known for blustering outbursts he told PBS that those cockroaches in the government are gonna pay for investigating Carlos Hank Rhons bank.
Estévez is one of several journalists likely to be subpoenaed in yet another LNB lawsuit, this time one that was filed against professor Donald Schulz at Cleveland State University and author of a study titled Narcopolitics in Mexico.
In the spring of 1999, the Wall Street Journal identified Schulz as the probable source of a leaked government document code-named White Tiger, which detailed various criminal investigations of the Hanks and Jacobs. Soon after the story ran, Schulz received a threatening letter from the Hanks lawyer, demanding he give reasons why Carlos Hank Rhon shouldnt sue him. Schulz says his first reaction was a sinking feeling in the pit of the stomach.
Then in August, just before his birthday, a man came to the door with a thick packet. He informed me I was being sued, and I think my response was, Lovely. We were hoping [the threat] would go away, but it didnt, says Schulz. It had the effect of spoiling my birthday.
Schulz is charged with spreading false and defamatory information on the Hanks and their businesses and associates. As part of the discovery phase of the case, LNBs lawyers indicated that several journalists who reported on the White Tiger document s will be made to depose, Dolia Estévez among them. This case, which Schulz describes as almost surreal, promises to drag out into at least 2002.
Schulz doesnt know how hell pay his legal bills on a humble professors salary. He has established a legal defense fund (see sidebar), and is sending out appeals to fellow academics.
The object [of the suit], clearly, is to intimidate other researchers, scholars and journalists in order to deter them from investigating the Hanks and their associates, he wrote to his colleagues. Whalen, myself and probably others are to be made object lessons to those who might be tempted to write or provide information on the Hanks business dealings. Schulz worries that if the Hanks are successful, other groups will be encouraged to adopt similar tactics. The result will be a serious blow to academic freedom and free speech, he says.
Down the Rabbit Hole
Today, Chris Whalen wonders why he bothered to testify before Senate committees, why he supplied DEA agents with information, or why he sent what he knew about the Hanks to the Federal Reserve Board when they asked. He feels let down by the government that he says once went to him for help.
Why should any banker or private citizen assist U.S. government agencies , he asks, when the U.S. Justice Department and other federal agencies do nothing to protect whistle blowers from harassment and attack ?
Meanwhile, the trials go on, quietly, without notice. The war-torn reporters who have labored long and hard to cover the narco-business nexus are the same ones facing subpoenas. They cant talk, admonished by lawyers to remain silent while they wait to depose. At El Andars press time, no Washington Post, no New York Times, no CNN has covered the LNB trials.
Across the country, editors wont touch these stories theyre too complex, Im always told. Whalen agrees: A reporter at the Wall Street Journal basically told me, This is a bunnyhole. We can never explain this to our readers. But its also no secret that few publishers have the stomach for facing years of ugly lawsuits from billionaires such as the Hanks.
Id like to just call these guys what I know in my heart they really are, but due to the threat of litigation, I cant. I can tell you that without a bullet fired, they have silenced the press.
Professor Donald Schulz, below