Huddled in a Palazzo suite with his colleagues from Portland’s Immigration and Customs Enforcement office, Michael Williams leans toward a coffee table covered with surveillance equipment. Everyone is straining to see and hear their fellow officer, Doug Emery, who is undercover in the suite next door discussing a drug deal with three men from India.
The audio ebbs and flows, but clear snippets of conversation occasionally cause the bald, goateed Williams to make eye contact with others in the room and nod knowingly. They’ve got their guys.About 48 hours later, on a warm November day in 2009, the team will descend on the Indian nationals—along with two American accomplices—at Circus Circus and the Venetian. Their arrests, and the evidence gathered from their rooms, offices and warehouses, will lead the U.S. Immigration and Customs Enforcement (ICE) team, part of Homeland Security Investigations, to uncover one of the latest trends in the ever-evolving drug trade.
But many pieces had to fall into place, exactly as planned, before the bust could go down.
In 2005, the United States passed its Combat Methamphetamine Epidemic Act, driving labs south into Mexico. Three years later, hoping to stanch the flow of methamphetamine across its borders, Mexico banned the import of ephedrine, a key ingredient for making meth.
Players in the lucrative trade got creative. Rather than importing ephedrine directly from source countries (mainly China, India and Germany), manufacturers plotted with suppliers to ship the drug under other names, such as beta-carotene, and send it on circuitous routes meant to cover their tracks with layers of records. International narcotics agents would later call this practice “transshipping.”
They knew transshipments were going through Europe to Mexico, but Williams and his team at Portland ICE would be the first to show that the U.S. was involved as well.
It started in April 2009, when Customs and Border Protection at Chicago’s O’Hare International Airport seized 500 kilograms (20 six-gallon jugs) of liquid from India labeled “green tea.” Suspicious agents tested the liquid: It contained no green tea—but it was 5 percent ephedrine. Because the recipient, Verlyn Craig Payton of Spring Dragon Sourcing, had a Forest Grove, Oregon, address, Portland ICE was alerted.
Working with a criminal investigation unit of the IRS headed by special agent Ben Barnum, Williams’ team dug into the records of Payton, a slender baby-face in his 40s. They found he’d received 50 similar shipments since August 2007 and made 13 cash deposits worth $2.6 million during a short period in 2008.
“We put those two pieces together—the amount of cash, plus the ephedrine seizure—and we started our investigation,” Williams says.
Operation Liquid Dragon was born.
Most of the cash for Payton’s large deposits was wired to him from a man named Antonio Gonzalez, whose involvement thickened the plot significantly.
Originally from Cuba, Gonzalez lived in Mexico before taking up residence in San Diego and becoming an American citizen. He was a clean-cut, bespectacled man in his 50s who worked as a customs broker—a private operator who completed paperwork for importers/exporters. Most of his business was in Mexico, and he’d been denied a permit to import ephedrine in 2007.
“Our investigation showed that the ephedrine was coming to the U.S. from India, many times shipped by air—very expensive,” Williams says. “We theorized that the ephedrine must [then] be going into Mexico for methamphetamine production after we saw the connection between Payton here in Oregon, and Gonzalez in California at the international border.”
Williams issued an alert to Customs and Border Protection, requesting to be notified of cargo similar to what was seized in Chicago, and in June 2009, they hit pay dirt: A 750-kilogram shipment (30 six-gallon jugs) of “green tea extract” en route to Payton’s Spring Dragon Sourcing had been stopped, this time at JFK International Airport in New York, and tested positive for ephedrine.
Portland ICE sprang into action. Working with Homeland Security colleagues in New York, the team arranged to switch the ephedrine with water and track its movements beyond the city. They aimed to test their theory about the India-U.S.-Mexico route.
The scheme didn’t go off without a hitch. Unable to find jugs of metric volume, they replaced 5-kilo jugs with 5-gallon jugs, creating a discrepancy between the cargo’s weight at its point of origin and its weight when FedEx arrived to pick it up and deliver it to San Diego.
The mistake had positive unintended consequences, however: Emails between Payton and Gonzalez, and between them and their Indian suppliers—all trying to determine what had happened—created a trail of evidence.
Despite the snafu, the controlled delivery worked. At a San Diego warehouse owned by Gonzalez, ICE investigators watched as the jugs they’d filled with water were transferred from a FedEx truck into a delivery van headed for Mexico. At the San Ysidro port of entry, a border patrol car with its rooftop lights flashing spooked the driver, Luis Gerardo Ibarra Cardona, who tried to turn around. But it was too late: ICE stopped and arrested him.
Besides the sham ephedrine, the van contained equipment used to make and test for meth. Even more revealing: Ibarra Cardona was linked to the Mexican Sinaloa Cartel by a couple degrees of separation.
Operation Liquid Dragon had scored its first victory.
Meanwhile, Portland ICE was putting together its undercover operation, starring Doug Emery.
In July 2009, posing as the owner of a sports-nutrition company, Emery contacted Subhash Naithani on TradeKey.com, a global commerce website. Naithani, a dark-eyed, mustached man in his late 30s, was the owner of Nutramed Biotech, which had been sending ephedrine to Payton and Gonzalez. Emery introduced himself as a potential buyer and requested information on Nutramed’s extract of Sida cordifolia, a plant native to India that contains ephedrine.
Naithani replied the following day. The contents of his message, contained in court documents unsealed in March of this year, are astonishing. After giving specs and prices, Naithani writes: “As you know, this product has controversies in USA and FDA is the issue to clear the shipment. However we can discuss that later on if under another name can be used or if you have the license than won’t be any problem.” Over the next few months, Emery’s alias became Naithani’s customer. They went from samples to full shipments of ephedrine, and from get-to-know-you chitchat to detailed communications on how to pay for and conceal the shipments, as well as process the product. Naithani talked about his relationship with “the Mexico guys,” who were having problems extracting the ephedrine from the other substances with which it was mixed.
In their investigation, Portland ICE learned that Naithani had attended SupplySide West, a large nutraceuticals trade show in Las Vegas. The team was planning a November trip to Vegas to coincide with the trade show, where they hoped to gather more information on Naithani.
The investigators’ plans took a turn for the better when, during a conversation with his supplier, Emery casually threw out, “We’ve done such great business together; it’s too bad we can’t meet.” Naithani’s reply: I’ll be attending SupplySide West to meet a distributor. You should come, too.
“I almost fell out of my chair,” Emery says.
Emery met Naithani and two associates in the lobby of the Palazzo on Monday evening, November 10, 2009. Naithani introduced his associates: Sachin Sharma, the company chemist, and Manoj Kovummal, who handled procurement, packing and shipping. Emery took the coterie of ephedrine dealers to his suite, which had been wired for sound and video earlier in the day.
The evening had a decidedly casual feel, Emery remembers. He offered his guests food from the spread he’d ordered, but all they wanted was water. The Indians joked in their native language about Emery being “Mr. Big,” which could either have referred to his bodybuilder physique or the fact he was entertaining them in a palatial suite, while they had booked $29 rooms at Circus Circus. As fireworks went off at the Treasure Island pirate show below, they wandered over to the picture window to take in the view.
In this relaxed atmosphere, the conversation flowed. The trio gave Emery ideas for circumnavigating law-enforcement systems and obfuscating information in emails—such as changing all the “ph”s to “f”s when writing “ephedrine.” They told him to set up a fall guy—a middleman with a straw company for receiving product—just in case. Emery asked for help with some problems he was having obtaining the desired end-product, and they told him to send his procedure when they were back in India, so they could review it.
Next door, there were the glances and nods of the ICE team listening in. They were hearing men implicate themselves in a crime.
An even bigger jaw-dropper came the following day, when Venetian security—who’d been enlisted to help Portland ICE with its investigation—spotted Naithani, Sharma and Kovummal meeting with none other than Payton and Gonzalez in the lobby. In one shot, Gonzalez looks right into the camera; an unmistakable match.
The small Portland crew had been hustling up to that point—writing search-warrant requests, seeking subpoenas for hotel records and coordinating with Venetian security, the Gaming Commission and other agencies—but when they realized they had all five main suspects of their investigation in the same place at the same time, everyone hit the accelerator.
“We didn’t intend to make any arrests when we went to Vegas,” Williams says. “Our plan was to go back to Portland and see what we had.”
Instead, the team quickly drew up a strategy for making arrests on-site. Two days later, Payton, Gonzalez, Naithani, Sharma and Kovummal were in custody, and their property was being searched.
In 2010, the five main suspects were convicted of conspiracy for their various roles in the smuggling operation. They were sentenced to between 48 and 96 months in prison each. ICE estimates—conservatively, a spokesman says—that the ring had been indirectly responsible for some 2,300 pounds of methamphetamine worth upward of $20 million from 2007 until they were arrested. That supply stream was cut off.
“This case had a huge impact,” Williams says, “not just in Portland and San Diego, but elsewhere. It’s a recurring topic of discussion in organized-crime drug task forces.”
It had a tangible benefit, too. The government seized aircraft, automobiles, cash, houses, jewelry and other assets totaling more than $6 million; in the end, Homeland Security public affairs officer Andrew Munoz says, the criminals more than paid to take themselves down.
And the case netted a surprise big fish: Fabian Samuel, a Western-educated Indian jet-setter who owned Indfrag Limited, the manufacturer of the ephedrine products that Nutramed Biotech sold to Spring Dragon Sourcing. In the fall of 2012, Samuel pled guilty to a charge of conspiracy to import and distribute ephedrine and was sentenced to 26 months imprisonment. He alone forfeited $2 million in assets.
Although the Mexican drug trade rages on, in this case, the underdogs triumphed. The relatively small Portland ICE office coordinated work with huge outfits in New York, Los Angeles and San Diego—a role-reversal from the norm. And they sold their higher-ups on a story that was counterintuitive: drugs (albeit, precursor drugs) being smuggled into Mexico from the U.S., rather than the reverse.
Specifically noting the contributions of IRS agent Barnum, Williams says inter-agency collaboration on the case was an important factor in its success.
“These guys did what we want to have agents do,” says Kit Welsh, assistant special agent for ICE. “Every bit of information they got, they exploited. They connected the dots, left no lead unturned.”
Emery and Williams, law enforcement veterans with more than 35 years’ experience between them, say Operation Liquid Dragon made their careers.
“Everything worked so well throughout this whole case,” Emery says. “We were always game-planning, asking ‘What if…?’ And when it came down to it, we got it right, every time.”