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Drug cartels have an offer you can (and should) refuse

Tue, 2014-01-14 14:03

More and more, Mexican drug cartels are partnering with small American businesses. The U.S. companies don't ever come in contact with drugs. Instead, they help the cartels launder dirty drug money.

In Mexico, the cartels have a money problem. They literally have more cash than they know what to do with.

If you bring a lot of cash to a Mexican bank, the teller will insist on an invoice or a receipt for deposits of more than $10,000.

It's gotten harder to deposit cash because of new Mexican banking laws. The cartels end up warehousing mountains of money in various stash houses around the country.

When Mexican police confiscated the loot from a cartel business partner, U.S. agent Jere Miles got closer than most of us ever will to $200 million in cash.

"Wall-to-wall, three feet high, to within like a foot-or-two-feet of the entryway to the room. Just stacks of money," says Miles, a deputy special agent with Homeland Security Investigations.

To keep those walls of cash from being confiscated by police, the cartels need a way to legitimize their drug money and show that their revenues were made legally. That's what we know as money laundering. And the cartels do a lot of it here in the U.S.

"We're seeing money come back into the United States as part of the scheme to launder money," says Miles.

He co-manages the Los Angeles office that investigates what is known as trade-based money laundering. In its most basic terms, the scheme involves buying and selling consumer goods to disguise the criminal origins of the money.

For example, imagine the cartel buys a shipment of widgets in the U.S. and pays $100,000. But on the Mexican customs form, the representative of the cartels will lie and report that the widgets cost $200,000.

The widgets are then sold in Mexico.

"I've seen organizations that are willing to invest their money in a product and wait for it to sell. And then they absolutely can make a profit, consistent with the market," says Miles. "But in most cases, the cartels aren't interested in a profit. All they're really interested in is really recouping their money."

Often, the products are sold at a slight loss. But for the sake of example, let's say the widgets get sold at cost. That's $100,000.

From that point, Miles says the cartels "take the $100,000 where they really sold the widgets. Then they take another $100,000 of their own money – the dirty money – and they say, 'See? I sold all these widgets for $200,000. Here's $200,000.' It's a lot more complicated than that. But that is like the basic concept of it."

The law enforcement strategy is similar to the way the Feds went after Al Capone for tax evasion. The Mexican drug cartels make money by selling drugs and murdering their competition. But it is the fraud on the customs paperwork that could compromise them.

"Every crime that they commit just increases the chances of them getting caught," says Miles. "So, I've often asked myself: Why would they do that? Just to beat the duties? Even though it's a minor crime, they still could lose all their product, they could lose all their investment. And I've yet to get anyone to give me a legitimate answer as to why they do it, other than greed. They just want to make a few extra pennies."

Nonetheless, Miles says it would be a mistake to underestimate the business savvy of the guys running the Mexican cartels. Even though the cartel leaders usually have little or no formal education, Miles says, "I would say they are on a par with any CEO of a Fortune 500 company."

Others in law enforcement make similar comparisons.

"We've always believed that cartels operate as if they were a corporation," says special agent Hector Colon, who works for a special branch of Immigration and Customs Enforcement.

Colon says Mexican drug cartels use a criminal version of the chief financial officer.

"They employ people that you could consider to be CFOs, or those people who are responsible for laundering their money," says Colon. "Basically, these individuals... their role and their purpose is to find licit ways to move money, so that they can continue to layer the money through different schemes, so the cartels can then get access to their illicit funds."

He says a cartel CFO will open corporations, or partner with businesses that are willing to move money for the cartels. That brings us back to trade-based money laundering.

Colon runs something called the Trade Transparency Unit, where elite customs agents pour over international trade data. The U.S. has partnerships with nine countries that have agreed to share customs data, and it is developing partnerships with two more countries.

The trade information allows agents to identify inconsistencies.

"In its simplest form, what the system allows us to do is determine that what was actually shipped from one country is what was actually delivered in another," says Colon. "Anomalies that we find in the comparison of that trade data is what allows us to then investigate for trade-based money laundering."

As an example, Colon looks at the trade of gold bullion and scrap gold on his computer. The data is represented by dots on a graph.

"What I'm noticing in this graph is that the value of gold bullion down here is being declared well below the value of scrap gold," says Colon. "And we know that gold bullion is more pure than scrap gold."

Those discrepancies in the paper trail often trip up the criminals and help law enforcement identify money launders.

But what about merchants? Is it easy for them to spot cartel intermediaries trying to launder money?

To find out, I stick with the example of gold, and I visit the jewelry district in downtown Los Angeles. I spend two days cold-calling wholesale and retail jewelers.

Several tell me that they frequently get propositions for major cash transactions on the condition that the deals would be off the books. But they're afraid to speak on the record.

Then I meet Alberto Hernandez. Actually, I have to pass through three separate security doors before I reach him. Hernandez is president of Pegasus Metals. The company buys and sells gold. It also melts gold in a special furnace that can get as hot as 4,000 degrees Fahrenheit.

I tell Hernandez that I've heard rumors about people who come around with bags of cash, looking for deals where there's no paperwork involved.

"We get customers who do ask that. They don't want to report to IRS," says Hernandez.

He always gives them the same answer. "We don't do any cash," says Hernandez.

But downstairs in the same building, retail jewelers sell gold necklaces and bracelets and rings. Many merchants tell me that business is bad. As the price of gold has increased, consumer demand has decreased.

You can imagine how desperate retailers teetering on bankruptcy might rationalize bags of questionable cash.

And it's not just the gold and jewelry businesses. The cartels are diversified. In the past, they've invested in products ranging from kids' toys to plasma TVs.

"We expect this is going to become a bigger problem in the near- to mid-term future," says agent Miles.

Homeland Security Investigations predicts significant arrests and prosecutions related to trade-based money laundering schemes in the coming months.

Google infiltrates the home through your thermostat

Tue, 2014-01-14 13:47

Google has purchased smart thermostat and smoke alarm maker Nest for $3.2 billion. That billion-dollar price is not unusual for a succesful startup in 2014.

For Google, it's another foray into an area the tech giant hasn't really entered yet: the connected home. Tech companies see big opportunities to make products and software for devices that talk to you and to each other.

For Nest, Google offers a chance to scale up quickly and effectively while building products it believes in.

"Nest, thus far, has been kind of the spoiler, the little guy. Nest has made a really nice product but they haven't been able to scale up," Marketplace Tech host Ben Johnson says. "Google gives them that. Google, says, alright, you want global reach? We got that."

But are we about to be handing over even more of our personal data to Google?

"Tony Fadell, the CEO of Nest, says their privacy [policy] hasn't changed, they're not going to give all their data over to Google," Johnson adds. "It's a long way off. Right now, Nest is going to be focused on building stuff that is great and works in your house and makes your house more efficient. But eventually, Google is wanna give you an ad and have you log in to Google+, that social network we love to hate."

Corn farmers eye other crops for next year

Tue, 2014-01-14 13:42

America’s corn farmers are already planning what they’ll plant – and what they won’t. Farmers were told last week that U.S. stockpiles of corn are up – way up – and they might want to think about planting something else next year.

Keith Alverson, a sixth generation ethanol corn farmer in Chester, South Dakota, says it’s all about supply and demand. Corn prices were up last year thanks to two years of drought that lowered supplies. That meant farmers, like Alverson, planted more acres of corn. Those acres flourished -- the weather was favorable and the harvest was larger than it had been in previous years.

Alverson says the downside of the good harvest and higher supply is that corn prices have dropped 14 percent over the last few months. 

“Think of any of our budgets across the United States: If we have a 14 percent decline of what’s coming in, yeah, it can definitely have an impact,” Alverson said.

Now, he’s making plans for spring and what he’ll plant on his 2500 acres. Many of his neighbors and fellow farmers will plant a 50/50 mix of corn and soybeans, because the profits for the two are about equal. That wasn’t case last year when corn was much more lucrative.

Does that mean no corn crop in 2014? Alverson says no.

“I’ve got a soft spot in my heart for corn, no doubt about that. I enjoy growing it, it’s a fun crop to grow. That being said, there’s economics involved too."

NEST? The stock that jumped 1900%? Wrong Nest

Tue, 2014-01-14 13:37

This final note in which we're obliged to again caution investors to double check those ticker symbols before hitting the buy button.

Remember when Twitter went public and shares of a home entertainment company with the symbol TWTRQ went bananas.

It happened again today with the ticket symbol NEST, which is not the thermostat company Google spend $3.2 billion to buy.

NEST is in fact a penny stock -- a bankrupt red-light traffic camera company, in point of fact.

But at one point today, shares were up 1,900 percent to $0.10. 

Seahawks block 49ers fans from buying tickets. But does it pay?

Tue, 2014-01-14 12:57

The Seattle Seahawks sold a few thousand tickets to their NFC Championship Game on Sunday, January 19, against the San Francisco 49ers. But there was a catch: with a California billing address, you couldn’t buy them. The Seahawks limited sales primarily to people in the Pacific Northwest: Washington, Oregon, Montana, Idaho, Alaska, and Hawaii, plus British Columbia and Alberta, Canada.

It’s a rarely-used business strategy in professional sports: an attempt to limit the in-stadium fan base, and tilt the advantage to the home team.

For the San Francisco 49ers, the odds are already stacked against a win because of that visiting-team disadvantage. Patrick Rishe, a sports economist at Webster University, says  the advantage has been estimated at around two to three points added to the home team's spread.

And Rishe says Seattle’s stadium, CenturyLink Field, may amplify that advantage further.

“The architectural design of their stadium is such that it keeps and traps the noise in,” Rishe said. The stadium is narrow and high, with deep recesses under the upper deck, and a 40-row bleachers section called the “Hawks Nest,” with aluminum seating to further reflect and amplify the sound of cheering and foot-stomping.

In fact, the Seahawks so-called “12th man”—that’s a team’s crowd of fans in the stands—is so loud, they set a Guinness World Record on Dec. 2, in a game against the New Orleans Saints with 137.6 decibels of noise. Seismic experts from the University of Washington have installed ultra-sensitive monitors near the stadium and detected tiny earthquakes from fan cheering. 

“Part of the reason for the ticket block to anyone outside of the Pacific Northwest is that they want to make sure they have as many loud partisans there as they can get,” Kevin Reichard, publisher of Ballpark Digest in Wisconsin, said. “Among their fan base it’s great publicity. It pats all the fans on the back and says ‘We only want you here, we don’t want anyone else here.’”

Of course, Seahawks management can’t really keep Californians out. Only a few thousand tickets—out of 67,000 (the stadium's capacity) were sold this week online. And 49ers fans have access to the secondary market, where they can purchase tickets at marked-up prices.

Lawyer Kenneth Shropshire at Duane Morris LLP, who teaches sports business at the University of Pennsylvania’s Wharton School, says that the strategy of geographically restricting ticket sales isn’t common, but it can be a sound business strategy. And it’s not likely to run afoul of the law.

“Preferences are given to season-ticket holders, for example,” Shropshire said. “So the idea of giving a preference to a group because in some way it benefits the business, that is, the team [is acceptable] —as long as that group isn’t some sort of protected class. We would see an action if they said, ‘We’re not going to sell any tickets to any Asian people, or black people, or women. But this is different. This is, 'We want our fans to have the opportunity to be there, and we’ll give them first preference. And if you want to come and you’re from elsewhere, you can buy a ticket on the secondary market.'”

Kevin Reichard points out that the Denver Broncos have restricted ticket sales to favor locals as well. And so did Northwestern University recently for a basketball game against rival University of Illinois.

Verizon says net neutrality ruling won't change anything

Tue, 2014-01-14 12:46

The Internet got less neutral today: A federal appeals court struck down a Federal Communications Commission ruling that prohibited Internet Service providers from slowing down, blocking or otherwise reestricting Web content. 

So here’s the new reality, internet service providers can now charge websites for faster access. And they can slow down content or block it all together, according to Craig Aaron, the president of Free Press, a non-profit that advocates for net neutrality.

Aaron says the ruling is bad for competition and consumers, "The phone and cable companies are now free to say, 'Oh well we’re going to connect you to our content, that we’ll just put through right away. But oh you want to go to one of our competitors, well that’s going to take a little bit longer and maybe you wouldn’t mind watching a few ads while you wait.'"  

Aaron says net neutrality has sparked innovation on the internet, since anybody can present their ideas and products to the masses. Today’s ruling threatens that by giving phone and cable companies too much power. 

But Steve Weber, professor at UC Berkeley, says "it’s much more complicated than that." According to Weber, net neutrality has stifled innovation among telecom and cable companies, who don’t invest in expensive services. For example, if you’re doing telesurgery. If you’re Verizon, you would like to provide, say, a medical grade network," Weber says. 

With net neutrality, that’s not allowed. Weber believes telecom and cable companies won’t block content because consumers would flee to other providers. In fact, Verizon said today that it’s committed to quote an “open Internet” and consumers won’t notice a difference. 

But start-ups that can’t afford the fastlane will notice a difference, according to Scott Steinberg, analyst at TechSavvy. "These smaller, mid-level guys are going to find themselves at a disadvantage," said Steinberg.  

And the big guys, like Google, have figured out a work around. They’re starting to become internet service providers themselves. Of course, that all costs money, which we’ll end up paying in one way or another.

Germans aren't eager to commemorate WWI

Tue, 2014-01-14 12:42

Europeans will mark a grim centenary this August: The 100th anniversary of the outbreak of the First World War. A multi-million dollar series of events will span four years, and at least three participating nations -- Britain, France, and Belgium.

 Missing from the list? Germany. All of this commemoration has proven tricky for the nation on the other side of the battle lines.

 "The German government  is fundamentally uninterested  in marking this important anniversary," Gerd Krumeich, a historian at Dusseldorf University, said. "And this reflects the mentality of most Germans today. They don’t seem to feel  that the war had anything to do with Germany even though almost 2 million of our soldiers died in the trenches."

 British Prime Minister David Cameron has added to the Germans discomfiture. Britain is spending some $80 million dollars on commemorative concerts, school visits to battlefields and other events. Cameron says Britain and its allies were fighting a just war against German aggression. Many historians agree.

 "The Germans fought a war of conquest," said military historian Garry Sheffield of Wolverhampton University. "And the British and the French found themselves  fighting a defensive war against an aggressive neighbor, bent on achieving hegemony in Europe." 

 These words have  an uncomfortable resonance today. 

 The German government’s  insistence on austerity measures in southern Europe has stirred up a lot of anti-German sentiment, and there is widespread concern about  perceived German dominance.  In a recent poll , 88 percent of Spaniards and 82 percent of Italians complained that Germany wields too much influence in the European Union. 

 Does this explain the apparent reluctance of the German authorities to commemorate the World War I centenary? Are they nervous about raking over the past?

 Andreas Meitzner – the senior German diplomat in charge of the country’s commemorative plans – denies that he has been dragging his feet, and insists German politicians and officials will take part in numerous events abroad. He says the government may yet decide to organize some commemorative activities at home. But he doesn’t expect the country to dwell on the issue of culpability.

 "It’s not about responsibility, about who is to blame. It’s about joint lessons to be drawn from the First World War,” Meitzner said. 

 Meitzner hopes Europe will use the commemoration as a lesson on the huge economic benefit of peaceful integration. But one German newspaper has written about the danger of "tearing open old wounds."

 With four years of eventson the horizon, this, like the Great War, won’t be short and sharp. And it won't be over before Christmas.

How American Idol changed television

Tue, 2014-01-14 12:24

Coming Wednesday to your television: the 13th season of American Idol.  Ratings were down last time around, but Fox is promising a facelift for the singing competition.  Love it, or over it, American Idol has changed the way we watch TV.   

At this point, the American Idol format seems pretty unremarkable. We watch some guy that no one’s heard of take on Stevie Wonder; we watch celebs judge him; we vote ourselves.  “Basically American Idol, in my mind, introduces audience interactivity,” says S. Shyam Sundar, a communications professor at Penn State.  It lets us be part of the action. We chose between Clay Aiken and Ruben Studdard. The show gave all of us a teeny, tiny, bit of control,  “and have a say in the outcome of the proceedings of the show.”

Sundar says it blends old media and new. It sets the stage for more watching together, while we’re in our PJs, watching apart.

But, the show’s format wasn’t entirely revolutionary. American Idol tapped into a long history of entertainment. 

Live. Amateur competition.

“Even in the 50s, and on radio,” says Susan Murray, a media professor at New York University, “there had been amateur hours, popular amateur hour shows.”

American Idol came up with a new formula for telling a story we’ve liked hearing for a long time: that our secret talents could be discovered, that the guy next door could become the next big thing.    

How college applications change in the era of Big Data

Tue, 2014-01-14 12:10

The number of college applications per capita is at an all-time high in America, and that's not making life any easier in the Admissions Office.

"I've applied to four schools and I'm thinking of applying to a few more," says Tim Murphy.

The high school senior from St. Louis sent in applications to places like Vanderbilt University and the University of Missouri, and he is nowhere near landing on his top choice.

"Almost anything feels like it can change my mind sometimes," Murphy says. "Stories I hear from friends who go to these schools, or the amount of money I'm getting from these schools."

Now that the application process has been moved online, kids are applying to more schools than ever. And all those applications stuffed into servers are making it harder for colleges to predict if a student will actually accept an admissions offer.

On a recent afternoon at Southern Illinois University at Edwardsville, hundreds of prospective students and their parents walk through the student center. Director of Admissions Todd Burrell is the guy in a three piece suit hanging out by the registration table.

"We know kids are applying to more and more schools, but they can only pick one," Burrell says.

Folks in the admissions business call this "yield," or the percentage of kids who accept admissions offers.

Like many schools, the university did not hit its target yield last year.

Fewer students can mean less revenue, and the school is using big data to step up its marketing game.

"What can we do more to keep them engaged in this process and say, 'I want to go there,'?" asks Burrell.

The university buys contact information from testing companies, and then sends all those kids e-mails.

The moment a kid clicks a request for more information, the marketing wheels start to turn: phone calls, e-mails, direct mailings, you name it.

Some institutions are taking this process to a whole new level.

"As a student goes through the search and application process, many times unbeknownst to them, colleges are collecting information about everything that they do," says David Hawkins, director of public policy and research for the National Association for College Admission Counseling.

Messages, campus visits, even social media interactions, are logged into admissions software.

"When the application is received, the college then has sort of a trove of data on the student," Hawkins says.

Hawkins stresses that a student has to clear an institution's academic bar. But he says colleges don't want to offer up a spot to a student who isn't likely to enroll, and all that data is crunched in the search for something called "demonstrated interest."

"How likely you are to enroll in the institution if you're accepted? That's 'demonstrated interest' in a nutshell," Hawkins says.

Mostly colleges want to see that a student has stayed in touch during the application process, but Hawkins says some go so far as to analyze the order a student lists schools on their federal aid application.

The idea is that students will put their preferred schools at the top of the list.

Under rising pressure to hit enrolment numbers, more schools are reaching to consultants for help. Hawkins says those contracts can be worth millions of dollars.

"The profession as it exists now is almost alien to the people who got into the business 20 or 30 years ago," Hawkins says.

Colleges are also using big data to help make sure kids leave campus with a degree, experimenting with systems designed to help catch struggling students before they fall through the cracks.

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