On March 31, 1987, Mario Alberto Salinas Trevino, his brother Baldemar, and two of their Maxican countrymen strolled into Stone Oak National Bank in San Antonio to put $300,000 into certificates of deposit. They had the money in cash, packed neatly in a shoe box.

Bank executives Herbert Pounds and Harlan Vander Zee had gotten a favorable recommendation for Mr. Salinas from a director of the bank. They reported the cash deposits to the government, following all the regulations aimed at preventing money laundering and related crimes.

Compliance Beyond the Minimum

In fact, the bankers did more than the law required, going so far as to send a photo I.D. of Mr. Salinas' colleagues, in whose names the deposits were entered, along with the currency transaction report to the International Revenue Service.

Three years later, the bankers were arrested on charges of laundering money for Mr. Salinas, allegedly one of Mexico's biggest drug smugglers.

Though they were eventually acquitted, the American Bankers Association considers it a case of regulatory excess so outrageous that it should be investigated by Congress. The ABA contends that what happened to Mr. Pounds and Mr. Vander Zee could happen to any banker unless protections are enacted into law.

The bankers were frisked, handcuffed, fingerprinted, photographed, and thrown in jail by FBI and IRS agents on May 11, 1990. Both faced up to 60 years in jail and fines of $750,000.

"I was weak in the knees," said Mr. Pounds, 49, an attorney and the former president of Stone Oak, a $16 million-asset bank that operated out of a mobile home at the time.

"It was devastating," added Mr. Vander Zee, 62, a former executive vice president. He lost his life savings, his house, and is now suffering from cancer.

|A Stink Factor'

"The have about ruined my life," he said. "There is a stink factor that still hangs over me." His big fear is that people are thinking: "Old Vander Zee, he had a good lawyer, he got off."

Mr. Pounds still has his law practice, which he left the bank to reestablish in 1987. But he, too, ended up broke after paying legal fees.

"Before this happened my reputation was unimpeachable," said Mr. Pounds, who as an Air Force pilot flew 220 combat missions in Vietnam and won three distinguished flying crosses. "Now, no matter what anyone does, there is no way to regain it."

|Very Much Surprised'

Justice Department officials are sore about losing the case. They claim that the bankers worked closely with Mr. Salinas, head of a drug gang known as the Jet Set.

"We were very much surprised by the decision," said Ronald Ederer, U.S. attorney for the Western District of Texas.

Mr. Salinas, a natty dresser who wore a short beard, was introduced to the bankers by a Stone Oak director, James Japhet, and a real estate salesman, in a telephone conversation several days earlier.

Mr. Salinas said he wanted to refinance an airplane note that he had outstanding at MBank. But Mr. Vander Zee was reluctant because airplane loans were risky.

Mr. Salinas persisted and explained that his friends - Jorge Antonion Cano and Ernesto Gonzalez - would pledge $300,000 as collateral for the $280,000 loan.

"You know, you can't hardly beat a deal like that," Mr. Vander Zee said.

The bankers insist that they believed Mr. Salinas was legitimate. He, his brother Baldemar, and two other Mexican nationals had given them business cards, and said they ran a paving company in northeast San Antonio, which Mr. Vander Zee later visited. The Mexicans also owned a tile company, a ranch, a heavy-equipment operation, and a car dealership.

"I liked him," Mr. Vander Zee said. "He was responsible."

Legal Tender

The bankers were nervous about accepting so much cash, but it was common for Mexicans to deposit large sums in U.S. banks in the 1980s because the peso was declining in value. Before they consummated the deal, the bankers insisted on running the $300,000 through a money-counting machine to see if it was counterfeit or stolen. It was neither.

"I never thought about drug money," Mr. Pounds said.

Several days later, when the airplane note was funded, Mr. Pounds called the Treasury Department in Washington to make sure the bank had followed the correct reporting procedures. The FBI, Secret Service, Internal Revenue Service, and Office of the Comptroller of the Currency had all been notified.

Mr. Pounds recorded his conversation with a Treasury official, Peter Caputo, "because I didn't want to lose my job. In a case like this I thought it was important enough to tape."

According to a transcript of the tape, Mr. Caputo assured the banker, "You're covered as far as the Bank Secrecy Act is concerned."

Over the next several months, associates of Mr. Salinas made deposits in Stone Oak totaling $700,000. And with every deposit, the bankers filled out transaction reports, which were required on most cash deposits above $10,000.

What the bankers didn't know was that after reviewing the reports, Treasury officials in Washington became concerned.

Shortly after receiving the report, Gerald L. Hilsher, deputy assistant secretary for Treasury's law enforcement division, requested that the IRS regional office investigate the deposits. For some unexplained reason, the agency never followed up.

Heroes Turned Defendants

"It sickens the hell out of me," said Mr. Hilsher, now an attorney in Tulsa, Okla.

"When Treasury got [the current transaction report], that is what should have started an investigation, and it didn't," the lawyer said. "That was a lapse in judgment. If [the enforcement officer] had followed up, instead of hauling in Pounds and Vander Zee as defendants, they would have been heroes."

In March 1989, Mr. Salinas was arrested in his San Antonio home and indicted on drug-trafficking charges. At the time, Mr. Pounds, who had returned to private law practice, was representing Mr. Salinas on civil matters and visited him openly numerous times at the prison to discuss the cases. This attorney-client relationship aroused the suspicions of the Justice Department.

A year later, the Mexican escaped from a minimum-security facility in San Antonio and is still on the lam.

Weeks before his escape, Mr. Salinas, the two Stone Oak bankers and 33 other defendants, most of them Mexicans, were indicted on drug and money-laundering charges.

Innings in Court

U.S. District Judge Hippolito F. Garcia threw out the original indictment on May 29, 1991, on the ground that the reporting requirements for bankers were unclear. But five months later, the bankers were indicted again with an added charge of conspiring to launder drug money.

On Feb. 27 this year, federal Judge Lucius D. Bunton, after three days of testimony, dismissed the jury and acquitted the defendants himself because he believed that the government had not proved its case.

Meantime, Stone Oak is fighting for its life. It is $600,000 undercapitalized, and bank president Robert W. Schumann says that nearly $1 million in drug money has been frozen in Stone Oak accounts since March 1989.

The bank is waiting for the Justice Department to unfreeze the funds. If it doesn't, says Mr. Schumann, the bank is likely to fail.

Mr. Pounds is continuing to build his law practice. He said he is working to forget the last two years of his life. Mr. Vander Zee, on the other hand, doesn't know if he'll ever get another job. He's out looking for work. He says it's hard to let go of the bitterness.

"I lie awake all night long looking at the ceiling and twisting the bed sheets," he said. "It wouldn't hurt so bad if I had done it."

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