By Adolfo Flores, Los Angeles Times

The co-owner of a City of Industry toy company was sentenced to 14 months in custody for her role in laundering money for Colombian and Mexican drug traffickers in a scheme known as the black market peso exchange.

Dan “Daisy” Xin Li, 44, co-owner of Woody Toys Inc., was sentenced Monday to eight months in prison, followed by six months of home detention. The sentencing for Jia “Gary” Hui Zhou, 44, her husband, was delayed until Jan. 6.

“It appears to be a growing phenomenon,” said Thom Mrozek, a spokesman for the U.S. attorney’s office in Los Angeles. Drug traffickers “are using legitimate businesses to launder money as opposed to literally smuggling giant bricks of cash back to Mexico.”

About $3 million, generated from U.S. drug sales, was deposited into the business' bank accounts from 2005 to 2011, according to court documents. The cash deposits of $10,000 or less were made to avoid having to report the funds to federal authorities.

Woody Toys would then purchase merchandise from "legitimate" companies in Colombia and Mexico with the money. The money would be funneled back to drug traffickers, Mrozek said.

Federal prosecutors declined to describe the drug traffickers further, Mrozek said. He declined to say whether cartels were involved.

Woody Toys was “the last 'spoke in the wheel,' that cleaned illicit proceeds and enabled drug trafficking  organizations to convert their dirty dollars into clean pesos,” prosecutors said in a sentencing memo.

Zhou and Li pleaded guilty in September to conspiring to structure currency transactions with a U.S. financial institution to avoid filing a currency transaction report. As part of their deal with federal prosecutors, they forfeited $2 million in proceeds they made from the scheme.

Also as part of their deal their company instead of the couple was sentenced in November to five years of probation after pleading guilty to money laundering conspiracy charges involving drug proceeds.

“We always look for ways to interdict the money going back to the drug traffickers,” Mrozek said. “You can either seize the drugs coming in or seize the money going back.”