CALI, COLOMBIA -- The international dollar trade here has no exchange floor or electronic tickers or pontificating analysts. Yet the market's huge size, sophisticated structure and competitive daily bidding operations would be familiar to any Chicago futures broker.

There's just one twist: In Cali, cocaine trafficking capital of the Western Hemisphere, most dollar traders operate in the illegal black market, and they are well-advised never to lose money for their clients. "If you lose drugs, people get upset," one narcotics specialist said. "You lose money and people die."

During the 1980s, Colombia's drug cartels brought home only an estimated 10 to 20 percent of the billions of dollars in cash proceeds from their sales of cocaine in the United States. But over the past two years, because of tougher U.S. banking law enforcement and other factors, they have been sending about half of their cash back to Colombia -- an estimated $5 billion to $7 billion annually, according to investigators.

This two-part report will examine how this change in the movement of cocaine money has presented U.S. and regional law enforcement agents with a formidable -- some say unmanageable -- challenge as they seek to disrupt the financial empires of Colombia's largest cocaine traffickers. It will also describe how Panama, whose involvement in the cocaine trade the U.S. government sought to end with a 1989 invasion, remains a key operations center for Colombian traffickers seeking to transfer and hide cocaine profits.

Over the last year, Colombian cocaine traffickers have refined and expanded a unique illicit money trading market. Independent Colombian money brokers allied with the cocaine cartels -- at least several dozen brokers, and perhaps more, according to investigators -- have been allowed to bid competitively for the right to transport large blocks of illicit cash to Colombia. The blocks of cash are typically $1 million or more, and come from cocaine sales in U.S. cities.

Cali operatives call the system "bajando el dolar," or "bringing down the dollar." For the money brokers at its center, the profit potential is huge: the payoff for buying piles of cash in the United States and getting them to Colombia can be as high as 25 percent of the amount transported, or $250,000 for every $1 million. But the risks of trading can be formidable.

For example, a Colombian broker wishing to purchase a cash block in the United States must first show to his cocaine exporting client that he is "bonded" -- that is, that he can reimburse the trafficker even if the cash he purchases is lost, stolen or seized by police. This bonding is done either through cash, land or urban properties, according to law enforcement and Cali cartel sources.

Lacking market police equivalent to the Securities and Exchange Commission, which oversees Wall Street, the cocaine cartel often enforces fair trading by sending a few people to stay with the family of a money broker during the period of a trading contract, a cartel source said. When the money broker or his employees call home, these "friends" remind him that completion of the deal is anxiously awaited, the source said.

Law Enforcement Nightmare

For U.S. and Colombian law enforcement officials, disrupting this burgeoning money market has become a major, if daunting, priority. Because of weak Colombian financial laws and the recent, complex expansion of the Cali-based money brokerage system, law enforcement officers have yet to make a major case against the key Colombian brokers, officials said. Some vowed this would change very soon; others were skeptical that a major success could ever be achieved.

The trouble in breaking up the money market comes as many law enforcement officials are acknowledging the failure of a long U.S. campaign to choke off production of cocaine in South America and to eradicate the coca leaf, the raw product from which cocaine is derived.

This setback has prompted the development of the "kingpin strategy," which focuses more time and resources on disrupting the astonishingly sophisticated, multi-billion-dollar financial networks of Colombia's biggest cocaine traffickers.

Since the decline of the cocaine cartel based in Medellin, the Colombian organizations based in Cali now manage about 80 percent of the world's cocaine trade, according to the U.S. Drug Enforcement Administration and other sources. Cali's main kingpins include brothers Miguel and Gilberto Rodriguez Orejuela, and their close friend and longtime associate Jose Santacruz Londono. Sources say the Rodriguez Orejuelas have a remarkably sophisticated operation, relying on a system of computerized bookkeeping, wire transfers and cellular phones to monitor business and keep the money flowing.

The trouble, as with past tactics in the U.S.-led drug war, is that it is one thing to talk about disrupting the financial operations of the Colombian cocaine cartels, and another to succeed.

"We celebrate our hollow little victories that don't mean anything because of the magnitude of the problem," said one weary anti-narcotics agent. "The truth is that every day the traffickers are stronger economically and politically."

Statistics make the point. The DEA estimates annual cash seizures from Colombia-based cocaine trafficking organizations at about $200 million. That's in a cocaine money industry generating an overall estimated $20 billion in illegal cash profits each year, a senior DEA official said.

"If we get 1 in 4 shipments, it's okay with {the traffickers}, and we are getting 1 in 100," said one official. "It is going to take more manpower, resources and intestinal fortitude to get serious about this, and I have not seen that yet by any country."

In financial terms, Colombia's cocaine barons can be seen as ordinary commodity exporters faced with two unique business challenges. One problem is that all their customers pay in cash. The other is that this cash must be converted into forms of wealth that the cocaine exporters can use in Colombia.

During the 1980s, investigators say, the cartels generally solved these problems by depositing directly into U.S. banks the cash they received from retailing large loads of cocaine to smaller organizations that handle U.S. street sales. Then the cartels shifted their wholesale profits through front companies and international accounts until they could be safely invested or held for the benefit of cartel leaders.

To a degree, that system is still available, according to investigators. But tougher U.S. and European banking regulations, increased law enforcement efforts, economic liberalization in Colombia and high interest rates in Colombian banks have made direct deposits into U.S. banks less attractive and riskier than before, investigators and cartel sources say. Among other measures, U.S. authorities now require banks to keep a record of any deposit over $10,000, preventing traffickers from making large deposits without detection.

So increasingly, Colombian cocaine exporters -- of whom the largest and most powerful are based in Cali -- are attempting to smuggle cash dollars out of the United States and to slip them into the legitimate international financial system elsewhere. The doorways for such cash deposits or other "money laundering" transactions are many, but the preferred points of entry into the banking system these days include Panama, Mexico, Brazil, Venezuela and Colombia itself, investigative and cartel sources say.

Specialists, investigators and cartel sources said that increasingly, the Colombian cartels have large amounts of cash backed up in the United States, waiting to be transferred outside U.S. borders.

In response to this problem, the Colombia-based illicit dollar trading market has expanded and evolved. An account of the way the market works was provided by Greg Passic, who directs money laundering investigations for the DEA; Fernando Brito, director of the Department of Administrative Security, Colombia's equivalent to the FBI; Colombian Attorney General Gustavo de Greiff; other law enforcement sources, and a source who has worked with the Cali cartel in its laundering operations.

Enter the Middlemen

Whereas the cocaine cartels formerly insisted on receiving every dollar earned in the United States, they have lately decided to pay a share of their dollars to middlemen to make it easier to bring their profits back to Colombia, investigators say. The middlemen, who are Colombian money brokers, are now able, for example, to pay just $4 million to the cocaine traffickers in Cali for the right to take possession of $5 million in cash sitting in a safe house in Houston, according to investigators. The broker pockets the difference, in exchange for transporting the money to Colombia.

The size of the payoff to the middleman or broker varies, partly depending on location. Cash that is stashed in some cities is priced more attractively than in others, investigators say. After agreeing to buy a block of cash stored somewhere in the United States, a money broker guarantees to deliver the total amount -- minus his commission -- to the cocaine cartel family within 15 days of making the deal. He also pledges to deliver the money in Colombian pesos, rather than in dollars.

The broker's profit rests on his ability to smuggle or otherwise transfer the block of cash he has bought in the United States into a bank. He then sells the dollars to a legitimate Colombian businessman, who pays pesos for them and gets the dollars at a better exchange rate than normal. The broker's "spread," or profit, is the portion of the original dollar stash he gets to keep, minus his expenses and the money he loses by allowing a businessman to buy the rest of the dollars from him at a discount.

The broker typically tries to reduce his risk in the market by subcontracting the cross-border smuggling aspect of his work to Mexican, Colombian or other gangs adept at finding low-level runners willing to take physical risks with cash, investigators say.

"What you have with the Colombians -- it's not organized crime, it's modular crime," said the DEA's Passic. "They have fragmented each function and assigned that responsibility to an individual."

Typically, law enforcement officers in the United States can only catch the small-time subcontracted smugglers as they attempt to move relatively small blocks of cash out of the United States or deposit the money into banks in small amounts to evade the $10,000 bank reporting requirement.

These smugglers are referred to as "smurfs," a nickname based on television cartoon characters that reflects the runners' relative unimportance in the Colombian-based cocaine industry. For example, when police in Cali were sent in May to round up illegal aliens, they found long lines of tourists outside money exchange houses at the downtown Plaza de Caicedo, all with documents in order and all seeking to change $25,000, the legal limit for tourists under Colombian law, according to Brito.

Further investigation determined that the tourists were receiving their dollars from the Cali cocaine cartel and exchanging them in a vast operation involving more than $400,000 a day, Brito said.

Money is also "smurfed" by operatives who buy thousands of small postal money orders in the United States and transfer them to virtually unregulated money exchange houses around Colombia. Brito said an investigation into 15 exchange houses in Colombia and 12 in the United States showed the orders were made out in the names of real people, with correct Colombian national identification numbers, obtained from newspaper announcements of deaths or lottery winners. False identifications are then produced for smurfs allied with the cartels.

Cartel families stamp symbols on the backs of money orders -- a shield, a swan in a circle, an eagle, a smiling moon face -- to make clear which money orders are which, according to U.S. Postal Inspection Service investigators.

On the U.S. end, the preponderance of such cash smuggling has led to a relatively large number of cash seizures this summer at airports, other export terminals and safe houses, according to the DEA. In one case this summer, a man was arrested at New York's Kennedy airport after loading about $120,000 in cash into a number of condoms and swallowing them before boarding a flight to Bogota, a DEA official said. The official called this swallowing feat "a record."

Law enforcement officials in Colombia said bulk shipments of dollars, either by airplane or in shipping containers out of Miami to Panama or a Colombian port, are growing.

With Colombia's once highly protected economy opening rapidly to foreign imports and with dollar exchange restrictions easing, Colombian and law enforcement officials fear the problem will only grow. The 'Dark Side'

"This whole process of {economic} liberalization has had a dark side," said University of Miami money laundering specialist Bruce Bagley. Added Colombian Attorney General de Greiff, "What this means is that we have a $5 billion problem. . . . The criminals have an immense power to buy the things they want."

They are also hurting legitimate Colombian business. One popular dollar repatriation technique of late is use of "San Andresitos," sprawling retail markets in most Colombian cities that thrive on contraband consumer goods, said Salomon Kalmanovitz, an academic and banking director who has studied the practice. Cocaine traffickers launder an estimated minimum of $700 million annually through these markets, according to Kalmanovitz and others, by buying television sets, video recorders, liquor, cameras, cosmetics and other luxury goods for cash in Panama and the United States, then smuggling them into Colombia and selling them to consumers at a discount.

The huge influx of drug-financed consumer goods is at least partly responsible for Colombia's wildly warped trade statistics, with the government last week reporting a 78 percent increase over 1992 in imports in the first half of this year. Meanwhile, the constant influx of dollars has revalued the Colombian peso internally, making the dollar worth less on the black market than in official exchanges. That hurts legitimate Colombian exporters, who can buy ever less with their dollars earned abroad.

With so much money washing back to the region, and with such a sophisticated cash flow market to be managed, another rising concern is that the Colombian cocaine cartels are moving aggressively into Latin American banking.

"They buy into stock instruments, government debt redemption certificates. There are increasingly sophisticated schemes that we're seeing in most parts of the world," said Rayburn Hesse, senior policy adviser in the U.S. State Department's Bureau of Narcotics, Terrorism and Crime. "There is literally no horizon."

NEXT: Panama's role in Colombia's cocaine financial networks.

Farah reported from Colombia and Panama, Coll from Panama and Washington.