Alarmed by evidence that American companies are helping Colombian drug traffickers launder billions of dollars in illicit profits, U.S. officials are stepping up efforts to find and prosecute firms that pursue business transactions that they know are suspicious.
U.S. and Colombian officials estimate that Colombian cocaine and heroin traffickers use international businesses to repatriate about $5 billion a year in drug profits through complex, seemingly legitimate purchases that not only turn their illegal dollars into pesos but also corrode their country's battered economy.
Colombia's legitimate imports total $15 billion, meaning about a quarter of the nation's total import revenue is contraband brought in as part of money laundering schemes, according to Fanny Kertzman, the director of Colombia's customs service.
Colombia's traffickers routinely converted dollars reaped in the drug trade into pesos simply by moving the money through banks. But as increasingly stringent international banking regulations have made that method more difficult, drug traffickers have been turning to so-called peso brokers. These brokers sell the traffickers' dollars by performing transactions for Colombian businesses seeking to buy American goods while bypassing Colombia's tariff and trade laws.
The method, known as the black market peso exchange, "is now the primary way Colombian [drug] cartels launder their money," said U.S. Customs Commissioner Raymond W. Kelly. "According to intelligence estimates, as much as 30 percent to 40 percent of the drug dollars are laundered through black market peso exchange. That amounts to billions of drug dollars flowing through U.S. companies. And these are not fly-by-night companies, these are top U.S. firms."
The Senate Caucus on International Narcotics Control has scheduled hearings on the peso exchange today.
To combat the trade, U.S. Customs and the Treasury Department are sending targeted companies brochures describing the peso exchange, what type of transactions should raise suspicions and whom to contact to report suspicious buyers. The first to receive the information will be companies believed to be most vulnerable to laundering activities. Once the companies have been warned, prosecution and asset seizure will be easier, officials said, because prosecutors will be able to show that the businesses in question had reason to suspect that they might be involved in illicit transactions.
The peso exchange has been operating for years because of Colombia's restrictions on dollar transactions and prohibitive tariff structure. Only in the last three years, however, has it become drug traffickers' favorite way to retain access to their wealth.
The system works like this: A trafficker can convert dollars earned in the United States through the drug trade by selling them to a peso broker. The broker typically will take a 20 percent to 25 percent profit on the deal, selling a trafficker $8 million in pesos for $10 million in dollars, because the broker assumes all the risk.
The broker then eases the dollars into legitimate bank accounts in the United States in amounts of less than $10,000 to avoid triggering federal banking reporting requirements.
At the same time, Colombian businesses need dollars to buy goods in the United States, but doing so legally is difficult and dollar purchases are heavily taxed. So a business can employ a peso broker as a middle man -- paying pesos to the broker in Colombia for a purchase that the broker makes in the United States with the dollars he has stashed in banks there. The purchase is usually made with a third-party check, money order or cash.
"It is not difficult to establish if someone is involved in a money laundering scheme," said a senior Colombian official. "If large purchases in the United States are paid for with cash or third-party checks that have nothing to do with [the] company making the purchase, it is probably drug money. We are asking for good due diligence by companies, for companies to know their customers."
An example is Adam Mandelblatt & Co. of New York. After a joint investigation by U.S. Customs, the Drug Enforcement Administration and the Internal Revenue Service, the fabric company forfeited $1 million and five people pleaded guilty to money laundering, said Assistant U.S. Attorney Tim Macht of the Eastern District of New York.
According to the indictment, Colombian customers buying fabric from Mandelblatt gave Colombian pesos to a peso broker in Colombia, who then used drug dollars to pay Mandelblatt for the merchandise in New York.
Macht said the defendants at Mandelblatt "knew or consciously avoided knowing" that the money they were being paid by Colombian customers came from drug sales and that from 1987 until the arrests last year, the company laundered about $10 million.
Electronics, cigarette and liquor companies are most often involved in such transactions. Both U.S. and Colombian officials say parent companies or manufacturers are seldom implicated in wrongdoing; rather, many of their distributors, especially in the Miami area, turn a blind eye to suspicious purchases.
"The core companies are not usually the guilty parties; it is the distributors selling blocks of TVs, washers, dryers, and accepting cash payments or third-party checks," said Greg Passic, an expert on Colombian money laundering who recently retired from the DEA. "And even legitimate Colombian importers can only be competitive now if they can buy cheap dollars. The economic reality has evolved so that the whole system is super-convenient to all parties."
Colombian officials acknowledge that cracking down on the vast black market in Colombia will be unpopular but economically necessary. Many goods purchased through the exchange avoid the tariffs that legitimate goods must pay, depriving the government of hundreds of millions of dollars a year in tax revenues.
And cracking down in the United States will not be easy, either. A host of agencies is involved in such dealings.
"One of my messages is that it is the moral responsibility of corporations to do something about this," Sen. Charles E. Grassley, the Iowa Republican who chairs the narcotics control caucus, said in a telephone interview.