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US Firms Unwittingly Aid Drug Lords

Congressional hearings today to warn businesses of new money-laundering scheme.

By Staff writer of The Christian Science Monitor / October 22, 1997



NEW YORK

Columbian drug lords have quietly brought a new unwitting player into their illicit trade: brand-name American corporations.

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Billions of dollars of illegal drug profits made in the US are now surreptitiously funneled into legitimate American businesses, according to a confidential Colombian informant and federal law-enforcement officials. These companies unknowingly accept the laundered drug dollars as payments for goods they sell for export to Colombia.

"Anybody that sells anything that goes into that arena is vulnerable to this system of money laundering," says Greg Passic of the Treasury Department's Financial Crimes Enforcement Network (FINCEN).

US law-enforcement officials estimate that as much as 50 percent of the trade between the two countries now involves drug money laundered through a new technique that pivots on black-market peso brokers.

The problem will be the subject of hearings on Capitol Hill today. "Corporate America needs to be very careful with whom it does business and from whom their profits are coming," says Rep. Spencer Bachus (R) of Alabama, who will chair the hearings.

Getting the cash for the cocaine and heroin they sell on the streets of New York or Los

Angeles into bank accounts in Bogat, Colombia has long bedeviled the world's largest drug suppliers. For years, Colombian cartels simply smuggled it down in crates or wired through American banks.

But a concerted crackdown by US authorities has curbed much of the flow of illicit money through traditional routes. So drug traffickers came up with a new money-laundering scheme: peso brokering. Currency brokers and "financial advisors" in Colombia act as middlemen between the Colombian drug lords and legitimate businesses looking for the least expensive way to trade pesos for dollars.

There are several ways the drug dollars are funneled into American corporate coffers, says a confidential informant who was a black-market currency broker operating in Colombia. But all start with a simple transaction between the currency broker and the cartel member.

How it works

For example, the Colombian drug dealer may have $500,000 in cash sitting in New York from the sale of drugs to various street gangs. The stacks of bills are stuck in "stash" houses. His challenge is to get the money back to Colombia.

Step 1: The drug dealer turns to the peso broker who has offices in Bogat and agents operating New York. The dealer sells his $500,000 stashed in the US to the currency trader for $450,000 worth of pesos. The drug dealer loses $50,000 on the deal, but considers it the price of walking out of the Bogat office with his profits now in the form of "clean" money.

Step 2: The currency broker then has his agents in the New York pick up the $500,000 from the stash houses and deposit it in dozens of small US bank accounts to circumvent US laws that require reports of cash transactions of $10,000 or more.The money then is slowly deposited in small amounts into a single account or recorded as "profits" in a fake corporation.

Step 3: This is where legitimate American and Colombian businesses become involved.

Normally, a Colombian business importer who wants to buy large amounts of American goods in dollars would turn to a Colombian bank to wire the money to the US. But there's a fee and a 6.5 percent tax on the peso-to-dollars currency transaction. On top of that, the importer has to prepay a hefty sales and importation tax. All this takes a big, upfront, bite out of profits.