Starting in the late 1970s. the GAO criticized law enforcement agencies for failing to investigate cash trends spotted by the Treasury's computer cash flow studies. Officials who have been briefed on the GAO's current study of the system say that GAO auditors have found some improvement but belleve more needs to be done. In interviews with investigators and prosecutors across the nation this summer. the Globe found dozens who had never heard of the studies or used them.

As originally envisioned. several federal agencies - including Customs. DEA. the FBI. the IRS's Criminal Investigation Division. the Justice Department and the US Attorneys offices were supposed to pick up where Treasury computer analysts left off. They were to take the unusual cash flows spotted by the analysts and track them back to their source. If they found a criminal behind the currency, they were supposed to prosecute him and seize his assets.

Investigators and prosecutors are now taking their first steps toward doing just that. But their actions come 15 years after they noticed the need for going after both crime and cash.

Until recently, according to Richard Jarrett DEA's intelligence chief in San Francisco. Law enforcement... was looking for the powder on the table. You know, that's what makes it sexy gets the headlines."

One reason that most law enforce ment officials failed to focus on criminal finances is that they were not. trained to use the Treasury cash flow studies or work with financial figures. As one West Coast official explained You know most of my guys weren't numbers people to begin with. They signed on as agents. not accountants." Adds a local prosecutor: "I tell a DEA agent to check the Registry of Deeds on a drug dealer and he looks at me Пike I'm crazy.

However, until recently investigators could not have used the studies even if they had training or interest because they did not know the studies existed or if they did, were not given easy access to them. A 1981 GAO survey of 27 law enforcement offices found officials at six were unaware of the studies or did not know how to ob tain them. Officials at another 12 had almost never used them. Recent interviews suggest that much the same is true today.

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But there is another reason that officials have not made much use of currency flow information: they don't believe that regulators ensure it is accurate or that the analysts make sure it is complete. As Jarrett put it: "The people we want aren't filing, and nobody's making them."

This skepticism can translate into a less-than-energetic attack on criminals assets. Even when Investigators pierce a narcotics ring and arrest its leaders. they often neglect to identify and seize any but their most obvious pos sessions. The investigation into a 14-member drug ring led by Eliner Rodriguez and Donaldo Rengifo, both of Brookline. is a case in point.

After the ring was busted last December, Investigators set about confiscating its profits. So far. they have seized $300.000 worth of properties, mainly the homes and cars of the suspects. Howev er. they overlooked several other assets that were somewhat harder to locate.

One member of the ring. Felix Rengifo of New York was able to sell a taxi medaillon for $75.000 a month after his arrest. Not real

In another example, ringleader Rodriguez and Helmer Mosquera bought the three-story apartment building at 77 Highland st. in September 1983 for $6.500 - in cash. During the next 15 months. Rodriguez, one of the two alleged ringleaders of the operation. spent an estimated $100.000 in renovating the building. All the work materials and the salaries of the dozen or so workmen on the job was paid for with cash, according to sources familiar with the renovation project.

One workman said he received approximately $20.000 on the project: since he was paid in cash. he did not report the money to the IRS. and paid no taxes on it. It was all gravy. heavy gravy for more than a year. he said. "Elmer would come every Friday to pay us and he'd have these bags of cash. I've never seen anything like it.

Rodriguez spent more cash. according to sources familiar with his business, renovating the Hyde Park house of a friend.

Although seizure law allows for the seizing of any property bought or renovated with drug money, neither property was tak en by the government. Asked why, one prosecutor on the case said: We just didn't talk to the same people you did."

A week after their arrest last December. Rodriguez and Mosquera signed their interest in the house over to their wives. Last May, the wives sold the apartment building for $75,000 to a Wellesley developer.

Shortly after buying the property, the developer received a visit from the DEA agent who led the Investigation into the drug case. "He wanted to make sure that i bought the property legitimately. and I showed him that I had. said Arthur Jacobsen of Genesis Properties of Needham. When Jacobsen asked the agent why the government hadn't placed a llen on the property to advise prospec tive buyers of its past owners criminal case, he said the agent told him:

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Fifth in a series

EL PROGRESO, PERU This dusty town on the Upper Huallaga river, so remote it does not appear on most maps of Peru, sees more American cash in a day than many Boston banks collect in a week.

Every few hours, small-engine planes touch down at the 25 clandestine airstrips within 10 miles of the town. They unload American bills and pick up cocaine paste made from coca leaves that grow on 80.000 acres in the river valley Then they return to Colombia. where labs process the paste for smuggling to the United States.

The dollars as much as $4 million on a busy day - have Invigorated El Progreso's economy. Japanese cars navigate its unpaved, potholed streets. and concrete houses are replac ing ramshackle wooden ones. Radios, electrical appliances and outboard motors are piled high at the outdoor market: they are bought and sold with thousands of dollars in cash. Two of Peru's largest banks plan to open branches in the town later this year.

Other bankers can't wait that long. Carrying footlockers stuffed with Peruvian currency, they fly into the airstrips in search of the dollars that the Colombians left behind. The coca growers, who need local. currency for their daily expenses, sell the dollars cheaply. in Lima, where American

Gulf of Mexico

dollars are in great demand. the bankers make a killing selling the tainted cash.

"These banks are actually laundering money." Peruvian businessman Jorge Baptista Carrion said in ar interview. "There are no questions asked. There is a law that says that banks can buy or sell any amount of dollars without having to check where they came from."

As in Peru, banks in several Latin American countries actively lure drug dollars. These porous financial systems channel the expenses of narcotics operations and hide the profits of dealers from both North and South America. Cash paid for the cocaine on Roxbury's Sonoma Street or marijuana smoked at Back Bay parties may wind up anywhere from Peru's black market to Bahamian bank accounts, from Colombia's stock exchange to the safes of jewelry wholesalers in Panama's Free Trade Zone.

Drug money has become an unofficial form of American foreign aid. Beset by inflation and foreign debt, some Latin American countries need dollars so desperately that they have turned into a launderer's paradise. They have rarely conflscated fllicit cash. They have resisted pressure from Washington to monitor cash themselves or to sign treaties requiring them to turn over banking records.

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Money Laundering

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Although US officials are unable to give an exact total, they estimate that at least $2 billion in American cash is washed each year through the Latin American countries most involved in money laundering. Billions more are wired to Latin American banks.

"Clearly billions of US dollars derived from illegal activities are being funneled offshore." concluded a Senate study released last month.

Despite years of negotiation, most of these countries have resisted pressure from Washington to monitor cash themselves or to sign treaties giving US drug investigators access to their banking records.

Officials of these countries argue. that the United States should not expect them to disrupt their economies to stop the flow of drug dollars. If the United States wants to attack the drug problem, it should do so by educating its citizens against drug use.

Furthermore, they say, the loss of drug dollars can trigger unemployment and hardship, inviting Communist infiltration. In the Upper Huallaga valley, for instance, a coca leaf eradication program had to be suspended late last year because it prompted in creased activity by antigovernment guerrillas.

In the absence of treaties, both North and South American drug dealers have taken advantage of open-ended currency exchange laws in Colombia and Peru to pay their expenses. such as the wages of growers and transporters. With their profits in

hand. they turn to banks in Panama and the Bahamas, where strict financial secrecy laws safeguard drug money and records cannot be obtained by government subpoenas.

Drug traffickers tailor their laun dering methods to the loopholes in local financial laws. In Peru. they pay growers directly in dollars. In Colombla. they convert an unlimited number of dollars to pesos at the "left hand window" of the national bank. They make huge dollar deposits in Panamanian banks. In the Cayman Islands. they move cash through lawyers or unregulated financial management firms.

Peru, the world's leading producer of coca leaves, is where approximately $800 million spent by American cocaine buyers ends up each year. These dollars are vital to a country that has 200 percent inflation and recently announced its intention to default on its foreign debt.

"Coca is our first export product." said a Central Bank official. "It's legal, but it provides us with needed reserves. It helps the country's balance of payments...The problem with hot money is that those funds could leave in a second and the country would be without reserves."

When Peru liberalized its foreign exchange laws in 1977, one unstated reason was to draw cocaine dollars Into the nation's banks. Peruvian banks now change unlimited amounts of foreign currency without asking questions, and they also issue dollardenominated certificates of deposit.

One alleged drug trafficker. Raul Lopez Villar, changed $4.26 million Into Peruvian currency at a bank in the Upper Huallaga valley. Convicted on narcotics charges, he was freed when the Peruvian Supreme Court ruled that "It was no crime to have foreign currency and not be able to justify it." according to former pros ecutor Fernando Olivera.

Manuel Ruiz Huidobro, special assistant to the president of Peru's Central Bank, said it cannot ask ques

US drug dollars

tions about dollar deposits for fear of sparking customers withdrawals. "There would be a run on the bank." he said. "We have no intention of protecting coca. but our hands are tied."

The new president of Peru. Alan Garcia. is starting to crack down on the cocaine trade and its profits. He has fired 32 top-ranking police officers suspected of collusion with drug traf fickers, and placed controls on foreign currency. But local observers say drug dollars still find their way into Peruvian banks.

Other Latin American countries depend as much on drug money as Peru. Justice Minister Enrique Parejo estimated in an interview that Colombia. once the world's leading marijuana producer and now the center for cocaine processing, earns $5 billion per year from the drug trade - $2 billion more than its income from all legal exports combined.

Even the United States, facing a trade deficit, has favored its need for foreign capital over law enforcement's concerns about the laundering of dirty money. Last year, the US Treasury De partment allowed American companles to continue floating bearer bonds overseas on the rationale that the firms needed to be attractive to foreign Investors. However, many law enforce ment officials believe that drug traffickers launder cash by buying bearer bonds, because their ownership cannot be traced. Whoever possesses the bonds is their owner.

"There was a lot of dissension about that move," said one Treasury official. "We don't have a good data base, but all of us in government share the same suspicion that this is a problem."

Children pick coca leaves in Peru.

Globe Photo by Vera Lantz

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In Bogota, residents call it a "coronation." Checking black market prices in the financial pages of the morning paper, they notice about once or twice a month that the street value of the doilar has plunged overnight, until it is measurably below the rate offered at Colombia's banks.

They know immediately that a major cocaine sale has been consummated. and that Bogota is once again awash in American cash. Soon, there is a rush to the corner of Avenue Jimenez and Seventh Street. Bogota's black market Wall Street, to buy drug dollars while the supply is ample and the price is cheap.

Drug money has overwhelmed Colombia. which has supplied most of the cocaine and marijuana sold by major New England Importers and distributors such as Timothy Minnig. Arnold Katz and Frank LePere. Traffickers own everything from soccer teams to cattle ranches, bribe everyone from bankers to judges.

Justice. Minister Parejo said in his Bogota office that Colombia's democratic government is fighting for its life against the corrupting influence of drug barons.

"Drug traffickers have penetrated the highest levels of society. I don't think there's one institution in our country that hasn't been influenced by them." said a grim Parejo, whose predecessor. Lara Bonilla, was assassinated last year by drug traffickers.

...Despite the fact that I'm on top of everything here. they could infiltrate this ministry. The danger for me is very great."

Yet Colombia faces another danger -economic collapse. Its dollar reserves dropped $1.4 billion last year, and it has been forced to limit import payments to $250 million a month.

The economic crisis tempts the gov ernment to accept dollars from any source to the detriment of its own struggle against the drug trade. Last year, for example. Colombia's attorney general negotiated with three cocaine exporters in a secret meeting in a Panama City hotel. The exporters were asking for amnesty from prosecution. In return, they promised to boost Colombia's depleted foreign reserves by $3 billion. Embarrassed by unexpected publicity about the meeting, the gov ernment ultimately rejected the offer.

This spring, the government again balanced the appeal of drug dollars against the threat of the drug trade. when it considered granting an amnesty to foreign bank accounts held by Colombians. The economic virtue of the proposal was this: Colombians are prohibited from holding domestic ac counts in any currency except the peso. Because foreign firms do not ac cept pesos. Colombian businessmen must pay for imported goods with doilars purchased from the government. However, many businessmen have dollars in foreign accounts even though they are illegal under Colombian law. If there were an amnesty. the businessmen could pay for goods with those dollars, sparing the government from depleting its reserves. The proposal's drawback was that

It would open laundering routes for drug dealers moving dollars in and out of Colombia. It was finally rejected after Colombia's media opposed it. "The moral sacrifice is above the fiscal benefits." editorialized El Colombiano. a daily newspaper.

The amnesty debate was a microcosm of the tug-of-war with economic needs that has characterized Colombia's fight against drugs.

More than any other Latin Ameri can country. Colombia has cracked down on narcotics traffic. After Bonilla was killed last year. Colombia began complying with a 1979 extradition treaty with the United States. Since then, it has arrested and handed over seven drug dealers, and 14 more are in jail awaiting extradition.

It has also seized an estimated $3 million in drug money and proposed antilaundering laws now being considered by Colombia's Congress. The legislation would allow authorities to seize property used in narcotics operations and to appoint a tribunal to investigate politicians and businessmen suspected of receiving money or gifts from traffickers.

Yet for each successful step for-, ward, there seems to be another step back. Bowing to popular dislike of the extradition treaty - many Colombians feel that those sent to the United States have received brutal treatment and unfairly harsh sentences - the

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government wants to renegotiate it to give Colombian courts power over extradition decisions. Since some Colombian judges are considered susceptible to bribes, this amendment would hinder extraditions.

Little enforcement

Also, law enforcement has been random and ineffective. The most important traffickers remain at large. Compared with drug profits. the amount of money confiscated is minute. The government has been unable to stop traffickers from smuggling dollars into Colombia. It has confiscated 500 planes used in narcotics operations, but most were cocaine-laden Colombian aircraft that crashed at take off. It lacks the manpower and radar to catch the planes that fly into hundreds of clandestine Colombian runways with cash from Miami or coca leaves from Peru.

Colombian customs officers rarely turn up drug dollars at Bogota's international airport. despite evidence that traffickers frequently move money through it. A blitz by US customs officers at Miami Airport in May found 13 passengers violating US law by carrying more than $10.000 abroad without reporting it. Eleven were flying to Bogota, and they had a total of $2.7 million in cash. The others were headed to Panama and Bolivia.

"Contraband and cash come into the airport." Parejo said. "Of course there is corruption."

The financial system reflects the hunger for drug money. Banks have what Parejo called "excessive" secrecy. A proposed treaty opening bank records to US investigators has fallen. victim to anti-American emotions, kindled by the extraditions, and has not been ratified by the Colombian Congress.

The prohibition on dollar accounts forces Colombian cocaine suppliers to change American cash into pesos in order to make any investments in the country. But, instead of regulating these conversions of currency, the gov ernment facilitates them by permitting Individuals to change an unlimited amount of dollars at the Banco de la Republica. Colombia's national bank. The practice is known as using the "left hand window because the teller's booth on that side used to be the only one where foreign currency could be exchanged.

Last year more than $160 million was exchanged at the national bank. Half of them are believed to have been drug dollars, but no one is certain be cause the transactions are badly moni tored. Customers must fill out a form. but it is marked "For Statistical Par poses Only," and tellers do not verify the information. Most drug traffickers reportedly say on the form that their dollars were received from tourists. When the marijuana trade boomed in the 1970s, according to local officials. "tourism" dollars brought to the left hand window increased tenfold.

Even members of Colombia s respected stock exchange indirectly launder the dollars sold through the

left hand window. Instead of immediately receiving pesos for their drug dollars. the traffickers, like all left hand window customers, are given dollar certificates that cannot be converted into pesos for at least 90 days. Anxious for their money, the traffickers sell the certificates to Colombian flnanciers who in turn trade the notes on the country's stock market.

A harried national bank official explained in an interview why the country does not crack down on drug traf fickers using the left hand window. "If we trace these people, we will only encourage them. to go to the black market." which would deprive the banking system of dollar reserves, he said.

'Drug traffickers have penetrated the highest levels of society.'

Justice Minister Enrique Parejo

However, most traffickers already change their dollars on the black market because, unless there has been a sudden influx of drug dollars into the city, it offers a better rate. The market operates through travel agencies and money exchange firms with elegant offices and modern computers flashing the latest currency rates around the world.

The government allows the black market to flourish for a simple reason - it is vital to Colombia's economy. It relieves pressure on dollar reserves and props up the standard of living

For example, many Colombians want to vacation in the United States. But the government only allots a maximum of $2,000 per year to each Colombian for tourism. So travelers buy as many extra dollars as they need on the black market, saving the government's reserves.

Similarly, only a few firms licensed by the government can legally purchase dollars from it and use them to Import essential goods. So. businessmen who want to import luxuries seek out the black market and its drug dollars. Then they purchase their computer terminals or microwave ovens at the duty-free zone in Colon. Panama. and smuggle the contraband by boat Into Colombia.

According to Panamanian government statistics, the Colon Free Zone exported $213.5 million worth of goods to Colombia in 1983. Another $134 million was listed as going to the is land of Aruba off Colombia's coast. but its actual destination was most likely Colombia. sources said. Out of this total tab of $347.5 million, one Free Zone wholesaler estimated, be tween one-fourth and one-half was paid with cash from Colombia's drugdependent black market.

Free Zone merchants said they were unconcerned about being paid in black market dollars derived from drug sales. "My father told me always. 'Never ask where the money comes from if you're in a legal business. *** said a jewelry dealer. "I don't care where my customers get their dollars or how they get them. The way to control drugs is not by stopping the money, it's through education."

Like bankers in the United States. those in Colombia are not immune to corruption. Banking authorities are investigating a recent incident in which Carlos Lehder, a major cocaine trafficker, narrowly escaped capture by police. In his hurry. Lehder abandoned $1.7 million in cash. The money. which was recovered, carried the seal of a Bogota bank.

Branch managers of Bogota banks said in interviews that drug traffickers had offered them everything from new cars to bags of emeralds in return for special services.

"Every day they offer you a bribe." one banker said. "It's amazing."

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