Latin America lures billions in Spotlight Money Laundering ■ SPOTLIGHT 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 unemploy ment and hardship. inviting Communist infiltration. In the Upper Huallaga valley, for instance, a coca leaf eradi cation program had to be suspended late last year because it prompted increased 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 illegal, 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 dollar denominated 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 prosecutor Fernando Olivera. Manuel Ruiz Huidobro, special assistant to the president of Peru's Central Bank, said it cannot ask ques US drug tions about dollar deposits for fear of 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 traffickers, 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 est!mated 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 traf fickers 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 Basta 사 9/26 (251/201 272 Colombia: Banks eager to buy dealers' cash 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 dollar 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 Co lombia'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 granung 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 dol lars 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 Colombla's fight against drugs. More than any other Latin Amertcan 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 leg islation would allow authorities to setze 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 Buston Globe 9/26 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 dotlars 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 and-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 because the transactions are badly monttored. Customers must fill out a form. but it is marked For Statistical Pur 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 of fices 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 govern. ment 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 businesa,*** 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." 9/26 (1930) World cocaine capital thrives on Spotlight R.I. drug cash Money Laundering SPOTLIGHT Continued from Page 1 According to Robert M. Stutman. regional head of the US Drug Enforcement Administration, dealers as far buy co caine from Central Falls traffickers. Once paid, the traffickers move much of their profit through Rhode Island financial institutions to relatives and associates in Medellin In the past year, at least 16 Colomto Central traffickers with lininly in cases involving pounds of cocaine. Ac cording to local police, all of them also had Medellin connections. You see a lot of out-of-state cars in Central Falls and you wonder. What can they be coming here for besides drugs?" said one staff member of a local drug prevention agency. "There's nothing else here to visit." Among the most recent drug cases with Central Fails connections are Erwin O. Monsalve, a Colombian national, was sentenced to seven years in prison last week for possessing od caine with intent to distribute. According to testimony, authorities found a ledger detailing more than $10 million in cocaine sales between 1982 and 1984 during an April 30 raid on Monsalve's home in Malden, Mass. Monsalve is coowner of the Sportsman Club, a Central Falls bar. Omar Vanegas, 31, of Central Falls was among five Colombian nationals arrested on Aug 8 for allegedly guilty to narcotics charges, had recently moved from a Central Fails tenement to a Warwick home. Police say that Santamaria paid $35.000 of the $65.000 price with bagfuis of cash. • The Royal Canadian Mounted Police arrrested Ovidio Herrera and seized 13 pounds of cocaine and nearly $250,000 in cash in his Toronto apartment. Herrera also had a Central Falls apartment and a $22.199 bank ac count in the Dexter Credit Union in town. Police say that Herrera is a Colombian national who was living in the United States as an illegal alien. The influx of cocaine earnings has not improved the chronically depressed economy of Central Falls, a blue-collar city with 37 bars and the state's third lowest per capita income. The traffickers who run their operations out of Central Falls spend little of their cash there. At most, law enforcement sources said, the dealers buy a house and a fancy car or invest in a small business. Despite their arrest record, federal agents have had only modest success in setzing the proceeds of Central Fails drug traffic. In the past 14 months. they have confiscated 14 cars, two houses and nearly $1 million in cash. in Santamaria's case, for example, they setsed his Warwick house, the Porsche. a jeep, and a 1985 Buick Skylark that be had just purchased in cash. Monsalve did forfeit $325,000 in cash that he kept in three safe deposit bazes in two Boston banks. Still, investigators say he earned millions more in profits, but they don't know where the money is. "A lot of the money goes back to Colombia," says one prosecutor. "It's tough to live high off the hog in Central Falls without the police getting wind of It." A lack of government record-keeping hampers investigators who need to trace cocaine dollars from Central Falls to Medellin. The only way to show how much cash moves through bank branches in Central Falls is to measure surplus currency that they send to the Federal Reserve Bank in Boston. But the Federal Reserve does not keep tabs on cash from individual banks, or from geographic areas smaller than New England. US officials have designated three Central Falls police officers as federal marshals to give them authority to fol low drug dollars beyond the city limits. Two of them. Rudolph Legenza and Michael White, said that in one ongoing investigation they have traced hundreds of thousands of drug dollars from banks in Connecticut and Central Falls to Miami and then Panama. The cash had been exchanged for cashier's checks at the New England banks. The checks were mailed to a Miami account, from which funds were withdrawn and taken to Panama. Although Panama's bank secrecy laws prevented any further pursuit. the offcers believe the money wound up in Colombia. In another investigation, they said. a Central Falls trafficker was found to have invested in hotels and condominlums in Medellin. The trafficker, who has not yet been arrested, is considered a millionnaire in Medellin, White said. In addition, he owns large amounts of real estate in San Francisco, which authorities consider a new hot spot for money laundering. Central Falls traffickers who want to move money to Colombia often start by converting their cash to checks at a local bank. Typically, they send their children to the bank to buy money orders to mail to Colombia. The teen-agers usually carry thousands of dollars at a time, and visit the bank as often as four or five times a week. They never buy a money order for more than $10,000, because such a purchase must be reported to the inter Boston Globe |