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W Post: Drug Money Laundered by Cigarette Smugglers (fwd)
Money Cleaned, Colombian Style
Contraband Used to Convert Drug Dollars
By Douglas Farah
Washington Post Foreign Service
Sunday, August 30, 1998; Page A22
PUERTO PORTETE, Colombia—At a rickety wooden dock jutting into
the sea, Wayuu Indians stripped to the waist carry crates
of Marlboro
cigarettes from a boat to waiting trucks, while heavily
armed drivers
wearing sunglasses keep watch from the shade of the truck
beds.
The cigarettes are a favorite among the scores of
contraband items that
flow from the free trade zones of nearby Aruba and Panama
through this
isolated desert peninsula and into Colombia's flourishing
black market.
The smuggling is skyrocketing, law enforcement officials
and those
involved in the business say, because it has become the
lifeblood of the
country's multibillion-dollar illegal drug business,
serving as a low-risk way
to launder a growing portion of the drug cartels' illicit
money.
The boats, their decks piled high with boxes, arrive daily
at the ramshackle
dock here and at other spots scattered over the Guajira
Peninsula. They
are unloaded by the Indians, the only local inhabitants,
who are paid about
$12 a day. The goods are moved by truck convoys across any of
hundreds of dirt tracks through the barren desert, around
police
roadblocks, to illegal markets known as San Andresitos in
every major city
and town.
Technically the goods entering here are not contraband
because Guajira is
designated as a free trade zone. But as soon as the goods
pass over an
imaginary line about 50 miles to the south -- as the vast
majority of the
products do -- they become contraband because they leave
the free trade
area but no taxes are paid on them.
As banks increase their ability to detect money
laundering, the cartels are
turning to this smuggling network as part of an
increasingly sophisticated
system of moving their drug profits back into Colombia.
The contraband
market in Colombia is "a money laundering system, rather
than just a cell
or an operation," said Alvin James Jr., a money laundering
expert at the
Treasury Department's Financial Crimes Enforcement
Network. "You
can't just arrest one person or a cell of people and make
it stop."
In a November 1997 advisory to U.S. banks and businesses,
the network
called the system, which relies on peso brokers in the
United States, "the
primary money laundering system used by Colombian drug
cartels" and
"the single most effective and extensive money laundering
system in the
Western Hemisphere."
Two people involved in the business, as well as Colombian
and U.S.
officials, provided the following description of how the
system works.
Drug traffickers accumulate huge amounts of dollars,
mostly in small bills,
from the sale of cocaine and heroin on the streets of the
United States.
They need that money back in Colombia, in pesos, to
continue to finance
their drug operations, run legitimate businesses and
reconvert the pesos
into "clean" dollars.
To do this, the traffickers sell their dollars in the
United States at
discounted rates of between 25 percent and 33 percent to
any one of an
estimated 500 peso brokers. The peso brokers work for
about 20 "super
brokers" scattered in cities throughout the United States.
For example, the peso broker will pay a drug trafficker
$750,000 for $1
million cash in the United States. The peso broker then
deposits the
$750,000, in pesos, in the drug traffickers' accounts in
Colombia. Despite
the cost, the system is attractive because once the cash
is sold and the
pesos deposited in Colombia, the trafficker runs no risk.
The peso brokers then use the dollars to buy goods that
can be turned
back into cash quickly. A favorite way to do this is to
buy large quantities
of goods, such as cigarettes, whiskey and electronic
devices in the United
States and ship them to duty free zones in Panama or
Aruba. From there,
the goods are smuggled into Colombia. An alternative is to
send cases of
cash in ship containers to Aruba and Panama, where the
peso broker uses
the dollars to buy the goods directly from Aruban and
Panamanian
wholesalers.
Investigators here and in the United States say large
companies do little to
stop their goods from being smuggled because ultimately it
allows them to
sell their goods.
"There is a willful blindness," said one U.S.
investigator. "Companies are
hiding behind ignorance to not take corrective steps that
would cost them
money."
But the officials also say the Colombian economy and
culture have made
contraband profitable and acceptable. Even as Colombia
began in 1991 to
dismantle its highly protected economy by sharply cutting
import tariffs,
contraband has increased.
Carlos Ronderos, who resigned as Colombia's minister of
foreign trade on
Aug. 7 when a new government took office, estimated the
total value of
contraband coming into Colombia at $2 billion to $3
billion a year, while
legal imports were valued at about $12 billion.
According to a recent study by the ministry, all goods
leaving the Panama
free trade zone for Colombia in 1996 had a declared value
of $1.7 billion.
However, Colombian customs registered imports worth only
$166 million,
the report said, meaning about $1.5 billion worth of goods
entered the
country as contraband.
As a result of the explosion in contraband goods, local
tobacco companies
are going bankrupt and hundreds of legitimate companies
that import
goods legally and pay taxes are being put out of business.
But at the same
time, Ronderos acknowledged, because the contraband goods
are not
taxed and are often sold at prices below cost to speed up
the money
laundering cycle, cigarettes, whiskey, TVs and VCRs bought
in the San
Andresitos, named after the duty free San Andres Island,
are often
cheaper than in the United States or even the free trade
zones of Panama
or Aruba.
This makes the imported products affordable to a large
sector of society
that otherwise could not afford them, making it
politically costly to move
against the overall system. For example, even though the
San Andresito
markets deal in contraband goods, they all operate openly,
advertise in
newspapers and even organize politically to back
candidates who promise
to tolerate them.
A study conducted by the National University of Colombia
last year
estimated the San Andresitos were used to launder $878
million in 1996.
The study also found that sales from San Andresitos
accounted for 13.7
percent of Colombia's gross domestic product in 1986, and
had jumped to
25.6 percent of the GDP in 1996.
For centuries smuggling has been virtually the only
economic activity of this
impoverished, sparsely populated region on the northern
tip of Colombia.
To promote development here, the peninsula is also a free
trade zone, so
goods entering its ports do not become contraband until
they are moved
beyond the town of Maicao, 50 miles to the south.
In Maicao, most streets are lined by wholesalers and
warehouses for
different products, where prices are among the cheapest in
the world. A
pack of Marlboro cigarettes sells for 70 cents, a bottle
of Glenfiddich
single malt whisky goes for 25 percent less than in
Washington and Sony
television sets for about 20 percent less.
"Everything here is contraband," said one senior police
official, admitting
his men spend little time trying to stop contraband goods
from moving out
of the town. "There are a thousand roads out of here and
the desert is vast.
What's the use?"
Maicao is also the home of Santander Lopesierra, known as the
"Marlboro Man" because his smuggling organization has long
dominated
the lucrative contraband of Marlboro cigarettes.
Lopesierra, a local legend,
was a major contributor to the campaign of former
president Ernesto
Samper and served in the Senate from 1994 until earlier
this month, when
he failed to win reelection. He is now under investigation
by the Colombian
police for money laundering and illicit enrichment.
According to U.S. and Colombian officials, Lopesierra was
especially
close to Luis Reinaldo Murcia, who was arrested May 6 on drug
trafficking charges and is said by Colombian police to be
a pioneer in
shipping Colombian cocaine and heroin to the former Soviet
Bloc.
Lopesierra and his lawyer did not return telephone calls
or messages left at
his home in Maicao.
© Copyright 1998 The Washington Post Company
In Colombia, Marlboro Country Is
Smugglers' Haven
By Douglas Farah
Washington Post Foreign Service
Sunday, August 30, 1998; Page A23
MAICAO, Colombia—One of the most popular and valuable
commodities in Colombia's contraband market is cigarettes,
which have an
inordinately high value for their weight, meaning they are
relatively easy to
move for a high profit, according to money launderers and
smugglers.
According to a study earlier this year by the Ministry of
Foreign Trade, 64
percent of the 30 billion cigarettes sold each year in
Colombia are
contraband, while 26 percent are made domestically and 10
percent are
imported legally. The report said the total value of the
cigarette market was
$1.02 billion, of which $700 million was from the sale of
contraband
cigarettes.
In the lucrative underground trade, no cigarette is more
popular than the
U.S.-made Marlboro, manufactured by Philip Morris Inc.
Colombian
officials and critics of the tobacco industry say the
Marlboro case illustrates
how goods are used for contraband in ways companies could
and should
be aware of and try to halt. Philip Morris denies any
wrongdoing.
In this town, entire warehouses are filled with nothing
but Marlboros.
Throughout Colombia, they are sold in bulk and
individually on street
corners, supermarkets and at the quasi-legal underground
markets known
as San Andresitos, which operate in every city.
The government recently has begun several investigations
of Philip Morris
because of charges by local cigarette makers that the U.S.
company
tolerates contraband as a way of entering the lucrative
Colombian market.
The price of the contraband cigarettes is lower than that
of locally made
cigarettes on which taxes are paid, driving domestic
tobacco companies
toward bankruptcy.
The report said that of the 5.5 billion Marlboro
cigarettes that entered
Colombia in the first nine months of 1997, 2 billion came
from Aruba and
2.4 billion came through Panama, meaning they entered as
contraband.
While Philip Morris is legally registered in Colombia,
only 1.1 billion units
were sold through the company. Colombian authorities
allege that the legal
company exists principally to allow Philip Morris to
advertise in Colombia,
knowing that most of its sales are of contraband cigarettes.
In a statement, Philip Morris International strongly
denied it tolerates
smuggling to increase profits, calling contraband "very
detrimental" to its
legal business here.
The company said it would "discontinue our business
relationship" with any
customer found to be involved in smuggling, but said
Philip Morris had
"limits to our ability, alone, to affect the cigarette
contraband problem."
Critics of the tobacco industry, however, said Philip
Morris should be
aware that most of its exports to free trade zones in
Panama and Aruba
ended up as contraband in Colombia. A particular red flag,
according to
the critics, is the fact that, until earlier this year,
the Mansur family in Aruba
was the principal buyer and distributor of Marlboro
cigarettes there.
U.S. officials have long accused the Mansurs, who own much
of the free
trade zone in Aruba, of money laundering activities, and
two members of
the clan are now standing trial in Puerto Rico on money
laundering charges.
The Mansurs have denied all wrongdoing, but Philip Morris
cut off its
association with the family in January, following a
regional reorganization,
tobacco industry sources said.
Eric LeGresley, legal council to the Toronto-based
Nonsmokers Rights
Association, who has long studied tobacco smuggling, said
Philip Morris
could figure out that countries like Aruba and Panama were
importing far
more cigarettes than its citizens could smoke. According
to export figures
provided to the U.S. government, every person in Aruba
would have to
smoke 10 packs of cigarettes a day to justify the imports
there, while every
Panamanian would have to smoke eight packs a day.
"You have to ask yourself, could smuggling be undertaken
on this scale
without the knowing involvement of the tobacco companies,"
LeGresley
said. "It is hard to conceive that a diligent company
could have that much
product disappearing into the contraband market without
its tacit
involvement at best."
Greg Connolly, director of the Massachusetts Tobacco
Control Program
and consultant to the World Health Organization, said
Philip Morris has a
pattern of tolerating smuggling. He said smuggling helps
the company gain
access to local markets and undercut domestic tobacco
companies.
Philip Morris International said it did not have the means
or the obligation
to monitor where the company's legally sold products end up.
"We do not have either the resources or authority to
substitute ourselves
for the customs administration, border security forces or
the law
enforcement departments of any country," the company
statement said.
"And we do not have the ability to compel any country to
take the
necessary steps to modify its tax, legal or trade policies
to address the
contraband phenomenon."
Staff writer John Schwartz in Washington contributed to
this report.
© Copyright 1998 The Washington Post Company
Ross Hammond
Hammond & Purcell Consulting
88 Norwich Street
San Francisco, CA 94110
USA
tel/fax: 1-415-695-7492 (office)
internet: margross@igc.org