UNTANGLING PERU'S ALLEGED WEB OF CRIME

Investigators' Findings On The Nation's Fugitive Former Spy Chief Cast A
Negative Light On U.S. Depictions Of The Country As A Law Enforcement
Success Story.

LIMA, Peru--During the decade that his leadership of Peru's spy agency won
U.S. praise and support, Vladimiro Montesinos built a billion-dollar
criminal empire based on drug trafficking, arms dealing and judicial and
political corruption, Peruvian investigators alleged Thursday.

Describing the progress of a three-month mega-investigation of the regime
of former President Alberto Fujimori, a special prosecutor painted a sadly illustrative picture of how globalization and gangsterism have intertwined in Latin America.

Peruvian investigators are using new laws and tactics modeled on Italy's
prosecutions of Mafia kingpins and politicians to target about 100
suspects, including a who's who of the Peruvian ruling class. Among those
behind bars are at least eight generals, plus former Cabinet ministers,
businesspeople and a mayor. Other suspects--including prominent judges and
media executives--are fugitives or have been barred from leaving the country.

"In the notable space of less than a month, there have been energetic
actions to investigate and eventually punish the members of Montesinos'
organized-crime group," Justice Minister Diego Garcia Sayan said this week.
"These are people who until recently ran the country."

Prosecutors said they are convinced that Montesinos participated in drug
trafficking and used drug money to fund a death squad. Special prosecutor
Jose Ugaz said Thursday that his team also suspects that illicit funds
financed Fujimori's political activities, including his reelection campaign
last year.

Fujimori's 10-year regime won fame for modernizing the economy, opening
markets and fighting terrorism and drugs. In reality, prosecutors allege,
Montesinos institutionalized a kind of hyper-corruption linked to Colombian
cartels, Russian gangsters and, especially, international arms traders
whose deals with the government were worth $1 billion, according to
authorities.

The double-edged experience recalls those of countries such as Mexico,
where then-President Carlos Salinas de Gortari, a self-styled neoliberal
reformer, oversaw economic modernization even as the power of Mexican drug
lords reached unprecedented heights.

Montesinos' alleged crimes cast a negative light on U.S. depictions of Peru
as a law enforcement success story. Because of the longtime alliance
between Montesinos and the CIA, the U.S. has a "moral and political
responsibility" to cooperate with the anti-corruption fight, Justice
Minister Garcia said.

"The survival of Montesinos in the highest levels of power was the
responsibility for years of the U.S. government," he said. "At least one
agency confided in him and made him a partner. Montesinos used that
relationship as a reaffirmation of his power here."

Last week, in what Ugaz called an important advance, FBI agents in Miami
arrested a Peruvian suspected of acting as a top money-launderer and bagman
for Montesinos. After arresting businessman Victor Alberto Venero, agents
discovered that he had made a $15-million bank deposit in Miami and carried
documents related to $30 million more, according to officials.

An FBI agent has spent the past three weeks in Lima, the Peruvian capital,
as part of a multi-agency U.S. effort to assist the investigation and the
manhunt for Montesinos, who has been on the lam since October.

The investigative blueprint laid out to The Times by Peruvian authorities
alleges that Montesinos used drug corruption to found his criminal network
after becoming unofficial chief of the National Intelligence Service, or
SIN, in 1990.

Montesinos worked in the 1980s as a lawyer for Colombian drug lords who
smuggle coca paste from Peruvian jungle valleys and refine it into cocaine.
Testimony from former military officers links Montesinos and Peru's former
armed forces chief, Gen. Nicolas Hermoza, to protection offered air and
river smugglers in exchange for kickbacks and to transportation of drugs in
army helicopters, according to prosecutors.

Drug profits financed the Grupo Colina death squad, a paramilitary unit
allegedly set up by the former spy chief that is accused of massacring
university students and slum dwellers, Ugaz said.

Prosecutors have not yet confirmed an allegation that Montesinos funneled a
million-dollar "donation" from Pablo Escobar, the boss of Colombia's
Medellin cartel who was killed in 1993, to Fujimori's first campaign. But
they accuse Montesinos of protecting Medellin cartel operations while
cracking down on rivals.

"We have no doubt that Montesinos and his people received money to allow
the smuggling of drugs by river or the landings and takeoffs of planes,"
Ugaz said. "Part of the deal appears to have been precisely that he was the
point man here for the Medellin cartel to weaken the [rival] Cali cartel."

The existence of corruption among Peruvian military commanders in the Upper
Huallaga Valley, a prime coca-growing area, is not news to U.S. drug
agents, who preferred to work with specially trained units of the Peruvian
police.

Another military suspect under investigation, Gen. Eduardo Bellido, was
singled out by U.S. Drug Enforcement Administration agents in 1993 as the
alleged protector of a clandestine airstrip when he was the commander in
the Upper Huallaga region, according to a former U.S. Embassy official.
U.S. complaints about military corruption in the area spurred Fujimori to
order a shoot-down policy against drug-smuggling planes, the former embassy
official said.

Nonetheless, U.S. officials have said that there was no hard evidence
against Montesinos himself. They have lavished praise on Peru for
eradicating more than 60% of its coca crop.

Asked how the impressive statistics are compatible with alleged corruption,
a senior U.S. official said in a recent interview: "There was still lots of
opportunity for corruption, as there was lots of trafficking going on. It's
not as if there were no moneymaking opportunities."

In the second half of the 1990s, investigators said, the Montesinos mob
shifted its focus to arms trafficking and money-laundering. Much of $80
million detected in Montesinos' bank accounts in Switzerland and other
countries was allegedly kickbacks related to the acquisition of air-defense
systems from Belarus and Russian-made arms, authorities say.

Moreover, during initial questioning by Ugaz in Los Angeles last month, a
Turkish-born Lebanese arms trafficker confirmed an account he had earlier
given to The Times that he brokered a $5-million deal with Montesinos to
acquire 50,000 assault rifles from Jordan. Peruvian operatives allegedly
airdropped the guns to Colombian guerrillas in an arms-for-drugs deal with
Russian gangsters, causing a scandal that hastened Montesinos' fall.

The investigations and trials will last years. There is no hard evidence
yet that Fujimori enriched himself, but prosecutors have asked Japanese
authorities for help in checking banks in Japan, where the former president
now lives.

"Either he did things very well, which would be the hypothesis, or, as some
naive people say, he didn't know anything" about the corruption, Garcia
said. "The question of Fujimori will take a long time."