U.S., COLOMBIA TO CONFRONT LUCRATIVE 'PESO EXCHANGE'

BOGOTA, Colombia - Early this month, a $1.5 million Bell helicopter was
tracked by Colombia-based U.S. Customs agents from here to Panama, where it
was seized by local authorities acting at U.S. request. The helicopter, a
seven-seat Bell 407, had been purchased in 1998 by a Colombian
multimillionaire with laundered drug-smuggling money, according to Customs
and the Justice Department.

The Texas-based manufacturer, Bell Helicopter Textron Inc., has denied
knowing that drug profits were the source of the money in its New York bank
account, where payment for the aircraft was deposited via 31 separate wire
transfers from unrelated individuals. Bell, which is due to sell 42
military helicopters destined for Colombia as part of a $1.3 billion U.S.
anti-drug aid package, is aggressively contesting the Justice Department's
decision last year to freeze the account and demand the money be forfeited.

U.S. authorities described the purchase as one example of a
money-laundering scheme known as the black market peso exchange, which
Colombia says turns an estimated $5 billion a year in ill-gotten U.S.
currency into Colombian pesos through the purchase and illegal import of
American products, often through neighboring third countries.

The black market peso exchange constitutes what James E. Johnson,
undersecretary for enforcement at the Treasury Department, called "perhaps
the most dangerous and damaging form of money laundering that we have ever
encountered."

Although the amount pales compared with the hundreds of millions of dollars
devoted to military equipment and training, nearly $40 million of the
controversial new U.S. aid package will directly or indirectly help finance
programs designed to strengthen Colombia's ability to catch and prosecute
those involved in contraband or the laundering of drug money.

The increasingly close relationship between U.S. and Colombian customs
agencies - a relationship that surpasses ties between the two nations'
still sometimes wary military forces - will be on the agenda when President
Clinton pays a visit to Colombian President Andres Pastrana on Wednesday.

In addition to supplying computers and software to enable the Colombians to
better track their own imports, the United States will expand an existing
training program for Colombian customs agents. "What we wanted was for U.S.
Customs to come in and take over" the Colombian service, which was
"corrupt, unprepared, with no technology and no resources," said one
Colombian trade official.

Colombia broke international precedent last spring by agreeing to send its
monthly legal import records to Washington, where U.S. Customs agents
collate them with U.S. banking and other law enforcement records and with
shipping manifests for products leaving the United States for Colombia.
Those recorded as leaving the United States, but not listed as arriving in
Colombia, are considered contraband, and the information is passed to
Colombian authorities.

For its part, a U.S. government that long denied American exporters were
part of the problem has launched a campaign to warn companies like Bell -
and the cigarette, alcohol, appliance, electronics and auto parts
manufacturers whose products consistently are illegally offered for sale
here - that they risk losing their money or worse if they turn a blind eye
to clear signs of smuggling or payment in laundered funds.

"When a company receives payment for its exports in the form of wire
transfers, checks or cash from random third parties with no connection to
the transaction, alarm bells should go off at corporate headquarters," said
U.S. Customs Commissioner Raymond W. Kelly. "This is not how standard
business deals are done."

In the Bell case, none of the 31 deposits to pay for the civilian
helicopter had any ostensible link to any other or to the aircraft's actual
purchaser, identified as Victor Carranza, who the Justice Department has
alleged was well known to Bell and whose company had previously done
business with Bell. Moreover, five of the deposits were made by undercover
Customs agents who had infiltrated a drug money laundering ring operating
across the United States. Its exposure in July 1999 resulted in 34 U.S.
indictments, the seizure of 1,160 pounds of cocaine and $4.5 million in
cash, and the freezing of 65 bank accounts, including Bell's.

Carranza, the principal shareholder in Colombia's largest emerald mining
company, is in prison here on charges of sponsoring and financing
right-wing paramilitary forces. Colombian and U.S. investigators have also
alleged that he is involved in drug smuggling.

A Customs affidavit laying claim to the helicopter was unsealed this month
in federal court in Washington, after the aircraft was seized. According to
officials in Washington, associates of Carranza had flown the helicopter
from Colombia to Panama to try to conceal it. No one has asked the U.S.
government to give it back.

Neither Bell nor the Justice Department would comment on the frozen funds
case, which is in U.S. District Court in Mobile, Ala.

Responding to the Justice Department's claim that Bell should forfeit the
money, the company said in a court filing that it "denies that any funds on
deposit in [the specified bank account] are proceeds of drug trafficking
activity or are forfeitable pursuant to any statutory provision."

What was already an established laundering and contraband system in
Colombia grew exponentially in the early 1990s as drug exports soared and
smugglers found a ready-made way to turn profits obtained from U.S. drug
sales into pesos at home.

Drug traffickers give their dirty dollars to peso brokers in the United
States. Colombians who want to import U.S. products circumvent official
requirements for obtaining dollars and deposit their pesos with brokers
here. After taking a cut of 20 percent or more on both sides, the U.S.
broker pays manufacturers and their distributors with the dollars, usually
through a series of ever-changing accounts in the names of paid individuals
who are told where to wire cash and in what amount. The broker in Colombia
then deposits the purchaser's pesos in the traffickers' Colombian accounts.

The purchased U.S. goods are delivered to Colombia, usually via free trade
zones in Panama and Aruba, through a network of ports on Colombia's
Caribbean coast that have long been dominated by smugglers. While some
products, such as Carranza's helicopter, go directly to their ultimate
purchasers, others are sold to consumers at markets across the country,
called sanandrecitos, after the free trade zone on the Colombian island of
San Andres in the Caribbean.

U.S. officials, who had long considered Colombia's customs system an
irremediable part of the country's corruption, acknowledged that they spent
much of their time in the past haranguing their Colombian counterparts. But
in two official visits to Washington in 1998 - first by the newly elected
Pastrana and later by senior finance officials - Colombians charged that
U.S. manufacturers were a major part of the problem.

The Colombians asked how likely was it that the U.S. companies would not
notice big jumps in their sales to Colombia or strange deposits into their
accounts.

As a result, task forces and working groups were established with the U.S.
government, and Customs Commissioner Kelly negotiated a mutual assistance
agreement that was signed last September. A similar agreement is now being
discussed with the U.S. Internal Revenue Service.

Both governments have also started talking to manufacturers. Officials have
pointed out the anomaly in booming sales of hundreds of millions of
dollars' worth of washing machines, dryers and refrigerators to Colombia,
even as manufacturers' own registered, tax-paying Colombian distributors
were going out of business. Law enforcement officials in both countries
warned that they would start paying closer attention, even if the
manufacturers did not.

Representatives of the Association of Home Appliance Manufacturers, which
includes almost every major U.S. producer, have met with officials from the
Treasury Department and the Colombian government and signaled an intent to
cooperate. The companies want to avoid being labeled as having links to
drug trafficking, said a U.S. official who declined to be named, and they
also are afraid they will be made legally responsible for ensuring that
they are not being used for illicit transactions.

But Colombian officials said that, based on their seizures of contraband in
ports and markets, they have seen few results of the promised cooperation.

In one promising area, cigarette maker Philip Morris agreed this summer to
undertake measures to stem the smuggling of Marlboros, the vast majority of
whose substantial sales here were estimated to be illegal. Despite the
agreement, however, Colombia's 22 state governments and the federal
district of Bogota sued Philip Morris International last spring in U.S.
federal court for past lost tax revenue. The suit, whose charges the
company has vehemently denied, alleges that more than 95 percent of Philip
Morris products that entered Colombia in the 1990s were illegal imports,
many of them paid for with laundered drug money.