COMPANIES WARNED NOT TO LAUNDER MONEY

Traffickers exploit scheme, Treasury says

The Treasury Department warned Monday that it intends to crack down on U.S.
companies that help Colombian drug traffickers clean billions of illicit
drug dollars through black-market money exchanges.

Colombian drug traffickers launder an estimated $5 billion a year through a
system known as the Colombian black-market peso exchange, according to
government officials in both countries.

"If there are those that are out there willingly facilitating this criminal
system, they should know that we will be vigilant," Treasury Under Secretary
for Enforcement James E. Johnson told members of the Senate's informal
Caucus on International Narcotics Control in Washington.

"The businesses around the Miami airport that are paid in dollars are very
nervous about this and they should be," said Mike McDonald, a consultant for
Alert Advisors, the consulting arm of the Miami-based newsletter Money
Laundering Alert.

"But there's a flaw in the government's approach. By going after the
businesses, they're attacking money that's already been laundered, rather
than attacking money laundering," he said.

Exchanging money on the black market is nothing new in Latin America. For
decades, it's been seen as a way of circumventing unwieldly exchange
controls and unrealistic exchange rates.

The new twist is that drug traffickers have found it a convenient way to
launder huge sums of dollars they accumulate by selling drugs abroad.

The Colombian cartels need pesos for their day-to-day operations -- for
purchases, bribes, to pay for their parties--, said McDonald, a retired
Internal Revenue Service supervisor who has spent decades studying such
transactions.

American companies become involved when businesses in Colombia that need
dollars to purchase foreign-made goods go to black market money exchangers
who have access to dollars supplied by drug traffickers. The cartels are
generally willing to pay a 20 to 25 percent fee to a peso broker to exchange
their hot cash for pesos.

Colombian businesses, in turn, pay the broker the peso equivalent of the
amount needed to pay for their U.S. purchases. Then, the broker arranges for
the former narco-dollars to be deposited into the U.S. account of American
companies that are owed money.

Among the suspicious signs: Colombian companies that insist on paying in
cash, with bundles of money orders or with third-party checks; the broker
often makes the payments with dollars stashed in U.S. banks in amounts less
than $10,000 to avoid triggering federal bank reporting requirements.

"Some of these exchange companies in Colombia may have 300 or 400 bank
accounts in Miami," said McDonald in an interview from his Miami home.

One witness, a Colombian black-market money changer identified only as
Carlos, told lawmakers Monday how he helped launder drug money through
purchases of products from major corporations, including Sony, Whirlpool,
Kodak and General Electric.

"Everyone in this black market business knows that the U.S. dollars they are
dealing in are from drug sales in the U.S.A.," said Carlos, who was hooded
to protect his identity.

Household appliances and cigarettes are among the products most commonly
involved in the illegal trade scheme, said Johnson, who added that
manufacturers or parent companies -- which often export indirectly through
distributors -- may be unwitting participants.

"It's huge, a huge problem in Miami," said McDonald, "because Miami is a
Latin American hub and Latin Americans buy their dollars on the black
market."

In Congressional testimony earlier this spring, New York Assistant U.S.
Attorney Jodi Levine Avergun said an exhaustive record analysis by her
office during the past year identified more than 300 companies in Miami and
New York that receive bulk money order payments.

But by the time the money winds up in the distributors accounts, McDonald
said, it's already been laundered; it's not in the process of being
laundered.

"I think the government is starting to put too much focus on the vendors and
the businesses here, and businesses are being held to unreasonable
standards," McDonald said.

He suggested that the Colombian money changers should be the target of law
enforcement.

He said he counsels his business clients "to be on the lookout for changes
in the form of payment from your legitimate customers."

U.S. Customs and Treasury have begun to send selected companies brochures
describing how the black-market peso exchange scheme works, detailing "red
flags" to watch for. Once the businesses have been warned, government
officials believe prosecutions will be easier.

Cooperative efforts by U.S. and Colombian law enforcement agencies over the
past eight years have resulted in the seizure of more than $800 million in
assets and 2,100 arrests related to the black-market peso exchange.

Some American companies, including Whirlpool and General Electric, have
started to cut off sales through independent distributors in Colombia, said
Bonni G. Tischler, assistant commissioner of the U.S. Customs Service.

The Associated Press contributed to this report.