U.S. TARGETS FIRMS LAUNDERING MONEY

Colombian Cartels Said to Use Top Companies

MIAMI - Alarmed by evidence that American companies are helping Colombian
drug traffickers launder billions of dollars in illicit profits, U.S.
officials are stepping up efforts to find and prosecute firms that pursue
business transactions that they know are suspicious.

U.S. and Colombian officials estimate that Colombian cocaine and heroin
traffickers use international businesses to repatriate about $5 billion a
year in drug profits through complex, seemingly legitimate purchases that
not only turn their illegal dollars into pesos but also corrode their
country's battered economy.

Colombia's legitimate imports total $15 billion, meaning about a quarter of
the nation's total import revenue is contraband brought in as part of money
laundering schemes, according to Fanny Kertzman, the director of Colombia's
customs service.

Colombia's traffickers routinely converted dollars reaped in the drug trade
into pesos simply by moving the money through banks. But as increasingly
stringent international banking regulations have made that method more
difficult, drug traffickers have been turning to so-called peso brokers.
These brokers sell the traffickers' dollars by performing transactions for
Colombian businesses seeking to buy American goods while bypassing
Colombia's tariff and trade laws.

The method, known as the black market peso exchange, "is now the primary way
Colombian [drug] cartels launder their money," said U.S. Customs
Commissioner Raymond W. Kelly. "According to intelligence estimates, as much
as 30 percent to 40 percent of the drug dollars are laundered through black
market peso exchange. That amounts to billions of drug dollars flowing
through U.S. companies. And these are not fly-by-night companies, these are
top U.S. firms."

The Senate Caucus on International Narcotics Control has scheduled hearings
on the peso exchange today.

To combat the trade, U.S. Customs and the Treasury Department are sending
targeted companies brochures describing the peso exchange, what type of
transactions should raise suspicions and whom to contact to report
suspicious buyers. The first to receive the information will be companies
believed to be most vulnerable to laundering activities. Once the companies
have been warned, prosecution and asset seizure will be easier, officials
said, because prosecutors will be able to show that the businesses in
question had reason to suspect that they might be involved in illicit
transactions.

The peso exchange has been operating for years because of Colombia's
restrictions on dollar transactions and prohibitive tariff structure. Only
in the last three years, however, has it become drug traffickers' favorite
way to retain access to their wealth.

The system works like this: A trafficker can convert dollars earned in the
United States through the drug trade by selling them to a peso broker. The
broker typically will take a 20 percent to 25 percent profit on the deal,
selling a trafficker $8 million in pesos for $10 million in dollars, because
the broker assumes all the risk.

The broker then eases the dollars into legitimate bank accounts in the
United States in amounts of less than $10,000 to avoid triggering federal
banking reporting requirements.

At the same time, Colombian businesses need dollars to buy goods in the
United States, but doing so legally is difficult and dollar purchases are
heavily taxed. So a business can employ a peso broker as a middle man --
paying pesos to the broker in Colombia for a purchase that the broker makes
in the United States with the dollars he has stashed in banks there. The
purchase is usually made with a third-party check, money order or cash.

"It is not difficult to establish if someone is involved in a money
laundering scheme," said a senior Colombian official. "If large purchases in
the United States are paid for with cash or third-party checks that have
nothing to do with [the] company making the purchase, it is probably drug
money. We are asking for good due diligence by companies, for companies to
know their customers."

An example is Adam Mandelblatt & Co. of New York. After a joint
investigation by U.S. Customs, the Drug Enforcement Administration and the
Internal Revenue Service, the fabric company forfeited $1 million and five
people pleaded guilty to money laundering, said Assistant U.S. Attorney Tim
Macht of the Eastern District of New York.

According to the indictment, Colombian customers buying fabric from
Mandelblatt gave Colombian pesos to a peso broker in Colombia, who then used
drug dollars to pay Mandelblatt for the merchandise in New York.

Macht said the defendants at Mandelblatt "knew or consciously avoided
knowing" that the money they were being paid by Colombian customers came
from drug sales and that from 1987 until the arrests last year, the company
laundered about $10 million.

Electronics, cigarette and liquor companies are most often involved in such
transactions. Both U.S. and Colombian officials say parent companies or
manufacturers are seldom implicated in wrongdoing; rather, many of their
distributors, especially in the Miami area, turn a blind eye to suspicious
purchases.

"The core companies are not usually the guilty parties; it is the
distributors selling blocks of TVs, washers, dryers, and accepting cash
payments or third-party checks," said Greg Passic, an expert on Colombian
money laundering who recently retired from the DEA. "And even legitimate
Colombian importers can only be competitive now if they can buy cheap
dollars. The economic reality has evolved so that the whole system is
super-convenient to all parties."

Colombian officials acknowledge that cracking down on the vast black market
in Colombia will be unpopular but economically necessary. Many goods
purchased through the exchange avoid the tariffs that legitimate goods must
pay, depriving the government of hundreds of millions of dollars a year in
tax revenues.

And cracking down in the United States will not be easy, either. A host of
agencies is involved in such dealings.

"One of my messages is that it is the moral responsibility of corporations
to do something about this," Sen. Charles E. Grassley, the Iowa Republican
who chairs the narcotics control caucus, said in a telephone interview.