MONEY CLEANED, COLOMBIAN STYLE

Contraband Used to Convert Drug Dollars

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.

(c) Copyright 1998 The Washington Post Company

Checked-by: Joel W. Johnson