COLOMBIANS CHOKING ON CONTRABAND

Drug traffickers' money laundering ruins businesses

Bogota -- From the outside, the building looked like a Coca-Cola warehouse,
but it wasn't the real thing.

When customs agents cut the padlocks and burst through the doors, they
found French champagne stacked to the rafters. They discovered TVs, cameras
and stereos, plus 82,000 bottles of whiskey and cognac. All told, they
filled seven trucks with nearly $1 million in contraband.

Although the recent midnight raid in Bogota's warehouse district made the
local newspapers, it barely made a dent in Colombia's $3 billion-a-year
contraband trade.

Economists estimate that contraband goods-which retail for less because
smugglers evade import tariffs-account for onethird of the nation's imports
and have driven hundreds of legitimate merchants out of business.

"These (smugglers) should be shot.... They make my life so miserable," said
a Colombian woman who imports Italian wines. "If contraband didn't exist, I
would probably double or triple my sales."

Even more alarming is that the contraband business has become the preferred
way for Colombian drug lords to launder billions of dollars in illicit
profits.

"In the last few years, (contraband) has become a very important tool for
the drug traffickers," said Gustavo Cote, who heads Colombia's Tax and
Customs Directorate.

Colombia has always been something of a smuggler's den because of high
import duties, corrupt and understaffed government enforcement agencies and
a lawless atmosphere in the countryside.

In 1962, "gonzo" journalist Hunter S. Thompson hitched a ride on a
riverboat full of contraband whiskey in the northern state of La Guajira.

"There is no law in Guajira," he wrote. "No customs, no immigration, no
white men, no nothing but Indians and whiskey."

All Kinds of Shoppers Consumed by a 33 year-old civil war, drug trafficking
and political scandals, the government has long tolerated smugglers. It
even allowed the construction of sprawling contraband shopping malls known
as "San Andresitos," after Colombia's free port island of San Andres in the
Caribbean.

The discounts are substantial. A bottle of Johnnie Walker Red Label whiskey
costs $15 in Colombian supermarkets compared to $9 at the San Andresitos,
which attract buyers ranging from working class families to diplomats.

"It is socially acceptable. People go to the San Andresitos for the prices.
They don't think they are doing anything bad," said Guillermo Leon Gomez, a
state tax official in Bogota.

Like most Latin American nations, Colombia opened its economy to free trade
in the early 1990s and slashed import tariffs from an average of 40 percent
to 10 percent. Officials predicted that the reforms would lower retail
prices and reduce smuggling, but instead the flow of contraband increased.

The reason: money laundering.

As banks impose tighter restrictions on cash deposits, drug lords have
switched to business schemes to launder their profits. They often spend
their dollars on computers, textiles, clothes and liquor in the United
States or dutyfree ports like the Colon Free Zone in Panama, then smuggle
the goods into Colombia.

Roberto Steiner, an economist at Fedesarollo, a private think tank in
Bogota, estimates that $2.5 billion in drug money enters the Colombian
economy annually and that two-thirds arrives in the form of contraband.

Fueling Businesses.

Because traffickers are more interested in obtaining untraceable Colombian
pesos than in making profits on the contraband, they often sell their wares
to middlemen at below-cost prices. That has devasted legitimate Colombian
businesses.

Textile makers, for example, have lost 25 percent of the national market to
contraband, said Ivan Amaya, president of the Colombian Association of
Textile Producers. About half of the cigarettes sold in Colombia are
smuggled, and as a result, the Coltobaco cigarette firm has closed four of
its five plants.

"It is raising hell with the economy down there," said an officer who
investigates money launder ing for the Financial Crimes En forcement
Network, a branch a the U.S. Treasury Departmen "We have got to take a hard
look a the contraband market."

The government, meanwhile loses about $1 billion annually in unpaid customs
duties and taxes.

Prodded by the U.S. govern meet, Colombia finally took actioi in July by
passing a law that make selling more than $170,000 in con traband a
criminal offense. Customs agents have set up highway roadblocks to catch
smugglers an' are conducting lightning raids on warehouses.

"How many of you have taker away job opportunities from fellow countrymen
by purchasing i; legal goods, only to save two or three thousand pesos (a
few do lars)?" President Ernesto Sampe said in a speech announcing the new
measures.

Some analysts say the demand for contraband goods will dwindle with the
recent opening of a num ber of Wal-Mart type warehouse stores that offer
credit and price that are only slightly higher than at the San Andresitos.

But for now, the Samper ad ministration is reluctant to close down the
contraband malls because they employ about 20,000 people and are a
political force in their own right.

During a recent raid on on, San Andresitos outlet, custom agents were met
by sniper fire and had to call in a police SWAT team

"They were surrounded by merchants and could do absolutely nothing," Gomez said.