Congressional hearings today to warn businesses of new moneylaundering
scheme.

Columbian drug lords have quietly brought a new unwitting player into their
illicit trade: brandname American corporations.

Billions of dollars of illegal drug profits made in the US are now
surreptitiously funneled into legitimate American businesses, according to
a confidential Colombian informant and federal lawenforcement officials.
These companies unknowingly accept the laundered drug dollars as payments
for goods they sell for export to Colombia.

``Anybody that sells anything that goes into that arena is vulnerable to
this system of money laundering,'' says Greg Passic of the Treasury
Department's Financial Crimes Enforcement Network (FINCEN).

US lawenforcement officials estimate that as much as 50 percent of the
trade between the two countries now involves drug money laundered through a
new technique that pivots on blackmarket peso brokers.

The problem will be the subject of hearings on Capitol Hill today.
``Corporate America needs to be very careful with whom it does business and
from whom their profits are coming,'' says Rep. Spencer Bachus (R) of
Alabama, who will chair the hearings.

Getting the cash for the cocaine and heroin they sell on the streets of New
York or Los Angeles into bank accounts in Bogata, Colombia has long
bedeviled the world's largest drug suppliers. For years, Colombian cartels
simply smuggled it down in crates or wired through American banks.

But a concerted crackdown by US authorities has curbed much of the flow of
illicit money through traditional routes. So drug traffickers came up with
a new moneylaundering scheme: peso brokering. Currency brokers and
``financial advisors'' in Colombia act as middlemen between the Colombian
drug lords and legitimate businesses looking for the least expensive way to
trade pesos for dollars.

There are several ways the drug dollars are funneled into American
corporate coffers, says a confidential informant who was a blackmarket
currency broker operating in Colombia. But all start with a simple
transaction between the currency broker and the cartel member.

How it works

For example, the Colombian drug dealer may have $500,000 in cash sitting in
New York from the sale of drugs to various street gangs. The stacks of
bills are stuck in ``stash'' houses. His challenge is to get the money back
to Colombia.

Step 1: The drug dealer turns to the peso broker who has offices in Bogata
and agents operating New York. The dealer sells his $500,000 stashed in the
US to the currency trader for $450,000 worth of pesos. The drug dealer
loses $50,000 on the deal, but considers it the price of walking out of the
Bogata office with his profits now in the form of ``clean'' money.

Step 2: The currency broker then has his agents in the New York pick up the
$500,000 from the stash houses and deposit it in dozens of small US bank
accounts to circumvent US laws that require reports of cash transactions of
$10,000 or more.The money then is slowly deposited in small amounts into a
single account or recorded as ``profits'' in a fake corporation.

Step 3: This is where legitimate American and Colombian businesses become
involved.

Normally, a Colombian business importer who wants to buy large amounts of
American goods in dollars would turn to a Colombian bank to wire the money
to the US. But there's a fee and a 6.5 percent tax on the pesotodollars
currency transaction. On top of that, the importer has to prepay a hefty
sales and importation tax. All this takes a big, upfront, bite out of profits.

Enter the peso broker, again.

The Colombian importer pays the broker in Bogata $550,000 worth of pesos to
buy the $500,000 sitting in a US bank account, thereby bypassing the hefty
Colombian bank fees and taxes.

The importer now places his order for $500,000 worth of auto parts from an
American manufacturer. Instead of sending the company a check through the
normal Colombian banking channels, he tells the peso broker to pay the
company with the $500,000 in the US bank account.

Evading fees

Because the deal hasn't gone through official bank channels in Colombia,
the parts can be quietly smuggled into the country, thus avoiding the sales
and importation taxes.

That robs the Colombian government of hundreds of millions of dollars. It
also undermines legitimate businesses that can't compete with the lower
prices offered by companies that trade in the black market.

In the US, hundreds of American businesses have become unwitting
accomplices. ``I don't believe most corporations understand this process or
know where this money is coming from,'' says John Forbes, a US Customs
Service agent who heads the El Dorado Task Force, a New York based
antimoneylaundering unit made up of federal, state, and local law
enforcement agencies.

Money transfers from corrupt Colombian peso brokers have been traced to
dozens of American wholesalers, exporters and several major corporations,
including Ford Motor Co., Sony, and Procter & Gamble, say informed sources.

A Ford spokeswoman says the company is in full compliance with all banking
laws. Procter & Gamble spokesman Terry Loftus says the company is aware of
the problem and ``has put some initiatives in place to try to prevent it.''
Sony did not respond to inquiries.

Law enforcement officials will soon call on all companies to be careful
with whom they do business in Colombia. ``Businesses should also know their
customers, know how their receipts are satisfied, know who's paying them,''
says Lt. Ronald Rose, a New York Police Department moneylaundering expert
assigned to the El Dorado Task Force.

Ten years ago, when the federal government cracked down on American banks
that routinely accepted large cash deposits, no questions asked, they also
urged the banks to institute know ``your customer regulations.''

At the time the banks said, ``We can't possibly do what you're expecting us
to do,'' says Michael Zeldin, a former chief of the Justice Department's
money laundering section who's now a principal at Price Waterhouse in
Washington. ``Now they do a very good job, and businesses and trades could,
too.''

In Colombia, lawenforcement officials are aware of the problem and are
looking at ways to stop the blackmarket peso brokers. In the US, Congress
is banking on US businesses to voluntarily join in the fight against money
laundering, so they won't have to impose new regulations to ensure it happens.

``It's not a question of regulation, it's a matter of social
responsibility,'' says Representative Bachus.

``We can't let economic interests allow us to turn a blind eye to the fact
that millions of promising young lives are being destroyed by the flow of
drugs into our ... communities.''