The Colombian Black Market Peso Exchange

Bonni Tischler, Assistant Commissioner, U.S. Customs Service,
testimony before the Senate Caucus on International Narcotics Control

Thank you, Mr. Chairman and members of the Caucus, for the opportunity to address you on this very important topic, the Black Market Peso Exchange (BMPE). This trade-based system of laundering drug proceeds has been utilized by Colombia's drug syndicates for a number of years. Its existence, however, has not been widely publicized or understood outside of the highly specialized world of federal drug money laundering investigators and drug money launderers.

Background

Money is a commodity. As with any other commodity, money can be bought, sold or traded. The U.S. dollar is the preferred currency worldwide. The demand for U.S. dollars can translate to huge profits for illegitimate money transmitters and brokers involved in the movement of narcotics proceeds throughout the world.

The BMPE process starts with a peso broker. For a fee, these brokers arrange the financial transactions necessary to launder the drug cartels' money. Broker activities include receiving and coordinating orders for money, locating sources of U.S. dollars, arranging pickups and directing placement of funds. Within the broker's network are others who perform various services for a percentage of the broker's earnings. Those working for the brokers pick up cash, buy money orders and checks, open checking accounts, transport and smugglemoney, among other things.

The primary market in Colombia for large blocks of U.S. dollars is Colombian importers. In order to purchase goods for import, the Colombian importer must first acquire U.S. dollars, which are the recognized instrument of trade in the Western Hemisphere. Access to U.S. dollars is regulated by Colombian law and administered by their central bank. Before the Colombian central bank would convert pesos to dollars they require certification that government import permits be obtained, thereby insuring that the requisite Colombian duties and taxes are collected.

The Colombian Foreign Exchange and Trade regime tends to be expensive and naturally results in exposure to government scrutiny. An alternative is the underground system of BMPE brokers, which offers the businessman a choice and the drug trafficker an opportunity.

U.S. Customs Approach

The Customs Service has for some time approached drug money laundering by attacking systems or industries that are exploited by traffickers, in addition to focusing on individual criminals and their organizations. Examples of this strategy can be found first in the Choza Rica/American Express Bank investigation in Laredo that addressed Casas de Cambio along the Mexican border and Operation Wiredrill in New York which attacked money remitters. In doing so, Customs strategic planners have endeavored, and arguably succeeded, in each instance in changing the behavior of an entire industry, rendering a previously reliable system unreliable, raised the cost of doing business to the drug trafficker, and disrupted the all-important money laundering cycle in the long term. Experience has shown us that denying traffickers access to broad-based systems, bringing about voluntary compliance in the impacted industries, is by far the most effective and efficient way to attack drug money laundering.

Outreach to U.S. Business

A key component to the BMPE money laundering process involves international trade. This is Customs core business and we are uniquely suited to address this issue. Today I am announcing a Customs initiative designed to identify and educate those businesses involved in international trade which are at risk of being victimized by drug money launderers. An integral part of this program is a brochure, which I have both on display and available to the Caucus, developed jointly by the Customs Office of Investigations and the Office of Strategic Trade. The brochure will be utilized by Customs Special Agents and Trade Specialists in the business community to do the following:

• Describe the BMPE Process;
• Highlight "red flags" or indicators of BMPE activity;
• Provide U.S. businesses with a point of contact if they suspect they have been victimized by BMPE-related activity.

Customs Special Agents, Intelligence Analysts, and Trade Specialists have been analyzing outbound trade data, financial and payment data, including CTRs, CMIRs and SARS, through the use of advanced targeting software such as the Numerically Integrated Profiling System (NIPS). This will allow us to target this education and compliance program on those businesses that are likely to benefit from and utilize this important information. Moreover, Customs intends to get the word out via other forums such as trade publications, industry associations and via our World Wide Web site. I am indeed pleased to have the occasion of this hearing to roll out this initiative and the brochure.

The Customs Service intends to be aggressively pursue this educational compliance initiative; however, we are prepared and have indeed employed other tools available to us to detect and disrupt drug money laundering utilizing the BMPE.

Undercover Operations

Among those tools are Customs undercover operations that are directed at the peso-brokering system and which have, over 8 years, resulted in the seizure of more than $800,000,000 in cash and monetary instruments. These operations have also produced more than 2,100 arrests and the seizure of 100,000 pounds of cocaine. The two largest single seizures of cash in the history of federal law enforcement were made as a result of Customs undercover operations Casacam in Miami ($22,000,000) and Omega in Los Angeles ($19,000,000) targeting the BMPE.

Recently concluded undercover investigations such as Operation Casablanca and other investigations illustrate some recent success in BMPE investigations.

Operation Casablanca

Operation Casablanca resulted in the arrest of 168 individuals, the indictment of 3 Mexican banks, two of which plead guilty to criminal money laundering charges, and the seizure of over $100 million in cash and monetary instruments. During Operation Casablanca, U.S. Customs undercover agents dealt directly with peso brokers to arrange for money pickups. The drug money was placed into accounts opened by corrupt Mexican bankers. From there, it moved through the banks' correspondent accounts in the U.S. before being sold through the BMPE and deposited in foreign and domestic accounts.

Operation Double Impact

Operation Double Impact, which was conducted by our San Juan Office, focused on an international heroin and cocaine smuggling operation. Profits from these drug sales were laundered through the BMPE at businesses in Floridan and San Juan. Thirty targets were arrested and over $10 million in 70 identified accounts was frozen.

Operation Primero

Our Atlanta office conducted Operation Primero, in which Customs undercover agents targeted the Cali Cartel's use of the BMPE in the U.S., Canada, Europe and Australia to launder drug proceeds. In one portion of the case, two Colombia peso brokers were indicted on 35 counts of money laundering and ultimately convicted.

In an analysis of Customs BMPE investigations, Customs has demonstrated that they are 35 times more effective; i.e., seizure values versus expenditures, than all [other] U.S. government counter-narcotics programs.

Intelligence, Coordination and Training

Customs intends to enhance and improve our undercover investigations by collecting and analyzing the intelligence they produce daily through a single entity designated the Money Laundering Coordination Center (MLCC). In addition to coordinating leads, information, and undercover activity in existing investigations, the MLCC will:

• Identify and compile a list of active Colombian money brokers along with the traffickers they service;
• Identify and compile a list of banks, accounts and businesses utilized by brokers and traffickers,
• Identify and track trends and patterns such as the amount and number of contracts let for money pickups in U.S. cities, seizures of money and drugs as a result of BMPE operations, and the cost of doing business in cities and regions in the U.S. as well as Europe and Asia;
• Deconflict situations wherein different investigative entities are unknowingly targeting the same suspects, bank accounts or organizations.

The Customs Service plans to ask other agencies conducting money laundering investigations to participate in the MLCC.

Asset Forfeiture Investigations

The Customs Service also has the most extensive asset forfeiture program in federal law enforcement. We have 20 specially trained and equipped groups of Special Agents, Analysts, Auditors and contract personnel deployed in every Special Agent in Charge office in the United States. The Office of Investigations is in the process of augmenting five of those groups, in Los Angeles, Chicago, Miami, New York, and Houston, where BMPE activity is concentrated. Information and intelligence on bank accounts which contain drug proceeds placed by a BMPE broker will be referred to the Asset Forfeiture Groups for seizure and forfeiture. As a side note, were legislation such as H.R.1658 enacted (the Civil Asset Reform Bill offered by Chairman Hyde), this aspect of our enforcement efforts would be virtually shut down.

Customs Colombia Working Group

In November, 1998, a working group was convened at Customs to develop a strategy to assist Colombia on a number of issues, including the BMPE. The working group has developed a strategy for proposed training programs and assistance projects to further expand cooperation between the U.S. and Colombia.

Specific steps have been designed to improve the Colombian Customs infrastructure, thereby strengthening their ability to deal with issues such as contraband smuggling, which is integral to the BMPE money laundering process.

Included in the strategy are:

• A Customs Mutual Assistance Agreement with Colombia has been developed and is in the process of being vetted through the Departments of State and Justice. This new agreement will provide the framework for U.S. Customs Service and Colombian Customs to share information on issues such as BMPE and trade issues related to contraband smuggling. As an example, Colombian import data could be shared with U.S. Customs under the auspices of this agreement and compared to our export data. Anomalies could then be the basis of a bilateral investigation by U.S. and Colombian Customs.

• A training, technical assistance and short-term advisor package has been developed and funded by the Department of State/INL. Many of the programs directly impact Colombia's ability to address the contraband smuggling and BMPE process. As an example, State/INL has agreed to fund three short-term advisors to Colombia to work with the U.S. Customs Attaché and Colombian counterparts to help combat the BMPE and to support the Colombian Joint Contraband Technical Task Force (JCTTF).

• With approved Department of Justice asset-forfeiture funding, Customs will assist the newly created National Tax and Customs Police with targeting and contraband interdictions efforts, trade compliance, and investigate techniques training.

• Finally, Customs has conducted Basic Intelligence and Post Seizure Analysis (PSA) training of selected Colombian counterparts and provided them with PSA software and database in Spanish. In addition, we are currently working to provide the DIAN with laptop computers to assist in their analysis of seizure data on contraband merchandise and subsequent sharing with the U.S. Customs.

In addition, the Customs Service recently placed an Attaché in Bogotá, Colombia. The Attaché will become an important focal point for Customs Colombian BMPE investigations, facilitating the exchange of information with the Embassy Country Team as well as his Colombian law enforcement counterparts.

The BMPE is, in no terms, the ultimate nexus of legitimate and criminal trade activity. As you have heard this morning, Customs is doing everything it can to put an end to it. Thank you.

Washington, D.C.
June 21, 1999