Pubdate: Tue, 10 Oct 2000
Source: Austin American-Statesman (TX)
Copyright: 2000 Austin American-Statesman
Contact:  P. O. Box 670 Austin, Texas 78767
Fax: 512-445-3679
Website: http://www.austin360.com/statesman/editions/today/
Author: Lowell Bergman, The New York Times

DRUG MONEY GETS TRACKED TO U.S. FIRMS

One day in June, a group of corporate executives gathered at the
Justice Department for a meeting with Attorney General Janet Reno and
other top government officials.

Arrayed around the table, the executives represented some of the
pillars of corporate America -- names such as Hewlett-Packard, Ford
and Sony. The session was not publicized, because they shared an
unlikely and potentially embarrassing problem: Their companies, they
feared, were becoming targets in the nation's war on drugs, and
neither they nor the government was quite sure what to do about it.

With the intensifying federal crackdown on money laundering, narcotics
agents had been tracking drug money into the accounts of major
American corporations and their distributors and dealers. Law
enforcement officials say that each year, roughly $5 billion in
Colombian drug money buys goods and services -- from cigarettes to
computer chips -- from American companies.

What makes that possible is a system known as the black market peso
exchange, a complex money-laundering apparatus that law enforcement
officials say has become an increasingly important part of the
Colombian narcotics industry. The system -- really a network of
currency brokers with offices in New York, Miami, the Caribbean and
South America -- is essentially an underground money market that lets
the traffickers sell their ill-gotten American dollars for Colombian
pesos. Those dollars are then bought by Colombian companies that use
them to buy American consumer goods cheaply for sale back home.

Now, the government's increasingly aggressive efforts to seize some of
that money have put it on a collision course with the corporations,
which say they are innocent victims with no way of knowing that they
and their distributors are being paid with drug money. For a long
time, because of lax enforcement of U.S. currency laws, the drug
traffickers were able to launder billions of dollars through U.S.
financial institutions. A crackdown in the '80s pushed the traffickers
to what they saw as a virtually fail-safe system for getting back
their profits -- the black market peso exchange.

The market, says U.S. Customs Commissioner Raymond Kelly, ``is the
ultimate nexus between crime and commerce, using global trade to mask
global money laundering.''

So far, no large American company has faced criminal charges related
to the peso exchange. And the companies have almost always beaten back
official efforts to seize money laundered through the exchange.

But in the past few years, the government has tried to stake out a
harder line. There have been congressional hearings, designed to put
companies on notice by name. Prosecutors have issued warnings and
stepped up their effort to seize laundered drug proceeds used to buy
American goods.

At the same time, though, the government has encouraged companies to
institute ``know your customer'' policies similar to those used in the
financial industry. The policies give dealers and distributors
techniques for recognizing money laundering. Thus educated, the
reasoning goes, the companies will be less able to argue that they
simply could not have known.

For in drawing the line between legitimate and illegitimate profits,
the government must not only prove that the money came from drug
dealing, but, under a legal principle called ``willful blindness,'' it
must also show that the recipient ``knew or should have known'' its
source.

Congress passed the first money-laundering laws in the early 1970s --
requiring, among other things, that banks report any cash transaction
over $10,000 -- but they were loosely enforced. By 1979, the Federal
Reserve Bank in Miami had more cash than all the other Federal Reserve
banks combined.

It took the uproar over the cocaine epidemic in the early '80s for the
banks to comply. And with the resulting crackdown, traffickers
resorted to the black market, which for decades had provided the
Colombian business community with dollars at less than the official
exchange rate of 2,000 pesos to the dollar.

One company that has turned up in the American government's recent
anti-laundering efforts is Philip Morris, whose products in particular
have been a major presence in Colombia's black market. Marlboros are
readily available at prices that investigators say reflect that they
were bought with cheap black market dollars and smuggled through
middlemen into the country.

This year, Philip Morris was sued in federal court in New York by the
tax collectors for Colombia's states. The lawsuit alleges that the
company is involved in international cigarette smuggling and the
laundering of drug proceeds.

Philip Morris has denied the allegations, saying it did not know its
products were being exploited for money laundering. In addition,
without admitting wrongdoing, it recently signed an agreement with
Colombia, pledging to stop its products from entering the black market
or being used to launder money.

Alan Dooty, a customs official, said the companies had been selected
for the June meeting because their products had shown up in the black
market in Colombia. Before the meeting, some of the companies
expressed concern that they would be punished. But once they arrived,
Dooty said, they were assured that the government was seeking
cooperation.

A follow-up session in July, however, bogged down in legal murk, but
more meetings are scheduled for this fall. 
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