Pubdate: Sun, 21 Oct 2001 Source: Dallas Morning News (TX) Copyright: 2001 The Dallas Morning News Contact: http://www.dallasnews.com/ Details: http://www.mapinc.org/media/117 Author: Tod Robberson DRUG FIGHT GOES AFTER TRADE'S MULTIBILLION-DOLLAR ECONOMY Unlikely Helpers Found On Front Line Of Effort Against Illegal Cash Flow This is the first in an occasional series of stories examining the hidden engine that drives a multibillion-dollar illicit trade. LOUISVILLE, Ky. - In a nondescript cubicle inside a brown office building not far from Interstate 64, Dwayne Kahl spends his days answering the phone and doing his best to sell air conditioners for General Electric. If you want to talk BTUs, Dwayne Kahl is your man. About 1,100 miles away, a dog named Listo spends his days sniffing around South Texas border crossings trying to find hidden stashes of dollar bills in trucks or cars heading for Mexico. When the U.S. government wants to catch smugglers with illicit cash, Listo is their dog. He has already sniffed out $89 million in smuggled cash during his eight years on the job. Mr. Kahl and Listo work in an unglamorous world that few Americans would associate with the war on drugs, but when it comes to halting the flow of dollars that feed the international narcotics trade, they are among the front-line warriors. Governments can spray drug plantations, blow up laboratories and jail cartel leaders to reduce the supply of drugs, and they can rehabilitate users to curb demand. But the international drug problem keeps springing back to life because, at its root, the drug economy has remained largely untouched. Billions of dollars in drug profits are now circulating through legitimate commercial and financial institutions. The flow of drug money is so plentiful that traffickers cannot dispose of it quickly enough. They are now exporting it in bulk to the countries that are supplying drugs to the U.S. market. So while counternarcotics police use drug-sniffing dogs on the northbound lanes of U.S. border-entry posts with Mexico, the U.S. Customs Service has begun using Listo and other dogs on southbound lanes in hopes of capturing some of the bulk cash being smuggled out. Large-Scale Purchases At companies like General Electric, employees are constantly warned to be on the lookout for would-be customers looking to "launder" drug dollars through large-scale purchases of everyday consumer items. Mr. Kahl is one G.E. employee who identified the signs of a suspicious purchase, involving air conditioners, and halted what the company believes was a money-laundering attempt. "I never thought this would happen to me selling air conditioners," Mr. Kahl said after a man in New York called him in late 1999 to make a $40,000 purchase. It was an opportunity for Mr. Kahl, a 34-year-old father of two, to boost his sales figures. But something didn't seem right, particularly when the purchaser paid his bill with 35 money orders - exactly the kind of tactic a money launderer would use. Mr. Kahl could have ignored the signs, but instead he put a halt to it. Others, however, succumb to the drug trade's financial temptation. They take the bait, only to find that drug money can be as addictive as the drugs themselves. In 1998, the latest year for which statistics were available, Americans spent $63 billion on illegal drugs, according to White House estimates. U.S. Treasury officials and independent analysts estimate that the drug economy generates $400 billion a year in various types of businesses worldwide. That amount includes billions of dollars spent by governments to fight the drug trade. "You have [money] smuggling organizations that are mom-and-pop operations, and you have others that rival General Motors in their sophistication," said Jerry Robinette, a U.S. Customs Service supervisor for financial-crimes investigations in Houston. Big Part Of Economy The financial impact of the drug trade is so profound that Colombia decided in 1999 to begin including estimates of drug-production proceeds in calculating the country's gross domestic product. The move caused an uproar in the U.S. government, but Colombian authorities insisted that they were following International Monetary Fund guidelines. By including certain drug-production figures, Colombia was able to boost its economic-performance figures by more than 1 percent in 1999. The drug trade is a major generator of employment worldwide, and it's hardly limited to the peasant farmers who grow coca and opium in southern Colombia or the smugglers who carry the drugs to the United States from countries like Mexico, Haiti and the Dominican Republic. Many legitimate American jobs also depend on the drug trade. According to government calculations, if the United States were somehow able to eliminate the drug problem tomorrow, well over $85 billion per year in income and expenditures would be withdrawn from the U.S. economy, including not only the amount Americans spend on illegal drugs but also the amount spent by federal, state and local governments to combat the trade. The U.S. law enforcement community, for example, has ballooned in manpower over the past two decades and has gained an estimated $18 billion in budget outlays simply to fight the drug war. For 2002 alone, the White House Office of Drug Control Policy is proposing a budget of more than $19 billion, which is spent to purchase equipment, employ personnel, purchase advertising and fund all kinds of police training and community outreach programs aimed at halting the use and sales of illegal drugs. Prison construction and management also are booming to accommodate the 1.7 million prisoners who have been added to the U.S. prison population since the mid-1970s. A quarter of those new prisoners were convicted of drug offenses. More were convicted of violent acts and robberies linked to the drug trade. U.S. military contractors also are finding new business opportunities in Colombia and neighboring countries, selling arms and services to help nations fend off the drug-induced violence that has pushed Colombia nearly to a state of full-blown civil war. The U.S. government currently is spending $1.5 billion in mostly military aid to help Colombia's government fight the guerrillas and paramilitary militias that support the drug trade. In the United States, the powerful influence of drug money has penetrated some of the nation's biggest banks, appliance manufacturers, cigarette makers, the tourist industry and even a company that provides military hardware used in Colombia's drug war. Financing Starts In U.S. Colombian President Andres Pastrana regularly chides U.S. politicians who blame the drug problem solely on his country. When viewed from an economic perspective, he says, the drug problem starts with financing, which means it starts in the United States. U.S. drug consumers purchase nearly 100 percent of their cocaine and about 80 percent of their heroin from Colombia. Without U.S. dollars, Mr. Pastrana and others say, there would be no money for the drug crops, processing labs, smugglers, guerrilla guns and all the other ingredients that go into the drug trade. Having devoted billions of dollars to narcotics interdiction, street-side drug busts and efforts to dismantle Mexico's and Colombia's biggest cartels, U.S. authorities have determined in recent years that perhaps the best strategy is, simply, to go for the money. Testifying before Congress last year, John C. Varrone, the acting deputy assistant commissioner of investigations at the Customs Service, said that from 1997 to 2000, his agency conducted more than 12,000 financial investigations worldwide - both drug and non-drug related - that led to the seizure by world governments of almost $1.1 trillion in assets. Unlike legitimate businesses, trafficking groups cannot simply deposit their money in the banking system and pay to have it transferred out of the country in large amounts. Bank accounts provide a written trail that allows law enforcement authorities to track drug money to its source. Instead, drug money travels over the Internet as electronic currency, through the local convenience store as money orders, as precious gems transported in suitcases, or through major ports like Houston and Miami in the form of refrigerators, cigarettes and other consumer items. Increasingly, however, trafficking organizations are using the same methods to transport money as they use for drugs - large, bulk shipments of dollar bills. Money Management The need for increased sophistication and knowledge of international finance has led to some startling changes in the way traffickers do business. Some trafficking groups have sent their financial wizards to top U.S. business schools to master the intricacies of money management, said Greg Passic, a Washington money-laundering specialist and Treasury Department consultant. One U.S. law enforcement official said a major Mexican cartel has moved the bulk of its business operations to Houston, apparently determining it is more efficient to conduct importation, distribution and accounts-receivable operations from the same central locale where most of its business is generated. Last year, law enforcement agencies raided a suburban Houston house where they found night-vision equipment, a network of surveillance cameras, equipment to repackage bulk quantities of cocaine and a separate "counting room" with heat-sealing devices used to package cash for export, said Mr. Robinette of the Customs Service. That raid alone netted more than $1 million in seized cash. The follow-up investigation indicated that the smugglers had handled $30 million or $40 million in the last three or four years, he said. The days of fast cars, gaudy upholstery and free-spending opulence may be over. Traffickers keep a close eye on balance sheets, just as any legitimate company would, said Steve Hooper, acting special agent in charge of Customs for East Texas. His agents tapped one phone conversation in which a Colombian boss lashed out at his Houston operatives over a cable television bill. "The bad guy's reaction down in Colombia was, 'What the hell do they need cable TV for?' We were amazed that they were watching the expenses that closely," Mr. Hooper said. More Cash Smuggled At Houston's George Bush Intercontinental Airport, Customs agents using money-sniffing dogs have begun regularly inspecting passengers and luggage on outbound flights because of an eruption of cash smuggling out of the city. In one seizure, Customs agents stopped a man at the Houston airport with $1.1 million in a suitcase. A subsequent investigation determined the man had transported more than $12 million in a single year. "We get hits almost every day," said Jeff Daft, a Customs canine enforcement officer whose cash-sniffing dog, Angus, was inspecting passengers boarding a Continental flight bound for El Salvador one day in March. Said Mr. Varrone, "The Customs Service has identified and seized bulk cash shipments concealed in aircraft, vessels, vehicles, appliances, water heaters, stereo equipment, machine parts, even from the internal cavities of human beings." Over in Hidalgo, while Listo worked over the outbound cars, Customs officers and Texas National Guard troops were nearby, operating the government's most advanced new piece of technology: a gigantic mobile X-ray machine capable of sweeping over and inspecting the contents of an entire tractor-trailer rig in less than three minutes. On the machine's first day on the job last year, it detected $200,000 hidden in a vehicle. Last year, U.S. authorities seized $32 million in cash just along the southeastern Texas border with Mexico. But billions of dollars are being laundered through other, more sophisticated means, experts say. Peso Exchange The most notorious and widely used money-laundering network is known as the Black Market Peso Exchange, or BMPE, which the Treasury Department says is responsible for moving $4 billion annually between the United States and Colombia. The BMPE involves intricate networks of exchanges between cash smugglers, myriad small bank accounts and commercial enterprises, both legitimate and illicit, in numerous countries, Mr. Robinette explained. It was one such BMPE operative, Customs officials suspect, who approached Mr. Kahl at General Electric. Traffickers typically look for ways to convert their cash into commodities, preferably everyday consumer items like VCRs, computers, cigarettes, liquor and home appliances. Those items are purchased in bulk from legitimate U.S. dealers using cash, money orders or small-denomination checks. Then they are shipped from ports like Miami or Houston to warehousing centers such as Panama's Colon Free Zone, a tax-free international commercial zone that specializes in trade with the Caribbean, Colombia, Ecuador and Venezuela. From Colon, the consumer items are shipped to various contraband centers along Colombia's northern coast, where they are resold to Latin American consumers as seemingly legitimate goods. Once the items are paid for with Latin American currency, the cash is effectively laundered, or cleaned, of its illegal origins. American manufacturers have been aware of the problem for years, but legitimate Colombian retailers and the former chief of Colombia's customs service, Fanny Kertzman, began complaining publicly and raised pressure on the manufacturers to take action. Before leaving office last year, Ms. Kertzman rattled the U.S. business world by going public with the names of manufacturers who, she said, should have known that their products were being used for money laundering. Among those she named were General Electric and cigarette maker Phillip Morris. She said she went public because those companies had resisted changing their practices. Phillip Morris is being sued in the United States by Colombian state and local governments, who allege that the company conspired with smugglers for years, helping them evade millions of dollars in taxes. The company adamantly denies the allegations. At General Electric, corporate attorney Earl Jones said his company has been aware of the money-laundering issue for years. "It was back as early as 1993 that this business ... began to develop a policy and educate the employees on the risks of money laundering," he said. The company's entanglement in the BMPE was due to international sales arranged by unauthorized local dealers, he said. The money-laundering network is not limited simply to appliances. Last year, at U.S. government request, Panamanian authorities seized a $1.5 million helicopter that had been purchased from Fort Worth-based Bell Helicopter Textron using 25 third-party wire transfers from 16 different bank accounts. The Customs Service says its undercover agents traced the wire transfers directly to Colombian drug traffickers. Customs demanded that Bell explain why it did not question the strange succession of payments. Bell attorneys and spokesmen say their company abided by the law regarding the methods used to accept payment. All payments were above $10,000 in value, which meant the government could have traced them, the company says. But the seizure came at an embarrassing time - just as Congress was debating whether to include 30 Bell "Super Huey" combat helicopters as part of last year's aid package specifically to help Colombia fight the war on drugs. - --- MAP posted-by: Beth