See also: Lopez Michelsen, Alfonso; Medellin Cartel; Lehder Rivas, Carlos; Money Laundering
Reference: Strong, Simon. 1995. Whitewash: Pablo Escobar and the Cocaine Wars.
M-19 (Movimiento de 19 Abril) (Colombia)
This group, which takes its name from the disputed Colombian election of 1970, was founded in 1974 by Carlos Toledo Plata and Jaime Bateman Cayon as an organization that would promote revolution in Colombia. M-19’s goal has been to destabilize the Colombian state through robberies, assassinations, and kidnappings for ransom. However, by the mid-1980s, M-19 had formed a close relationship with Colombian drug-trafficking organizations, and the authorities in the United States and Colombia be-lieved that M-19 was trying to raise funds for its cause through drug smuggling. Its most high pro-file attack on the Colombian state was the assault on the Palace of Justice in Bogotá in November 1985. It is widely believed that the Medellin Cartel paid M-19 rebels to attack the Palace and burn the extradition case files in the court archives. M-19 re-mains an active guerrilla group in Colombia bat-tling its government.
See also: Blandon Castillo, Jose; Guillot Lara, Jaime; Herrera Zuleta, Helmer “Pacho”; Medellin Cartel; Narcoguerril-las; Ochoa Vasquez, Marta Nieves; Palace of Justice; Rev-olutionary Armed Forces of Colombia (FARC) References: Chepesiuk, Ron. 1997.“Guerrillas in the Midst.”
National Review, 1 September.
Ehrenfeld, Rachel. 1994. Narcoterrorism.
Mobile Defense Units (U.S.)
These units are tactical quick-response teams from the U.S. Drug Enforcement Administration, which at the request of a sheriff, police chief, or district attor-ney are deployed to work in concert with local au-thorities to dislodge violent drug offenders from the community. In coordination with state and local agencies, the units conduct surveillance, collect in-telligence, pursue investigations, and work to obtain arrests. They provide not only agents to support local drug investigations, but also financial assis-tance and technical support for investigations. The DEA began assigning these units to its divisions across the country in early 1975. In fiscal year 1995 the DEA allocated $3 million to train, equip, and
support nineteen teams. About 200 DEA special agents are assigned to the program.
See also: United States Drug Enforcement Administration References: U.S. Drug Enforcement Administration website
at http://www.usdoj/gov/DEA/programs/.
Money Laundering
Money laundering has been defined as “the process through which the existence, illegal source, and un-lawful application of illegal gains is concealed or dis-guised to make the gains appear legitimate, thereby helping to evade detection, prosecution, seizure and taxation.” (U.S. General Accounting Office 1991) Drug trafficking has been a big reason why money laundering has become a highly lucrative and exten-sive global enterprise. No one knows for sure how much dirty drug money is laundered through the world’s banking system, but the FBI has put the an-nual figure at $300 billion worldwide, one-third of which is collected in the United States. Virtually all payments made for drugs are in cash and must be laundered or cleaned so that drug traffickers can create the illusion that the money comes from legit-imate sources.
Money laundering can best be described as the nervous system of the international drug trade.“Not all money laundering involves cash from drug sales,”
explained Robert E. Powis, the author of The Money Launderers (1992),“[h]owever, almost all drug sales require some form of money laundering.” (Powis 1992, 239)
This is not an easy task, considering the huge amounts of cash involved. In fact, moving the money can be a lot harder than moving the drugs, given the heavy weight and shear bulk of the cash bills. About 450 paper bills weigh one pound, and the money made from a cocaine deal can weigh as much as fif-teen to thirty times the weight of its equivalent value in the drug.
In the 1960s and 1970s, when the profits were not as huge as they became later, drug traffickers used couriers known as “smurfs,” a nickname based on popular cartoon characters that reflected the couri-ers’ relative unimportance in the Colombian cocaine trade. The smurfs simply deposited the money, most of which came from street-level deals, in a nearby bank. In 1970 the federal government made its first effort to detect large cash deposits by passing the
Bank Secrecy Act of 1970, which requires banks and other financial institutions to report large domestic transactions of more than $10,000 to the U.S. Trea-sury Department. Failure to do so by a financial in-stitution can lead to prosecution and confiscation of the money. Since 1970 enforcement of the Act in the United States has been progressively tightened. In 1980, for example, the Treasury rules were changed, requiring all banks to file Currency Transaction Re-ports (CTRs) with the U.S. government.
Not until the mid-1980s, however, did the finan-cial institutions begin to take the legal change seri-ously. That happened after several highly publicized cases, most involving drug money, that gave promi-nent banks widespread and unfavorable notoriety.
Remarkably, money laundering was not a crime until 1986, a watershed year in money laundering history, when, as part of the Anti-Drug Act, the U.S.
Congress passed the Money Laundering Control Act of 1986 as an effort to close the loophole that allowed financial institutions to avoid the reporting require-ments.Also in 1986 President Reagan stepped up his offensive against drug trafficking by signing
Na-tional Security Decision Directive Number 221, which made drug enforcement a national security issue and put drug trafficking on the international agenda. Banks, corporations, and individuals who operated in money-laundering haven countries like Panama, Aruba, Hong Kong, and the Turks and Caicos Islands learned that their assets could be sub-ject to freezing and forfeiture. Two years later the so-called Kerry Amendment to the Anti-Drug Abuse Act of 1988 brought all financial institutions, wher-ever located, under the umbrella of the U.S. currency transactions reporting system set up under the 1970 Bank Security Act.
Between 1986 and 1992 a total of 290 accoun-tants, 151 certified public accounaccoun-tants, and 225 at-torneys were charged with laundering drug money.
Most were convicted and the U.S. banking commu-nity realized that under the new money-laundering legislation banking officials were courting trouble if they failed to recognize or allowed transactions that might involve money laundering activity. Conse-quently, banks became more vigilant, training em-ployees to spot suspicious transactions and develop-144 MONEYLAUNDERING
Families of employees from the Bank of Credit and Commerce International in London protest outside Britain’s High Court, 30 July 1991. The BCCI became involved in one of history’s biggest money laundering scandals. (Corbis/Reuters)
MONEYLAUNDERING 145 ing deterrence measures like “Know Your Customer”
programs that provide for identification of individu-als who make use of the bank’s services. By 1992 it was costing U.S. banks as much as $136 million an-nually to complete currency transaction reports for the government. The tougher legislation was costing drug traffickers, too. Experts estimated that by the mid-1980s, the cost of full-service money launder-ing of drug money had risen from 6 percent to a maximum of 26 percent.
The crackdown forced the drug traffickers to change their money-laundering practices and be-come more sophisticated. No longer did the traffick-ers employ the bold practice of hauling sacks of money into banks. Being the innovative entrepre-neurs they are, the drug lords simply changed their modus operandi of doing business. The major drug-trafficking organizations began to turn to money-laundering specialists, money brokers, or indepen-dent contractors, who knew the methods and techniques needed to move large sources of cash, but who were not necessarily involved in drug traffick-ing. Many of these specialists are white-collar pro-fessionals—bankers, lawyers, and accountants—
who often don’t have criminal records and don’t consider themselves part of a criminal drug-traf-ficking syndicate.
The Cali Cartel reportedly uses ambitious money brokers in Colombia who bid competitively for the right to move large amounts of cash from cocaine sales to Colombia. The brokers have to show that they are bonded; that is, that they have enough fi-nancial resources to reimburse the drug traffickers if their cash load is stolen by competitors or seized by the police.
David Andelman describes how a typical con-tract might work:“Each time a million dollars has to be moved from a particular city in the United States, bids are taken. For a lot of $1 million, the money launderers guarantee the cartel’s accountant
$900,000, or whatever bid is fixed. The launderer de-livers the $900,000 to Bogotá, generally in Colom-bian pesos or perhaps in merchandise that is quickly sold for pesos, and later takes possession of the dol-lars in New York or Los Angeles or Miami. It is then up to the launderer to get the full million dollars out of the U.S. His profit is $100,000 minus expenses.”
(Andelman 1994, 94)
By the late 1980s the drug traffickers were using
a variety of different money-laundering schemes, many of which were able to avoid banks. They in-cluded dummy corporations at home and abroad, postal money orders, international transfer of funds, letters of credit for off-shore banks, dollar-exchange houses, and a shadow banking system of cash-laun-dering outlets. Drug traffickers, moreover, now elec-tronically launder much of their money, making use of the Internet.
Keeping track of this movement of money is complicated, given the size and scope of the transac-tions. In 1990 the Clearing House Interbank Pay-ment System, the primary wholesale international electronic funds transfer system, processed about 37 million money transfers valued at $222 trillion be-tween the United States and international banks.
Mexico, more than any country, has been a major conduit for the money-laundering activities of Latin American drug-trafficking syndicates. It’s a natural relationship, given the country’s proximity to the U.S. border, its high level of corruption, and the fact that money laundering is not a crime there. Traffick-ers have used aging airplanes to fly money out of the United States to Mexico, slipped money through tun-nels under the border, employed trucks and cars that bring drugs into the United States and then are used to transport laundered cash from stash houses to Mexico, and exploited the numerous, mostly unreg-ulated Mexican dollar-exchange houses, the casas de cambio, which are located along the border. Accord-ing to the U.S. Treasury Department’s Financial Crime Enforcement Network (FINCEN), as much as
$10 billion, 75 to 90 percent of the Latin American drug traffickers’ annual revenue, passes through Mexico annually.
Nearby Caribbean countries—Aruba, the Ba-hamas, and the Cayman Islands, for example—have long been the target of U.S. scrutiny and investiga-tion. Several islands in other parts of the world, in-cluding the Channel Islands and the Isle of Man off the coast of England, also operate as money-laun-dering havens for drug traffickers. At least fifty countries have tight secrecy on their financial trans-actions, a feature that makes them prime havens for money laundering. As big economic and political changes swept the globe in the 1990s, many other countries, especially those in eastern Europe, have become easy money-laundering targets for drug traffickers.
Although tight bank secrecy has been a problem in combating money laundering, at least one major banking country has changed its policy. In 1994 Switzerland’s legislature passed a law that would allow the country’s banks to report suspected illegal transactions without fear of breaking bank secrecy laws.
To combat drug trafficking, the United States has established bilateral treaties and arrangements with several countries since the 1980s, which has led to the exchange of valuable information on money-laundering investigations. In October 1996 Mexico and Texas signed a unique agreement in which they pledged to combat money laundering together.
Among other measures, the agreement designated Mexican representatives in Texas to serve as official liaisons with Texas authorities. The agreement re-flected the growing concern of Mexico and the United States about the challenges they were going to face in the years ahead, as the remaining trade barriers between the two countries are phased out under the North American Free Trade Agreement (NAFTA).
In October 1995 the United States announced that it would freeze the assets of individuals and companies in the United States that it identified as being associated with the Cali Cartel. Among those identified were four principal figures in the Cali Car-tel, three businesses, and forty-three other individu-als. By April 1997 the number had reached 416 busi-nesses and individuals that the U.S. government said were connected to the Cartel.
For years the United States had suspected the Colombian cartels operating in New York City of sending millions of dollars a year back to Colombia through the store-front shops known as casas de cambio. The U.S. government looked upon the fed-eral requirement that transactions of more than
$10,000 be reported as a hindrance to its efforts to combat money laundering. So in May 1997 the gov-ernment announced that the 25,000 casas de cambio in the United States would have to inform the federal government of any transaction over $750. The United States has also joined with other countries to seize assets and shut down operations of banks sus-pected to be involved with money laundering.
The United States’ lead and its influence have certainly pushed the international community to move forcefully against drug money laundering and
has led to more effective cooperation today among law enforcement agencies internationally than a decade ago. The cost of doing business for the drug cartels, moreover, has gone up substantially. Still, the criminal entrepreneurs have managed to adapt to tougher times, using the new technology and cyber-space to track their drug profits and launder it more efficiently.
See also: Anderson, Robert A.; Bank of Commerce and Credit International; Bank Secrecy Act of 1970 (U.S.);
Basel Convention; Cali Cartel; Carrera Fuentes, Adrian;
Casas De Cambio; Chemical Bank of the United States (New York City); Cocaine; Currency Transaction Reports;
Financial Crime Enforcement Network; Free Trade;
Garfield Bank; Liu Chong Hong Kong Bank (Hong Kong and New York); Maspeth Federal Savings and Loan As-sociation (New York City and Hong Kong); Medellin Car-tel; Mejia Pelaez, Luis Fernando; Michelsen Uribe, Jaime;
Money Laundering Control Act of 1986; Moran, William C.; Nasser David, Julio; Nigerian Organized Crime; Off-shore Centers; Operation Casablanca; Operation C-Chase; Operation College Farm; Operation Dinero; Oper-ation Greenback; OperOper-ation Polar Cap; OperOper-ation Royal Flush; Operation Tradewind; Operation Wipeout; Orga-nization of American States; Outlaws; Palma, Manuel;
People’s Liberty Bank (U.S.); Pizza Connection; United Nations Convention against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988; United Na-tions Prevention and Criminal Justice Division; United Nations Vienna Convention; United States International Narcotics Control Act of 1992; Weinig, Harvey; Yakuza References:
Andelman, David A. 1994.“The Drug Money Maze.” Foreign Affairs (July): 94–108.
Ehrenfeld, Rachel. 1992. Evil Money.
Florez, Carl P., and Bernadette Boyce. 1990.“Laundering Dirty Money.” FBI Law Enforcement Bulletin (April):
22–25.
Powis, Robert E. 1992. The Money Launderers.
President’s Commission on Organized Crime. 1984. The Cash Connection: Organized Crime, Financial Institutions and Money Laundering.
Robinson, Jeffrey. 1990. The Laundrymen.
U.S. General Accounting Office. 1991. Money Laundering:
The U.S. Government Is Responding to the Problem.