Producer Orianna Zill de Granados explains the Black Market Peso Exchange.

The Black Market Peso Exchange is a complex money laundering system discovered by US investigators in the early 1990's. It first came to light when former Minister of Foreign Trade for Colombia, Carlos Ronderos, approached US Department of Treasury investigator Alvin James about the enormous problem of the smuggling of US goods into Colombia.

Ronderos and other Colombian officials began to make the connection between this smuggling and the laundering of drug proceeds. Fanny Kertzman, former Chief of Colombian Customs, also testified before US Congress about the problem and highlighted the involvement of large US corporations in the laundering system.

				THE DRUG LORDS To fully understand this complex system, it is necessary to know a little of the history. Drugs sales in the US produce huge quantities of US dollars in cash. But Colombian drug cartels need pesos in Colombia, not US dollars. They somehow had to physically move the money back to Colombia and exchange the dollars for pesos - called laundering because they also tried to "clean" up the money at the same time. In other words, the Columbian drug cartels try to hide the fact that the money came from drug sales.

				THE DRUG TRADE Drug money laundering was conducted during the 1980's by simply depositing large amounts of cash into US banks and wire-transferring the money to Colombia. As US money-laundering investigators began to crack down on banks, the drug traffickers had to find other ways to move their money. Simply carrying the cash out of the country was impossible because of the sheer weight of the cash - the US dollars actually weigh more than the drugs.

				THE PESO BROKER So the drug cartels turned to peso brokers for help. These informal bankers had been a Colombian institution for many years. The Colombian government has strict currency controls and the only way to get US dollars in Colombia was to buy them from government banks. These government banks also asked lots of questions about what was being bought with the dollars and whether import tariffs would be paid.

				To get around these controls, Colombian businessmen and individuals who needed dollars turned to the peso brokers, who offered US dollars at a slightly better rate than the government and never asked for importation documents. If you got these dollars, in other words, you could smuggle goods into Colombia and avoid heavy import tariff.

				The drug cartels began funneling their large amounts of US dollars in the US to these peso Brokers, who "sold them" to Colombian businessmen. The brokers acted like full-service bankers, sending the dollars directly to US, Panamanian, and Aruban companies to pay for American goods.

				After the goods were sold for pesos on the streets of Colombia by the Colombian businessmen, they could pay the peso broker back for those dollars. He, in turn, would take a heavy cut and place the rest of the pesos into the hands of the drug cartels.

				But the money that was going through this system was drug money. And those American and Colombian businessmen who were using the money are technically participating in money laundering. But, according to US money laundering law, they were only guilty if they knew that the source of the money was drug funds. Lawyers for the Colombian states make the argument in their lawsuit, filed in US Federal Court in New York, that the cigarette manufacturers knew about this system and continued to allow their products to be paid for with drug funds.

				The cigarette companies are not the only large US companies involved. US Government money-laundering investigators set up hundreds of sting operations during the 1990's where they followed drug funds from the streets through the brokers and into the bank accounts of hundreds of legitimate companies and their distributors. US Authorities have seized drug money from the bank accounts of Bell Helicopter, Intel Corporation, Merrill Lynch, Price Waterhouse and from the distributors of Philip Morris, British American Tobacco, General Electric and dozens of other US companies.

				Some of these companies argued in court that they were innocent owners of the drug funds and the government gave the money back. The US Justice Department has taken the tactic that it is better to seize the money, educate companies and try to get their cooperation to fight the black market peso exchange. In some cases, the Justice Department asked companies to sign a "Consent Decree" saying that the company now understood this problem and would never be able to claim innocence if it happened again. "Tobacco Traffic" is the result of a six-month investigation by NOW with Bill Moyers, THE NATION, and the Center for Investigative Reporting.