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Drug Wars: Part Two
Air date: October 10, 2000

Written and Produced by
Lowell Bergman & Kenneth Levis
Doug Hamilton & Oriana Zill

Senior Producer
Sharon Tiller

Series Producer
Martin Smith

Series Reporter
Lowell Bergman

ANNOUNCER: Tonight on FRONTLINE, Drug Wars continues. Crack comes to America.

    ROBERT STUTMAN, DEA Special Agent-in-Charge, '85-'90: It started in Harlem, and then we started seeing it move downtown.

    PAUL, Former Crack Addict and Dealer: Crack. That's America. Colombians didn't know that Americans would take cocaine and make it even more profitable.

ANNOUNCER: And Mexico becomes the major pipeline for drugs.

    WILLIAM ALDEN, DEA Asst. Administrator, '86-'93: The trail led all the way down to government officials being involved.

    ROBERT STUTMAN, DEA Special Agent-in-Charge, '85-'90: Mexico has been bought off.

ANNOUNCER: The stakes are higher than ever.

    JACK LAWN, DEA Administrator, '85-'90: When the system becomes so corrupted, then nothing is safe.

ANNOUNCER: In the end, it all comes down to money.

    GREGG PASSIC, DEA Special Agent, '71-'95: We've got the Fortune 500 involved in the drug money laundering.

ANNOUNCER: Getting it-

    UNIDENTIFIED SPEAKER: Five hundred billion dollar business.

ANNOUNCER: -spending it-

    JACK LAWN: If there's money available, agencies will say, "Well, we're going to form a drug unit." Now there are some 50 agencies involved.

ANNOUNCER: -getting rid of it-

    JUAN MIGUEL PONCE EDMONDSON, Director of Interpol, Mexico: The money goes from place one to place two to place three. And suddenly- disappeared. Off-shore magic.

ANNOUNCER: -and killing for it.

    STAN PIMENTEL, FBI Mexico '91-'96: I wouldn't go to Tijuana unless I had a battalion-size force.

ANNOUNCER: How do we stop an illegal business that's making so many people rich?

    UNIDENTIFIED SPEAKER: Money and power and drugs.

    STEVE, Fmr Drug Trafficker and Money Launderer: Everybody's getting a piece of the action.

ANNOUNCER: Tonight on FRONTLINE, part 2 of a special series in collaboration with National Public Radio. This is the continuing story of the Drug Wars.

CHARLES ANDREWS, DEA Special Agent, '75-'95: The Bahamas was the ideal spot for drug trafficking, for drugs going into the States, with all the remote islands, the waterways, the short distance to Florida. The Bahamas is only an hour-and-a-half flight to the U.S., to Florida, and then maybe by boat just a few hours longer than that, so it made just an ideal location, and it was a piece of cake for some of the drug smugglers.

NARRATOR: In the 1980s, the Bahamas were known as the cocaine islands. Most Colombian cocaine came this way, and most of it got through. In this game of hunt and chase, all of the advantages were with the smugglers.

CHARLES ANDREWS: Law enforcement's always a couple of steps behind the criminal. And that's the biggest problem. It's difficult to be proactive in law enforcement. Most of the time, you're reacting to a certain situation. By the time you react, the traffickers find out how your operation works, then they work around it.

For example, you're out there in open water, trying to chase one of these go-fast boats in a helicopter. By the time the helicopter gets down there, it's almost out of gas. It'll just have enough fuel to get back. Sometimes we talked about if we'd carry a cinder block and just drop it through the hull of the boat, or either find some paint, that we could splash on the side of it as we're hovering over. That way we can recognize the boat as it gets into Florida and we can lock the people up.

But those things were a no-no. So the guys got the upper hand on you. It's like a dog chasing a rabbit. You know, sometimes the dog catches the rabbit, and most of the time the rabbit would get away. Got a good hunting dog, it's the only way. A good hunting dog can only catch a rabbit only a few times. Most of the times the rabbit gets away. So that's about it.

JACK PERCENTIE, Former Crack Addict: The story I always like to tell is about the little old lady who said, "This is flour from the sky." And the story goes that the DEA would chase the airplanes, and then of course, the airplanes would throw the duffel bags of cocaine out of the window and it would land in the yard of these little old ladies.

Also you would find airplanes crash-landed and persons who found the planes with the drugs. Just like the little old lady, they didn't know the value. So people who knew the value would come along and give the persons who had the drugs $500, $1,000, a couple of thousand dollars for a half a million dollars worth of cocaine or marijuana. And then of course, these drugs were distributed locally.

NARRATOR: It was in places like the Bahamas in the early-1980s that a new super-potent form of smokable cocaine first appeared. It became known as crack.

DAVID ALLEN, M.D., Drug Treatment Clinic, Bahamas: The first time I saw crack was in 1983. What struck me was the fantastic high that these young men and women talked about. They described it as having a thousand Christmases. Another description was having a hundred orgasms at one time.

But the other thing was, it produced a powerful ethical fragmentation. People from very good families who had no qualms about stealing, no qualms about selling their body. And when I saw what could happen to few people, my fear was it could just destroy the whole cultural fabric.

And there was one particular cocaine dealer, as well as user, and he was admitted to the hospital because he also had diabetes. He went into diabetic coma. And I remember sitting with him as he died. And his last words to me was - and this is in '85 - he said, "Doc, when the world knows about this drug, there's going to be a lot of hell out there."

ROBERT STUTMAN, DEA Special Agent-in-Charge, '85-'90: I remember the day very well. It was in October of '85, and an agent showed me this little vial. I had no idea what it was. And I said, "What do they do with it?" What do I know? He said, "They smoke it." And I said, "Do we know what it is?" He said, "Yeah." He said, "It's some kind of cocaine." And we literally did not know any more than that.

It started in Harlem, and then we started seeing it move downtown. And you could literally follow it block to block, going from 125th Street all the way down to Alphabet City, which is the other side of New York, the southern tip of Manhattan.

PAUL, Former Crack Addict and Dealer: The way it caught on, it spread like fire, you know, in a dry bush. It just- all over the place. And not only here in New York, but it spread out all over- tri-state, Connecticut, New Jersey. It went everywhere from here. But it hit the Latino and the black community hardest, you know, because it was right there.

WILLIAM ALDEN, DEA Asst. Administrator, '86-'93: What made it so devastating was not only its potency, the insatiable appetite it created for its users, but price. It was the ultimate high that everybody could afford. It was cheap. It wasn't like cocaine hydrochloride had been for years. It was like the elite drug. Crack was $5, $10. But you had to- the problem was, by the time you got through bingeing, you'd spent $500.

And there's never been a drug like that before, that was that intense and that affordable. And it just changed everything.

PAUL: A lot of the cocaine that I cooked into crack became 98 percent pure cocaine. And when it hit your system, it hit your system hard. You know, so people began getting addicted to it, and I got addicted to it myself.

ROBERT STUTMAN: Using cocaine was like dropping Napalm on your brain. Using crack was like dropping an A-bomb on your brain. Smoking a drug is so much more efficient, so you drop so much more. Is it more addicting than cocaine? Yup. Is it faster addicting than cocaine? Yes.

LEE STRINGER, Former Crack Addict: I had a 12-year love affair with it that didn't end well. Before it ended, I lived under Grand Central, lost my apartment, lost my job.

TAMMY: I didn't care. You know, I didn't care about anything, nobody. It was just crack.

NANCY: I lost everything. I, you know, always keep it up front, how I used to leave my kids in the apartment. And to me, it was just that same day, but in reality, it was three days later. I lost my kids, my apartment, my self-esteem and hurt the people that loved me.

ROBERT STUTMAN: What crack did was feminize drug addiction in the United States. Before the advent of crack, women didn't become - statistically - drug addicts. What crack did was make women drug addicts, which meant that a society which was dominantly matriarchal no longer had a natural head of the family because the natural head of the family became a junkie. And that caused unbelievable social changes in the inner city. And what it did to those families was horrible.

LYSETTE VASQUEZ: I would have to say, out of all my brothers and sisters, I'm the only one that's not an addict of any sort, thank God. And I lost most of my brothers and sisters to that drug, and a lot of them were young. I've seen people die in front of me just because you didn't come up with the right amount of money or you tried to give them an imitation or it didn't do nothing for him, it didn't get him high enough- just, like, severe things.

My nieces and nephews got taken away from my sister because she was on crack. My mother felt, at that point, there was nothing she could do, so she just, like, gave up on everybody, and basically to the point that she died.

ROBERT STUTMAN: Most of these people are hard-working, God-fearing, trying to do the right thing, and they got hit by a plague. They got hit by a plague.

NARRATOR: The plague hit hardest in working-class neighborhoods in the inner city of New York. Street corners were transformed into drug supermarkets.

RIC CURTIS, Anthropologist, John Jay College: There were a few neighborhoods where you could go 24 hours a day and find whatever you wanted, in terms of drugs. It was a real zoo. It was like Coney Island carnival barkers out there, guys yelling out the names of their product at the top of their lungs. They would chase you down the street trying to compete to be the first one to get your money, basically. It was a wild situation. It was the Wild West on the East Coast, if you will.

ROBERT STRANG, DEA Special Agent,'80-'89: We realized that we had a widespread problem and that it was well beyond the inner city. We had massive amounts of dealers, massive amounts of users. It was really out of control. It was so blatant and so obvious, and it was almost as if it was legal. I mean, there wasn't any deterrent not to sell drugs in the street.

ALEX: This was my favorite spot, right here. I used to stand right here, and I would sell anything you need. I would sell- whatever you want me to sell you, I'll sell you. And nobody could be here. If I see you standing here selling, you got to move.

ROBERT STRANG: It was totally across the board. Cocaine was really taking over every socioeconomic group. We had implemented a car seizure program that was really a test for us to see who was buying crack. We had over a 100 cars seized the first week, and they were all professionals. They were doctors. They were bankers. They were nurses. These were people who lived in middle and upper-middle-class neighborhoods in Westchester County, Long Island, and New Jersey, who were coming into the city buying crack.

ALEX: They were coming from all kinds of places, guys like you - excuse my words - white boys. I'm sorry to say it like that, no disrespect. But you know, they used to come from Staten Island, New Jersey, Connecticut, everywhere.

ROBERT STUTMAN: The biggest problem we had with crack was we could not find any organization running it. And that really became the huge issue that went forward for DEA. I mean, the question was, "Who controls this stuff?" And we couldn't find anybody.

PAUL: They don't cook crack in South America and send it here, even though it would be to their profit.

ROBERT STUTMAN: I never saw Colombians sell crack. Never even heard of a Colombian selling crack.

PAUL: Crack. That's America. That's the United States. They didn't know. [laughs] Colombians didn't know that Americans would take something that was profitable to them and make it even more profitable to us here.

    DEALER: [counting cash] Money, money, money! A hundred and fifty thousand dollars cash!

ROBERT STUTMAN: Crack brought on a new kind of organization. The street guys were starting to control their own little organizations. Traditionally, when you have a problem in a neighborhood, you go after the organization that controls that neighborhood. And you take off the top three or four people, and you clean up the neighborhood. There were no top three or four people.

The organization was a 20-year-old guy and three 10-year-old kids. And of course, the question always used to be, "Fine. If I make a case on Joe Smith, who does that lead us to? Where does it go? How is he tied to Colombia? How is he tied to Mexico?" And the answer to all those questions was, in honesty, in the beginning, was he isn't. And the answer back was, "Forget about it."

JACK LAWN, DEA Administrator, '85-'90: In the bureaucracy, it was not perceived to be of immediate concern.

NARRATOR: Jack Lawn was head of the Drug Enforcement Administration for five years, from 1985 to 1990.

JACK LAWN: With crack, we were not looking at conspiracies. We weren't looking at major components, organized crime figures.

WILLIAM ALDEN, DEA Asst. Administrator, '86-'93: It was a major shift for an organization like DEA to attack a problem like crack because of its low- level nature oftentimes.

NARRATOR: Bill Alden was an assistant administrator at the DEA from 1983 to 1990.

WILLIAM ALDEN: We were charged at DEA with attacking the larger global organizations, and there were a lot within the infrastructure who felt like crack was a local problem.

JACK LAWN: I mean, the simple solution was "These are Mom-and-Pop operations. The local police should handle them."

NARRATOR: The DEA had other problems. By the mid-80's, Mexico was becoming the major transshipment route for the Colombian cartels. Working with Mexican gangs, they took advantage of the 2,000-mile border, much of it remote and poorly patrolled.

JUAN DAVID OCHOA, Medellin Cartel: [through translator] That border is so big that it's uncontrollable. And there was too much enforcement in Florida, and it got too difficult to do business through Florida. And it became easier out of Mexico because there was less control there.

NARRATOR: Juan David Ochoa was one of the founders of the Medellin drug cartel in Colombia

JUAN DAVID OCHOA: [through translator] The cocaine would go from here to Mexico. From Mexico they managed to import it into the United States.

NARRATOR: These new routes would represent a major challenge to Mexican law enforcement as local smugglers got involved in the cocaine business.

GUILLERMO GONZALEZ CALDERONI, Fmr Commander, Mexican Federal Police: [through translator] In 1984, we seized 300 kilos of cocaine, and that set a record in Mexico. Never before had such a large shipment been seized.

NARRATOR: For nearly a decade, Guillermo Gonzalez Calderoni was one of the highest-ranking commanders in the Mexican Federal Police, and became its top narcotics officer. The press called him "the Elliot Ness of Mexico."

GUILLERMO GONZALEZ CALDERONI: [through translator] I discovered that the Colombian traffickers were using Mexican dealers - Marijuana traffickers - to move cocaine. From that moment on, the power of corruption definitely increased.

NARRATOR: The DEA had long been concerned about corruption in the Mexican police, but one event would begin to reveal the full magnitude of it. In February, 1985, highly-respected DEA agent Enrique "Kiki" Camarena was snatched off the streets of Guadalajara by uniformed men.

    JACK LAWN, DEA Administrator, '85-'90: [news conference] There has been considerable interest over the past 12 hours about activities in Mexico. Last night or early this morning-

I remember vividly I received a call from headquarters that Camarena had been kidnapped. We determined that the individuals who at least took Camarena off the street were law enforcement personnel. That was particularly galling to me and to law enforcement throughout the nation because when the system becomes so corrupted that the law enforcement community in the host country upon which you depend are part of the problem, then nothing is safe.

NARRATOR: Corruption had become embedded in Mexican political life. For over 60 years, the country had been ruled by a single political party that was known for tolerating - and benefiting from - bribes, payoffs and other forms of corruption. The arrival of Colombian cocaine made matters worse.

In Mexico, smuggling has its own romantic traditions. The city of Culiacan in the state of Sinaloa is the hometown of most of Mexico's drug lords. Souvenir shops sell items with emblems that commemorate the outlaw culture- marijuana-leaf belts, machine-gun buckles, embroideries of airplanes like those used for smuggling. Surrounding the city are memorials to the drug lords. The cemeteries of Sinaloa are dominated by huge mausoleums, among them the remains of wealthy traffickers.

GUILLERMO GONZALEZ CALDERONI: [through translator] In Sinaloa, you have to train your officers not to say, "Hands up!" when they make an arrest. You can't expect everyone to obey when you say "Hands up" because in that area, when you say "Hands up," people shoot you.

NARRATOR: The cowboys of Culiacan have canonized their own popular saint, the legendary bandito, Jesus Malverde. He is the patron saint of smuggling, and traffickers come to his shrine in downtown Culiacan and cover the walls with plaques in gratitude for successful shipments across the border.

GUILLERMO GONZALEZ CALDERONI: [through translator] It's the culture. They were born there. They were made there. And that is where they are being made every day. During World War II, they grew poppies in that area, poppies that were grown for the United States Army. They were taught to grow poppies so the U.S. Army could use the morphine from the poppies in the war.

NARRATOR: In the 1980s, the godfather of Culiacan was Felix Gallardo- in Spanish, "El Padrino."

ED HEATH, DEA Country Attache, Mexico, '83-'89: Felix Gallardo was the most important trafficker that Mexico has probably produced.

NARRATOR: Ed Heath was the DEA's agent in charge in Mexico for more than 10 years. Gallardo was his primary target.

ED HEATH: He was very astute, smarter than most narcotic traffickers and not a person that wanted fame or attention. He was very quiet. And because of his character and his "leadership qualities" - quote, unquote - he became really the number-one guy.

He was an organizer. He was able to bridge the law enforcement community with the trafficking organizations and use it to his own good. For example, he had the connection with the governor of the state of Sinaloa. He was head of his bodyguard group. And because of that, it brought him into acquaintances that later on proved very profitable for him. He was able to go to Mexico City on several occasions and met other people of importance.

NARRATOR: It was Felix Gallardo and his associates who were believed responsible for the disappearance of Camarena. But the DEA was getting no cooperation from the Mexican police.

JACK LAWN: When we asked for help, no help was readily available. It was as though that was a law enforcement holiday day, when there was- there were just no law enforcement personnel around.

NARRATOR: Then U.S. law enforcement took matters into their own hands. Without consulting the State Department, the head of U.S. Customs effectively closed the border, an action designed to pressure the Mexican government into cooperating with the investigation. Traffic was backed up on the Mexican side.

JACK LAWN: He ordered that there be thorough investigations at all the border crossings. It backed up traffic for miles and miles. But the State Department was unhappy and was very concerned that I was going to damage the relationship with Mexico and wanted us to get back to business as usual. And my saying we will not rest until we know everyone involved in the Camarena investigation was not something that the State Department wanted to hear.

NARRATOR: A week after the border closing, the Mexican police announced they had found Camarena's body together with the body of his pilot.

JACK LAWN: He was found by a Mexican peasant in a gully. The body had not been eaten by insects. We knew it was buried. We then asked for the clothing that Kiki had on. That was all destroyed. The destruction of evidence was everywhere.

WILLIAM ALDEN, DEA Asst. Administrator, '86-'93: Then we realized not only were they involved in the kidnapping, the torture, the murder, disposing of the body, they were actually the drug traffickers. In the past it was "We'll make a few bucks off of drug traffickers by protecting them." Now it was "We are the drug traffickers."

JACK LAWN: As the investigation continued, it became more clear to us that the government of Mexico indeed was covering up the killing of Kiki Camarena.

WILLIAM ALDEN: [Not only was it the local state police and the Federal Judicial Police, but the trail lead all the way down to Mexico City, to government officials being involved.

JACK LAWN: Governors, ministers, corruption in the office of the attorney general of Mexico- very, very high up.

NARRATOR: And, the higher up it went, the more nervous U.S. State Department officials were about how much they wanted to push the issue.

JACK LAWN: When it comes to crisis time, you have to say "Where are our priorities, having a nice relationship with the government of Mexico, or having the government of Mexico help us conduct an appropriate investigation on the death of an American citizen?"

On issues like that the, the law enforcement priority is not a national priority. It is substantially lower. But Camarena was there because he worked for me, and I at least owed it to Kiki and to the other agents around the world that they had to know that if they were put in harm's way as their daily job evolved, that this agency would do something about it.

NARRATOR: In the wake of the Camarena affair, none of the Mexican government officials suspected of involvement by U.S. law enforcement were ever brought to justice. And only after pressure from the DEA and widespread media attention did the Mexican government arrest some traffickers believed to be involved in Camarena's death. Felix Gallardo, the godfather, considered by many to be ultimately responsible for the murder, remained free.

GUILLERMO GONZALEZ CALDERONI, Fmr Commander, Mexican Federal Police: [through translator] You should understand that I am Mexican. I love the police very much. I don't justify them, but I understand them.

NARRATOR: For the first time on television, a commander of the federal police speaks publicly about how the Mexican system works.

GUILLERMO GONZALEZ CALDERONI: [through translator] Even though a police commander is part of the government, in Mexico that doesn't mean that the government is backing him up because they get killed and nothing happens. That is a message- "Money or bullets? You either accept the money, or we'll kill you. Which do you choose?"

But let me tell you that the largest percentage that you can imagine - say, 90 percent of the police - have to use that money to survive. If they don't have this money, they can't live. They don't make enough.

HECTOR BERRELLEZ, DEA Special Agent,'73-'96: A Mexican Federal Judicial Police, when I was on the job, was only making $300 a month- in pesos, of course. And that was not a living wage. So it was expected of these federal agents to supplement their salaries with bribes.

NARRATOR: Calderoni himself was no stranger to bribery, according to U.S. and Mexican law enforcement officials. They say he knows the system because he was part of the system.

GUILLERMO GONZALEZ CALDERONI: [through translator] You have to do what everyone else does in order to survive, so it's a common practice for police commanders to utilize their position to get money. But they don't take money only for themselves. Quite often they must pay their superiors to get appointed. They also pay to get a job in a certain geographical territory.

For a border region, people will pay a lot of money. The border is the funnel. Tons and tons of drugs will have to go through, and the traffickers will want to pay to make sure that they go through. So for a border appointment you could get charged $1 million. And then you would have to pay $200,000 or $300,000 per month to your bosses in Mexico City in order to remain in that position.

So what did the police officer need to do in those border areas after he bought the position? He would definitely have to work in drug trafficking in order to make back the money he paid to get there and also to cover the monthly expenses. I know for the American audience it's very difficult to believe that it works like this, but in Mexico this is how things work.

NARRATOR: In New York, the crack epidemic had gone from bad to worse.

ROBERT STUTMAN, DEA Special Agent-in-Charge, '85-'90: It was like cowboys and Indians out there. Street violence had grown. Child abuse had grown hugely, spousal abuse. I had a special crack violence file at that time that I kept to convince the geniuses in Washington who kept telling me it wasn't a problem. We had a crack violence file made up of just clips. It got that thick- I mean horror stories that you couldn't believe.

NARRATOR: In June of 1986, Bob Stutman was finally able to convince DEA chief Jack Lawn to come to New York to discuss the crisis.

JACK LAWN: Bob called and said, "Boss, this is a real problem," and that's when we decided to go to New York to have Bob make this presentation.

ROBERT STUTMAN: And we spent the entire day talking about crack and what it was doing to New York. And we had senior New York City police department, who we had great relationship with us, but they were upset because we weren't working with them. And so we spent the day. and Jack Lawn walked away and said, "You're right."

WILLIAM ALDEN: Coincidentally, it was the same day that Len Bias's overdose death occurred in Washington.

NARRATOR: As the meeting broke up, they heard the news. The brilliant college basketball star, Len Bias, had died of a cocaine overdose the night before, just two days after signing with the Boston Celtics.

WILLIAM ALDEN: We walked out of a meeting that we spent six or seven hours in, talking about a drug that frightened us because of what its potential was. And to find out that somebody with as much talent as a Len Bias, with as great a future, had died of an overdose of cocaine, it really impacted all of us.

ROBERT STUTMAN: It's a shame that the death of a basketball star had to change the nation's perception about a drug, but that's exactly what happened.

ERIC STERLING, House Judiciary Cmte Counsel, '79-'89: I worked for the House Crime Subcommittee in the spring of 1986, and in June Len Bias dies. Suddenly, voltage goes through the Congress. The lights go on. "Drugs! Drugs!" You're over, you know, every little theater of operations that can have a hearing- Energy and Commerce, Merchant Marine and Fisheries, Interior and Insular Affairs, Armed Services, Ways and Means. You know, everybody! It's, like, "Drugs!" You know, the curtain goes up, and hearings are held on what every congressional committee can do about drugs.

NARRATOR: In record time, Congress rewrote virtually all the nation's drug laws, a get-tough crackdown unparalleled in drug war history. Measures included, from the Crime subcommittee, the death penalty for major traffickers, life in prison for some repeat offenders, more severe federal penalties for simple possession.

From the Armed Services Committee, for the first time, direct involvement of the U.S. military in interdiction. From the Committee on Merchant Marine and Fisheries, stiff penalties for drugs found on any American boat.

From the Judiciary Committee, federal penalties for money laundering and a new asset forfeiture law that allowed federal police agencies to keep the property they seized. From the Agriculture Committee, the arming of forest rangers.

JACK LAWN: There were some 50 agencies involved not because they have a desire necessarily to do something about drug abuse in the country. Their interest in the issue is fostered by a budget. If there's money available, organizations that may not be able to get sufficient funding for their own operations will say, "Well, we're going to form a drug unit."

For example, someone showed me this training tape. It was a terrific tape of people dressed in camouflage gear, heavily armed, camouflage paint, repelling out of helicopters. And I said, "That really isn't the image that we want. We don't want to get into a military mode." And they said, "Oh, that has nothing to do with us. That's the Bureau of Land Management SWAT team."

NARRATOR: The drug war became a national obsession.

    PETER JENNINGS, ABC News: There's an epidemic of the cocaine called crack-

    TOM BROKAW, NBC News: It is epidemic, and it can kill-

    DAN RATHER, CBS News: The crack problem has become a crack crisis, and it's spreading nationwide.

    1st REPORTER: This is Clemence Avenue in Charleston, South Carolina-

    2nd REPORTER: Here in Bakersfield, city parks like this one have become favorite hangouts for drug dealers and users-

    3rd REPORTER: It's around Philadelphia's 8th and Butler harbor, a flourishing drug trade-

NARRATOR: A huge increase in stories about drugs - and the drug warriors - began to change people's attitudes.

WILLIAM ALDEN: Being a narc in the '60s was very, very unpopular. Being a narc in the '80s was extremely popular. I would make presentations across the United States routinely, and it was in, I think, for the first time in 1986, people asked for my autograph.

ROBERT STUTMAN: My nickname in DEA, as you probably know was "Video Bob." Getting public support for what I looked upon as a very serious social change was important. Spending time in front of the cameras was an important part of my job. Probably the most famous picture that I was ever involved in was 27 brokers hand-cuffed together in a line being walked from Wall Street to the southern district courthouse.

And then eventually CBS News did a national TV story on crack. 48 hours on Crack Street was a long story, two hours, with Dan Rather, the national anchor. And it did two things. It awakened the rest of the United States as to the dangers of this drug, but more importantly, it awakened the politicians in Washington.

NARRATOR: With the midterm elections approaching and public opinion polls listing drugs as the number-one concern of voters, the politicians in Washington were working overtime.

ERIC STERLING: Every week, new pieces of anti-drug legislation were being reported out of one committee or another. Press conferences were being held, hearings were being held. Members of Congress were jockeying for position in front of the TV camera about what they were doing about the drug crisis.

    Sen. BOB DOLE (R-KS): We're not going to cut back any. I assume if anything, there'll be more money next year.

    Rep. PETER RODINO (R-NJ): This bill is important, it's essential.

    Rep. CHARLES RANGLE (D-NY): We have broken new ground, and for the first time, we have a national strategy.

    Rep. THOMAS P. O'NEILL (D-MA), House Speaker: A person who sells drugs to children, there should be no mercy on him.

    Sen. CONNIE HAWKINS: I'm glad that the forest rangers will be armed, and uh, that was important to me.

NARRATOR: Among the sweeping changes proposed was a new law mandating minimum sentences for federal drug convictions, eliminating a judge's discretion in pronouncing sentence.

ERIC STERLING: Members in our subcommittee, the Crime Subcommittee, said, "Look, we want mandatory minimums. We want higher-level penalties." And at the- sort of the end of, like, really, this three or four-week little period, suddenly this was on- literally on the table, without a hearing, without any, really, preparation.

MICHAEL GELACEK, U.S. Sentencing Commission, '90-'98: There was not a lot of study. There was a call for action in Congress. There was talk about- you know, the way the normal legislative process runs, they do full-scale hearings, and they bring experts in and they do an awful lot of investigation. Well, that didn't happen with crack cocaine, in particular.

ERIC STERLING: We didn't have any testimony from DEA. We didn't have any testimony from any police. The way it happened was, "Eric, go make some phone calls, find out." It was- it was left to me! Now, I was not a narc. I was not a prosecutor. And so I talked to somebody at DEA, and they gave me some ideas.

DEA defined high-level traffickers in terms of hundreds of thousands of doses. And members of Congress looked at those numbers, and kind of gagged. You know, "That's too much." You know, "We need much lower numbers."

For example, I remember Congressman Mazzoli from Louisville, Kentucky, saying, "But we don't have that kind of traffic in Louisville. I can't vote for this bill if it's not going to have some real effect in Louisville. We need much smaller quantities."

And that's how the numbers got developed, on a very- on sort of the- you know, the blind leading the blind. I was one of those who was blind. [www.pbs.org: Study a drug war chronology]

NARRATOR: The mammoth omnibus drug bill passed both houses of Congress with overwhelming majority. Federal sentences for marijuana, heroin and cocaine were unprecedented in their severity. Federal parole in most drug cases was eliminated. What began as alarm over the crack epidemic had mushroomed into a program requiring the incarceration tens of thousands.

JACK LAWN: The reaction on the Hill was mandatory minimums. So then the issue becomes, "Well, now we need more prisons."

NARRATOR: Prison-building became the biggest public works business in America with both federal and state legislatures approving a huge increase in funds for construction projects. And across the country, hundreds of new prisons were built. Over the next decade, the budget for prisons increased by more than 160 percent. The prison population more than doubled from 540,000 to 1,200,000. The number of prison guards also doubled.

But this was only the beginning of what became a bonanza for drug enforcement enterprises. The new asset forfeiture law allowed both local and federal drug enforcement agencies to recycle seized assets into their own operations. This created a competition between agencies for seizures. In 1989, the DEA seized more from the drug business than they received from Congress.

GREGG PASSIC, DEA Special Agent, '71-'95: In the mid-'80s, when asset forfeiture really took off, then it became competitive. Then you had law enforcement groups that were basically focusing on the asset more than the trafficker or the dope because the asset was something they could roll back into their efforts. It was almost like a system of taxation. Here was a multi-billion dollar industry that was thriving, and we were able to tax it by taking assets away from it.

JOHN MARCELLO, DEA Special Agent, '73-'98: The bureaucrats got used to having the money. And if my seizures dropped, I'd be getting phone calls, and they'd be asking me, "Well, what's wrong? What's happened?" And the implication was clear that the money was becoming more important than arresting Pablo Escobar.

NARRATOR: Intelligence-gathering became another source of competition and redundancy.

JACK LAWN: There was a proliferation of intelligence centers- the El Paso intelligence center in El Paso, Texas, the CIA has a drug intelligence center. Then there was another drug intelligence center that Congressman Murtha wanted in his home district. It's just the proliferation of intelligence centers because money was available to build them.

NARRATOR: This burgeoning bureaucracy presented a fundamental problem for Jack Lawn.

JACK LAWN: The problem was we were getting a lot of help but not any cooperation. If we're involved in drug law enforcement, at least let those persons who have background in drug law enforcement coordinate the activities. It was the lack of coordination that was the problem, and yet it's a very tough sell. If you say you are asking for help, so 50 agencies volunteer to help, now what's your complaint? My complaint was there was no accountability. With the proliferation of agencies, we lost accountability.

Sen. JOSEPH BIDEN (D-DE): You had all these federal agencies, all of whom had some jurisdiction over the drug problem, and nobody was responsible. There was the DEA and the INS and the FBI and the Customs and the Coast Guard. You had cases where the Customs Service would not give the Coast Guard information it had that dealt with potential collars of arresting drug traffickers because they didn't want the Coast Guard to get credit.

ROBERT STUTMAN: I spent more time negotiating with U.S. Customs then I did in dealing with dope peddlers or the press. We would initial agreements about who was going to enforce what rule where that were as thick as the Versailles treaty. It was almost a joke. And that was because of turf issues. That's when Customs decided they could follow the case into the United States, and DEA decided they could follow it out of the United States. And there were cases between DEA and Customs where agents would draw guns down on each other knowing full well they were agents, not by mistake.

Sen. JOSEPH BIDEN: There was all this internecine warfare, and so we came up with a bill saying they should be consolidated into one person having the policy direction, the person being able to set national policy, so that you could go and say, "Now wait a minute. Your- Mr. President, your drug strategy isn't working. Who do I talk to?" And it's this guy. They called him the "drug czar."

NARRATOR: In the winter of 1989, former education secretary Bill Bennett was appointed drug czar by President Bush. But as he and his staff of experts prepared their national drug control strategy, they were confronted by an unexpected dilemma. Newly released statistics showed that while hard-core drug use was still high, casual drug use had dropped by over 40 percent between 1985 and 1988.

DAVID TELL, Drug Czar Staff '89-'91: We were surprised and a little distressed because we've got this big report that everybody's expecting and here's data that seems to indicate the problem's barely more than half the size we thought it was. So there was a moment's wondering whether this was real or just hysteria, I think.

On the other hand, it was quite apparent even from that very same survey that the problem that was driving public concern - real, hard-core cocaine addiction - was exploding.

NARRATOR: The unexpected data was significant because if the problem was the growing population of hard-core users, it would seem to call for an emphasis on treatment. Bennett's proposal emphasized law enforcement and education programs to reduce casual use, a problem that was already going away on its own, a fact Senator Joe Biden was quick to point out.

    Sen. JOSEPH BIDEN: [Senate Judiciary Committee hearing] Now, one of you gentlemen, maybe even the director said, and pointed out accurately, that monthly use of illicit drugs was down in one category. And if you look at the chart on the left- this is just the same one I think you used, Director.

    WILLIAM BENNETT: This is idiotic [inaudible] That doesn't make any sense at all.

    Sen. JOSEPH BIDEN: OK, well, Let's talk about those idiotic-

    WILLIAM BENNETT: You bet. Let's talk about it.

    Sen. JOSEPH BIDEN: - dotted lines-

    WILLIAM BENNETT: Because by the logic of that, we don't have to do anything other than what we've been doing.

    Sen. JOSEPH BIDEN: Well, that's what I'm-

    WILLIAM BENNETT: And in five years, there's no drug problem whatsoever. Now whoever did this really did you a disservice.

    Sen. JOSEPH BIDEN: Will you all calm down until I ask the question?

    WILLIAM BENNETT: No because this is the- this is the cameras.

    Sen. JOSEPH BIDEN: Will you let me-

    WILLIAM BENNETT: You get it up there, make the case - "Look how unbelievably stupid our strategy is because it has overly modest goals."

    Sen. JOSEPH BIDEN: Well-

    WILLIAM BENNETT: It's not fair.

    Sen. JOSEPH BIDEN: Why don't you let it get out of your system and let me ask my question, OK? All right. Is there any reason to believe-

And we had a real row when I pointed out to him that reduction in casual use started before his first drug strategy was even implemented. Our debate was, "How do we deal with the hard-core use problem?" And I believe the only thing that will change it is a major emphasis upon treatment. So the big fight was about allocation of resources toward treatment regimes, rather than a disproportionate allocation toward enforcement and interdiction.

NARRATOR: Bennett, who declined to be interviewed for this program, did, in fact, support treatment- within limits.

    WILLIAM BENNETT: We have to provide treatment for pregnant addicts. But we need to know what works and what doesn't work. And we need to do a better job of holding treatment programs that take money from the federal and state government accountable for results.

NARRATOR: Under Bennett's tenure, federal expenditures for both treatment and law enforcement significantly increased, but treatment remained less than a third of the budget. Using his office as a bully pulpit, Bennett made his priorities clear.

    WILLIAM BENNETT: [speech] Swift and certain punishment for everybody involved in a serious way in this business is the first priority.

    [congressional hearing] I have a lot of high hopes for the involvement of the military here in the interdiction effort, in intelligence, in detection.

    [press conference] We now have an army, really a small, medium-sized army, of federal investigators and prosecutors going after the cartels.

NARRATOR: Bennett's use of the bully pulpit went beyond rallying support for stricter law enforcement. He emphasized the need for individual users to accept moral responsibility for their behavior.

    WILLIAM BENNETT: [speech] The fundamental mistake we made in the '70s is we said "The user is not a problem. The user's the victim. We just have to get the dealer and the kingpin. Forget about the user." The user then felt morally off the hook- not culpable, not responsible. "It's the big boys in South America and the middle-sized boys in the big cities, but not me." The casual user, the weekend user, the so-called recreational user- that person needs to be confronted and face consequences, too. We need to put laws in place-

NARRATOR: Bennett hoped to continue the decline in casual use by making drug use socially unacceptable.

    WILLIAM BENNETT: [speech] User accountability laws must establish that involvement in the illegal drug trade has clear consequences.

NARRATOR: They called the approach "denormalization."

HERBERT KLEBER, M.D., Bennett's Deputy Director: If the downturn in casual use was going to persist, we had to de-normalize drug abuse. A lot of the middle and upper middle class used cocaine. They used it at parties. They used it at work. They thought nothing of it. It had become normalized. And what we did is to try and undo that.

WILLIAM BENNETT: [speech] We need to restore the moral authority of the institutions such as the family, the church and the school.

Dr. HERBERT KLEBER: On the other hand, by emphasizing the problems of drug abuse, you risk demonizing the people doing it. The more you "denormalize," then the less the addict is seen as one of us, as opposed to a societal outcast. And that's always a problem.

NARRATOR: The stigmatizing of drug users not only made it more difficult to gain support for treatment programs, but some believe it also contributed to a lasting misunderstanding of the nature of drug addiction.

LEE STRINGER, Former Crack Addict: People don't become addicts because they get up one day and say, "Well, it's Tuesday. I think I'll go out and destroy my life." Drugs deliver something at first, but here's how it works. Here's normal life, which you're not happy with. So you take a drug, and you're up here. It delivers, and then you're back to normal life. But since you've been here, it feels like this. So now you take another little more to get you back to the same spot. And that curve becomes lower and lower until you find yourself putting all that energy just to feel all right.

ALAN LESCHNER, M.D., Dir, National Institute on Drug Abuse: Drug use is a voluntary behavior. You do make the initial choice to use the drug. The problem is that, over time, the drug use changes your brain in fundamental and long-lasting ways, and you become, in effect, in another brain state. And you have to understand the person you're dealing with isn't the same person who started using drugs voluntarily. They can't exert the same level of control.

If you see it only as a failure of will, as a moral weakness, then your corrective approaches are going to be that simplistic, and they're not going to work. [www.pbs.org: Read experts on addiction]

NARRATOR: But the fact is, for the majority of addicts who enter treatment, its hard to stick with it.

    ADDICT: Temptation. I mean, it's got me by the upper hand.

    COUNSELOR: Let's talk about temptation.

NARRATOR: The government estimates that more than two million people enroll in drug addiction programs each year. And while studies done by the National Institute on Drug Abuse have shown that treatment is successful for 50 to 70 percent who complete a program, most addicts do not succeed on their first attempt. Eighty percent of people who start outpatient treatment for cocaine addiction drop out.

BENY PRIMM, M.D., Treatment Specialist: The reason people think that treatment does not work is because we don't see it working the first time somebody goes into treatment. People may have to, with this problem, have multiple episodes of engagement in the rehabilitative process.

There's a whole lot of self-medication of emotional problems, in individuals that are poor, by street drugs very similar to the more affluent of human society. If they're stressed, they find solace in a prescribed drug.

NARRATOR: While heroin addicts can be treated with methadone, there are still no medications for cocaine or methamphetamine. Instead, addicts are counseled on how to change their behavior and must complete the process in order to succeed. One way to insure that addicts complete a program is to treat them while incarcerated.

California prisons now house almost 160,000 inmates. Nearly 30 percent of them are in on drug-related charges. Don Novey, president of the California prison guards union, has worked in the system for 30 years.

DON NOVEY, Pres., CA Correctional Officers Assn: Drug rehabilitation does work. I mean, I've seen it work in the prisons. And we've had a very high success rate with the inmates involved, a success rate well over 50 percent. And that means that one of two inmates that go into that successfully go back to the streets and become a law-abiding citizen.

NARRATOR: But treatment programs are available to less than 11 percent of prisoners in the United States.

DON NOVEY: Simply put, the reason we don't have full funding for treatment is the politicians cannot be soft on crime. And it's so difficult for a politician to say, "I'm going to step in, and we're going to spend so many hundreds of million dollars and try to rehabilitate these people that are addicted to drugs." That would be the way to go. The legislature, because of their tough-on-crime policy, will not do that.

NARRATOR: The tough-on-drugs policy is a legacy of the crack epidemic. The rapid devastation to whole segments of American society compelled policy makers to take action. So while the get-tough crackdown did not originate with drug czar Bennett, his charismatic leadership contributed to a lasting acceptance of the policy.

    WILLIAM BENNETT: [speech] Possession of all illegal drugs, even small amounts, so-called personal use amounts, should be punished.

NARRATOR: Bennett's views would dominate drug policy for years to come. For the next decade, arrests and convictions for drug offenses would continue to rise.

ROBERT STUTMAN: Bill was very focused on the law enforcement side. Now, that was great if you were in law enforcement. He was clearly a friend of law enforcement. He came and spoke at DEA conferences, et cetera.

The other thing that Bill did was he articulated the problem publicly and really did set the tone. He did a superb job of using the job as the bully pulpit. But that job really doesn't direct anybody. The drug czar, in those days - maybe it is different now - he couldn't tell his secretary to bring him a cup of coffee. Maybe that's the only person he could direct. He had no line authority. He had no budgetary authority.

NARRATOR: Despite the original intention of the drug czar law, the ever-expanding drug war bureaucracy severely limited the real power of the office.

JACK LAWN: The drug czar didn't have cabinet-level authority. He couldn't come to me and say, "We don't like this enforcement effort. We're going to take money from you" because I didn't answer to him in terms of my budget. I answered to the attorney general of the United States.

    Pres. GEORGE BUSH: I'm announcing today that Bill Bennett, America's first director of the Office of National Drug Policy, has offered his resignation.

NARRATOR: Just 18 months after taking office, Bill Bennett stepped down as drug czar. In the years to come, law enforcement would continue to receive a full third of the drug war budget.

Much of the drug war budget was directed at stopping the flow of drugs in Mexico. Just outside of Riverside, California, is the Air Interdiction Coordination Center, part of a multi-billion dollar network meant to detect drug shipments bound for the U.S. From this station, U.S. Customs can track planes leaving Colombia. In November of 1991, the radar was monitoring a suspicious aircraft approaching Veracruz, Mexico.

JOHN HENSLEY, U.S. Customs Chief of Enforcement, '70-'00: A large airplane tripped the radars, and we began tracking it up towards Mexico. So we alerted the U.S.-Mexico coordinated response team. Mexican Federal Police aircraft took off along, with a U.S. Customs Citation jet. So there were two planes in the air, one loaded with Mexican Federal Police and the other with U.S. Customs pilots, who maintained FLIR aircraft. And FLIR is the Forward-Looking Infrared Radar, which can track heat sources, even in the nighttime.

NARRATOR: Known as a FLIR tape, this recording, broadcast now for the first time, shows what happened when Mexican Federal police tried to stop a load of cocaine from Colombia. This video shows the drug plane coming to a stop in a field. The Mexican Federal police plane landed soon after. The moving black figures are the Mexican police charging out of their plane.

ED HEATH, DEA Country Attache, Mexico, '83-'89: There was cries of gunfire from the ground people over the radio.

    DEA AGENT: Oh shit. There's been a shooting.

ED HEATH: The Mexico agents were under fire.

    DEA AGENT: People are running away from the aircraft.

ED HEATH: And then one by one, the Mexican drug agents were killed.

NARRATOR: The figures seen running away from the drug plane are the same Mexican police, now fleeing for their lives. As they stop moving, they have been killed. But it turned out that the killers were not the traffickers but the Mexican Army.

JOHN HENSLEY: There were army vehicles in the perimeter area around where this attack took place. We found out later army troops had been paid to protect that airstrip and that load coming into Mexico.

    DEA AGENT: We're going to come down a little bit lower and see if we can see how many bodies are on the ground.

JOHN HENSLEY: Of all the shocks I've had in my career, that was probably the biggest, that an entire military unit would be involved in protecting drug loads, and to the point that they would actually attack and murder Mexican federal drug police.

GUILLERMO GONZALEZ CALDERONI, Fmr Commander, Mexican Federal Police: [through translator] The army killed off all our Federales, a good team that was perfectly well trained to do this job. We trained them during many years, and they shot them all at close range.

NARRATOR: The massacre of the federal police by the army was an embarrassment for the president of Mexico, Carlos Salinas, who was about to meet with President Bush in Washington. He ordered an investigation. Within weeks a Mexican general was jailed. Months later he was quietly released.

When Carlos Salinas took over as president in 1988, it was supposed to be different. Elected with his economy in crisis, Salinas needed U.S. help. But first he had to prove to the U.S. Congress that Mexico was cooperating in the drug war, a process called "certification."

At a meeting in 1988, President-elect George Bush told Salinas that if he cracked down on the drug lords, certification would be assured. First on the list was Felix Gallardo. The deputy attorney general of Mexico called Gonzalez Calderoni to a meeting at their headquarters in Mexico City.

GUILLERMO GONZALEZ CALDERONI: [through translator] They asked if I could go catch Felix Gallardo. And I asked, "Do you really want to catch him, or do you want to pretend like you're catching him?" So they explained, "No, President Salinas is very interested in having us catch Felix Gallardo." Why? Why now? Why not three years ago?

NARRATOR: The deputy attorney general, Cuello Trejo, told Calderoni that certification was at stake.

ED HEATH: I was at that meeting, and I remember Cuello Trejo mentioning that it was a commitment by then President Salinas de Gortari to President Bush. And Calderoni was told to get Felix Gallardo.

GUILLERMO GONZALEZ CALDERONI: [through translator] If certification occurred, then part of the debt would be forgiven. Mexico wants to have some leverage. With the capture of Felix Gallardo, Mexico will have leverage. I felt a very heavy load on my back, as if Mexico's future depended on me.

NARRATOR: To capture Felix Gallardo, Calderoni installed a wide net of wiretaps and learned of the godfather's fondness for seafood. By tracking a shipment of shrimp, he located his hideout in Guadalajara.

GUILLERMO GONZALEZ CALDERONI: [through translator] We rented an apartment across the street from his house, and one day they brought in an icebox with shrimp. And when his guards came out - I had the operation all planned - 14 of us went in. We apprehended him alive, inside of his house. He was face down. I made him turn over. I put the machine gun, an AK-47, in his mouth, and made him stand up slowly.

When I took the gun away, he offered me $5 million or $6 million in exchange for his release. I told him that his arrest was not negotiable, that he was going to be turned over to the authorities in Mexico City.

We took him out. We didn't touch the house. We respected the family. My only goal was to apprehend Miguel Felix Gallardo alive, and we did. After that came certification, and after that the debt was forgiven. And after that came the photograph.

NARRATOR: For the arrest of Felix Gallardo, Calderoni was promoted, given a $100,000 bonus and personally thanked by President Salinas.

GUILLERMO GONZALEZ CALDERONI: [through translator] Back then, I thought it was an honor to be next to the President. Now I think it was a disgrace for me. I feel embarrassed, disgusted to be seen next to a man like Carlos Salinas.

NARRATOR: In 1992, President Salinas was warmly received in Washington, D.C. The North American Free Trade Agreement was being negotiated, and by all appearances, the Salinas government was cracking down on the drug traffickers. Officially, the police and the government under Carlos Salinas had committed themselves to an all-out war on drugs.

    CARLOS SALINAS DE GORTARI, Fmr President of Mexico: In Mexico in the last 16 months during my administration we have seized 55 tons of pure cocaine. The street value of that cocaine is equivalent to one and a half times the external debt of Mexico. Is it enough? Well, we will continue hitting them by seizing the drug, destroying it and putting in jail whoever participates in drug trafficking.

NARRATOR: But officials in Salinas's government were selectively targeting drug lords.

JORGE CASTANEDA, Mexican Political Analyst: It is said that each administration in Mexico or each attorney general in Mexico, through an administration, will pick and choose which cartel to go after, to sort of offer them up as sacrificial lambs to the Americans and, in a way, at least tolerate the other cartels that they don't go after.

NARRATOR: Felix Gallardo was now out of favor, so the Salinas administration cracked down on him and his allies in the Medellin cartel. That left the rival Cali cartel and its Mexican allies operating with impunity.

JUAN MIGUEL PONCE EDMONDSON, Director of Interpol, Mexico: They made the Medellin cartel disappear and the Cali cartel to be stronger.

NARRATOR: Mexico's top international cop is Juan Miguel Ponce Edmondson.

JUAN MIGUEL PONCE EDMONDSON: It was a fight between companies. See, every gram of cocaine that was Medellin's got seized. Everybody that worked for Medellin got seized. And Cali grow bigger. It's like Ford and General Motors.

NARRATOR: The beneficiary in Mexico was Juan Garcia Abrego, the Cali cartel's partner. Washington was pressuring Salinas to capture Abrego. With NAFTA on the line, the Salinas regime again turned to Commander Gonzalez Calderoni for help. Unlike Gallardo, Abrego would be easy to find.

INTERVIEWER: You were friends with Juan Garcia Abrego's brother?

GUILLERMO GONZALEZ CALDERONI: [through translator] No. Let me correct you. I am friends with him. And I am also friends with Juan Garcia Abrego, too. Not a partner, a friend.

INTERVIEWER: No business.

GUILLERMO GONZALEZ CALDERONI: No business.

NARRATOR: Calderoni went to see Abrego, not to arrest him but to deliver a message.

GUILLERMO GONZALEZ CALDERONI: [through translator] Nobody ordered me to catch Juan. I was ordered to talk with him so that he would turn himself in. And I went to see Juan, and he confessed to me some things. He told me at that time that he was asked to kill two people who were campaign managers for Salinas's opposition in the last election. And what did he do? He had them killed.

NARRATOR: According to Calderoni, Abrego was shocked that the Salinas government would ask him to turn himself in after what he had done to help their election. Abrego also revealed details about the involvement of the president's brother, Raul Salinas, in business deals with drug traffickers.

Back in Mexico City, Calderoni says that he reported the allegations to his boss, the deputy attorney general, but he soon found out that it was he who was under investigation. Calderoni fled to the United States.

HECTOR BERRELLEZ, DEA Special Agent, '73-'96: He wanted our assistance in hiding in the United States, as his life was in serious jeopardy. We had heard that there were plainclothes Mexican military officials in the L.A. area looking to assassinate him. And at that time, he reported to us that a major drug lord had actually been given the contract to assassinate two political opponents of Carlos Salinas de Gortari.

He told me he was disgusted and frustrated because it not only involved just the drugs, it also involved other crimes, such as murder, and that shocked Gonzalez Calderoni.

NARRATOR: Despite all the allegations and mounting evidence against the Salinas regime, NAFTA was signed into law in 1993 by the new president.

JORGE CASTANEDA: The United States government, as a whole, ignored a great deal of the information and accusations that were surfacing for two reasons. The first one was NAFTA. The second was that Salinas was the U.S.' darling, and they simply did not want to listen to what their own people were telling them. These were not others who were saying these sort of things. These were American intelligence, American informants, or Mexican informants paid by American intelligence agencies. They simply did not want to look at these things in the face because he was the darling.

NARRATOR: The corruption and crimes of the Salinas regime would eventually emerge. Today former president Salinas is living in Cuba. He strongly denies that he was ever involved with drug traffickers, murderers or his brother Raul's business dealings.

Gonzalez Calderoni is living in Texas. He is a fugitive from the Mexican police.

GUILLERMO GONZALEZ CALDERONI: [through translator] My interest in being here on the program is not to hurt Mexico, but someone has to tell the truth so that things may change. Maybe tomorrow I will return to Texas and they will be waiting for me to put me in jail because of what I said, but someone has to do it. I'm worried about Mexico. I love it, maybe more than many of those who are there love it.

NARRATOR: Since NAFTA was enacted, the amount of cargo crossing the border has dramatically increased. By the mid-'90s, 70 percent of the drugs entering the U.S. came across the Mexican border with a retail value of $40 billion.

For drug dealers, it's the money that drives the business. And the biggest profit margins are to be had where the dangers are greatest, the streets of American cities.

PAUL, Former Crack Addict and Dealer: There was a lot of money to be made- millions, zillions, trillions. With $100, you can buy seven grams. You can make about, oh, 400 bucks from that $100 investment.

INTERVIEWER: How long does it take you to sell it?

PAUL: In this area? About two minutes, maybe three. If I sold 100 grams, that's $10,000. If I sold 1,000 grams, you're looking at $100,000- from one kilo of cocaine.

NARRATOR: With so much money at stake, drug-related crime was on the rise during the early '90s. In places like New York, a crackdown on street dealing picked up momentum. The police pledged to retake the city block by block.

HOWARD SAFIR, Fmr NYC Police Commissioner: The city of New York's drug policy is very simple. It's called driving drug traffickers out of New York City. The way we do this is to make the business environment so inhospitable that they are going to go somewhere else. And I mean that literally. I don't care if I drive them to Westchester or to New Jersey or to Pennsylvania or to Long Island.

What we're doing in New York City is we target blocks. We target blocks that have been owned by drug traffickers for 40 years. We use our model block program in which we'll go into a street, we'll target all of the drug traffickers on that street. We'll spend three or four months making cases against then, and then on a date certain, we'll arrest everybody.

NARRATOR: Known as a "takedown," the operation often requires as many as 80 police to make numerous arrests. Following the takedown, the block is barricaded. Police are posted 24 hours a day, seven days a week, usually for several months. Anyone entering is required to show ID and explain why they are there.

The mayor of New York, Rudolph Giuliani, emphasized that attacking the drug trade is only part of the goal. For him, the war on drugs is in large part a war on street crime.

RUDOLPH GIULIANI (R), Mayor of New York: You can have an impact on the drug trade, but then you get a second benefit: You can reduce crime. Street-level drug enforcement has significant impact on the number of homicides in a city. It has a significant impact on the number of thefts in a city. It has significant impact on the number of other crimes that are associated with drug trafficking.

PAUL: Half the people- I'm telling you, more than half the people that are arrested on the streets for drugs of one sort or the other are little, tiny people, are not the major people that they are supposed to be catching out here with 20 kilos, 50 kilos. What happened to the science of that? Where's the science in that? Where's the logic? How are you going to arrest 100,000 people in a year, and none of them are the big guys?

That's politics. We just want the drug dealers and the drug users off the street. What about the kingpins, the drug trafficante? Where's he at?

Mayor RUDOLPH GIULIANI: You got to keep your eye on what you're trying to achieve. What you're trying to achieve is a safer America, an America in which people don't have to lock themselves up at night and be worried to go out on the streets.

NARRATOR: In the '90s, the DEA endorsed this "war on crime" approach and joined police departments across the country in cracking down at the local level. One result has been a massive increase in the prison population. Today there are nearly two million people in U.S. jails, one in every 150 citizens, almost a doubling of prisoners since 1994.

The U.S. now matches Russia in having the highest rate of incarceration in the world. Well over half the federal prisoners are in on drug charges, and two thirds are minorities- 48 percent black, 10 percent Hispanic.

MICHAEL GELACEK, U.S. Sentencing Commission, '90-'98: We're going to have two million people locked up in the United States. That's crazy. That is just crazy. And you don't have to be a rocket scientist to figure out that there is a racial overtone.

JEFFREY REID, Convicted Crack Dealer: You know, this war on drugs is just- it's a war on black men, on black people and people of color. I mean, they've created this system where you lock up a million of your citizens for these inordinate amounts of time, and you waste mega amounts of tax-paying dollars, and it's- you ruin millions of lives. And it's- you still don't solve the problem because, I mean, you've not stopped the illegal consumption of drugs, you know?

So I mean, these places are overcrowded. They are full. You've got guys on top of guys back here. Who are you targeting here? These places are overrun with people of color. So I mean, you don't have to be a rocket scientist to figure it out. I mean, they got numbers to back up what I'm saying.

NARRATOR: The numbers show that the sweeping sentencing laws passed in the 1980s have disproportionately penalized minorities, but little has been done to change the laws. Mandatory minimums, particularly for crack cocaine, have resulted in sentences that are often longer than for rape and murder. In contrast, the quantity of powder cocaine required for the same sentence is 100 times more.

MICHAEL GELACEK: We ultimately settled on 100 to 1, and I don't remember where that came from. I think they plucked it out of the sky. But you know, you can take this packet of Sweet 'N Low, you got a gram. Five packages of this in crack cocaine form would send you to jail for five years. You'd have to have 500 of these to go to jail for trafficking in powder.

I believe it came about as a one-upsman contest between the House and the Senate, you know, who could be tougher on crack cocaine. And they both ultimately proved they could be very tough.

NARRATOR: In 1995, the U.S. Sentencing Commission, which advises Congress on criminal justice issues, recommended a reduction in the mandatory minimums for crack cocaine. It was rejected by Congress, the first time a Commission recommendation has been voted down.

MICHAEL GELACEK: If reasonable and intelligent people in all areas of the criminal justice system say to you, "This is not right. This does not work properly," when you have prosecutors, judges, probation officers, law enforcement officials, the Sentencing Commission, people in Congress, people on the street corners, people that live in everyday life, saying, "This is not right," and you choose to look the other way and say, "I'm sorry. We're not going to do anything about that," that's just plain wrong.

INTERVIEWER: You're critics will say that what you've done is filled the jails with little guys. You backed the policies of mandatory minimums and putting people away for a long period of time for relatively non-violent crimes.

Mayor RUDOLPH GIULIANI: Well, they're wrong. [laughs]

INTERVIEWER: And it doesn't have anything to do with the ultimate effect. You still have drug use. You still- it's still going on.

Mayor RUDOLPH GIULIANI: But what they- what you miss in all that is we've taken the city in America that was considered the most dangerous city, made the safest large city in America. We've reduced homicide by 70 percent. We've reduced overall crime by 50 percent. We had 130,000 drug arrests last year, the highest in the history of the city, and it was the lowest year for crime in 36 years.

NARRATOR: On the streets of New York, crack is no longer an epidemic, but most residents agree that the decline in crack use was not primarily due to aggressive policing. It passed because people saw what crack was doing to their communities.

1st TEENAGER: Not many teenagers ain't using crack no more. Marijuana's the basic thing that they [inaudible]

2nd TEENAGER: You know, they know the difference between marijuana and crack. And they know that if you use crack, you're going to get strung out. On weed, I mean, there's effects, but you're not going to be, you know, robbing houses and doing a lot of crazy things for weed.

3rd TEENAGER: I got three foster kids in my house, all right? Their mother was a crackhead, all right? When I was a little kid, I used to go with my mother to go see their mother, and she was skinny. I'm talking about, like it was skeletons, like skin hanging of off bones, you know? I mean, it's not pretty. I mean, you just waste away. I mean, at least with weed, you get the munchies afterwards. You want to eat something afterwards, you know? I don't know what crack does to you.

NARRATOR: As much as Mayor Giuliani likes to cite tough policing, he agrees that crack passed largely on its own.

Mayor RUDOLPH GIULIANI: Crack was so deadly and so powerful that ultimately it burned itself out. In other words, it lasted for about three or four years. It affected people. But it had such a dramatic impact. And it's also an area in which education worked really well. I think even drug addicts picked up the idea this is an enormously dangerous, enormously addictive, and therefore, at some point, settled back into the more normal use of drugs that they had become used to.

NARRATOR: Today America's typical drug user is not an inner-city crack addict. Today a regular user of hard drugs - a person who uses cocaine, heroin or methamphetamine at least once a week - is primarily white, male and employed. One quarter are black or Latino. These hard-core users number about five million.

There are more than twice as many occasional drug users in America, but it is the regular users who account for thirds of the $60 billion spent in the U.S. each year on illegal drugs. [www.pbs.org: View the charts and stats]

MIKE McDONALD, Special Agent, IRS, '71-'98: That population of hard-core users generate the funds. They generate the dollars that go back to Columbia, that go back to Mexico and go back to Colombia. They generate those dollars that in Columbia and in Mexico are turned into power, turned into extortion, turned into homicides, turned into corrupting foreign governments, arms dealing, and expanding criminal enterprise around the world. Those dollars coming from U.S. drug sales are the lifeblood to both the Colombian and the Mexican cartels.

NARRATOR: In the early years, the cocaine business was dominated by just a few men, the drug lords of Medellin, Colombia. They built an increasingly sophisticated international business.

ROBERT NIEVES, DEA Intl Operations, '69-'95: By 1974, they're moving 20, 30, 40 kilos a week, these groups out of Medellin. By the late '70s, they're moving hundreds of kilos a week. By the early '80s, they're moving tons. By the '90s, they're moving planeloads, 727s going into Mexico with five, six, seven tons of cocaine. So the organizations went through a progression, and they did it all by remote control.

By the time the '90s come around, these people have perfected that business. And essentially the only way you could attack them was to make it personal and to begin to dis-articulate those organizations in some very succinct way. And so we developed, as an agency, the kingpin strategy to do that.

NARRATOR: By the time Medellin kingpin Pablo Escobar was gunned down by the Colombian police in 1993, the Medellin cartel had been shut down. A rival drug cartel based in Cali, Colombia, took over the business, but it, too, was dismantled by the mid-'90s.

But in reaction to these assaults, the drug business did not die, it fragmented. Today there are more than 300 Colombian drug gangs moving 90 percent of America's cocaine and 70 percent of its heroin, mainly through Mexico, into U.S. markets.

JUAN DAVID OCHOA, Medellin Cartel: [through translator] Before, the business was of the few. Now the business in the hands of a lot of people. Before, it was easy to know that it was "X" or "Y." You knew who was involved. Nowadays you don't. That's why it's more complex. It's more sophisticated. The proof of it is that the U.S. still has great quantities of cocaine coming in.

NARRATOR: Fragmentation of the drug business has been a boon for scores of freelance operators like this man, whom we call Steve, a Mexican trafficker who agreed to talk about how the business operates today.

STEVE, Fmr Drug Trafficker and Money Launderer: It's a commodities business, but you're not moving pork and you're not moving cows and you're not moving petroleum. You're actually moving coke, or pot in another case. And everything is a contract, just like a commodities contract, except it's verbal. But it's signed by your blood, basically.

A cocaine load originates, obviously, in Colombia. And Colombia has the cheapest price. So you go to Colombia and get it. That's the best way, if you have the means to do it. And the first time we did it, we did it for three tons.

So now we negotiate the price, but it's very, very low. There's so much coke, they have hoards of it. You can buy it on credit at $1,500 dollars a kilo, and you're going to sell it at $16,000. Sounds like a lot of money, but there's a lot of people you got to pay. You are going to spend most of your money transporting and getting it to the United States.

So to work that kind of load of three tons, you'd better have $2 million to $3 million that you're going to invest before the load even gets dumped onto you. That means you'd better have everybody paid- along the coast, stashers, protection. Everything now better work like a Swiss clock.

NARRATOR: The drugs are either flown north from Colombia to Mexico and then trucked to the U.S. border, or dropped to boats off the Pacific coast of Central America and brought up the shoreline to a town just south of Tijuana.

STEVE: And in Zodiacs, bring it into the shore to a very affluent mansion, very dignified person that's above suspicion. And we stash it there.

NARRATOR: From the stash house, the load is moved into Tijuana for final shipment across the border.

STEVE: But if you're going to bring it in to Tijuana, you've got to pay the Arellanos. That's their territory. And you got to tell them, "I'm bringing in so much. What are you going to charge me?"

NARRATOR: For over a decade, the Arellano-Felix organization has controlled the flow of drugs north across the Mexican border into California.

STEVE: They're very amicable people, very fair people. If you let them know you're going to bring a load, they'll even help you bring the load in. However, if you don't, and they find out, they'll probably kill you.

In all fairness, people get killed because those people ripped off a load. did something they weren't supposed to in the verbal contract, and were given umpteen chances to fix that problem. And if innocent people are killed, it's not intentional.

So now you got to get it across the border. And you've got to take it into account that 20 percent of your cars are going to get busted at the border. It's the cost of business. But the other 80 percent is going to get through. I used to send 12 cars at a time. The way I figured it, as long as 6 cars - 50 percent - got through, I was making a good profit.

I'd bring in cars with professionally-made stash holds. I had a guy that actually trained the dogs for the DEA make sure his dogs could not smell it. And I'd just flood the thing. I'm only one of hundreds that would do that.

NARRATOR: But if the drugs get busted and the contract cannot be paid off, there is a way out.

STEVE: You can breach a contract, but you'd better have a good reason. And you'd better fly down to Colombia - or Mexico, if you're dealing with a Mexican cartel - and show your face and explain the situation.

JOHN MARCELLO, DEA Special Agent,'73-'98: Immediately, when that happens, the first thing the traffickers want to see is they want to see something in the newspapers. They want to be able to prove that the government got the load because at least that takes the heat off of them for the first 24 hours.

But then the cartel will send people up to investigate to see who is responsible for losing that load. There's always somebody on the hook. No one's ever forgiven for these losses. And typically, what they'll do, if you don't have the money, they'll just give you more cocaine. But then you don't make any profit. You're working for free until you pay off that last load.

NARRATOR: For Steve, the ultimate destination was Los Angeles, where he would contract with wholesale buyers.

STEVE: So again, you negotiate. Let's say it's going at $16,000. I give it to them at $15,000. So now I'm going to front that cocaine, OK, because nobody can buy 500 kilos. There's very- if you get a client that can buy 500 kilos and pay you at the same time, it's guess who? Uncle Sam is buying it from you. You're going to get caught at the same time. Nobody does that. Nobody has that kind of cash available.

JOHN MARCELLO: The cocaine will then be distributed to three or four different stash locations. Those stash locations are manned by members of the cartel from Mexico. We call them "TDY," temporary duty. And they've got a first level of customers ready to take 200, 300, 400, 500 kilos at a time out. And what they'll do is, they'll release those kilos to other primarily Mexican nationals who live here in the United States. They, in turn, will distribute it to various elements within the city of Los Angeles.

ANDREW CHAMBERS, DEA Informant: You have a drug dealer that knows the Mexican, or he might know somebody- there might be an in-between person between him and the Mexican, but he knows- usually what happens is he knows the Mexican, and the Mexican will bring the dope in.

NARRATOR: For 16 years, Andrew Chambers was a star undercover informant for the DEA. Chambers, the man on the right, has worked hundreds of stings on dealers like this one. He says it's at this stage where most of the danger lies.

ANDREW CHAMBERS: A lot of Mexicans get killed because a black guy or somebody else might know that this Mexican is sitting on 20 keys. What they do, when the Mexican come to talk to them, they'll snatch him or kill him or, you know, try to find out where the dope is.

You know, that's why it's so leery. That's why you have a lot of gunplay because, you know, when you go meet somebody, it's, like, "Well, I better bring a gun because he might be coming with some more people that have guns." So it's really- there's no trust. But you got to sell it to somebody. and you got to buy it from somebody. So it's almost, like, worth taking a chance.

NARRATOR: When the drugs hit the streets, the money starts rolling in, moving back up the distribution chain, paying off those dealers who fronted the drugs along the way. But for the Colombian, there is a special problem. U.S. dollars are not a negotiable currency in Colombia.

MICHAEL WALD, Former FBI Agent: A Colombian drug dealer has got to have pesos in Colombia. And what does he really have when he sells his drugs in the United States? He sells them for cash U.S. dollars.

NARRATOR: Mike Wald investigates money laundering for a consortium of Florida law enforcement agencies.

MICHAEL WALD: Dollars accumulate in New York. They accumulate in Miami. They accumulate in other places. He really needs pesos in Colombia, but what does he have? Dollars in America.

NARRATOR: So the Colombian drug dealer needs the services of someone like this man. To protect his identity, his voice has been changed.

BLACK MARKET PESO BROKER: The money side is like a completely separate business than the drugs.

NARRATOR: He is one of scores of money brokers who trade in narco-dollars.

BLACK MARKET PESO BROKER: In this business, you have to have a lot of trust because you're talking about a lot of money, so you have to be an honest criminal to survive. So you would get a call on the phone or the beeper, and they would tell you, "Hey, my name is Jose. I have a million. Where do you want to meet?" It could be in boxes, shopping bags, suitcases. Once I receive the money, then it becomes my risk when I receive the money,

NARRATOR: To complete the first step in the conversion process, the broker maintains a staff of people to run the drug dollars to the bank.

BLACK MARKET PESO BROKER: The U.S., it's the easiest country to open accounts.

NARRATOR: By keeping the deposits under the $10,000 reporting limit required by U.S. law, the broker stays under the radar of U.S. banking regulators.

MICHAEL WALD: There are individuals that leave home in Queens, New York, with 50,000 dollars cash in the morning and come back in the middle of the afternoon, reducing that huge pile of cash or that briefcase of cash or that knapsack full of cash to a small number of $1,000 or $500 deposits all on the same day.

BLACK MARKET PESO BROKER: If you open 200 accounts and you deposit less than $5,000 a month, you're doing $1 million in one month.

NARRATOR: The broker then orders his office in Colombia to pay the drug dealer in pesos at an exchange rate well below the market. A good deal for the broker, a bad deal for the drug dealer.

MICHAEL WALD: Why would the drug dealer do that? Because his profit percentage is so high, he doesn't much care. He walks away with a pile of pesos delivered to him right into his hand in his home in Columbia. He takes no risk. He no longer owns those drug dollars in Miami. He could care less if they're seized. He's made his profits. He's out of the equation.

NARRATOR: The broker then sells his discounted dollars in the form of checks and money orders to legitimate Colombian business people.

FANNY KERTZMAN, Fmr Chief, Colombian Customs: In Colombia, there's a culture that you don't feel guilty if you are buying dollars from narco-traffickers. You are happy because- you're happy because you're getting cheap dollars.

NARRATOR: Fanny Kertzman, former head of Colombian Customs, explains how those dollars are then used by Colombian importers to buy goods and services from U.S. businesses, a situation she says many Colombian politicians like.

FANNY KERTZMAN: There are many politicians in Colombia that have supported this because they say that it's a way to get cheap goods in the market and it helps families to get cheap dishwashers. But I think that it's something that you don't have any values if you think like that.

NARRATOR: These transactions have stimulated U.S. sales to Colombia and tipped the balance of trade in the favor of the United States.

MICHAEL WALD: This is positive for U.S. business - there's no doubt about it - because the Colombian businessman, if he pays less for his dollars, can buy more goods. OK, that's a pretty obvious economic fact. But we have to realize where this money originates. It's drug money, and we facilitate- by allowing this to happen, we facilitate the drug dealer.

NARRATOR: It's estimated that the black market now accounts for $5 billion a year in business. And though U.S. corporations maintain that they cannot tell if they're paid with drug money, over the past decade, hundreds of U.S. corporations, including some of the largest, have had their bank accounts frozen by law enforcement.

GREGG PASSIC, DEA Special Agent,'71-'95: In some ways, we're at least getting some of the drug money back into our economy. But that's a dilemma. What do we do now? We've got the Fortune 500 involved in drug money-laundering process.

NARRATOR: According to investigators, there are many companies that do know when they are receiving drug money.

MIKE McDONALD, IRS Special Agent, '71-'98: If you have a company selling $400,000 worth of sunglasses to Colombia, how should they normally get paid? A cashier's check, a check drawn on the corporate account of the person they're selling the sunglasses to, or stacks and stacks and stacks of money orders, wholesome money orders of $500 or less, of cashier's checks of $3,000, of personal checks from all around the country? That's not the way you do business. These dollars come from the black market, and the black market is fueled by the drug trade.

NARRATOR: Cigarette giants Philip Morris and British American Tobacco have been accused in a civil action in federal court by Colombian authorities of being involved in the laundering of drug money through their sales of tobacco products. The companies say that the case is without merit.

FANNY KERTZMAN: The big companies do know what's going on with this, and they know that the distributor is being paid in dollars from narco-traffickers.

MIKE MCDONALD: Law enforcement and these companies are on a collision course right now because there's a legal principle called "willful blindness," which means if you totally disregard all the facts and circumstances that would lead you to believe and know that this is illegal money, that's the same as knowing it's illegal money.

NARRATOR: This summer, executives of Kodak, Hewlett-Packard, Ford, Sony, General Electric and other manufacturers met privately with Attorney General Janet Reno to work out a truce in the growing conflict between legitimate commerce and the black market.

Compared to Colombia, getting the money back to the cartels in Mexico is much less complicated.

GREGG PASSIC: Because of the proximity to the United States, they don't have to launder, per se. To a Mexican, to launder means to put a million bucks in the trunk and drive across the boarder to Tijuana.

STEVE, Fmr drug trafficker and money launderer: My Mustang convertible, 5.0, held in $20 bills $5 million in the trunk. That's about as much as I ever got into it.

NARRATOR: With his trunk full of cash, Steve would head south on highway 5. To defeat the occasional roadblocks set up by U.S. law enforcement, Steve used a counter-surveillance system- lookouts.

STEVE: You have your guys out there looking to see if there's DEA out there. They just dial you on your beeper and put all sixes, the sign of the devil. "Don't cross right now." So you know if they put seven, that's the good luck number, let your money go through. There's nobody checking. The Mexican guys? Don't worry about them. We'll take of them. They know us. That's taken care of.

VINCE DE LA MONTAIGNE, FBI Special Agent, '78-'00: How do you stop it? You see the border. There's hundreds, thousands of cars going through that port every day, you know? You put boxes in the trunk of the car or secret it in a hidden compartment, those Customs and INS inspectors have no chance of catching that money unless we get a good tip.

NARRATOR: Once the money was in Mexico, Steve's priority was to turn the fives, tens and twenties stuffed in his trunk into hundred dollar bills at a money-exchange house.

STEVE: They don't trust the machines. Half the money the money counting machine will not work with because it's wet, it's dirty, something's wrong with that bill. And the girls that count it- so you have to sit there, literally don't move your eyes for four or five hours at a time while these girls are counting because if you just go [coughs], like that, those girls are so good, $200, $300 are on the floor. That's how they- "Bap, bap!" You didn't even see them do it. So in four, five, six hours, two days, three days straight of counting money, these girls'll take you for ten grand. I mean, they are good.

NARRATOR: With the hundred dollar bills, Steve would then head to a Mexican bank, where for a fee, he turned the cash into paper, wire transfers and checks drawn on the bank. The cartel's drug money had now been turned into legitimate money. Steve was so successful as a money launderer that he attracted more and more business.

STEVE: Meanwhile, these Colombians are forcing you with more money and more money and more money. "Move this money. Move this money." But the banks can only take so much at a time. So you get this backlog of hundreds of thousands of dollars in the vault, more money coming in. You've got cars sitting outside in the parking lot with $2 million, $3 million in the trunk, money in the vault, and transfers going out. [www.pbs.org: Explore more of "Steve's" story]

NARRATOR: The wire transfers would go out to the cartel's bank accounts around the world.

STEVE: Argentina, Venezuela, Panama, Costa Rica-

JUAN MIGUEL PONCE EDMONDSON, Director of Interpol, Mexico: -Europe, Latin America, the Caribbean, Africa, you name it. It's worldwide. And money sometimes stays only 20 seconds in one country- just electronic transactions. The money goes from place one to place two to place three to place four. And suddenly it's disappeared. Magic, offshore magic.

    PETER JENNINGS, ABC News: For the first time, the government has gone after a very key link in the Mexican connection, the money men.

NARRATOR: In 1995, U.S. Customs launched Operation Casablanca, the biggest undercover money-laundering investigation in U.S. history. Customs set up a phony money-laundering operation in Los Angeles under the fictitious name Emerald Empire. They opened for business and sent out the word.

DUANE LYONS, Asst U.S. Atty, Los Angeles: A confidential informant was utilized to arrange the pickup of narcotics proceeds on the streets of the United States for the benefit of drug traffickers. The informant would say, "I have an organization that can pick up your drug money for you and launder it effectively."

NARRATOR: The first delivery was $1 million dropped off in this hotel room. When Mexican bankers heard about the large dollar amounts, they came, offering their services.

JOHN HENSLEY, U.S. Customs Chief of Enforcement, '70-'00: We actually were besieged by bankers who heard from their friends that there was big profits to make. And we were actually approached by people who wanted to get in on the profit-making. We ended up with two bankers, four bankers, six. And the numbers just kept going up, and we laundered over $100 million of traffickers' money.

RAY KELLY, U.S. Customs Commissioner: I would submit that Casablanca was the most successful money-laundering investigation conducted by U.S. law enforcement. One hundred million dollars was seized. Three Mexican banks were indicted, 168 people were arrested.

NARRATOR: But Operation Casablanca had unintended consequences. The operation had been kept secret from Mexican officials. But then the Mexican officials discovered that two U.S. Customs officers had operated inside of Mexico as bodyguards for a Mexican informant.

CHARLES LA BELLA, U.S. Atty, San Diego, '98-'99: The Mexican government got very upset with the fact that we were engaged in law enforcement activities in Mexico, and apparently we never advised anybody.

JOHN HENSLEY: There was a hue in cry in Mexico about U.S. operations, about sovereignty. There were a lot of issues and finger-pointing about who knew, when they knew, and what were these U.S. agents doing in Mexico.

NARRATOR: To smooth relations with the Mexican government, Attorney General Janet Reno signed an agreement in 1998 that would severely limit U.S. law enforcement's ability to work in Mexico.

CHARLES LA BELLA: They signed a protocol that really is unworkable. If you want to follow somebody, especially with the rules that have now been imposed after Casablanca, it's virtually impossible to do it.

JOHN HENSLEY: The rules are that before you do anything that is even considered close to operation or intelligence gathering, you have to notify Mexico City.

CHARLES LA BELLA: And the beneficiaries of that have been the drug dealers. They can operate both sides freely because they have no agreement. They don't have to check with drug traffickers in the United States, saying, "Hey I'm coming over to your territory to do some dirty work." They have a free hand. We don't have that. We've got one hand tied behind our backs because we've got to go through all these hoops before we can do something in Mexico.

NARRATOR: It's a drug smuggler's dream, a border open to commerce and closed to law enforcement. Among the biggest beneficiaries are the Arellano-Felix brothers, who operate the most violent drug-trafficking organization in North America.

Just 30 minutes from downtown San Diego, they have turned the Tijuana border region into a killing field. Scores of police commanders, federal prosecutors, judges, journalists, lawyers and hundreds of civilians have been murdered gangland style.

In one incident, a wild gunfight broke out when Mexican federal police tried to stop the Arellanos' armed motorcade in downtown Tijuana. The commande and three other federal police were killed by the Arellanos' bodyguards. The bodyguards, it turned out, were local state police officers.

After several special federal prosecutors from Mexico City were murdered by the Arellanos, Mexico's attorney general said he could not find anyone else willing to go to Tijuana.

STAN PIMENTEL, FBI Mexico '91-'96: I wouldn't go to Tijuana unless I had a battalion-size force that I knew were loyal to me to go after somebody like the Arellanos.

NARRATOR: At the heart of the Arellano brothers' power is the money. The FBI estimates that their annual revenues are in the hundreds of millions of dollars, dollars that some believe have become integral to the Mexican economy.

JORGE CASTANEDA, Adviser to Pres-Elect Vicente Fox: It's a business. It has to be seen as a business. And there are regions of the county where the drug economy really is central to the local economy.

STAN PIMENTEL: Cartel leaders have built roads. They've built houses. They've built hospitals. They've built clinics, chapels, you name it, supporting teachers for their- the families that work for them. So it's a lot of money being expended by these cartels there. And if we, the U.S. government, could stop that or the Mexican government could stop that, it would put a big crimp for a number of years in the economy of Mexico.

JORGE CASTANEDA: There is no clamor in Mexican society to go after the cartels. Mexican society still does not have the type of problem of drug abuse that other countries do. And so if you go to dinner conversations or to the universities or to the schools or to the factories or whatever, drug enforcement is not a central concern of the Mexican people. The drug issue is not a central issue.

NARRATOR: Today the illegal narcotics business is worth an estimated $400 billion, making it one of the biggest industries in the world. And it continues to grow, as traffickers have been able to expand sales by finding millions of new customers in Europe and in Asia.

JACK LAWN, DEA Administrator '85-'90: Cocaine has become a substantial problem in Europe, and they were not ready for it. They indeed thought this was a U.S. problem.

MATHEA FALCO, Drug Policy Expert: Worldwide drug production has geometrically expanded. I mean, we haven't even talked about what's going on in Southeast Asia or in the so-called "Golden Crescent" of Afghanistan, Pakistan, Iran. I mean, the production has just become larger than we could have ever dreamed in the late 1970s, so certainly that's not-

NARRATOR: Malthea Falco is a former assistant secretary of state for international narcotics matters. She has become convinced that one reason we're losing the war is because the business has become so successful.

MALTHEA FALCO: Over the sweep of time, the price of drugs has just plummeted in this country. Worldwide production of opium has at least more than tripled, and cocaine has just, you know, geometrically expanded. So that both the quality, the purity of the drug, is much higher and so much more dangerous now to people who use it in this country, and so cheap that even a high school kid could buy a hit of heroin for his weekend enjoyment.

NARRATOR: Today there is a small but growing group of drug war veterans who question the direction of America's drug policy.

MALTHEA FALCO: There is a pervasive fear in Washington that if you stand up and say, "We really need to change priorities. We need to focus on treatment and prevention," that you will immediately be labeled as soft on drugs. And if you're a federal official, you might not get promoted as fast. If you're an elected official, they really believe, I think, that the voters will throw them out.

NARRATOR: But these doubts are not shared by the man President Clinton appointed as his drug czar, General Barry McCaffrey, U.S. Army, retired. He maintains that America has made real progress in the war on drugs.

GENERAL BARRY McCAFFREY, Dir, Office of Natl Drug Control Policy: The facts are we're doing pretty well now. In fact, drug-related murders are down by 50 percent. Cocaine use is down by 70 percent. General drug use is down by 50 percent. Adolescent drug use last year went down by 13 percent. In fact, things are moving steadily in the right direction. Compared to 1979, we're doing pretty well.

The problem is- the problem is 6 percent of the country last month used an illegal drug, and it's poly-drug abuse. It's booze and pot and other things, and it causes $100 billion in damages a year. It's outrageous

NARRATOR: General McCaffrey's critics say he's right, drug use is down from its height in the late 70's through the mid-'80's, but most of that change has been is so called casual use. Their criticism is he is not doing enough to treat the nation's five million hard-core drug users, whose numbers have remained essentially unchanged.

Gen. BARRY McCAFFREY: I think the central concern is appropriate. If we're going to deal effectively with five million chronic drug addicts, when they are amenable to treatment, when they're down, when they're under arrest, when they're miserable and they ask for help, at that point we have to be capable of intervening. I think you're quite right, and that's the kind of capacity that we are building.

NARRATOR: But how and when that capacity will be built McCaffrey doesn't say. Today the debate is much the same as it's been for the last 30 years: How much money for law enforcement, how much for treatment, education and prevention? Under General McCaffrey, the majority of the money, two thirds of the overall drug war budget, still goes to law enforcement.

MALTHEA FALCO: Law enforcement consumes more than the lion's share. If, in fact, we're going to reduce demand in this country, we need to change our priorities fundamentally and make treatment and prevention the number-one priority not only in theory but also in terms of how much money is spent. Right now, in the federal drug budget, treatment gets less than 15 percent of the entire amount.

NARRATOR: But even if General McCaffrey wanted to reallocate the budget, he is limited by an entrenched bureaucracy that he does not ultimately control, a bureaucracy with a momentum of its own. Next year there will be 51 government agencies, consuming around 20 billion in federal drug war dollars.

JACK LAWN: It's a self-perpetuating bureaucracy and will continue to be, as long as money is available for funding such bureaucracy.

NARRATOR: After more than 30 years fighting the drug war, former DEA chief Jack Lawn says it is time for a radical change.

JACK LAWN: Let's create an organization, give them responsibility and accountability, with one person in charge, who is in charge of the money, who says, "Well, this year 90 percent of the budget is going into education and prevention." We don't have that today. And would that work? We won't know unless we try it, but 20 years of work doing it the other way certainly has not worked.

NARRATOR: Drug czar Barry McCaffrey disagrees. He says that efforts to reduce supply have worked. And today he has the U.S. gearing up for what could be the biggest, most expensive and bloodiest battle so far in the war on drugs: Colombia.

Gen. BARRY McCAFFREY: It's worked in Peru. It's worked in Bolivia. In the last three years, we've actually reduced cocaine production in the Andean ridge nations by 19 percent. It's working. The problem is poor Columbia, 40 million people sliding toward the edge, and a 140 percent increase in coca production the last two years alone.

NARRATOR: The U.S. government recently sent Columbia a $1.3 billion aid package, along with several hundred U.S. military advisers, to help the Colombians fight a guerrilla insurgency that uses the drug trade to finance its operations.

But many of America's most experienced drug warriors think history has already declared its verdict on the effectiveness of trying to cut off supply.

WILLIAM ALDEN, DEA Asst. Administrator, '86-'93: In 1984, we made the single largest cocaine seizure of that time, 22,000 pounds. Almost 12 tons of cocaine seized, and it had absolutely no impact on the market at all, on availability. That's when we began, as a drug law enforcement organization, talking about demand because we realized if you could seize that amount of drugs and not have an impact on the traffic, you better start doing something else other than focusing solely on the law enforcement aspects of the problem.

JACK LAWN: As I said before Congress in 1982- it was before Senator Joe Biden. He asked me if I was satisfied with the budget. I said, "Well, I have enough for this year, but we will have to build more jails because we're going to arrest more people, we're going to convict more people. We're going to seize more drugs. We're going to seize more assets. But until someone gets serious about education, prevention and treatment, we're the last line of resistance." And Joe Biden said, you know, "Jack, that's heresy coming from a law enforcement officer." I said, "No, ask law enforcement people."

ROBERT STUTMAN, DEA Special Agent-in-Charge, '85-'90: We need to have far better prevention, we need to have far better treatment. It's not anti-law enforcement. We clearly need law enforcement. Enforcement will make a difference. It will fight a holding action but is simply not going to stop the huge amounts of drugs coming in. We, as a nation, should have learned the lesson a long time ago that you cannot depend on law enforcement to solve the problem.

JACK LAWN: With all of our efforts, with the military in their aircraft and Coast Guard cutters and helicopters, traffickers will just move to a third country to get things done. They don't lose money. They don't lose hours. I don't think I don't think they have lost anything substantial in the past 20 years.

Drug Wars: Part Two

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A FRONTLINE coproduction with Rain Media, Inc. and Cam Bay Productions

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ANNOUNCER: This report continues at FRONTLINE's Web site, with special reports on the CIA, drugs and the conspiracy theory, an inside look at a Silicon Valley trafficking operation and the Hank family of Mexico. You can also link to NPR's Web site and listen to the special reports on the war on drugs from NPR News, or catch them on "All Things Considered" this week.

Plus, go inside the world of top narco-traffickers, who tell how they set themselves up in business. Find out how much Americans spend on drugs and where that money goes. Finally, watch a recent national symposium on the drug war with top-level officials. It's all at pbs.org or America Online keyword PBS.

Next time on FRONTLINE: The United States Army is getting ready for the next war.

    UNIDENTIFIED SPEAKER: We're dealing with cavalry and Indians again.

    UNIDENTIFIED SPEAKER: What the next war needs is a force that can go anywhere and be combat-ready upon arrival.

ANNOUNCER: But when the next war comes, will America be ready?

    UNIDENTIFIED SPEAKER: The real question is ready for what?

ANNOUNCER: The Future of War.

    UNIDENTIFIED SPEAKER: There is no nation to bail us out if we get this wrong.

ANNOUNCER: Watch FRONTLINE.

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