Since the United States is the world’s largest consumer of Colombian cocaine, most of the cash from drug sales is generated in U.S. dollars. Colombian drug traffickers, however, require pesos to spend and invest at home, and their dollar revenues accumulate in amounts that are impossible to exchange on the legitimate money market. A system known as the Black Market Peso Exchange (BMPE) provides a means through which dollars can be converted to pesos without alerting authorities in either Colombia or the U.S.
Underground money exchanges are relatively common in Colombia and are not entirely dependent on the drug economy. The need exists primarily because of strict controls on Colombia’s currency markets, and underground exchanges have long been popular with well-to-do Colombians who need access to dollars. The exchanges quickly became a favorite tool of drug traffickers once the cocaine trade began to generate significant amounts of foreign cash, and their popularity with legitimate Colombian businesspeople only aided the drug traffickers.
In 1999, Bonnie Tischler, then Assistant Commissioner of the U.S. Customs Service, called the Black Market Peso Exchange “the ultimate nexus of legitimate and criminal trade activity,” and given the nature of the threat, U.S. and Colombian authorities have begun to crack down on the procedure. Despite increased enforcement, the International Monetary Fund estimates the total dollar amount laundered worldwide is between 590 billion to 1.5 trillion dollars annually, or between 2 percent and 5 percent of the world’s GDP.
The Black Market Peso Exchange works as follows:
|1||To receive pesos the trafficker pre-arranges to sell dollars earned in a drug deal to a money broker in exchange for pesos, at a rate that ranges from 30 to 40 percent below the official exchange rate. When the cocaine is sold in the U.S., the trafficker, or his stateside representative, delivers the cash to the broker’s U.S. agent, who promises to deposit the pesos into the drug trafficker’s account in Colombia as soon as the dollars are disposed of. This is a safe transaction for the trafficker, because any broker who failed to deliver pesos at the end of the process would likely be killed.|
|2||The exchanger then moves the dollars into the legitimate U.S. economy by way of dozens or hundreds of deposits into individual bank accounts, made by a large staff of couriers maintained just for this purpose. Each deposit is small enough that it falls beneath the 10,000 dollar Bank Secrecy Act currency reporting threshold.|
|3||Once the broker has safely moved the drug proceeds into legitimate banks, he or she can sell them to Colombian importers who are eager to purchase them to buy goods in the U.S. at an exchange rate about 20 percent below market, which is somewhat lower than the rate quoted to the drug trafficker, but significantly more favorable than the official rate. The broker makes his profit off the difference between these rates.|
|4||In Colombia, business people transfer pesos to the broker, who arranges purchases for them in the U.S. Preferred exchange goods include liquor and alcoholic beverages, cigarettes, electric and electronic appliances, textiles, clothing, computers, automobile parts, perfume, jewelry, footwear, toys, and food, all of which is purchased with U.S. dollars on the U.S. market, in seemingly legitimate deals often with major corporations. In a series of meetings held in June and July 2000, the U.S. Department of the Treasury informed representatives of major corporations — including General Motors, Westinghouse, and Hewlett-Packard — that payments they had received had made them unwitting participants in the BMPE scheme.|
|5||Once the purchases are made, the broker transfers the pesos to the trafficker’s Colombian accounts. Finally, the imported goods arrive in Colombia, and the commodities are sold at retail stores in Colombia for a profit, which appears to be legitimate. The money has been successfully laundered.|