DEA congressional testimony on international money laundering
Published by U.S. Department of Justice – Tuesday 19 November, 2002
Copyright: Drug Enforcement Administration
Statement by: Edward M. Guillen: Chief of Financial Operations, Drug Enforcement Administration
Before the: House Subcommittee on Criminal Justice, Drug Policy, and Human Resources
Date: June 23, 2000
Mr. Chairman and Members of the Subcommittee: I appreciate the opportunity to appear before the Subcommittee today on the subject of International Money Laundering. My comments will be limited to an objective assessment of the law enforcement issues involving drug trafficking and money laundering with specific attention devoted to the challenges that today’s organized crime syndicates from Colombia and Mexico present to our law enforcement efforts.
It is important to understand the threat posed by international drug organizations and why cooperative law enforcement programs in the domestic as well as the international arena are necessary to successfully counter drug trafficking and money laundering within the United States. The leaders of these drug trafficking organizations command powerful organized crime syndicates that control virtually all of the heroin, cocaine and methamphetamine sold in the United States today.
Today’s organized crime leaders are strong, sophisticated, and destructive and have the capability of operating on a global scale. They are callous individuals who send their surrogates to direct the distribution of the poison they ship to the United States. These organizational leaders have at their disposal airplanes, boats, vehicles, radar, communications equipment, and weapons in quantities that rival the capabilities of some legitimate governments.
Whereas previous organized crime leaders were millionaires, the Colombian drug traffickers and their counterparts from Mexico are billionaires. They have learned to exploit a variety of weaknesses in order to protect their drug profits, which are the lifeblood of these organizations. Their ultimate purpose is to amass large sums of money in order to maintain their obscene and lavish lifestyle free from the boundaries or confines of the law.
As you are well aware, money laundering is the process used by drug traffickers to convert bulk amounts of drug profits into legitimate money. The need to launder conspicuously large amounts of small denomination bills renders the traffickers vulnerable to law enforcement interdiction. Tracking and intercepting this illegal flow of drug money is an important tool in identifying and dismantling international drug trafficking organizations.
Illegal narcotic sales in the United States generate billions of dollars annually, most of it in cash. Efforts to legitimize or “launder” this cash by the Colombian drug cartels are subject to detection because of intense scrutiny placed on large financial transactions by U.S. banks. To avoid detection, the cartels have developed a number of money laundering systems in attempts to avoid financial transaction reporting requirements and manipulate facets of the economy unrelated to the traditional financial services industry.
For organizational purposes all the various money laundering methods utilized in today’s financial world can be reduced to four categories: bulk movement, the use of financial institutions, the use of commercial businesses, and finally, the movement through the underground banking system. However, an organization may use several of these methods in a chain to arrive at its goal: the integration of drug money into the economy as licit profits.
Despite the rise to power by the Mexican crime syndicates and their increasing influence on the drug trade in the U.S., Colombian traffickers still control the manufacture of the vast majority of cocaine in South America and a majority of the wholesale cocaine market in the eastern United States. They move cocaine from their clandestine laboratories in the jungles of southeast Colombia to Mexico and through the Caribbean, using commercial maritime vessels, go-fast boats, containerized cargo, and private aircraft. The methods are varied and traffickers frequently alter both their routes and their modus operandi to thwart interdiction efforts.
The Colombian trafficking organizations influence in the Caribbean is now overwhelming. DEA has identified several major organizations based on the North Coast of Colombia that have established command and control functions in Puerto Rico and the Dominican Republic. These drug traffickers use the Caribbean Basin to funnel tons of cocaine to the U.S. each year and they direct networks of transporters that oversee the importation, storage, exportation, and wholesale distribution of cocaine destined for the continental United States. Seizures of 500 to 2,000 kilos of cocaine are now common in and around Puerto Rico, the Dominican Republic, and the Bahamian Island chain.
The Dominican trafficking groups, already firmly entrenched as low-level cocaine and heroin wholesalers in the larger Northeastern cities, were uniquely placed to assume a far more significant role in the multi-billion dollar cocaine and heroin trade. From Boston, Massachusetts to Charlotte, North Carolina, well organized Dominican trafficking groups are, for the first time, controlling and directing the sale of multi-hundred kilogram shipments of cocaine and multi-kilogram quantities of heroin. This change in operations somewhat reduces profits for the syndicate leaders; however, it succeeds in reducing their exposure to U.S. law enforcement.
Due to geographical considerations, Colombian traffickers face many difficulties during the initial placement phase of the money laundering process that Mexican syndicates do not encounter. Colombian drug organizations have in the past relied on a multi-faceted collection process. They have amassed currency in strategic locations, used a variety of methods– including smuggling and bribery– to introduce the cash into the U.S. banking system, and subsequently transferred it to Colombia. In an effort to avoid the high risks associated with direct deposits in U.S. or European banks, many Colombian drug traffickers have returned to the simplest of money laundering methods, the bulk movement of cash. Currently, the vast majority of U.S. currency bound for the bank accounts of the Colombian drug lords leaves the United States either through air cargo or commercial cargo freighters. Due to the enormous amount of commercial trade the United States has with Colombia, this method makes the traffickers operations not only less complicated, but also less vulnerable to discovery by law enforcement.
In addition, Colombian drug trafficking will exploit any means possible to safely launder their drug proceeds. One such form of money laundering is known as the Black Market Peso Exchange (BMPE). The BMPE is a complex system currently used by drug trafficking organizations to launder billions of dollars of drug money each year utilizing the advantages of Panama’s Colon Free Zone (CFZ), which serves as an integral link in the Colombian money laundering chain.
Mexico is not only a major drug transshipment and producer nation, it is also a conduit and repository for the laundering of drug proceeds generated in the United States. The 2,000 mile U.S./ Mexico border, close working relationships between Colombian and Mexican drug trafficking organizations, widespread corruption, and the relative ease with which large amounts of U.S. currency can be absorbed into the Mexican financial systems make Mexico an ideal target for money laundering organizations.
Laundering drug proceeds for Mexican crime syndicates is commonly accomplished by relatively simple and direct means– the bulk shipment of currency back to Mexico. Tractor trailers and cars with hidden compartments are frequently used to smuggle drugs out of Mexico into the U.S. and then these same vehicles are packed with the proceeds from the street sale of the drugs and returned to Mexico. Drug traffickers based in Colombia also move the proceeds from their operations in the U.S. to Los Angeles, New York and Miami for bulk shipment out of the United States. Both the Colombians and the Mexicans frequently use vehicles with hidden compartments to carry large quantities of U.S. currency. The bulk movement of U.S. cash to Mexico has resulted in significant increases of financial seizures along U.S. roadways. During calendar year 99, U.S. law enforcement seized over $69.4 million dollars on U.S. highways. From January 2000 to March 31st of this year, law enforcement agencies have seized over $19.2 million dollars. It is estimated that most of the currency seized was destined for drug trafficking organizations operating out of Mexico.
Once the U.S. currency arrives in Mexico, a variety of alternatives for laundering are available. The U.S. currency transported to Mexico is generally in small denomination bills, such as tens and twenties. Money Service Businesses (MSBs) which include wire remittance services, cashier check companies, and casas de cambio (money exchange house) systems are readily available for the transfer and exchange of dollars, in these small denominations, to pesos. The MSBs function as a parallel banking system in Mexico, which in addition to ability to exchange currency, have the capability of transferring funds into any banking system worldwide. They provide currency conversion, exchanges and money movement services for a fee. Legitimate businesses as well as drug trafficking organizations seek the services provided by the MSBs. For example, Mexican immigrants have traditionally used wire remittance services to send American earned dollars back to Mexico to support their families.
In order to effectively respond to the threat of money laundering, the DEA is actively involved in a host of joint initiatives with all of the organizations represented by panel members here today. These initiatives are designed to target the money laundering capabilities of major trafficking organizations operating in the United States. Our operations have resulted in the arrests of 373 individuals and over $72.7 million in currency and assets, 9,399 kilos of cocaine, 30 kilos of heroin and 140 kilos of marijuana. DEA additionally, continues to support a number of interdiction programs that target the bulk shipment of illicit funds across our nation’s highways.
The U.S. National Money Laundering Strategy (NMLS), issued by the Department of Treasury and Justice in September of 1999, and further refined and expanded in February 2000, prescribes a wide range of laundering control measures that affect public and private entities in the U.S. and abroad. DEA actively participates on several of the target specific work groups responsible for developing new enforcement/regulatory strategies and initiatives.
In compliance with the NMLS, the DEA has initiated a cooperative partnership with the regulatory and private sectors of the financial community. This initiative, identified as “Operation Contact,” provides for an open dialogue between the private financial sector and DEA in regards to suspected drug money laundering activity. As a result, the DEA has participated in a variety of forums in order to educate the financial community’s ability to identify and protect their institutions from illicit money laundering activity.
For several decades, Colombian and Mexican drug trafficking organizations have been adaptable, persistent, and savvy in the ways they have met drug market dynamics. The Governments of Colombia and Mexico must be vigilant in their maintenance of relentless law enforcement pressure against major drug trafficking organizations. Unless tough law enforcement measures are in place so that law enforcement may arrest, prosecute and imprison major traffickers, seize and forfeit their assets, and halt money laundering, Colombia and Mexico will continue to suffer from the violence and corruption generated by the drug trafficking operations of international organized crime syndicates.
Cooperation between law enforcement and the banking community is growing. Law enforcement’s approach to the financial industry is less confrontational and many financial institutions have established their own compliance programs. Moreover, these financial institutions are cooperating more in the field of suspicious activity reporting.
DEA remains committed to our primary goal of targeting and arresting the most significant drug traffickers in the world today. We will continue to work with our law enforcement partners to improve our cooperative efforts against international drug trafficking. The ultimate measure of success will come when we dismantle the drug trafficking organizations that bring misery to the nations in which they operate.
Mr. Chairman, thank you for inviting me to appear before the Subcommittee today, I will be happy to answer any questions that you might have at this time.