Pubdate: Tue, 10 Oct 2000 Source: Austin American-Statesman (TX) Copyright: 2000 Austin American-Statesman Contact: Address: P. O. Box 670 Austin, Texas 78767 Fax: 512-445-3679 Website: Author: Lowell Bergman, The New York Times


One day in June, a group of corporate executives gathered at the Justice Department for a meeting with Attorney General Janet Reno and other top government officials.

Arrayed around the table, the executives represented some of the pillars of corporate America -- names such as Hewlett-Packard, Ford and Sony. The session was not publicized, because they shared an unlikely and potentially embarrassing problem: Their companies, they feared, were becoming targets in the nation's war on drugs, and neither they nor the government was quite sure what to do about it.

With the intensifying federal crackdown on money laundering, narcotics agents had been tracking drug money into the accounts of major American corporations and their distributors and dealers. Law enforcement officials say that each year, roughly $5 billion in Colombian drug money buys goods and services -- from cigarettes to computer chips -- from American companies.

What makes that possible is a system known as the black market peso exchange, a complex money-laundering apparatus that law enforcement officials say has become an increasingly important part of the Colombian narcotics industry. The system -- really a network of currency brokers with offices in New York, Miami, the Caribbean and South America -- is essentially an underground money market that lets the traffickers sell their ill-gotten American dollars for Colombian pesos. Those dollars are then bought by Colombian companies that use them to buy American consumer goods cheaply for sale back home.

Now, the government's increasingly aggressive efforts to seize some of that money have put it on a collision course with the corporations, which say they are innocent victims with no way of knowing that they and their distributors are being paid with drug money. For a long time, because of lax enforcement of U.S. currency laws, the drug traffickers were able to launder billions of dollars through U.S. financial institutions. A crackdown in the '80s pushed the traffickers to what they saw as a virtually fail-safe system for getting back their profits -- the black market peso exchange.

The market, says U.S. Customs Commissioner Raymond Kelly, ``is the ultimate nexus between crime and commerce, using global trade to mask global money laundering.''

So far, no large American company has faced criminal charges related to the peso exchange. And the companies have almost always beaten back official efforts to seize money laundered through the exchange.

But in the past few years, the government has tried to stake out a harder line. There have been congressional hearings, designed to put companies on notice by name. Prosecutors have issued warnings and stepped up their effort to seize laundered drug proceeds used to buy American goods.

At the same time, though, the government has encouraged companies to institute ``know your customer'' policies similar to those used in the financial industry. The policies give dealers and distributors techniques for recognizing money laundering. Thus educated, the reasoning goes, the companies will be less able to argue that they simply could not have known.

For in drawing the line between legitimate and illegitimate profits, the government must not only prove that the money came from drug dealing, but, under a legal principle called ``willful blindness,'' it must also show that the recipient ``knew or should have known'' its source.

Congress passed the first money-laundering laws in the early 1970s -- requiring, among other things, that banks report any cash transaction over $10,000 -- but they were loosely enforced. By 1979, the Federal Reserve Bank in Miami had more cash than all the other Federal Reserve banks combined.

It took the uproar over the cocaine epidemic in the early '80s for the banks to comply. And with the resulting crackdown, traffickers resorted to the black market, which for decades had provided the Colombian business community with dollars at less than the official exchange rate of 2,000 pesos to the dollar.

One company that has turned up in the American government's recent anti-laundering efforts is Philip Morris, whose products in particular have been a major presence in Colombia's black market. Marlboros are readily available at prices that investigators say reflect that they were bought with cheap black market dollars and smuggled through middlemen into the country.

This year, Philip Morris was sued in federal court in New York by the tax collectors for Colombia's states. The lawsuit alleges that the company is involved in international cigarette smuggling and the laundering of drug proceeds.

Philip Morris has denied the allegations, saying it did not know its products were being exploited for money laundering. In addition, without admitting wrongdoing, it recently signed an agreement with Colombia, pledging to stop its products from entering the black market or being used to launder money.

Alan Dooty, a customs official, said the companies had been selected for the June meeting because their products had shown up in the black market in Colombia. Before the meeting, some of the companies expressed concern that they would be punished. But once they arrived, Dooty said, they were assured that the government was seeking cooperation.

A follow-up session in July, however, bogged down in legal murk, but more meetings are scheduled for this fall.