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The War Against Drug Profits
MacDonald was on his first assignment for the Internal Revenue Service when he noticed something unusual about the teller lines.
"Well it's dramatic when you see people standing in line with boxes of money in dollies and a deposit slip in their teeth. And people joke about that, but it is real. We had people walking in with rope-handled shopping bags and deposit slips going into the banks. We had twelve individuals in Miami who were depositing $250 million or more annually into non-interest-bearing checking accounts. And no reports were being filledor very few reports were being filled."
By law, banks are required to file currency transaction reports on deposits over $10,000. But the requirement was being ignored by more than 40 banks in Miami as the cocaine trade flourished. Money from all over the country was being transferred to Miami accounts.
"It certainly didn't take a rocket scientist to figure out what it might be when you had machine gunning on the streets and you have chain saw murders on Hallandale in Ft. Lauderdale," explains MacDonald.
By 1981, the War on Drugs also became the war against drug profits. For the first time, Federal Agents targeted banks, bank accounts and bulk cash. But every time the U.S. Treasury closed one route for profits, drug lords would create another way, says Jim Butler, who was chief of the Coral Gables Police Department.
"They are very innovative. They run their narcotics and money laundering business like a Fortune 500 company," says Butler. They realized two things: They were exposing themselves to the scrutiny of U.S. law enforcement if they were hands-on directly involved, plus the exposure was critical to them because they were losing $20 million to $30 million stateside from seizures from warehouses from California and Miami."
Their change in strategy is still in place today. One simple method to avoid U.S. banking laws, the $10,000 filing requirement, was to recruit an army of workers. At the lowest level were the "smurfs."
"These are couriers whose job is to move significant amounts of cash from financial institution to financial institution," says Frank Figuroa, a special agent in charge for the Miami Office of Customs Service.
"The so-called smurfs went around with a lot of cash usually 100,000 to 200,000 in a day and make 15 to 20 stops at different banks and actually deposit below the $10,000 threshold."
Getting the drug money into U.S. banks is a first step. The money can then be moved around to other U.S. banks by using wire transfers and money orders. That is called layering. It makes the money harder to trace.
This system is now one of the most successful in history called the "black market peso exchange."
Here's how it works.
In Colombia, a drug lord uses pesos to pay his workers and pay for the load of drugs. He then gets the drugs to the United States.
The drugs are sold in the U.S. for cashU.S. dollars. The dollars are then deposited in many bank accounts. It's the drug dealer's money, but it's deposited by the smurfs.
"We followed a husband-and-wife team one day," explains Mike MacDonald, "Seventy-two thousand dollars of money orders in one day. The largest denomination was $300."
Back in Colombia, the drug dealers make a deal with what is known as a money broker. There are thousands of money brokers in Colombia, and they make the system work.
"So the brokers, who have been in business for years, go to the drug traffickers and say, 'I'll buy your dollars from you,' or 'I'll buy a bunch of dollars,' " says McDonald. " 'You give me a million dollars and I'll give you X number of pesos.' "
It's important to understand the U.S. dollars never leave the country; the pesos stay in Colombia. But with this system, any Colombian with pesos who needs dollars in the United States can get those dollars through the Colombian money broker.
These brokers offer an exchange rate substantially cheaper than the legal exchange rate at any Colombian bank. Businessmen use the system, and ordinary Colombain citizens use it, too, says McDonald.
"We've had people using them to pay college tuition. You name it. I can name the university. If there is a business and demand for it and you need to pay something off, and you want to pay a debt off in the U.S., all the cash you need is right in the U.S."
It is small businesses, also big businesses, Fortune 500 companies, intentionally or not, have been involved in laundering drug money, says Raymond Baker of the Brookings Institute.
"I don't think we have a very effective anti-money-laundering strategy. Ninety-nine point nine percent failure rates become pretty close to a definition of complete failure in curtailing the laundering of the drug dealers profits," says Baker.
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