Wholesalers To Colombia Beware: Your Business Could Be Part Of An International Money-Laundering Scheme

The Black Market Peso Exchange (BMPE) is a long lived and widely used method for converting Colombian pesos into US dollars and vice versa.  Boasting the ability to exchange money at a much lower rate, the BMPE evolved from the black market exchange that existed in Colombia for decades and was used by legitimate businessmen and drug dealers alike for the singular purpose of saving money.  The BMPE is now one of the most sophisticated (and common) money laundering schemes employed by the cartels in the Colombian drug trade.  Raymond Kelly, former Commissioner of the US Customs Service calls it the “ultimate nexus between crime and commerce, using global trade to mask global money laundering.”

Here is a brief outline of how it works (though there are multiple variations of this basic model):

1. Colombian traffickers or their US counterparts contact a ‘Black Market Peso Broker’ (money brokers who purchase US dollars that are derived from street drug sales) to negotiate an exchange rate.  The rate is often approximately 40% less than the official rate.

1. Once the rate is agreed upon, the drug dealers deliver the cash to the Broker’s US office or some other agreed upon location for the exchange.  At this point, all risk for movement of the money from the US to Colombia falls onto the Broker.  Should anything go wrong, e.g. the money is seized, the drug dealers and traffickers look to the Broker for repayment.

1. The Broker then processes the cash by employing runners to deposit the cash into US banks throughout the nation in increments of less than $10,000.00 to avoid the bank’s reporting requirements under the US Currency and Foreign Transactions Reporting Act, 31 U.S.C. §5311-5355.

1. Simultaneously, the Broker’s Colombian office exchanges pesos (also at a lower rate than the official rate) with legitimate Colombian businesses who are looking for cheaper US dollars, which will enable them to do more business with legitimate US exporters.

1.  Once the legitimate Colombian businesses give the Broker their pesos, the Broker then pays the business’s debts in the US via wire transfer or direct deposit, allowing for the facilitation of legitimate international trade.  The pesos in turn go back to the drug dealers and traffickers to spend in Colombia.

Part of what makes this scheme so attractive to the drug cartels is that the transactions in step (5) above appear like ordinary international trade transactions so the authorities are far less likely to investigate them (if at all), even though the payments are made by unrelated third parties.  As a result, many U.S. businesses (large and small)[1] are completely unaware that they actually have a role in the illicit drug trade.

Unfortunately, it seems very difficult for U.S. enforcement officials to sympathize with the businesses involved. In a classic case of the public and private sectors failing to understand each other, the United States cannot see how businesses could possibly participate in such a system unwittingly.  In many cases where this scheme is uncovered, entire U.S. bank accounts are seized and forfeited based on the assertion that the owners must have been aware that the money was dirty.  In some cases money is seized before it is even proven to be of illicit origins!

Here are two warning signs that your business may be inadvertently participating in this sophisticated money-laundering scheme:

• You ship goods to Colombian clients, but the goods are paid for by a separate entity in a different country
• You receive payment in multiple small amounts
• You receive payment through third party checks
• You receive this payment in lump-sum wire transfers, with the balance to be credited towards future purchases

Although there is every possibility that a buyer with the above warning signs may be perfectly legitimate, it may not be worth the risk that their money isn’t as legitimate.  Your hard-earned money could be seized and you don’t want that, because once the United States has seized your assets, it’s a long, hard road to getting them back, if you ever do.