Outlaws: Black Market Pesos

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Photo by SpeakingLatino.

Counting (and recounting) stacks of bills gets old. Pablo Escobar of the Medellin cartel faced this problem, tracking his titanic profits from cocaine trafficking. In the infant days of the modern coke smuggling industry, money made in the U.S. was flown back to Colombia where either willing Colombian banks would keep it or individual cartel associates would stash it as petty cash, to cover operating costs. Eventually, traffickers switched to U.S. banks, which had both money counters and relatively loose restrictions on deposits. The money laundering laws requiring banks to report suspicious activity were first passed in the 1970s but were largely ignored by American banks, who would see sometimes as much as $250 million dumped into non-interest bearing checking accounts annually.

However, Colombian currency controls and a tighter tax regime presented problems, not just for traffickers but for legitimate businessmen in Colombia as well. Thus was born the Black Market Colombian Peso Exchange.

The system is fairly simple. Eager to turn over their cash, the cartel calls a peso broker based in the States. The exchange rate they negotiate, of Colombian pesos for U.S. dollars, falls about 40 percent below the official exchange rate. Once they agree on a price, the cartel’s American representatives deliver the U.S. dollars to the peso broker’s office, sometimes leaving the money in a car outside and simply handing over the keys.

The peso broker’s Colombian counterpart deals with legitimate Colombian importers who have pesos and want to buy cheap U.S. dollars to purchase goods ranging from dishwashers to liquor to cigarettes to refrigerators. The peso broker takes their orders, then, on the U.S. side, shops on their behalf using the drug money. The purchased goods head to the Caribbean or to another South American country to be smuggled into Colombia, dodging the country’s import tariffs.

Meanwhile, the Colombian pesos that the broker collected from the importers go directly to the Colombian cartel, minus the broker’s commission, negotiated at the time of the deal as the spread between the price of the U.S. dollars and price of the Colombian pesos.

The system flourishes, in part, because of the complicity of U.S. companies like Bell Helicopter and General Electric. In 1999 alone, the system turned over $5 billion in drug money, while the U.S. enjoyed a $4 billion surplus in exports to Colombia.

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