Eliminate the middleman: It's a time-honored strategy for maximizing profit.
According to a document captured by Colombian military intelligence, the Revolutionary Armed Forces of Colombia (FARC)—the South American nation's biggest guerrilla army—negotiated a deal in 2007 to supply Mexican drug cartels directly on consignment, bypassing the gangs that had previously served as go-betweens.
Under the pact, the FARC undertook to provide a kind of vendor financing for shipments of tons of cocaine, in essence taking on more risk in search of higher margins. The flood of cash that has since flowed to the guerrillas has helped them remain a threat to the government of President Alvaro Uribe and has offset the damage to their finances inflicted by a seven-year army offensive. "I've heard the FARC derives somewhere between $1 billion and $2 billion a year from the trade," says Michael Braun, who stepped down in 2008 as the U.S. Drug Enforcement Administration's operations chief. "I happen to believe that number is woefully underestimated."
The FARC, a Marxist group, has been fighting to topple Colombia's government for 45 years, making it the oldest guerrilla force in Latin America. More than a decade ago it began to finance its operations with cocaine sales and has since become the world's biggest producer. Colombia supplies more than 90% of the cocaine that enters the U.S., according to the White House Office of National Drug Control Policy. The U.S. Justice Dept. estimates that $17.2 billion worth of illegal drugs enters the U.S. from Mexico every year.
The meeting that laid out the new economics of the trade took place in the jungle hideout of Raúl Reyes, then the second-in-command on the FARC's seven-man executive committee, according to Colombia's National Defense Ministry. Reyes, then 58, described the meeting in a one-page letter dated Aug. 4, 2007, that was obtained by Bloomberg News. He was looking for new ways for the FARC to do business after Uribe's military offensive pushed the guerrillas into remote areas, sapping their revenue from extortion and kidnapping.
In the letter, Reyes reported that four months earlier a Colombian emissary from a Mexican cartel, identified as "Camilo," had come to his camp. Two high-level FARC comrades also attended the meeting. The discussion involved an initial deal for five tons of cocaine. "They are offering the FARC to take the product to Mexico and Europe," Reyes wrote in the letter, addressed to three other commanders. Each kilo sent to Mexico "costs $3,500 and it sells for $9,000. That's a profit of $5,500. For Europe, to send the product there and bring the money back, it will cost $15,000 and it sells for $30,000. The profit will be $15,000."
"DIRTY BOMB" CONNECTION
Reyes proposed to his comrades that the FARC "invest" 250 million Colombian pesos ($125,000) in shipping 100 kilos (220 pounds) of cocaine as a trial run, to be sold to the Mexicans for a profit of 700 million pesos "if all goes well." The FARC would reinvest half the profit and send an additional 140 kilos. Reinvestment of half the returns in new shipments would continue as long as "authorized" by the FARC's leadership, Reyes said.
According to a Colombian official who spoke on condition of anonymity, the agreement has given the FARC an opportunity to double its profit. But Reyes' role ended seven months after the jungle meeting, when Colombian troops killed him during a raid on his camp just over the Ecuadorean border. Colombian investigators, who provided the letter to Bloomberg News, pulled documents from Reyes' computers. The documents were later authenticated by Interpol, the international police agency.
Besides revealing the FARC's deal with the Mexicans, Reyes' laptops contained another document that led authorities in 2008 to about 30 kilos of depleted uranium stashed in Bogota. Police said it was connected to the FARC's bid to branch into international terrorism with so-called dirty bombs, which use conventional explosives to spread radioactive material. Such ambitions offer even more reason for concern that the FARC's business skills are evolving to match its tenacity and firepower.