Colombia's Discount Currency Exchanges Are Funneling Drug Moneyby
Hundreds of currency dealers sell dollars at 10% discount
Cocaine gangs and illegal miners supply many of those dollars
They are in high-end malls, at the international airport, even on the steps of the nation’s central bank. Most display stamped customs documents, making them appear not only benign but official.
Yet hundreds of cut-rate dollar changers across Colombia form part of the scaffolding of the country’s thriving illegal drug and gold trade, some with links to Marxist guerrillas, according to current and former officials. Cocaine traffickers and illegal miners use some of the currency dealers to convert ill-gained dollars into pesos. Customers benefit from a 10-percent discount on the rate banks and investors use.
After decades of violence, Colombia has been turning a corner. It is a safe tourist destination, appears to be on the verge of a historic peace deal with leftist guerrillas, and its most notorious traffickers have been killed or captured. Yet billions of dollars generated by organized crime continue to permeate daily life. The amount of land planted with coca rose 44 percent in 2014, according to the United Nations, meaning Colombia grows more than Peru and Bolivia combined. Illegal gold mining is today as big a business as cocaine, Defense Minister Luis Carlos Villegas said in an interview. Dirty money is plentiful.
“These people are receiving money from illegal groups, drug traffickers or criminal mafias,” said a law enforcement official of the currency traders, speaking on condition of anonymity. “They don’t ask for documents and they don’t fill in an exchange rate declaration.”
The rules are so ignored that some dealers ply their trade in front of the main entrance of the central bank. No booth or documents are evident but the dollars are openly sold to passersby. Alberto Boada, secretary of the bank’s board, said the tax authorities, not the bank, should police such activity. He added that currency changers dealing in cash get much of their money from tourists.
Malls and Marxists
Others take a more severe view. The people who help launder money are as vital to the drug trade as the chemicals used to process coca leaves into cocaine, said Juan Ricardo Ortega, who tried to crack down on the currency dealers when he was head of the tax and customs agency, called the DIAN, between 2010 and 2014. The DIAN says it is working with the central bank to rein in the illegal trade.
In the upmarket Hacienda Santa Barbara mall in northern Bogota, a dozen money dealers offering cut-price dollars all display documents from the DIAN. But they often don’t ask for ID and fingerprints or fill in the required declaration form -- checks that would allow the authorities to spot discrepancies between purchases and sales.
Amid the mall’s coffee shops and clothing stores, two currency dealers laundered drug money for the Marxist rebel group known as the FARC, according to the U.S. Treasury, which blocked the businesses’ assets and largely barred U.S. citizens from dealing with them.
The spread between the rates offered by the money changers and the market rate has widened in recent years, which is evidence of an “abundant supply of bills,” Ortega said.
When the DIAN at Bogota airport got a dog trained to detect cash a couple years ago, it caught about three people per day bringing in sums of $150,000 to $300,000, he added. The dog died after less than two weeks on the job and Ortega says he’s “almost positive” that corrupt DIAN agents or police had the animal killed. The DIAN declined to comment.
Maria Isabel Loffsner, Deputy Director of Currency Control at the DIAN, acknowledged that the exchange houses are in a business that has a “high risk” of being used for money laundering. That is why, she said, the DIAN has been working with the central bank on new regulations.
A former customs agency investigator described the crooked exchange rate houses as an outsourced branch of the cocaine trafficking system.
“The service these people offer is that they collect your dollars outside Colombia, and return the money to you in pesos, and charge you a commission of between 10 percent and 20 percent,” the former investigator said, asking for anonymity due to fears for his family’s safety. “They put up real estate as collateral in case the money gets seized. If $3 million gets lost, then they’ll hand over an apartment that’s worth $3 million.”
Don’t Get Killed
Once the money has been converted into pesos it can be laundered via restaurants, hotels, construction companies, night clubs, farms, among other businesses. The U.S. Treasury has more than 800 Colombian businesses and people on its sanctions list.
The former investigator said that the currency exchanges circulated his photos among themselves, and, when he tried to approach a currency dealer in the coffee-growing region, he was recognized. “We know who you are. Don’t get yourself killed,” he was told.
Other raids were sabotaged by corrupt colleagues warning the currency traders beforehand, and by armed paramilitaries intimidating his men, he said.
The entire system throws on its head what happens in most countries where foreign exchange houses charge a premium over the market rate to make a profit.
“This is a Colombian peculiarity,” said a central bank official who asked not to be named. “Normally it should be more expensive, but in Colombia there’s this source of supply which is the illegal economy.”
Many Colombians suspect that the dollars are dodgy but turn a blind eye, Ortega, the former DIAN head, said.
“Why am I being so lucky as to get an arbitrage opportunity?" Ortega asked. "Not even educated people like myself ask that question as often as they should.”