Remarks by

Edward M. Guillen
Chief of Financial Operations
Drug Enforcement Administration
U.S. Department of Justice
before
The House Subcommittee on Criminal Justice, Drug Policy, and
Human Resources
23 June 2000 

Mr. Chairman and Members of the Subcommittee: I appreciate the
opportunity to appear before the Subcommittee today on the subject of
International Money Laundering. My comments will be limited to an
objective assessment of the law enforcement issues involving drug
trafficking and money laundering with specific attention devoted to
the challenges that today's organized crime syndicates from Colombia
and Mexico present to our law enforcement efforts.

It is important to understand the threat posed by international drug
organizations and why cooperative law enforcement programs in the
domestic as well as the international arena are necessary to
successfully counter drug trafficking and money laundering within the
United States. The leaders of these drug trafficking organizations
command powerful organized crime syndicates that control virtually all
of the heroin, cocaine and methamphetamine sold in the United States
today.

Today's organized crime leaders are strong, sophisticated, and
destructive and have the capability of operating on a global scale.
They are callous individuals who send their surrogates to direct the
distribution of the poison they ship to the United States. These
organizational leaders have at their disposal airplanes, boats,
vehicles, radar, communications equipment, and weapons in quantities
that rival the capabilities of some legitimate governments.

Whereas previous organized crime leaders were millionaires, the
Colombian drug traffickers and their counterparts from Mexico are
billionaires. They have learned to exploit a variety of weaknesses in
order to protect their drug profits, which are the lifeblood of these
organizations. Their ultimate purpose is to amass large sums of money
in order to maintain their obscene and lavish lifestyle free from the
boundaries or confines of the law.

Overview:

As you are well aware, money laundering is the process used by drug
traffickers to convert bulk amounts of drug profits into legitimate
money. The need to launder conspicuously large amounts of small
denomination bills renders the traffickers vulnerable to law
enforcement interdiction. Tracking and intercepting this illegal flow
of drug money is an important tool in identifying and dismantling
international drug trafficking organizations.

Illegal narcotic sales in the United States generate billions of
dollars annually, most of it in cash. Efforts to legitimize or
"launder" this cash by the Colombian drug cartels are subject to
detection because of intense scrutiny placed on large financial
transactions by U.S. banks. To avoid detection, the cartels have
developed a number of money laundering systems in attempts to avoid
financial transaction reporting requirements and manipulate facets of
the economy unrelated to the traditional financial services industry.

For organizational purposes all the various money laundering methods
utilized in today's financial world can be reduced to four categories:
bulk movement, the use of financial institutions, the use of
commercial businesses, and finally, the movement through the
underground banking system. However, an organization may use several
of these methods in a chain to arrive at its goal: the integration of
drug money into the economy as licit profits.

Colombia:

Despite the rise to power by the Mexican crime syndicates and their
increasing influence on the drug trade in the U.S., Colombian
traffickers still control the manufacture of the vast majority of
cocaine in South America and a majority of the wholesale cocaine
market in the eastern United States. They move cocaine from their
clandestine laboratories in the jungles of southeast Colombia to
Mexico and through the Caribbean, using commercial maritime vessels,
go-fast boats, containerized cargo, and private aircraft. The methods
are varied and traffickers frequently alter both their routes and
their modus operandi to thwart interdiction efforts.

The Colombian trafficking organizations influence in the Caribbean is
now overwhelming. DEA has identified several major organizations based
on the North Coast of Colombia that have established
command-and-control functions in Puerto Rico and the Dominican
Republic. These drug traffickers use the Caribbean Basin to funnel
tons of cocaine to the U.S. each year and they direct networks of
transporters that oversee the importation, storage, exportation, and
wholesale distribution of cocaine destined for the continental United
States. Seizures of 500 to 2,000 kilos of cocaine are now common in
and around Puerto Rico, the Dominican Republic, and the Bahamian
Island chain.

The Dominican trafficking groups, already firmly entrenched as
low-level cocaine and heroin wholesalers in the larger Northeastern
cities, were uniquely placed to assume a far more significant role in
the multi-billion dollar cocaine and heroin trade. From Boston,
Massachusetts to Charlotte, North Carolina, well organized Dominican
trafficking groups are, for the first time, controlling and directing
the sale of multi-hundred kilogram shipments of cocaine and
multi-kilogram quantities of heroin. This change in operations
somewhat reduces profits for the syndicate leaders; however, it
succeeds in reducing their exposure to U.S. law enforcement.

Due to geographical considerations, Colombian traffickers face many
difficulties during the initial placement phase of the money
laundering process that Mexican syndicates do not encounter. Colombian
drug organizations have in the past relied on a multi-faceted
collection process. They have amassed currency in strategic locations,
used a variety of methods -- including smuggling and bribery -- to
introduce the cash into the U.S. banking system, and subsequently
transferred it to Colombia. In an effort to avoid the high risks
associated with direct deposits in U.S. or European banks, many
Colombian drug traffickers have returned to the simplest of money
laundering methods, the bulk movement of cash. Currently, the vast
majority of U.S. currency bound for the bank accounts of the Colombian
drug lords leaves the United States either through air cargo or
commercial cargo freighters. Due to the enormous amount of commercial
trade the United States has with Colombia, this method makes the
traffickers operations not only less complicated, but also less
vulnerable to discovery by law enforcement.

In addition, Colombian drug trafficking will exploit any means
possible to safely launder their drug proceeds. One such form of money
laundering is known as the Black Market Peso Exchange (BMPE). The BMPE
is a complex system currently used by drug trafficking organizations
to launder billions of dollars of drug money each year utilizing the
advantages of Panama's Colon Free Zone (CFZ), which serves as an
integral link in the Colombian money laundering chain.

Mexico:

Mexico is not only a major drug transshipment and producer nation, it
is also a conduit and repository for the laundering of drug proceeds
generated in the United States. The 2,000 mile U.S./Mexico border,
close working relationships between Colombian and Mexican drug
trafficking organizations, widespread corruption, and the relative
ease with which large amounts of U.S. currency can be absorbed into
the Mexican financial systems make Mexico an ideal target for money
laundering organizations.

Laundering drug proceeds for Mexican crime syndicates is commonly
accomplished by relatively simple and direct means -- the bulk
shipment of currency back to Mexico. Tractor trailers and cars with
hidden compartments are frequently used to smuggle drugs out of Mexico
into the U.S. and then these same vehicles are packed with the
proceeds from the street sale of the drugs and returned to Mexico.
Drug traffickers based in Colombia also move the proceeds from their
operations in the U.S. to Los Angeles, New York and Miami for bulk
shipment out of the United States. Both the Colombians and the
Mexicans frequently use vehicles with hidden compartments to carry
large quantities of U.S. currency. The bulk movement of U.S. cash to
Mexico has resulted in significant increases of financial seizures
along U.S. roadways. During calendar year 99, U.S. law enforcement
seized over $69.4 million dollars on U.S. highways. From January 2000
to March 31st of this year, law enforcement agencies have seized over
$19.2 million dollars. It is estimated that most of the currency
seized was destined for drug trafficking organizations operating out
of Mexico.

Once the U.S. currency arrives in Mexico, a variety of alternatives
for laundering are available. The U.S. currency transported to Mexico
is generally in small denomination bills, such as tens and twenties.
Money Service Businesses (MSBs) which include wire remittance
services, cashier check companies, and casas de cambio (money exchange
house) systems are readily available for the transfer and exchange of
dollars, in these small denominations, to pesos. The MSBs function as
a parallel banking system in Mexico, which in addition to ability to
exchange currency, have the capability of transferring funds into any
banking system worldwide. They provide currency conversion, exchanges
and money movement services for a fee. Legitimate businesses as well
as drug trafficking organizations seek the services provided by the
MSBs. For example, Mexican immigrants have traditionally used wire
remittance services to send American earned dollars back to Mexico to
support their families.

DEA Initiatives:

In order to effectively respond to the threat of money laundering, the
DEA is actively involved in a host of joint initiatives with all of
the organizations represented by panel members here today. These
initiatives are designed to target the money laundering capabilities
of major trafficking organizations operating in the United States. Our
operations have resulted in the arrests of 373 individuals and over
$72.7 million in currency and assets, 9,399 kilos of cocaine, 30 kilos
of heroin and 140 kilos of marijuana DEA additionally, continues to
support a number of interdiction programs that target the bulk
shipment of illicit funds across our nation's highways.

The U.S. National Money Laundering Strategy (NMLS), issued by the
Department of Treasury and Justice in September of 1999, and further
refined and expanded in February 2000, prescribes a wide range of
laundering control measures that affect public and private entities in
the U.S. and abroad. DEA actively participates on several of the
target specific work groups responsible for developing new
enforcement/regulatory strategies and initiatives.

In compliance with the NMLS, the DEA has initiated a cooperative
partnership with the regulatory and private sectors of the financial
community. This initiative, identified as "Operation Contact,"
provides for an open dialogue between the private financial sector and
DEA in regards to suspected drug money laundering activity. As a
result, the DEA has participated in a variety of forums in order to
educate the financial community's ability to identify and protect
their institutions from illicit money laundering activity.

Conclusion:

For several decades, Colombian and Mexican drug trafficking
organizations have been adaptable, persistent, and savvy in the ways
they have met drug market dynamics. The Governments of Colombia and
Mexico must be vigilant in their maintenance of relentless law
enforcement pressure against major drug trafficking organizations.
Unless tough law enforcement measures are in place so that law
enforcement may arrest, prosecute and imprison major traffickers,
seize and forfeit their assets, and halt money laundering, Colombia
and Mexico will continue to suffer from the violence and corruption
generated by the drug trafficking operations of international
organized crime syndicates.

Cooperation between law enforcement and the banking community is
growing. Law enforcement's approach to the financial industry is less
confrontational, and many financial institutions have established
their own compliance programs. Moreover, these financial institutions
are cooperating more in the field of suspicious activity reporting.

DEA remains committed to our primary goal of targeting and arresting
the most significant drug traffickers in the world today. We will
continue to work with our law enforcement partners to improve our
cooperative efforts against international drug trafficking. The
ultimate measure of success will come when we dismantle the drug
trafficking organizations that bring misery to the nations in which
they operate.

Mr. Chairman, thank you for inviting me to appear before the
Subcommittee today, I will be happy to answer any question