Unbeknownst to D'Emilio, one of her customers in Colombia had paid for his purchases with money that had been funneled through the "black market peso exchange." Drug dealers, she learned, are using the off-the-books currency exchange in order to launder drug money. Law enforcement officers monitoring the peso exchange's Miami operations had identified the cash paid to Omega as drug money and seized it.
D'Emilio recalls standing in the bank's parking lot that September day, making calls on her cell phone to keep her business afloat. "I couldn't pay my payroll taxes, my health insurance," she says. "I was facing kidney surgery, and I had nothing."
Florida exporters, this could happen to you. The U.S. Treasury Department suspects that a majority of Florida's $2.6 billion in exports to Colombia involves dirty money funneled through the black market peso exchange. Most of that money passes through south Florida, with Miami the key city in the process.
As anti-money laundering efforts intensify, companies like Omega Medical that do business with Colombian firms run an ever-higher risk of losing the money to forfeiture. D'Emilio, for one, probably won't see a dime of her $24,754.62 again: The Miami-Dade State Attorney is asking a judge to allow the government to keep the entire sum under state forfeiture laws. "I had no idea this could happen," she says.
The black market peso exchange has grown quickly because it solves big problems both for drug dealers and for legitimate businesses in Colombia that import American products. For drug traffickers, the issue is dealing with the boatloads of cash generated by the drug trade. They can't simply deposit it into their U.S. bank accounts without triggering scrutiny by the IRS and other federal agencies. Somehow, they have to channel it through legitimate sources to be able to spend it worry-free.
Meanwhile, Colombian importers have their own problems: To buy U.S. goods, they need to swap their pesos for dollars. But if they exchange currency at a legitimate bank, they have to show proof that they've paid the required taxes and tariffs on the goods they want to import. Those taxes can add as much as 20% to the cost of the transaction; the black market peso exchange offers the Colombian importer a way to both buy dollars more cheaply and dodge the taxes and tariffs.
The money brokers -- "intermediarios de pesos" -- operate from offices in major Colombian cities, and have employees working in south Florida. First step: The brokers buy dollars at a discount from representatives of the drug cartels. A broker might offer an exchange rate of 1,100 pesos per dollar vs. the official rate of around 1,580. That means the broker can effectively pay $70,000 worth of Colombian pesos for $100,000 in U.S. dollars.
Second step: The broker sells the dollars to the importer, charging perhaps 1,400 pesos per dollar. The importer gets a nice break off the official exchange rate, and the money broker nets around $18,000.
Then comes the third step, the real work in the process: The money brokers' Florida employees -- cops call them "smurfs" -- pick up the cash from the drug dealer in Florida. The money broker, acting on the instructions of the Colombian importer, tells the smurfs what to do with the money. That might mean depositing cash into a U.S. exporter's bank account or delivering it directly to the exporter's office.
If the brokers want to save the cash to sell later, they still face the problem of depositing the money into banks while dodging bank-reporting requirements and the attention of law enforcement agencies. For this, "los intermediarios" instruct the smurfs to open as many bank accounts as possible. The smurfs run around town depositing small amounts of money into various accounts; the brokers write checks off the accounts to pay bills, or give the checks to importers to pay for their U.S. purchases. In addition to hiring smurfs, the brokers may use Colombian tourists traveling to Miami, paying them $250 for each account they open while there.
The system works beautifully for almost everybody. Without having to physically transport any money, the drug dealers turn illegally gotten dollars into clean pesos they can spend at home in Colombia. Because importers get a discount off the official exchange rate and dodge taxes, they save money on their purchases of U.S. products and can offer lower retail prices at home. For Florida, there's a positive side as well: Since the importers in Colombia are exchanging money at less-than-market rates, they can buy more U.S. goods, meaning higher sales for Florida firms.
Good faith
The flaw in the system, of course, is that the transactions are all aimed at circumventing the law. And not everyone's a winner, as D'Emilio can attest. In her case, her company had received orders for its refurbished laboratory products from a Colombian company called CAC Electronica. The two companies had done business together since 1996 without incident. As with all overseas customers, Omega required a 25% deposit with the order and the rest on delivery. CAC apparently used a Colombian money broker named Domingo Sanchez to get the dollars it needed to pay D'Emilio. (The head of CAC told Omega he bought the dollars from someone who won a U.S. lottery.)
Investigators for a south Florida money laundering task force traced $100,000 in cash through Sanchez's south Florida operation and found bank receipts showing deposits of cash into Omega Medical's NationsBank account at a Coral Gables branch. About a month after investigators snagged two of Sanchez's Miami "smurfs," they seized Omega's account.
Assistant state attorney Israel Reyes says that Omega Medical should have known something was up. Why would a Colombian company buying equipment from a North Carolina company pay its bills with cash in Miami? "Once you see that, you need to start asking questions," he says.
D'Emilio responds that she had no reason to think anything was fishy. Her bank statements called the payments "counter deposits" (which she now knows means deposits made without a deposit slip) and didn't indicate where the money had been deposited. CAC was a good customer and paid its bills on time. D'Emilio says she was dealing in good faith and doesn't think it's fair that the government offered to give her back only about $14,000 of the $24,000 it seized. "If you're a small business having to compete against big business, when you get an order you're happy," she says. "How could I have seen this coming unless I distrust everyone from a Latin American country?"
Good question. Should Florida exporters have to investigate the source of their customers' payments each time they do business with Colombian firms? Nicholas Aguirre, president of the Florida Importers and Exporters Association, says that most responsible exporters won't accept cash and are wary of unusual payment methods, say, a combination of check and cash. Exporters confronted with such a scenario should probably not do the transaction, Aguirre says.
But he acknowledges that the issue isn't clear-cut. For good customers, some businesses will accept money orders (also used by peso brokers) or not look too closely at the name on the check. Exporters to Colombia, he says, generally know that the black market peso exchange exists and take precautions. Businesses that don't do regular business with Colombia, however, may have never heard of the peso exchange and aren't likely to be as careful.
Ignorant or not, exporters to Colombia are being increasingly targeted by federal law enforcement agencies looking to stop the laundering of drug money through the black market peso exchange. The federal effort began with banks. After a subcommittee of the House Banking and Financial Services Committee held hearings on the black market peso exchange 18 months ago, the Treasury Department held three meetings with south Florida banks to discuss the problem. This spring, the Treasury initiative spread to Florida exporters.
Representatives from Treasury's Financial Crimes Enforcement Network (FinCEN) are preparing an advisory explaining the peso exchange and its scope. The advisory will be sent to trade associations for exporters and the like; FinCEN also wants to meet with trade organizations to vet the problem. "They're not going to be delighted to hear this," says a FinCEN official in Washington. "Distributors don't want to hear they can't make a sale to anyone who walks through the door with money. That is why we're seeing to it that we have the data."
History
Florida, which accounted for 54% of all U.S. goods exported to Colombia last year, is a focus of those efforts. The peso exchange is in fact only the latest chapter in a long history of money laundering for Miami-Dade, which has borne the dubious distinction of money laundering capital for more than two decades.
Even before the rise of the Medellin cartel in the 1970s, organized crime families from New York were laundering their criminal profits in Florida. A legislative committee in 1978 concluded that crime networks had invested $950 million in Florida real estate.
A few years later, a Florida Attorney General study commission reported that seven criminal organizations operating in south Florida cycled $2.1 billion into local banks and, from there, into offshore corporations in places like the Cayman Islands and the Netherlands Antilles. One of those organizations, the report said, moved $268 million in just five months.
How much of this money ended up back in Florida in the form of investment is unclear. The Attorney General's commission, in 1984, identified several large such properties owned by drug smuggling operations, including a commercial airport in Pasco County and an 880-acre housing development in Polk. Back then, former South Florida U.S. Attorney Leon Kellner called south Florida the "Wall Street of drug smuggling for the entire United States." Fifteen years later, it still is.