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U.S. Department of State

Diplomacy in Action

Introduction


International Narcotics Control Strategy Report
Bureau of International Narcotics and Law Enforcement Affairs
March 2007
Report
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The January 2007 seizure of a staggering $80 million worth of drug trafficking cash and gold in one law enforcement operation in Colombia points to much of what remains dangerous about the global drug and crime trades as well as improving international efforts to combat them. In an age where much of the world's anti-money laundering effort has understandably become focused on countering the terrorist financing threat, this seizure underscores the enormity of funds and profits wrapped up in transnational crime and the potential power that crime syndicates have with this money to inflict substantial political, economic, and social damage on governments and societies around the world. This $80 million seems to be the product of an extraordinarily complex international criminal enterprise. Now that the money and gold are in the hands of the Government of Colombia, it also shows how vulnerable crime syndicates are becoming to global anti-money laundering measures, improved international cooperation, and better law enforcement operations. This success is due in significant part to years of training, technical assistance, and experience.

This case-like any criminal money laundering or terrorist financing seizure-should not, however, stop with the confiscation. Indeed, the confiscation itself should provide valuable intelligence and clues for identifying the individuals most responsible for this trade and enhancing the wherewithal of authorities to find, prosecute, convict, and incarcerate them. Establishing international anti-money laundering and counterterrorist financing norms and standards do much to impede these crimes, but making the masterminds of these operations pay with their freedom is a powerful deterrent for stopping them. The seizure of the money also takes away the primary motivation of these criminal groups-greed.

The Colombian National Police, in this instance, are believed to have made the largest cash seizure ever from a narcotics case. The seizure consisted of U.S. currency, euros, and gold. The money belonged to one criminal organization and was seized at five different locations during one enforcement operation. The Colombian National Police carried out the raids with intelligence and some operational planning assistance from the U.S. Drug Enforcement Administration. Reportedly, no suspects were apprehended at the time of the raids, but several were known ahead of time, and several more have been identified as a result of intelligence gleaned from the seizure.

An $80 million seizure attracts serious attention. In the hands of the Colombian traffickers, it represents the proceeds of criminal operations on a massive scale. It could reflect the wholesale proceeds of exporting more than five metric tons of cocaine to the United States or Europe. This much money in the hands of Asian or Latin America traffickers could also represent the profits from smuggling approximately 1,600 Chinese into the United States or 32,000 illegal aliens from Mexico or Central America across our southwestern border. The circulation of massive amounts of drug money on this scale can create huge, adverse distortions in a weak or small economy.

There is no social or economic "Robin Hood" effect when criminals are in possession of such sums. Their investments tend to be conspicuous, not productive. Moreover, dirty money crowds out legitimate economic activity, creates unfair competition for legitimate businesses, erodes good business practices and ethics, and interferes with the development of sound economic policies. It is almost a bottomless reservoir for corruption that can impede enforcement efforts from front line police officers, to swaying legislators, judges, regulators, or senior executives charged with writing, enforcing, and upholding laws in a rule of law society. $80 million dollars in the hands of terrorists could have funded countless attacks in the United States and around the world. The 9/11 Commission reported that al-Qaida likely spent some $400,000-$500,000 to carry out its 2001 attacks on the United States. While the Colombian seizure is a record amount, it may not be uncharacteristic of similarly large amounts of crime profits lying about in criminal safe havens in the Middle East, Africa, South or Southeast Asia, or Europe.

Dollars, euros, and gold-the three instruments seized in this raid-constitute the face of modern day crime transactions and further highlight the complexity of the money laundering challenge. It suggests large-scale criminal proceeds in the U.S. and European markets, as well as nearly anywhere else in the world. In this respect, the seizure epitomizes the transnational nature of the trade and the dark side of globalization, where national boundaries are no barrier to criminal enterprises, and where most instruments to blur these boundaries-such as rapid and far reaching cyber communications or internationally-recognized currencies-work as much to the benefit of crime syndicates, by easing associations and transfers and providing rapid movement, as they do for legitimate enterprises. The seized gold is especially telling. Historically, the largest value money laundering investigations have involved gold. Gold is both a commodity and a de facto bearer instrument. The form of gold can be readily altered. There is a large cultural demand for gold in Colombian society and elsewhere around the world. Moreover, gold is immune from traditional financial transparency reporting requirements.

The seizure also underscores a likely growing worldwide reluctance of syndicates to place their money in banks where it is increasingly likely to be detected-owing to the steadily improving scrutiny and tracking abilities of the formal financial system. Authorities discovered the dollars, euros, and gold in private residences and businesses, buried in the ground, stashed in private safes, or hidden elsewhere. For any law-abiding entity, this would be an extraordinarily risky way to safeguard and account for such sums. But this example shows how formal financial institutions have become such a significant threat to the operations of crime syndicates and terrorist financiers-that they are willing to take high risks to avoid them.

Since the G-7 created the Financial Action Task Force (FATF) nearly two decades ago in 1989, the international community has been working determinedly to develop the procedures and practices necessary to expose criminal proceeds and take them out of the hands of the syndicates. Since its original seven-country membership (the U.S., Canada, the UK, France, Germany, Italy, and Japan), FATF has grown to include 31 countries and two multilateral organizations (the European Commission and the Gulf Cooperation Council). Its "40 recommendations" to guard against money laundering and nine additional "special recommendations" on terrorist financing contain several provisions aimed specifically at identifying "suspicious transactions," the true owner of such transactions or abnormally large deposits, and tracking them through the system of banks and nonbank financial institutions-such as brokerage houses, money exchangers, or money service businesses. The provisions include "whistle-blower" type protection for tellers, bankers, and others who are on the front lines of receiving and detecting such deposits to help guard against corruption, intimidation, or retaliation.

FATF "recommendations" carry significant international clout. Both the 2001 UN Convention against Transnational Organized Crime and the 2005 UN Convention against Corruption contain extensive anti-money laundering provisions that are drawn from the FATF recommendations. In addition, recent UN Security Council Resolutions, which member states must abide by, have incorporated the FATF recommendations by direct reference. For instance, in July 2005, UN Security Resolution 1617 "strongly urges all Member States to implement the comprehensive international standards enacted in the FATF Forty recommendations and the Nine Special Recommendations on terrorist financing." This resolution further reinforces the commitment of the 169 members of FATF and the nine FATF-style regional bodies (FSRBs) to criminalize the financing of terrorism and enumerates actions that all UN Member States are legally bound to undertake by virtue of being a party to the UN International Convention for the Suppression of the Financing of Terrorism. It is against this background of growing international acceptance of these norms and standards, and hard work and investment by financial institutions and their compliance officers, that criminals and terrorist financiers, much like these Colombian traffickers, increasingly realize the growing risks they run of having their large or suspicious transactions recorded by banks, shared with the police, and their criminal activities exposed.

A willingness to codify the FATF recommendations into laws and regulations means little if a country is unable, through lack of resources or skill, or unwilling, through lack of political commitment, to implement them. FATF has backed or imposed a wide-ranging set of measures to assist and motivate countries to adopt the "40+9" recommendations. This has included conducting mutual evaluations among its own members to assess their compliance with the recommendations and suggest actions to remedy identified shortfalls. FATF, with bilateral assistance from the U.S. and other donors, has fostered the creation of FATF-style regional bodies around the world so jurisdictions that do not belong to FATF can join and form regionally-tailored organizations to accomplish FATF's objectives. Currently, 138 countries and territories belong to nine such organizations around the world. FATF- and the cooperating donors-have sponsored seminars and provided training and technical experts to help start and sustain these FSRBs. They too have a major responsibility to conduct mutual evaluations among their members.

FATF has also acted in a united, multilateral front to deal with the most incorrigible states, and ones whose weak anti-money laundering regimes or lack of international cooperation pose the most serious risk to anti-money laundering efforts. FATF works internally to identify those countries and will approach them to elicit improvements and better cooperation. If quiet diplomacy fails, FATF can-and has in 23 cases-"named and shamed" noncooperating jurisdictions to focus international attention on them. When FATF identifies problematic countries, it expects its members to respond by invoking any number of countermeasures ranging from issuing advisories that warn their financial institutions about the risks associated with dealing with such jurisdictions, to more drastic measures, such as those taken under Section 311 of the USA PATRIOT Act, to prohibit financial transactions with banks in these countries-or even with the countries themselves.

Many countries come into compliance with global norms and standards and avoid the risk of countermeasures by passing the laws and writing the regulations called for in the FATF recommendations. The laws and regulations, however, need credible enforcement to be dissuasive and effective. This is a tough assignment for many countries, often requiring them to seek and/or accept training and technical assistance from foreign donors. U.S.-provided assistance in this regard can be valuable as the performance by the Colombian National Police in this $80 million seizure attests. The U.S. has provided substantial anti-money laundering assistance to Colombia over the years, making our program there a model for what we are achieving in strategic countries elsewhere. With regard to the $80 million seizure, the Colombian National Police, who have directly benefited from U.S. assistance, performed with initiative and professionalism. Indeed, aspects of the Colombia program are so strong that today Colombian anti-money laundering experts and officials are sought to provide advice, training, and assistance elsewhere in the region.

The State Department's anti-money laundering/counterterrorist financing training and technical assistance goal is to strengthen regional anti-money laundering organizations and build comprehensive anti-money laundering regimes, with no weak links, in strategic countries. We seek to maximize the institution-building benefits of our assistance by delivering it in both sequential and parallel steps. The steps, while tailored to each country's unique needs as determined by needs and threat assessments, include help in the following areas:

  • Drafting and enacting comprehensive anti-money laundering and terrorist financing laws that have measures to enable states to freeze and seize assets as well as comply with the FATF's "40+9" recommendations on money laundering and terrorist financing;

  • Establishing a regulatory regime to oversee the financial sector, including to guard against corruption and intimidation;

  • Training law enforcement agencies, prosecutors, and judges so that they have the skills to successfully investigate and prosecute financial crimes; and

  • Creating and equipping financial intelligence units (FIUs) so that they can collect, analyze, and disseminate suspicious transactions reports and other forms of financial intelligence to both help develop cases domestically and share information internationally through FIUs in other countries as part of transnational investigations.

The crowning achievements in money laundering cases, however, reach beyond the asset seizures and forfeitures. Authorities can, and must, glean from pre-and post-raid intelligence strong evidence to indict the financial and operational masterminds and foot soldiers behind these operations. The international community is underachieving on this front. Despite now nearly unanimous compliance with the FATF recommendation to criminalize money laundering, and acceptance of various UN conventions and Security Council resolutions that make this mandatory, few criminals are being prosecuted or convicted for money laundering. The United Arab Emirates, where the threats of money laundering and terrorist finance are particularly acute, is one example of many strategic countries that are on the right track, but still need to get over this hurdle. The UAE has worked hard, particularly since 9/11, to establish anti-money laundering and counterterrorist finance regimes and countermeasures that adhere to current world standards, yet it is still working to achieve its first money laundering or terrorist financing conviction. The UAE is not alone in this regard as a review of this year's INCSR country reports reveals a similar, unfortunate lack of implementation and enforcement around the world, including even in a number of the most advanced and developed economies on six continents.

The Colombia seizure highlights other key anti-money laundering challenges ahead: the use of cash couriers and trade based money laundering. The cash courier threat is also linked with the misuse of charities to finance terrorism. FATF, for instance, has issued special recommendations and published associated interpretive notes and best practices to address the misuse of charities for terrorist financing. Some charities have been designated under various UN Security Council Resolutions for their roles in financing terrorism resulting in having their assets frozen and/or financial transactions with them prohibited. As this terrorist financing avenue has become more constricted and risky, terrorists have had to rely increasingly on cash couriers for their funds. FATF has a special recommendation, interpretive notes, and best practices papers to help countries address this threat also. Meanwhile, the United States has developed a course focused specifically on cash couriers, including how to find and stop them at borders, and inserted it as a feature in our anti-money laundering/counterterrorist training and technical assistance program.

The Department of State, in collaboration with the Departments of Homeland Security (DHS) and Treasury, began making combating trade based money laundering a key part of its anti-money laundering effort several years ago. Since then, others have picked up on this urgency, including FATF which last year issued a special paper on trade-based money laundering. Trade is the common denominator in many entrenched underground or alternative remittance systems such as hawala, the black market peso exchange, the misuse of the international gold and gem trades, and other value transfer systems. To help address these vulnerabilities, the State Department's Bureau of International Narcotics and Law Enforcement Affairs (INL) began providing funding to the Department of Homeland Security in 2005 to establish prototype Trade Transparency Units (TTUs) in the Triborder Area countries of Argentina, Paraguay, and Brazil.

TTUs examine anomalies in trade data that could be indicative of customs fraud and trade-based money laundering. As a result of the 2005 INL/DHS initiative, DHS Immigration and Customs Enforcement (ICE) agents teamed with Brazilian authorities in 2006 to target a scheme involving the under-valuation of U.S. exports to Brazil to evade more than $200 million in Brazilian customs duties over the past five years. The scheme involved tax evasion, document fraud, public corruption and other illegal activities in Brazil and the United States. In an excellent example of the long reach of law enforcement, more than 128 arrest warrants and numerous search warrants were simultaneously served in 238 locations in Brazil.

The State Department is working with DHS to expand the TTU concept to Southeast Asia An international TTU network may eventually develop that will promote trade-transparency, combat customs fraud, and be the back door to entrenched informal underground value transfer systems.

Despite the increased awareness and significant progress that has been made on several fronts, much remains to be done in the global effort to combat money laundering. It will remain important to sustain and strengthen these gains because focusing on money laundering is one of the most valuable tools law enforcement has to combat international crime. A focus on money laundering can accomplish what many other law enforcement tools cannot: it can be applied equally effectively to a wide variety of crimes, to any crime that must be financed or is committed for profit. Once in place, anti-money laundering measures can be used without any special tailoring to attack such threats as narcotics trafficking, alien smuggling, intellectual property theft, corruption, terrorism, and more.

Money laundering investigations also take advantage of one of the most important vulnerabilities of sophisticated criminal or terrorist organizations: their risk of exposure. Terrorism and much of organized crime thrive because they take place in the shadows of open society. As long as criminality remains in the underground of aliases, coded messages, false documents, bearer instruments, and clandestine operations, it is often undetectable to even seasoned investigators. When criminal activity breaches this underground, it often provides leads and evidence authorities can use to unravel these cases. The challenge of coping with especially large amounts of money inevitably generates pressure on criminal organizations to take placement, layering, and integration actions involving record keeping, meetings, or other events that eventually surface and expose them for identification and tracking. Full exploitation of these vital breakthroughs can lead investigators, armed with incriminating financial intelligence and evidence, to the financiers and managers of these organizations-to the heart of the syndicates. This is happening in Colombia, as the $80 million seizure demonstrates. But getting to this desirable outcome in many countries around the world still requires a great deal of training, equipping, and political will.



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