William E. Ledwith
Chief, Office of International Operations
Drug Enforcement Administration
House Subcommittee on Criminal Justice, Drug Policy, and Human Resources
June 13, 2000
Note: This document may not reflect changes made in actual delivery.
Mr. Chairman and Members of the Subcommittee: I appreciate the opportunity to appear before the Subcommittee today on the subject of Panama. My comments will be limited to an objective assessment of the law enforcement issues involving drug trafficking and money laundering in and through the country of Panama. I would like to again express my thanks to the Subcommittee for your continued support of the Drug Enforcement Administration (DEA) and overall support of drug law enforcement.
The 9,000 dedicated men and women of the DEA are committed to preserving the quality of life of the citizens of the United States. The agency directs and supports investigations against the highest levels of the international drug trade, their surrogates operating within the United States, and those traffickers whose violence and criminal activities destabilize towns and cities across the county. These investigations are intelligence-driven and frequently involve the cooperative efforts of numerous other law enforcement organizations.
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.
Panama is the most strategically located country in the Western Hemisphere for drug trafficking and other transnational crime. Panama's location between South America and North America, with its long coastlines, its border with Colombia, and the Panama Canal make the country a key transit point for drug shipments originating in Colombia for further shipment north. Panama's 225 kilometer land border with Colombia, its 2,870 kilometers of Caribbean and Pacific coastline, and over 1,480 islands make for an almost impossible task of policing its borders. Other factors which make Panama attractive to major drug traffickers are its weak law enforcement and public security institutions, its large and sophisticated international banking sector, the Colon Free Zone (CFZ), and cargo container port facilities on both ends of the Panama Canal. In addition, Panama is also an international air hub with flights to the Americas, the Caribbean, Asia, and Europe. Furthermore, Panama's airspace is uncontrolled and there are several smaller domestic airports in addition to the Tocumen International Airport located outside Panama City.
Panama is a key area for the transit of cocaine, heroin and precursor chemicals. Drug shipments pass through Panama by land, sea, and air routes. Fishing vessels, cargo ships, and "go-fast" boats transit Panamanian waters and either continue on to other Central American countries or drop off their cargo in Panama. After cocaine arrives in Panama, traffickers repackage it either for transportation northward along the Pan-American Highway or for sea freight transport. Cocaine entering Panama from air routes is brought in by small planes that enter Panamanian airspace to drop the drugs off in remote, lightly populated areas along the Caribbean coast. Couriers transport smaller amounts of heroin and cocaine on commercial air flights, particularly to Spain, the Netherlands, Germany, and the United Kingdom.
The government of Panama continues to demonstrate its willingness to combat transnational drug trafficking. In 1999, Panamanian agencies seized 2,576 kilograms of cocaine, 1,558 kilograms of marijuana, 600 liters of acetic anhydride, 46 kilograms of heroin and made 131 arrests for international drug trafficking related offenses. Although 1999 cocaine seizures declined from 1997-1998 seizures, decreased seizures were due to changes in drug trafficking patterns as a result of aggressive interdiction efforts, rather that change in flow. Heroin seizures continued to increase, further establishing Panama as a principal link in the chain that funnels Colombian heroin to the United States.
Traditionally, Panamanian law enforcement officials have focused interdiction assets on containerized cargo arriving from source countries. However, traffickers have shifted to utilizing containers from non-source countries in addition to coastal freighters and fishing vessels for the movement of drugs, pre-cursor chemicals and currency. The large maritime industry and the use of containerized cargo to transport illicit drugs make Panama an attractive transit zone for Colombian drug traffickers.
The Colon Free Zone (CFZ) and the Ports of Cristobal and Coco Solo, located at the Atlantic entrance of the canal, are primary targets of interest for counterdrug law enforcement authorities. The Port of Cristobal has containerized cargo facilities that allow it to directly load containers onto the beds of trucks. The Port of Coco Solo supports a container transshipment facility as well as coastal shipping activity. In 1999, several containerized shipments of cocaine that transited through Panama were intercepted in other transit countries such as Guatemala, and in final destination countries such as Spain, Turkey, Russia, and the Netherlands. The most significant cocaine seizure from cargo occurred on March 2, 1999, when a cargo container destined for Guatemala was found to contain 335 kilograms of cocaine.
Drug traffickers continue to smuggle drugs into Panama utilizing go fast boats along the Caribbean and Pacific coasts. Interdiction efforts have resulted in several significant cocaine seizures from the pursuit of "go-fast" boats operated by Colombian crews. The most significant maritime seizure in 1999 occurred following a high-speed chase of two go-fast boats on the Pacific coast, which terminated in the Gulf of Panama. Authorities subsequently arrested three suspects and seized 385 kilograms of cocaine and 600 liters of acetic anhydride.
The Pan-American Highway is the principal transportation route for overland movement of drugs out of Panama. Drug trafficking organizations frequently utilize tractor-trailers to transport their illicit contraband across Central American borders. The drugs are routinely co-mingled with legitimate merchandise or secreted in false walls or floors.
Improved law enforcement presence at the Costa Rican border crossing at Paso Canoas led to several large seizures and a change in smuggling tactics along the Pan-American Highway. Instead of risking large shipments of drugs transported in tractor-trailers, traffickers are utilizing private vehicles to transport smaller loads of drugs through informal border crossings into Costa Rica. Once the contraband is safely staged in Costa Rica, it is routinely consolidated into tractor-trailers and sent north to Guatemala via the Pan-American Highway.
Drug trafficking organizations routinely utilize general aviation aircraft to smuggle contraband into and through Panama. Trafficking organizations have learned to exploit the inability of Panamanian authorities to distinguish between legal and illegal flights entering Panamanian airspace. Low flying aircraft have been known to drop their drug cargo into the waters off the Panamanian coast, near small vessels or on small deserted islands, usually at night. Contraband that is airdropped into the Gulf of Panama and the Eastern Pacific Caribbean area is smuggled into the CFZ where it is co-mingled with legitimate cargo prior to being transported to other destinations.
The Colon Free Zone (CFZ):
Panama continues to be a major financial and commercial center, ideally positioned for illicit financial transactions and drug smuggling. Panama's international banking center, a long established tax haven, combined with the Colon Free Zone (CFZ) and a U.S. dollar-based economy render Panama vulnerable to money laundering. The CFZ is second only to Hong Kong as the largest free trade zone in the world and is the largest in the Western Hemisphere.
The Colon Free Zone (CFZ) was created on June 17, 1948 through the passage of Law No. 18. Located at the Atlantic entrance to the Panama Canal, the purpose of the CFZ was to generate economic activity in the city of Colon after the end of World War II. Originally, 14 acres of land were set aside in the Island of Manzanillo for the CFZ. Operating as a free trade zone, the CFZ is an area where goods can be imported and re-exported without being subject to tariffs, quotas, and taxes. Therefore, importers throughout Latin America can purchase a wide variety of these products at a competitive price.
The CFZ comprises over 161 acres of warehouses and showrooms, which accommodates over 1,600 companies. Buyers throughout Latin America can purchase a variety of goods from all over the world at less than bulk amounts at bulk rate prices. The CFZ is an area where container loads of different products are broken down and repackaged. Thus, buyers do not have to purchase a whole container load of one product, but can instead choose different products, all to be shipped at once. In addition, CFZ merchants will routinely accept third party checks, money orders, wire transfers, and cash as payment for goods
Illegal narcotic sales in the United States generate billions of dollars annually, most of it 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 that subvert financial transaction reporting requirements and manipulate facets of the economy unrelated to the traditional financial services industry. 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. In addition, this financial scheme exploits the advantages of the CFZ, which serves as an integral link in the Colombian money laundering chain.
The BMPE is an underground financial system used to evade reporting and record keeping requirements mandated by the U.S. Bank Secrecy Act (31 USC 5311, et seq.), as well as Colombian foreign exchange and import laws and tariffs. Money (peso) brokers purchase U.S. dollars from narcotics dealers in Colombia, in exchange for Colombian pesos. These U.S. dollars are sold to Colombian importers in exchange for Colombian pesos. The U.S. dollars purchased by Colombian importers are used to pay for merchandise bought in the CFZ. The purchased goods are shipped to Caribbean or South American destinations, sometimes via Europe or Asia, then smuggled or otherwise fraudulently entered into Colombia. The Colombian importer takes possession of his goods, having avoided paying extensive Colombian import and exchange tariffs, and pays the peso broker for the items with Colombian pesos. The peso broker, who has made his money charging both the cartels and the importers for his services, uses those new pesos to begin the cycle once again.
These investigations are extremely complex and require cooperative law enforcement efforts between the U.S. and Panama. Although cooperation between the U.S. and Panama on money laundering investigations has improved, the pursuit of such investigations remains constrained by Panamanian laws requiring prosecutors to satisfy an unusually high burden of proof and to meet extremely difficult evidentiary standards.
Under Panamanian law, if a merchant demonstrates that transactions include real goods, and payment is at fair market value, he has not engaged in money laundering; thus, willful ignorance of the law is not a crime. From the Panamanian perspective, criminal money laundering takes place only when a person moves cash without a commensurate exchange of goods, and the cash involved results from specific drug transactions. These legal loopholes continue to be exploited by money laundering organizations operating in the CFZ.
As the gateway to the Caribbean, Panama continues to provide a significant link between South American drug cartels and their ability to transport their poison to the Continental United States. The country of Panama is singular in the opportunities it provides for traffickers, as well as the challenges it creates for law enforcement authorities. Over the past several years, the U.S. Government has refocused a great deal of our assets and enforcement initiatives along the Southwest Border in order to address the threat posed by Mexican drug trafficking organizations and their alliance with Colombian drug cartels. While these initiatives have resulted in outstanding success, we remain concerned about the increased drug trafficking activity throughout the entire Panamanian and Caribbean regions. I can assure you that the DEA will therefore, remain diligent in our efforts to respond to any apparent shift in drug trafficking trends.
The use of Panama as a drug transit zone by Colombian drug trafficking organizations as well as a means of securing their narcotics proceeds, creates unique challenges to Panamanian and U.S. law enforcement authorities. The DEA is dedicated to cooperative drug enforcement investigations with our Panamanian counterparts in order to address this threat.
Mr. Chairman, thank you for the opportunity to appear before this subcommittee today. I appreciate the interest that you and the subcommittee have shown in the DEA's counterdrug role in Panama. At this time, I will be happy to answer any questions you may have.