Drug Money Laundering

Strategic Findings

• With Mexican and Colombian DTOs responsible for most wholesale-level drug money laundering in the United States, a significant amount of illicit drug proceeds are moved across the Southwest Border into Mexico annually. Therefore, the Southwest Border remains a serious area of concern for U.S. drug money laundering.

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Overview

Mexican and Colombian DTOs are responsible for most wholesale-level drug money laundering in the United States. Mexican and Colombian DTOs together generate, remove, and launder between $8.3 billion and $24.9 billion in wholesale distribution proceeds from Mexico-produced marijuana, methamphetamine, and heroin and South American cocaine and heroin annually. ¹³These DTOs primarily use bulk cash and monetary instruments smuggling, wire remittances, and the Black Market Peso Exchange (BMPE).¹⁴

The Southwest Border area is a primary focus of federal, state, and local law enforcement scrutiny and currency interdiction activities, because of significant bulk cash smuggling activity into Mexico. This activity quite likely is the result of U.S. regulatory and law enforcement actions, which have made it increasingly difficult for drug traffickers to place their illicit proceeds directly into U.S. financial institutions. Both Mexican and Colombian DTOs transport illicit drug proceeds from U.S. drug markets to other U.S. locations for consolidation. The proceeds often are transported in bulk to an area near the U.S.-Mexico border and are either smuggled into Mexico at Southwest Border POEs, primarily in South Texas, or remitted electronically to Southwest Border locations, where the transferred cash is then smuggled across the U.S.-Mexico border.

Although bulk cash smuggling is the principal method for moving drug money out of the country, wire remittances are also relied upon to facilitate drug money laundering. Colombian DTOs use money services businesses (MSBs) to electronically wire-transfer drug proceeds directly to Colombia from major U.S. drug market areas, such as Miami (FL) and New York City. Mexican DTOs generally wire transfer drug proceeds from U.S. market areas to consolidation points near the Southwest Border. Transfers are typically structured in amounts less than $3,000 and sent by several individuals to evade personal identification reporting requirements. The funds are then consolidated and smuggled into Mexico, thereby eliminating any documentation associated with a wire transaction, hiding the intended final destination of the funds.

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Once drug proceeds are successfully smuggled into Mexico, one of the following scenarios typically occurs, each with its own risks and advantages for the money launderer:

• Traffickers deposit their drug proceeds into casas de cambio (currency exchange houses) or Mexican financial institutions from which the funds are wire-transferred to correspondent accounts at U.S. or foreign banks.
• The cash is transported back into the United States via armored car or courier services. Once across the U.S.-Mexico border, the cash typically is represented as a deposit to a U.S. bank account on behalf of a Mexican casa de cambio or financial institution.
• Mexican DTOs maintain cash in a variety of stash sites, usually located in residences throughout Mexico, in order to access operating funds as needed.
• Funds are smuggled farther south via couriers into Panama, Colombia, and other Latin American countries. Some of the funds transported to these countries are used to facilitate BMPE activity.

The U.S.-Canada border also is impacted, as an estimated $5.2 billion to $21.2 billion is generated through the wholesale distribution of marijuana and MDMA by Canada-based DTOs, and much of those illicit drug proceeds are transported in bulk across the roughly 4,000-mile Northern Border.¹⁵ The length of the border renders currency interdiction difficult. Interdiction is further challenged in some rural corridors, particularly in sovereign tribal lands that incorporate both Canadian and U.S. territories.

Although bulk cash will quite likely remain the preferred method of transporting currency to and across U.S. borders, anti-money laundering regulatory and law enforcement measures will drive some launderers to seek alternative methods to launder drug proceeds, and new technologies--such as stored value cards and online payments systems--will provide opportunities for such alternate methods, potentially replacing some traditional money laundering methods. For example, open-system ¹⁶ stored value cards are superior to the use of money remitters or bulk cash smuggling via package delivery services and commercial conveyances (airplanes, buses, and trains) because the cards can be used without fear of documentation, identification, law enforcement suspicion, or seizure. Such cards are frequently anonymous and can essentially be used as a cross-border remittance, since card value generally can be added or withdrawn at automated teller machines (ATMs) worldwide. Although loosely regulated under the Bank Secrecy Act (BSA), these cards are not subject to the many reporting and recordkeeping requirements, providing additional anonymity. Unlike cash, the cards cannot be seized by law enforcement for a Currency or Monetary Instrument Report (CMIR)¹⁷ violation. However, law enforcement personnel can seize the cards under separate statutes if there is probable cause to believe that the cards are the proceeds of illegal activity. Online payment systems, including electronic gold, provide anonymity, versatility, and convenience and will continue to gain in popularity with international drug money launderers because such systems utilize the worldwide reach of the Internet and eliminate other problems associated with fluctuating exchange rates for international currencies.

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Intelligence Gap

Although the Southwest Border continues to be a significant area of concern for drug money laundering, the extent of similar activity along the Northern Border is largely unknown. A thorough, comprehensive assessment of money laundering activity along that Border would provide the intelligence necessary to counter such activity, thereby eliminating this intelligence gap.¹⁸

End Notes

13. These figures were derived by multiplying the total quantity of Mexico- and Colombia-produced drugs available at the wholesale level in the United States by the wholesale prices for those drugs.
14. Origin of the BMPE: The system originated in the 1960s, when the Colombian government banned the U.S. dollar intending to increase the value of the Colombian peso and boost the Colombian economy, and it imposed high tariffs on imported U.S. goods hoping to increase the demand for Colombian-produced goods. However, it created a black market for Colombian merchants seeking U.S. goods and cheaper U.S. dollars. Those merchants possessed Colombian pesos in Colombia but wanted cheaper U.S. dollars (purchased under official exchange rates) in the United States to purchase goods to sell on the black market. Colombian traffickers had U.S. dollars in the United States--from the sale of illicit drugs--but needed Colombian pesos in Colombia. Consequently, peso brokers began to facilitate the transfer of U.S. drug dollars to Colombian merchants, and business agreements were forged allowing those Colombian merchants to purchase U.S. dollars from traffickers in exchange for Colombian pesos. Although the ban on possession of U.S. dollars was later lifted, the black market system became ingrained in the Colombian economy, and Colombian drug traffickers continue to rely on this system to launder their U.S. drug proceeds.
Source: Department of Homeland Security Federal Law Enforcement Training Center.
15. These figures were derived by multiplying the total quantity of Canada-produced drugs available at the wholesale level in the United States by the wholesale prices for those drugs.
16. Open-system stored value cards have the greatest utility for money laundering related to wholesale-level drug trafficking, as they are similar to traditional credit or debit cards and can be used anywhere that the major credit card parent brand is accepted, frequently including worldwide automated teller machines (ATMs).
17. Currency or Monetary Instrument Reports (CMIRs) must be filed by (a) each person who physically transports, mails, or ships, or causes to be physically transported, mailed, or shipped, currency or other monetary instruments in an aggregate amount exceeding $10,000 at one time from the United States to any place outside the United States or into the United States from any place outside the United States, and (b) Each person in the United States who receives currency or other monetary instruments in an aggregate amount exceeding $10,000 at one time that have been transported, mailed, or shipped to the person from any place outside the United States.
18. The NDIC Money Laundering Group will develop a Northern Border money laundering assessment during fiscal year 2007. 

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