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Illicit Finance

The PR/USVI HIDTA region is a major money laundering center for drug traffickers with operations in the region. The San Juan High Intensity Financial Crime Area (HIFCA) reports that the leaders of high-profile money laundering organizations based in Central and South American countries maintain money laundering cells in Puerto Rico and the USVI. The cells launder the illicit proceeds generated by traffickers operating in the HIDTA region and, in doing so, use financial institutions, money remitters, shell corporations, bulk cash smuggling, and other methods, such as the Colombian Black Market Peso Exchange (BMPE).9

DTOs in the CONUS are increasingly smuggling bulk cash to the PR/USVI HIDTA region as well as between the region and other Caribbean countries. The DEA Caribbean Field Division reports that DTOs operating in a number of areas in the CONUS, including Maryland, New Jersey, New York, and North Carolina, are increasingly smuggling bulk cash to the HIDTA region for eventual laundering; they also transport laundered cash back to the CONUS. DTOs are reportedly decreasing their use of electronic wire transfers because they fear increased law enforcement scrutiny and detection under the USA PATRIOT Act and, instead, are smuggling bulk cash).10

In the USVI, particularly St. Croix, asset substitution has become the primary method used by traffickers to launder illicit proceeds. Asset substitution involves a third party, often a facilitator or semilegitimate criminal associate, who purchases used automobiles and/or boats from the CONUS and then ships the vehicles to St. Croix for resale. Drug traffickers purchase the vehicles from the third party in cash, usually at inflated prices; the purchaser's identity is often concealed. The traffickers then resell the vehicles to unwitting buyers, generally within the St. Croix community.

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Drug smuggling through the PR/USVI HIDTA may rise throughout the region over the next few years, particularly smuggling using maritime conveyances. The expected increase in commercial goods shipped from seaports in Puerto Rico to the CONUS and also to European countries such as Belgium, France, the Netherlands, and Spain will provide drug traffickers increased opportunities for drug smuggling. DTOs may take advantage of the expected growth in transshipped trade to hide contraband within the increasing volume of licit goods and exploit lax port security and limited inspection.

Puerto Rico-based drug traffickers will continue to transport illicit drugs, particularly cocaine, from Puerto Rico to the CONUS using the USPS. Law enforcement officials report that drug traffickers consider the use of USPS Express Mail services to transport illicit drugs to be fairly secure, since investigators must obtain search warrants to open any packages sent through the USPS--this action typically delays the packages and alerts the traffickers that the packages were most likely intercepted.

The corruption within the Puerto Rico Police Department in 2007 appears to have lowered public confidence in the police department's ability to protect the citizenry; this situation has resulted in decreased cooperation between the citizenry and the police department and has made it more difficult for police officers to deter crime and enforce the law. Consequently, as cooperation between the public and police decreases, it is likely that the crime rate in Puerto Rico will rise and the drug situation will worsen in the next year as traffickers take advantage of a perceived law enforcement weakness.

End Notes

9. The Colombian Black Market Peso Exchange (BMPE) 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. The government also imposed high tariffs on imported U.S. goods, hoping to increase the demand for Colombian-produced goods. However, this situation 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 enabling 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.
10. Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (commonly known as the USA PATRIOT Act or simply the Patriot Act), was signed into law on October 26, 2001.

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