The main feature employs a money trader to ensure no US drug sales revenue crosses borders. Instead, those dollars are utilized to buy a variety of genuine items from naïve enterprises on behalf of real South American businesspeople, whose lawful purchases are then used to earn pesos for the drug gangs.
The notion of the Black Market Peso Exchange is not new. Nonetheless, the current settlement shows that the system has expanded to encompass the investment of filthy money into legitimate, high-end, profit-generating real estate.
BMPE became a cornerstone of money laundering in the 1970-80s when organized crime reacted to more severe financial rules requiring traditional banks to identify their customers and confirm their revenue source was legitimate.
How the Colombian drug cartels exploit the black market peso exchange system
The Colombian Black Market Peso Exchange mechanism utilized by the cartels is the most effective and comprehensive "system" of money laundering in the Western Hemisphere. It is intended to avoid the currency reporting requirements of the United States Bank Secrecy Act (BSA), which inhibits anonymous large-scale currency transactions in the United States banking system. The "system" works in the following way:
- Drug cartels in Colombia export narcotics to the United States;
- Drugs are sold in the United States for dollars;
- A cartel in Colombia enters into a "contract" with the Colombian Black Market Peso Exchanger, who is usually in Colombia;
- The cartel sells its U.S. dollars to the Exchanger's U.S. agent;
- Once the U.S. dollars are delivered, the peso exchanger in Colombia deposits the agreed-upon equivalent (of U.S. dollars) in Colombian pesos into the cartel (At this point, the cartel representative is out of the picture because he has successfully converted his drug dollars into pesos.)
- The Colombian Black Market Peso Exchanger now bears the risk of transferring the laundered drug cash into the US financial system via various sophisticated transactions.
- The Colombian Black Market Peso Exchanger now has a pool of laundered cash in US dollars to sell to Colombian importers, who utilize the dollars to purchase products, either from the US or from collateral markets;
- Finally, these commodities are transported to Colombia.
Possible Red Flags
Listed below are a few of the identifiable areas of vulnerability that banks and other depository institutions should be aware of:
- Structured currency deposits to individual checking accounts, often at levels well below the typical levels for structuring, with multiple daily deposits to multiple accounts at different branches of the same bank on the same day;
- Consumer checking accounts that are used for a time and then go silent. In other circumstances, the accounts may have become overdrawn, possibly to escape detection; personal checking accounts created by foreign nationals who visit the bank together;
- Multiple accounts created or held by the same foreign nationals at different banks on the same day;
- Increased frequency or quantity of currency deposits made by US business account holders exporting to Colombia;
- Suspicious transactions that might be related to a larger conspiracy.
It may also be beneficial to establish contact with other financial institution representatives in your region in order to share ideas and information.
Steps Taken by Law Enforcement to Combat the "System"
- Information sharing with US bankers. Nontraditional methods are being investigated in addition to traditional law enforcement efforts in order to help identify and disrupt this system at its most vulnerable choke points, namely the financial institutions and businesses in the importing chain—the points at which the money is actually laundered. A strategic plan is being organized through FinCEN and an Interagency Coordination Group known as the ICG to help the banking and commerce community in attempting to deny the cartel access to their operations. The ICG is headquartered at FinCEN and makes use of its data and analytical tools.FinCEN is aiding the ICG further through its collaborations with the financial and trade communities in the United States, Colombia, Panama, and Mexico. This network gives the ICG a "highway" to take its knowledge of the system on the road and share it with impacted banks, merchants, and government officials in Colombia, Panama, and Mexico.
- Sharing information with Colombian and Panamanian government authorities, bankers, and merchants. ICG members then sought politicians and bankers in Colombia and Panama, as well as businesspeople in Panama's Colon Free Zone, thus extending their reach farther into the FinCEN network. The ICG’s message has been primarily the same as the one it took to the U.S. banks—“We are all faced with a common problem and here is what we know about it. We will benefit by working together to find solutions.” All of the organizations contacted have responded positively, and additional specialized information-sharing projects are in the works. While these are good improvements, much more effort must be made to combat this money laundering enterprise.
- Extending the educational endeavor. As previously stated, United States banking community members are evaluating accounts supplied by law enforcement to find the most efficient methods of identifying suspicious behavior similar to money laundering strategies utilized in Colombia's Black Market Peso Exchange System.
What Are the AML Regulations for the BMPE?
The US government responded to Black Market Peso Exchange in 1970 by passing money laundering regulations and establishing a suspicious transaction reporting system. Regulations mandated reporting of cash transactions over $10,000; nevertheless, most banks violated these requirements. The US government increased restrictions and pressed banks to follow the regulations.
Anti-money laundering reforms were made by the Finance Ministry of the Mexican government.
- Limits the amount of US cash accepted by Mexican banking institutions.
- $300 per day/$ 1500 per month for non-bank customers.
- $4,000 per month for individual bank customers.
- $14,000 per month for businesses in border or tourism areas.
- No limit if the business has had an account for three years or more.
- The purpose is to avoid USD laundering via the Mexican financial institution's system.
- This new financial regulation is aligned with the Mexican government's policy/strategy for combating organized crime.
- Certain laws do not prevent deposits of USD in excess of these sums, but they do demand a CTR equivalent in Mexico for such deposits.
- Money exchangers are likewise subject to regulations, which limit exchanges to $10,000 per day per customer when no banking activity is involved.
As a result of these new laws, US authorities are trying to figure out where the displaced cash will go to be integrated into the US/Mexico financial networks.
Black Market Peso Exchange is one of the most successful money laundering strategies ever devised. As a result, governments and financial institutions throughout the world should make serious efforts to fight it, as money laundering slows economic development.