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Testimony of: William F. Bruton

Kroll Lindquist Avey, Atlanta, Ga.

Thursday, February 10, 2000

House of Representatives

Subcommittee on Crime

Committee on the Judiciary

Washington D.C.

Issue: Money Laundering

Mr. Chairman, my name is William Bruton. It is a pleasure for me to be here today speaking before this subcommittee about my experiences with the Black Market Peso Exchange System. I recently retired in July 1999 after 26 years with the Criminal Investigation Division Internal Revenue Service. During the past 11 years, I have spent the majority of my time managing a group of agents investigating, in part, the Colombian Black Market Peso Exchange System. The investigations started during the tenure of Bob Barr, at that time the United States Attorney in Atlanta GA. The investigation that started was captioned "Operation Polar Cap". This investigation was supervised by myself, Albert "Skip" Latson, Drug Enforcement Administration and Wilmer Buddy Parker, Assistant United States Attorney. As the Honorable Bob Barr may recall, at end of this investigation, we froze approximately 750 bank accounts nationwide, holding over 10 million dollars. We soon learned that the majority, if not all of these account owners, claimed the status of innocent owner. They claimed that they purchased these dollars, deposited to their accounts, and did not know that they were proceeds of drug trafficking activities.

It might be helpful to review this system of money laundering in order to show why this system is so sinister and harmful, not only helping to repatriate the profits to the drug dealers but how it subverts a foreign government's ability to control the basic products of its economy. The Black Market Peso System starts by the shipment of drugs from Colombia to the shores of the US. The drugs are sold for dollars in the US. Over the years the Colombian government would not allow any citizen to have a domestic US dollar account so the drug trafficker needs Pesos in Colombia to pay for the manufacture of more drugs and to pay for his life style enhancements. Legitimate business persons need dollars in the US to purchase products for resale in Colombia. The drug dealer contacts a black market "currency exchanger" and offers to sell him $500,000 in US currency in a US city. A code and cell number is given the currency exchanger to call and arrange to pick up the money. In some cases, the currency exchanger may charge as high as 20% discount fee to the drug dealer.

A legitimate business person in Colombia goes to see the currency exchanger telling them that he needs to pay for some products he is buying in the US.

The businessman buys the dollars in the US and exchanges his pesos in Colombia. He buys the pesos at a lower rate than is being offered as the official exchange rate, sometimes a 10% discount. The businessman tells the currency exchanger what account to sent the money to in the US. Many times the money arrives at the US business from an account, on in a name, not associated with the Colombian businessman. Many times the US business will research which customer to credit the funds to or in the case of checks, they may be hand delivered and the receiver is told which person is sending the funds, even though the businessman's name is not on the item being presented.

If the products are then smuggled into Colombia through a free trade zone, the government is denied all the tax benefits of the commerce being conducted within the country.

As the circle closes, the drug dealer has his pesos in Colombia (at a 20% discount), the business man has his products in his store at a cheaper cost than his competitors who have gone through the central bank and the currency exchanger has made money from both.

From the early days, Atlanta IRS and DEA, conducted many international undercover investigations of domestic and international money-laundering groups. All of these investigations had one thing in common, and that was the Black Market Peso Exchange System. Skip Latson DEA and I along with Larry Andersen, Assistant United States Attorneys in Atlanta, have operated an undercover bank and an undercover stockbrokers firm. The undercover bank, call Operation Dinero, operated in Atlanta with the co-operation of the British, Italian, and Spanish governments. This bank, and its undercover representatives and informants, offered to the Colombian Cartel drug dealers the service of hiding their narcotics money and attempting to provide financial services for them through our undercover bank. We had the opportunity to see first hand some of the inner workings of the Black Market Peso Exchange System and why it was of such value to them. During these meetings, we were offered $300 million in bonds, the assistance of South American airline to bulk ship currency out of the country, and works of art to convert to cash. We were also offered many millions of dollars of Mexican bank drafts to be processed through our bank. During Operation Juno, a recently concluded operation, operated as an undercover stockbrokerage firm, we were offered the opportunity to invest in computer products that were to be sold in Bogotá. If we accepted, we would be shown the U.S. businesses in the United States that would take cash, and then they would ship electronic products to Bogotá. We were assured that we could have our representatives in Colombia receive pesos within 10 days of delivering the cash to these US businesses. An interesting note was the fact that they told us where we could retrieve our cash, from a very prominent business location in Colombia. When I mentioned this to a newly arrived DEA agent from Bogotá, he laughed because he said that the embassy purchases their computer products from the same outlet because the prices are so cheap.

During the last 11 years, I have spoken to DEA agents who have had extensive experience in conducting investigations of narcotics organizations. Almost to a person they have said that following the money, doing a financial investigation along with a drug investigation, can lead you to the highest level of narcotics organizations more quickly than strictly following the drugs.

Any strategy used to assist field law-enforcement and attorneys in fighting the war on drugs must be viewed as a chess game in order to move forward. During the early '70s in South Florida Federal Reserve, investigators and prosecutors saw that banks were accepting boxes full of currency and gladly accepting this cash on deposit. Congress then countered that move and instituted a Currency Transaction Reporting Form (CTR), and the government educated banks as to its purpose, following the process with prosecutions. Narcotics traffickers countered that move with moving to using businesses to launder their proceeds, these businesses being on a bank exempt list. Congress then enacted the 8300 form, and government agencies educated businesses on its purpose and use, and then prosecutions followed. Narcotics traffickers then moved to non-financial institutions, transferring money via wire remitters to Mexico and Colombia. The Secretary of The Treasury then implemented a General Targeting Order (GT0) in New York. Narcotics traffickers are now moving to other systems. I have had the opportunity to work with Al James at FINCEN and have seen how they are attempting to stay ahead of the money laundering cycle.

During the past 15 years narcotics traffickers have been moving toward, increasing their use of, the Black Market Peso Exchange System. I am happy to see that this law will move toward countering narcotics use of this system. This system not only assists the narcotics trafficker with the repatriation of his wealth, but also devastates the market economy of the people and businesses utilizing the cheap dollar peso exchange to conduct private enterprise in Colombia. I have provided a paper I delivered two years ago at Cambridge, England and recently published by Henry Stewart Publications, London, England. This publication goes into more detail than I have allotted time to cover this topic.

I support this bill and the effect it will have on the Black Market Peso Exchange System. I would encourage a "sense of the house" that the branches of government that will enforce these sanctions, educate private industry as to their due diligence requirement, making sure that they are not subject to receiving funds purchased through the Black Market Peso Exchange System. Several years ago Ms Doe testified before the subcommittee on General Oversight and Investigation and listed several prominent Fortune 500 businesses, which she had sent money to purchase goods through the Black Market Peso Exchange System. I have attempted on at least two occasion to try to convince a branch of government to educate U.S. businesses. I was not successful at getting this type of education for business. The education (before enforcement) is as important as a passage of this law. I feel that this law passage is critical if we are to continue in the chess moves against narcotics traffickers, for they have agility and speed and a highly educated staff of financial advisers assisting them in moving their drug wealth from the place of origin back to their banks to assist them in enhancing their life styles. During one undercover meeting, we asked a narcotics trafficker in South America how much money he made the year before. He said he personally made five hundred million dollars in the United States and his extended family had made an additional five hundred million dollars. Narcotics traffickers are getting older and are concerned with estate planning, and how they can become part of the country club set and spend their ill gotten gains into retirement. The Black Market Peso Exchange System is affording them the opportunity to show that they did not get their money from drug trafficking but from the sale of electronics or other consumer goods purchased through the Black Market Peso Exchange System. The funds, processed this way, are almost untraceable by the Colombian Government.

The Black Market Peso System has for years frustrated law enforcement. If we spent months tracing the drugs to money and the money to a bank account, we are then faced with the "Innocent Owner" defense. If we try to resolve the issue of knowledge of the "innocent owner" and his off shore accounts, in bank secrecy countries, we are stopped by the secrecy defense. In various undercover activities we have been asked to receive proceeds of crime from around the world for deposit into a US account, but have been stopped because we could not "fit" it into one of the existing SUA's. This bill will go a long way in resolving many of the problems we have faced in the past.

In closing, I would like to restate that I fully support this bill and I thank you very much for the opportunity to appear before you today.