Fair use, etc., WHAT A CLASSIC, Paul.
The golden age of crime
Why international drug traffickers are invading the global gold trade
BY DAVID E. KAPLAN
Marian Walas was feeling the heat. He had helped send more than 100
kilos of cocaine from Chicago to Eastern Europe, federal agents say, but he
owed his Colombian suppliers $2 million and they were threatening his
life. He swore that the money would be wired immediately. His partner
even showed them where: to the account of a Panamanian gold company
named Speed Joyeros.
Moving money to Speed Joyeros was also on the mind of Inocensio
Lopez. According to court testimony, the Dominican drug dealer dropped
off a bag stuffed with nearly $300,000 at a Manhattan hotel room; the
money was to go to Moishe Hebroni, the owner of Speed Joyeros.
The connection between the two drug cases and Speed Joyeros is more
than a coincidence, law enforcement sources say. Speed is reputed to be
Latin America's largest gold trader, with $25 million in sales a month.
U.S. drug enforcement agents have seized nearly $1 million from a New
York bank account belonging to the company. Now they're examining the
firm's movement of millions of dollars of gold and cash around the world.
Speed has not been charged with any crime; company officials proclaim
their innocence and are fighting the government for release of their funds.
But to U.S. experts, the cases show that gold now plays a central role in
the billion-dollar business of washing dirty money.
Good as gold. The gold trade has become "the money laundering
mechanism of choice," according to internal law enforcement reports, and
is being used to wash "staggering amounts" of dirty cash. The way it
works is complex?and varied: Basically, drug profits are used to purchase
gold, whether as jewelry, ingots, or even scrap, then shipped across
borders and resold. The resulting profits are "clean," the drug trafficker
who bought the gold in the first place free to do with his money as he
pleases. So pervasive is its criminal use that gold is joining the U.S.
dollar as the standard currency of the drug trade. Among the evidence:
Nearly every major U.S. money laundering case in recent years has
involved gold. Authorities have traced the movement of tons of gold and
billions of dollars to deals by Latin American drug cartels.
U.S. gold imports from Latin American drug havens have skyrocketed.
Imports of gold from Colombia?a minor producer?ballooned from
virtually nothing in 1993 to nearly $200 million in 1996.
In the past 10 years, nearly $2.5 billion in foreign gold flowed into
Miami?despite Florida's lack of a jewelry-making industry. Authorities
say much of the gold is tied to money laundering and tax scams.
Narcotics traffickers are taking over the Latin American gold trade,
industry officials say. Colombian drug dealers are paying exorbitant prices
for gold and buying up small dealers across the region.
For drug traffickers, the gold market is like a magnet. So much of the
international gold trade operates "off the books" that it is an easy target for
organized crime, officials say. While many gold companies operate
legitimately, interviews with traders, refiners, and law enforcement officials
depict an industry riddled with money laundering, tax fraud, smuggling,
and dubious bookkeeping.
But the impact of an illicit gold trade goes beyond the corruption of one
industry. Having refined methods to detect money laundering in financial
institutions, U.S. investigators are stymied by the ancient trade in gold.
Officials also worry that corruption in Latin America's gold trade will
spread to the United States, where refiners are importing record amounts of
gold from Colombia and Peru. "There's nothing else out there like gold,"
says U.S. customs agent John Casarra. Posted to Rome in the early 1990s
to investigate the Mafia, Casarra found to his surprise that gold figured
again and again as the key to laundering cases. "Money launderers are
foremost businessmen, and businessmen want certainty," he says. "Gold
gives that to them. They can exchange it anywhere in the world."
Take the case of Gustavo Upegui Delgado. Casarra and his Italian
colleagues were stunned in 1994, when they found Delgado, a top money
launderer for Colombia's Cali cartel, was buying over a ton of gold a
month with his colleagues, using drug money to purchase the stuff, then
shipping it to Panama. The launderers moved so much of the metal,
officials say, that it depressed the price of gold between the two countries.
The big surprise is that it took traffickers like Delgado so long to tumble
to the allure of gold. The industry is largely made up of individual dealers
and small companies that prefer to deal in cash. High tariffs on gold have
attracted smugglers for years. "There's a dual economic system in the
jewelry industry," concedes Richard Rubin, the owner of Republic Metals
in Miami, a gold refiner. "There's on the books and there's off the books."
How big is the underground gold trade? No one really knows, but
customs officials got an unsettling hint a few years ago when they began
checking trade data on U.S. gold shipments. "We began to see
spikes?crazy spikes," says Lou Bock, a customs specialist in international
trade crimes. "We thought they must have been errors at first." Initially,
analysts discovered large movements of gold between the United States
and various Caribbean islands?places known not for their gold industry
but for laundering dirty money. U.S. gold imports from the Netherlands
Antilles, for example, jumped from $68,000 in 1993 to $29 million just
four years later.
In the zone. Equally impressive spikes soon emerged from Colombia and
Peru, the centers of cocaine production. Between 1994 and 1997, U.S.
imports of Peruvian gold grew more than ninefold, from $19 million to
$177 million. Imports of gold from Colombia ballooned from a mere
$120,000 in 1993 to nearly $200 million in 1996.
Much of the jump in Peruvian production may be due to rapid growth in
that nation's legitimate gold industry, says John Lutley, a veteran analyst
at the industry-sponsored Gold Institute in Washington, D.C. But Lutley
finds the data for Colombia hard to explain. "That's a totally incredible
number," he says. The flood of Colombian gold has made at least some
American refiners wary. "We do no business out of Colombia, for the pure
and simple reason that we can't establish the identity of the owner of the
gold," says Michel Berleson, marketing manager for top refiner Handy &
Harman.
Latin American gold enters the United States largely through Miami.
From 1989 to 1998, annual gold imports through Miami International
Airport jumped from $18 million to $465 million?a 26-fold increase.
While much of this trade is legitimate, gold analysts remain wary, given
the absence of a jewelry-making industry in Florida. Indeed, U.S. money
laundering experts believe these odd statistics reflect a myriad of schemes
for laundering drug money.
One typical scheme works like this: Top refiners in Switzerland sell their
gold to jewelry makers in Italy, the world's largest supplier of fine gold
jewelry. The Italian jewelry is sold to U.S. buyers?most of this trade is
thought to be legitimate?and to their second top market, Panama, which
imported $300 million worth of Italian gold last year?25 to 30
tons?according to Gold Fields Mineral Services, a London-based research
firm.
In Panama, nearly all the gold arrives at the Col¢n Free Zone, a bustling
market perched on the edge of the Panama Canal. Home to Speed Joyeros
and 1,600 other companies, the zona libre is the world's second-largest
free port, after Hong Kong. Bound by an imposing gray wall topped by
barbed wire, the 1.5-square-mile zone is home to a dizzying potpourri of
global traders: Arabs, Chinese, Indians, Jews. More than $6 billion of
merchandise passes through the district each year?as much as a quarter of
it, investigators say, financed by drug money.
In the money. Once in Col¢n, much of the Italian gold is sold to
Colombian front men for the cocaine industry. It is Col¢n, for example,
where the Cali cartel's Delgado sent his gold each month. The gold is
then smuggled back to Colombia, where some dealers sell it for pesos and
use the money for living expenses and to fund more drug production. But
others melt down the jewelry, recast it into ingots, and sell the gold to
refiners in the United States or Switzerland, producing a stream of income
that looks legitimate.
Investigators have found that in some cases, the launderers even buy back
the same gold they've just sold for refining in the United States, paying
for it with yet more drug money. The scheme apparently is also a good
deal for tax cheats. A recent crackdown in Peru found that 40 percent of
that nation's gold companies were bogus, set up largely to take advantage
of an export-tax rebate. Smugglers shipped gold to American refiners,
pocketed the tax rebate, smuggled the gold back to Peru, then shipped it
out again, grabbing yet another rebate. "I may have handled gold coming
in that was gold I sent down there to begin with," says Richard Rubin,
whose Republic Metals made large shipments to and from Peru.
Gold traders say the influence of narcotraffickers is so pervasive that they
are taking over Latin America's gold trade, co-opting legitimate firms and
buying up traders in country after country. "They're squeezing out the
legitimate dealers," says one prominent trader who insisted on anonymity.
Federal agents believe companies like Speed Joyeros play a key role in the
underground gold trade, a charge the firm's owners emphatically reject. "If
my clients are laundering money, why haven't they been indicted?" argues
Speed attorney Louis Diamond. Business for Speed, meanwhile, is
booming. In Col¢n, the company is building what a competitor calls "a
temple of gold"?possibly the largest jewelry store in Latin America.
Drug dealers playing the gold card are doing it in increasingly
sophisticated ways. In 1989, federal agents stopped a billion-dollar money
laundry that exported so much gold from Uruguay that that country
became America's largest gold supplier. The fact that Uruguay had no
gold industry mattered little to the launderers?what mattered was creating
a credible cover for their flow of narcodollars. Today, some criminals are
importing gold-plated bronze into the United States, others are shipping
out just the opposite: gold disguised as other metals. Having taken
payment in gold, the traffickers simply want to move their assets back
home. Customs inspectors, now on the lookout for gold smugglers, have
made repeated seizures in recent months. In one case, a woman flying to
Colombia from New York was stopped with two tractor-trailer hitches,
seemingly made of steel. Under the paint, inspectors say they found solid
gold.
The gold trade poses other challenges for law enforcement. The industry's
bookkeeping practices can be nightmarish, and gold traders often are
shielded by ethnic and family bonds. "Arms cases are comparatively
easy," says Casarra, the money laundering watchdog. "They are a
commodity you follow from country A to country B. But gold is more
like a currency. Moreover, its form can change, and that can make it
extremely difficult to follow."
Law enforcement's gold bugs also face obstacles within their own camp.
Casarra and a handful of colleagues have fought a sometimes frustrating
battle within the U.S. government to focus more attention on the gold
trade. Many investigators still view gold cases as exotic, even while their
bosses stress the importance of going after criminal money. Washington,
meanwhile, has taken its campaign against money laundering overseas,
prompting governments worldwide to put new laws on the books. But
cutting the underworld's financial pipeline will take more than seizing
bank accounts. If the focus remains merely on hard cash and not precious
metal, the world's drug barons may yet live to see a new Golden Age.
With Philip P. Willan and Eleni Dimmler in Rome, Carol Salguero in
Lima, and Mark Madden |
