FROM THE OFFICE OF PUBLIC AFFAIRS

Good Afternoon. Thank you, Mr. De Luca, for that introduction, and thank you also for inviting me to speak to you today.

Normally, when the Treasury Department's Under Secretary for Enforcement speaks to a group such as this, the topic is alcohol regulation. While that is always high on our agenda, today I want to talk to you about money laundering. More specifically, I want to talk about a particular money laundering scheme. That scheme is the Black Market Peso Exchange, a trade-based money laundering system, that has become the largest money laundering system in the Western Hemisphere. The Black Market Peso Exchange, or BMPE, is the primary system providing the fuel that drives the engine of the drug trafficking machines at work in our country. Estimates indicate that this system may be responsible for laundering up to 5 billion dollars annually.

The BMPE is perhaps the most pernicious and damaging form of money laundering we have encountered. It is a system that supports an illicit industry that has shredded the social fabric of nations and that has been deemed by our own government as a security threat. We at the Treasury are committed to dismantling the Black Market Peso Exchange. We are doing that by attacking it with smart law enforcement and by engaging affected international communities in our fight against the BMPE. We are also reaching out to the business community of our own country whose products are exported and for that reason alone make them susceptible to this form of money laundering.

During the next few minutes I'd like to describe how this system operates, tell you what we are doing in law enforcement to attack it, and share with you some warning signs that might indicate that your product is being purchased with BMPE funds.

The BMPE is a money laundering scheme used by Colombian drug cartels that need to launder illicit drug profits and by Colombian importers seeking to avoid Colombian tariffs and taxes on smuggled imported goods. These two groups are assisted by peso brokers who are able to facilitate multi-million dollar transactions outside Colombia's legitimate financial system. As I mentioned earlier, the BMPE has become the single most efficient and extensive money laundering scheme in the Western Hemisphere and this is how it works.

• A Colombian drug cartel arranges the shipment of drugs to the United States;
• The drugs are sold in the US producing large volumes of US currency;
• To repatriate its illicit drug proceeds, the cartel sells its US currency to the Colombian black market peso broker's agent in the United States;
• Once the dollars are delivered to the US-based agent of the peso broker, the peso broker in Colombia deposits an agreed upon equivalent in Colombian pesos into the cartel's account in Colombia;
• The Colombian broker and his agent now assume the risk for introducing the laundered drug dollars into the US banking system, usually through a variety of surreptitious transactions;
• The Colombian black market peso broker now has a pool of laundered funds in US dollars to sell to Colombian importers who use the dollars to purchase goods, either from the US or from other markets, which are then smuggled into Colombia and sold on the black market; and
• Finally, those goods are smuggled into Colombia and sold on the black market.

Now, let me tell you what we are doing to combat this money laundering scheme. In response to the need for a systemic approach to the BMPE problem, in 1998 Treasury established the Black Market Peso Working Group composed of law enforcement professionals from the Departments of Treasury and Justice, as well as participants from the Federal Reserve Board. This Working Group, devoted to the development of a comprehensive action plan to combat this system, brings together the tools of Treasury's and Justice's enforcement bureaus, as well as, regulatory agencies in a coordinated effort against the BMPE.

Using a strategy developed by this interagency Working Group, we are attacking the BMPE with tough and smart law enforcement, international cooperation with key allies, and partnership with the private sector.

Through smart and tough law enforcement initiatives that are focused on the system's most vulnerable points, or choke points, we have successfully investigated and prosecuted individuals laundering drug proceeds through the BMPE. Customs undercover operations have led to the seizure of $800 million, 2100 arrests, and seizure of over 100,000 pounds of cocaine. In addition, the IRS has investigated approximately 250 cases involving the BMPE. Recognizing that the BMPE is a global problem, we have extended our efforts to the international arena. In March, we met with officials from governments of Colombia, Panama, Venezuela, and Aruba to finalize the charter for a multilateral BMPE Task Force to focus on the BMPE and to develop a strategy for attacking it universally. In addition, the Departments of Treasury and Justice co-chaired two days of talks with senior officials from Colombia's Customs, Foreign Trade, and Banking Superintendence offices on BMPE and what steps each could take separately and collectively to combat the problem. These informal discussions represent an important breakthrough, ushering in a number of cooperative initiatives and programs important to law enforcement efforts in both countries. Bringing together all of these key players in order to bring the collective weight of our resources, experiences, and efforts to bear on this money laundering system is integral to our BMPE strategy.

The areas I've just discussed -- tough and smart law enforcement and international cooperation with key allies -- are two basic principles of our BMPE action plan. The third principle, outreach to the private sector, is also vitally important to the achievement of our goal of eliminating this money laundering system. One of the ways we are achieving this objective is by doing just what I am doing today, talking personally to trade associations and advocacy groups representing industries that are vulnerable to the BMPE.

We, business and government, have a mutual interest and a shared responsibility in making sure that all trade is legitimate and that trade goods are not purchased with laundered money. To assist you in making sure your products are not paid for with money laundered through the BMPE, we have provided copies of the latest Customs Advisory for businesses which, in addition to describing the Black Market Peso Exchange system, includes red flags that indicate BMPE activity. Examples of these red flags include:

• Payments for outstanding invoices made in cash by third parties having no connection to the underlying transaction;
• Payments made with wire transfers from third parties with no connection to the underlying transaction;
• Payments for goods with checks, bank drafts, or money orders not drawn on the account of the entity that purchased the items.

By recognizing these signs and taking appropriate measures, involvement in this money laundering system can be avoided

I am sure many of you have compliance systems to better detect this activity and procedures to be followed if it is detected. We commend you for that. If your company does not have a money laundering compliance program, I encourage you to develop and implement one as soon as possible.

Let me tell you that with exports exceeding 500 million dollars and sales of your products to 164 countries, your companies are susceptible to the Black Market Peso Exchange. In addition to compliance programs, I encourage you to consider establishing dialog with your distributors to educate them on the BMPE and to make them aware of things they should avoid to ensure your products are not purchased with BMPE funds.

Of course it is in your best interest, and will save your considerable attorney's fees, to avoid involvement in this money laundering system. It is in our interest to make sure you have tools to help you avoid involvement. If, after you leave here, you have questions or would like more information about the BMPE, or you would like to report a suspicious business practice which you think might indicate BMPE activity, please don't hesitate to call the toll free number located in the Customs Advisory.

Thank you again for inviting me to speak to you today. I have a few minutes of my allotted time remaining, and I would be happy to answer questions you might have.