DEA
Congressional Testimony
Statement
by:
William E.
Ledwith
Chief, Office of International Operations
Drug Enforcement Administration
Before
the:
House Subcommittee
on Criminal Justice, Drug Policy, and Human Resources
Date:
June 13,
2000
Note: This document
may not reflect changes made in actual delivery.
Mr. Chairman and
Members of the Subcommittee: I appreciate the opportunity to appear before
the Subcommittee today on the subject of Panama. My comments will be limited
to an objective assessment of the law enforcement issues involving drug
trafficking and money laundering in and through the country of Panama.
I would like to again express my thanks to the Subcommittee for your continued
support of the Drug Enforcement Administration (DEA) and overall support
of drug law enforcement.
The 9,000 dedicated
men and women of the DEA are committed to preserving the quality of life
of the citizens of the United States. The agency directs and supports
investigations against the highest levels of the international drug trade,
their surrogates operating within the United States, and those traffickers
whose violence and criminal activities destabilize towns and cities across
the county. These investigations are intelligence-driven and frequently
involve the cooperative efforts of numerous other law enforcement organizations.
It is important to
understand the threat posed by international drug organizations and why
cooperative law enforcement programs in the domestic as well as the international
arena are necessary to successfully counter drug trafficking and money
laundering within the United States. The leaders of these drug trafficking
organizations command powerful organized crime syndicates that control
virtually all of the heroin, cocaine and methamphetamine sold in the United
States today.
Today's organized
crime leaders are strong, sophisticated, and destructive and have the
capability of operating on a global scale. They are callous individuals
who send their surrogates to direct the distribution of the poison they
ship to the United States. These organizational leaders have at their
disposal airplanes, boats, vehicles, radar, communications equipment,
and weapons in quantities that rival the capabilities of some legitimate
governments.
Whereas previous
organized crime leaders were millionaires, the Colombian drug traffickers
and their counterparts from Mexico are billionaires. They have learned
to exploit a variety of weaknesses in order to protect their drug profits,
which are the lifeblood of these organizations. Their ultimate purpose
is to amass large sums of money in order to maintain their obscene and
lavish lifestyle free from the boundaries or confines of the law.
Overview:
Panama is the most
strategically located country in the Western Hemisphere for drug trafficking
and other transnational crime. Panama's location between South America
and North America, with its long coastlines, its border with Colombia,
and the Panama Canal make the country a key transit point for drug shipments
originating in Colombia for further shipment north. Panama's 225 kilometer
land border with Colombia, its 2,870 kilometers of Caribbean and Pacific
coastline, and over 1,480 islands make for an almost impossible task of
policing its borders. Other factors which make Panama attractive to major
drug traffickers are its weak law enforcement and public security institutions,
its large and sophisticated international banking sector, the Colon Free
Zone (CFZ), and cargo container port facilities on both ends of the Panama
Canal. In addition, Panama is also an international air hub with flights
to the Americas, the Caribbean, Asia, and Europe. Furthermore, Panama's
airspace is uncontrolled and there are several smaller domestic airports
in addition to the Tocumen International Airport located outside Panama
City.
Trafficking
Trends:
Panama is a key area
for the transit of cocaine, heroin and precursor chemicals. Drug shipments
pass through Panama by land, sea, and air routes. Fishing vessels, cargo
ships, and "go-fast" boats transit Panamanian waters and either continue
on to other Central American countries or drop off their cargo in Panama.
After cocaine arrives in Panama, traffickers repackage it either for transportation
northward along the Pan-American Highway or for sea freight transport.
Cocaine entering Panama from air routes is brought in by small planes
that enter Panamanian airspace to drop the drugs off in remote, lightly
populated areas along the Caribbean coast. Couriers transport smaller
amounts of heroin and cocaine on commercial air flights, particularly
to Spain, the Netherlands, Germany, and the United Kingdom.
The government of
Panama continues to demonstrate its willingness to combat transnational
drug trafficking. In 1999, Panamanian agencies seized 2,576 kilograms
of cocaine, 1,558 kilograms of marijuana, 600 liters of acetic anhydride,
46 kilograms of heroin and made 131 arrests for international drug trafficking
related offenses. Although 1999 cocaine seizures declined from 1997-1998
seizures, decreased seizures were due to changes in drug trafficking patterns
as a result of aggressive interdiction efforts, rather that change in
flow. Heroin seizures continued to increase, further establishing Panama
as a principal link in the chain that funnels Colombian heroin to the
United States.
Traditionally, Panamanian
law enforcement officials have focused interdiction assets on containerized
cargo arriving from source countries. However, traffickers have shifted
to utilizing containers from non-source countries in addition to coastal
freighters and fishing vessels for the movement of drugs, pre-cursor chemicals
and currency. The large maritime industry and the use of containerized
cargo to transport illicit drugs make Panama an attractive transit zone
for Colombian drug traffickers.
The Colon Free Zone
(CFZ) and the Ports of Cristobal and Coco Solo, located at the Atlantic
entrance of the canal, are primary targets of interest for counterdrug
law enforcement authorities. The Port of Cristobal has containerized cargo
facilities that allow it to directly load containers onto the beds of
trucks. The Port of Coco Solo supports a container transshipment facility
as well as coastal shipping activity. In 1999, several containerized shipments
of cocaine that transited through Panama were intercepted in other transit
countries such as Guatemala, and in final destination countries such as
Spain, Turkey, Russia, and the Netherlands. The most significant cocaine
seizure from cargo occurred on March 2, 1999, when a cargo container destined
for Guatemala was found to contain 335 kilograms of cocaine.
Drug traffickers
continue to smuggle drugs into Panama utilizing go fast boats along the
Caribbean and Pacific coasts. Interdiction efforts have resulted in several
significant cocaine seizures from the pursuit of "go-fast" boats operated
by Colombian crews. The most significant maritime seizure in 1999 occurred
following a high-speed chase of two go-fast boats on the Pacific coast,
which terminated in the Gulf of Panama. Authorities subsequently arrested
three suspects and seized 385 kilograms of cocaine and 600 liters of acetic
anhydride.
The Pan-American
Highway is the principal transportation route for overland movement of
drugs out of Panama. Drug trafficking organizations frequently utilize
tractor-trailers to transport their illicit contraband across Central
American borders. The drugs are routinely co-mingled with legitimate merchandise
or secreted in false walls or floors.
Improved law enforcement
presence at the Costa Rican border crossing at Paso Canoas led to several
large seizures and a change in smuggling tactics along the Pan-American
Highway. Instead of risking large shipments of drugs transported in tractor-trailers,
traffickers are utilizing private vehicles to transport smaller loads
of drugs through informal border crossings into Costa Rica. Once the contraband
is safely staged in Costa Rica, it is routinely consolidated into tractor-trailers
and sent north to Guatemala via the Pan-American Highway.
Drug trafficking
organizations routinely utilize general aviation aircraft to smuggle contraband
into and through Panama. Trafficking organizations have learned to exploit
the inability of Panamanian authorities to distinguish between legal and
illegal flights entering Panamanian airspace. Low flying aircraft have
been known to drop their drug cargo into the waters off the Panamanian
coast, near small vessels or on small deserted islands, usually at night.
Contraband that is airdropped into the Gulf of Panama and the Eastern
Pacific Caribbean area is smuggled into the CFZ where it is co-mingled
with legitimate cargo prior to being transported to other destinations.
The Colon
Free Zone (CFZ):
Panama continues
to be a major financial and commercial center, ideally positioned for
illicit financial transactions and drug smuggling. Panama's international
banking center, a long established tax haven, combined with the Colon
Free Zone (CFZ) and a U.S. dollar-based economy render Panama vulnerable
to money laundering. The CFZ is second only to Hong Kong as the largest
free trade zone in the world and is the largest in the Western Hemisphere.
The Colon Free Zone
(CFZ) was created on June 17, 1948 through the passage of Law No. 18.
Located at the Atlantic entrance to the Panama Canal, the purpose of the
CFZ was to generate economic activity in the city of Colon after the end
of World War II. Originally, 14 acres of land were set aside in the Island
of Manzanillo for the CFZ. Operating as a free trade zone, the CFZ is
an area where goods can be imported and re-exported without being subject
to tariffs, quotas, and taxes. Therefore, importers throughout Latin America
can purchase a wide variety of these products at a competitive price.
The CFZ comprises
over 161 acres of warehouses and showrooms, which accommodates over 1,600
companies. Buyers throughout Latin America can purchase a variety of goods
from all over the world at less than bulk amounts at bulk rate prices.
The CFZ is an area where container loads of different products are broken
down and repackaged. Thus, buyers do not have to purchase a whole container
load of one product, but can instead choose different products, all to
be shipped at once. In addition, CFZ merchants will routinely accept third
party checks, money orders, wire transfers, and cash as payment for goods
Money
Laundering:
Illegal narcotic
sales in the United States generate billions of dollars annually, most
of it cash. Efforts to legitimize or "launder" this cash by the Colombian
drug cartels are subject to detection because of intense scrutiny placed
on large financial transactions by U.S. banks. To avoid detection, the
cartels have developed a number of money laundering systems that subvert
financial transaction reporting requirements and manipulate facets of
the economy unrelated to the traditional financial services industry.
One such form of money laundering is known as the Black Market Peso Exchange
(BMPE). The BMPE is a complex system currently used by drug trafficking
organizations to launder billions of dollars of drug money each year.
In addition, this financial scheme exploits the advantages of the CFZ,
which serves as an integral link in the Colombian money laundering chain.
The BMPE is an underground
financial system used to evade reporting and record keeping requirements
mandated by the U.S. Bank Secrecy Act (31 USC 5311, et seq.), as well
as Colombian foreign exchange and import laws and tariffs. Money (peso)
brokers purchase U.S. dollars from narcotics dealers in Colombia, in exchange
for Colombian pesos. These U.S. dollars are sold to Colombian importers
in exchange for Colombian pesos. The U.S. dollars purchased by Colombian
importers are used to pay for merchandise bought in the CFZ. The purchased
goods are shipped to Caribbean or South American destinations, sometimes
via Europe or Asia, then smuggled or otherwise fraudulently entered into
Colombia. The Colombian importer takes possession of his goods, having
avoided paying extensive Colombian import and exchange tariffs, and pays
the peso broker for the items with Colombian pesos. The peso broker, who
has made his money charging both the cartels and the importers for his
services, uses those new pesos to begin the cycle once again.
These investigations
are extremely complex and require cooperative law enforcement efforts
between the U.S. and Panama. Although cooperation between the U.S. and
Panama on money laundering investigations has improved, the pursuit of
such investigations remains constrained by Panamanian laws requiring prosecutors
to satisfy an unusually high burden of proof and to meet extremely difficult
evidentiary standards.
Under Panamanian
law, if a merchant demonstrates that transactions include real goods,
and payment is at fair market value, he has not engaged in money laundering;
thus, willful ignorance of the law is not a crime. From the Panamanian
perspective, criminal money laundering takes place only when a person
moves cash without a commensurate exchange of goods, and the cash involved
results from specific drug transactions. These legal loopholes continue
to be exploited by money laundering organizations operating in the CFZ.
Conclusion:
As the gateway to
the Caribbean, Panama continues to provide a significant link between
South American drug cartels and their ability to transport their poison
to the Continental United States. The country of Panama is singular in
the opportunities it provides for traffickers, as well as the challenges
it creates for law enforcement authorities. Over the past several years,
the U.S. Government has refocused a great deal of our assets and enforcement
initiatives along the Southwest Border in order to address the threat
posed by Mexican drug trafficking organizations and their alliance with
Colombian drug cartels. While these initiatives have resulted in outstanding
success, we remain concerned about the increased drug trafficking activity
throughout the entire Panamanian and Caribbean regions. I can assure you
that the DEA will therefore, remain diligent in our efforts to respond
to any apparent shift in drug trafficking trends.
The use of Panama
as a drug transit zone by Colombian drug trafficking organizations as
well as a means of securing their narcotics proceeds, creates unique challenges
to Panamanian and U.S. law enforcement authorities. The DEA is dedicated
to cooperative drug enforcement investigations with our Panamanian counterparts
in order to address this threat.
Mr. Chairman, thank
you for the opportunity to appear before this subcommittee today. I appreciate
the interest that you and the subcommittee have shown in the DEA's counterdrug
role in Panama. At this time, I will be happy to answer any questions
you may have.
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