Banks across the country are unwitting pawns in an increasingly popular scam to launder billions in drug money, a former Colombian currency broker told lawmakers Wednesday.
A money launderer turned government informant said that in two years she laundered several million dollars through accounts at nearly 30 U.S. banks including Chase Manhattan, Marine Midland, NationsBank, and First Union.
"As a money broker in Colombia, I established accounts in U.S. banks where the drug money was deposited," said "Ms. Doe," who testified anonymously before House Banking's general oversight subcommittee.
Peso brokers are running $5 billion to $10 billion annually through U.S. banks, said Alvin C. James, a special agent for the Internal Revenue Service.
Because she has received death threats, Ms. Doe spoke from behind a screen, her voice disguised with sound equipment. She detailed how she engaged in an elaborate form of money laundering called "black market peso exchange."
"I cannot say these banks were aware that I and other money brokers were using their accounts for money laundering, but without their services, we could not have brokered drug profits," said Ms. Doe.
Rep. Carolyn C. Kilpatrick, D-Mich., said she was "outraged" by Ms. Doe's testimony that bank employees did not ask for much identification when she wired drug money from the accounts of associates, and even provided her with the necessary software and routing codes.
"It looks like they are willing partners," Rep. Kilpatrick said.
According to Ms. Doe and government witnesses, peso brokering typically works like this: A money broker in Colombia knows of a drug cartel that has $500,000 from narcotics sales hidden in the United States that it wants to secretly repatriate as pesos.
The broker finds a coffee grower in Colombia who needs $500,000 in farm equipment from a U.S. manufacturer. The grower exchanges his pesos on the black market to get a better rate and avoid high taxes and import tariffs. The grower pays the broker $500,000 worth of pesos and a commission. The broker uses the grower's pesos to buy the cartel's $500,000 in drug money, once again taking a fee.
The cartel now has its pesos in Colombia, but the broker has to launder the drug dollars and get the grower his farm equipment.
The broker hires 50 to 100 agents-often Colombians posing as frequent visitors to the United States-to open accounts at U.S. banks. Others make numerous small deposits from the drug proceeds into these accounts, normally between $1,000 and $3,000-far below banks' reporting requirements.
The account holders give the broker unsigned checks, which the broker fills out in varying amounts, to pay the U.S. manufacturer for the tractor.
Some banks have caught brokers and seized their accounts, but brokers are learning to make their accounts appear less suspicious by using them to make everyday payments, too, Ms. Doe said.
Alabama Republican Spencer Bachus, the subcommittee chairman, urged the Treasury Department to issue an advisory to banks on peso brokering as soon as possible.
Although government officials and a dozen bankers have met twice in recent months to write such a warning, they have not produced one. Criminals adapt their methods so quickly that officials fear an advisory might be outdated by the time banks get it.
But once something is hammered out, bankers will probably be warned to watch out for inactive accounts, one-time depositors, and multiple accounts with similar addresses, Treasury and Internal Revenue Service officials said in an interview.
