Pubdate: Wed, 16 Jan 2008
Source: Wall Street Journal (US)
Page: A1, Front Page
Copyright: 2008 Dow Jones & Company, Inc.
Contact:  http://www.wsj.com/
Details: http://www.mapinc.org/media/487
Author: Mark Schoofs and Paulo Prada
Bookmark: http://www.mapinc.org/coke.htm (Cocaine)

COCAINE BOOM IN EUROPE FUELS NEW LAUNDERING TACTICS

Dirty Euros Enter U.S. Via Latin America; The African Connection

A cocaine boom in Europe and the continent's strong currency have 
combined to fuel a thriving industry: euro laundering.

With the euro approaching $1.50 and soaring demand for cocaine in 
countries like Spain and Italy, Europe has become a far more 
lucrative place to do business for Latin American drug cartels than 
in previous years.

To obscure the origins of the funds, and escape government scrutiny 
in the process, the cartels use a complex system to launder their 
proceeds -- much of which is landing on U.S. shores.

In late March, U.S. authorities arrested a man carrying a leather 
duffel bag who had just landed at Los Angeles International Airport 
on a flight from Santiago, Chile. Inside the bag was more than $1.9 
million in cash, mostly in bundles of €500 and €200 notes. 
Authorities are struggling to make a dent in the booming drug trade 
in Europe. WSJ's Mark Schoofs tags along with Spanish police as they 
search for clues to the source of cocaine that keeps pouring into the country.

U.S. and Chilean law enforcement officials believe the man was at the 
end of a money-laundering trail that begins in Europe. Over a period 
of four and a half years, he and his associates flew to the U.S. from 
Latin America some 280 times, openly toting more than $244 million 
worth of euros into the country, according to documents in a case 
brought by federal authorities in U.S. District Court in New York.

The big bills have become so symbolic of the lush life that they have 
recently crept into pop culture: The rapper Jay-Z's video for Blue 
Magic -- the debut single from his new album "American Gangster" -- 
features a suitcase full of €500 notes and someone thumbing through a 
stack of them as Jay-Z raps the words, "the kilo business." Hype 
Williams, director of the music video, said that he and Jay-Z chose 
euros because they are "more valuable" and because they wanted to 
"one-up" their hip-hop competitors by showing "the things people are into now."

The wads of euros carried by people like the man arrested at LAX are 
often the spoils of Europe-bound cocaine shipments -- many of which 
transit through Africa, law-enforcement officials say.

Consumption of the drug has soared in much of Western Europe, 
according to a report released last year by the U.N. Office on Drugs 
and Crime. In Italy, use of the drug rose to 2.1% of the general 
population in 2005 from 1.1% just four years earlier. In France, it 
tripled from 2000 to 2005, from 0.2% to 0.6% of the adult population. 
Cocaine use in England doubled from 1998 to 2006, according to 
Britain's National Health Service, to 2.4% among adults.

Some narco-euros are laundered directly in Europe. But officials say 
the lion's share is routed back to South America as cash and 
eventually ends up in the U.S.

"This is still a cash business," says Donald Semesky, the Drug 
Enforcement Administration's head of financial-crimes investigations.

The first step is to convert small bills accumulated from thousands 
of street sales into €500 notes, which are easy to transport. 
Obtaining large quantities of these conspicuous notes, though, isn't 
easy. So drug traffickers turn to specialized criminal rings -- whose 
members are often involved in banking and real estate -- to gain 
access to them, says Jose Manuel Alvarez Luna, chief of the 
money-laundering section of the Spanish police.

Spain is the center for such aggregation, according to authorities. A 
high-level Spanish banking official says a disproportionate share of 
the euro zone's €500 notes, known as Bin Ladens for their scarcity, 
circulate in Spain.

The purpose of money-laundering is to disguise the criminal origins 
of ill-gotten gains so the funds appear legitimate. In most cases, 
laundering also helps criminals escape the notice of tax collectors 
and law-enforcement officials, boosting the value of their illegal proceeds.

Particularly since 9/11, tightened antilaundering regulations, known 
by banks as "know your customer" rules, have forced drug cartels to 
use more circuitous routes to circulate their funds around the globe.

For starters, the drug cartels do not themselves bring their 
narco-euros to the U.S. Instead, they usually sell their euros to 
South American black-market currency brokers or to foreign-exchange 
houses, known in Spanish as casas de cambio. The casas' business as 
currency-exchange houses gives them a natural cover for moving large 
amounts of cash.

But in South America, there are few if any legitimate buyers for the 
huge sums of euros that the casas obtain -- directly or indirectly -- 
from the traffickers. So the casas funnel most of the narco-euros, 
sometimes via middlemen, through a chain of exchange houses in 
countries like Colombia, Peru, Brazil and Chile, says the DEA's Mr. Semesky.

Often, the drug traffickers will sell their euros for Colombian 
pesos, and then the euros entering the U.S. no longer belong to the 
drug cartels but to the casa de cambio. In other cases, says Mr. 
Semesky, traffickers pay the casas to move funds into one of their 
U.S. bank accounts. These funds aren't usually intended for 
withdrawal, but rather to pay various debts. This is achieved by 
wiring funds to the account of whomever the trafficker wishes to pay.

On a recent night at a bar on Madrid's bustling Gran Via, a 
shirtless, tattooed waiter served tables and a buxom drag queen in a 
nurse's uniform worked the crowd. In the trendy venue was a man in 
his 30s who talked by cellphone with his dealers. A few minutes 
later, he stepped outside, leaned into the window of a small car and 
handed over €60, or about $90. For that sum, he received one gram of cocaine.

Such street sales have surged. Spain now has a larger percentage of 
its population (3%) using cocaine than the U.S. (2.3%), the previous 
top per-capita consumer, according to United Nations figures. In the 
first half of 2007, a kilo of cocaine sold for €33,000, or about 
$43,900, in Madrid, more than triple the $12,500-$14,600 it fetched 
in Los Angeles and far more than the $13,000-$26,000 it sold for in 
New York, according to the Spanish police and the DEA.

Last year, seven European countries banded together to form the 
Maritime Analysis and Operations Center-Narcotics, or MAOC-N, an 
international agency dedicated to stopping drug traffic over the 
Atlantic. Already, the center is helping to make major busts.

In October, on the high seas off West Africa, Spanish authorities -- 
acting on a tip from MAOC-N -- seized an aging, cockroach-infested 
trawler. Called the Opnor, it allegedly had more than three metric 
tons of cocaine hidden below the floor of its cargo hold. Apparently 
registered in Panama, the vessel was captained by a grizzled Dutch 
man in his late 60s and is believed to have been heading toward Senegal.

The boat was following a typical pattern, authorities say. They 
surmise that, if it hadn't been seized, its cocaine would have been 
warehoused in West Africa, where crushing poverty, weak law 
enforcement and, often, rampant corruption make for an ideal way 
station. The traffickers would have then sent the drugs to Europe by 
boat, either directly or via North Africa. Increasingly, say Spanish 
and American authorities, cocaine is also being flown from North 
Africa in small planes landing in Spain and Portugal on clandestine airstrips.

The traffickers were forced to take those routes because Spanish, 
Portuguese and British authorities were intercepting boats coming to 
Europe directly from South America.

Spain is a favorite entry point because of its proximity to Africa, 
its long coastline and its language, which it shares with Colombia 
and most other South American countries. Spanish officials say they 
seized almost 100 metric tons of cocaine in 2005 and 2006. According 
to United Nations statistics, Spain seized more cocaine than any 
European nation between 1999 and 2005.

Authorities suspect that Europe's thriving cocaine business likely 
provided the euros in the duffel bag of Mauricio Mazza-Alaluf, the 
man arrested at LAX in March. Along with a cousin, Luis Mazza-Olmos, 
he ran an exchange house in downtown Santiago, Chile, according to 
U.S. and Chilean law-enforcement officials.

The probe into the Mazzas began in August 2004, says Christian 
Caamano, an investigator for the Investigative Police of Chile. The 
tip-off was a Peruvian passenger on a flight from Colombia who 
arrived at the Santiago airport carrying a backpack stuffed with 
€600,000, according to Mr. Caamano. Alarmed, Chilean authorities 
began monitoring such couriers and noticed that they dropped off 
their bags full of euros at the Mazzas' exchange house.

Later, the Mazzas' routine evolved: A courier from Colombia, 
allegedly carrying European proceeds, would deliver cash at the 
Santiago airport to an armored-car service. Personnel would count the 
money in a parked truck and turn it over to the Mazzas or one of 
their associates, says Hernan Penafiel, the lead prosecutor in a 
parallel case brought in Chile against the Mazzas. One of the Mazzas 
or their associates would then board a U.S.-bound flight with the 
money, Mr. Penafiel says.

Once on U.S. soil, according to authorities, the Mazzas allegedly 
moved their euros with breathtaking openness. Their main tactic was 
to dutifully fill out paperwork at customs points and financial 
institutions, using real family and business names, according to law 
enforcement officials and court documents from the U.S. case.

After the Mazzas or their associates cleared customs at Los Angeles 
International Airport, they would transfer their cash to Associated 
Foreign Exchange Banknotes Inc., a currency-exchange firm 
headquartered in Encino, Calif. AFEX Banknotes then converted the 
euros into dollars and wired the dollars to U.S. bank accounts the 
Mazzas had opened, according to law-enforcement officials and two 
AFEX Banknotes employees.

The Mazzas had accounts with at least three banks in the U.S., 
according to the court documents from the New York case: Israel 
Discount Bank of New York; Harris Bank in Chicago; and J.P. Morgan 
Chase in Dearborn, Mich. In opening each account, the Mazzas gave 
their company's real name and openly described it as a tourism and 
currency-exchange agency.

The Mazzas proceeded to move huge sums of money through these 
accounts, according to the court documents, often after receiving 
faxed instructions, intercepted by Chilean authorities, from people 
or entities with suspected ties to Colombian traffickers.

In a single year, according to court documents, the Mazzas wired $133 
million into the Harris Bank account and $117 million out. At their 
J.P. Morgan Chase account, they wired $35.5 million in and $34 
million out in less than three months, and their IDB checking account 
recorded more than 2,500 transactions totaling more than $29 million 
during 2003 and 2005, according to the court documents.

Asked to comment, Harris Bank said in a written statement that it 
"identified suspicious activity" after conducting its own 
investigation and "closed the account in accordance with banking 
regulations." IDB said in a statement that the events outlined in the 
New York case "occurred under former management" and it no longer 
maintains accounts for unlicensed money transmitters, including the 
Mazzas' casa de cambio. Chase declined to comment.

AFEX Banknotes compliance officer Andrew Scherer says his company is 
"mortified" that it may have helped facilitate illegal activity, but 
added that it has strong anti-money-laundering policies and has taken 
"substantive measures" to improve its anti-money-laundering policies 
in the wake of the Mazza case. He declined to be more specific, 
citing security concerns.

When Mr. Mazza-Alaluf landed at LAX on March 31, he didn't attempt to 
conceal his money. Like he and his associates had done hundreds of 
times before, he filled out the standard declaration forms, a 
requirement for passengers entering the U.S. carrying more than 
$10,000 worth of currency. But this time, he was immediately 
arrested. The 55-year-old Chilean maintained his innocence.

Mr. Mazza-Alaluf has pleaded not guilty to federal felony charges of 
conspiracy and operating an unlicensed money-transmitting business. 
His attorney, Bernard Alan Seidler, calls the charges "a classic case 
of the government overreaching."

Arrests in Chile

Chilean authorities nabbed members of the Mazza clan and their 
associates in a coordinated operation. They are now in jail in 
Santiago, facing money-laundering charges. Their lawyer, Yieninson 
Yapur, says they are all innocent. In an email sent via Mr. Yapur, 
Mr. Mazza-Olmos said he is a legitimate businessman and has done 
nothing illegal.

The U.S. investigation of the Mazza case was conducted by a 
multi-agency task force based in New York and led by the DEA and the 
Internal Revenue Service. Officials tout it as an important success. 
But it's unlikely to significantly restrict the flow of narco-euros 
gushing out of Europe.

On a recent afternoon, far from the glitz of the night life on Gran 
Via, a homeless addict walked around in a northern Madrid shantytown 
with a syringe hanging out of his forearm.

Even as police tore down the surrounding shacks to make way for a new 
development, residents hammered away, rebuilding their wood and 
cardboard houses. "The demand for cocaine is huge, so knocking these 
shacks down does nothing," says Gema Bautista, a social worker with 
Fundacion Atenea Grupo GID, which runs a mobile clinic and 
needle-exchange program. "The shacks just pop up again."
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MAP posted-by: Richard Lake