The black market peso exchange (BMPE) was designed to be "the better mousetrap."

Based on the same ancient system of barter that Middle Easterners and Asians call “hawallah”, it was perfected in the Western hemisphere by smugglers who needed to do double-sided trades to thrive in the underground economy.

Simply put, it’s a system where goods move and money stays put. Drug traffickers, faced with the increasing difficulties of shifting money, latched onto the idea in the mid-1980s. By 1990 they’d perfected the system to the point that Colombia’s black market peso exchange was a $5 billion bazaar. Today, it’s anyone’s guess what this market is worth, but estimates of two to three times as much as it was in 1990, could be in the ballpark. An official Colombian estimate suggests that 45 per cent of the country’s imported consumer goods are paid for through the BMPE.

The reason for it’s indisputable success is that money laundering doesn’t have to be about money. In fact, these days, it seldom is. Money laundering in the globalized 21st century is about honey and diamonds, charities, and paperless networks like hawallah banking that you find throughout the Middle East and sub-Continent. Recently money laundering was also about sporting memorabilia — a Mafia loan-sharking operation washed money through collectable baseball cards, Michael Jordan autographed basketballs, signed hockey pucks and a pair of Muhammad Ali’s boxing gloves.

In its most basic form, a broker sitting in Colombia arranges to buy a trafficker’s drug cash in Britain at a discount. At the same time, he takes pesos from a legitimate businessman in Colombia looking to import a product, say a large shipment of Scotch. The broker uses the pesos in Colombia to buy the drug trafficker’s cash in Britain, then uses the drug cash in Britain to buy the Scotch for the businessman in Colombia.

Traffickers and legitimate businessmen both have to trust the broker with their money. But as he’s in Colombia, if anything goes wrong, retribution is simple. So it’s the broker who takes a risk by trusting associates outside Colombia to facilitate transfers, deposit cash and sometimes make payments. But then, these brokers frequently work like bookies, laying off parts of contracts to spread the risk.

The system flourishes because it is efficient. Whether the product is Scotch or household appliances, consumer electronics, cigarettes, used auto parts, precious metals, footwear, cars, boats, whatever, everyone gets what he wants. The trafficker winds up with pesos, which means his drug money has been laundered. The businessman get his goods and, because the purchase is outside normal channels he usually beats the taxman. The broker has made money on the spread between buying and selling dollars and pesos, plus a commission on the deal. And the company selling the goods has probably made a sale it might not have otherwise made. Except that the company selling the goods has also laundered drug money — albeit unknowingly. Still, very few serious companies want to get caught doing that.

Just ask the folks who make Bell Helicopters.

In 1998, a man with links to drug traffickers and paramilitary groups in Colombia wanted to buy a Bell 407 helicopter. The company didn’t know anything about his background or his business dealings. Nor was there any requirement for them to do so. This was simply a guy looking to buy a helicopter and selling helicopters is the business Bell is in. He agreed to pay them $1.5 million for the machine and nobody at Bell thought twice about it.

Yet, alarm bells should have gone off when Bell saw how he was paying for it. They received 29 third party wire transfers from 16 different sources, in addition to a third party check signed over to Bell from yet another source. None of those third parties had any sort of relationship with Bell. As it turned out, none of them had any sort of relationship with the man buying the helicopter, either. The third parties were following instructions from a BMPE broker who was moving drug money into negotiable paper, payable to Bell. The actual buyer had already put down $1.5 million in pesos in Colombia.

Bell’s response was understandable. How could we know this was drug money?If we’d known this was drug money, we’d never have done the deal.

US Customs response was then — and is now — you should have known.

But then, Bell was hardly alone in getting duped. The investigation which uncovered this sale led to investigations into half a dozen other companies that had fallen victim to the same ruse. In every case, the company denied intentionally taking drug money. In some instances, the denials are believable. But it’s not always easy to understand why a legitimate business doesn’t question payment methods which are so out of the ordinary. That said, BMPE brokers count on the fact that most companies would rather have a strange sale than no sale at all.

And many of those sales are decidedly strange.

Take for example, the order that arrived at the sales office of a world famous sporting goods company for $10,000 worth of soccer gear. It was to be shipped to Colombia. Payment was a pile of money orders but the envelope that it came in didn’t even have a return address.

One US company, General Electric, instituted a very strict money laundering compliance program in 1995 after getting burned by a BMPE broker buying a load of refrigerators. The program was in place and effectively stopped another BMPE broker when he tried to pay for $40,000 worth of air conditioners with 35 money orders.

In October 1997, an anonymous BMPE broker went before a congressional committee and named several international companies with whom she’d placed deals. Among them: Sony, Procter & Gamble, John Deere, Whirlpool, Ford, Kenworth, Johnny Walker, Swatch, Merrill Lynch, and Reebok. As she explained, “These companies were paid with US currency generated by narcotics trafficking. They may not have been aware of the source of this money, but they accepted payments from me without questioning who I was or the source of the money.”

(c) Jeffrey Robinson 2002, 2011, 2012

Excerpted from "The Sink - Crime, Terror and Dirty Money in the Offshore World" by Jeffrey Robinson