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September 16, 2005

The AUC's big cocaine sell-off

In preparation for their upcoming demobilizations, paramilitary leaders may be selling off cocaine so quickly that the inflow of dollars is disrupting Colombia’s entire economy.

Associated Press reporter Kim Housego reported yesterday that the Colombian peso “has risen 17 percent against the dollar during the past 20 months amid a heavy influx of dollars.” The amount of dollars entering the country during the last eighteen months, El Tiempo reported Sunday, “practically equals the size of Colombia’s external debt [about $35 billion].”

The wave of dollars has strengthened the peso so much that Colombian exports might become too expensive to compete with those of other countries. In a vain effort to make dollars scarcer and thus weaken the peso, Colombia’s central bank has bought up billions of dollars, increasing Colombia’s dollar reserves to record levels.

According to Housego, the dollars come “from rising foreign direct investment, a trade surplus and more dollars being sent home from Colombians working abroad.” Colombian government officials are quick to add that President Uribe’s security policies have made the country far more attractive to investors.

These factors probably underlie some of the peso’s recent strength. But it’s likely that the flow of dollars also owes to something more sinister. According to El Tiempo, some financial analysts “believe that many of these new ‘investors’ come from Ralito (Córdoba), the zone where the ‘para’ chiefs are concentrated” as they prepare to demobilize under the new “Justice and Peace” Law.

The Associated Press reported on this phenomenon in June.

Navy chief Adm. Mauricio Soto said in an interview … that the paramilitary United Self Defense Forces of Colombia, or AUC, is shipping an unprecedented amount of stored cocaine from the country ahead of their demobilization. … “[The paramilitaries] are desperate. They urgently need to sell what they have,” Soto said. “They need the money, because if they are going to demobilize, what interests them is the cash.”

El Tiempo added yesterday, “A high-ranking National Police oficial, expert in narco-trafficking, said that more drugs are being interdicted lately because the ‘paras’ who are negotiating with the government need to divest themselves of their drug stores. ‘They need cash, they need to have dollars instead of stockpiles of drugs, at the moment they demobilize.’”

(Some analysts cited by El Tiempo speculate that guerrillas too may be selling off stores of coca paste in southern Colombia, “in order to obtain resources and to finance their counter-offensive against the Army’s “Plan Patriota.”)

The paramilitary leaders are certainly in a hurry, as most are expected to demobilize at the end of the year. Under the so-called “Justice and Peace” law, they will be subject to jail sentences of 5 to 8 years (minus time spent negotiating: 3 ½ to 6 ½ years) for all of their previous crimes – including narco-trafficking, which they will argue was a means to fund the paramilitary cause. Between now and the end of the year, then, paramilitary leaders involved in the drug trade (that is, most of them) are in a race against time to unload their stores of drugs, hide the money and demobilize with what appears to be a clean slate.

As a result of the big selloff, cocaine seizures have increased dramatically during the past several months, as illegal shipments become larger and more frequent. Yesterday’s El Tiempo reported that Colombia’s police have interdicted 60.1 tons of cocaine so far this year, compared to 60.3 tons during all of last year. The Navy has interdicted 61.5 tons of cocaine, one ton more than during all of 2004.

Just this week, 2.5 tons of cocaine were found on a fishing boat near the Pacific port of Buenaventura, while another boat was found near the Galápagos Islands towing a metal “submarine” with 2.1 tons of cocaine inside. For every ton that is caught, at least an equal amount – possibly a multiple – finds its way to the United States, Europe and elsewhere.

Remarkably, some recent shipments have pooled guerrilla and paramilitary cocaine, such as a 15-ton cache found in May on the Mira River near the town of Tumaco. (Just last weekend, a guerrilla attack on the Mira River killed 2 employees of Colombia’s Attorney-General’s Office and 3 Colombian Marines.) Increasingly, the paramilitaries and the guerrillas have been acting more like rival mafias than like sworn enemies. As a May article in the Houston Chronicle reported, “‘These two groups rely on each other to see that (drug production) runs smoothly and that everybody gets their money,’ said a U.S. counterdrug official, who insisted on anonymity for security reasons. ‘Our intelligence tells us that this is happening at an increasing rate.’”

The paramilitaries’ big cocaine sell-off appears to be joined by a parallel money-laundering effort. The dollars flooding into paramilitary coffers are being hidden by investments in cattle, land and construction, contributing to a building boom in Bogotá and some other cities; use of other people’s bank accounts in exchange for commissions; or accepting lower rates in black-market peso exchanges.

A very large amount of money appears to be being laundered by mis-pricing of imports and exports. Normally, a strengthening of the peso should hurt Colombia’s export sector. But the opposite has happened: while the peso strengthens against the dollar, El Tiempo reports, non-traditional exports have increased this year by 27.8 percent. While some of that may owe to increased demand from Venezuela, which is in the midst of an oil-fueled boom, much of these increased exports may be fictitious. El Tiempo explains:

[Economist Javier] Fernández Riva says he has reason to suspect that something more is behind the extraordinary growth in some exports, at the same time the exchange rate has fallen sharply. And the authorities appear to prove him right: fictitious exports are considered a leading method of money-laundering. One of the exports that has grown the most are those of live animals (221 percent), which FEDEGAN (the Colombian cattlemen’s federation) attributes to differences in the exchange rate with Venezuela. But according to money-changers in the border zone, this is the activity that launders money most: “the tactic is to register the same transaction twice,” one of them explained.

Remember the paramilitary sell-off next year, when U.S. and Colombian officials announce dramatically increased amounts of cocaine interdicted in 2005. They may have simply found the same-sized portion of a pie that was made larger by the AUC leadership’s preparation for its imminent demobilization.

The question to ask now, not later, is: why is all of this being allowed to happen? The leaders of Colombia’s paramilitary groups aren’t fugitives – they are easy to find, usually in the Ralito zone, and they are in constant contact with Colombian government officials. It should be relatively easy to detect these leaders’ trafficking and money-laundering, and arrest them while there whereabouts are known. Even if that proves difficult, it should at least be possible to prevent Ralito from becoming the center of a money-laundering operation of historic proportions, on the eve of paramilitary leaders’ entry into a process that will allow them to keep most of their ill-gotten assets and avoid extradition to the United States.

But nothing appears to be being done to prevent the big cocaine sell-off. In particular, where is the pressure from the government of the United States, the country on whose streets much of this cocaine will soon arrive?

Posted by isacson at September 16, 2005 05:37 PM

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Posted by: jcg at September 16, 2005 10:58 PM

Posted by: Adam Isacson at September 19, 2005 02:21 PM

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