FinCEN Advisory

This advisory provides banks and other depository institutions with additional information concerning the Black Market Peso Exchange system.

Overview - FinCEN Advisory Issue 9

FinCEN Advisory Issue 9 (November 1997) discussed in detail a largescale,complex money laundering system that is used extensively by Colombiandrug cartels to launder the proceeds of United States narcotics sales. Thesystem is called the Black Market Peso Exchange (BMPE) because its purposeis to facilitate “swaps” of dollars owned by the cartels in the United States forpesos already in Colombia, by selling the dollars to Colombian businessmenwho are seeking to buy United States goods for export.
As explained in greater detail in Advisory Issue 9, the Black Market PesoExchange system operates through brokers who purchase narcotics proceeds in theUnited States from the cartels and transfer pesos to the cartels from within Colombia.

• The dollars are placed — that is, “laundered” — into the United States financial system by the peso broker without attracting attention;
• The dollars are then “sold” by the brokers to businessmen in Colombia who need dollars to buy United States goods for export; and
• Goods ready for export are often actually paid for by the peso broker, using the purchased narcotics dollars, on behalf of the Colombian importer.

This underground financial and trade financing system is a major—perhapsthe single largest avenue for the laundering of the wholesale proceeds ofnarcotics trafficking in the United States. It also reflects the desire of Colombianimporters (who may otherwise be legitimate businessmen) to avoidpaying extensive Colombian import and exchange tariffs by smuggling goodsinto Colombia. Finally, this system exploits United States exports in therecycling of narcotics dollars. The U.S. Customs Service believes that the “United States exports that are purchased with narcotics dollars through the BMPE system often include household appliances, consumer electronics, liquor, cigarettes, used auto parts, precious metals, and footwear.”

Continued Treasury Concern

The BMPE system is thus a subject of major concern to federal lawenforcement agencies. Treasury’s Office of Enforcement has created a multiagencytask force to study the system and develop strategies for counteringits operation.
Because the peso brokers operate at the intersection of the United Statesfinancial and trading systems, attention is being directed both to the internationaltrade community and to the financial community. Thus, the U.S.Customs Service is issuing a “Trade Advisory” concerning “Black MarketPeso Brokering” to United States exporters. FinCEN is updating its earlierAdvisory to help depository institutions respond appropriately to potentialmisuse of their services by money launderers.

Possible Peso Exchange Activity - Unusual Money Transmission Transactions

The operation of the peso exchange system depends upon the ability ofthe money brokers who serve as intermediaries to the cartels, to place fundsin the United States financial system without attracting law enforcementinterest. FinCEN Advisory Issue 9 outlined several possible indicators of thestructuring of cash deposits destined for the peso exchange system intobanks. Use of banks for this purpose continues.
Money launderers also place funds by using non-bank money transmitters.The majority of non-bank money transmitters in the United States are legitimateand law-abiding businesses. However, in recent years, there has been anupsurge in the misuse of some money transmitters by money launderers with,in some cases, the cooperation of a small part of that industry.
Treasury officials believe that a large percentage of the funds “placed” bylaunderers through non-bank money transmitters may actually be destined forpeso exchange transactions. In such situations, the launderers, in effect,engage in two layers of misrepresentation. First, structured funds deliveredto individual transmitter points of sale are further broken down on thetransmitter’s books to appear to represent a number of smaller ostensibly “normal” money transmission transactions, for example, a series of transfersof funds from the United States to individuals in Colombia. Second, thedollar/peso broker actually orders the transmitter not to send the funds toColombia at all, but instead, to send them either to a middleman in anothercountry or, perhaps in some cases, directly to a United States exporter ofgoods, as payment for those goods.
Banks and other depository institutions, as well as money transmissionfirms that operate through a wide network of agents, should be aware of thepossibility that certain unusual transactions may be connected with BMPEoperations. For example, a particular money transmitter usually sends fundsthrough a bank to individuals in one or a limited group of nations; in particularcases, however, the same money transmitter asks the bank to send fundsto industrial or consumer sales companies or distributors in other nations(that is, nations to which it does not routinely send funds) in large amountsas payment for goods. These latter requested transfers could be BMPEtransfers and may thus require further examination. The fact that the fundsare sent to companies in the United States for this purpose, and are used topay for resaleable goods, such as appliances, consumer electronics, autoparts, liquor, cigarettes, and footwear, are also relevant.
The BMPE system is a particularly sophisticated example of moneylaunderers’ ability to adopt the protective covering of legitimate transactionpatterns. Thus, FinCEN and the Department of the Treasury welcome acontinued dialogue with financial institutions concerning BMPE.
The Treasury Department will consider any report relating to a transactiondescribed in this Advisory to constitute a reportable suspicious transactionrelevant to a possible violation of law or regulation, for purposes of theprohibitions against disclosure and the protection from liability for the reportingof suspicious transactions contained in 31 U.S.C. 5318(g)(2) and (g)(3).

James F. Sloan
Director