Quick Hits (page 2)
A new blend: cotton, rayon and heroin
By: Robert Rudolph (Star-Ledger)
Federal authorities in New Jersey say a stealthy new technique for smuggling drugs into the country is on the rise and is flooding the metropolitan area with a half-billion dollars worth of high-quality heroin each year.
According to investigators, increasingly large quantities of drugs have been slipping past inspectors, concealed in seemingly ordinary clothing -- only these clothes have been specially prepared and impregnated with liquid heroin that can be extracted once the clothes arrive in the United States.
"They're killing us," said one federal law enforcement official who expressed alarm over the situation.
A court document prepared by the U.S. Customs Service last year said, "In the past several months, Customs officials throughout the country have made numerous arrests of individuals who were attempting to smuggle heroin soaked in clothing into the country."
Tom Manifase, assistant special agent in charge of investigations for the U.S. Customs Service in New Jersey, said almost half of all heroin seized by authorities at the Newark ports of entry last year was concealed in drug- infused clothing, usually packed in suitcases rather than worn by the smugglers.
During the same period, he said, tens of millions of dollars worth of the drug has been detected in clothes by inspectors at John F. Kennedy International Airport, and almost twice as much has been brought in through other locations nationally.
Regardless of the point of entry, investigators say, most, if not all, of the drug was destined for delivery to the New York metropolitan area.
During an undercover investigation, a court-ordered wiretap recorded one smuggling suspect boasting that the extracted drugs were "100 percent pure" and "strong enough to knock down an elephant."
Authorities have expressed concern not only over what they say is the dramatic rise in the use of drug-soaked clothing to bring the narcotic into the United States, but in the problems it presents to inspectors at the air and seaports.
"It is very difficult for inspectors to detect," Manifase acknowledged, noting that the only tip-off is that the clothes appear stiffer than usual, as though they had been starched.
But even then, he said, some of the smugglers are using heavy denim jeans -- which are somewhat stiff already -- to throw inspectors off the track.
"It's a real challenge," said John Varrone, who oversees criminal investigations for the U.S. Customs Service in New Jersey and New York. "It's a serious threat."
However, drug-infused clothing is only the latest in a seemingly endless series of schemes to smuggle drugs past Customs inspectors.
Varrone said investigations have shown that 90 percent of the smuggling operations using the saturated clothing are based in Colombia.
Martin Ficke, associate special agent in charge of Customs investigations in New Jersey, said the process has evolved over the last several years. Early attempts were easy to detect because of a distinct vinegar-like odor that would waft out of suitcases containing the treated clothing.
Now, Ficke said, chemists have "refined the process" to eliminate the odor and make the drug virtually undetectable, defeating even random searches by drug-detecting dogs.
According to Manifase, 100 pounds of saturated clothing can yield as much as 10 pounds of pure heroin. He said the major Colombian organizations have "perfected the technique" and "are able to extract the maximum amount, and with the pure white color."
Experts say the treatment of the clothes -- and the extraction of the drugs -- requires special training, with chemists being schooled by drug organizations in Colombia and then sent to the United States.
Authorities were able to obtain a detailed look inside the operation last year when an investigation resulted in the arrest of a Colombia-trained suspect in Queens. The suspect, who is cooperating with investigators, worked for several smuggling organizations as an in-house chemist to process the impregnated goods, authorities said.
At the time of his arrest, authorities found the suspect running a makeshift lab in his apartment -- with a pot on the stove full of the clothing he was "cooking."
Wiretaps of conversations between drug smugglers revealed that they commonly use the code word "cotton" to describe the impregnated clothing, which is often delivered to the extraction labs in laundry bags. Authorities have also learned that the removal of the drugs is a time-consuming, five- step process that involves subjecting the treated goods to direct sunlight. Experts said the liquid is cooked down until the drug becomes solid. The process recovers nearly all of the drug.
In one instance, government taps picked up a chemist complaining that the process was turning his place into a mess.
According to one agent, the chemist stated he was "sick of it because the floor is white from him trying to clean it, and no matter how much he tried to clean the floor, it was still like a piece of white paper."
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Growin' Our Own (page 2)
The supply side of things (Part 1)
By: Elmore Stone
Reagan was right. Like it or not, he was correct. Supply side economics is what makes the world go 'round. I really don't care what business you are in, be it a mom and pop grocery store or drugs. It is all about supply. And in the drug trade supply side economics takes front and center both globally and in economic importance.
In business everything is wrapped around a product and getting that product to market -- supply. Yet, if it were not for the consumer, the customer -- demand, there would be no product, no need for supply, because there is no consumer demand, no want, no need for the product. Supply and demand. Or, more accurately, demand and supply. Business has always been reacting to the want of the consumer. You may have heard the expression: "the rules of the game depend upon what side of the fence you're on." No truer statement has ever been uttered.
That is what this story is all about. The supply side of drugs.
Contacts and connections.
You can't produce a product, any product, without the necessary raw materials. It is as simple as that. In the drug trade the raw materials are abundant. A business relationship with the farmers or buyers/sellers on the other hand is not nearly as easy to cultivate. Further, depending upon what part of the world the farmer or buyer/seller is in, those business relationships may take from a few months to many years to reach a level of trust necessary to conduct -- business.
That is where both the British and the French have it all over the U.S. They have been around a lot longer than we have. Both have engaged in foreign commerce for hundreds of years. Both countries have had companies and operatives in various parts of the world long before the U.S. became a country. Contacts and connections. Business relationships developed over the course of many, many years. Without doubt, while the business may no longer be around, the contacts and connections sure as hell are. Additionally, it is those people or their heirs (though not necessarily a relative), if trustworthy, who established and nurtured the critical relationships that can either start their own drug business or name their own price when hired by someone else. They are, to be sure, as in any business, the real resource. Their knowledge is the grand prize.
What is fascinating about all of this is the simple fact that most of the initial contacts and connections made and the subsequent relationships established were made by men who either worked directly for, or were under contract to, a government - be it the British government, the French government or, for the last 100 years, the U.S. government. Most, not all but most, were either military officers or, in the last 40 years, senior enlisted military personnel. Some were/are entrepreneurs and some are within the intelligence circles. All are extremely smart. All think and act well under pressure and all were/are willing to take risks. Their heirs are the same way. After all, any business is a risk - just some more than others.
Of note is another little interesting tidbit. Most farmers, and in particular buyers/sellers, do not like to do business with Americans. The reason is this: most Americans are brash and in a hurry. Americans may have the cash, but that is not how business is conducted. Not at all. The drug supply business, on a global scale, is conducted under the old school rules. Rules established long before we were born. Appointments are made. Pleasantries are exchanged. Discussions about anything are held over a fine tea, fine coffee or a fine wine. Sometimes a meal is served. There is no hurry. Finally, at the appropriate time, business will be discussed, terms agreed upon and sealed with a handshake. The money and the raw materials will be exchanged at the correct place and time and not by principals who shook hands. They are far above that.
You may have noticed that I neglected to mention the Spanish, Portuguese and their descendents, the South Americans. Their contribution has been cocaine. However, the cocaine trade is more regional than global. Further, the Spanish, Portuguese and South Americans have been stomped by the British, French and the U.S. so many times in the past that they are clueless about honest business dealings in a gentlemanly fashion. As such they have a perpetual axe to grind and should never, ever be trusted.
The drug war.
To fully understand the supply side of drugs you first need to understand the drug war. It is over, by the way. And it was won. That is the most important point. In fact it has been over for 161 years. Yeah, go on, shake your head then take another toke and read it again. No, your eyes are not crossed, the drug war has been over for 161 years. What you hear on the radio, see on T.V., or read in the papers is nothing but mere skirmishes. Besides, these busts are against the consumer, not the supply side - the real supply side that is. However, I digress.
1842 was a big year. A very big year indeed. It was the year of the Anglo-Chinese war. A war against the drug trade. The war that was started by the Chinese government. The Chinese government was attempting to squash and eliminate -- opium. Cooked opium bought by the British East India Trading Company in India, transported to China and sold to the Chinese citizenry. The British government, realizing that a huge amount of money, a huge amount of 'hard currency' (you may want to keep that term in mind), was fixing to go ... up in smoke if the Chinese had their way, brought their experienced Army and Navy to China and proceeded to mop the floor with the Chinese.
The treaty which officially ended the Anglo-Chinese war, more commonly called the Opium War, was a wind-fall for the British empire and the British East India Trading Company. The Chinese government had to:
(1) Make full restitution for all opium they had destroyed.
(2) Fully legalize opium within China.
(3) Open up additional sea ports to the British.
(4) Cede a small chunk of rock, er, land to the British.
That single little war, that single little zit on the ass of humanity, is what cemented the rules of the drug trade. The supply side of the drug trade at the very least. And drug suppliers, the big suppliers and, albeit indirectly, governments adhere to those rules to this very day. It is the only profitable way to conduct business for all concerned.
You see it was the willingness to fight a war, a drug war no less, because of the large amounts of money -- hard currency involved. Governments need hard currency. It keeps inflation down, helps promote a better balance of trade and keeps deficits semi-under control. Self preservation, self promotion and utter greed. All the things that governments are made of. For without them, there would be little, if any, supply side of drugs.
Governments derive their hard currency through taxes, tariffs and impost duties. They get that money either directly -- through taxes, tariffs, duties or indirectly -- money laundering. Either way they get it. And the more hard up a country is for hard currency, the more likely that government will be to 'look the other way' during a money laundering operation. The current big ones right now are Russia for the European trade and the Philippines, the coin-op laundry service of the far east.
Oh, whatever became of that chunk of rock the Chinese ceded to the Brits you ask? That chunk of rock became the financial center for the entire far eastern part of the world. It goes by the name of Hong Kong. One of the richest cities in the world. All because of drugs. Indeed, all because of opium. Like I said, 1842 was a big year.
So, when I say the drug war is over, I mean it. It was fought, it was won and it is over. The DEA can claim the opposite, but I know and so do you that it is the DEA that is hooked on drugs.
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Pipeline (page 2)
New hiding place for drug profits: insurance policies
By: Eric Lichtblau
Law enforcement officials have stated that Colombian cocaine traffickers seeking to launder tens of millions in drug profits from the United States and Mexico had begun exploiting an unlikely haven life insurance policies.
Officials at the Treasury Department said they were so worried about the trend that they were pushing for tougher regulation of the insurance industry as a way of identifying suspicious insurance policies.
A central concern for the authorities is that terrorist financiers, too, may seek to exploit vulnerabilities in the insurance industry to launder money for their operations.
A federal grand jury indictment brought today in Miami highlighted the phenomenon. In it, the authorities charged that five Colombians took part in an elaborate scheme to launder millions in cocaine profits originating from street sales in New York City, Florida and elsewhere.
American law enforcement officials say Colombia has indicated that it will extradite the five suspects to the United States to stand trial.
Drug traffickers often use bank deposits, wire transfers and other financial mechanisms to disguise the source of their revenues. But officials at the Customs Service said the current case was the first in which a major trafficking ring has been known to use insurance policies to cover its financial tracks.
In interviews and court documents, law enforcement officials at the Customs Service said that in recent years, brokers connected to the Cali drug cartel in Colombia had bought insurance policies in the Isle of Man and other British islands, as well as perhaps Florida and other locations, to launder more than $80 million.
Using drug proceeds from the United States and Mexico, the suspects opened some 250 different investment-grade life insurance accounts in the Isle of Man alone, investigators said. The insurance policies, worth as much as $1.9 million each, were sometimes taken out in the names of nieces, nephews and other relatives of the traffickers, investigators said.
The traffickers would typically cash out all or part of the Isle of Man policies prematurely after a year or so, paying penalties of 25 percent or more to get access to the laundered cash more quickly, investigators said.
Customs Service officials have seized $9.5 million in Florida in connection with the case, most of it in the last three weeks, officials said. They expect to seize more assets and bring more charges against others they accuse of involvement in the operation, and they are closely scrutinizing a South Florida insurance company to determine its role.
"This has opened our eyes," said John Clark, special agent in charge of the Customs Service's Miami office, which led the investigation. "We think this is just the tip the iceberg. This is a system that seems to have been used and abused by narcotics traffickers for years."
Officials in Colombia have also seized $20 million there and in Panama in connection with the money-laundering operation. They arrested at least nine people in the case last month including three of the five defendants charge d today in Miami. Another Colombian wanted in the case is thought to be at large in California.
Those indicted today in Miami on conspiracy and money-laundering charges were Rodrigo Jose Murillo and his son, Alexander Murillo, who investigators say were active on the drug-trafficking side of the operation; Jaime Eduardo Rey Albornoz and Arturo Delgado, who investigators say brokered the transactions; and their assistant, Esperanza Romero.
The indictment seeks the forfeiture of $2.1 million that the authorities say the defendants laundered through banks and insurance companies.
The case was brought in Florida because some of the money passed through companies in the state and because the laundering investigation grew out of a major drug-trafficking case there in the early 1990's.
The case led to the seizure of 47,000 kilograms of cocaine distributed by the Cali cartel and others. In the last several years it has also led investigators to develop high-level informers in the trafficking industry. These sources indicated that much of the cartel's money was winding its way to the Isle of Man, investigators said.
The Customs Service started the financial spinoff of its 1990's case in early 2001, working closely with counterparts in Colombia, Panama, Britain and the Isle of Man.
Officials in the Isle of Man, a hub for global insurance companies, were eager to cooperate, American officials said. After concerns were raised in recent years about whether the island's oversight of the industry was too lax, the officials "wanted to put that to rest by cooperating and to show that they weren't a money-laundering haven," said Anthony Arico, assistant special agent in charge in Miami for the Customs Service.
Isle of Man officials said today that they had instituted new safeguards against criminal use of their corporations to launder money. But they acknowledged that the high volume of global business in the territory made it an attractive target for launderers.
In the current case, investigators pulled together information from financial transactions as far away as Russia, using informants, wiretaps and undercover operations to trace the money trail, officials said.
In New York City, undercover Customs investigators acted as go-betweens, funneling cash from local street sales and forwarding it to the Isle of Man through checks or wire transfers to buy life insurance policies, officials said.
Undercover agents also got the word out to drug dealers that, for a fee, they would accept and launder large amounts of cash, according to a seizure warrant filed in federal court in New York in connection with the case.
Dealers would then drop off large sums of cash sometimes hundreds of thousands of dollars and direct the undercover agents to wire the money to banks and insurance companies around the world, the warrant said.
American officials said that Mr. Albornoz and Mr. Delgado, who each own financial transaction businesses in Colombia, were the "master brokers" who oversaw the insurance scheme. Colombian officials said Mr. Albornoz even organized conferences on money laundering for insurance companies and financial institutions around the world.
"The case just underscores the clever and crafty schemes that drug traffickers and terrorists, too, are capable of conceiving to move their money," said Rob Nichols, a spokesman for the Treasury Department.
The department proposed in September that insurance companies be required to adopt programs to better detect accounts opened expressly to hide illegal revenues.
Officials said the investigation in Colombia was a driving force in the still pending proposals, which have met with general support from many insurance groups.
Mr. Clark of the Customs Service said that if insurance companies were subject to the same types of rigorous reporting and monitoring requirements as banks, the authorities would have been able to detect some of the suspicious tactics used by the Colombian launderers.
Insurance companies might have reported, for instance, that policyholders were authorizing unrelated third parties to withdraw money from their accounts or were frequently cashing out their policies early, he said.
The proposed restrictions, he said, would help the authorities "spot the type of irregular flow of money that we were seeing here."
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Dakota Joseph Arts