Colombia’s Narcotrafficking Problem: Cash and Carry
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Colombia is grappling with the significant role of drug trafficking in driving illegal activities beyond just narcotics. The country’s guerrilla groups and criminal organizations, including BACRIM, have turned to drug money to fund their illicit businesses.
The Flow of Illicit Funds
According to Marcela Anzola, an independent consultant on foreign investment and anti-corruption matters, “Most of the money from drugs usually returns… It still is relatively easy to hide or invest illegal fortunes in Colombia, despite increased controls.”
The majority of this laundered cash is repatriated through five preferred mechanisms:
- Smuggling
- Overstating remittances from workers abroad
- Trade misinvoicing
- Overstated foreign capital inflows
- Cash couriers
Experts agree that smuggling is the most common method used by drug traffickers to launder their money in Colombia.
The Process of Money Laundering
The process works as follows: drug traffickers do not directly launder their own money but instead use specialized criminal networks. They purchase merchandise in countries with poor legislation and enforcement, such as Panama, and then sell it in Colombia. Goods that are easy to sell, like clothing, shoes, alcohol, and cigarettes, are often chosen.
The merchandise is then smuggled into Colombia through informal channels, such as:
- Physically transporting it across the border
- Using free-trade zones prone to corruption
- Declaring or undeclaring through legitimate trade routes
The Impact on Colombia’s Economy
The impact of this trade-based money laundering on Colombia’s economy is significant, perpetuating a cycle of corruption and illegal activities. As experts continue to monitor the situation, efforts to increase controls and enforcement are necessary to curb these illicit practices and protect the country’s financial integrity.
Case Study: Trade-Based Money Laundering in Colombia
In an exclusive interview with the Economic Intelligence Unit (EIU), a former high-ranking Colombian government official revealed that drug trafficking is the largest source of crime in Colombia, with contraband being a favored way to launder drug money. The official estimated that contraband amounts to approximately $5 billion annually.
The official explained that drug traffickers use specialized criminal networks to purchase merchandise in countries with poor legislation and enforcement, such as Panama, and then sell it in Colombia. Goods that are easy to sell, like clothing, shoes, alcohol, and cigarettes, are often chosen.
This case study highlights the challenges facing Colombia in combating drug trafficking and money laundering. The country’s authorities must increase controls and enforcement to prevent these illicit activities from perpetuating a cycle of corruption and illegal activities.