This is From U.S. News and World Report.

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The golden age of crime Why international drug traffickers are invading the global gold trade

BY DAVID E. KAPLAN

Marian Walas was feeling the heat. He had helped send more than 100 kilos of cocaine from Chicago to Eastern Europe, federal agents say, but he owed his Colombian suppliers $2 million and they were threatening his life. He swore that the money would be wired immediately. His partner even showed them where: to the account of a Panamanian gold company named Speed Joyeros.

Moving money to Speed Joyeros was also on the mind of Inocensio Lopez. According to court testimony, the Dominican drug dealer dropped off a bag stuffed with nearly $300,000 at a Manhattan hotel room; the money was to go to Moishe Hebroni, the owner of Speed Joyeros.

The connection between the two drug cases and Speed Joyeros is more than a coincidence, law enforcement sources say. Speed is reputed to be Latin America's largest gold trader, with $25 million in sales a month. U.S. drug enforcement agents have seized nearly $1 million from a New York bank account belonging to the company. Now they're examining the firm's movement of millions of dollars of gold and cash around the world. Speed has not been charged with any crime; company officials proclaim their innocence and are fighting the government for release of their funds. But to U.S. experts, the cases show that gold now plays a central role in the billion-dollar business of washing dirty money.

Good as gold. The gold trade has become "the money laundering mechanism of choice," according to internal law enforcement reports, and is being used to wash "staggering amounts" of dirty cash. The way it works is complexand varied: Basically, drug profits are used to purchase gold, whether as jewelry, ingots, or even scrap, then shipped across borders and resold. The resulting profits are "clean," the drug trafficker who bought the gold in the first place free to do with his money as he pleases. So pervasive is its criminal use that gold is joining the U.S. dollar as the standard currency of the drug trade. Among the evidence:

Nearly every major U.S. money laundering case in recent years has involved gold. Authorities have traced the movement of tons of gold and billions of dollars to deals by Latin American drug cartels.

U.S. gold imports from Latin American drug havens have skyrocketed. Imports of gold from Colombiaa minor producerballooned from virtually nothing in 1993 to nearly $200 million in 1996.

In the past 10 years, nearly $2.5 billion in foreign gold flowed into Miamidespite Florida's lack of a jewelry-making industry. Authorities say much of the gold is tied to money laundering and tax scams.

Narcotics traffickers are taking over the Latin American gold trade, industry officials say. Colombian drug dealers are paying exorbitant prices for gold and buying up small dealers across the region.

For drug traffickers, the gold market is like a magnet. So much of the international gold trade operates "off the books" that it is an easy target for organized crime, officials say. While many gold companies operate legitimately, interviews with traders, refiners, and law enforcement officials depict an industry riddled with money laundering, tax fraud, smuggling, and dubious bookkeeping.

But the impact of an illicit gold trade goes beyond the corruption of one industry. Having refined methods to detect money laundering in financial institutions, U.S. investigators are stymied by the ancient trade in gold. Officials also worry that corruption in Latin America's gold trade will spread to the United States, where refiners are importing record amounts of gold from Colombia and Peru. "There's nothing else out there like gold," says U.S. customs agent John Casarra. Posted to Rome in the early 1990s to investigate the Mafia, Casarra found to his surprise that gold figured again and again as the key to laundering cases. "Money launderers are foremost businessmen, and businessmen want certainty," he says. "Gold gives that to them. They can exchange it anywhere in the world."

Take the case of Gustavo Upegui Delgado. Casarra and his Italian colleagues were stunned in 1994, when they found Delgado, a top money launderer for Colombia's Cali cartel, was buying over a ton of gold a month with his colleagues, using drug money to purchase the stuff, then shipping it to Panama. The launderers moved so much of the metal, officials say, that it depressed the price of gold between the two countries.

The big surprise is that it took traffickers like Delgado so long to tumble to the allure of gold. The industry is largely made up of individual dealers and small companies that prefer to deal in cash. High tariffs on gold have attracted smugglers for years. "There's a dual economic system in the jewelry industry," concedes Richard Rubin, the owner of Republic Metals in Miami, a gold refiner. "There's on the books and there's off the books."

How big is the underground gold trade? No one really knows, but customs officials got an unsettling hint a few years ago when they began checking trade data on U.S. gold shipments. "We began to see spikescrazy spikes," says Lou Bock, a customs specialist in international trade crimes. "We thought they must have been errors at first." Initially, analysts discovered large movements of gold between the United States and various Caribbean islandsplaces known not for their gold industry but for laundering dirty money. U.S. gold imports from the Netherlands Antilles, for example, jumped from $68,000 in 1993 to $29 million just four years later.

In the zone. Equally impressive spikes soon emerged from Colombia and Peru, the centers of cocaine production. Between 1994 and 1997, U.S. imports of Peruvian gold grew more than ninefold, from $19 million to $177 million. Imports of gold from Colombia ballooned from a mere $120,000 in 1993 to nearly $200 million in 1996.

Much of the jump in Peruvian production may be due to rapid growth in that nation's legitimate gold industry, says John Lutley, a veteran analyst at the industry-sponsored Gold Institute in Washington, D.C. But Lutley finds the data for Colombia hard to explain. "That's a totally incredible number," he says. The flood of Colombian gold has made at least some American refiners wary. "We do no business out of Colombia, for the pure and simple reason that we can't establish the identity of the owner of the gold," says Michel Berleson, marketing manager for top refiner Handy & Harman.

Latin American gold enters the United States largely through Miami. From 1989 to 1998, annual gold imports through Miami International Airport jumped from $18 million to $465 milliona 26-fold increase. While much of this trade is legitimate, gold analysts remain wary, given the absence of a jewelry-making industry in Florida. Indeed, U.S. money laundering experts believe these odd statistics reflect a myriad of schemes for laundering drug money.

One typical scheme works like this: Top refiners in Switzerland sell their gold to jewelry makers in Italy, the world's largest supplier of fine gold jewelry. The Italian jewelry is sold to U.S. buyersmost of this trade is thought to be legitimateand to their second top market, Panama, which imported $300 million worth of Italian gold last year25 to 30 tonsaccording to Gold Fields Mineral Services, a London-based research firm.

In Panama, nearly all the gold arrives at the Colsn Free Zone, a bustling market perched on the edge of the Panama Canal. Home to Speed Joyeros and 1,600 other companies, the zona libre is the world's second-largest free port, after Hong Kong. Bound by an imposing gray wall topped by barbed wire, the 1.5-square-mile zone is home to a dizzying potpourri of global traders: Arabs, Chinese, Indians, Jews. More than $6 billion of merchandise passes through the district each yearas much as a quarter of it, investigators say, financed by drug money.

In the money. Once in Colsn, much of the Italian gold is sold to Colombian front men for the cocaine industry. It is Colsn, for example, where the Cali cartel's Delgado sent his gold each month. The gold is then smuggled back to Colombia, where some dealers sell it for pesos and use the money for living expenses and to fund more drug production. But others melt down the jewelry, recast it into ingots, and sell the gold to refiners in the United States or Switzerland, producing a stream of income that looks legitimate.

Investigators have found that in some cases, the launderers even buy back the same gold they've just sold for refining in the United States, paying for it with yet more drug money. The scheme apparently is also a good deal for tax cheats. A recent crackdown in Peru found that 40 percent of that nation's gold companies were bogus, set up largely to take advantage of an export-tax rebate. Smugglers shipped gold to American refiners, pocketed the tax rebate, smuggled the gold back to Peru, then shipped it out again, grabbing yet another rebate. "I may have handled gold coming in that was gold I sent down there to begin with," says Richard Rubin, whose Republic Metals made large shipments to and from Peru.

Gold traders say the influence of narcotraffickers is so pervasive that they are taking over Latin America's gold trade, co-opting legitimate firms and buying up traders in country after country. "They're squeezing out the legitimate dealers," says one prominent trader who insisted on anonymity.

Federal agents believe companies like Speed Joyeros play a key role in the underground gold trade, a charge the firm's owners emphatically reject. "If my clients are laundering money, why haven't they been indicted?" argues Speed attorney Louis Diamond. Business for Speed, meanwhile, is booming. In Colsn, the company is building what a competitor calls "a temple of gold"possibly the largest jewelry store in Latin America.

Drug dealers playing the gold card are doing it in increasingly sophisticated ways. In 1989, federal agents stopped a billion-dollar money laundry that exported so much gold from Uruguay that that country became America's largest gold supplier. The fact that Uruguay had no gold industry mattered little to the laundererswhat mattered was creating a credible cover for their flow of narcodollars. Today, some criminals are importing gold-plated bronze into the United States, others are shipping out just the opposite: gold disguised as other metals. Having taken payment in gold, the traffickers simply want to move their assets back home. Customs inspectors, now on the lookout for gold smugglers, have made repeated seizures in recent months. In one case, a woman flying to Colombia from New York was stopped with two tractor-trailer hitches, seemingly made of steel. Under the paint, inspectors say they found solid gold.

The gold trade poses other challenges for law enforcement. The industry's bookkeeping practices can be nightmarish, and gold traders often are shielded by ethnic and family bonds. "Arms cases are comparatively easy," says Casarra, the money laundering watchdog. "They are a commodity you follow from country A to country B. But gold is more like a currency. Moreover, its form can change, and that can make it extremely difficult to follow."

Law enforcement's gold bugs also face obstacles within their own camp. Casarra and a handful of colleagues have fought a sometimes frustrating battle within the U.S. government to focus more attention on the gold trade. Many investigators still view gold cases as exotic, even while their bosses stress the importance of going after criminal money. Washington, meanwhile, has taken its campaign against money laundering overseas, prompting governments worldwide to put new laws on the books. But cutting the underworld's financial pipeline will take more than seizing bank accounts. If the focus remains merely on hard cash and not precious metal, the world's drug barons may yet live to see a new Golden Age.

With Philip P. Willan and Eleni Dimmler in Rome, Carol Salguero in Lima, and Mark Madden ______________________________________________________________

So, do the Worlds Druglords see "the handwriting on the wall" for the U.S. Dollar, and are looking for an alternative to it? Or is Gold merely a convienant way for them to launder their Drug Dollars? Being that there is probaly no group of individuals on the planet that hold more of their wealth in U.S. Dollars than the Worlds Druglords, I'll speculate that they and their fianacial advisors are getting a little nervous about the Greenback when they look at the U.S. being the Worlds largest Debtor, coupled with our Overblown Bubble.com Stock Market, Etc. And are looking for an "Safe Haven" for their Billions and Billions of physical U.S. Dollars. Anyone Care to Comment?

-- Zguy (gold@limitup.com), January 26, 2000

Answers

Customs inspectors, now on the lookout for gold smugglers, have made repeated seizures in recent months. In one case, a woman flying to Colombia from New York was stopped with two tractor-trailer hitches, seemingly made of steel. Under the paint, inspectors say they found solid gold.

Huh? "Yes, I always carry two ball hitches with me wherever I go, especially when I am flying."

-- Y2kObserver (Y2kObserver@nowhere.com), January 26, 2000.

::But gold is more like a currency. Moreover, its form can change, ::and that can make it extremely difficult to follow."

I think your answer is the above. US officials have made it much more difficult to leave the country with large amounts of cash (money sniffing dogs and such) and tracking the flow of cash is much easier with the new currency. Gold is more compact, can be made into almost any form required, and is easy to sell. I suppode we'll see gold sniffing dogs next.

-- Jim Cooke (JJCooke@yahoo.com), January 26, 2000.

I coud see this as a government excuse to crack down on legitimate gold trading...

-- Mad Monk (madmonk@hawaiian.net), January 26, 2000.

Drug cartels have been converting more and more of their assets into Gold for at least the last three/four years. It makes sense for all of the reasons mentioned above.

This isn't NEW news, just becoming more widely disseminated.

Good Catch though, Zguy. Always appreciate a good thread.

-- Michael (michaelteever@buffalo.com), January 26, 2000.

Gold control - just like handguns.

<sarcasm>
1) Dangerous in the hands of private citizens
2) Only criminals want to own large gold caches.
3) Limited 'sporting use' for properly licensed citizens.
4) The UN should control all international shipments and restrict ownership.
5) In the future, a 'gold free' world economy will be 'safe' for all to join.
</sarcasm>

-- Possible Impact (posim@hotmail.com), January 26, 2000.

Who was it that always signed off, "God, guns, and gold"?

-- J (Y2J@home.com), January 26, 2000.

When gold is outlawed, only outlaws will have gold.

Southside Ed

-- Southside Ed (back@home.fornow), January 26, 2000.

Wouldn't it be ironic if the dollar crashed and the smugglers holding millions of US paper dollars ended up holding worthless paper? It would appear that they are smarter than the gobmint. They have the sense to buy gold. When the dollar does crash, they will own huge quanities of physical gold which will increase in value. Perhaps they can then establish banks backed 100% by gold. That would be a riot. They would be making so much on the increased value of their gold holdings that some of them may decide to go straight er ah become bankers. Would the overall intergrity of the banking establishment increase or decrease if this happened? Just wondering

-- Alan (justwondering@gold.wow), January 26, 2000.

Mad Monk, has it right. The Gold/Drug "crisis" is going to be the next made in Wash.D.C. "crisis".

Any economist want to explain the twisted logic supporting the following conclusion?!?

"Delgado, a top money launderer for Colombia's Cali cartel, was buying over a ton of gold a month with his colleagues, using drug money to purchase the stuff, then shipping it to Panama. The launderers moved so much of the metal, officials say, that it depressed the price of gold between the two countries."

-- Ken Seger (kenseger@earthlink.net), January 27, 2000.