Conning the Cali cartel

Last year the US government set up a bogus bank to launder drug dollars. The money poured in and with it came the cartel's financial secrets. Chris Blackhurst tells the inside story of one of the stings of the century
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The Independent Online
Wanted: anyone who knows the recent history of three particularly fine portraits by Picasso, Rubens and Reynolds, worth, at a conservative estimate, $20m.

Notices placed in Le Monde and other newspapers in Europe in the past few weeks have failed to shed any light on the story of the three paintings. At Scotland Yard, Detective Inspector Charles Hill, head of the Metropolitan Police's art squad, is confident of tracing something of the past of the Rubens painting of St Paul (left), and the Reynolds, subject unknown. But given Picasso's vast output, the "Head of the Beggar" from the artist's blue period in 1904 is more difficult to place.

The one thing that Hill and the US authorities, who placed the advertisements, do not need to be told is who held the paintings last. This they know, because they seized them from the Colombian Cali drug cartel. That seizure was one of the last acts in an extraordinary operation, in which, valuable as the paintings were, they were mere trifles compared with the greater prize: the drug barons' own bank accounts.

The tale of how the US authorities came by the paintings reads like the denouement of a blockbuster thriller. On 14 December 1994, a female representative of the Cali drug barons walked through Customs at Miami airport with the paintings in an architect's satchel. She was not stopped and was allowed to meet her contacts, a man and a woman. The couple, one posing as a banker, the other as an art expert with a potential buyer for the pictures, were undercover agents from the US Internal Revenue Service. The three boarded a Lear jet, ostensibly to take the paintings to the buyer; instead, the plane was bound for Atlanta and the offices of Wilmer Parker III.

As she was arrested, the woman cannot have realised the significance of the man she was meeting. Known to everyone as "Buddy", Parker, an assistant US attorney with the Southeastern Drug Task Force, could have stepped straight from the pages of a John Grisham novel. Tall and lean, he speaks with a deceptively languid southern drawl. A veteran money-laundering expert, he was one of the brains behind the most audacious operation ever undertaken by the Drug Enforcement Administration. The full story of what he did emerged only last week when Parker and Hill lectured at the International Symposium on Economic Crime in Cambridge.

The plan began in late 1992, when, through an informer in Colombia, the DEA heard that the seemingly infallible drug lords had an all too human frailty. Having spent their lives hiding their wealth, the ageing members wanted to be in a position to leave their money to their children in such a way that the Colombian authorities would not ask too many questions.

By law, Colombians are required to file annual tax returns detailing any increase in their net worth. Contrary to popular belief, the Colombian government can, and does, prosecute those who disobey the disclosure rule, under the country's tough "illicit enrichment" statute. Nominee names are not good enough. As part of their continuing war against the Cali cartel, Buddy and his colleagues from the DEA and Internal Revenue Service saw their chance. They decided to help the cartel to help their children.

The plan was to set up an offshore bank that would launder the cartel's money. The bank would overtly seek the cartel's business. It would offer loans in return for drugs money; it would produce false loan documentation showing that security for the loans had come from somewhere other than drugs; and it would be in a place that prided itself on secrecy, so that any prying Colombian government official would never get beyond the bank's brass nameplate.

"They needed a financial institution to give them false loan documents," says Parker. "So, we thought about opening a bank which would be the ultimate in private banking, because we would market our services only to people we knew to be crooks."

For the DEA, setting up a bogus bank was a huge step. Such a scam, on such a scale, was traditionally the province of the CIA, and everyone remembered how badly unstuck some of its "sting" operations had come. The plan needed Washington's approval; authorisation could only come from the office of the Attorney-General. To avoid accusations of using taxpayers' money to finance cocaine factories, Buddy agreed that only drugs profits previously seized by the DEA would be used to fund the bank.

Even so, there was a residual awkwardness about doing business with the enemy: when all was said and done, a bank owned by the US government would be lending money to some of the world's worst criminals. There was also the need to ensure that the bank, the true identity of which would be known to only a handful of people, did not itself come under investigation by the US authorities.

Parker got the agreement he required early in 1993. The next problem was choosing where the bank was to be based. US banks are not allowed to hold offshore banking licences, so the DEA approached their friends, the British, in May 1993. The British commissioner in Barbados was approached and asked to provide a list of locations. Immediately there was a problem: a recent clean-up campaign by the Foreign Office had seen the number of "class B" banks in the British West Indies, which specialise in secrecy and asking no questions, pared from 300 to 100. Also, the waiting time for new applications had been lengthened to at least two years. A new bank jumping the queue would arouse suspicion - the last thing its nervous owners needed.

From the outset, says Parker, the British leapt at the idea. Perhaps something about its cloak and dagger nature touched a nerve. Whatever the reason, Buddy and his colleagues found, at meetings at the Foreign Office in London and in Barbados, a receptive audience.

There was still the difficulty of the two-year wait. But a trawl through a list of applicants for banking licences in Anguilla revealed one from a US citizen on the West Coast. He was a Japanese American with businesses worldwide. He travelled a lot; his daughter had, at one time, been a drug user. There seemed to be enough about his circumstances to raise suspicion. He was paid a visit and was asked, "Would you like to help us or would you like us to work you over?"

Not surprisingly, the prospect of having his business crawled over by IRS agents did not appeal: the man agreed to transfer his application to Buddy and his friends in Atlanta.

The licence was waved through by the British, and in May last year the bank was ready for business. Stationery was produced in three languages, English, French and Spanish. No detail was missed. "We used European-bond paper, not US, so nobody would get suspicious," says Parker. With an accommodation address in Anguilla and Freefone 1-800 numbers for would-be clients in Venezuela, Colombia and Mexico, the bank looked for all the world like the real thing. Fake offices were opened in an Atlanta tower block in case anyone wanted to have a look, and the phones were manned by Spanish- speaking clerks.

In Colombia, the informant went to work. He made no bones about it: he had heard about a new, crooked bank, he told his friends in Cali. They fell for it.

Any checks they made would reveal very little: everyone involved was undercover, using false names and carefully constructed backgrounds. "We said we were a bank, and that was true," says Parker. "We just did not say who the board of directors was."

To test how co-operative the bank intended to be, the cartel asked it to collect large amounts of cash from the drug ghettos of New York, Los Angeles, Miami and Houston. The money was to be taken by its agents to US banks, from where it could be wired to the bogus bank's headquarters. Parker's bank, bending over backwards to accommodate, did as the Colombians asked and collected sums that on one occasion amounted to almost $1m.

Within weeks, things moved up a gear. The Colombian agent was directed to encourage the cartel to be more adventurous, to think about opening proper deposit accounts and receiving loans, to set up money transfers to and from their associates overseas. "This was uncharted waters in law enforcement," says Parker. "It was frightening what we could have done."

This was a bank like no other. The first potential customer said he needed to "legitimise his profits from narcotics trafficking the previous year". When asked how much, he replied: "$500m."

Normal banking safeguards, such as the Bank of England or the Federal Reserve stepping in as lenders of last resort, went out of the window. With clients like these, the sine qua non was the constant threat of violence if anything went wrong.

In the first 10 weeks of the operation, code-named Dinero, the bank accepted deposits of more than $8m. In Atlanta, the detectives could not believe the quality of intelligence they were receiving. Clients were asking the bank to wire funds to businesses and other banks across the world. They could see where the money was coming from and where it was going.

Legitimate customers were put off by the exorbitant fees the bank charged, but the drug traffickers were not bothered - they were rolling in money and only too glad to find someone who would take their cash. When Italian friends of the cartel requested help in transferring their money, the bank was only too happy to oblige. The result was the netting of Pasquale Locatelli, one of the most wanted men in Europe. Long suspected of being a major conduit for the drugs industry, Locatelli had been on the run since being spectacularly sprung by helicopter from prison in Marseilles.

Locatelli was more than a drug trafficker. Last year, acting on a tip- off from Atlanta, the Italian navy swooped on a boat in the Adriatic. A boat linked to Locatelli, the Jadran Express, was carrying two containers full of Russian-made guns and ammunition for the Bosnian Serbs. Locatelli was arrested in Spain last September.

Wire taps on the bank's customers and their contacts led to the unravelling of a web that began in Colombia but went everywhere: the emerging Russian mafia, the established Italian mafia, and their cousins in the US, Britain, the rest of Europe and the Far East. By the time the decision was taken to stop Dinero last November, after just six months of operation, 88 people had been arrested, and nine tonnes of cocaine and 40 tonnes of hashish had been seized. The Italian government was able to move against one bank, several shopping centres and a small fleet of ships.

Everyone involved on the inside got out safely - although as a precaution, the DEA will still not release the name of the bank.

Asked why it was stopped so soon, Parker shrugs: "We felt all the viable law enforcement objectives had been met." He will not say so, but the decision was clearly taken over his head, in Washington - possibly for fear of the scam getting out of hand or for fear of trampling on the toes of the DEA's cousins at the CIA.

Parker has moved on to other wheezes. Which leaves the paintings. At Scotland Yard, Hill says their existence just goes to show something he had always maintained, that organised crime was moving in on art - not because they were passionate admirers of Picasso et al, but because it is an international commodity behind which they can hide their cash.

He hopes, one day soon, to trace the paintings' antecedents. He knows from the woman at Miami airport that they were bought with drugs money. From there, for now, the trail goes cold.

Parker and Hill lectured at Cambridge International Symposium on Economic Crime last week.