Combating money laundering and smuggling in Colombia
| Pages | 153-156 |
| Date | 01 April 2003 |
| Published date | 01 April 2003 |
| DOI | https://doi.org/10.1108/13590790310808745 |
| Author | Jaime Ospina‐Velasco |
| Subject Matter | Accounting & finance |
Combating Money Laundering and Smuggling
in Colombia
Jaime Ospina-Velasco
INTRODUCTION
One of the most distinctive aspects of money laun-
dering in Colombia is its connection with smuggling
practices and the devastating eects it has on the
economy and society in general. Implicit in this
unacceptable behaviour is a kind of complicity
among the international business community as
revealed in its apparent indierence to this
phenomenon.
Colombia is pursuing its policy of combating con-
traband not only to prevent an illegal activity which
damages ®scal revenues, but also as a countermeasure
in the attack against money laundering.
This paper intends to show how far Colombia has
achieved its goal. Although contraband has been a
constant phenomenon throughout Colombia's his-
tory, over the past years it has become one of the
main scourges, a source of destabilisation and in
particular, has adversely aected the country's pro-
ductive sector. Millions of Colombians have lost
their jobs through smuggling activities, to the
extent that unemployment has risen to nearly 20
per cent, one of the highest rates in modern times.
In an eort to open up the economy and improve
the rate of commercial ¯ow, Colombia substantially
reduced import taris, bringing them close to 8.7
per cent. The result of this, however, was that contra-
band increased instead of decreasing. The only expla-
nation for this is the close relationship between
contraband and the other huge problems that threa-
ten the country, such as drug tracking and money
laundering.
Contraband in Colombia is of an uncertain magni-
tude but has been quanti®ed by dierent analysts in a
variety of estimates that range from US$2.5± 8bn per
year. Technical contraband (this is when the importer
uses an improper custom item code to avoid higher
import duties, or when the import licence shows a
lower number of items than the real quantity of
import, to avoid the payment of true import duties)
and under-invoicing amount to approximately
$5bn. Comparing this to the total number of legal
imports in 1998 amounting to $15bn, the result
suggests that contraband accounted for 25 per cent
of total imports. In terms of GDP, smuggled goods
range between 2 and 3.5 per cent of the Colombian
GDP.
The losses for Colombia due to tax evasion can
reach $1bn per year, not counting national and
local taxes. As a result of tax reform, the central gov-
ernment has transferred as much as 54.1 per cent on
average of the nation's ordinary income to provinces,
municipalities and Indian reservations, in the form of
®scal transfers. The local governments lose nearly
$500m as a result of contraband, which has aected
the supply of basic services to the population in
areas such as education, social welfare, health,
sanitation, sports and youth recreation.
It appears that money laundering and drug track-
ing are the most decisive factors leading to unfair and
destabilising competition for the market in foreign
goods.
THE LINKS BETWEEN CONTRABAND
AND MONEY LAUNDERING
It is well known in Colombia that smuggling is a
very pro®table industry. The immediate goal of
smugglers is the avoidance of taxation, the laundering
of money earned illegally through drug and other
tracking, eg in arms and ammunition, and to
import raw material and chemical components for
the production of drugs.
It is important to understand that contraband exists
because of the many elements in a chain that help
smugglers to succeed, namely, manufacturers, trans-
porters, distributors, retainers, peso brokers and
even consumers who buy goods, aware of and not
objecting to their unlawful origins.
The process is as follows. Producers in dierent
countries, such as the USA, the UK, Japan, Korea
and China sell their merchandise to distributors
located in Miami, Hong Kong, Los Angeles,
Panama, Aruba, CuracË ao and other Caribbean coun-
tries. Colombian smugglers purchase the merchan-
dise from them or in some cases directly from the
manufacturers. Peso brokers, who provide them
Page 153
Journal of Financial Crime Ð Vol. 10 No. 2
Journal of Financial Crime
Vol.10,No. 2,2002,pp. 153 ±156
#HenryStewart Publications
ISSN 1359-0790
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