Laundering Drug Money via USD COP Exchange

If you are a Colombian drug lord you make your money in US dollars or Euros when foreigners buy your product. But you do business in Colombia so you need to move your profits back to Colombia and convert those US dollars and Euros into Colombian pesos in order to keep doing business. People who illegally mine gold in Colombia have the same business problem. It turns out that laundering drug money via USD COP exchange at discount rates is the answer to this business dilemma. Bloomberg Business reports that currency exchanges in Colombia are funneling drug money back into the country.

They are in high-end malls, at the international airport, even on the steps of the nation’s central bank. Most display stamped customs documents, making them appear not only benign but official.

Yet hundreds of cut-rate dollar changers across Colombia form part of the scaffolding of the country’s thriving illegal drug and gold trade, some with links to Marxist guerrillas, according to current and former officials. Cocaine traffickers and illegal miners use some of the currency dealers to convert ill-gained dollars into pesos. Customers benefit from a 10-percent discount on the rate banks and investors use.

The Forex markets were developed to facilitate international trade. In this case the international trade in drugs in facilitated by discount money changers selling ill-gotten US dollars in broad daylight in Colombia. How big is this business?

How Much Money?

How much money needs to be converted back into Colombian pesos by laundering drug money via USD COP exchange? Here are a few facts about Colombia drug trafficking from Colombia Reports.

Some 4% of the world’s population has consumed cocaine in his or her life. That is almost 300 million people. Approximately half of this cocaine comes from Colombia.

Last year alone, at least 17 million people used the illicit drug, allegedly consuming between 700 and 800 tons of pure cocaine with a street value of at least $20 billion.

The demand for the drug comes primarily from the United States and Europe, but South America – particularly Brazil – has also grown into a major consumption market.

According to Colombia Reports the value of processed, ready to sell, cocaine in Colombia is around $2,300 a kilo whereas the street value in the USA the street value of a kilo of cocaine is $60,000. In Australia the street value of a kilo of cocaine can run as high as $235,000. The total profit of this drug between final processing and sale is around $58,000 a kilo. The world street value of cocaine is around $20 billion of which half the profits go to Colombia. To what degree might laundering drug money via USD COP exchange affect the Forex market for the USD COP pair?

Bank of International Settlements Report

According to the 2013 Bank of International Settlements report on foreign exchange turnover Forex exchange runs around $5 trillion a day. As a traded currency the COP rates #36 and its trading volume is about 0.1% of total volume or $5 billion a day. Considering that Forex markets trade for about 250 days a year that makes COP yearly volume about $1.25 trillion. The amount of money involved in laundering drug money via USD COP exchange is tiny compared to the whole of USD COP exchange is likely does not affect the exchange rate.