David Murcia GuzmÃ¡n as a wedding photographer, a business magnate, and a prisoner (photos from Semana).
Imagine that you’re a narcotrafficker – or an associate of narcotraffickers – who needs to launder US$3 million. Why not go to a poor rural area – perhaps a remote coca-growing zone where you already have connections, and where the central government won’t notice you right away.
There, make an amazing offer to the local residents. “Give us your money,” you say, “and you can have it back, with 50% interest, in 6 months.”
Within 6 months or so, you have turned your US$3 million in “dirty” money into US$2 million in “clean” money: the contributions from thousands of grateful campesinos who magically increased their wealth. Minus, of course, the unknown amount you had to pay in bribes and lawyers’ fees to keep investigations into your finances from becoming too zealous. (Many local officials themselves become “investors” too.)
When asked how your business model can possibly work legally, simply explain that it is a “secret formula” like Coca-Cola’s recipe or Google’s search algorithm.
As long as nobody is asking, it’s a “win-win.” Colombia’s narcotraffickers, probably including demobilizing paramilitary leaders, have a trouble-free new way to launder their profits. And by spreading the wealth, you become something of a folk hero among the poor residents of forgotten corners of the country where coca-growing has long seemed like a rational economic choice. People are selling their farms to invest in your scheme. Everyone from churches to charities to soldiers is doing the same.
Eventually, members of the press and some activists become more insistent in their questions about where your money comes from. Your model becomes a bit more complicated, but also easier to access.
Participants can now put their money in prepaid cards, redeemable on purchases of appliances, motorcycles and other goods at super-stores that you’ve opened up throughout the country, including in BogotÃ¡. Six months after spending their money on your heavily marked-up goods, they can get all of their original money back. You’ve basically just given them a free motorcycle, which you bought wholesale, in exchange for laundering enough of your money to pay for a heavily marked-up retail motorcycle.
This, of course, is an approximation of the story of David Murcia GuzmÃ¡n, who until his arrest a few weeks ago was the 28-year-old head of DMG (his initials), a company founded in Orito, Putumayo in 2003. When he started the company, Murcia was working as a wedding photographer in southern Colombia’s coca heartland. By this year, DMG was one of Colombia’s 500 largest companies, with declared 2007 revenues of nearly $40 million, 60 offices nationwide and a presence in Ecuador, Panama and Venezuela. The skinny, ponytailed Murcia became a jetsetter frequently photographed in the company of models.
Murcia was most likely a figurehead, somebody performing a service for more powerful narcotraffickers with a lot of money to launder. Press reports indicate that he may have had links to top narcos who have since been extradited to the United States, like paramilitary chieftain (dominant in Putumayo) Carlos Mario JimÃ©nez, alias “Macaco,” and Juan Carlos RamÃrez AbadÃa, alias “Chupeta.”
DMG had a very prosperous run, and unlike the other “pyramid schemes” that collapsed in Colombia last month (taking with them the savings of millions), it was not in danger of going under when the government shut it down and arrested Murcia. Its supply of money came from murky origins but did not appear to be running out.
One reason DMG grew so quickly and lasted so long is that too few in Colombia were asking the obvious question: What sort of business model can be based on consistently losing money by giving people something for nothing?
The likely answer: a business in which the gain is measured not by the amount of money earned, but by the type of money exchanged. DMG basically turned millions of Colombians into unwitting accomplices to money-laundering.
They are hardly to blame, though. While DMG’s accounting made due diligence impossible, the Colombian government’s several years of inaction gave would-be investors the impression that DMG was somehow legitimate. DMG seemed to have a cozy relationship with the state: a subsidiary was given a security contract from the Magdalena departmental government; the governor of BolÃvar (among others) took campaign funds; and President Uribe’s sons are friends of top DMG associate Daniel Ãngel. (Uribe’s response: “My sons are not corrupt. (…) My sons are not daddyâ€™s boys; my sons are not lazy bums. (…) My sons have chosen to be men of work, honest and serious.”)
In September 2007, the first time DMG earned national notice for its controversial business model (this blog included a post about it at the time), the Colombian government’s Bank Superintendency ordered that DMG’s license to operate be suspended. However, DMG simply reincorporated itself and continued on with no further state interference. This, notes Putumayo Congressman Guillermo Rivera, “caused the population’s trust to multiply, as it was believed that doubts about DMG’s legality had been resolved.”
For its part, the U.S. government said nothing in public about the spread of what so apparently appeared to be a narco-phenomenon. Neither Murcia nor DMG appear on the Treasury Department’s “Specially Designated Nationals” list. If Murcia had his U.S. visa revoked or denied, the decision was not made public.
It is hard not to marvel at DMG’s model, and be amazed that it got as far as it did. The scheme’s demise is generating shock waves that will reverberate throughout Colombia for some time:
- The collapse of DMG and a host of unregulated pyramid schemes set off rioting in Putumayo, NariÃ±o and other areas where a large segment of the population, most of them poor rural residents, lost some or all of their savings.
- President Uribe has been battered by the scandal, with his poll standing dropping 12 percentage points since August to a still-robust 70 percent. Uribe has been hurt by perceived inaction against the pyramid schemes, his sons’ relationship with Daniel Ãngel, and reports that a DMG subsidiary contributed money to the signature-gathering effort to allow the president to run for a third term in 2010.
- In a sad but ironic twist, Semana magazine notes that the money they were getting from DMG was actually pulling farmers out of the narco business in longtime coca-growing departments like Putumayo, NariÃ±o, and CaquetÃ¡. In a way, DMG and other pyramid schemes were more effective than any alternative-development programs that came before. Now that the pyramids have fallen, Semana asks, will coca-growing increase again in these remote, poorly governed areas?