Change is coming, but not drastic change An “error,” or “a clear act of war?”
Dec 162008

David Murcia Guzmán 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 Bogotá. 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 Guzmán, 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 Jiménez, alias “Macaco,” and Juan Carlos Ramírez Abadía, 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 Bolívar (among others) took campaign funds; and President Uribe’s sons are friends of top DMG associate Daniel Ángel. (Uribe’s response: “My sons are not corrupt. (…) My sons are not daddy’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, Nariño 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 Ángel, 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, Nariño, and Caquetá. 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?

9 Responses to “Diabolical Mad Genius? Drug Money Goon?”

  1. Doppiafila Says:

    Hi Adam, I am still not completely convinced by the money-laundering nature of DMG. Their model would generate money (in a classical Ponzi scheme), so there would be no need to launder it… And then, once the TV set is bought and resod, what is the need to give money back, if laundering is the objective of the whole exercise? I don’t know…
    Regards, Doppiafila

  2. Adam Isacson Says:

    Colombia is probably full of money-losing enterprises, from hotels to cattle ranches, that are principally fronts for money-laundering.

    Those seem to work if your goal is to launder a few million here or there. But what about hundreds of millions, or even billions? (At a time when the drug mafia is undergoing “generational change” and the paramilitary leadership was demobilizing?)

    DMG was a pyramid scheme – the inducement to sign up friends makes that apparent. Someday in the future it probably would have collapsed. But I think it was a unique, hybrid pyramid scheme. Its imminent collapse was being delayed almost indefinitely by what appears to have been a steady flow of cash from a source other than its customers’ “investments.”

    At what point would DMG have expanded so much that even drug money wouldn’t have been enough to sustain it? Who knows. The collapse was either just around the corner, or there was enough “dirty” money in the queue to keep it going for a while yet.

  3. anna Says:

    While I agree that drugs and drug money is involved here, I still don´t understand how this business creates “clean” money. Nothing within the books of DMG will ever show how investor’s money was invested in Something that produced interest that was clean, which was given back to the investors. Even the original investment while perhaps clean of drugs still isn´t clean (its a friggin pyramid scheme) nor was the money paid to them ‘clean’. Maybe I don´t understand what is ‘clean’.

    I think the model was more along the lines of threatening the government out of investigating the fact that drug money was involved AND I think it had the affect (although not perhaps the original intention) of concentrating land into the hands of DMG as hundreds (thousands?) of farmers sold their farms and homes to dmg to invest in DMG.

  4. Prometheusmapiripan Says:

    Very interesting, and even amusing summary of this national disgrace. Only the part about the lack of responsability of the thousands of colombians involved with DMG should be called into question. Unfortunately to most people in colombia it is obvious that somebody who pays 50% interest in six months is involved with narcotraffickers or their paramilitars. It is the only way!!. They just do not want to see or admit it because of their greed; just the same as they will not admit that Alvaro Uribe is involved with the drug bosses, as long as he battles against the guerrilla. We have far more greed than conscience and that make us not innocent victims but accomplices of such criminals.

  5. 26 reasons to be critical « Todos Somos Geckos Says:

    [...] positives,” who were made to look like guerrillas. And before he jailed the chief of the narco-pyramid scheme that has decimated the savings of possibly millions of Colombians in rural departments like Nariño [...]

  6. Plan Colombia and Beyond » The UNODC’s 2008 coca data Says:

    [...] Colombia. The reason is the late 2008 collapse of several pyramid schemes, including the notorious DMG corporation, which wiped out the assets of a large portion of the population in these departments’ [...]

  7. Plan Colombia and Beyond » 2008: less fumigation, less coca Says:

    [...] especially Putumayo and Nari̱o departments, that were hit hard by the collapse of several large pyramid schemes in November of last year Рtoo late to be registered in the 2008 coca data. Anecdotal [...]

  8. ¿Disminuye la coca? « Drogas y conflicto en Colombia Says:

    [...] cocaleros del país, Putumayo y Nariño. Esos departamentos conocieron en 2008 el boom de las pirámides de dinero las cuales representaron para numerosas familias campesinas de esas regiones un ingreso [...]

  9. Robert Fridman Says:

    This is the alleged method that DMG used to launder narco proceeds, according to the dea website, http://www.justice.gov/dea/pubs/states/newsrel/2010/nyc010510.html (I’m not sure what is so difficult to understand here .. the above skeptics should be asking themselves, how did Guzman go from 0 to $ in such a short period of time. Not asking this leaves me to question the replying contributors’ agenda … do they have interest in the Guzman group?):

    MURCIA GUZMÁN and six others are charged with laundering narcotics proceeds through DMG and DMG’s affiliated companies, using the Colombian Black Market Peso Exchange, an informal value transfer system commonly used to launder illicitly-obtained dollars in the United States, in exchange for pesos taken in for “legitimate” purchases in Colombia. For example, in the fall of 2007, MURCIA GUZMÁN and co-defendant MARGARITA LEONOR PABON CASTRO, 35, approached another individual in Colombia and said that they had cash — apparently in U.S. dollars — that they could not deposit into the Colombian banking system. MURCIA GUZMÁN and PABON CASTRO asked the individual to set up an account in the United States where these funds could be deposited. Thereafter, the individual opened an account at Merrill Lynch in the United States, under the name “Blackstone International Development” (the “Blackstone Account”). Neither MURCIA GUZMÁN nor PABON CASTRO was listed as owners of the Blackstone Account.
    In March 2008, MURCIA GUZMÁN and PABON CASTRO told the same individual that they had provided $2.2 million worth of Colombian Pesos to GERMAN ENRIQUE SERRANO-REYES, 45, in Colombia, and, in exchange, SERRANO-REYES had caused nearly $2.2 million to be wired into the Blackstone Account through 18 separate wire transfers.

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