Lawsuit Against Liquor Makers Illuminates Drug-War Charade

Colombian Government’s RICO Litigation Alleges Global Booze Companies Are Doing Business with Narco-Traffickers


Occasionally, the U.S. justice system opens a window into the true nature of the drug-war pretense, despite the political rhetoric employed to conceal the hypocrisy.

That is the case with respect to a pending lawsuit that pits the government of Colombia, and its various departments (or states) against two of the world’s largest liquor producers, England-based Diageo Plc and France-based Pernod Ricard SA — both of which have major U.S. operations and produce well-known brands such as Smirnoff, Johnnie Walker, Captain Morgan Chivas Regal and Martell.

In the litigation, a civil Racketeer Influenced and Corrupt Organization (RICO) Act case filed in U.S. District Court in Brooklyn, the government of Colombia accuses the giant liquor companies and their co-conspirators, including distributors based in Aruba (a Caribbean island nation just northeast of Colombia), of having “engaged in and facilitated organized crime by laundering the proceeds of narcotics trafficking,” among other acts, according to the court pleadings.

In what can only be described as a real head-scratcher, the government of Colombia is continuing to wage this legal battle against the liquor makers even while it presses for a free trade agreement (FTA) with the United States that, by the terms of the proposed pact (now awaiting approval from the U.S. Congress), would actually make it easier for liquor makers and distributors to expand their business activities in Colombia.

The Office of the U.S. Trade Representative, which is part of the Executive Office of the President, provides the following description of the proposed FTA, dubbed the U.S.-Colombia Trade Promotion Agreement:

Under Law 788, Colombia assesses a consumption tax on beverage alcohol based on a system of specific rates per degree (percentage point) of alcohol strength. This tax regime discriminates against imported distilled spirits through arbitrary breakpoints that have the effect of applying a lower tax rate per degree of alcohol to domestically produced spirits. Under the CTPA [U.S.-Colombia Trade Promotion Agreement], Colombia committed to eliminate this discriminatory element of the excise tax for imports of distilled spirits within four years of entry into force of the agreement. Additionally, under the national treatment principle of the CTPA, Colombia committed to eliminate discriminatory practices that have restricted the ability of U.S. distilled spirits companies to conduct business in Colombia. [Emphasis added.]

Simple economics seems to dictate that if sales of foreign liquor products increase in Colombia under the trade pact as proposed, so too would the opportunity to launder money via the sales of those products.

To better understand this relationship, it helps to have a clearer picture of the alleged money laundering scheme as described in the litigation.

From the government of Colombia’s pleadings in the civil RICO lawsuit:

The Departments of the Republic of Colombia are by far the largest sellers and producers of liquor products within the Republic of Colombia. As such, they have the largest financial stake in this business and are the most harmed by illegal competition.

… The members of this vertical group, consisting of the DEFENDANTS [Diageo and Pernod], the distributors, the shippers, the criminal customers, currency brokers, and the DEFENDANTS’ agents and subsidiaries who receive payment for the liquor products, work together for the common purpose of depriving PLAINTIFFS [Colombia and its departments] of money and property and engaging in a course of conduct to gain massive profits from the sale of liquor products as a part of a global money laundering enterprise

The DEFENDANTS [Diageo and Pernod] knowingly sell their products to organized crime [Colombian narco-traffickers], arrange for secret payments from organized crime, and launder such proceeds in the United States or offshore venues known for bank secrecy. DEFENDANTS have routinely laundered the illegal proceeds of Colombian organized crime through financial institutions in New York City.

The DEFENDANTS have, at the highest corporate level, determined that it will be a part of their operating business plan to sell their liquor products to and through criminal organizations and to accept criminal proceeds in payment by secret and surreptitious means, which under United States law constitutes money laundering.

[See Flow Chart below for a visual view of the complicated money laundering scheme as alleged in the lawsuit. Note: A "smurf" deposit, as listed in the chart below, is described in the court pleadings as follows: “A Colombian narcotics trafficking organization makes use of 'smurfs' to process bulk cash located in the United States into numerous bank accounts located in the United States…. These bank accounts have been opened by the 'smurfs' in multiple locations. The purpose is to allow each 'smurf' to continually deposit amounts of cash narcotics proceeds into these accounts to build up the balances in these accounts. Each deposit is structured so as to be well below the threshold for suspicious or cash transactions."]


The spirits companies Diageo and Pernod, of course, deny the allegations made against them in the lawsuit and are intent on proving in court that they lack merit.

“Diageo is vigorously defending itself in this matter.  [However,] we make it a practice not to comment on pending litigation,” Zsoka McDonald, a spokesperson for Diageo, told Narco News in a prepared statement.

Representatives from Pernod Ricard did not respond to Narco News’ request for comment. However, the company has issued a public statement previously indicating that it “will continue to vigorously defend itself against the claims” in the lawsuit.

William Reid, a partner in the Austin, Texas-based law firm of Reid Davis LP, which was recently retained to represent the government of Colombia in the ongoing litigation (filed originally in 2004), says the case is still in the discovery phase in the wake of a critical 2007 ruling in which the judge refused to dismiss the litigation. Reid adds that he “cannot say for a fact” that the money laundering activity allegedly carried out by the liquor companies named in the lawsuit is still going on today. However, he does say the size of the “black market” for illegal liquor and drug sales is “as large as it’s ever been.”

A letter filed with the court in 2008 by the government of Colombia’s attorneys alleges that the money laundering conspiracy began “on or before 1990 and [continued] through the date of the filing of the complaint (October 2004) and into the future.”

Unraveling the Big Pretense

The lawsuit against the spirits companies has received scant press attention in the United States, unlike the copious coverage of the proposed Colombian free-trade agreement, which is often portrayed uncritically in many mainstream publications as a sound free-market policy. (Labor unions, however, have voiced loud opposition to the FTA, citing the murders of thousands of trade unionists in Colombia over the past two decades as reason enough to kill the proposed pact).

The other argument against the FTA is that though it may benefit large multi-national corporations (often referred to by free-trade proponents as job creators or major employers) whose profits will be bolstered by ramped-up trade volume and the opportunity to dominate markets, it will not be good for a large slice of the Colombian population — who will lose their jobs, land and communities as a consequence of the inflow of cheap foreign goods, and the subsequent, predictable mark-up in pricing of those goods once market dominance is achieved.

“[Officials with the government of Colombia] have said that the … the FTA will cause a [major] displacement of agricultural employees in the conflict regions of the country, leaving these people little choice but to migrate out of the country or to get into the narco-trafficking business [or other illegal activity],” says Arthur Stamoulis, director of Oregon Fair Trade Campaign, an affiliate of the national Citizens Trade Campaign, which is pressing the U.S. Congress not to approve the FTA with Colombia. “So the Colombian government knows the FTA will be harmful to its citizens, but it still wants to move forward with that agreement.”

What is rarely mentioned in the U.S. mainstream media coverage of the proposed Colombia FTA is the close relationship between the black market and the “free market.”

Even if we accept that Diageo and Pernod are not parties to the money laundering conspiracy as alleged in the lawsuit, but rather victims of it, the fact is that one of the major methods for laundering illegal drug sales is through the international purchase and sale of legitimate goods, such as liquor and other products.

And it doesn’t take a rocket scientist to see that if trade barriers are reduced for the exchange of legal goods, then the opportunities for laundering proceeds from the sale of illegal goods, such as narcotics, also are expanded — and no amount of law enforcement will change that underlying dynamic.

So Colombia’s stance in its pending RICO lawsuit against the liquor companies, and by extension, the goal of the U.S.-backed drug war in this nation and Latin America, is at odds with the push to expand free trade between the nations.

Promoting free trade, in that sense, is essentially the same as promoting the growth of the black market that props up the illegal drug trade — making U.S. manufacturers and the banking system de facto parties to, knowingly or not, the laundering of billions of dollars of illegal drug proceeds.

To clamp down on that black market, by consequence, inhibits the implementation of laissez-faire [free from state-intervention] free-trade policies.

So our current policy of spending billions of dollars on militarizing the U.S. border to target human beings and “illegal products” crossing that border, while at the same time assuring that the militarization does not inhibit the free flow of commerce across that border, is a contradiction and a recipe for the failure of any so-called “drug war.”

Even if U.S. law enforcers manage to seize a small fraction of the illegal goods, the drugs, crossing the border into the U.S., all that accomplishes is propping up the street price of the drugs that do make it through (supply and demand) and makes no dent in the volume of dollars that are being laundered via the purchase of “legal” goods, which are allowed to flow freely across borders at an even more rapid pace under free-trade policies.

A way around this conundrum, it seems, is to end the prohibition against one of the major products that is, like it or not, part the vast stream of commerce between nations: drugs.

But then, ending that prohibition also would collapse a pretense that has served as the foundation of an empire deceit in this hemisphere for decades.

Hypocrisy, in that sense, is a critical plank of the drug war, and Colombia’s little-publicized lawsuit against Diageo and Pernod Ricard serves as proof of that premise.

Stay tuned…..

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