Colombia’s Contraband Culture, Drug Money Meet at San Andresitos

Real Colombians don’t pay retail.

Not when doing so, with sales taxes and import tariffs, would increase the price of a stereo by 25% or more.

Especially not when they can buy the same television or tennis shoes for U.S. prices--or lower--at the nearest San Andresito.

Bogota’s three San Andresitos look like discount malls, but they are much more. As their name suggests, they are the capital city branches of San Andres Island--a spot known here for its duty-free stores, contraband and generally shady dealings. That makes them monuments to Colombians’ lack of respect for their own laws, the epitome of a proud tradition of smuggling, and evidence that many Colombians are still willing to tolerate drug trafficking--if they can profit from the business.

The cameras and refrigerators sold here are not mere contraband, economists say: They are contraband financed with drug money. San Andresitos turn $1 billion a year from U.S. cocaine sales into pesos that pay for drug traffickers’ Colombian operations, law enforcement officials and economists say.

“Contraband has become an instrument for money laundering and for introducing the ill-gotten gains from drug trafficking into our economy,” said Gustavo Cote, director of customs and taxes.

‘Contraband Part of Local Folklore’

Economists estimate that two-thirds of the drug money that returns to Colombia is funneled through smuggling, including merchandise sold at San Andresitos.

Customs officials are using a new, stiffer anti-smuggling law to try to halt the flow of drug-financed contraband.

Still, many Colombians are skeptical that the $4-billion-a-year smuggling industry can be stopped.

“Contraband is part of the local folklore,” said economist Javier Hernandez Riva. “There are famous songs from 40 years ago about smuggling . . . especially on the Atlantic Coast,” the traditional entry point to the mainland from San Andres.

Economist Ricardo Steiner recalls that childhood trips to the port of Cartagena were not complete without a stop to buy contraband Cheez Whiz.

Now Colombians buy contraband cigarettes hawked on street corners.

San Andresitos, thought to account for about one-fourth of total smuggling, are a clear example of how difficult halting contraband can be and how that tradition plays into the hands of drug traffickers. San Andresitos--housing dozens of tiny outlets--openly sell smuggled merchandise that is widely believed to be financed with drug money, but, except for an occasional raid, no one stops them.

Crackdowns Met With Violence

“This is a case of a business group that is outside the law but strong--very strong--and aggressive,” said Dionisis Araujo, president of the Bogota section of the National Merchants’ Federation, one of the groups that says it is most damaged by unfair competition from the San Andresitos. “So, every time [the government] has tried to resolve the problem of contraband with police action, the result has been violent confrontations.”

Three years ago, a previous customs director took police to raid a San Andresito only to find the door blocked by a senator, who berated him for persecuting poor merchants.

When President Ernesto Samper began his political career as a Bogota city councilman a decade ago, he was supported openly by San Andresito merchants.

Nevertheless, Cote insisted, “the president has expressed his determination to struggle against all these conduits [for money laundering] that do so much harm to all the countries of the world.”

Ricardo Silva, president of the Colombian San Andresito Federation, did not appear for either of two scheduled interviews. Retailers at San Andresitos readily express their objections to the new anti-smuggling law, which would punish them for disposing of contraband, they stiffen when asked about the wholesalers--the middlemen believed to have drug connections.

Economists and law enforcement officials believe that dollars from drug sales are used to buy merchandise in foreign duty-free zones, such as nearby Colon, Panama. Goods are smuggled into Colombia and sold in pesos, sometimes for less than they cost, economists believe.

The cheap prices are a subsidy from drug traffickers eager to convert their dollars to pesos. They will accept as little as 600 pesos per dollar, even though the official rate is 1,000 per dollar, economists believe.

“It is not exactly money laundering because the money is not clean,” said Steiner. But dirty pesos are easier to spend in Colombia than dirty dollars.

One building contractor became convinced that currency conversion is the main purpose of the San Andresitos when he was taking bids to buy appliances for a new apartment building last year. A San Andresito wholesaler offered the cheapest price, but the deal fell through because he refused to accept payment in dollars. He would sell only in pesos.

For economists, the proof is in the numbers. Since 1990, Colombia has slashed tariffs that once made legal imports too expensive to buy. In other Latin American countries, reducing tariffs has squeezed out smugglers.

Tariff Reductions Fail to Curb Smugglers

“The disagreeable surprise was that [in Colombia] contraband did not drop in the least,” said Hernandez Riva. Tariff reductions coincided with the drug bonanza of the early 1990s, when narcotics traffickers began diversifying. They supplemented U.S. cocaine sales with new markets in Europe and added heroin to their product line.

Subsidized narco-dollars allowed the San Andresito merchants to reduce their prices and remain cheaper than legitimate merchants, thus staying in business, he said.

The other factor that has kept the San Andresitos operating, he said, is Colombian ethics.

“In other countries, people are unwilling to commit a crime to save a 10% or 15% tariff,” he said. “But not here. Smuggling is such a part of the culture that it is no big deal.”

Cote replied that the new anti-contraband law makes smuggling a big deal because it allows customs officials to jail and fine both smugglers and merchants who sell smuggled goods. Previously, smuggling was the rough equivalent of a misdemeanor, punishable only by the confiscation of the goods and the levy of a small fine.

The law also permits police to raid suspected smugglers’ warehouses without a court-ordered search warrant. Previously, suspects fled--with their merchandise--while customs officials were waiting for a judge’s signature.

Collaborators Had Kept Government Pensions

In addition, government employees caught collaborating with smugglers can be jailed. Previously, they were fired, sometimes keeping their pensions.

Cote also plans an educational program in the schools to try to root out the tradition of contraband in society.

“Ten years ago, Colombia was a country that was totally indifferent to protecting the environment, completely unconcerned about the ozone layer, until schools started teaching ecology,” he said. “Now, any 10-year-old who sees his father throw a piece of paper on the street says, ‘Please don’t litter, Daddy.’ ”

He believes the same results can be achieved by educating children about smuggling.

Economists say that practical considerations also are undercutting the popularity of San Andresitos. Many Colombians now prefer to shop in warehouse stores with only slightly higher prices that offer both guarantees and credit, compared with the cash-and-carry policies at San Andresitos.

Hernandez Riva said that when his family recently bought a refrigerator, they decided to shop at a comfortable shopping center near their house, rather than drive to a San Andresito, which is typically situated in an industrial area.

Eventually, the efficiency of other retailers will drive out the San Andresitos, he predicted.

“Contraband is an economic problem that must be resolved by economic measures, like keeping tariffs low, permitting [legal] imports, developing new types of retail outlets and, of course, struggling against drug trafficking, “ he said.

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Questionable Deals

Colombians flock to San Andresitos, contraband shopping malls, for bargains on a variety of goods--savings that economists say stem from money laundering. How big are the price differences? Here are the dollar differences, as a Times reporter found them in a quick shopping comparison:

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Merchandise Retail San Andresito 14-inch Samsung stereo TV $354 $225 Moet Chandon champagne $65 $39 Cuervo especial tequila $14.80 $7.50 Dune perfume 1.7 oz. $60.50 $30 Sony GR7 boom box $648 $430 Black&Decker; 10-cup coffee maker $43 $30 New release videocassette $28.50 $19 Reebok sports shoes $79 $49

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