Fear and money laundering in Costa Rica

This article is the first in a three-part series on Costa Rica's battle with the drug cartels. Together with GlobalPost's interview with President Laura Chinchilla, the series also explores the Costa Ricans' new attitude toward crime, and the rising rate of crack addiction in the country. 

SAN JOSE — Costa Rica is a hot outsourcing destination for blue-chip companies.

It’s also a top-ranked, offshore money laundromat for the world’s mobsters.

Law enforcement officials say laundering is par for the course in this country, which has fallen into the crosshairs of flush drug cartels seeking not just trafficking routes but places to stash illicit cash.

International mafia and drug lords inject proceeds into almost anything: banks, real estate and auto mechanic shops, to clean up dirty money into wholesome assets.

Read more: Are Costa Ricans abandoning peace?

Traditionally a peaceful people with no army, Costa Ricans reckon they are still somewhat safe from the gory fight being waged among drug cartels and militaries in other Central American countries like Guatemala. But officials here are wary as they watch the fierce battles spilling over the borders from drug-war-stricken Mexico.

Contract killings are rising in Costa Rica and though this country may not be on the frontlines of the region’s drug wars, it could be housing some of the funds that help finance the frays.

According to a recent report on financial crimes by the U.S. State Department, proceeds from corruption as well as weapons, narcotics and human trafficking are laundered in Costa Rica, mostly derived from foreign activity.

An annual $4.47 billion slipped through this country via tax evasion, crime and corruption on average between 2000 and 2008, according to a January 2011 report by Global Financial Integrity, a nonprofit research and advocacy group in Washington, D.C. Compared with the small country’s economy, that’s equal to more than one-fifth of gross domestic product averaged out over the same period ($20.44 billion).

Read more: The cost of drug-war security

Costa Rica went from medium to high-risk of money laundering when the United States added the country — a magnet for computer giants Intel, IBM and Hewlett Packard — to its annual list of world’s top drug-producing or transit nations in September 2010, said Daniel Ferranti, product manager for Washington, D.C.-based Promontory Compliance Solutions.

What turned this peace-loving tourist haven turn into an offshore laundering hub? As Costa Ricans try to figure that out, recent high-profile cases highlight the country’s struggle to stem the flow.

Smokes for soccer balls

One case that came to light earlier this year aims to link two seemingly unlikely cohorts: a Costa Rican soccer team owner and a New York cigarette kingpin.
Rodney Morrison ran a smoke shop in an eastern Long Island Indian reservation, where authorities say he dodged the state’s pricey cigarette taxes and made fortunes selling cheaper tobacco.

Read more: Interview with President Chinchilla

Convicted in May of last year, Morrison is waiting out a 10-year jail sentence in New York, for illegal firearm possession, but federal prosecutors are seeking longer jail time for Morrison for racketeering conspiracy of untaxed tobacco.

Morrison volunteered to post a hefty $56 million bail, claiming he could put up international real estate, including properties in Costa Rica, up as collateral. Bail was denied.

Almost 2,300 miles southwest, a Costa Rica businessman is suspected of watching over those alleged Costa Rica assets. Carlos Pascal has sat in jail since June pending trial for allegedly helping Morrison launder as much as $30 million.

Costa Rican prosecutors say Pascal is Morrison's stepbrother and that he had worked alongside the tobacco magnate at the reservation smoke shop, where they allege Pascal got to know Morrison’s lush business firsthand.

Read more: Crack addiction in Costa Rica

“It is clearly established that this money came directly from the American Mr. Morrison, whom American authorities connect to illicit activities including murder, tax evasion and other activities typical of organized crime,” said Jorge Chavarria, chief prosecutor. 

“We are not willing to permit the use of this country for money laundering,” he added.

Police raided seven businesses of Pascal's, including a restaurant, a hotel and the headquarters of Limon Futbol Club.

Pascal maintains his funds and businesses are legitimate. It is said he still flips orders to his soccer coaches from behind bars.

Alleged murder mastermind

Another open investigation has tentacles in several Latin American countries. Argentine singer-songwriter Facundo Cabral, a voice for peace in the Americas, was shot dead in July after a concert in Guatemala. Guatemalan investigators said he probably was not the target, but rather another victim, Cabral’s concert promoter, a Nicaraguan, was the man the killers were after in a crime somehow linked to narco trafficking.

Guatemalan authorities later alleged that the man who ordered the shooting was Costa Rican Alejandro Jimenez, better known by the nickname “Palidejo,” or Paleface.

Prosecutors in Costa Rica raided the suspect’s luxury home, valued at $2 million, and told reporters that Palidejo has been transferring cash in and out of the country for several years, with possible links to narco-trafficking.

“The model used by this person to bring money to Costa Rica is a typical case of money laundering,” Guillermo Hernandez, deputy chief prosecutor, told GlobalPost in an interview.

“He would move cash from Nicaragua to Costa Rica, where he would leave part of the money, and export the rest to Panama. Nicaragua to Costa Rica by land, Costa Rica to Panama by air,” he added.

Police have not located Jimenez so far, but even if they did it is unclear what they could do to him. A Costa Rica judge in August denied prosecutors’ request for an arrest warrant for Jimenez for ordering homicide in Guatemala, citing a lack of an official request by the Guatemalan government.

Crimping development

Experts at Global Financial Integrity say the loss in illegal capital flight is huge for the developing world inhabited by Latin America and much of Asia and Africa.

Costa Rica’s society, long prided on a broad middle class, is seeing a growing gap between rich and poor.

That could propel a “vicious cycle” that feeds the illicit flow of capital as some of the country’s richest inhabitants find ways to move their fortunes away from the government’s gaze, the GFI report’s author Dr. Dev Kar told GlobalPost.

Costa Rica’s rule of law is stronger than most in Central America but a public outcry has grown to criticize the authorities for letting criminals off easy.

The United Nations Office on Drugs and Crime estimates the world laundered $1.6 trillion in 2009, 2.7 percent of global GDP.

When asked how much is laundered in Costa Rica, Chief Prosecutor Jorge Chavarria replied, “it’s now impossible to distinguish what part of the economy is illicit money and what part is legitimate. They’re so mixed up it’s impossible to distinguish.”