(U) DRUG TRAFFICKING AND DRUG MARKETS IN PERU

S E C R E T SECTION 01 OF 03 LIMA 001344 SIPDIS NOFORN E.O. 12958: DECL: 03/10/2030 TAGS: PINR SNAR PE EXIM SUBJECT: (U) DRUG TRAFFICKING AND DRUG MARKETS IN PERU (C-CN5-00090) REF: A. SECSTATE 34029 ¶B. LIMA 1171 ¶C. 04 ... id: 29245 date: 3/21/2005 16:18 refid: 05LIMA1344 origin: Embassy Lima classification: SECRET//NOFORN destination: 03LIMA5174|04LIMA5755|05LIMA1171|05SECSTATE34029 header: This record is a partial extract of the original cable. The full text of the original cable is not available. -------------- header ends -------------- S E C R E T SECTION 01 OF 03 LIMA 001344 SIPDIS NOFORN E.O. 12958: DECL: 03/10/2030 TAGS: PINR SNAR PE EXIM SUBJECT: (U) DRUG TRAFFICKING AND DRUG MARKETS IN PERU (C-CN5-00090) REF: A. SECSTATE 34029 ¶B. LIMA 1171 ¶C. 04 LIMA 5755 ¶D. 03 LIMA 5174 Classified By: Polcouns Alexander Margulies. Reason: 1.4(c). ¶1. (U) The responses in this cable reference the questions posed in Ref A. ¶A. (S) Describe cocaine trafficking organizations in Peru? Do they typically specialize in one drug activity? What is their average size? How are they structured? Are they vertically or horizontally integrated? -- Until the mid-1990s, Peruvian and Colombian traffickers generally shipped multi-ton quantities of cocaine base via air directly from the jungle labs of Peru's coca leaf source zones to Colombia for conversion to cocaine HCL. The combination of air interdiction, law enforcement efforts, and the enormous expansion of coca leaf production in Colombia led to a reduction in coca leaf production in Peru. The successful air interdiction also prompted Peruvian traffickers to begin processing cocaine base into cocaine HCL and to develop new markets (Brazil). Peruvian traffickers also reached out to Mexican drug trafficking organizations to bypass the Colombian intermediaries. In recent years, the success of Plan Colombia eradication has increased the demand for Peruvian cocaine production. Since the mid-1990s, Mexican trafficking organizations have transported multi-ton quantities of Peruvian cocaine to Mexico by maritime routes, with the U.S. and other countries as final destinations. Most of these organizations have been identified as Mexican Consolidated Priority Organization Target List (CPOT) operating independently of Colombian trafficking organizations. -- Cocaine trafficking organizations in Peru are decentralized and operate in a horizontal manner. They appear to be primarily based on clan or family ties. Narcotraffickers have their agents purchase coca leaf and base from individual farmers (cocaleros) or cocalero clans. We are seeing a greater production of cocaine base in small Peruvian mom-and-pop operations. Narcotrafficking groups exist in a horizontal network, and traffickers seeking product for export will often purchase cocaine HCL from other groups in order to amass the desired quantity for shipment. No one cocaine trafficking group dominates the trade from the coca field to the export platform. -- The Oscar Rodriguez Gomez organization in Ayacucho offers a good example of how a clan narcotrafficking organization is structured and operates. Rodriguez has a history of providing cocaine HCL and base from the Apurimac-Ene River Valley (VRAE) region to Colombian and Ecuadoran buyers. He utilizes family members to conduct all important facets of his operation from the acquisition of precursor chemicals to the oversight of the laboratory used to convert cocaine base into HCL, as well as transporting funds into Peru and exporting the finished product out of the country. Not all of the people employed by Rodriguez are family members. He also retains an attorney to conduct the organization's money laundering activities through "straw" purchases of properties and businesses. -- Opium trafficking appears to be based on clan or family-based organizations, with no dominant group. Opium poppy cultivation, the production of opium latex and morphine, is primarily concentrated in the north-central part of Peru, with some poppy cultivation also reported in the Huallaga valley (a coca source zone). There is no/no evidence of a strong linkage between opium and cocaine producers in Peru. ¶B. (S) Who are the major cocaine traffickers in Peru? What are their nationalities? How large are their organizations? -- Fernando Zevallos Gonzalez, who was named a a Drug Kingpin last June, has long been the major drug trafficker/money launderer of Peruvian nationality (RefD). Other significant traffickers in the Peruvian context include Oscar Rodriguez Gomez, Napoleon Zamora-Melgarejo (Peruvian-based),Manuel Rivera-Niebla (Mexican-based),and Miguel Arevalo-Ramirez (Peruvian, Mexican, U.S.-based). Additional information related to investigations of these traffickers should be sought from DEA HQ. There do not appear to be any large-scale trafficking organizations on the scale of the Colombian cartels. Rather there exists a horizontal web of traffickers who deal with each other, and who are available for recruitment by Mexican and Colombian organizations to assemble cocaine HCL and cocaine base for export. ¶C. (S) What role to Colombian and Mexican cocaine traffickers play in Peru's drug trade? At what point do Mexican and Colombian traffickers establish ownership over Peruvian or Bolivian cocaine? How often do they finance cocaine loads up front? How do they pay for the services of Peruvian drug groups? -- Colombian and Mexican cocaine traffickers create the demand for cocaine HCL and base in Peru. The Colombians appear to be more willing to advance money for cocaine deliveries, or to pay once the cocaine is delivered within Peru, whilst the Mexicans seem to prefer to pay once the cocaine is delivered to Mexico. The arrest of several Mexican traffickers in recent major drug busts indicates that the Mexican organizations are involved in preparing the cocaine for shipment from Peru to Mexico. ¶D. (S) How is cocaine base brokered in Peru? Are there cocaine base markets similar to in Colombia? -- As described above, cocaine base is either produced by the narcotrafficking organizations themselves, or increasingly, is bought directly from cocaleros who establish maceration pits on their farms. Cocaine base and cocaine HCL is commonly bought and sold between trafficking organizations. There are also anecdotal reports of cocaine base being used as currency in coca growing areas. ¶E. (S) How much cocaine base is processed into finished cocaine in Peru and how much is transported to other countries for processing? How much cocaine base is transported directly to Mexico or Colombia for further processing? -- Whereas through the early 1990s Peru mostly exported cocaine base to Colombia, in recent years traffickers began producting cocaine HCL in Peru for export to Mexico and Europe by maritime routes, and to Colombia, Bolivia and Brazil by land and riverine routes. The following chart of Peruvian National Police seizures illustrates this shift: -- Seizures of Cocaine HCL and Base in Metric Tons 2002 2003 2004 2005(Jan-March) HCL 3.2 3.25 7.11 4.48 Base 8.4 3.76 5.76 0.5 The extent to which the cocaine HCL being exported requires further processing is unknown at this time, but DEA will be addressing this issue in its "Breakthrough Study," which is scheduled to commence in August. ¶F. (S) What trends characterize prices for cocaine base and cocaine HCL in Peru? -- While the price for cocaine base and HCL appears to be rising recently, there are no steady long-term trends concerning the price for cocaine base and cocaine HCL in Peru. The price depends upon a number of factors and can vary region-by-region: the price for coca leaf in Bolivia and Peru; the price for precursor chemicals; the overall demand for cocaine base and HCL in the particular region; law enforcement efforts in the area; and the amount being purchased at one time. We have seen prices in regions vary by up to 50 percent from one month to the next. The general price range in Peru is from $1000-1500 for a kilo of HCL. ¶G. (S) How do drug groups in Peru launder their funds? Where do they keep or invest their illicit income? -- The Zevallos organization laundered funds through its now-defunct airline, Aero Continente. That and other narcotrafficking organizations also employ various other means to launder funds, including bulk money smuggling; the hundreds of poorly regulated casinos in Lima and other Peruvian cities; and investment in tangible assets such as properties, businesses and conveyances. Peruvian coca growers and traffickers occupy the low-profit production/processing end of the business, while Mexicans and Colombians reap most of the profits from the higher-value transport and wholesaling of the drugs to/in the U.S., Europe and Brazil. Consequently, the profits earned by Peruvian traffickers is often small enough to launder without danger of it appearing on law enforcement agencies' radar screens. The de facto dollarization of Peru's economy, as well as its largely informal nature, also facilitates the laundering of narcotrafficking proceeds. (See Post's INCSR submission on Financial Crimes and Money Laundering in Ref C for additional information on money laundering). 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