Raul Larios

Part 3 – The Drug Kingpin Act…

Los Cachiros Seizure, Photo 1I hope all of you had a wonderful and safe summer vacation!  You might remember that in Part 2 of my blog series “Want to Invest in Honduras? (The Reality)”, I wrote about why I’ve come to the conclusion that Honduras is practically at war for its very sovereignty.  And I believe few foreign investors are actually aware of what’s going on in this country; of who the warring factions are; and — if you are already doing business down there — of what your financial AND legal liabilities might be.

Part 3 — The Drug Kingpin Act.  If you are an American doing business in Honduras, your risks are far more than just financial.  There is this law called the Foreign Narcotics Kingpin Designation Act (FNKDA) that makes it a crime for Americans to engage in “any transaction” with persons designated as drug kingpins. In addition to the monetary penalties, violations of the Kingpin Act could include up to 30 years in jail.

According to the State Department, between 70% and 90% of all cocaine destined for the United States goes through clandestine re-fueling landing fields in Honduras.  If accurate, that’s the equivalent of tens of billions of dollars every year!  You must therefore take the drug trafficking and money laundering issues in Honduras quite seriously, and do your background investigations and due diligence carefully. This should include following up on all credible local rumors about the person(s) with whom you are considering doing business.

The problem in a country as small and as corrupt as Honduras is that most everybody (who is anybody, and with whom you would naturally want to do business) is rumored to be directly or indirectly involved, especially in money laundering.  And I mean the rumors go to the highest level of society, business and government. Even the president of the nation is rumored to be deeply involved, with the help of his brother in the state of Olancho.

Of course, not all rumors are credible or true.  But you as an American investor who’s subject to the Kingpin Act have to carefully document the results of your due diligence.  This can get complicated and expensive; yet it’s unclear how effective it would be in keeping you out of trouble.

Consider, for example, the following hypothetical situation: let’s say that your background investigations and due diligence clears the owner of a beautiful, modern office building in the capital city of Tegucigalpa where you are considering a 10-year lease for a large call center.  You sign the deal, build out your space but 3 years into the lease the U.S. government designates your landlord as a drug kingpin.  Are you in violation of FNKDA?

After all, you are now officially engaging in a business transaction with a drug kingpin (and will be doing so continuously), through your monthly lease payments.  Does your carefully-crafted due diligence documentation clear you of any wrongdoing?  If so, can you legally continue with the 7 years left in your lease?

If FNKDA forbids you from continuing your lease, how do you unwind your massive investment?  How much time do you have to unwind?  What’s your recourse for the losses?

The building may or may not be seized by Honduran officials, but they would be doing you a favor if they do because you are now technically in business with the Honduran government, and not a drug kingpin.  However, longer term, do you really want the Honduran government as your landlord for the next 7 years…?

Obviously, you’re going to need specialized (and expensive) legal counsel to resolve the above hypothetical.  Highly unlikely, you might be saying to yourself.  Or perhaps you’re thinking that drug kingpins don’t have (legitimate) businesses?  Think again!  Just take a look at the two most recent kingpin designations in Honduras:

Chepe Handal OrganizationClick on the images, and you will see a good size network of legitimate businesses, any one of whom could be your client, your supplier or your landlord. Please note that the lists are not complete, not by a long shot.

In the case of the most recent designation (the alleged Drug Cartel ‘Los Cachiros’), the Treasury Department estimates the total value of their assets to be somewhere between US $400 million and US $600 million, including vast holdings in real estate and hotels. The seizures are just beginning.

If you happen to be doing business with any one of these companies, you obviously have to stop as quickly as possible and retain competent legal counsel.

Speaking of counsel, please note that even before the Kingpin Act was signed into law by President Clinton in 1999, the National Association of Criminal Defense Lawyers (NACDL) in Washington, D.C. did not like the new law.

They were quoted as saying that:Los Cachiros Organization “…any innocent business (a grocer, a car dealer, a boat dealer, a banker) who unknowingly deals with a business owned by a “kingpin” could be caught up in a net with no way out. [The Kingpin Act] is simply too fraught with opportunities for abuse.” 

See the complete text herehttp://nacdl.org/Advocacy.aspx?id=11558&terms=foreign+narcotics+kingpin ).

You might be wondering how this designation list (or “black list” according to NACDL) is generated.  Well, it starts at the Treasury Department’s Office of Foreign Assets Control (OFAC).  Using all available intel, OFAC tabulates a gross list of suspects, which it then circulates among several government agencies, including the DEA, FBI, CIA, Homeland Security and Department of State.  If any one of these agencies, for their own strategic reasons, objects to the publication of a particular name, it is removed. The names that remain before June 1 are sent to the White House for final deliberation. The vetting of this list is an annual process.

You may now be wondering what a “strategic” reason might be for objecting to the publication of a particular suspect.  I guess that if you’re the CIA and you see one of your key informants on the preliminary list, you may want to protect your source.  In my hypothetical scenario described above, the owner of that beautiful modern office building in Tegucigalpa may actually be a drug trafficker and/or money launderer — but for right now, the CIA values his/her information enough to veto their inclusion in the infamous list, at least until next year.

As you may have already surmised, doing business south of the border is NOT a simple extension of doing business in the U.S.  If you’re going to invest in Honduras, please do so with your eyes wide open. Don’t assume anything about anybody; do your background investigations and due diligence with earnest; and have a very good personal security plan (and team) in place.  Good luck!

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September 30, 2013 Posted by | New York | , , , , , , | Leave a comment

   

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