Zill was a producer and Bergman was series reporter for FRONTLINE's "Drug Wars" series

"It became more of a problem to count the money and stack it," says convicted drug trafficker George Jung, who distributed cocaine in the United States. "I mean, it took hours upon hours and hours to do it and recount it and go over and over it again. It was tedious as hell. Money became an obstacle. You know, it started to take the fun out of the whole thing, believe it or not."

Jung says that in the early days of the cocaine business, some of the cash was flown back down to Colombia in the same airplanes that were flying in cocaine. This cash was converted into pesos at willing Colombian banks or kept on hand for operating costs. One famous Colombian trafficker died with so many US dollars buried on his property that the locals claimed the rivers downstream would occasionally become clogged with US dollars that rain or floods had unleashed from their hiding places.

But traffickers generally preferred bank accounts to burial sites. So in the early 1980s, U.S. cocaine distributors began carting huge amounts of cash into US banks. "During the day, you could deposit boxes of money inside a bank," says the man we call "David," a Colombian money launderer who requested anonymity. "They would have rooms set up with counting machines and even employees from the bank. The banks used to help you set up accounts."

Another method which became popular in the mid 1980's was to simply fly the cash to off-shore banking havens like the Bahamas, Aruba, the Caymans and the British Virgin Islands and deposit it there. While this method is still used today, it became more difficult for traffickers as enforcement was strengthened at airports and seaports.

Mike McDonald was an agent with the IRS during the early 1980's in South Florida. "There was really no sophistication involved," McDonald says. "They were smuggling cash out. They were dumping cash into banks. We had twelve individuals in Miami who were depositing 250 million dollars or more annually into non-interest bearing checking accounts. And no reports were being filed, or very few reports were being filed. The reports I'm talking about are the Currency Transaction Reports that banks had to file."

The US government passed the first money laundering laws and suspicious transaction reporting requirements in the early 1970s, but these laws were widely ignored by banks. The law states that US banks must report any transaction involving more than $10,000 in cash. McDonald and his colleagues recognized the problem in the early 1980s and began more seriously investigating the money side of the drug business. As law enforcement caught on to the problem and began pressuring banks to comply, traffickers began to devise new ways to launder money.

Most Colombian drug kingpins live in Colombia and rarely leave their safe havens of Medellin, Cali or other Colombian cities. They need pesos in Colombia to live their lives, purchase homes, buy political protection and pay the Colombian coca producers, the labs and smuggling costs. When they sell the drugs on the streets of the United States, they collect huge quantities of US dollars and these dollars need to somehow be converted into pesos.

Because of restrictive Colombian currency controls and tax laws, a black market to exchange currency has existed for decades for Colombian businessmen. Even a rich Colombian doctor who is sending his daughter to college in the United States will use the black market to buy dollars with which to pay the US tuition. He does that because he can save money.

So as banks around the world became stricter about money laundering laws, Colombian traffickers began avoiding using the legitimate bank system and started infiltrating the black peso exchange to launder their drug money. This sophisticated method would eventually become known as the Black Market Peso Exchange, and is still one the most successful money laundering methods ever devised. Fanny Kertzman, the former chief of Colombian Customs, says the black peso exchange launders almost $5 billion dollars of drug money a year for the Colombian traffickers.

"The Black Market Peso Exchange is perhaps the largest, most insidious money laundering system in the Western Hemisphere," says Raymond Kelly, Commissioner of the US Customs Service. "It's the ultimate nexus between crime and commerce, using global trade to mask global money laundering."

What the drug traffickers did is transform the black market into their own illegitimate international banking system. "The money side is like a completely separate business from the drugs," says David, who worked within the system for decades. "We never got involved in the drug side of the business, only receiving the money, processing it, selling it and making a profit."

David is a money broker, just like any other money broker around the world, except the dollars he buys in America come from drug sales on the streets. Another benefit of the Black Market system is that David takes all the risk away from the drug traffickers. Once he picks up the drug money, it is his responsibility to get the pesos back to the traffickers in Colombia. If the money gets seized or something else goes wrong - he is responsible and could pay with his life if the money is not paid off.

The system is fairly simple. David gets a phone call from a Colombian trafficker or their US counterparts. They negotiate an exchange rate of Colombian pesos for US dollars, usually 40% below the official exchange rate. Once they agree on a price, the drug trafficker arranges to have his drug dollars dropped off at David's office or at some less conspicuous location.

"The money could be in boxes, shopping bags, suitcases, a car," David says. "Sometimes the money would be in the truck of a car and the traffickers would just give you the keys to the whole car." At that point, the trafficker's side of the deal is complete and he simply waits for pesos to be delivered into his Colombian bank account several days or weeks later. David now has to process the cash. He maintains a large staff of runners who take the cash and deposit it into hundreds of United States bank accounts in amounts of less than $10,000 per transaction. Once the money is in a bank, it can be moved and manipulated.

David's office in Colombia meanwhile makes currency deals with legitimate Colombian businessmen who have pesos but want to buy cheap US dollars to purchase goods such as cigarettes, liquor, television sets or dishwashers in the United States. These businessmen also arrange an exchange rate of US dollars for Colombian pesos, usually 20% below the official exchange rate. They pay the pesos in Colombia to David's office. David in turn takes the US dollars building up in his bank accounts and pays the businessman's debts in the US.

He can wire transfer or deposit money directly into the US bank accounts of legitimate companies in exchange for goods. Customs and DEA cases reveal that legitimate companies such as General Electric, Whirlpool, Phillip Morris and Intel Computers have all become involved in this system in the past. (see related story on some of these companies). David is basically acting in this capacity as a facilitator for legitimate international economic transactions.

The dollars he got from the traffickers go to the legitimate businessmen and the pesos he got from them go to the drug traffickers in Colombia. David makes commissions and the difference in exchange rate, making this a very profitable business for him as well.

Even though the process is illegal, some US companies and Colombian businessmen have been happy with the arrangement because it is good for business. "This is positive for US business, there is no doubt about it," says Mike Wald, a Florida law enforcement official who traces the black peso system. "Because the Colombian businessman, if he pays less for his dollars, can buy more goods. That's a pretty obvious economic fact. But we have to realize where this money originates. It's drug money."