In Guatemala, a Village that Cocaine Built

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Jeffrey L. Rotman / Corbis

The village of La Reforma in eastern Guatemala doesn't seem like the kind of place that would have a first-rate hospital and a handful of mansions. There's no bank, no grocery store and more than 70% of the inhabitants of the municipality that includes La Reforma, called Huite, are poor. But officials tell TIME they suspect a few locals are making a handsome profit by assuring that Colombian cocaine makes it safely through Guatemala to Mexico and then on to the U.S.

Former villagers tell TIME that La Reforma's alleged narco–big shots have secured the town's love and loyalty by giving to the poor and throwing elaborate public parties. Perhaps most important, they've created jobs — both directly for their alleged drug-running enterprises and indirectly through businesses that federal officials say are possible fronts for laundering drug profits. "They're the source of employment," says a 30-year-old woman who grew up near La Reforma and now studies law in Guatemala City. "They're the principal investors." The woman has family in Huite and asked not to be identified for fear of reprisal. (See pictures of the narco netherworld.)

Guatemala has long been a drug transshipment point between South and North America. But only in recent years have investigators begun to see how firmly a narco-economy is taking hold there, which is always bad news for small, poor and corrupt countries like Guatemala. Experts say it's hard to know just how much the Guatemalan economy depends on drug profits, but they agree that it's a significant source of employment and capital today. If trafficking and related businesses were shut down, unemployment would skyrocket in certain parts of the country, like La Reforma, says Leonel Ruiz, second in charge at the federal public prosecutor's office on narcotics activity.

For one thing, the flow of capital into the country's financial system is suspiciously high compared with the size of the economy, says Sigfrido Lee, former Vice Minister of Economy and an analyst at the Center for National Economic Investigations, a Guatemalan think tank. This indicates, he says, a likely inflow of illegal money. The U.S. government's recently released 2009 International Narcotics Control Strategy Report backs up those suspicions. Guatemala also has an unusually high number of luxury cars and high-end real estate purchases, Lee says, and buyers often pay in cash. Guatemala City has seen a boom in fancy high-rise apartment and office buildings in recent years, which authorities and analysts suspect is driven in no small part by money laundering. "One can find entire condominium complexes that never sold" any units, says Lee. (See pictures of drug lords' latest cocaine hubs.)

Obscure La Reforma, as a result, could become a more high-profile focus. Federal officials tell TIME they're investigating one of La Reforma's most prominent families, the Lorenzanas, who own a construction company, vast cattle-ranching tracts and an agricultural export firm that partners with U.S. companies to ship melons. One of the Lorenzana brothers, Waldemar, was arrested last December for alleged weapons possession but was released soon after without being charged. A Lorenzana representative did not respond to TIME's attempts to contact the family. But last year, Waldemar wrote a letter to a Guatemala newspaper denying reports that he or his family were involved in drug trafficking. He admitted he'd once sold land to a man who then constructed a clandestine airstrip on it to transport drugs but said "that wasn't my fault."

The names of Waldemar Lorenzana and other members of his family under government suspicion, however, do not appear on many of the titles to their assets, officials say. Rather, those documents use front men (or women) to register businesses, which officials note is a common tactic for laundering money. "The families that run [drug trafficking] know they can't leave a trace," says the narcotics prosecutor, Ruiz.

Guatemalan authorities have apprehended dozens of suspects in recent years leaving the country with large wads of cash, often hidden under clothing or stuffed into items like shampoo bottles, book covers and diapers. Last year, the Guatemalan government confiscated $3.4 million in suspicious funds at the Guatemala City airport and sent 20 people to jail, most of them from other Central and South American countries, says Leopoldo Liu, head of the public prosecutor's office on money laundering. (See pictures of South America on

Liu says authorities almost never detect the origin of the laundered funds, in part because the people who are caught refuse to rat out their higher-ups. "They prefer to take the [jail] sentence than tell us the truth," says Liu. He also admitted that fear often paralyzes further investigation. In one case, a Colombian woman was caught at the airport with some $140,000 and sentenced to six years in prison. Liu says that after the trial last year, the woman's lawyer advised Liu not to investigate any further. Liu followed the advice, and says the people the woman was working for "could kill me."

Guatemala has made some strides against money laundering since 2001. That's when the nation landed on the Organization for Economic Cooperation and Development's Financial Action Task Force (FATF) list of "noncooperative" countries. That year Guatemala finally criminalized money laundering, setting prison sentences of up to 20 years and requiring banks and other financial intermediaries to report suspicious activity and implement "know your client" policies. The law created a special unit within the banking superintendence, which has the authority to obtain information related to any business transaction potentially involving laundering.

Guatemala was taken off the FATF blacklist in 2004. Still, the country's suspected narcobosses are rarely prosecuted. Nor is there much public outrage about the cash doled out by traffickers. In Huite, says the law student, the majority of her childhood friends are now employed in some form by people she calls drug traffickers. In the past, she notes, most local youth had to migrate to the U.S. to look for work. It's also common, she adds, to see long lines of La Reforma's poor waiting for favors outside the homes of suspected narcofamilies, who also send food to remote villages and help pay for families' funeral costs. "People respect them a lot for that," she says.

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