Bad For Its Image

Costa Rica has long been recognized for its idyllic charm. The small, central American nation is democratic, stable and well-known for its progressive environmental policies. More than half a million U.S. tourists visited the country last year, mostly to loll on pristine beaches, hike through rain forests and espy some of Costa Rica's many monkeys. U.S. companies like Intel and Abbot Laboratories, attracted by an educated work force and flexible tax laws, have invested there. It's no wonder some locals proudly call their country "the Switzerland of Latin America."

But Switzerland has secretive banks that have been known to attract "dirty" money. And now similar worries about what unsavory types the country may be attracting are beginning to circulate in Costa Rica. The capital, San Jose, has become a major headquarters for Internet gambling companies, also known as "sports books," which authorities say have migrated to the country to take advantage of lax banking laws and to serve U.S. customers. Local officials estimate that more than 200 gambling firms are based in downtown San Jose. And that's not their only concern. Colombians are now funneling large sums of money through the country, much of it apparently deposited in bank accounts and then quickly transferred to other countries. The fear, of course, is that drug dealers and other law-breakers are taking advantage of Costa Rica's soft regulatory system. "The laws here are not strong enough," says Jose Silva, a police financial investigator. "Unfortunately, that makes Costa Rica a paradise for money laundering."

Unlike the United States, Internet gambling businesses are legal in Costa Rica so long as betting money from abroad isn't deposited in Costa Rica bank accounts. But authorities say that may be what is happening, raising concerns that organized-crime groups are infiltrating the country. The United States has 13 extradition requests pending in Costa Rica, several of which involve fugitives who have been associated with sports books. One of them is Dominique Curra, who U.S. officials say was once the personal accountant for John Gotti, the late king of the Gambino crime family. He was arrested last March in San Jose, charged in America with peddling fake works of art. He pleaded guilty but then fled to Costa Rica last December, where he is now in jail awaiting extradition. A recent report by Bear Stearns, the U.S. investment bank, warned that Costa Rica's Internet gambling industry presented a "national-security risk" for the United States because of unchecked financial flows.

Gambling operators in San Jose keep a low profile. Government officials say many of the companies are registered as data-processing firms, software companies and call centers. The owners are often listed as being Costa Rican, but authorities believe some of the names are just fronts for American-run outfits. The firms are loath to discuss their activities. At Bet-On-Sports, one of the largest online betting firms in the world, the managers insist that no money earned from U.S. bettors enters the country.

Costa Rica's banking laws, like those in many other "offshore" money havens, are secret. But a confidential report by Costa Rican investigators asserts that online bookmakers are moving large sums of money through local banks. Costa Rican investigators believe upwards of $200 million has passed through the accounts of more than 30 sports books in the past two years. The report, obtained by NEWSWEEK, details a series of suspicious money transfers in and out of Costa Rican bank accounts that are either administered by companies operating as sports books, or have a connection to them. Rogelio Ramos, Costa Rica's Public Security minister, has launched an inquiry.

Costa Rican officials acknowledge that many unregulated money flows are a problem, and the country is taking tentative steps to tighten its oversight. Last December a law was passed streamlining the process by which suspected money launderers would be extradited to the United States. And legislation is in the works that would raise the licensing fees of sports books and impose a hefty tax on their earnings. U.S. officials in Costa Rica say they've been lobbying for those and other changes for a long time. "The one area that we're really concerned about is money laundering," said one U.S. official. If it grows, Costa Rica's clean image will get a pretty nasty smudge.

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