By the end of the ’90s, Chiquita was headed for Chapter 11 bankruptcy (which it declared in November 2001 and emerged from in March 2002). Urabá, however, had turned into a bright spot on the company’s ledger. During the A.U.C.’s reign of terror, according to the federal complaint, the region would become Chiquita’s most profitable farming operation in the world.

While the A.U.C. was murdering thousands of Colombians, “to our knowledge, the paramilitaries never touched a hair on the head of a U.S. citizen or company,” says Adam Isacson, director of the Colombia program at the Center for International Policy, in Washington. In fact, Isacson says, the A.U.C.’s stranglehold brought “a strange form of peace to the region through terror. It created a much more friendly business environment.”

But for Eric Holder, Chiquita’s lawyer, that argument falls flat. “It’s like saying a shopkeeper feels safe because the Mob is extorting him for protection payments,” Holder says. “You’re not paying these guys to protect you from someone else; you’re paying them to protect you from them.”

Of course, for people like Hortensia Castro, the Heraldo de Urabá director, life was not so comfortable. Ten years ago, when the A.U.C. first arrived, the mountains ringing Apartadó were crawling with guerrillas. The region, which has one of the heaviest rainfalls of any area on earth, served as a protective corridor for the FARC’s drug running and attacks on businesses. As soon as the A.U.C. arrived, everyone was caught in the crossfire. “There were many times I would go to bed,” Castro says, “and fear that I would never wake up again.”

The real trouble for Chiquita began on September 10, 2001. The day before the attacks on New York and Washington, the State Department designated the A.U.C. a foreign terrorist group, making it a felony for any person or company to give it support. Officials at Chiquita, headquartered in Cincinnati, overlooked the news the next day, the company asserts. But the federal complaint notes that the Cincinnati Post ran a story on the terrorist designation a month later. It was also widely reported in Colombia, where Banadex officials would have seen it. Chiquita, however, says it remained unaware of the designation for more than a year.

On January 6, 2003, the Organization of American States released a report that revealed an investigation into an illegal-arms shipment that was smuggled through Banadex’s port and delivered into the hands of the A.U.C.

Six weeks later, according to Chiquita, a company lawyer surfing the Web ran across the A.U.C.’s terrorist designation and alerted the company’s general counsel, Robert Olson, for the first time.

Olson knew a thing or two about handling corporate crises. In 1998, a couple of years after he joined the company, the Cincinnati Enquirer ran an 18-page exposé purporting to reveal a litany of Chiquita’s labor and environmental abuses across Latin America. It later turned out that the Enquirer’s reporter had illegally tapped into Chiquita’s phone system to do his digging and had recorded hundreds of voicemail messages, including Olson’s. The general counsel helped lead the investigation that uncovered the break-ins. The Enquirer was forced to make a front-page apology and pay Chiquita a $14 million settlement.

After Olson heard about the A.U.C.’s terrorist designation, he consulted Laurence Urgenson, the company’s powerful Washington attorney. Urgenson had once headed the Justice Department’s fraud section. His firm, Kirkland & Ellis, specializes in S.E.C. actions, among other areas of law. Urgenson’s assessment was swift. Chiquita, he told the company, was breaking federal law, and it needed to stop. In notes dated the next day, he set a take-no-prisoners tone that he would maintain throughout the ordeal: “Must stop payments.”

Over the next few days, according to the federal complaint and lawyers on both sides, Olson and Roderick Hills argued internally that Chiquita was in an impossible bind: If it stopped paying off the A.U.C., its workers and facilities would be in jeopardy. Would Chiquita be off the hook because some of the payments had been made through a convivir, or security firm? Urgenson’s legal compass did not move. Notes from his discussions, laid out in a February 26, 2003, memo read like one side of a moot court debate: “Bottom Line: CANNOT MAKE THE PAYMENT.” Followed by “Advised NOT TO MAKE ALTERNATIVE PAYMENT through CONVIVIR.” Also added is a line of basic legal logic: “General Rule: Cannot do indirectly what you cannot do directly.”

On April 3, Hills and Olson finally told the full Chiquita board about the company’s payments in Colombia. The board recommended that the two executives go to the Justice Department and confess the wrongdoing, in the hopes that self-disclosure would earn the company leniency. They had good reason to expect such an outcome: In the past, firms that self-reported wrongdoing were often granted deferred prosecution, meaning they’d face no penalties as long as the activity ceased immediately.