The Latin music market, battling rampant piracy as well as a sales slump, can ill afford the artistic and financial costs of payola. U.S. shipments of Latin CDs were down 26 percent in the first half of this year, according to the Recording Industry Association of America.

....According to major-label sources, the head of one of the five major labels tried to get his counterparts to boycott payola two years ago. The effort failed when one label president refused. ''They all had to go with the flow, or it would have been just [one label] on the air,'' one source said.

....Two years ago, Dan Storper, president of independent label Putumayo World Music, made a short-lived bid to enter the commercial Latin market. Storper was particularly hopeful that one tropical artist, already successful in clubs and noncommercial radio, would appeal to a general audience if he could get airplay.

After a legitimate radio campaign failed to garner results, Storper talked with a top independent promoter, who told him that airplay would cost a minimum of $50,000 — Putumayo's entire promotional budget for the artist.

''He said this is the deal if you want to go for it, and these are the key stations. . . . It was different fees for amount of times per day or month,'' Storper said, adding that the promoter quoted costs of $5,000 a month for airplay on leading stations in Puerto Rico, New York and Miami.

He said he opted not to pay.

....Although a Justice Department source says its investigation indicates that payola in Latin music is pervasive, it is a difficult charge to prosecute. Payola itself is only a misdemeanor. Investigators can try to prove bribery, a felony, but it is difficult to trace cash transactions or cash income, and to prove intent. Few of those taking illegal payments reach the level of unreported income necessary to interest the Internal Revenue Service. The report is blistering - read the whole thing.