The Independent says the third largest industry in the world, after arms and oil, is illegal drugs. Because of its unlawful nature, it’s a bit tricky putting an accurate value on the trade, but, according to the British newspaper (November 2010) the business pulls in $640 billion a year; the BBC says $400 billion.
Meanwhile, Reuters News Agency reported in 2005 that, “Annual worldwide illegal drug sales are greater than the gross domestic product of 88 percent of the countries in the world, the United Nations said...” The UN pegged the estimated annual value at $321.6 billion in 2003.
Money Laundering Moves Massive amounts of Money
Whatever the true number, a huge amount of cash is involved and drug dealers have a problem handling it all. It’s not possible to deposit a million dollars in hundred-dollar bills in a bank without raising a lot of eyebrows.
Banks in Canada and many other countries are required by law to report large cash deposits; in Canada the threshold is $10,000. That means drug dealers have to find some other way of getting their money into the legitimate financial system.
One technique, known as “smurfing,” is to split the cash up into small amounts and make multiple drops in many banks and stay under the size of deposit that must be reported. But, the amounts are so huge that a small army of people doing this continuously is needed to cope with the volume; this too might attract attention.
A favourite method is to fill suitcases with cash and take them to a financial institution in a country where bankers are not nosy about where the money comes from. There are plenty of these places: the Cayman Islands, Switzerland, Jersey, Liechtenstein, etc.
Drug Money Laundering in the U.S.
But, big banks in major countries are also used to clean up the dirty cash - sometimes knowingly, sometimes not.
Wachovia, now part of Wells Fargo, was one of the biggest banks in the United States. In April 2011, the Observer (U.K.) reported that U.S. authorities “uncovered billions of dollars in wire transfers, traveller’s cheques, and cash shipments through Mexican exchanges into Wachovia accounts.”
The money was traced to Mexican drug gangs. The U.S. federal prosecutor Jeffrey Sloman said Wachovia’s “blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations.”
Drug Money Enters Legitimate Economy
The Financial Action Task Force (FATF) has the job of trying to stop the washing of dirty money. Based in Paris, the international organization says once the drug money has entered the financial system it is moved around by money transfers in an effort to disguise its source. With each movement it becomes more difficult for prosecutors to follow the paper trail.
Finally, FATF says, “the funds re-enter the legitimate economy. The launderer might choose to invest the funds into real estate, luxury assets, or business ventures.”
Canada a Money Laundering Hotspot
The Department of State in the U.S. maintains a list of 63 “major drug money-laundering countries.” Canada and the United States are on that list.
Peter Lilley is an expert in combatting money laundering. He says that, “Canada has had weak anti-money laundering laws that have led to the country being perceived as a ‘soft touch’ for organized criminals.”
The RCMP itself concedes that, “In Canada, money laundering is a multi-billion dollar problem. Although impossible to determine the exact dollar figure; the International Monetary Fund (IMF) states that the total amount of money being laundered worldwide could be in the range of two to five percent of world Gross Domestic Product (GDP), approximately $900 billion to $2.25 trillion.”
The Mounties estimate that somewhere between $5 billion and $15 billion of that dirty money is cleaned up through Canada. And, not many people get caught in the activity.
Writing in the Globe and Mail (June 2011) Julian Sher notes that, “The Canadian Centre for Justice Statistics says while the reported number of money-laundering crimes has ‘increased considerably’ in the past decade, law enforcement has had little success in finding the culprits, much less putting them behind bars.”
Only about 18 percent of suspects are even identified; that’s half the rate for other crimes. Prosecutors don’t do well in court either, getting convictions in only about a third of money-laundering cases; again, that’s about half the success rate for other criminal cases.
It seems money laundering is a low-risk crime so, as long as that’s the case, it will continue to undermine the global political and financial systems.
Sources
- “History of Drugs: Narcotics Antiquitus.” The Independent, November 10, 2010.
- “Illegal Drug Trade a World Force – UN.” Niklas Pollard, Reuters, June 29, 2005.
- “How a Big US Bank Laundered Billions from Mexico’s Murderous Drug Gangs.” Ed Vulliamy, The Observer, April 3, 2011.
- “Money Laundering.” RCMP, October, 11, 2011.
- “Money Laundering FAQ.” Financial Action Task Force, undated.
- “Money Laundering Going Largely Unpunished in Canada.” Julian Sher, Globe and Mail, June 28, 2011.
- “Money Laundering Country Risk Index.” Peter Lilley, 2006.
Rupert Taylor - Rupert Taylor is the editor of a magazine that provides background to current events.
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