The Drug Trade And Money Laundering In The Americas

The Drug Trade And Money Laundering In The Americas

By Dialogo
July 01, 2011

The term “money laundering” is said to have originated from the
Mafia ownership of laundromats in the United States during the 1930s. Today,
however, targeting the illicit proceeds of drug trafficking organizations (DTOs) has
gained the attention of governments around the world. While money laundering itself
is quite complex, it consists of three basic steps:

1. Placement, where the money is most vulnerable to detection because it is
considered dirty money. Some of the more prominent examples are making multiple cash
deposits less than $10,000, purchasing multiple money orders below the reporting
threshold, and using close associates to make multiple bank deposits.
2. Layering is the second stage in which the perpetrators attempt to
disassociate the money from its original source. This is where money begins to be
transferred to and from multiple accounts in an effort to make these transactions
difficult to detect.
3. Finally, integration is the process of using funds for legitimate
purposes because the funds essentially have been cleaned. Some of the methods used
to further disguise these funds include real estate purchases, investments in front
companies, stocks and foreign businesses.
While many people unwittingly participate in money laundering, there are
also many participants who are fully aware of the crime being committed. In 2007 the
Costa Rican National Police dismantled a large drug trafficking organization in a
sting titled Operation Border. Costa Rican newspaper reporter Otto Vargas, quotes
the Costa Rican National Police as saying, “…behind these people exist a large
number of collaborators (…), also pilots, air traffic controllers, owners of
clandestine landing strips, drug transporters, laboratory owners, and other people
dedicated to money laundering,” he wrote in Costa Rican daily, La
Nación. Vargas’ remark is extremely poignant in that it highlights the
complexity of money laundering by distinguishing the fact that is it not an
individual act.

The Impact of Money Laundering

According to the U.S. Federal Bureau of Investigations, the International
Monetary Fund believes that money laundering may account for 2% to 5% of the world’s
gross domestic product, estimated to be as high as $3.61 trillion. The Tax Justice
Network, an independent organization launched in the British Houses of Parliament in
2003 dedicated to analysis and advocacy in the field of tax and regulation, reported
that developing countries lose an estimated $858.6 billion – $1.06 trillion annually
in illicit financial outflows. Money laundering also has an effect on national
policy because of mistakes in measurement errors on national account statistics and
it also threatens monetary instability due to unsound asset structures in
commodities, according to the United Nations Department of Public Information. The
accumulation of wealth by DTOs poses a grave threat to the security of nations in
this hemisphere. Antonio Maria Costa, Executive Director of the United Nations
Office on Drugs and Crime stated, “Where crime and corruption reign and drug money
perverts the economy, the state no longer has a monopoly on the use of force and its
citizens no longer trust their leaders and public institutions.” The
BBC reported that Mexican drug cartels have so much cash at
their disposal that they have managed to consistently infiltrate police, from the
grassroots level to the very top.

The U.S. Congressional Research Service reports that according to the United
Nations Office of Drug Control, homicide rates have increased in Latin America “from
19.9 per 100,000 people in 2003 to 32.6 per 100,000 people in 2008.” While the exact
correlation to drug trafficking is unknown, it is almost certain that the illicit
narcotics trade plays a major role in the significant increase in homicides in this
hemisphere. It is important to note that Latin America and the Caribbean has some of
the highest homicide rates in the entire world. These regions serve as transit zones
for drugs bound for North America. A further analysis indicates homicide rates are
extreme in the transit zone countries.

Measures Governments are Taking

In the United States, the Bank Secrecy Act of 1970 is the cornerstone of the
nation’s effort to combat money laundering. It requires U.S. financial institutions
to maintain records of cash purchases of negotiable instruments, file reports of
cash transactions exceeding $10,000, and also report other suspicious activities
that may signify money laundering, tax evasion, or other criminal activities.

Mexico has made significant progress in the past year in its efforts to
combat illicit financial flows by implementing tough anti-money laundering laws. As
a result of these stringent new laws, Mexico has seen an astonishing 75% reduction
in U.S. currency deposits. Some of the key provisions of the new law impose a limit
on cash deposits by Mexican individuals of $4,000 per month; foreign tourists are
allowed to exchange only up to $1,500 per month; no more than $7,700 may be used as
cash towards the purchase of vehicles, boats or planes; and making it illegal to
purchase real estate in cash, reported The Washington Post.

What are the results when governments undertake similar measures? A telling
example is the case of Pablo Escobar, one of the most well-known drug traffickers in
history, who at one point had an estimated net worth of $25 billion. In a
documentary about his life, “Sins of my Father,” his son, Sebastian Marroquín,
formerly Juan Pablo Escobar, stated the following:
“Why am I not a drug trafficker? Because I was with my father, hiding next
to him surrounded by millions of dollars and we were starving, where we’d been
hiding for a week and ran out of food. That’s when I understood that the money from
drug trafficking is absolutely worthless.”

Notable Cash Seizures

In March, 2007, the United States Drug Enforcement Administration and Mexican
law enforcement made the largest single drug cash seizure in history, totaling $207
million dollars, in what was a front for a Mexican pharmaceutical

In September, 2009, United States Immigration Customs and Enforcements (ICE)
agents along with Colombian and Mexican authorities seized over $41 million in
shipping containers. “We recognize both the U.S. government and Mexican authorities
as our best allies in the fight against organized crime and thank and congratulate
ICE for their support and collaboration,” said General Oscar Naranjo Trujillo,
director general of the Colombian National Police.

Future Efforts to Curtail Money Laundering

The United States National Drug Control Strategy states, “undermining the
financial infrastructure of trafficking organizations has proven to be one of the
most effective means to disrupt the market for illegal drugs.” This statement is
significant because when a government captures a high value target or head of a DTO,
that individual is quickly replaced by the next in line and so the cycle of
organized crime will continue to function. However, if the funding stream is broken,
these organizations lack the means to purchase materials necessary to produce and
distribute illicit narcotics. By dismantling the financial infrastructure, the
capability exists to bankrupt these criminal organizations. The United Nations
Office on Drugs and Crime and its associated nation-states set the year 2019 as
their target date to significantly reduce or eliminate money laundering related to
illicit drugs.

To tackle the growing threats posed by the transfers of funds from illicit
proceeds, the Financial Action Task Force, an inter-governmental policy-making body
on financial crimes, urges transnational cooperation to meet the objectives
established by the United Nations Office on Drugs and Crime.

*Anthony Williams is a Doctoral candidate in Homeland Security and Defense
at the National Graduate School, Falmouth, MA, and is a member of a Joint Staff
within the U.S. Department of Defense.