"A word about banks and the laundering of drug money" (HBC)

From Golem XIV:

I just wanted to write a quick note about HSBC and money laundering.

When we hear of a bank caught money laundering there is a tendency, gently encouraged I think, by the banks and the media, to think of it as we would if we heard of someone in our street having been caught fencing stolen goods.  We would think – ‘Ah, so there is the crook among us’, and by unspoken extension assume that since he’s the crook the rest of us aren’t.  Not unreasonable when dealing with people, but entirely misplaced when thinking of banks.

That might seema little sweeping a generalization but it isn’t.  The drugs business is huge and mostly in our countries. The drug producing nations are relatively minor players in the financial side of the drug business. Most of the drug money is made , moved and stored/banked/invested outside the producing countries but inside ours.

Latest official figures estimate,

 In the 2005 World Drugs Report the UNODC put the value [of the global drug trade] at US$13bn at production level, $94bn at wholesale level and US$332bn based upon retail prices.

The critical thing to note here is not the figures, large as they are, but the careful break down of the trade into production, wholesale and retail. There is the tendency in the news and newspapers to talk just about ‘the drug trade’. This piece of laziness is useful because it conjures up pictures of Mexican murders and Colombian jungles.  Rather than what it should conjure up, images of smart bankers in London and New York.

Let’s look at the breakdown more carefully. Production is the third world part of the trade. It is also the smallest by far. It is the total money involved in making the stuff, paying the farmers and processors as well as those who begin the shipment towards the export centres and, of course those who have to be paid off to make sure the war on drugs is never won. Only a part of that $13 billion is actual profit. But it is still13 billion which is far to big to stuff under any mattress. So we can be sure that the bulk of those billions is banked.
That means in the producing nations there must be businesses willing to accept the drug money (Casinos are a favourite) , a network of businesses and all those professionals like accountants who work in them, who run cellophane and cardboard supplier companies, who own trucks and boat rental companies and a whole range of front import/export companies. Whenever I go to Lima I laugh at the sheer brazenness of streets where for every casino there is a bank just across from it.

Like any commodity, once the drugs make their way to the export centres they move from Production to Wholesale. At some point a wholesaler, who has deep pockets, the ability to store and move the product and contacts in retail, gets involved. Of course this may be part of the same business empire that also produces the stuff. many businesses are vertically integrated. But it is worth still making the distinction, not only because different people and services come in to play but also because a different set of financial institutions must be called upon.

Once the drugs move countries local banks are of no use. ow we need internatinal banks who can transfer money across the world and into banks in other nations. Needless to say these banks tend to be big banks – our banks. So to give an example cocaine produced in Peru will first use local banks. They will be banks with local branches such as Banco de Crédito del Perú and BBVA Continental. Some of you may read that last name and be thinking, ‘That’s not a local bank that’s a Spanish bank’. I know, I know, bear with me. We’ll come back to them soon.
Once we get to the export centre we have new expenses and business to conduct. We need to charter planes and boats. Remember at this point we’re not yet importing in to the retail network inside the US and Europe. We are transferring the drugs from the producer nation into the wholesale transport routes. For Peruvian cocaine much of this now goes through Brazil and Venezuela and then over to Afirca’s West coast....MUCH MORE