Drug money saved banks in global crisis, claims UN advisor

Rajeev Syal
Guardian UK

Drugs and crime chief says $352bn in criminal proceeds was effectively laundered by financial institutions

Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations' drugs and crime tsar has told the Observer.

Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.

This will raise questions about crime's influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. "In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor," he said.

Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.

"Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities... There were signs that some banks were rescued that way." Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.

"That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was," he said.

The IMF estimated that large US and European banks lost more than $1tn on toxic assets and from bad loans from January 2007 to September 2009 and more than 200 mortgage lenders went bankrupt. Many major institutions either failed, were acquired under duress, or were subject to government takeover.

Gangs are now believed to make most of their profits from the drugs trade and are estimated to be worth £352bn, the UN says. They have traditionally kept proceeds in cash or moved it offshore to hide it from the authorities. It is understood that evidence that drug money has flowed into banks came from officials in Britain, Switzerland, Italy and the US.

British bankers would want to see any evidence that Costa has to back his claims. A British Bankers' Association spokesman said: "We have not been party to any regulatory dialogue that would support a theory of this kind. There was clearly a lack of liquidity in the system and to a large degree this was filled by the intervention of central banks."

http://www.sott.net/articles/show/198851-Drug-money-saved-banks-in-...

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Comment by truth on December 13, 2009 at 5:43pm
Comment by Jeff on December 13, 2009 at 3:52pm
Tara, they lock you up and throw away the key even if you don't have enough money to launder. It's appalling that the larger dealers can get away with what are crimes and the small users pay devastating penalties. All drugs should be legal. I like drugs. If they're used in a recreational manner and with intelligent restraint there's nothing wrong with them and they're safer than alcohol.

In Mexico Valium is an over-the-counter drug and I used it for many, many years. I lived there for two years and when I lived in Arizona I just drove there on weekends. I've used very high quality heroin, LSD and pot. I also published a well known, highly regarded and very profitable magazine, third largest publication in the state of Arizona. Drug use has nothing to do with intellect, social and financial achievment or intelligence.

It's poverty combined with drugs that's dangerous.

Drugs and affluence obviously go hand in hand and are rewarded by society.

Somethings wrong here.
Comment by Tara on December 13, 2009 at 3:40pm
Crazy stuff, but should we be surprised? It's only ok to launder drug money if you're a part of the elite, but damn you if you are not! The system will lock you up and throw away the key if you're just a Joe Schmo money laundering drug dealer!
Comment by Zensaber on December 13, 2009 at 5:00am
and they arrest normal drug dealers who try to put their money in banks, tisk tisk.
Comment by truth on December 13, 2009 at 2:09am
Thee is a Alex Jones video talking about this. The crazy thing is there are no laws against drug money going in to central banks. Hmmm.

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