A word about Banks and the Laundering of drug money

money

 

 

 

 


August 18, 2012

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 seem a rather sweeping 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 who will provide services and products such as cellophane and cardboard suppliers, trucks and boat rental companies, a whole range of  import/export companies as and, of course,  all those up-market professionals like accountants who work in them. 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. The business now needs the services of international 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 Africa’s West coast. That coast from Mauritania down to Togo, is a perfect drug route because it is close to S.America, thus smaller planes can make the crossing, has little coastal policing and is by and large an area where the three currencies of dollars, drugs and violence are all accepted as payment. As The Globe and Mail reported earlier this year,

An investigation by the United Nations drug-control agency has estimated that up to 2,200 pounds of cocaine is flown into Guinea-Bissau every night, and more arrives by sea. About 50 drug lords from Colombia are based in Guinea-Bissau, controlling the cocaine trade and bribing the military and politicians to protect it, the UN investigation found.

Across the region, an estimated 50 tons of cocaine is transported through West Africa every year, mostly from Colombia and Venezuela, destined for the lucrative street trade in Europe.

 

The report continued,

Another key drug route is northern Mali,…The smugglers in Mali transport huge quantities of drugs through the Sahara desert and eventually to Mediterranean ports, where they are shipped to Europe.

The most dramatic sign of the Sahara smuggling route was the discovery of a burned-out wreck of a Boeing 727 jet airplane in a remote corner of northern Mali in 2009.

According to UN officials, the Boeing carried a cargo of cocaine and other illegal goods from Venezuela. Its crew landed it on a makeshift runway in Mali’s desert, and then unloaded as much as 10 tonnes of cocaine. After the plane was emptied, the traffickers apparently set it on fire, either because it was damaged or because it wasn’t needed any more.

 

That is wholesale, drug style. It requires big money, which in turn requires big banks. You cannot rent or buy a jet with cash. You have to have a business which deals with such things as permits, maintenance and fuel companies. That business, if it doesn’t even have an office, will need a bank account.

When you are in Lima and your client in is Guinea-Bissau you don’t exchange paper bags of greasy cash. You arrange bank transfers. Which means a smart, well educated man in an air conditioned office has to know that somehow, in Guinea-Bissau there is someone who needs to pay someone is Lima or Venezuela many millions of dollars or Euros. What does he think? A large rental of deck chairs in a holiday resort? I don’t think so.

That banker will then be asked to move that money from Guinea-Bissau to some where else. Probably to some other bank.

So who are the banks of Africa’s west coast? Well Portugal has a big presence in Angola. The President, his friends and his daughter own and run most of the banking sector as I wrote about in The Eurofiscal Corruption Contest – The Portuguese Entry. France too has a certain presence in the Francophone countries. A more recent and interesting player is Ecobank. Now, it is not the done thing to ever point a finger at Ecobank because it is the only pan African bank run by Africans and as such is seen as a shining example of Africans asserting their independence and struggling to give Africa what it deserves, its own financial muscle. And I agree with all of that in principle. But a bank run by Africans is no more nor less likely to be targeted by criminals, and to harbour its own criminals than a western bank.

EcoBank operates in 30 nations in Africa with a very heavy presence on the West coast from Mali to Togo. But it is not all African. Its largest shareholder, holding nearly 19% of the bank, is a financial vehicle registered, I think in South Africa, created and run by Renaissance Direct Investment. Renaissance Direct Investment is part of the Renaissance Group which is a Russian company, which prides itself on being a leading, if not the leading investment company in Africa, but which is run, half and half, by Russians and White Westerners.  Not that being white or  a westerner is a crime. But nevertheless Renaissance, a Russian investment bank, owns 19% of EcoBank. Again not a crime.

Ecobank is a major presence in all the countries where one of the largest sources of cash is Drug money. (The other in those countries is oil.) And that cash money must be banked somewhere. Cash is NOT put in bags and transported to Europe. It is banked where the drugs land. And remember the wholesale slice of the global drug trade is estimated at $94  Billion a large slice of which flows through Ecobank’s patch.

So, for the lawyers who may be reading, let me be very clear I am not accusing Ecobank of any wrong-doing at all. I am merely noting that a vast amount of drug money is around in the nations where Ecobank among others (such as the Angolan/Portuguese banks) operate. It could be that despite doing business in a river of dirty money not one single cent of it passes into Ecobank. This would be much the same argument as was put to me many years ago when I visited the City Police anti-money laundering division in the City of London who told me with absolutely straight faces that despite London being the centre of international banking, not a single penny of laundered or drug money entered the City banks. I kid you not that is what they said to me. I asked them if they thought I was on day release from a special needs school. They did not laugh.

Now when we left the drugs, they were in Guinea-Bissau and the money was banked in whatever banks were on hand with large enough operations to be able to handle the amounts.  Now, the drugs are put on lorries and moved north across the Sahara. The money needs to be moved through shell companies and either invested in lucrative African developments, or shifted to some more ‘respectable’ financial centre where more investment opportunities are on offer.

The drugs will head to the coast of the Med. One popular route is up to the Spanish enclaves of Ceuta and Mellilo which I wrote about in Money Laundering and Drugs in Romania and Spain. These enclaves are small, cause all sorts of immigration troubles for Spain, make a mockery of the Spanish government’s righteous indignation over Gibraltar, but are held on to tenaciously. Why? Well a clue might be that they are stuffed with branches of Spain’s major banks all offering funds transfer and private banking services in a place where nearly all the actual residents are dirt poor. So whose money are the banks banking? Who in Ceuta or Mellio has so much spare cash that their money needs ‘transferring’? And who feels the need for ‘private wealth management services’?  I don’t know, but the bankers in those places, in those ‘respectable banks’, do. They speak to the mystery people who have all the cash that needs banking, meet them, shake their hands and bank their money, knowing what that money is. And their colleagues across in Europe accept it in turn and mix it safely in to the world of European banking and finance.

In a liquidity crisis a cash business is the kind you want to attract to your bank. And drugs are the largest cash business in the world.

BBVA and Santander are the big Spanish banks and BBVA has appeared already in this story, back in Lima.  Funny that.  While Santander and BBVA also have large operations in …Mexico. No drug connection there I can think of. Except, of course, that both Citi and Wachovia laundered very large amounts of drug money in Mexico. How could I forget. See also Money Laundering and the Moral World of Bankers. And then of course there is HSBC.

Now we are on the subject of properly Western banks lets move finally to retail. The retail end of the global drug trade is by far the largest, at an estimated $332 billion.  Billion with a B. Now given that no one pays for their drugs on their Visa card, most if not all of this is cash. As the money moves up the chain the piles of cash become too large, and what the drug business want to do with all this money, is also too ‘legit’ for cash to be an option. So ALL of it has to be banked one way or another. Trunks of cash are not exported from the UK back to Lima. Nor is there a river of cash flowing from America to Colombia or Mexico. Some? yes. Much? No. The rest get’s washed in London and New York. And the people who do it are criminals.

They are also very wealthy, very arrogant, and they have friends in government , the police and the judiciary.

Up and down the UK cash businesses are guilty, every day of accepting drug money in to their cash earnings, banked as their own profits and then ‘paid’ back to the drug pushers minus a percentage. Up and down the country banks accept large cash deposits from pizza shops which are doing unbelievably good business. No one asks. Where there are slot machines or casinos there is money laundering.  Where there is gambling and betting there is money laundering. Accountants launder. Lawyers launder. All of them? Of course not. Enough of them to suggest an endemic culture of criminality in those professions? I belive so and so do others (Take a look at variousn publicatoins by Prof. Prem Sikka).

A report published by the Home Office in 2006 estimated the UK drugs market to be worth £4.645bn in 2003/4. Most of that £4.6 billion had to have been banked. Not just in one year, but that amount EVERY year. Year after year. That bit does not get talked about so much. £4.6 Billion a year is more than a rogue teller or two. When we get to retail in the West we are NOT just talking about banking a fist full of tenners from a dirty looking user/pusher. We are talking about the people the pushers work for, the people they in turn work for and the businesses that they ‘work for’ or own, which then use that money for ‘legit’ investments, such as buying luxury property in London.

When it was found that Citi had been laundering Mexican drug money, it also revealed how the brother of the then President Salinas, had a private banking agreement with Citi. When the shit hit the fan that banker, Amy Elliot, told her colleagues,

…this goes in the very, very top of the corporation, this was known…on the very top. We are little pawns in this whole thing”

What did Citi do for Salinas? According to the official US government report into the ‘affair’,

Mr. Salinas was able to transfer $90 million to $100 million between 1992 and 1994 by using a private banking relationship formed by Citibank New York in 1992.

The funds were transferred through Citibank Mexico and Citibank New York to private banking investment accounts in Citibank London and Citibank Switzerland. Beginning in mid-1992, Citibank actions assisted Mr. Salinas with these transfers and effectively disguised the funds’ source and destination, thus breaking the funds’ paper trail. Citibank.

More specifically Citi,

• set up an offshore private investment company named Trocca, to hold Mr. Salinas’s assets, through Cititrust (Cayman)9 and investment accounts in Citibank London and Citibank Switzerland;

• waived bank references for Mr. Salinas and did not prepare a financial profile on him or request a waiver for the profile, as required by then Citibank know your customer policy;

• facilitated Mrs. Salinas’s use of another name to initiate fund transfers in Mexico; and

• had funds wired from Citibank Mexico to a Citibank New Yorkconcentration account—a business account that commingles funds from various sources—before forwarding them to Trocca’s offshore Citibank investment accounts.

Know your customer, anti money-laundering requirements?  Don’t make me laugh.

These are the sorts of things the Spanish Banks and the Portuguese banks and Ecobank would do for any clients of theirs that needed money laundered. Have they?  I have no idea.  Wachovia did. Citi did. HSBC did.

The reality is that drugs are a massive banking business. And it is also a fact that the bulk of that business is done in the industrial nations in their banks, NOT in the drug producing nations.  The Drugs business is mostly a western business. It’s a banking busness. Not unlike global mining where the mines are in the third world but the mining companies are listed and work in London.

A recent study on the Colombian drug trade reported in The Guardian found

…that 2.6% of the total street value of cocaine produced remains within the country, while a staggering 97.4% of profits are reaped by criminal syndicates, and laundered by banks, in first-world consuming countries.

If that study is anywhere near accurate then the fact is the drug business is our business. We, the rich West, use it, we finance it, we provide the laundering services for it, and we then use the money it generates to feed the financial system. That money keeps our banks going, especially in ‘hard times. That money is what is used by the financial industry to speculate with, to buy up sovereign assets with, to speculate on food with. That money helps create their bonuses and pays off our politicians in ‘soft donations’ and ‘access to decision makers’.

The drug money laundering business is a staple and important part of global banking. Money laundering is one of the things bankers do well. They should, they practice every day. It is not a one off rogue teller or rogue ofice. It is not something the bank does once and never again. Amex did it many times. HSBC has a history.  You only have to go back to the murkey and bloody AGIP affair to find the same names and the same widespread conspiracy to commit financial and legal crimes. Dig deep enough and you’ll find the names of politicians, senior ones and find yourself meeting some of the people who make sure the truth of such matters does not come out and whose job it is to protect the guilty and do their dirty work.

Drug money, criminal at the start, is criminal and dirty no matter how many times it is laundered. The bankers know this better than anyone. Yet they do it every day, every week, every year and every decade in every major financial centre and everyone knows it.

 

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