Global Drug Mafia and the Banks. An Introduction to the Subject
These days, the drug mafia theme explainably attracts permanent media coverage. One of the aspects that cannot be avoided in the context is the involvement of the financial sector – for hefty risk premiums – in money laundering for the narcotics business.
Banks and the Drug – Business: Seamless Integration Rather Than Partnership
Last summer, The Guardian featured a remarkable account “Global Banks Are the Financial Services Wing of the Drug Cartels“ by Ed. Vulliamy. Contrary to the conclusions invited by the extremely informative paper, the title does sound as if the financial services play a secondary role in the tandem. There is a widespread tendency to believe that, while serious banks are occasionally caught red-handed, they engage in money-laundering as mere contractors rather than play key roles in the global drug business. It appears in this light that regulation and oversight in the financial sector may be implemented as background processes and need not be placed on the list of the anti-drug priorities.
The above approach is in fact adopted by countries and international organizations alike. They focus on the drug mafia which, from the perspective, is a conglomerate of groups producing, processing, storing, trafficking, and selling drugs in quantities or on an individual basis. Another common term to designate the groups is drug cartels. The budgets dedicated to fighting them have swelled to enormous proportions.
When, in 1972, US President R. Nixon declared a war on drugs, the total linked to the campaign was $110m, but Obama’s anti-drug plan for 2013 – a 1.6% hike compared to 2012 – weights slightly under $26b, with the multibillion state budgets serving the same purpose not included in the figure. The impression in the meantime is that the financial sector evades the part of the scrutiny it deserves, the assumption being that regulators should cope entirely with the job. Under the arrangement, the key monitoring mission rests with the US Federal Reserve but, paradoxically given the nature of what has to be done, the Fed is a private corporation, not a branch of the US executive authority.
The result attributable to the functional mismatch is that, according to Russian anti-narcotics agency chief V. Ivanov, only 10-15% of the global drug supplies end up being confiscated, and the interception level in the operations which target drug-related money-laundering stalls at 0.5% .
The truth to be kept in mind is that as of today the merger between the financial sector grands and the drug mafia in its classic forms – the cartels and syndicates – is an accomplished fact. No border exists any longer between global-scale banks and drug cartels and, consequently, between laundered and legally clean money – a lot of the funds believed to belong to the latter category actually fall within the former. The present alliance between banks and drug cartels is best described as the drug-banking mafia or the drug-banking business. This transnational force has a potential to exercise virtually unlimited influence over all aspects of the existence of modern societies such as the economy (industry, agriculture, services), the academia, culture, or domestic and foreign policies of various countries. The socioeconomic model currently materializing in the majority of the world’s countries can be interpreted as a hitherto unstudied brand of capitalism, namely, the drug-banking capitalism… Hierarchy of the Modern Drug Mafia
Broadly understood, the present-day drug mafia includes three hierarchic levels.
Level 1. The groups positioned at the initial point upstream and at the outlet point downstream the drug supply chain.
• The groups organizing drug cultivation, performing the initial processing, or buying drugs from narcotics farmers.
• The groups dealing drugs to individual users.
Level 2. Groups handling the wholesale drug supply. In the supply chain, they process, package, store, and traffic drugs (internationally as necessary), and organize wholesale supplies. The groups of this level are traditionally referred to as drug cartels and syndicates, and their heads – as drug lords.
According to expert on organized crime Misha Glenny, “The cartel is a holding company, an agglomeration of small, flexible mafia groups” boasting a considerable extent of decentralization . In the XX century, the biggest drug cartels – notably, Medellín and Cali – were based in Columbia. A DEA survey gives a reasonable idea of the Cali cartel potential: the group has a budget of $4-8b annually and is managed like a smoothly running business with the help of an intricate system of phones, faxes, pagers, and computers. Moreover, Cali has an intelligence network in no way inferior to the intelligence services of most developing countries and controls the airport, the phone company, and the taxis in the city of Cali, thus knowing who comes to the place or leaves it, who works for the police, and who has been in touch with the US agencies”[4[.
Strictly speaking, the term drug cartel does not quite apply to formations like Cali. Rather, it would befit a concert of several drug groups entering into a market-sharing agreement. Columbian drug groups, for example, used to cut deals on their respective market niches for marijuana and cocaine in the US, with Cali getting New York City based on the accords . Cali and Medellín are, upon scrutiny, drug syndicates, the type of organization implying the combination of the independence of the enterprises involved with coordinated market supply.Groups cultivating and pre-processing drugs exist in Columbia, Mexico, Afghanistan, the Golden Triangle countries, South Africa, etc. All of them deliver the narcotic output to the same “company” which markets it on a wholesale basis. Altogether, the arrangement can be regarded as a classic syndicate. Several syndicates of the type may sustain a market-sharing agreement, creating a cartel. Every major country – the US, Great Britain, Germany, France, and others – is a large market carved up by a number of syndicates with supply chains stretching from the cultivation to the destination countries. The bosses of the Afghan syndicates, therefore, run their operations from Turkey, Europe, or the US, staying thousands of miles away from the Afghan poppy farms. As a general rule, drug syndicates function internationally.
The present geographic distribution of the drug trafficking hubs and routes is profoundly different from the one known from the XX century. Nowadays, leadership in this underworld is exercised by Mexican and Afghan drug groups supplying cocaine or opium and heroin respectively. The criminal market-sharing agreements are frequently ignored, triggering bloody conflicts – sometimes, real wars – over the sales niches .
Level 3. The groups having no direct contact with drug supplies. Banks, secret services, and media are the main institutions comprising this level in the drug mafia hierarchy. All of them are completely legal from the standpoint of status. In this connection the present paper will touch upon the banks and secret services below. It should be noted that Level 3 also includes legislators and judiciaries along with other officials from the ranks of the executive authority. In an ensemble, they act as a tightly knit network spanning across national borders and projecting its capabilities globally. The massive liberalization of international transit – for individuals, products, finances, and information – which commenced three to four decades ago, the phenomenon dubbed globalization in the 1990ies, made it considerably easier for the worldwide drug mafia to come into being. Essentially, the drug mafia can be thought of as a global narcotics corporation with branches in many of the nation-states. The objectives pursued at Level 3 are strategic in character:
• The whitewashing of the cash flows generated by drug sales;
• Revenue investment in various sectors of the economy;
• Organization and security of drug supply operations at Level 1 and Level 2;
• The creation of the conditions favorable to the expansion of the drug business in various countries.
To be continued