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Date: 2024-05-18 Page is: DBtxt003.php txt00002747

Country ... Mexico
Drugs and money laundering

Dirty money thrives despite Mexico drug war ... Major banks are getting rich from money laundered by violent Mexican drug gangs, whistleblower says.


Peter Burgess

Dirty money thrives despite Mexico drug war Major banks are getting rich from money laundered by violent Mexican drug gangs, whistleblower says.

Cambridge, UK - Sitting in the smart office of a London-based financial security firm, Martin Woods seems far removed from the drug violence tearing at Mexico's soul.

A former compliance officer with the US bank Wachovia, Woods - despite his unassuming demeanor and upper-crust British manners - has seen the drug war and its illicit loot in a light unavailable to even the most seasoned observers.

Back in 2006, Woods started asking questions about billions of dollars pouring into Wachovia accounts in the US from Mexican currency exchanges.

'I guess what surprised me most was my own naivete,' Woods told Al Jazeera. 'I aggravated my own employers (by bringing forward evidence of laundering) and also the regulators themselves.'

In 2010, Wachovia, now owned by Wells Fargo, settled out of court for the largest violation of the Bank Secrecy Act in US history. They paid a fine of $160m for laundering a whopping $378.4bn from Mexican currency exchange houses between 2004 and 2007. Much of this cash is thought to have been drug money, moved without proper documentation from Casa's de Cambio in Mexico to US banks.

Two years later, Woods said: 'There was no consequence for anyone dealing with that money. Some other compliance officers broke the rules and they kept their jobs. I obeyed all the rules, blew the whistle and lost my job.'

Wells Fargo did not return phone calls or emails from Al Jazeera requesting comment.

'Stop the money flow'

What is money laundering?
  • - Drugs, like other illegal operations, are a cash business.
  • - To be able to use the banking system or to make some major purchases, criminals need to create a paper trail to 'clean' the money, to make it look like it originated in legitimate enterprise.
  • - By using currency exchange houses to move the money internationally into bank accounts, cartels can disguise it to look like remittances from migrants or other legitimate forms of income.
  • - Drug gangs and other criminals often establish front companies to move money. In one case, for example, a toy exporter in Los Angles inflated the costs of importing toys from China. This inflation provided a space where drug money could be inserted onto the company's books disguising itself as a part of normal business dealings.
  • - Internationally, money laundering represents between two and five per cent of global GDP, according to estimates from the UNODC.

As the body count from Mexico's drug war passes 50,000, public beheadings have become commonplace. Cartels have gunned down teenagers at house parties, massacred dozens of migrants on rural ranches and torched urban casinos. In the current climate of violence and impunity, financial analysts say there is no hyperbole in accusing bankers of laundering blood money for international assassins.

'The whole point of being a drug dealer is money,' Heather Lowe, a Washington-based lawyer with Global Financial Integrity, a watchdog group that tracks laundering, told Al Jazeera. 'Identifying and stopping that money flow is crucial.'

While exact numbers are impossible to come by, due to the nature of the business, the UN Organisation on Drugs and Crime (UNODC) estimates that illegal narcotics represent the world's third-biggest export, after oil and the arms trade, worth more than $300bn annually.

'You have these horrendous crimes being committed, people being shot 10, 20 or 30 at a time,' said Walter MacKay, a former Canadian police officer who has trained Mexican security forces and now researches the drug war from Mexico City. 'This dirty money washing through economies just exacerbates everything,' he told Al Jazeera.

Illicit drug sales in the United States generate annual revenues between $18bn and $39bn, according to the US Justice Department's Federal Bureau of Investigation. Much of this money flows back to Mexico, where cartels use it to pay underlings, bribe politicians, invest in legitimate businesses and purchase raw product.

Officially started in its modern incarnation by Richard Nixon and given its nomme de guerre by Ronald Reagan, the 'war on drugs' doesn't seem likely to end anytime soon, and many analysts believe the military solution isn't working as violence is increasing. Some policy experts and forensic accountants believe tracking money earned by cartels, along with waging a PR campaign to tackle the demand side of the equation in the US, is the best in a series of bad options.

'In order to weaken organised crime, it is far safer and more effective in the long run to erode its financial base,' Laura Carlsen, director of the Americas programme of the International Relations Centre in Mexico City, told Al Jazeera.

'Financial terrorism'

Bulk cash seizures by US authorities, the easiest and most common way of taking money from cartels, totalled $798m between January 2008 and August 2010, leading the US National Drug Intelligence Center (NDIC) to conclude that they haven't affected trafficking operations to 'a significant extent'.

Mexico's President Felipe Calderon has said: 'The prevention of money laundering and combating financial terrorism is a fundamental part of the state's comprehensive strategy against organised crime.' But the statistics are worrying. In the last 10 years, Mexico has seized less than $40m in cash transfers - that's about $4m annually out of close to $40bn in drug sales.

Currency exchange houses, like the ones used by Wachovia, are probably the most common way for cartels to launder funds, former Arizona Attorney General Terry Goddard told a gathering at Woodrow Wilson Centre for Studies in May 2012, although it's impossible to be sure. Traffickers normally 'contract with money brokers to use their networks of bank accounts and business connections to structure large sums for transport across the border', Goddard said.

Officials in Mexico believe the tide of laundered money could be as high as $50bn per year, a sum equal to about three per cent of Mexico's legitimate economy - more than all its oil exports or spending on key social programmes. Internationally, money laundering represents between two and five per cent of global GDP, or between $800bn and $2tn annually, according to the UNODC.

'Bankers, high-end car dealers and others have a legal duty to report suspicious activities,' David Manley, an officer who tracks money laundering with the City of London police, told Al Jazeera. 'If they [bankers, solicitors or property dealers] fail to report accurately, they can be prosecuted.'

No rewards for whistleblower

While following the law, Martin Woods was reportedly not greeted with enthusiasm by his bosses. After blowing the whistle on shady money coming into Wachovia accounts without proper documentation, he met stiff resistance from the corporate brass. 'Ninety-six per cent of whistleblowers never again secure permanent employment in the industry where they blew the whistle,' he said.

Woods doesn't think highly of government regulators either. He said that the Office of the Comptroller of Currency (OCC), a US regulator that ignored or bungled investigations into Wachovia while they laundered large sums for five years, directly received some of the fines Wachovia paid for flouting the law. 'They made $50m and I lost my job,' Woods said. 'They didn't even take action against the people who laundered the money, which is far worse.'

Presently, the global financial services giant HSBC is facing probes from the OCC in the US and other regulators for 'critical deficiencies' in its 2006-2009 reporting of bulk cash transfers, creating 'significant potential for unreported money laundering or terrorist financing'.

Some 300 Mexicans and 180 Mexican companies (more than North Korea or al-Qaeda) are on the so-called kingpin designation list, the US Treasury Department's roster of people and entities suspected of laundering money for drug traffickers or working for them in other capacities.

'We are not spending enough on bank oversight,' Heather Lowe, the lawyer, said. 'While we have a lot of laws in place designed to stop banks from taking in proceeds of crime, we don't have enough people going into banks to see how those laws are actually being applied.'

Part of the problem, Woods says, is that whistleblowers are not protected, so they fear stepping forward. In a possible example of Woods' theory, one veteran private banker at HSBC's Miami office was fired for alleged sexual harassment after he warned bank officials of clients involved in shady dealings, Reuters reported. Compliance officers, the people who should be watching this sort of behaviour, are often pressured not to report suspicious activities, as banking officials want the large sums of money to keep pouring in, no questions asked.

Past prohibitions

In Washington and Mexico City, the chorus for results on laundering has grown louder, but analysts believe serious action - especially on the Mexican side - is still lacking. According to a Washington Post analysis of data from the US and Mexican governments, only about one per cent of drug money is recovered, despite efforts by law enforcement to do better.

In Depth

More from Mexico:

  • Surviving Mexico's migrant trail
  • Kidnappings rock Mexico's docs
  • In Jurarez, women just disappear
  • Invest in 'the world's most violent city'
  • US-trained cartel terrorises mexico

As the war grinds on, and demand for illicit products continues unabated, it's worth recalling some lessons from other eras of prohibition. When alcohol smuggling by organised criminals ran rampant in the US during the era of alcohol prohibition, it was the money trail - not heavily armed police tactical units - that brought down leading smuggler Al Capone. Capone hadn't paid his taxes, allowing the financial authorities to pounce.

'I don't think the tax angle is considered as much as it should be,' Manley, the police officer in London, said. 'But if you want to send someone to jail for 20 years, the tax angle won't work.'

Times have changed - a lot - since Capone's days of bootlegging and running numbers in Chicago. And there are plenty of cases where long jail sentences are necessary. However, the worst massacre committed by Capone's gang left just seven dead bodies - while killings of fewer than a dozen people in Mexico barely make the evening news thesedays.

Back in his London office, Woods thinks the Obama administration is paying lip service, rather than attention, to well-financed white-collar criminals. No one from Wachovia went to jail for the largest-ever violation of the US Bank Secrecy Act. If that doesn't shake investigators into serious action, Woods wonders, then what will?

'If [US President] Barack Obama's notion of doing more [about drug money laundering] is a deferred prosecution,' Woods laments, 'then God help the Mexican people.'

Follow Chris Arsenault On Twitter: @AJEchris

Source: Al Jazeera and agencies

People & Power: Drug Money

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