Friday, 20 July 2012


One assumes that bank executives are honorable, while drug lords are criminals; bankers contribute to the economy and society in a positive manner, while drug lords are parasitic, destroyers of human lives and the social fabric; bankers represent the official economy that has the stamp of legitimacy from society, while drug lords represent the underground economy. 

What if owing to the structural weaknesses of the formal economy and the relative strength of the informal economy on a global scale there is a merging of interests between drug lords and bankers, between the formal and informal informal economies where the lines are blurred owing to money laundering operations on a global scale? What if the process of capital accumulation is no different regardless whether the money deposited in banks emanate from pharmaceutical companies or drug lords, does it mean that capital from the legitimate source is not as useful as from the illegal? If this is the case, can regulation prevent the convergence of interests between drug lords and bankers?

This is not to suggest that the average bank employee is corrupt, or that the average bank manager or executive is hardly distinguishable in deeds than a drug lord; any more than it is to suggest that banking has not provided a useful function in the world's economic growth and development in the past six hundred years. The idea here is to raise some questions that governments have been asking and some they dare not ask about the symbiotic relationship between legitimate and illegitimate money in the world of finance. 

True there have been many official reports about narcotics and banks in Florida, Cyprus, Mexico, Central America, Latin America and the Caribbean, just as there had been rumors of mega-banks of HSBC fame dealing in narcotics money laundering. Given that at least 10% of the world's entire GDP is illegitimate money - in some countries that percentage is as high as 30% - how does capital from drug lords corrupt the legitimate business of banking, politics and society?While there are excellent UN, US, and World Bank reports on narcotics and the money flow, it is very difficult to find comprehensive reports that have the road map of narcotics that traces money to large banks like HSBC and even more difficult to trace narcotics to US intelligence agencies working with foreign governments and military - Honduras, for example. By contrast, there is no shortage of reports linking the narcotics trade to any regime on the US enemy list. In short, if it were not for the fact that HSBC was laundering money for "enemy Islamic states", would we know everything about the bank's narcotics laundering operations?

It is interesting that the rise of corrupt banking corresponds with the deepening economic crisis of the political economy and the rise of narcotics trafficking in the last three to four decades. The question is whether drug lords and bankers have assumed roles of inordinate influence in society just at a time that official or formal capitalism is weakening and contraband activity assumes greater significance. As far as protesters across US and European cities are concerned, are bankers not more parasitic and destructive than drug lords? After all, drug lords have influence in Mexico, Central America, Colombia and the Andes, Caribbean, Afghanistan and coastal  West Africa, whereas bankers have a global reach. Are we now at a turning point where government is so much weaker than bankers that state regulation cannot prevail to provide a semblance of legitimacy to the financial sector, even though the links between drug lords and banks have been established for some financial institutions?

From the later Middle Ages to early Renaissance rise of banking houses in Italy until the early 21st century, banking has always had more than its share of mega scandals, especially as its significance in the economy and society has risen. This is in part because banking business deals in the movement of large sums of money deposited and loaned both from and to private and public sectors where the origin of money may not always be as clean as bankers would wish it. However, it is also the fact that so many from the world of banking/finance are in charge of ministries of finance - consider that Goldman Sachs, a company with its share of numerous scandals around the world, manages to have its former executives serving in key US and EU government positions. 

In the 19th century, the Riggs Bank in Washington made it money and reputation both as a lender and exclusive depository for the government. One of the most influential banks in financial and political circles, Riggs was instrumental in the creation of the Federal Reserve and remained a powerhouse of influence until the massive scandals of the 1970s involving the bank's role in handling deposits for Chilean military dictator Pinochet and Saudi Arabian funds used for intelligence operations. FBI discovered that Riggs in the 1970s, like HSCB in the last ten years, had been used as a catalyst to money laundering, terrorist financing, and other illegal activities, all with the full knowledge of politicians, among them the uncle of President George W. Bush serving in executive role at Riggs. In 2004, when the Justice Department fined Riggs for engaging in illegal activities, a number of other banks, including HSBS, Deuchebank, Bank of America, Wells Fargo, ING, CITI, Barclays, to name only a few, were engaged in questionable if not blatantly illegal activities that included everything from money laundering from global narcotics operations to manipulating the rate banks charge each other (Libor) to insider trading and falsifying statistics. 

It is possible that the Frank-Dodd Act of July 2010 may still restore some safe guards into banking so that risks are limited, thought there are those that doubt the new set of regulations will limit the rising power of the banking lobby. Will the new act only protect the big banks and destroy the small ones, and will it be able to prevent scandals that include money laundering operations from drug cartels?

The Reagan and Bush administrations launched the deregulation machinery of banks, thus allowing banks to enjoy wider range of risks in deposits, which included drug money, as well as 'investment products' that included high risk ventures that is reminiscent of the 1920s when the banking system crashed, along with the stock market, taking down with it the entire global economy. 

It is possible that the Frank-Dodd Act (July 2010) may restore some safe guards into banking so that risks are limited, thought there are those that doubt the new set of regulations will limit the rising power of the banking lobby. Will the new act only protect the big banks and destroy the small ones, and will it be able to prevent scandals that include money laundering operations from drug cartels? What does the record show for the past two years? Has Frank-Dodd prevented a 'banking culture' rooted in questionable if not blatantly outright illegal activities? Is the answer nationalized banking system, more regulation, no regulation, including permitting money to flow in and out of banks from any source, including drug cartels, just as long as the bank keeps presenting healthy quarterly reports to investors?

Regardless of regulation, there have been many banking scandals in the last three decades, but one of the largest involves UK-based HSBC, which does business in many countries, including US and Mexico. That the bank was involved in money laundering from drug lords should not surprise anyone, because money laundering operations have been an integral part of the banking business for as long as banks have existed. After all, what is a drug lord to do with all that cash, if not store it somewhere and launder it in the process?

Besides HSBC, ING recently paid a fine of more than $600 million, a good deal lower than what will be imposed on HSBC. There are more banks waiting in the wings to have their story told about their activities with drug cartels and money from 'enemy Islamic sources'. Some may find it absurd that Vatican Bank has been involved in corruption, money laundering, mafia money and other illegal operations, but this too is an old story that makes sense only as a part of the larger question of how we distinguish legitimate from illegitimate money  (good clean Catholic money from bad mafia money) and whether there are illegal influences in the political realm behind the smiling faces of legitimacy, even if the Holy Cross hangs behind the bank executive's desk.

It is not known what amounts illegal drugs generate every year, but estimates are $18-39 billion from the Mexican and Colombian cartels alone, with the US remaining the world's biggest consumer coming in at between 25 and 30% for a population that is roughly 4% of the world. It is also estimated that drug related violence in drug producing and drug-running nations has surged, as a large percentage of the money in circulation comes from the drug trade. Of course the solution does not rest with farmers asked not to raise the high-cash coca crop, any more than the solution is 'just say no to drugs'. Legalization may be a something to consider and there are many articles that make a good case for the manner that legalization may help in some respects, but result in higher drug use. 

While the US wastes millions to fight the drug trade, it cooperates with the military and intelligence in Central America, Caribbean and Bolivarian republics which is deeply involved in the narcotics trade. If the CIA and the Pentagon have a good working relationship with military and intelligence offices in Latin America and Caribbean for security reasons, how can any money spent on fighting the drug trade be effective? How is it possible for the war on drugs to be effective if large world-class banks launder drug money? In short, how can government pursue an official policy against corruption and narcotics, but at the same time have close ties to the officials that make the drug trade possible? How can government have massive public campaigns against drug lords, but not bankers that launder drug money?

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