Posts filed under “Credit”

Big Banks = Key Players In the Drug Trade

Big Banks Started Laundering Massive Sums of Drug Money In the 1980s … And Are Still Doing It Today.

It has become mainstream news that at least some of the big banks are  laundering staggering sums of drug money.  See this, this, this, this, this, this and and this.

But you may not know the scope or history of the problem.

Official statistics show that huge sums of drug money are laundered every year:

The United Nations Office on Drugs and Crime (UNODC) conducted a study to determine the magnitude of illicit funds generated by drug trafficking and organised crimes and to investigate to what extent these funds are laundered.  The report estimates that in 2009, criminal proceeds amounted to 3.6% of global GDP, with 2.7%  (or USD 1.6 trillion) being laundered.

This falls within the widely quoted estimate by the International Monetary Fund, who stated in 1998 that the aggregate size of money laundering in the world could be somewhere between two and five percent of the world’s gross domestic product.  Using 1998 statistics, these percentages would indicate that money laundering ranged between USD 590 billion and USD 1.5 trillion. At the time, the lower figure was roughly equivalent to the value of the total output of an economy the size of Spain.

Indeed, the head of the United Nations Office on Drugs and Crime says that drug dealers kept the banking system afloat during the depths of the 2008 financial crisis.

This started a long time ago. For example, Citibank was caught laundering drug money for Mexican cartels in 2001.

In the 1990s, earlier, Citibank apparently set up special client accounts for a big drug dealer:

One of the more infamous cases involving taxpayer bailed-out Citigroup’s ties to money laundering drug cartels emerged in the late 1990s when Raúl Salinas de Gortari, the brother of former Mexican President Carlos Salinas, was arrested after his wife, Paulina Castañón, attempted to withdraw $84 million from a Swiss account controlled by Raúl under an alias.

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According to a 1995 Los Angeles Times report, Salinas “amassed at least $100 million in suspected drug money.”

Switzerland’s top prosecutor at the time, Carla del Ponte, “launched the investigation after the U.S. Drug Enforcement Administration supplied information that led Swiss agents to the accounts in Geneva, where they arrested Raúl Salinas’ wife and her brother on Nov. 15 as the pair attempted to withdraw more than $83 million.”

Del Ponte told the Los Angeles Times that after observing Salinas’ interrogation by Mexican federal prosecutors the sums found in those accounts were “suspected to be from the laundering of money related to narcotics trafficking.”

In 1998, when Swiss prosecutors completed their Salinas investigation, The New York Times disclosed that “Swiss police investigators have concluded that a brother of former President Carlos Salinas de Gortari played a central role in Mexico’s cocaine trade, raking in huge bribes to protect the flow of drugs into the United States.”

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A 1998 report by the General Accounting Office (GAO) pointed a finger directly at Citibank. Investigators revealed that “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.”

With the connivance of bank officials, in 1992 Salinas was able to “effectively disguise” the source of those funds and their destination.

Indeed, with hefty fees secured from assisting their well-connected client Salinas, Citibank “set up an offshore private investment company named Trocca, to hold Mr. Salinas’s assets, through Cititrust (Cayman) and investment accounts in Citibank London and Citibank Switzerland.”

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A 1999 Senate Permanent Subcommittee on Investigations report on “Private Banking and Money Laundering” revealed that “a culture of secrecy pervades the private banking industry.”

“For example,” Senate investigators disclosed, “in the case of Raul Salinas . . . the private bank hid Mr. Salinas’ ownership of Trocca by omitting his name from the Trocca incorporation papers and naming still other shell companies as the shareholders, directors, and officers. Citibank consistently referred to Mr. Salinas in internal bank communications by the code name ‘Confidential Client Number 2′ or ‘CC-2.’ The private bank’s Swiss office opened a special name account for him under the name of ‘Bonaparte’.”

In the 1980s, the Bank of Credit and Commerce International (BCCI) – apparently backed by top CIA officials – laundered drug money.  Time Magazine reported in 1991:

Because the US wanted to supply the Mujahideen rebels in Afghanistan with stinger missiles and other military hardware it needed the full cooperation of Pakistan. By the mid-1980s, the CIA operation in Islamabad was one of the largest US intelligence stations in the World. `If BCCI is such an embarrassment to the US that forthright investigations are not being pursued it has a lot to do with the blind eye the US turned to the heroin trafficking in Pakistan’, said a US intelligence officer.

As Wikipedia notes, Alfred McCoy (Professor of history at the University of Wisconsin-Madison, and one of the world’s top experts on drug trafficking)

[McCoy] uncovered money laundering activities by banks controlled by the CIA, first the Castle Bank which was then replaced by the Nugan Hand Bank, which had as legal counsel William Colby, retired head of the CIA.  He also alludes to the BCCI, which seems to have played the same role as the Nugan Hand Bank after its collapse in the early 1980s, claiming that “the boom in the Pakistan drug trade was financed by BCCI.

Citibank was still laundering Mexican drug money in 2001.

And nothing has changed since then.

The big banks are still laundering staggering sums of drug money.   For example, NPR noted last month:  “Awash in cash, drug cartels rely on big banks to launder money“.

And an HSBC employee who blew the whistle on that banks’ money laundering for terrorists and drug cartels says: “America is losing the drug war because our banks are [still] financing the cartels“, and “Banks financing drug cartels … affects every single American“.

(And see this.)

If you can’t believe that the banks would launder drug money, just take a look at their other crimes.

The Feds are a big part of the problem. After all, they support some ruthless, criminal drug cartels, have repeatedly protected drug smugglers and supported drug producers (update).

Obviously the war on drugs is a total boondoggle.

Category: Bailouts, Credit, Legal, Think Tank

Why Does Everyone Hate Home Ownership ?

U.S. homeownership falls to the lowest levels in almost 20 years, blared the headlines. Lots of articles explained “Why Your Home is Not a Good Investment” and why Americans think owning a home is better for them than it is. It seems that America’s former love affair with real estate is over. Blame the recency…Read More

Category: Credit, Data Analysis, Real Estate

The Liquidity Stress Ratio: Measuring Liquidity Mismatch on Banks’ Balance Sheets Dong Beom Choi and Lily Zhou This post is the fourth in a series of six Liberty Street Economics posts on liquidity issues. Liquidity transformation—funding longer-term assets with short-term liabilities—is one of the main functions that banks provide. However, this liquidity mismatch exposes banks…Read More

Category: Bailouts, Credit, Think Tank

The Refi Boom Is Over

Mortgage lending declined to the lowest level in 14 years as homeowners pulled back sharply from refinancing and house hunters showed little appetite for new loans. Nick Timiraos joins MoneyBeat.

 

 

Category: Credit, Real Estate, Video

Declining Migration Within the U.S.: The Role of the Labor Market

Category: Credit, Employment, Real Estate, Think Tank

Depositor Discipline of Risk-Taking by U.S. Banks

Depositor Discipline of Risk-Taking by U.S. Banks Stavros Peristiani and João Santos Liberty Street Economics April 14, 2014   This post is the second in a series of six Liberty Street Economics posts on liquidity issues. The recent financial crisis caused the largest rise in the number of bank failures since the unprecedented banking crisis…Read More

Category: Credit, Federal Reserve, Regulation, Think Tank

The Mystery of the Missing Home Buyers

This week, the New York Times launched The Upshot, combining aspects of the Washington Post’s Wonkblog with Nate Silver’s 538. Edited by Pulitzer Prize winner and former economics columnist David Leonhardt, we linked to the inaugural piece “America’s Middle Class Is No Longer the World’s Richest.” This morning, I want to direct your attention to…Read More

Category: Credit, Real Estate

To Whom Does the U.S. Government Owe Money?

Over at Political Calculations, they have updated an excellent graphic showing the various folsk Uncle Sam owes money to: click for larger graphic Source: Political Calculations  

Category: Credit, Digital Media, Taxes and Policy

Category: Credit, Think Tank

A New Idea on Bank Capital

A New Idea on Bank Capital Hamid Mehran and Anjan Thakor Liberty Street Economics  April 07, 2014     How does any firm decide on its capital structure—how much equity (capital) to use, how much debt? And what does research tell us about why banks have so much more financial leverage than other firms? How…Read More

Category: Credit, Think Tank