Espada and Baker: Time to disrupt money behind drug cartels
By Rafael Espada and Raymond Baker Guest Commentary September 21, 2012 8:04PM
Otto Perez Molina, president of Guatemala, is one of several Latin American leaders who has proposed legalizing aspects of the drug trade, believing that the existing plan in the war on drugs is not working. | File photo
Updated: October 24, 2012 6:03AM
Several Latin American leaders have proposed legalizing aspects of the drug trade in recent months, acknowledging that the current strategy in the war on drugs is not working. They are correct in highlighting the flaws in the traditional anti-drug fight, but do we really need to wave the white flag? Or do alternative approaches exist to curtail the illicit drug trade?
The United Nations Office on Drugs and Crime in Vienna, Austria estimates that globally more than 40 percent of cocaine is seized somewhere between production and consumption. It also estimates, however, that less than one-half of 1 percent of laundered criminal money is interdicted worldwide.
For too long, the focus of the U.S. Drug Enforcement Administration and other law enforcement agencies has been on drug arrests and seizures, while remarkably little has been done to stop the money financing these illegal operations. We’ve been battling the symptoms without really addressing the underlying cause. Curtail the money behind drug smuggling, and we will curtail the crime itself.
The United States has proven its ability to quickly and decisively tackle illicit financing when it puts its mind to it. After Sept. 11, 2001, the USA Patriot Act included considerably stronger anti-money laundering legislation. For example, the law prohibited shell banks, and any banks doing business with shell banks, from operating within the U.S.
This and other measures made it more difficult for terrorist financing to circulate in the legitimate financial system. Consequently, executing large-scale terrorist attacks has become much more difficult. We can do the same with drug money; it’s simply a matter of political will.
Much of the profit realized by illegal drug rings in the United States makes its way back into Mexico as cash and is then smuggled through to Guatemala, El Salvador and Panama. It gets deposited in local banks, which then ship the U.S. dollars back to the United States.
Knowing which of these Central American banks accept large deposits of U.S. currency would be a critical tool for Central American and U.S. law enforcement — helping them track the drug cartels and crack down on their financing. But private commercial banks load the U.S. currency onto airplanes and fly the cash directly to the United States, usually without informing their central bank or law enforcement where they got the money.
Global Financial Integrity and other organizations have proposed requiring banks in Central America to route these cash transfers through their nation’s central bank, which would relay the money to the destination bank in the United States. That would allow a nation’s central bank to track the magnitude of the problem and know from which banks the money originates.
It’s a proposal that has received honest consideration in Central America but has not been implemented due to opposition from the U.S. government. Why would the U.S. oppose this idea? Surely America would benefit significantly from the trove of drug cartel financial data that would result from such an arrangement.
Moreover, there are few places in the world where it’s easier to open an anonymous shell corporation than the United States. These corporate fronts make it difficult, if not impossible, for U.S. and foreign law enforcement to track the finances of the world’s largest drug cartels. They grant the cartels and other financial criminals impunity through anonymity.
A bipartisan law, introduced into the U.S. Senate and House last fall, would give federal authorities access to ownership information for these shells and assist in ostracizing drug cartels from the legitimate financial system.
Still, even when tough anti-money laundering rules are in place, it’s extremely important that financial regulators be fully funded and provided the resources to ensure that banks comply with the law. Citibank, HSBC and Wachovia have been in the news for allegedly failing to comply with U.S. anti-money laundering regulations.
Further, a recent study conducted by the British government found that three quarters of British banks were not adequately complying with anti-money laundering rules. There’s no reason to believe the situation is any different at American banks. Ever-shrinking budgets for understaffed financial watchdogs in the U.S. have real consequences — a money-laundering Wild West being one of them.
Federal law also must ensure that bankers found to be complicit in the laundering of drug money should receive jail time. Merely fining financial institutions is not enough.
As we did with terrorists a decade ago, the United States has the ability to deliver a crippling blow to drug smugglers by restricting the money that fuels their business. Before we consider legalizing drugs, and instead of perpetuating the costly whack-a-mole model of drug busts and seizures, let’s pull the rug out from under the narcotics industry. We can do it if there is political will.
Rafael Espada recently completed a four-year term as vice president of Guatemala.
Raymond Baker is the director of Global Financial Integrity, a research and advocacy organization in Washington, D.C.