Drug money saved banks in global crisis

November 17, 2010

Today I heard from Walkley Award winning journalist Colm McNaughton who was talking about the terrible violence in Mexico perpetrated by the narcotics cartels.

The Los Zetas cartel (made up of former military and police) is one of the most brutal drug syndicates in Mexico, responsible for "hackings" and beheadings, amongst other atrocities.

His talk was very interesting, and I particularly found interesting his insights into the underground organising efforts of unions in the northern region of Mexico along the border with the USA. McNaughton made the case that the North American Free Trade Agreement (NAFTA) has exacerbated the deep social trauma that underlies the history of Mexico:

Increasing levels of poverty (more than 50 per cent of Mexicans live on less than two US dollars a day) and the massive migration northwards that plagues Mexican society, are a direct consequence of widespread job losses and destruction of certain markets and industries.

This free trade zone has created enormous transport routes from Asia to the USA – half of all of the goods from Asia (China and Japan) – which in turn creates the routes for drugs trafficking to the US. The border cities of Mexico have not only been impacted by the growth in industry but the narco cartels have moved in, effectively operating as private militias. According to McNaughton, recent reports indicate that not only are the cartels the largest economic sector in Mexico (worth $40-50 billion), but only around 20% of their activities are drug trafficking.

What’s more, due to a legal loophole in the US, which “states that if the crime was not committed in the US then the banks can facilitate the movement and investment of vast sums of ‘illegal’ money.”

This view is supported by the head of the UN Office on Drugs and Crime:

Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were “the only liquid investment capital” available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.

… “Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities… There were signs that some banks were rescued that way.”

“That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was,” he said.

In Australia, recent drug busts involved drugs sourced from Mexican narco cartels. While the cartel in question – the Sinaloa cartel – is not one of the especially brutal ones – like the Los Zetas who have taken brutality to a whole new level – it does show how pervasive these cartels are. It not only demonstrates how international these cartels are, but how they are integrated into global capitalism, using its distribution channels to sell its drugs and its banking system to launder its money.

It is pretty worrying stuff. In terms of murders per year, it is as bad or worse than most civil wars, except with a global dimension.

Addendum

Not only is the narco trade funding our banks, but it is also funding Middle Eastern insurgency.


Comments

  1. Josh C - November 18, 2010 at 10:03 pm -

    Interesting as always Alex. And depressing. Eventually you will give me an unadulterated "good news" story to read I'm sure.

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