While cocaine production ravages countries in Central America, consumers in the
US and Europe are helping developed economies grow rich from the profits, a
study claims

The vast profits made from drug production and trafficking are overwhelmingly
reaped in rich “consuming” countries ? principally across Europe and in the US ?
rather than war-torn “producing” nations such as Colombia and Mexico, new
research has revealed. And its authors claim that financial regulators in the
west are reluctant to go after western banks in pursuit of the massive amount of
drug money being laundered through their systems.

The most far-reaching and detailed analysis to date of the drug economy in any
country ? in this case, Colombia ? shows that 2.6% of the total street value of
cocaine produced remains within the country, while a staggering 97.4% of profits
are reaped by criminal syndicates, and laundered by banks, in first-world
consuming countries.

“The story of who makes the money from Colombian cocaine is a metaphor for the
disproportionate burden placed in every way on ‘producing’ nations like Colombia
as a result of the prohibition of drugs,” said one of the authors of the study,
Alejandro Gaviria, launching its English edition last week.

“Colombian society has suffered to almost no economic advantage from the drugs
trade, while huge profits are made by criminal distribution networks in
consuming countries, and recycled by banks which operate with nothing like the
restrictions that Colombia’s own banking system is subject to.”

His co-author, Daniel Mejía, added: “The whole system operated by authorities in
the consuming nations is based around going after the small guy, the weakest
link in the chain, and never the big business or financial systems where the big
money is.”

The work, by the two economists at University of the Andes in Bogotá, is part of
an initiative by the Colombian government to overhaul global drugs policy and
focus on money laundering by the big banks in America and Europe, as well as
social prevention of drug taking and consideration of options for
de-criminalising some or all drugs.

The economists surveyed an entire range of economic, social and political facets
of the drug wars that have ravaged Colombia. The conflict has now shifted, with
deadly consequences, to Mexico and it is feared will spread imminently to
central America. But the most shocking conclusion relates to what the authors
call “the microeconomics of cocaine production” in their country.

Gaviria and Mejía estimate that the lowest possible street value (at $100 per
gram, about £65) of “net cocaine, after interdiction” produced in Colombia
during the year studied (2008) amounts to $300bn. But of that only $7.8bn
remained in the country.

“It is a minuscule proportion of GDP,” said Mejía, “which can impact
disastrously on society and political life, but not on the Colombian economy.
The economy for Colombian cocaine is outside Colombia.”

Mejía told the Observer: “The way I try to put it is this: prohibition is a
transfer of the cost of the drug problem from the consuming to the producing
countries.”

“If countries like Colombia benefitted economically from the drug trade, there
would be a certain sense in it all,” said Gaviria. “Instead, we have paid the
highest price for someone else’s profits ? Colombia until recently, and now Mexico.

“I put it to Americans like this ? suppose all cocaine consumption in the US
disappeared and went to Canada. Would Americans be happy to see the homicide
rates in Seattle skyrocket in order to prevent the cocaine and the money going
to Canada? That way they start to understand for a moment the cost to Colombia
and Mexico.”

The mechanisms of laundering drug money were highlighted in the Observer last
year after a rare settlement in Miami between US federal authorities and the
Wachovia bank, which admitted to transferring $110m of drug money into the US,
but failing to properly monitor a staggering $376bn brought into the bank
through small exchange houses in Mexico over four years. (Wachovia has since
been taken over by Wells Fargo, which has co-operated with the investigation.)

But no one went to jail, and the bank is now in the clear. “Overall, there’s
great reluctance to go after the big money,” said Mejía. “They don’t target
those parts of the chain where there’s a large value added. In Europe and
America the money is dispersed ? once it reaches the consuming country it goes
into the system, in every city and state. They’d rather go after the petty
economy, the small people and coca crops in Colombia, even though the economy is
tiny.”

Colombia’s banks, meanwhile, said Mejía, “are subject to rigorous control, to
stop laundering of profits that may return to our country. Just to bank $2,000
involves a huge amount of paperwork ? and much of this is overseen by Americans.”

“In Colombia,” said Gaviria, “they ask questions of banks they’d never ask in
the US. If they did, it would be against the laws of banking privacy. In the US
you have very strong laws on bank secrecy, in Colombia not ? though the
proportion of laundered money is the other way round. It’s kind of hypocrisy,
right?”

Dr Mejia said: “It’s an extension of the way they operate at home. Go after the
lower classes, the weak link in the chain ? the little guy, to show results.
Again, transferring the cost of the drug war on to the poorest, but not the
financial system and the big business that moves all this along.”

With Britain having overtaken the US and Spain as the world’s biggest consumer
of cocaine per capita, the Wachovia investigation showed much of the drug money
is also laundered through the City of London, where the principal Wachovia
whistleblower, Martin Woods, was based in the bank’s anti-laundering office. He
was wrongfully dismissed after sounding the alarm.

Gaviria said: “We know that authorities in the US and UK know far more than they
act upon. The authorities realise things about certain people they think are
moving money for the drug trade ? but the DEA [US Drugs Enforcement
Administration] only acts on a fraction of what it knows.”

“It’s taboo to go after the big banks,” added Mejía. “It’s political suicide in
this economic climate, because the amounts of money recycled are so high.”

Anti-Drugs Policies In Colombia: Successes, Failures And Wrong Turns, edited by
Alejandro Gaviria and Daniel Mejía, Ediciones Uniandes, 2011

The Guardian, 02.06.2012

http://www.guardian.co.uk/world/2012/jun/02/western-banks-colombian-cocaine-trade