UN Drug Chief Says Black Market Drug Profits Propped Up Global Banking System Last Year
Profits from the global illicit drug trade helped keep the international banking system afloat during the crisis that swept the global financial system during the second half of last year, the UN's leading drug fighter said in an interview with the Austrian magazine Profil, which was made available Sunday. Drug money was almost the only available capital for banks, said Antonio Maria Costa, executive director of the UN Office on Drugs and Crime (UNODC).
Costa's remarks came as the Profil interviewer questioned him about the size of the global drug market. "If you look at agriculture markets, it is the most important," Costa replied. "According to our calculations, the wholesale value of illegal drugs is more than $90 billion, in the range of world meat and grain trade. The street trade, we assess at a volume of over $320 billion."
While profits from the illicit drug trade fund political violence by the likes of the Taliban or Colombia's leftist FARC insurgents and rightist paramilitaries, they are also finding their way into the coffers of the world banking system at a critical time, Costa said. The drug business is one of the few global growth industries right now, he noted.
"The drug trade at this time could be the only growth industry, with little unemployment," Costa explained. "The money that is being made is flowing only partly back into illegal activities, in parts of Asia, Africa, and South America, where it is used to bribe politicians, buy elections, or finance insurgents, such as the Talibans in Afghanistan, the Tamil Tigers of Sri Lanka, or the FARC in Colombia, for example."
The rest of the profit, Costa said, "is fed into the legal economic circulation through money laundering. We do not know how much, but the volume is imposing. As such, seen from the macroeconomic effect, this is simply bringing in investment capital. There are indications that these funds also ended up in the finance sector, which has been under obvious pressure since the second half of last year. In many instances, drug money is currently the only liquid investment capital, to buy real estate, for example," Costa continued. "In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor."
When pressed on just how this was accomplished, Costa responded: "It appears that interbank credits have been financed by money which comes from the drug trade and other illegal activities. It is naturally hard to prove this, but there are indications that a number of banks were rescued by this means."
Costa noted that money laundering controls put in place to stop drug trafficking have "ironically" resulted in drug traffickers sitting on large stashes of cash -- the ultimate liquid financial instrument. "To get around the electronic surveillance of bank transactions, now criminals stash their funds in cash sums which can be up to hundreds of millions of dollars. This is the way they try to hold these funds liquid."
There go those drug dealers propping up the global economy.
Drug War Chronicle