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

Washington’s Blog
May 2, 2014

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

Image: HSBC (Wiki Commons).

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.

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Awash In Cash, Drug Cartels Rely On Big Banks To Launder Profits

by JOHN BURNETT

March 20, 2014 3:39 PM ET

 

A woman uses a cash machine at an HSBC bank office in Mexico City. The multi-national bank was heavily penalized several years ago for permitting huge transfers of drug cartel money between Mexico and the U.S.

A woman uses a cash machine at an HSBC bank office in Mexico City. The multi-national bank was heavily penalized several years ago for permitting huge transfers of drug cartel money between Mexico and the U.S.

Enric Marti/AP

The Sinaloa Cartel, headquartered on Mexico’s northern Pacific Coast, is constantly exploring new ways to launder its gargantuan profits. The State Department reports that Mexican trafficking organizations earn between $19 and $29 billion every year from selling marijuana, cocaine, heroin and methamphetamines on the streets of American cities.

And Sinaloa is reportedly the richest, most powerful of them all, according to the Drug Enforcement Administration. The capture last month of the Mexican druglord Joaquin "Chapo" Guzman has cast a spotlight on the smuggling empire he built.

One key to the Sinaloa Cartel’s success has been to use the global banking system to launder all this cash.

"It’s very important for them to get that money into the banking system and do so with as little scrutiny as possible," says Jim Hayes, special agent in charge of Homeland Security Investigations for the New York office of Immigration and Customs Enforcement, or ICE. He was lead agent in the 2012 case that revealed how Sinaloa money men used HSBC, one of the world’s largest banks, as their private vault.

ICE says in 2007 and 2008, the Sinaloa Cartel and a Colombian cartel wire-transferred $881 million in illegal drug proceeds into U.S. accounts.

Huge Daily Deposits

According to a subsequent investigation by the U.S. Senate Permanent Subcommittee on Investigations, cartel operatives would sometimes deposit hundreds of thousands of dollars in cash in a single day using boxes designed to fit the exact dimensions of the teller’s window at HSBC branches in Mexico.

The bank ignored basic anti-money laundering controls, as the investigation found. In 2007 and 2008, the bank’s personnel in Mexico wired $7 billion dollars to corresponding U.S. dollar accounts in New York. These were more dollars than even larger Mexican banks wired to U.S. accounts. ICE says some of it was drug proceeds.

Yet no red flags were raised because of what a bank official later described as, a "lack of a compliance culture" in the Mexico affiliate, according to the Senate report.

Moreover, the dollar transfers earned HSBC hefty fees. The Senate investigation quoted an HSBC email lamenting how the bank would lose $2.6 billion in revenue from U.S. dollar accounts that it was forced to close because of the Mexico fiasco.

"When I was told that there could be in the billions of dollars being moved through these accounts, it was very difficult to believe," says senior ICE agent Jim Hayes. "A lot of people have asked, ‘Was this complicit?’ We don’t believe that they (HSBC personnel) knew for certain that the money being moved was drug money, but they should have known."

A Simple Plan

In Culiacán, the prosperous capital of Sinaloa, where people live cheek by jowl with the cartel, even they were shocked that narco-dollars could be laundered so brazenly.

"You see the building, the office, the cars, the papers, the men in suits. Everything looks legal. That’s what frightens us," says Javier Valdez, an author and journalist in Culiacan who writes about narcotrafficking.

"The DEA loves to sell the idea that these guys are super sophisticated criminal masterminds," says Alejandro Hope, a security analyst in Mexico City and a former federal intelligence agent. "It’s so simple. It’s so unsophisticated. That is what to me is the most disturbing part of this. These guys are not even trying that hard."

The consequences for ignoring the torrent of dirty money flowing into its Mexico bank vaults were severe for HSBC.

The Department of Justice levied penalties and forfeitures of $1.9 billion on the bank. Of course, with $2.6 trillion in assets, for HSBC this represented a man with a hundred dollars in his pocket paying a fine of seven cents. HSBC was also faulted for hiding prohibited transactions with nations like Iran and Cuba.

The bank emailed a statement to NPR:

"HSBC has made progress in remediating anti-money laundering sanctions compliance deficiencies. But we recognize that protecting against financial crime is an ongoing journey and we have much more to do. Since 2011, we have implemented reforms and new controls, enhanced our monitoring systems, and strengthened and expanded our global financial crime and compliance organization. For example, the number of fulltime employees in financial crime and regulatory compliance is up 54 percent between 2012 and 2013."

ICE agent Jim Hayes says fallout from the HSBC case continues.

"We think this forfeiture is significant enough to make other banks to look and make sure they’re in compliance," he says.

Banks Still Vulnerable

In the wake of HSBC, other banks boosted their anti-money laundering budgets, increased know-your-customer rules, and in some cases dumped high-risk clients.

Which might make you think, well, now they’ve got money laundering under control.

"Despite all of the efforts, banks are still vulnerable to money laundering and it’s kind of an age-old thing," says Kieran Beer, editor of the news website of the Association of Certified Anti-Money Laundering Specialists.

"The drug trade is overwhelming in terms of how that money finds paths—like water — to come into the global financial system," Beer continues.

HSBC wasn’t the first or last bank money-laundering scandal.

In 2010, prosecutors detailed how Wachovia Bank had been used by Mexican currency exchange houses to launder at least $110 million in drug profits.

In 2012, The Wall Street Journal reported on an FBI affidavit that laid out how the Zetas Cartel used Bank of America to launder cash through a racehorse operation in Texas.

And last month, Western Union agreed to do more to beef up vulnerabilities in its money transfer business along the southwest border.

Back in Culiacán, and throughout Mexico, currency exchange houses operate under strict new rules that are supposed to limit the size of dollar transactions, investigators are watching to see what the narcos next money-laundering ploy will be.

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