International Cooperation in the Fight Against Money Laundering
| Pages | 212-216 |
| DOI | https://doi.org/10.1108/eb026019 |
| Published date | 01 March 2002 |
| Date | 01 March 2002 |
| Author | Edward H. Jurith |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 9 No. 3
International Cooperation in the Fight
Against Money Laundering
Edward H. Jurith
The USA has had many infamous criminals. Willie
Sutton, one of the more notorious ones, allegedly
stated that he robbed banks 'because that's where
the money is'. His logic is easy to follow. Today's
criminals, like Sutton, also seek to profit from lucra-
tive activities. That is why they are involved in drug
trafficking and other high pay-off
crimes.
Given that
the author's responsibilities as the Acting Director of
the US Office of National Drug Control Policy have
to do with illegal drugs, these remarks will focus on
the money laundering aspects of drug trafficking.
US law enforcement agencies follow a maxim
similar to Sutton's credo — 'follow the money'.
Drug trafficking generates some S60bn in retail sales
each year in the USA. By going after traffickers'
profits, we go after their single most valuable com-
modity. Cocaine is essentially worthless until it
reaches retail markets in Europe or North America.
Huge mark-ups in the drug's price as it moves from
South America through the transit zone and to mar-
kets in consuming nations attest to this reality. Inter-
dicting drugs is a useful and essential function.
However, taking money from traffickers and pre-
venting them from enjoying the fruits of their illicit
labour can be even more effective.
Moving this volume of cash poses significant logis-
tical challenges for traffickers. Large amounts of cash
are difficult to transport compared to drugs. $1m
worth of heroin weighs just 22 lbs, whereas $1m in
equal amounts of $5, $10 and $20 notes weighs
271 lbs. That is more than ten times the weight of
the drugs sold. Attorney General John Ashcroft
recently estimated that the amount of 'dirty' money
generated by illegal drug sales in the USA would
weigh 13 million lbs. As he pointed out, this is a
burden for criminals and an opportunity for law
enforcement.
Obviously, the international criminal organisa-
tions that move billions of dollars worth of drugs
around the world do not want to deal with the pro-
blems associated of smuggling enormous quantities of
high-volume, high-density cash. Instead they seek to
disguise their weighty ill-gotten gains as quickly as
possible through money laundering. This criminal
activity needs to be taken more seriously. It is not a
white-collar crime committed by otherwise innocent
accountants and financiers. Money laundering threa-
tens the integrity of financial institution. It is also the
life-blood of violent criminal and terrorist enterprises
— it is an essential activity for organised crime. One
recent estimate put worldwide money laundering
activity at roughly $1trn a year; a large percentage
is clearly the proceeds of drug trafficking.
THE BLACK MARKET PESO
EXCHANGE
The central importance of money laundering to drug
trafficking is illustrated by the example of the
so-called Colombian black market peso exchange
(BMPE), as efforts to legitimise cash by Colombian
drug cartels are called. To avoid detection, the cartels
have developed a number of money laundering
systems that subvert financial transaction reporting
requirements and manipulate facets of the economy
unrelated to the traditional financial services industry.
The system works as follows. Colombian cartels
export narcotics to the USA where they are sold
for US dollars. In Colombia, the cartels contact a
third party — a peso broker — to launder their
drug money. The peso broker enters into a 'contract'
with the Colombian cartel, wherein he agrees to
exchange pesos he controls in Colombia for US
dollars the cartel controls in the USA. Once this
exchange occurs, the cartel has effectively laundered
its money and is out of the BMPE process. The
peso broker, on the other hand, must now launder
the US dollars he has accumulated in the USA.
The peso broker uses contacts in the USA to place
the drug dollars he purchased from the cartel into the
US banking system. The peso broker, still operating
in Colombia, now has a pool of narcotics-derived
funds in the USA to 'sell' to legitimate Colombian
importers, who have incurred debt from interna-
tional trade. The Colombian importers use the facil-
ities of the peso brokers to make payments to
manufacturers and commodity wholesalers through-
out the world.
Journal of Financial Crime
Vol.
9,
No.
3,
2002,
pp.
212-216
© Henry Stewart Publications
ISSN 1359-0790
Page 212
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