Financial Corruption

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Editorial: Sometimes a Drug Warrior is a Little Too Honest

David Borden, Executive Director

https://stopthedrugwar.org/files/borden12.jpg
David Borden
The drug war is intellectually slippery business -- it's impossible to talk straight and effectively defend it. But sometimes a drug warrior is a little too honest.

That was the case this week when an interview with UN anti-drug chief Antonio Maria Costa was published in an Austrian magazine, in which Costa claims black market drug profits propped up the global banking system in 2008. That is, some banks that have survived would have failed, or might have, were it not for drug money laundered into the financial system.

This seems like a bold claim. But it makes sense -- drug money has to go somewhere -- and Costa isn't some local police chief exaggerating the value of a drug seizure to get headlines, he's an economist. The UN isn't always a reliable reporter of the drug situation, but it's worth something. I don't think there's a strong reason for Costa to want to make something like that up.

If the drug trade has saved the financial system, then, or helped to, this requires an evolution of thought. We're accustomed to regarding drugs and drug selling as bad things, but like everything they have their upside. Suppose the drug war magically started to work and the trade were wiped out, or people suddenly stopped using drugs. What would happen to the economy? What would happen to countries like Afghanistan or Colombia or Mexico where a lot of the money being made is in drugs and a lot of people are dependent on that money? Or in some sectors of US society, for that matter?

It would be a catastrophe. Eventually economies would rearrange themselves, to be sure. But the sudden implosion of a large sector of the economy would wreak havoc, not just on the people making a living in the drug trade now, but on the local, national and global economies of which they are a part.

Drug users and even sellers, then, are an integral part of human society -- the larger economic weal depends in part on theirs -- and so our evolution of thought should be about people too, not just economics. We need our drug users, and even our drug sellers, for the most part -- not because they use or sell drugs, but because they're here and we're connected to them, for better or worse.

And if we need them, if in a somewhat flawed way they contribute to the economy on which all of us depend, then they also don't deserve to be persecuted, jailed, have their rights taken away and their lives scarred. If a participant in the drug trade engages in violence, that is one thing; but if a person's only "crime" is a drug offense, it's another.

Along with tolerating these members of society who are now persecuted, we should not ignore the corrupting effects that this situation of money laundering and drug money -- this situation created by prohibition -- can have. With care and planning, we should chart a path away from prohibition, to some form of global legalization instead. Only then will the flood of illegal drug money be stemmed, and the suffering prohibition has caused to individuals and society alike be addressed.

Mexican Drug War Scaring Off Investors

Further evidence that the Mexican drug war is making progress…in the exact wrong direction:

MONTERREY, Mexico, Nov 11 (Reuters) - Companies in Mexico are scrapping plans to float shares on the stock exchange for fear of raising their profile amid a brutal drug war and a surge in kidnappings, the bourse president said on Tuesday.

Stock exchange President Guillermo Prieto said that aside from market volatility in the past two months due to the global financial crisis, crime was a major issue for firms thinking about initial public offerings (IPOs).

Going public to raise funds for expansion requires far greater company disclosure and a higher public profile for company executives who go on roadshows to attract investors.

This is a whole new level of economic disruption, as the drug war begins to chip away at financial institutions. If this kind of thing continues, there’s no limit to how far-reaching the damage could become.

Violence and corruption are just the first symptoms of the disease of drug prohibition. If left untreated, the sickness spreads throughout every social institution, weakening anything it touches.

Feature: Afghan Opium Production Declines Slightly From Record Levels

With the West's occupation of Afghanistan now nearing the seven-year mark and plagued by an increasingly powerful and deadly insurgency revitalized by massive profits from the opium trade, Western officials gained some small solace this week when the United Nations announced that opium production there had declined slightly from last year's record level. But the small decline comes as the Taliban and related insurgents are strengthening their grip on precisely those areas where opium cultivation is highest, and the light at the end of the tunnel is, at best, only a distant glimmer.

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2008 Afghan opium cultivation chart from the UN report
According to the UN Office on Drugs and Crime (UNODC) Afghanistan Opium Survey 2008, released Tuesday, total Afghan opium production this year will be 7,500 metric tons, down 6% from last year's all-time record of 8,200 tons. Also, according to the survey, the amount of land devoted to opium production declined 19%. The UN said the total crop had decreased by a smaller number than the amount of land because farmers in key opium-producing provinces were producing bumper crops.

The UN attributed the decline in production to drought conditions and the efforts of a small number of Afghan governors and tribal and religious leaders to persuade farmers to give up the illicit crop. It also crowed that the number of opium-free provinces in the country had risen from 13 to 18, although it failed to mention that farmers in those provinces had, in many cases, merely switched from growing poppies to growing cannabis.

This year, almost all opium cultivation -- about 98% -- is now concentrated in seven provinces in south-west Afghanistan that house permanent Taliban settlements and are home to related trafficking groups that pay taxes to various Taliban factions on their opium transactions. The Taliban is making between $200 and $400 million a year off taxing poppy farmers and traders, Costa said earlier this year. In the report, Costa referred to Helmand province, one of the most Taliban-dominated in the country. "The most glaring example is Helmand province, where 103,000 hectares of opium were cultivated this year -- two thirds of all opium in Afghanistan," Costa wrote. "If Helmand were a country, it would once again be the world's biggest producer of illicit drugs."

The UN said that manual eradication played almost no role in the decline, affecting only about 3% of the crop. What manual eradication did accomplish was the deaths of some 77 anti-drug workers and police at the hands of insurgents and angry farmers. On Wednesday, Costa told Afghan President Hamid Karzai that he should abandon manual eradication as useless and even counter-productive.

While Afghan poppy production is down slightly, it still surpasses global demand for its illicit end products. And after several years of crops greater than global demand, it is likely that Afghan traders are sitting on huge stockpiles of opium, so even if production were to be slashed substantially, it would cause no significant disruption in the global markets for opium and heroin.

Still, with the war news from Afghanistan seemingly growing worse by the day, UN and Western officials were eager to jump on any good news they could find. "The opium flood waters in Afghanistan have started to recede," Antonio Maria Costa, the executive director of the Vienna-based UNODC, wrote in the report. "This year, the historic high-water mark of 193,000 hectares of opium cultivated in 2007 has dropped by 19 percent to 157,000 hectares."

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Chronicle editor Phil Smith interviewed former opium-growing Afghan farmers outside Jalalabad in fall 2005
The Bush administration welcomed the report, saying it provided vindication for its much-criticized anti-drug policies in the country. But a State Department spokesman told the Washington Post, "the drug threat in Afghanistan remains unacceptably high. We are particularly concerned by the deterioration in security conditions in the south, where the insurgency dominates."

The US Agency for International Development (USAID), in charge of efforts to provide alternative development for farmers as part of the broader US counter-drug and counter-insurgency strategy, also looked for the silver lining in the storm clouds over Afghanistan. Its efforts are "paying off for Afghanistan in the war against poppy production," it said in a press release Tuesday.

The British foreign office also joined the chorus, with FCO Minister Lord Malloch-Brown releasing a statement welcoming the report's findings. "This shows that the Afghan government's Drug Control Strategy is starting to pay dividends," he said.

Still, Malloch-Brown warned there is a long way to go. "However, there is no room for complacency," he said. "Afghanistan is still the world's biggest supplier of heroin. High cultivation levels are concentrated in the unstable south, where we are working with the government of Afghanistan, local governors, and international partners to build security and governance."

Other, non-governmental observers were much less sanguine about what the slight decline in opium production signified. "I don't think there has been any real progress made at all," said Raheem Yaseer, assistant director of the University of Nebraska-Omaha Center for Afghanistan Studies. "But there has been so much money and pressure invested that they feel they have to justify their efforts. It's true that cultivation has ended in some provinces, but other areas are compensating for that."

A large part of the problem is that too many important players are involved and profiting from the trade, said Yaseer. "There are lots of strong, powerful people involved -- influential people in the Afghan government, governors, parliamentarians, provincial police commanders -- and unless they are suppressed, nothing will change. There is lots of concern expressed, but the business is hot and everyone is making money," he said.

Yaseer also pointed to the increasing ability of insurgents to wreak havoc. "Security is horrible, it's getting worse and worse precisely in those growing areas, and where the security gets worse, there are more opportunities for the drug business," he said. "Everyone takes advantage of the lack of security and the chaos."

The UNODC reports provides only "false hope," said the Senlis Council, the Paris-based drugs and security nonprofit that has long proposed buying up illicit poppy crops and diverting them into the licit medicinal market as a means of getting a handle on illicit production and the support for political violence it provides.

"Opium is the cancer destroying the south of Afghanistan," said Emmanuel Reinert, the group's executive director in a Wednesday statement. "Current counter-narcotics policies are failing to address the loss of the southern provinces to the dual scourges of poppy production and terrorism."

The decrease in poppy cultivation will have a minimal effect on the drugs trade, given the exponential growth in opium production since 2002. "This decrease is no more than a ripple in the ocean," Reinert added. "Without an urgent change of direction in the country's counter-narcotics policies, the international community will be unable to prevent the consolidation of opium production in the south of the country, and the consolidation of the Taliban which is financed by the illegal drugs trade."

Instead of pushing farmers into the waiting arms of the Taliban and related insurgent groups by pursuing crop eradication, the West and the Afghan government should revisit the Senlis proposal, which was rejected out of hand when introduced in 2005, said Senlis policy analyst Gabrielle Archer. "It is clear that a long-term, sustainable solution is required to solve Afghanistan's opium crisis -- and prevent the insurgency's funding by illegal cultivation," she said. "Poppy for Medicine would allow farmers to diversify their crops, and give Afghanistan an opportunity to be part of a legal pharmaceutical industry. We need the Afghan people on our side if we are to be successful there, and this initiative could go a long way to winning back much-needed hearts and minds, which would be highly beneficial for our troops fighting there."

The hearts and minds of the Afghan population are turning increasingly against the West and the country's occupation by foreign troops, warned Yaseer, ticking off a seemingly endless series of incidents where Afghan civilians have been killed by coalition forces, the most recent being the reported deaths of 90 civilians -- 60 of them children -- in a NATO bombing raid last week. That raid prompted Afghan President Hamid Karzai to call this week for a reevaluation of the foreign military presence in his country.

"Everyday there are new uproars in parliament and local councils," said Yaseer. "They say there is no difference between the Soviets and the coalition forces. They bombard whole villages in the middle of the night because they hear four or five Taliban are there. These killings keep happening all the time, and people are fed up with it. This is all developing very rapidly now. 'Why did you bring this war to Afghanistan?' the people ask. The gap between the people and the government is growing larger every day," Yaseer said.

With coalition military casualties on the rise, the Taliban grown fat off opium profits and ever more aggressive, and growing hostility to the West in the Afghan population, a minor down-turn in opium production doesn't look so impressive.

Drug Cops Shouldn’t be Paid With Confiscated Drug Money, But They Are

A disturbing report from NPR illustrates that many police departments have become dependent on confiscated drug proceeds in order to fund their anti-drug operations:

Every year, about $12 billion in drug profits returns to Mexico from the world's largest narcotics market — the United States. As a tactic in the war on drugs, law enforcement pursues that drug money and is then allowed to keep a portion as an incentive to fight crime.


Federal and state rules governing asset forfeiture explicitly discourage law enforcement agencies from supplementing their budgets with seized drug money or allowing the prospect of those funds to influence law enforcement decisions.

There is a law enforcement culture — particularly in the South — in which police agencies have grown, in the words of one state senator from South Texas, "addicted to drug money."

Just pause for a second and think about the implications of a drug war that funds itself with dirty money. It is just laughable to think that such conditions could exist without inviting routine corruption, from our disgraceful forfeiture laws to the habitual thefts and misconduct that occur with such frequency that we're able to publish a weekly column dedicated to them.

It is truly symbolic of the drug war's inherent hopelessness that illicit drug proceeds are needed in order to subsidize narcotics operations. If we ever actually succeeded at shrinking the drug market, we'd be defunding law-enforcement! Progress is rather obviously impossible under such circumstances.

Drug enforcement is a job like any other, and police have mouths to feed, bills to pay, maybe a little alimony here or there. So they take their paycheck and sign out; I don’t blame anyone for that in and of itself. But consider that law-enforcement operations artificially inflate the value of drugs, only to then hunt down those same proceeds, collect, and redistribute them within the police department. Morally, is that any better than the dealer who pushes dope to put food on the table?

Really, a structure such as this is not designed to achieve forward momentum towards reducing drug abuse. It's the law-enforcement equivalent of subsistence farming and it ought to warrant income substitution programs not unlike those we push on the peasants of Colombia and Afghanistan. All of this lends substantial credence to the popular conception that "the drug war was meant to be waged, not won."

Each day that the drug war rages on, its finely tuned mechanisms become more effective at sustaining itself and less effective at addressing the issues of drug abuse and public safety that supposedly justify these policies in the first place.

American Express Coughs Up $55-$65 Million For Drug-Related Forfeiture

[Courtesy of DEA] News Release FOR IMMEDIATE RELEASE August 6, 2007 American Express Bank International Enters Into Deferred Prosecution Agreement And Forfeits $55 Million To Resolve Bank Secrecy Act Violations AUG 6 -- WASHINGTON ­ Miami-based American Express Bank International has entered into a deferred prosecution agreement on charges of failing to maintain an effective anti-money laundering program and will forfeit $55 million to the U.S. government, Assistant Attorney General Alice S. Fisher of the Criminal Division and U.S. Drug Enforcement Administration Administrator Karen Tandy announced today. A criminal information filed today at the U.S. District Court for the Southern District of Florida in Miami charges American Express Bank International with one count of failing to maintain an effective anti-money laundering program. American Express Bank International waived indictment, agreed to the filing of the information, and accepted and acknowledged responsibility for its behavior in a factual statement accompanying the information. The company will pay $55 million to the United States to settle forfeiture claims held by the government. In light of the bank¹s remedial actions to date and its willingness to acknowledge responsibility for its actions, the government will recommend the dismissal of the charge in 12 months, provided the bank fully implements significant anti-money laundering measures required by the agreement. ³Banks and other financial institutions must uphold their responsibility to safeguard financial markets from the illegal activities of international drug cartels and professional money launderers,² said Assistant Attorney General Alice S. Fisher of the Criminal Division. ³An effective anti-money laundering program is critical to law enforcement efforts to detect and cut off the flow of drug money. The Department of Justice will continue to work to stop financial institutions from knowingly disregarding their obligations to have these vital programs in place.² ³Today an established and respected financial institution learned a valuable lesson about its legal responsibilities. American Express and all legitimate banking organizations must take every step possible to avoid becoming entangled in the web of international drug money laundering,² said DEA Administrator Karen P. Tandy. ³Today the message is loud and clear: due diligence-don't take money without it.² The Financial Crimes Enforcement Network (FinCEN) has also assessed a $25 million civil money penalty against the company for violations of the Bank Secrecy Act, and the Board of Governors of the Federal Reserve has assessed a $20 million civil money penalty. The $20 million Federal Reserve penalty and $15 million of FinCEN¹s $25 million penalty will be deemed satisfied by the payment of the $55 million forfeiture, resulting in total payments of $65 million by American Express Bank International under these settlements. Under the Bank Secrecy Act, banks are required to establish and maintain an anti-money laundering compliance program that, at a minimum, provides for: (a) internal policies, procedures and controls designed to guard against money laundering; (b) the coordination and monitoring of day-to-day compliance with the Bank Secrecy Act; (c) an ongoing employee training program; and (d) independent testing for compliance conducted by bank personnel or an outside party. Banks are also required to have comprehensive anti-money laundering programs that enable them to identify and report suspicious financial transactions to the U.S. Treasury Department¹s Financial Crimes Enforcement Network. The case was prosecuted by Trial Attorneys John W. Sellers and Thomas Pinder of the Criminal Division¹s Asset Forfeiture and Money Laundering Section, which is headed by Chief Richard Weber. This case was investigated by the Drug Enforcement Administration¹s Miami Field Division, Fort Lauderdale District Office.
Location: 
Washington, DC
United States

U.S. Targets Mexican Companies In Drug War

Location: 
Mexico City
Mexico
Publication/Source: 
CBS News
URL: 
http://www.cbsnews.com/stories/2007/05/17/world/main2822280.shtml

Money Laundering

This "Prohibition in the Media" post is not tied to a particular article. If you do a Google News search on "drug money laundering," you'll get a list of over 1,400 articles. These are only the ones that the news outlets still have online -- the global financial system is virtually "awash" in illicitly-generated revenues, much of it from the drug trade. Of course, it has to be that way under prohibition -- because we've made drugs illegal, all the money that people spend on them goes into the criminal underground. That's hundreds of billions of dollars per year -- I've seen estimates ranging from $150 billion (the RAND Corporation) to $400 billion (the UN) -- and it has an enormous increasing effect on violence rates. The local dealer protecting his turf, to the vicious source or transit country cartel trying to intimidate press or the authorities, to the terrorist organization using the relatively easy-to-get proceeds of drug sales to augment its budget and be able to kill more innocent people, these are just a few of the ways that prohibition has made our world a more dangeous place in which to live. I've written about that here before. The main point I'd like to make today is the effect of the flow of the money itself. If a drug lord is able to buy or build a city, for example -- it is said that the skyscrapers making up the Bangkok, Thailand skyline were built with drug money -- that gives him an enormous amount of influence going beyond his original illegal business. When our investigators of possible terrorist activity try to track the flow of that kind of money, that must be made more difficult to pinpoint given the ocean of drug money in which it is immersed. And of course anyone happening to stand in the way of some of the money is a potential weak link for corruption. Does drug money have an effect on how some international aid dollars get spent? Probably. I don't say that because of any particular examples to which I have access. It's just that there's so much drug money, in so many places, that it seems like it must have some such impact here and there. We need to drain the flooded basement before we'll have a chance of being able to clean it up. That first means blocking off the pipes that are spilling into it. Which in the case of drug money means... legalization. We are going to say "legalization" over and over until the point sinks in with people. In the meanwhile, we would be most grateful if readers could bring our attention to any particularly interesting money laundering stories you spot, especially stories that involve some additional harm resulting from it. (We'd also appreciate if you have or know of some relevant images that are in the public domain that we could use on our web site.)
Location: 
United States

They Should Put Surveillance Cameras in Police Stations

From the Pittsburgh Post-Gazette:

The Allegheny County district attorney's office has launched an investigation into what happened to $4,000 that Glassport police failed to return to a local bar owner when drug charges against him were dropped. "The fact that money was seized and placed in an evidence locker and turned up missing is unacceptable," said district attorney's office spokesman Mike Manko.

I agree, but I’d go a step further and call it a crime. Grand larceny to be specific. Of course, Glassport officers think it’s just a procedural problem:

Officers testified yesterday that the borough doesn't have a strict procedure for handling evidence and they don't know what happened to the money.

I hope Glassport area defense attorneys are paying attention, because they might have some appeals to file. It’s not everyday that your local police department admits general incompetence with regards to the collection of evidence. That’s the sort of candor that gets convictions overturned.

But keep in mind, it’s the honesty here that’s anomalous, not the apparent theft. Illegally searching people, confiscating private property, and stealing from the evidence locker are all routine activities in the war on drugs.

If you don’t believe me, sign up for our weekly newsletter here.

Location: 
United States

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