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. 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 — showed that 2.6 percent of the total street value of cocaine produced remains within the country, while a staggering 97.4 percent 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.
“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,” co-author Daniel Mejia added,
The work, by the two economists at University of the Andes in Bogota, is part of an initiative by the Colombian government to overhaul global drugs policy and focus on money laundering by the big banks in the US and Europe, as well as social prevention of drug taking and consideration of options for decriminalizing 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 could spread to central America. However, the most shocking conclusion relates to what the authors call “the microeconomics of cocaine production” in their country.
Gaviria and Mejia estimate that the lowest possible street value (at US$100 per gram) of “net cocaine, after interdiction” produced in Colombia during the year studied (2008) amounted to US$300 -billion, but of that only US$7.8 billion remained in the country.
“It is a minuscule proportion of GDP,” Mejia said, “which can impact disastrously on society and political life, but not on the Colombian economy. The economy for Colombian cocaine is outside Colombia.”
“If countries like Colombia benefited economically from the drug trade, there would be a certain sense in it all,” Gaviria said. “Instead, we have paid the highest price for someone else’s profits — Colombia, and now 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 Wachovia Bank, which admitted to transferring US$110 million of drug money into the US, but failing to properly monitor a staggering US$376 billion brought into the bank through small exchange houses in Mexico over four years (Wachovia has since been taken over by Wells Fargo, which has cooperated with the investigation).
However, no one went to jail, and the bank is now in the clear.
Meanwhile, Colombia’s banks Mejia said “are subject to rigorous control, to stop laundering of profits that may return to our country. Just to bank US$2,000 involves a huge amount of paperwork — and much of this is overseen by Americans.”