THE CANADIAN CONNECTION: Drugs,Money Laundering and Canadian Banks

Recently, media attention has focused on Mexico's drug traffickers and the "threat" they pose to Canada and the United States. This follows revelations that General Jesus Gutierrez Rebollo, the head of Mexico's National Institute for Combatting Drugs, has been in the pay of Amado Carrillo Fuentes, Mexico's most wanted drug lord, for the last seven years.

Mexico is thus seen as a country on the verge of being taken over by drug cartels which have thoroughly corrupted the state. After conquering Mexico, the cartels will presumably "corrupt" North American institutions. However, on the issue of drugs, it is the North which is corrupting the South, not the other way around.

To begin with, the Mexican cartels are fulfilling the demands of millions of North American drug users. As The Economist magazine puts it: "the iron law of the market is that demand breeds supply."

Northern economic policies towards the South encourage drug trafficking by debilitating their legal economies. Northern financial institutions benefit far more from drug money than any Southern trafficker.

Structural Adjustment Programs imposed on Peru by the International Monetary Fund (IMF) and the World Bank (both of which are U.S.-dominated) pushed four million people into extreme poverty, almost halved real wages, and cut those with "adequate employment" to 15 percent of the work-force. Consequently, there has been a forced migration of impoverished peasants and urban unemployed into coca growing as an alternative to starvation.

In 1991, in exchange for $100 million from the United States, Peru put in place the IMF "structural adjustment" clause opening its markets to U.S. corn. As a result, by 1995, corn cultivation had fallen tenfold and coca production had grown by 50 percent.

MONEY LAUNDERING

Narco-corruption in North America is most significantly manifested in money laundering. Ninety-one percent of the $197 billion spent on cocaine in the U.S. stays there, and American banks launder $100 billion of drug money every year. Those identified as money laundering conduits include the Bank of Boston, Republic National Bank of New York, Landmark First National Bank, Great American Bank, People's Liberty Bank and Trust Co. of Kentucky, and Riggs National Bank of Washington.

Citibank helped Raul Salinas (the brother of former Mexican president Carlos Salinas) move millions of dollars out of Mexico into secret Swiss bank accounts under false names. Swiss authorities have declared that this money (which totals $100 million) consists of payments from drug traffickers to Salinas, and are preparing to seize it.

In 1993, two directors at the American Express Bank International (AEBI) in Beverly Hills, California wired drug money from Juan Garcia Abrego - the Mexican cocaine baron arrested and extradited to the United States in January 1996 - from the First City Texas Bank in McAllen, Texas to accounts in the Manhattan branch of Banker's Trust of New York. AEBI then invested the money in London, Switzerland, Mexico and Houston.

In addition, Manufacturers Hanover, Chase Manhattan Bank, Chemical Bank and Irving Trust have admitted not reporting money transfers to the U.S. government (the Bank Secrecy Act of 1970 requires that all transactions over $10,000 be reported). The Bank of America has been fined $4.75 million for not revealing transfers of more than $12 billion.

The U.S. Treasury Department has penalized 25 banks for failure to report and in April 1990, hundreds of accounts in 173 banks were frozen by court order. The accounts were suspected of hiding almost $400 million in Colombian drug profits.

Investment houses such as Merrill Lynch and EF Hutton have also handled millions of dollars in drug money (putting it in the New York bullion market).

THE CANADIAN CONNECTION

In September 1989, it was revealed that Canadian banks have been laundering drug money on an enormous scale. Notorious in this regard is the Bank of Nova Scotia (BNS) which has laundered $100 million in drug money through its Miami and Caribbean branches. The money was sent to the BNS' Bahamas and Cayman Islands branches from Miami and then wired to its New York office where the funds could be withdrawn by the original depositors.

In 1981 and 1983, U.S. authorities subpoenaed records of the Bahamas and Cayman Islands BNS branches in connection with two investigations of drug trafficking. The bank gave up the documents only after being fined $1.8 million for delaying their release. BNS asked no questions about large cash deposits, ignored normal banking practices, and hid its depositor's identities by keeping minimal records. Also, BNS employees in the Caribbean were given thousands of dollars in "tips" by their clients for their "understanding."

Similarly, $726,000 in drug profits has been deposited in the Royal Bank of Canada. In 1989 the U.S. Drug Enforcement Administration (DEA) identified the Swiss Bank Corporation (Canada) as "a repository of $14 million in drug money."

Sales of narcotics generate approximately $10 billion a year in Canada and most of this is washed through Canadian banks and other legitimate businesses. While money laundering is a crime in Canada, just as it is in the U.S., bank reporting requirements in Canada are voluntary. Toronto, Montreal and Vancouver are included in the DEA's list of the 18 most prominent money laundering centres in the world.

NARCO-CORRUPTION

Narco-corruption in North America is widespread amongst public officials as well. Sixty policemen in Miami have been identified as corrupt and 80 lawmen and public officials in Georgia have been charged with serious offenses such as accepting bribes. A Georgia state senator promised to protect drug smugglers if they contributed to his campaign for the governorship.

Thirty-two U.S. law enforcement officials including Customs agents have been indicted for "border-related corruption" which is "systemic and pervasive" according to the FBI. Two-thirds of the cocaine coming into the U.S. does so at official entry points along the Mexican frontier.

In Miami, three FBI agents and one from Customs were charged with stealing $200,000 from drug dealers in 1994. A former senior Justice Department official and two former prosecutors were indicted in June 1995 on charges of helping Colombian drug barons in a criminal conspiracy.

Kendall Coffey, the U.S. attorney for Southern Florida, stated that the latter case showed "the degree to which cocaine profits have corrupted the legal system." When the FBI tried to prosecute World Finance Corporation (an international lending company) for laundering drug money, the Bureau was reportedly informed by an Internal Revenue Service agent that "WFC was a legitimate company: if it dealt in drug money so much the better; narcotics money that stayed in the U.S. was good for the economy."


Published in:

Briarpatch, July/August 1997

Americas Update, September/October 1996

The Foundation, April 1997

Prison News Service, Spring 1997

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