Mar 152012

How is drugs money laundered?

Drug funds have allegedly financed hotels, car dealerships, bus companies, airlines, casinos, beauty salons, skyscrapers and restaurants, as well as the lavish lifestyles of individual cartel members who acquire gold jewelry, expensive cars, vehicles, yachts and planes.

Trade-based laundering” is on the rise. Drug cartels are reported to be increasingly using regular cross-border trade to launder their ill-gotten gains. Profits from the sale of drugs in the USA and elsewhere are used to purchase truckloads of goods such as fruit, toys and fabric, which are then sent south to Mexico to be sold for pesos. This cross-border trade effectively changes US dollars into pesos with few questions being asked.

In a variation on the theme, the dollars are used to buy things such as toys or fabric from a third country such as China. The goods are then exported to Mexico and resold. The net effect is the same: dollars become pesos, ready to help pay for the next shipments of drugs. Trade-based laundering is hidden in the massive regular trade-flows between Mexico and the USA which total almost 400 billion dollars a year. Authorities always seem to be one step behind the cartels, partly because, as this LA Times article points out, cartel bosses are “among the world’s most expert transnational entrepreneurs”. Indeed, the sheer scale of the drug money flows threatens to overwhelm Mexico’s police and security forces.

Drug money is being transferred via a variety of means, from cash transfers (formal or informal) and deposits in bank accounts to the purchase of goods and services (including pirated merchandise).

How can money laundering be reduced?

In recent years, Mexican authorities have focused more attention on chasing the money involved in the drugs trade. Government officials claim that more than $50 billion in drugs money is laundered each year, more than the value of Mexico’s oil exports and equivalent to 3% of GDP. Mexico’s laws are barely keeping up with the ingenuity of money launderers, and convictions for money-laundering are rare.

What has Mexico done to try and prevent money laundering? There are now strict limits on the use of US dollars in Mexico, and on cash deposits into bank accounts. The latest tightening of the rules extends the reporting of higher value US dollar transactions to all real estate offices, car dealerships, betting parlors, art galleries and public notaries. Any purchases using cash for items such as vehicles costing over about $14,000, and for real estate over about $70,000 are now automatically reported to federal authorities.

As Mexico tightens its accountancy rules, drug gangs may have to keep more of their funds in the USA or go elsewhere. Mexico is becoming a much less friendly place for the drug cartels’ informal “retirement funds”.

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