The Sad War on Narcodollars

With the silent complicity of First World governments and to the joy of thousands of banks in the United States, the war on money laundering is in crisis: Efforts to attack the finances of Mexican criminal groups are just not working due to U.S. resistance, warns Raymond Baker, director of Global Financial Integrity (GFI), a non-government organization that monitors illicit capital flows in the international system.

In an interview with MILENIO, Baker makes it clear: Washington is not helping Mexico combat the laundering of assets derived from drug trafficking. Nor is it doing much to identify bank accounts linked to contraband, to human trafficking, or to tax evasion. In short all of those illegal industries together transfer some $50 billion each year to U.S. banks.

“I can only speculate that we like those $50 billion coming to us from Mexico,” he said.

Baker revealed that, despite repeated requests from the Mexican government, the U.S. Treasury Department had refused to share any information on those suspicious accounts (presumably linked to organized crime) presently in its financial system.

“We are not making progress. Money laundering is growing on a global scale. We have not been able to reduce earnings from drug trafficking or from organized crime,” explained the director of GFI, which presented a report this week entitled Mexico: Illicit Financial Flows.

—GFI’s report establishes that billions of dollars have been illegally removed from the Mexican economy in the last few decades. What is the total capital flight?

—Between 1970 and 2010, our analysis tells us that $872 billion have been illegally removed from the country.

—These are fortunes made by corrupt politicians, tax evaders, criminals …

—Yes. And our definition of “illicit international flows” includes money laundering. But we are very conservative in our analysis. That is, we use data presented by Mexico to the World Bank and International Monetary Fund and narcodollars don’t appear there: it’s money under the table.

—Taking into account money from drugs trafficking, how much capital do you believe has left the country?

—If I were to speculate, I would say more than a quintillion dollars.

—Now, this money goes to banks in the Cayman Islands, Switzerland, and United States. Their banks also bear some responsibility for what is happening in Mexico.

—I agree. They would need to be responsible and not receive illicit money. The truth is that tax-evasion money can go to those countries, to the United States, and this is not normally illegal. As long as Western financial institutions maintain an open door to tax-evasion money, it is practically impossible to prevent the flow of corrupt and criminal money.

—How could Western banks be convinced to change their policies regarding Mexico’s dirty money?

—I don’t think they can be convinced. It is Western governments that ought to be convinced. To be honest, this is reduced to a cost-benefit analysis: Does the United States benefit from this flow of money from Mexico of almost $50 billion a year? In my opinion, no.

—Regarding Chapo Guzmán, a Mexican drug trafficker included on the Forbes Rich List, whose fortune is calculated at a billion dollars and includes investments in Mexico and the United States, is it really so difficult to track his accounts?

—I don’t know about that particular case, but I suspect that individual uses many false corporations in fiscal paradises or in the U.S. There are millions of commercial entities worldwide about which nobody knows anything. It’s regretful, but true. You can open a bank account in the U.S. and the only thing you have to reveal is the first-level corporate entity, not who the individuals are who ultimately own the account.

—What do Western governments and the United States have to do to stop this flow of money?

—Certainly they must know with whom they are doing business. That is, get rid of shady corporations. And this is very simple, if you’re brave enough to do it. You simply ask all the financial institutions of the United States to determine the identities of the individual account owners in their banks. The banks would send a letter to the owners of each account, telling them that in six months the individuals must be identified. If not, the account will be frozen.

—Freezing those accounts wouldn’t cause economic chaos?

—I don’t think it would be that much money. Those that prefer not to reveal who controls the money would be ready to remove it. It would be a very small figure. It’s the first step to cleaning the international financial system.

—The international financial system is dirty?

—I think the financial system is too often open to receiving dirty money. I don’t think we’re being strict enough to avoid it.

—Is the United States doing everything it should?

—The Mexican government has asked Washington to institute an automatic exchange of tax information (a mechanism that informs the government of a country about its citizen’s overseas accounts). That mechanism has existed between the governments of the U.S. and Canada for many years, and the exchange has existed between Mexico and Canada since 2008. But it has not be made between the U.S. and Mexico yet. This is unacceptable.

—What has money laundering meant for Mexico?

—Money from drugs trafficking is certainly hurting Mexico. It brings violence and it creates a very strong underground economy in the country. It is extremely difficult to have a successful economy with that level of illicit resources. Reducing money laundering or those $50 billion that leave the country yearly would be a huge boon for the Mexican economy.