Drug Trafficking & Money Laundering.
Though there are many ways to launder drug money, the process generally involves three basic stages. The first stage, placement, entails depositing the drug proceeds into domestic and foreign financial institutions. The second stage, layering, involves creating layers between the persons placing the proceeds and the persons involved in the intermediary stages, to hide their source and ownership and to disguise the audit trail. This can involve complex manipulations and the use of wire transfers, shell companies, bearer shares, and nominees in offshore financial centers (OFCs). In the third stage, integration, the proceeds have been washed, and a legitimate explanation for the funds is created. This can be done, for instance, via front companies, false invoicing, the purchase of financial instruments (stocks, bonds, and certificates of deposit), or investment in real estate, tourism, and other legitimate businesses.
Launderers have devised an infinite number of schemes to hide the large sums that are generated by illicit drug sales. One method, structuring, involves breaking up large amounts of cash into transactions that each amount to less than $10,000 to avoid currency reporting requirements. Other laundering schemes involve casinos, gems and precious metals, wire transfer companies, and smuggling currency out of the United States. The enormous profitability of drug trafficking enables criminals to take advantage of the balloon effect of transnational contraband trade. As soon as law enforcement officials identify and act to block one laundering method, criminals switch methods, industries, geographic routes, intermediaries, technologies, and so forth. These wealthy and powerful drug syndicates employ professionals and use the latest technology, intelligence, and methods, including buying influence in smaller countries, so that they are always a step or two ahead of law enforcement.
Since 1970, a series of U.S. laws, and directives have sought to scrutinize suspicious financial activities and criminalize deceptive cash transactions. The 1986 Money Laundering Control Act declared money laundering to be a crime in its own right aid made structuring to avoid currency reporting a criminal offense. In 1995, President Clinton announced an initiative and signed Presidential Decision Directive 42, which freezes U.S. assets of Colombian drug trafficking organizations and bars U.S. companies from doing business with the traffickers' front companies. However, a number of other countries have questioned this approach, and no other country has yet agreed to adopt this U.S. initiative.
In 1999, the U.S. enacted the Foreign Narcotics Kingpin Designation Act, which extends the directive to cover kingpins of all nationalities and requires U.S. banks and financial institutions to apply a complex web of economic sanctions against kingpins and their associates. In practice, U.S. financial institutions are required to install and monitor software to detect names of individuals and entities on the kingpin list.
Various agencies (including the FBI, Customs, Drug Enforcement Administration, IRS, Federal Reserve, and Treasury) are responsible for enforcing money laundering laws. FinCEN, a U.S. Treasury division, uses artificial intelligence technology to analyze all Currency Transaction Reports (CTRs), which persons must file with the U.S. government when they receive cash payments over $10,000, and Suspicious Activity Reports filed by banks, thrifts, credit unions, and commercial and law enforcement databases.
Various national, regional, and global agreements and institutions (such as the Inter-American Drug Abuse Control Commission of the Organization of American States) seek to combat money laundering. Financial Intelligence Units (FIUs), similar to FinCEN, have been formed in many countries to obtain and process financial disclosure information and support anti-money laundering efforts. The 1988 UN Drug Convention requires signatories to criminalize drug-related money laundering and to enact asset forfeiture laws.
In 1989, the G-7 countries formed the Financial Action Task Force (FATF), which has issued 40 recommendations or standards to control money laundering. In 2000, the U.S. prompted the FATF to issue a report that identified 15 "non-cooperative countries and territories" (NCCTs) and stated that if they do not sufficiently comply within one year, they would be subject to countermeasures. In fact, almost immediately, the U.S. and other FATF members required financial institutions to increase scrutiny of transactions from NCCTs, thereby inhibiting or in some cases practically precluding most transactions from some of these jurisdictions.
* Drug traffickers need to convert the proceeds from their criminal activity into revenue with an apparently legal source.
* Drug profits moving through the U.S. financial system are estimated to be as high as $100 billion a year.
* Virtually all countries have criminalized money laundering and developed regulations to deter money laundering and facilitate the detection of criminal activity.
Bruce Zagaris <firstname.lastname@example.org> is a partner with the law firm of Berliner, Corcoran & Rowe, a founder and editor of International Enforcement Law Reporter. Scott Ehlers <email@example.com> is the director of research with the Campaign for New Drug Policies.
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|Publication:||Foreign Policy in Focus|
|Date:||May 22, 2001|
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