Hundreds of billions in crime money knowingly laundered by banks during credit crunch

The Observer reports that an estimated $352bn of drug and mafia money was laundered by the major banks at the peak of the credit crunch, while regulators turned a blind eye, since the highly liquid criminal underworld was the only source of the cash necessary to keep the banks' doors open. As Charlie Stross notes, "A third of a trillion dollars is a lot of money; it's enough to fund the US military invading another country halfway around the world, or a manned Mars exploration program." Charlie goes on to mention that now that these narcobucks "aren't neatly bundled up inside the mattress any more; they're in the system," that there's $0.3 trillion sitting there, nice and legal, entering the investment world.
Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result...

"Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities... There were signs that some banks were rescued that way." Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.

"That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was," he said.

Drug money saved banks in global crisis, claims UN advisor

(Image: Money, Money, Money, a Creative Commons Attribution image from borman818's photostream)


  1. Rolling Stone’s Matt Taibi has written much about the scum who run and supposedly regulate the banking industry.

    His “Inside The Great American Bubble Machine”, is required reading. No one should be surprised that bankers have little/no scruples.

  2. Oops, I forgot to add:

    In the brouhaha that followed the article’s publication, a post on his blog concluded with:
    “They’re going to say that and more, but whether it’s this time or the next time, the important thing is to pay attention to what they don’t say. And what they didn’t say about this piece is that it was wrong. They didn’t deny any of it. They said others were just as bad, they said I was a bad guy, they said it was a conspiracy theory. But they didn’t say it was mistaken, and that’s the only thing that matters”

  3. This is making me rethink drug legalization. (No, not really.) Given the fraud and mismanagement we’ve seen in the legitimate banking industry, maybe we need a criminal money market. If we legalize it, and bring all that trade into the mainstream, we won’t have that underground liquidity in reserve for tough times.

      1. I think Ernunnos’ point (with tongue in cheek, mayhaps) was that we shouldn’t move to condemn or abolish the criminal money market, since it just saved the world and all.

  4. “Legitimately” earned money is a thin film on the roiling ocean of money that exists. That, and money is only a concept, it has no real value, except that which we assign it. The same could be said for “legitimacy”.

    Think on it this way: this was the money that the criminal underworld felt comfortable with the idea of potentially losing. Laundering is a gamble – the money you send out to get clean is the money you may never see again.

  5. Its all commerce, its all product, its all capitalism and its all lost in the wash. Its just money. It seems likely to me that much of the reason this was noticed was because the money was there when none was supposed to be there. Drug money gets laundered in thick and thin times.
    Maybe drugs aren’t legal because of the economic instability it would cause.
    Legal drugs are like the new electric car again.

  6. … just look at the heads of the insurance and bank corporations. And what about Grasso? They ARE the Mob. Right under our noses.

  7. You guys realize that if we managed to effectively stop the drug trade and money laundering, that it would cause a global economic collapse, right?

    The illegal drug trade is by some accounts larger than the legal drug trade. It employs millions of people directly and indirectly, and is a vital segment of the world economy.

    The banks aren’t being “evil” by laundering money… They are behaving in a reasonable and responsible matter (in regards to the drug trade). The drug trade needs to function, and it will continue, and it is sensible and moral that banks help it function.

    And to the people complaining about the violence associated with the drug trade: Well duh! Those involved in the drug trade are prohibited from solving conflicts peacefully through courts/contracts and other civil means, so violence is the only option available. When was the last time cigarette makers or beer companies assassinated anyone?

    I realize populist sentiment is against the drug trade… but sorry folks, you can’t vote away basic laws of economics! Reality isn’t a democracy!

  8. Legalize all drugs. Prohibition has never in history worked. Prohibitions create black markets, which in turn give rise to organized crime, which provides the prohibited items.

    It’s extremely hard for the average middle-schooler to get alcohol. But drugs? Easy as cake. Besides the 30+ billion that the government spends on enforcement and incarceration, people caught with the prohibited substance often face seizure of property (cars, houses, money, etc.) even before any criminal activity is settles in court. People who have lost property to seizure laws have little redress in the legal system.

    There are many things wrong with the drug prohibition, from its discriminatory inception to the unfairness of the application of the law and the waste of lives and capital that we can’t afford to ignore the fact that many people want drugs no matter what anyone else decides. It’s not an issue of “moral strength” vs. evil habits. The only true issue is this: Who has the right to tell anyone else which intoxicants they should use for recreation? Some snake-slinging, tongue-speaking revivalist minister? A rich person? An elected official who has a culture different from yours? A government bureaucrat who is worried that he’ll be out of a job (not that I would cast aspersions upon the character of Harry Anslinger, may he rot in hell).

    Tough decision. Just remember: It’s your decision when it’s you with your choice. Keep your decision in your house, I’ll keep my decision in mine.

  9. Ummm … as Eddie Murphy so famously said, tell us something we don’t know, mf. Has anyone read a single news article about the swiss banking system in the last 10 years? Where are the articles complaining about financing for Robert Mugabe?

    And besides, what’s the problem? The filthy crims will have left a lovely paper trail.

    This is GOOD NEWS.

    1. Never have I seen someone sum up the lesson of a story better than you, Billington. These things are pretty obvious to bankers and traders, but apparently not to everyone else.

  10. So, what’s the correct thing to do? Would legalization be the solution to it all? Would control and taxing traduce into better distribution of wealth? I absolutely don’t think so.

    1. I’m interested for you to expand on your post. I’m honestly curious, especially when you mentioned distribution of wealth.

  11. It is amazing that billions of dollars are being spent to stop people from moving north over the border from Mexico to the US.

    All the while “Cash Coyotes” in the United States’ banking system are profiting from moving money south. And the US does little, to nothing, to stop this. All our “asset tracing” is focused on Islamic organizations. But how many lives have been lost to drug cartels? The situation on the border is miserable. Murders and kidnappings are scaring away visitors from the US and destroying the lives and occupations of honest Mexicans. All of it funded by Americans and a complicit financial system. Is it any wonder these people try to get the hell out of there?

  12. Like that wasn’t deliberate from the get-go?

    I keep hearing about “Identity Theft” where someone who can’t get a loan for a car or approved for an apartment has their identity stolen (like SSN from application) and the thief that does it gets a US$3 million loan.

    Kosher as Ham-On-Rye. The banks have to be supporting this or they’d check better, not put blanket ‘refusals’ on honest people hoping to drive them to predatory lenders while letting high brow criminals use them. I wonder if they even give these guys loans to start up criminal stuff?

  13. I used to work for the bank that rolled out Capital One. This kind of stuff has been going on for a long time… a long time…

    It’s pretty brave exposing this stuff… I wouldn’t be surprised if some key people start “disappearing” over time.


  14. You think we have it rough in the United States?

    Consider Russia:

    “Murder for hire … has stalked Russian bankers. In the last four years, said Vitaly Sidorov, executive director of the Association of Russian Banks, 116 attempts have been made on the lives of Russian bankers and their workers, or one every few weeks. Seventy-nine of them were killed. He said the assassins and their clients have not been apprehended ‘in 80 to 90 percent of the cases.'”
    – David Hoffman, The Washington Post, 12 May 1997, p. A01


    “Andrei Andreyevich Kozlov … was the first deputy chairman of the Central Bank of the Russian Federation from 1997 to 1999 and again in 2002 to 2006. Kozlov died on September 14, 2006 … from gunshot wounds he sustained the night before.”

    1. “Non-capitalism”: there are no benefits. Capitalism isn’t perfect, but it is only not perfect when compared to the product of a utopian imagination.

      The basic thing is people are greedy, will fight and kill eachother for scarce resource (whether or not they need it), and that some form of trade pacifies the aggression in the system.

      Sure, Monsanto, Microsoft, Halliburton, Xe, Goldman Sachs – they’re all evil bastards, but ultimately, UNICEF, VSO, RSPCA, the BBC – they’re not evil bastards. We’ve achieved some kind of balance, financed by capitalism.

      And financing is simply the metamorphosis of barter-by-gourd into an abstract concept of money. Some of us are better at coping with that concept and its implications than others (btw I’m not by any stretch wealthy!).

      Every alternative system has failed, again, again, and again, and it takes a real sucker to go for them these days – there is too much information available.

      The thing about capitalism is it delivers to the maximum of people the maximum of choice and opportunity, given the psychological constraints of the overall system at any point in time.

      “All of its benefits have detriments” – save me. Go and live in Moscow, circa 1955, and complain about the detriments of a pure-bread diet.

      1. Sure, capitalism isn’t perfect, neither is communism, so what? It is so ingrained in people’s skulls to hate on communism and socialism that they don’t even think about the particulars anymore; we all know that Moscow circa 1955 was hellish, but also not really true communism which is supposed to a democratic institution (Nazi Germany was a capitalist country, and not any better– the beef here is with totalitarianism, not an economic model.) Maybe you’d like to bring back robber barons, child labor, snake-oil salesman, junk bonds, and all the other trappings of capitalism circa 1900.

        I don’t claim to have any answers, but I can’t see how capitalism is ultimately any better than communism at least in theory if not practice. Capitalism seems to be the “law of the jungle” at its very core– that is just uncivilized. Plus too much of its driving force is based on unlimited growth, which is by its very definition unsustainable. When Bush told us post-9/11 to “go shopping” I felt sick to my stomach– “you can’t serve god and mammon both.” Is my life really any better because I have 100 different cell-phones to choose from at Target or Best Buy? My life was OK 15 years ago when I didn’t have a cell phone at all, so I can’t see how it’s somehow magically better now with all this “maximum of choice.”

      2. I would feel better about capitalism if it’s proponents didn’t always have such a dismal and half-true stereotype of human nature.

  15. really there are nothing like the term “illegal money” it is mainly these kinds of acts due to “illegal activity”. Through identity theft the thieves are enjoying our loan money with our identity.

  16. “A problem can not be solved with the same consciousness that created it.”


    The upside is it IS fixable, the downside is…

    “Good luck with that”

    Spong Bob

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