May.1, 2010, 2:50 pm

I have been following, with interest, an announcement by Antonia Maria Costa in the December 13th Guardian regarding the role of illicit drug money in saving the world from total financial meltdown in 2008. Costa, the head of the UN Office of Drugs and Crimes, reported that an infusion of $352 billion into a number of world banks solved a dire “liquidity” crisis (i.e. banks had no cash on-hand – only loan credit not easily convertible to cash). The crisis arose when the banks made the sudden discovery in October 2008 that they held $1 trillion of “toxic” assets that were utterly worthless. The banks then used this illicit drug money to restart interbank lending, which had virtually ceased. The interbank lending, in turn, greased the wheels of (limited) new lending to businesses and consumers – and the economy started up again.

I know it’s a quantum leap to find a connection between money laundering and the recent oil rig disaster in the Gulf of Mexico – but I have. Both events have provoked major outrage (less in the case of Costa’s announcement, as mainstream media coverage has been extremely limited) – and finger pointing at corporate managers and government regulators who fail to prevent such abominations from occurring. However in my mind, both raise the question of what, if any, responsibility the public at large might play in putting an end to money laundering and oil spills. My point is that real reform in either area will have far reaching consequences for all Americans. Which means asking ourselves if we are willing to make the personal and economic sacrifices that would be required.

Looking Back at the Exxon Valdez

For obvious reasons the Louisiana oil disaster calls to mind the Exxon Valdez oil spill in 1989. Besides calls for Congress and the courts to punish Exxon, the tanker crew and the government regulators who failed to prevent Alaska’s worst environmental disaster, there were also calls for motorists to help reduce the demand for oil – by giving up or reducing their car usage in favour of more sustainable forms of transport. This moral/ethical viewpoint got some attention initially from the mainstream media and then virtually vanished from public view. Obviously the corporate media has deep ties to the oil lobby, which has a clear incentive to increase, rather than decrease, demand for their product. And as far as I can tell, a few farsighted environmentalists reduced their car usage. However the driving habits of most Americans continued unchanged.

Money Laundering: Wall Street’s Sordid History

The moral and ethical implications of Costa’s announcement are harder to unpack. My personal view is that European and US banks who support illicit narcotics trafficking by money laundering are guilty of an absolute violation of all standards of morality (as well as criminal behavior). However finding a workable solution to this particular problem is more complex than simply banning new offshore oil drilling.

Costa states he obtained his information from intelligence operatives and prosecutors in Italy, Switzerland, the UK and the US. However he wisely chose not to identify the specific banks involved. Bank laundering of drug profits is a problem that goes back at least 25 years, to the extent that most of Wall Street has come to rely on this lucrative source of cash, especially during economic downturns. I can’t think of one major bank or brokerage firm that hasn’t been investigated for violating money laundering laws – resulting in an impressive number of indictments and civil fines (though no one has gone to jail yet).

As Costa explains in his report, drug traffickers typically keep their earnings in offshore bank accounts to conceal them from law enforcement. However they also look for every possibility to “legitimatize” this money (so they can spend it) by establishing bank accounts within legitimate US and EU banks. American political and financial analysts, including Michael Ruppert, Peter Dale Scott and Webster Tarpley have been carefully documenting the extent of the problem since the mid-nineties.

Are We Willing to Pay the Price?

There is absolutely no question the time has come to vigorously prosecute bank involvement in drug money laundering. Bank CEOS and board members who become aware of employees and managers who violate drug laundering laws need to cooperate with law enforcement in locking these people up – instead of looking the other way or covering it up – or face jail time themselves. However I am fully aware that in making this demand, there may be serious economic consequences of depriving Wall Street of a ready cash source that has become deeply integrated into the world financial system. I have to ask myself if I am prepared to face an even more severe credit squeeze that will likely result – and possibly the loss of my job and my home.