Financial Transparency Coalition

Last week, U.S. Air Force General Douglas M. Fraser, Commander of US Southern Command, testified before the Senate Armed Services Committee. SOUTHCOM is the U.S. military’s arm in the Americas, and naturally deals frequently with issues relating to the drug trade and organized crime syndicates. During his testimony (PDF), he highlighted the problems posed to U.S. security by the easy flow of illicit money across borders:

Transnational criminal organizations possess a critical enabler that many states in Central America lack: enormous financial reserves.  The illicit financial flows associated with transnational organized crime are staggering; the United Nations Office of Drugs and Crime 8 (UNODC) estimates annual global gross profits from cocaine sales at $84 billion, $35 billion of which is generated in retail and wholesale profits in North America alone.

Illicit traffickers in South America, Central America, and the Caribbean pocket an estimated US$18 billion in gross cocaine profits per year.

Lucrative profits enable organized crime to increase operational capacity at a rate that far outpaces that of regional law enforcement and militaries, purchasing sophisticated, military-grade weapons, investing in semi and fully submersible vessels to improve transportation, corrupting and coercing government officials to ensure freedom of movement, and recruiting and bankrolling highly trained specialists, many with military backgrounds.

The large drug syndicates are awash with money.  In many cases, developing world law enforcement agencies are finding themselves to be financially outmatched by the syndicates they are trying to fight.

Part of this stems from the enormous profitability of drugs, but that doesn’t tell us the whole story. US$18 billion (from Cocaine alone) doesn’t just magically disappear into the criminal underworld. It is too large of a sum to be handled purely in cash. Money is the lifeblood of any criminal organization. These transnational criminal syndicates are massive organizations operating their businesses at huge scales. In order to get there, they need access to the legitimate banking system. It is incredibly difficult to run these types of organizations on a cash-transfer-only basis. Eventually, the sheer volume of cash and size of the network requires you to work with banks.

We can’t expect to curtail 100% of all money laundering by organized crime syndicates. However, we can do a much better job than we are currently doing. A report by UNODC (PDF) finds that less than 1% (probably around .02%) of laundered money is seized and frozen. This is a laughably low number. It is too cheap and too easy for drug lords to move their drug money into Western banks. If we were to increase that number to, say, 5%, drug lords would be looking over their shoulders a lot more often. They would have more trouble operating large, complex organizations. Central American law enforcement would be much more able to beat them back.