Posted: April 26th, 2010 by Militant Libertarian
Billions of dollars from the illegal drug business was the only thing that kept the global financial system from collapsing at the height of the banking crisis just over a year ago, according to the head of the U.N. Office on Drugs and Crime.
“In many instances, the money from drugs was the only liquid investment capital,” Antonio Maria Costa said. “In the second half of 2008, liquidity was the banking system’s main problem and hence liquid capital became an important factor.”
“That was the moment when the system was basically paralyzed because of the unwillingness of banks to lend money to one another.”
According to the International Monetary Fund, banks in the United States and Europe lost more than $1 trillion between January 2007 and September 2009 due to bad loans and “toxic assets,” or investments whose value fell so drastically that they could no longer be sold for a satisfactory price. This led to the failure, government takeover or forced acquisition of many financial institutions.
Costa said his office has seen evidence that $352 billion from the illegal drug trade was funneled to banks at this time, keeping them afloat.
“Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities,” Costa said.
“There were signs that some banks were rescued that way.”
Drug traffickers have typically kept their earnings in cash or offshore accounts in order to conceal their profits from law enforcement. The flow of this money into the banking system has now “laundered” it, however, making it functionally impossible to track.
Costa’s office received its information from the governments of Italy, Switzerland, the United Kingdom and the United States. It chose not to publicly identify any of the banks involved, saying its role is to identify problems, not lay blame.
“The progressive liquidization 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.
Sources for this story include: www.guardian.co.uk.