Drug money kept the financial world afloat during the crisis

Dannyboy83

http://www.guardian.co.uk/global/2009/dec/13/drug-money-banks-saved-un-cfief-claims
Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations' drugs and crime tsar has told the Observer.
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.
This will raise questions about crime's influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. "In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor," he said.
Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.
"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.
The IMF estimated that large US and European banks lost more than $1tn on toxic assets and from bad loans from January 2007 to September 2009 and more than 200 mortgage lenders went bankrupt. Many major institutions either failed, were acquired under duress, or were subject to government takeover.
Gangs are now believed to make most of their profits from the drugs trade and are estimated to be worth £352bn, the UN says. They have traditionally kept proceeds in cash or moved it offshore to hide it from the authorities. It is understood that evidence that drug money has flowed into banks came from officials in Britain, Switzerland, Italy and the US.
British bankers would want to see any evidence that Costa has to back his claims. A British Bankers' Association spokesman said: "We have not been party to any regulatory dialogue that would support a theory of this kind. There was clearly a lack of liquidity in the system and to a large degree this was filled by the intervention of central banks."

On a scale of 1-10, how credible is the above?
How likely is it that any of this money would have found its way into Irish banks?

Elevator

I for one would not be the least bit surprised if the banking sector started to open up a bit more to gangsters depositing their profits as they are on their knees, nothing would surprise me anymore

gerry28

I remember seeing a programme on channel 4 a few years ago that said the illegal drugs trade was the 8th largest industry in the world or something along them lines.

My memory is abit vague on it mabye someone else remembers seeing it.

Elevator

not sure myself but i am sure it is up the top end of the scale

pearcider

gerry28 wrote: »

I remember seeing a programme on channel 4 a few years ago that said the illegal drugs trade was the 8th largest industry in the world or something along them lines.

My memory is abit vague on it mabye someone else remembers seeing it.

I think it was actually number 3 ($500+bn) after the petroleum (100 billion barrels/year ~ $trillions) and arms ($700bn) industries. Hard to say how big the shadow economy is for sure...I've heard estimates of $10 trillion (or nearly 20% of world GDP) This report for example puts "illicit financial outflows" in developing countries alone well in excess of $1 trillion. Suffice to say, I'd consider the Guardian article pretty credible.

Zascar

Biggest money spinners in the world are Oil, Arms, and Drugs

starbelgrade

In the first sentence, they describe Antonio Maria Costa as both the "United Nations' drugs and crime tsar" and the "head of the UN Office on Drugs and Crime".

Now either the article is badly written, in case they have badly misunderstood the meaning of the word 'tsar', or Mr.Costa is doing some serious double-jobbing!

Mr Benevolent

they describe Antonio Maria Costa as both the "United Nations' drugs and crime tsar" and the "head of the UN Office on Drugs and Crime".

Could very easily be both. Utterly terrifying claim though, the economic fate of Europe rests on the drug gangs :eek:

starbelgrade

Confab wrote: »

Could very easily be both. Utterly terrifying claim though, the economic fate of Europe rests on the drug gangs :eek:

If it's true (& it could easily be), it's only terrifying if they are put out of business entirely (without governments legalising the drugs & actually profiting from them, instead of losing money to the drug wars), as there is, has always been & always will be a huge demand for "illegal" drugs.

Peanut

http://en.wikipedia.org/wiki/Drug_czar