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By Dan Olson, Minnesota Public Radio
July 1, 2001
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Money laundering is the illegal act that fuels the drug trade. Drug dealers hide their profits by flushing them through the vast global financial market, and use the laundered cash to underwrite their trafficking. How much money? Experts can only guess. They say the amount of money laundered around the world is breathtakingly large - perhaps as much as five percent of the world's GNP, about $1.5 trillion.
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MONEY FUELS THE WORLD'S ILLICIT DRUG TRADE. Tracking the money, officials say, helps them find and arrest dealers. In 1986, Congress passed laws requiring banks and other businesses to report large cash transactions. The laws help prosecutors build cases and put some dealers away. But the global drug trade is not shrinking.
"We have a group throughout the metro area into the suburbs that reached as far south as Peru, into Mexico, and the movement as far north as Minnesota," says a former Minnesota drug dealer, who claims first-hand knowledge. He offers a glimpse of the huge international drug economy. The man doesn't want his name used. He says the operation he worked for until recently shipped marijuana and cocaine north and money south.
"The majority of the money is being sent out of the country. It's being built into vehicles that are sent out, late-model cars, and it's going outward at rates of anywhere from $100,000 to $500,000 a day," he says.
People fighting the war on drugs paint a similar picture. The U. S. drug economy is vast. Bill Rhodes is the Cambridge, Massachusetts-based consultant who estimates its size for the federal government. "The underground economy for drugs is probably on the order of $60 billion a year," he says.
There's no official estimate of Minnesota's illicit drug economy. Experts say Minnesota's legal economic activity is about two percent of the country's. So, two percent of the national illicit drug economy puts Minnesota's share at $1.2 billion.
Illicit drugs leave in their wake a path of death and destruction. The attraction - and what keeps the trade going - is the explosive potential for making money. Carol Falkowski, a senior researcher at the Minnesota-based Hazelden Institute says drug use has leveled off. But money keeps drawing people to the business. "There's probably no other substance that at every level of handling it, doubles. So the profits are really what lure people into it," she says.
Headlines made by the war on drugs seldom reveal drug dealing's remarkable profitability. Take marijuana, this country's most prevalent and lucrative illicit drug. Every time former Minnesota Bureau of Criminal Apprehension special agent Bruce Preece looks at a marijuana plant he sees a money tree. "If you look at a six-foot plant of marijuana, you are essentially looking at over $2,000 worth of drugs," he says.
ON GUARD
A bright mid-morning sun and a blue sky create perfect flying conditions at the Winona airport for an Army Air National Guard helicopter crew. Once again this summer, helicopters will make tree-top level flights around around Minnesota, including the southeastern corner's valleys and ravines - excellent cover for people who want to grow marijuana away from prying eyes.
Preece, now police chief in Bemidji, is former director of Minnesota's cannabis suppression program. Last year, he says, agents detected, uprooted and burned - whacked and stacked, they call it - more than a million cannabis plants.
Preece says marijuana growing in Minnesota has expanded and is more decentralized. There are sizable operations in all corners of the state as agents discovered on a visit last year to a southwestern Minnesota farm . "We found hundreds, literally hundreds of thousands of dollars in his home as a result of manufacturing and growing marijuana," he says.
Ecstasy is another example of the explosive profit potential of illicit drugs. Hug - beans as it's known on the street - is a synthetic drug similar to LSD. Twin Cities DEA agent Skip Van Patten says Ecstasy is made in Europe for 50 cents to $1 a pill. Middle level dealers buy them for $6. Users buy them, Van Patten says, for $25 to $30.
Cocaine is equally lucrative. Former Minneapolis police department narcotics unit officer Tim Trebil says one kilo of cocaine sells for $15,000 to $30,000 in Minnesota depending on market conditions.
"Crack cocaine is typically in a .1 to .2 gram dosage and it sells at $20 per dosage - rock as it's commonly referred to. If you have 1,000 grams divided down into .1-gram dosage units at $20 apiece, there's a huge potential for profit," according to Trebil.
That's as many as 10,000 dosages, totaling $200,000 for a kilo of cocaine that may have cost the dealer $30,000. A profit before other expenses of as much as $170,000.
A 'MOUNTAIN OF CASH'
Drug dealing creates a mountain of cash; money that at some point must move through a bank as dealers try obscure its criminal origin. But as one law enforcement official puts it, "money is bulky." Moving big batches around, physically or electronically, draws attention.
"Congress has given us a lot of tools to work with to identify currency transactions that may raise suspicions," says Brian Whimpling, whose job includes tracking cash that drug dealers are trying to launder. He's the IRS special agent in charge of criminal investigations in Minnesota and one of the people who sifts through the currency transaction and suspicious activity reports sent in by banks and other businesses.
Whimpling says some of the cash transactions are probably legitimate. However, he says it's also possible some of the cash moving through Minnesota is to disguise drug profits originating elsewhere.
No matter what avenue is used, almost all laundered money must at some point pass through a bank. The banks of choice for drug dealers are in 14 countries which refuse to abide by anti-money laundering principles. The principles are the brainchild of the Paris-based Financial Action Task Force on Money Laundering. The United States and other industrialized countries created the organization 11 years ago. They were alarmed at the rise of money laundering and its ability to corrupt a country's banking system.
In an interview from his office in Paris, task force director Patrick Moulette says rogue banking nations do business with people who want no questions asked about their identity and the origin of their money. "They included several offshore financial centers, the Caribbean, the Pacific, but also onshore countries such as Russia, Israel and Philippines."
Russia has since signed on and agreed to adopt anti-money laundering principles for its banks. The rest continue to be havens for money from the illicit drug trade. But the scofflaw banks need legitimate banks to successfully launder money.
American Bankers Association spokesman John Byrne says government regulations and their own watchfulness deter money laundering at U. S. banks. "While we have been susceptible in the past, so many laws and regulations and awareness levels have been raised so high since 1986 that it's not impossible but it's much more difficult to work the system in our institutions," according to Byrne.
IGNORING ADVICE, AND THE LAW
However, Elise Bean says U. S. banks have been careless in one critical area. She is co-author of a new congressional report on the extensive ties U. S. banks have with fly-by-night or shell banks overseas. Bean, a staff attorney for the Senate Subcommittee on Permanent Investigations, says U. S. banks have lots of rules to guard against doing business with shady overseas banks. But in case after case, Bean says, they found the U. S. institutions ignored their own safeguards.
"One of the reasons that correspondent banking has become a major pathway is that U. S. banks weren't aware of the money-laundering risks," Bean says. "For example, when most people think of a bank, they think of a nice building with a bank president with a very prudent and cautious staff regulated by bank regulators in the United States. But not all banks are the same. Some off-shore centers don't police their banks. Some of these banks are shell banks operated out of people's homes or on the move out of suitcases. These kinds of banks have been able to approach U. S. banks and open accounts with them, which are called correspondent accounts. The U. S. banks have been under the assumption, well, a bank is a bank is a bank, if they have a valid banking license we can give them an account."
So, a drug dealer can deposit millions in a shady overseas bank, then transfer money to a legitimate U. S. bank that has agreed to a correspondent banking relationship. Transferring the money among accounts obscures the criminal origin of the cash making it available for other illegal activities.
Bean says questionable correspondent banking relationships are on the decline. The Senate investigation, she says, is prompting many American banks to review their practices and restrict business with banks in notorious locales. A spokesman for Minnesota's largest banking company, Wells Fargo, says it does business with three Russian banks. The spokesman says Wells Fargo carefully scrutinizes the relationship to make sure the transactions are above board.
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THE EFFECT ON MAIN STREET
Former federal prosecutor Charles Intriago publishes Money Laundering Alert, a Miami-based business which advises government and businesses on the latest money laundering techniques. He says money laundering's toll on Main Street businesses occurs when drug dealers put their cash back into circulation.
"They integrate money back into Minnesota and buy with that money - that originated in drug sales on the streets of the United States - a business in Minneapolis that competes with some hard-working, law-abiding business that has a competing business. That's not good for society," Intriago says.
Another way to think about money laundering's corrosive effect on a civil society, Bob Olander says, is to consider what the preoccupation with making money does to people. Olander is director of drug treatment for Hennepin County. "If you're a part of an enterprise that has some connection in any way or shape or form with the drug trade and are able to rationalize that because this is a capitalistic game and everyone else is doing it, we're never going to stop it and we can just be a part of it. I think there's something that begins to give people the feeling that we don't need to care anymore about what our business climate is like as long as it produces some kind of capital," Olander says.
The war on drugs' anti-money laundering battle, officials say, is costing U. S. taxpayers $700 million a year. The effort is aimed at tracking the flow of cash in a worldwide drug trade measured at $400 billion a year.
Patrick Moulette, the director of the Paris-based Financial Action Task Force on Money Laundering, says there is no sign that money laundering, and its corrosive effects on otherwise law-abiding people and institutions, are subsiding. "There is no objective reason why it should decrease, and it is probably growing because of the fast development of globalization, the globalization of the financial markets," Moulette says.
Worry about corruption caused by money laundering has prompted lawmakers here and abroad to create roadblocks to slow drug dealers from hiding their ill-gotten gains. But even the regulators admit as soon as a roadblock is erected, the drug traffickers find a way around it. Members of Congress this session hear competing proposals to strengthen or to water down the U. S. laws which track the flood of money from this country's illicit drug trade.
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