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Oil Spills and Money Laundering: An Ethical Dilemma

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I have been following, with interest, an announcement by Antonia Maria Costa in the December 13thGuardian 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.

The History of Corporate Drug Money Laundering

I myself first learned of the involvement of mainstream banks and brokerage houses in the laundering of illicit drug profits back in the late eighties, when long time radio journalist Mae Brussell exposed the Merrill Lynch Pizza Connection. However several scholarly articles refer to the (now defunct) Chemical Bank being fined for money laundering as far back as 1977.

The now infamous Pizza Connection involved the use, by the Mafia, of Merrill Lynch, EF Hutton and several major banks (Barclays, Chase Manhattan, Chemical Bank, Citibank, American Express, Thomas Cook) to launder millions of dollars of heroin profits. The cash was transferred via a number of pizza restaurants presumably as a cover for multiple large cash deposits. The only bank to be officially prosecuted and fined was the smaller Bank of Boston.

An Estimated 2-5% of Global Financial Transactions

The International Monetary Fund acknowledges that government enforcement agencies make no effort to quantify the amount of drug money laundering that goes on in banks under their jurisdiction. At different times the IMF has estimated between $1 and $1.5 trillion a year of money laundering by legitimate corporate financial institutions. They estimate about half of this relates to narcotics trafficking amounting to somewhere between 2-5% of global financial transactions. This relatively small percentage belies its significance in world finance. Drug profits happened to be one of the few reliable sources of hard cash as they represent genuine production in an economy in which the vast majority of wealth is debt based. Moreover drug dealers and minor money launderers have no shareholders or board to report to and are dead keen on transforming their illicit cash into banking assets they can freely spend without government scrutiny.

The Record of Indictments and Civil Fines

Other banks investigated, fined and/or prosecuted in the 1980s include Bank of America, Morgan Stanley, Deutsche Bank and JP Morgan Chase. Unfortunately the saga continues to the present day. Various political and financial analysts, including Michael Rupert, Webster Tarpley and Peter Dale Scott, maintain a scrupulous record of the banks and other companies formally indicted or fined which the corporate media tends to bury on the last page of the business section.

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I am a 63 year old American child and adolescent psychiatrist and political refugee in New Zealand. I have just published a young adult novel THE BATTLE FOR TOMORROW (which won a NABE Pinnacle Achievement Award) about a 16 year old girl who (more...)
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