At the height of his powers, Pablo Escobar was raking in $149.5 million every single day,
in today’s money at least. That’s $55.5 billion a year. As the famous anecdote goes,
his cartel was going through a thousand dollars a week in the rubber bands that went around the
wads of cash. Escobar owned exquisite mansions, a fleet of luxury cars, and
even a personal zoo featuring giraffes and hippos. But to get all those things, like any law-breaking
drug trafficker, he had to get his vast amount of mostly American money cleaned. As you’ll see
today, this is sometimes quite a complex operation and involves a lot of law-abiding ‘friends’.
Let’s stick with the deceased Mr. Escobar before we talk about the present
state of money laundering for today’s super-rich technology-savvy criminals.
We guess we should first explain a bit about what money laundering actually is,
for those of you unacquainted with high crime. Basically, if you were a criminal earning millions
of bucks from your highly illegal enterprises, you’d want to spend that money without someone
asking questions, this is when money laundering comes in. Even smaller drug dealers these days
will have a small front business, say, a burger restaurant, so it will look like they earn cash
from legitimate trade. All you have to do are things like inflating the prices, so it
looks like you’ve earned a legitimate profit. That’s the real basic kind of money laundering.
But when you’re big, you’ll need someone to wash your dirty cash in a complex system,
hence the term laundering. You can’t just keep all that cash under your bed, and if you want to
put it in a bank, you’ll need to make it look as though it was earned through legal enterprises.
You first get the money. Then, you can layer it by doing lots of small global transactions,
perhaps by buying stocks, or by using a shell company. After that you integrate the money,
meaning the money earned has come back to you to buy things with, but now it looks
as if you earned the cash through legal means. Back in the day, the Colombian cartels didn’t
always use complex schemes. Those were the early days when law enforcement was
lax and just about anyone could be bribed. In those days, the cartels would sometimes
simply buy gold from Italy. They brought so much that they almost destabilized the
price of gold there. That gold would then be smuggled back to Colombia – with some bribes
on the way no doubt – then the cartels would sell the stuff to create legitimate money.
Sometimes they simply sold it to Panama, but other times they smelted it and sold it to town
mayors in Colombia. Those mayors then sold it to the state, saying it came from local mines.
Many years after Pablo Escobar met his end on a hot tin roof, the Sinaloa Cartel would buy gold
in the USA. They’d then sell it in the US, where someone would melt it down and sell it
for hard cash. In this case, the melting guys in Florida would keep one percent of the earnings,
which was still a lot. Sure, it meant falsifying lots of paperwork,
but it worked. Well, it did until it didn’t. Gold is great for traffickers. In 2020,
there were reports that one company based in Dubai was buying large amounts of gold from traffickers,
and then that company was selling the gold to large US companies that used the precious
substance for certain components in goods. So, if you’ve ever used a product made by Apple,
General Motors, or Amazon, and it has gold bits in it, you might have unwittingly helped
those cartels. The company in Dubai denied doing it, but the DEA said it transferred
“tremendous amounts of illicit value through the use of gold as a commodity.”
The New York Times wrote about a vicious cycle that has been going on for years. That cycle goes:
drugs-gold-money-drugs-gold-money, and so on. The US States attorney said then that getting
the drugs into the US was actually easier than getting the money out.
You should know that when a large sum of money appears in a bank account it can set off alarm
bells. There was a guy in the UK who made a ton of cash from investing in virtual currencies
and then one day he found out that his account had been closed due to a flag of suspicious activity.
He almost had a heart attack, but the bank hadn’t taken the money. They gave him a check, and in the
end, he just had to do his banking elsewhere. The tide of drugs and drug money never ends.
It might get slightly interrupted, but the drug war is possibly the best example of
Sisyphus pushing that ball of rock up a hill for eternity. That’s why drug traffickers have
to keep evolving their laundering schemes, just as the man you know as El Chapo did.
While El Chapo was in his prime, he used an ingenious method to fly under the radar. A
man named Hernan Botero Moreno came up with the idea of depositing less than $10,000 at a time
and got the name Papa Smurf, hence the term smurfing. He’d get what has been described as
an “army” of ‘smurfs’ to deposit drug money in banks, but to avoid the bank issuing a
Suspicious Activity Report, the amount of cash was always under $10,000. Cute.
But even with an army of people, it’s not really that effective when you are
talking about millions upon millions of dollars. El Chapo had many other tricks up his sleeves,
too. He’d do what’s called “trade-based money laundering”, meaning he’d simply
buy goods from companies with his drug money and sell the goods in Mexico for
pesos – and we’re talking about A LOT of goods. This can might mean a company knowingly taking
illicit cash or they are unaware they are dealing with extremely dodgy people.
What the authorities will be doing meanwhile is looking for companies that have suddenly started
selling way more than they did previously, or perhaps companies that have historically used
money transfers but then suddenly change to using large cash deposits instead.
Let’s give you a real example. El Chapo for a while was buying large
amounts of clothes in L.A.’s fashion district, and some of those sellers were not reporting
their transactions. This went on for a while, with El Chapo selling the clothes in Mexico. It
only came undone because US banks started becoming suspicious when they saw the accounts of some of
those sellers. But wouldn’t you do the same given the opportunity? A cartel buying your goods in
bulk can be a really good way of making money. So, while this is a lot easier than you might
have thought, the Cali and Medelln Cartels used to do something even simpler. They used
check-cashing stores in New York City to get money back to Colombia, and while you might think this
wasn’t efficient, they sent $800 million back through this scheme – before it was exposed.
Banks can help too. When the cartels started making ridiculous amounts of money, they started
putting it in banks in Miami, which led to alarms sounding after a while. The Federal Reserve Bank
said Florida had a $5.5 billion cash surplus when all over the country there was a cash deficit.
It turned out the banks involved were taking massive lump sums of cash and asking for
very little documentation. They were found out through something called “Operation Greenback.”
But don’t go thinking that just because banks have been busted in the past, other banks didn’t
take huge amounts of cartel cash later. In 2006, a DC-9 jet landed down in Mexico where there was
a bunch of soldier waiting for it. When they checked the contents of the plane, they found
around $100 million of cocaine. That was hardly a big deal, but what was a big deal was evidence
in the plane that showed the Sinaloa had been laundering billions of bucks through a US bank.
That bank was the Wachovia bank, which later became part of Wells Fargo. No one at the
bank ever went to prison for the crime, although forfeiture and a fine in 2010 meant the bank had
to give the authorities the total of $160 million. That wasn’t much, actually only two percent of the
$12.3 billion the bank made in 2009. It’s not as if the bank was friends with the cartels, or at
least we don’t think that was the case, but as the US media said it showed a “blatant disregard for
our banking laws.” The money was just too good. Here’s what The Guardian had to say about this:
“More shocking, and more important[ly], the bank was sanctioned for failing to apply
the proper anti-laundering strictures to the transfer of $378.4 billion – a sum equivalent
to one-third of Mexico's gross national product – into dollar accounts from so-called casas de
cambio (CDCs) in Mexico, currency exchange houses with which the bank did business.”
In this case, an English bloke working at the bank, Martin Woods, had spotted the
suspicious accounts, but when he told his superiors something sketchy was happening,
he got in trouble. He later took the bank to court and won a settlement for unfair dismissal.
He said of the bank’s dealings with the cartels, “These are the proceeds of murder
and misery in Mexico, and of drugs sold around the world. But no one goes to jail.”
And, don’t go thinking other banks don’t do it. With relatively small penalties and
massive profits to make, you’d be a fool not to get involved. That usually just means turning
a billion blind eyes. In fact, banks have been called the “financial wing of the cartels”. They
are almost silent partners. In the words of Bob Dylan, “Steal a little, they throw you in jail;
steal a lot and they make you a king.” Ask the British investment bank, HSBC,
which not that long ago was down on its knees saying, “Sorry, sorry guys…sorry…bad
form old chap.” That’s because it was doing business with the largest drug cartel in the world
and the bosses it seems had given the accounts the blind eye treatment. It was obvious it was
cartel money, that’s for sure. This was Wachovia part two,
a bank, by the way, that monitored $376 billion of dodgy cartel cash. That’s a lot of money going
through your bank from people who sometimes do business with a chainsaw and a pair of pliers.
HSBC let $670 billion of cartel cash go through its systems without being monitored.
The cartels even had special boxes made where they could dump huge amounts of cash
right at the teller windows at HSBC outlets in Mexico. It ended up paying 1.256 billion
in forfeiture as well as another $665 million. Where exactly all that money goes depends on
various factors, but it usually just goes back to law enforcement, we guess, so they can carry
on fighting the war on drugs. Sisyphus gets some new shoes, and he needs them. The war on drugs
costs the US $51 billion per year and has cost well over one trillion over 50 years, although
most of the money comes from the taxpayer. Anyway, you can’t really beat having banks
handle your cash and not asking questions. It’s akin to the cops helping you get away with murder,
and the best thing is, if you’re a banker, you’re too big to go to jail.
A former federal agent said it really bursts people’s bubbles who think money laundering
is always super complex. It sometimes isn’t. That guy said in an interview,
“It's so simple. It's so unsophisticated. That is what to me is the most disturbing part of this.
These guys are not even trying that hard.” Take for the example of the drug cartel which
goes by the name of Los Zetas. They had a scheme in which they bought racing horses and used the
profits to launder through the Bank of America. In this case, a US man connected to the gang did the
banking. It was small change, though, amounting to only $1.5 million. Also, in this case, the
bank wasn’t to blame so no fines were handed out. The thing with banks is they can say they didn’t
know what was going on, but sometimes they really don’t. That’s why many cartels will look for
weak spots, meaning banks in some countries that don’t have the highest grade mechanisms in place
to spot suspicious movements of money. It goes without saying, that the cartels are
still doing it today. Sometimes they do what rich folks do who make their money legally. That is,
store the money off-shore where it can’t be taxed. Regular companies do this by exploiting
loopholes in the law, with royalty, big business, celebrities, and politicians getting in the act.
A modern example of this is the case of Mexican boss named Rafael Caro Quintero
whose incredibly expensive mansion was bought through an off-shore account.
By using such ghost accounts, the cartels can layer the money through many transactions.
Some Chinese businessmen are in one the deal, too, due to it being a vast country
with massive and intricate industries. The US media reports that China is actually the
go-to place these days for the cartels, where money laundering is said to be a complex issue.
It was reported in one recent case that a large network of Chinese nationals were
taking the drug money from the cartels by picking large sums up in the US. Often, the
laundering was that trade-based laundering we talked about earlier, where the buying of
goods is the name of the game. Just make it look like you’re buying big from a business in China
and that company will do a bit of what’s called “trade mis-invoicing” and everyone’s a winner.
Not long ago, a Chinese national was arrested in the US for doing something called a “mirror swap”
with the cartels. In this case, the broker took the drug money and then
transferred the same amount of Chinese currency in their Chinese bank to a Chinese launderer.
Money just got swapped, and how do the US authorities track Chinese money? Not easily.
The Chinese person who was caught in this case was under surveillance, with the FBI hearing on tapped
telephone calls the guy saying he was really worried about getting ripped off or even killed.
He was handed three million over some time, which he had to send to someone else in China.
He took a three percent commission. He probably shouldn’t have worried about being killed since
a good money launderer is a hot property. Some of the stranger ways to launder your
cash is something you might have already thought about when you imagined becoming a criminal.
What if you simply opened an account with an online gambling platform? That way, you could
keep the cash there and get it out using a variety of payment methods. You could also take the risk
of gambling but only bet on safer kinds of bets, such as what people sometimes call sure winners.
Criminals have also used casinos in a similar way. Again, it is very basic. You go into a casino and
buy a large number of chips. You then play a bit and cash them in. This has been happening
at casinos for years. As you have a receipt from the casino, it looks like you have clean money.
Just in 2021, the media reported that a Chinese gang of launderers had been busted
for cleaning millions in drug money for the cartels. They did some trade laundering but
they also sent money to a Chinese businessman who’d opened his own casino in Guatemala City.
You can be sure, having a casino working with you is an excellent way to get rid of your cash.
In fact, many of the most recent reports feature Chinese nationals using casinos
and also cryptocurrencies to help the cartels clean their hard-earned blood money.
When you purchase crypto you do so with an identifying number but you don’t have to
give your full name. Even though the blockchain where the transactions are recorded is there for
the authorities to see, it is hard for them to track back the cash to a cartel. The criminals
could also have lots of accounts with different kinds of currencies, and they can also use smurfs
in the virtual world to handle their money. It’s thought that the cartels have used
cryptocurrencies to buy certain chemicals needed to make synthetic drugs made by
Chinese companies. The word on the street is the cartels have moved around three billion
through Chinese crypto exchanges accounting for 50 percent of the crypto money they have.
That analysis was from 2019, but you can be sure that this new way of laundering has taken
off a lot more since then. The drug trade likely seems even more enticing than it did in the past,
so we very much doubt that Sisyphus is going to retire anytime soon.
As things stand, his sentence is still eternity.
Now you need to watch “Cocaine vs Heroin - Which Drug is More Dangerous (Drug Addiction).”