|from London Observer
Drug money saved banks in global crisis, claims UN advisor
DRUGS AND CRIME CHIEF says $352bn in criminal proceeds was effectively
laundered by financial institutions
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
"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