Let’s Not Kid Ourselves: The Capture of the World’s Most Wanted Businessman Changes Nothing

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Who’s benefiting from the war on drugs?

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

To the immense relief of Mexico’s embattled President Enrique Peña Nieto, Joaquín “El Chapo” Guzmán, the world’s most wanted businessman, has been caught. The last time Guzmán was detained,  in February 2014, Peña Nieto decided to keep him in the custody of Mexico’s penitentiary system. Within 16 months, El Chapo had escaped – a big blow to Nieto’s already deeply tarnished reputation.

This time around, the pressure to extradite Guzmán to the U.S., where he faces trial on a plethora of charges, could be too much to bear. But how much difference will Guzmán’s arrest and extradition to the U.S. actually make to the massive — and growing — trade in illegal drugs between Mexico and the United States? According to El Chapo himself, very little.

If Guzmán is extradited, he will no longer be able to pull the strings of his global business like before. But someone else will, most likely his second in command, Ismael Zambada. Meanwhile, El Chapo’s capture and extradition is likely to unleash even more violence in Mexico as the cartels engage in new turf wars while using whatever means necessary to resist capture and extradition to the U.S.

The last time Guzmán was arrested, his business empire barely skipped a beat. In fact, as El País reports, it grew, expanding its market both at home and abroad. According to the U.S. Treasury Department, a quarter of all drugs consumed in the U.S. are now distributed by Guzmán’s Sinaloa cartel. The vast revenues generated by the cartel’s sales of cocaine, marijuana, and meta-amphetamine, both in the U.S. and around the world, are laundered through a complex network of 280 businesses in 10 countries.

At the beginning of the global financial crisis, Antonio María Costa, the former Under-Secretary of the United Nations Office on Drugs and Crime, warned that the European banking system had lowered its security barriers, opening the financial floodgates to drugs money. To this day not a single European government or politician has responded to Costa’s accusation that the European financial system was as good as saved by the global drugs trade — none more so than everybody’s favorite offshore tax haven, the City of London.

Describing the international drug trade, organized crime expert Roberto Saviano recently told the Independent on Sunday that “Mexico is its heart and London is its head.” According to the British government’s own National Crime Agency, “hundreds of billions of US dollars” are laundered through banks in the United Kingdom every year – banks that have flagrantly ignored “know your customer rules,” which are designed to prevent criminals from laundering the profits of their illegal activities.

It’s not just banks that are helping drug cartels launder the proceeds of their lucrative trade. Also at it is the Mexican government, according to Edgardo Buscaglia, a world-renowned expert on organized crime and corruption. In a recent interview with Sin Embargo, Buscaglia alleged that some of Mexico’s drug cartels are cleaning their funds through the mass purchase of government bonds.

“Thanks to the complete lack of controls and transparency over who owns Mexico’s public sector bonds,” this illicit form of investment is flourishing, warns Buscaglia. “An independent audit of Mexico’s public debt – now over 7 trillion pesos ($390 billion) – is desperately needed, because on many occasions it is these criminal groups that are buying the bonds the government issues, through ‘legal’ front companies or persons.” In other words, in the absurdest of ironies, Mexico’s drug cartels are indirectly funding the very war that the government is waging against them, a war that has cost Mexico more than 150,000 lives. This also explains the recent explosion of regional debt in states like Coahuila and Chiapas.

The web of beneficiaries from the War on Drugs extends far beyond Mexico’s shores, however. It includes Police department budgets everywhere as well as the U.S. prison-industrial complex, which would quickly collapse without the constant turnover of inmates. It includes realtors in Miami and all other global cities where narcos invest the blood-tainted proceeds of their business, including my home city of Barcelona. It includes entire countries like Panama and the Cayman Islands that exist as depositories for drug profits.

It includes insurance companies that profit from a high level of street crime and the attendant rates their services command. It includes politicians, police chiefs, and army generals who are directly or indirectly on the drug cartels’ payrolls, as well as the judges and lawyers administering “justice.” It includes the more than 6,000 licensed gun dealers dotted along the northern side of the U.S.-Mexican border and the international arms manufacturers who provide the tools of violence on all sides of the conflict. Finally, it includes the clandestine national security agencies that use drug profits to fund their off-the-record operations. (My thanks to WS reader RDE for help in compiling this list.)

If Mexico’s Drug War ended tomorrow, all of these stakeholders would take a financial hit. And that is the prime reason why the U.S.-led War on Drugs, now in its 46th year of outright failure, is unlikely to end any time soon, despite its attendant costs, including the complete breakdown of law and order in the world’s 15th biggest economy. By Don Quijones, Raging Bull-Shit.

Is it an aberration or design feature? Read…  The Perverse Paradox in Mexico’s “Model” Economy

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  11 comments for “Let’s Not Kid Ourselves: The Capture of the World’s Most Wanted Businessman Changes Nothing

  1. John Doyle
    January 11, 2016 at 4:17 pm

    Mexico’s problems stem from having the USA as it’s neighbour. You’d think they [USA]would have understood after the Prohibition fiasco that the draconian anti drug laws don’t work, except to make crime very profitable.
    No one is suggesting we make it easy for drugs to be available, but legalising it, stigmatising it as with tobacco are options that have to be considered asap. With legal drugs Mexico’s difficulties would largely die off.

    • economicminor
      January 11, 2016 at 6:25 pm

      you really think the US doesn’t know?
      The drug sales were always about money.
      Money for the CIA
      Money for the Prison Industrial Complex
      Money for specialized Law Enforcers
      Money from confiscation on Rico
      Money laundering thru the banks… with no penalty
      Money money money!
      It was never about solving a problem
      Just like the War on Poverty
      or the War on Terror
      It is always about money.. follow the money

    • Curious Cat
      January 11, 2016 at 6:32 pm

      Good point, Mr. Doyle. Human behavior will trump moral suasion every time. Remember “Just say no”?

      New York is a good example of this. It has been estimated that New York will lose $5 billion in cigarette taxes this year because taxes have been raised to the point that cigarette smuggling is profitable.


      NY made tobacco so expensive the average tobacco consumer treats it like weed. (By the way, this is a good argument against making tobacco illegal.)

    • Bobcat
      January 12, 2016 at 10:37 am

      But the drug laws do “work”, just not the way they are touted. It’s a huge system of rackets which has corrupted all levels of government and business.

      Legalization is highly unlikely while so many are on the take. Nobody wants their ox gored.

    • Andre
      January 12, 2016 at 2:19 pm

      I believe it was Henry Anslinger not wanting to lose his job and his power that did a lot for the prohibition of drugs once alcohol was re-legalized.

  2. Kreditanstalt
    January 12, 2016 at 1:20 pm

    The demand for US customers and the high US$ prices that attract new entrants to the drug business are ultimately due to the reserve currency status and ability to inflate that the US dollar still, perversely, enjoys.

  3. RDE
    January 12, 2016 at 1:51 pm

    If in fact the US government were more powerful than the cartels instead of their silent partner, putting an end to drug violence would be easy.

    1- Legalize all drugs, whether they make you high, low, healthy, or addicted.

    2- For an initial period provide all the drugs that the cartels now profit from free to any user. The cartels would be forced out of business and have to live off their accumulated capital just like other “legitimate” vampire capitalists.

    3- Spend the money saved from the War on Drugs on rehab and job opportunities, and let those who choose to OD and check out do so.

    Prediction: The OD fatality rate would be less than the current one from drug turf wars, and would have less impact on innocent bystanders.

    Prediction: Once the cycle re-sets addiction rates would be no higher than they were under the War on Drugs.

    • d
      January 14, 2016 at 8:10 am

      The Korean war was very useful for Mao.

      At the end of the civil war in mainland china. Mao had millions of addicts and dealers on his hands. At the end of the Korean war he had none. A little trick he learned and modified from Stalin.

      There are other options. To those you outline.

  4. Chicken
    January 12, 2016 at 2:55 pm

    economicminor is absolutely correct, notice the heroin consumption spike resumed once the CIA arrived back inside Pakistan. Coincidence?

  5. Jonathan Bello
    January 21, 2016 at 5:24 pm

    The problem with legalization is there is precedence. There was practical legalization in China during the 1800’s and until Mao.
    The addicts were in the millions. The economy was completely tainted by the marketing corruption, competition, violence, and not much was accomplished in China during that period.( something like the hollowing out of the US today but occurring
    in a much poorer country). In other words you doom your country and its people to non-achievement and zombie land. It is not alcohol.

    • d
      January 22, 2016 at 1:46 am

      In the Majority of the Period you are talking about the two largest drug dealer networks were controlled by. The Chinese nationalists, and the Japanese occupying forces.

      The nationalist marketed drugs to keep the poor quiet, and finance their war effort.

      The Japanese marketed drugs, to make the chinese pay for their occupation. Modeled on india, where up until WWII, india returned a profit, annually, to the British Exchequer.

      So as an objective model, for legal drug society, it is a huge inaccuracy.

      I favor a legal drug society.

      Where all drugs are approved, available, and taxed by the state.

      Where selling drugs, or non approved drugs, without a license, is a very serious offense.

      Operating vehicles, or machinery, under the influence of drugs, is a serious offense..

      All drug buyers, and users are registered.

      All employers have access to the users registry.

      All employers have the wright to refuse to employ, if drug use could be negative to their entity, in their opinion.

      All other employees have the wright to know, if a fellow employee is a drug user, as the should not have to carry drug users, in their work place.

      All drug users must be responsible for their own health care costs.

      All drug users will not be eligible for state income support. As their choice to take drugs, makes then practically unemployable in a constrained employment market.

      Any Person, has the wright to take drug’s.

      I have the wright, not to contribute, directly, or indirectly, to the associated cost’s, of that drug use. To know that you may pose a danger to me, my coworkers, my immediate family, or my entity’s, directly, or indirectly, due to your drug use

      If we legalize drugs, we no longer need to fund the huge prison or enforcement costs, we gain tax revenue, and return a large capital sum to the white economy.

      We can relieve our health and social services, of the drug use, cost burden. (Alcohol and Tobacco, are drugs)

      Since there has been society, there have always been 2, 1%’s. The 1% Abusing/addicted to drug’s, and the 1% that accumulate wealth(*NB).

      Why are we still trying to fight, both of them ?

      (I have seen on more than 1 occasion. Hard drug users, replace their physical drugs, with MONEY. Having become addicted to the thrill of making money, they simply cant get enough of it. It takes a great deal of skill and management to survive as hard drug user. These skills make these people highly successful in business, and as Tax avoiders. They are still addicts, they just have a different drug.

      (How many successful Wallstreeter’s/Banker’s, are in fact “Money Addicts”?))

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