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