Why Drug Lords Love the Patriot Act.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
It’s far from easy to do business without the financial support of any bank. But Uruguay, in its efforts to create a legal, regulated market for the recreational use of marijuana, is trying. In August it was revealed that some of the pharmacies that had agreed to sell the two varieties of cannabis distributed by the Uruguayan State had received threats from their respective banks, including the local subsidiary of Spain’s Santander, that they would close their accounts unless they stopped participating in the state-controlled sales.
To fill the funding void, the state-owned lender Banco República (BROU) announced that it would provide credit to the pharmacies involved in the scheme as well as producers and clubs. But within days, it too was given a stark ultimatum, this time from two of Wall Street’s biggest hitters, Bank of America and Citi: Either it stopped providing financing for Uruguay’s licensed marijuana producers and vendors or it’s dollar operations could be at risk — a very serious threat in a country where US dollars are used so widely that they can even be withdrawn from ATMs.
Why Drug Lords Love the Patriot Act
The main reason why this is all happening is that under the US Patriot Act, handling money from marijuana is illegal and violates measures to control money laundering and terrorist acts. Despite the fact that US regulators have made it clear that banks will not be prosecuted for providing services to businesses that are lawfully selling cannabis in states where pot has been legalized for recreational use, major banks have shied away from the expanding industry, deciding that the burdens and risks of doing business with marijuana sellers, both within and beyond U.S. borders, are not worth the bother.
The perverse irony, as the NY Times pointed out, is that applying US regulations intended to crack down on banks laundering the proceeds from the illegal sale of drugs to the current context in Uruguay is likely to encourage, not prevent, illicit drug sales.
So far, only 12 of Uruguay’s 1,100 pharmacies have signed up to supply the 17,391 government-registered marijuana consumers, which explains the long, winding queues that often form outside the dispensaries that sell the government-approved product.
Given the payment restrictions imposed by the banks, the pharmacies have little choice but to conduct all transactions in cash. The government also has plans to allow businesses to set up shop just for the sale of marijuana. One “advantage” of these new establishments, many of which will be small kiosks, is that they will know from the get-go that they will not be able to have a bank account in the company’s name, said Diego Olivera, general secretary of Uruguay’s National Drugs Board. They will also be purely cash-based businesses — at least until the banks abandon their boycott of legal marijuana businesses, assuming they ever do.
When the government launched the scheme in July, many consumers were dissatisfied with the potency of the government-licensed marijuana. “The government made a mistake because the first batch they released to the market in July had a potency level of only 2% THC,” says Eduardo Blasina, president of Montevideo’s cannabis museum.
But the government was quick to change tack. “(It) got the message and has now upped the content to 9% THC,” says one Montevideo pharmacist. A consumer himself, he adds: “I’ve tried it and I can assure you that it provides a most satisfactory experience.”
For those who would prefer not to buy their government-approved weed from a pharmacy, Uruguay’s marijuana law allows consumers to grow up to six plants at home or join special privately run “cannabis clubs” with a maximum of 45 members who are allowed to withdraw 40 grams per month from the club’s crop.
“The transformation of consumers has been astounding,” says Blasina. “They’ve gone from buying low-quality products from street dealers to becoming gourmet experts who compete with the crops at their clubs.”
Traffickers Lose Market Share
The scheme has also had a notable impact where it matters most: on the illicit marijuana trade. According to calculations by the National Drug Board, illegal drug traffickers lost 18% of the marijuana market in 2017. This was the overriding goal of Uruguay’s drive to legalize marijuana: to displace the violent drug traffickers that have colonized vast swaths of Latin America in recent decades.
The hope was that by providing clear legal structures to regulate the market, it would undercut illicit marijuana cultivation and sales. “There probably isn’t a trade in Uruguay today that is more controlled than cannabis sale,” said Pablo Durán (a legal expert at the Center of Pharmacies in Uruguay, a trade group). For the moment the strategy appears to be working, despite the financial restrictions imposed by major global banks.
If Uruguay’s efforts to legalize marijuana are successful, they could catch on elsewhere. Public attitudes in some Latin American countries are already shifting. Earlier this year, a study published the International Journal of Drug Policy found that, in some parts of the region, more than 40% of respondents supported legalizing the drug. They included Mexico, where 57% supported it.
In June Mexico’s government took a major detour in drugs policy by legalizing medical marijuana, or more specifically, “pharmacological derivatives of cannabis.” Although riven with shortfalls and limitations, the new law is a sign that Mexico, whose failed war on homegrown drug cartels and their capos is estimated to have cost 200,000 lives since 2006 while doing next to nothing to stem the tide of drugs flowing northward, may be cautiously headed in a new direction.
If a country as large and influential as Mexico were to take a leaf out of Uruguay’s book and embrace wholesale legalization of marijuana, it would signify a sea change in drugs policy across the entire region. By Don Quijones.
Bank of Mexico caught in a vise. Read… Inflation Surges as Economy Bogs Down in Mexico
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Meanwhile, the US’s 3rd largest trading partner, Canada, will have legalized Pot for sale next year. In BC the main distribution hubs will most likely be the Govt. liquor stores.
Merry Christmas Jeff Sessions, you little old elf, you. :-)
Paulo, have you noticed the calls in Canada to “slow down” the date of legalization for one dodgy-sounding reason or another?
Because I have nothing but “Canadian”/US history to look at, I can’t help but think that the legalization of cannabis for recreational use just might be “temporarily” delayed (“temporarily” being used in the same way that Nixon used that word when he “temporarily” stopped the convertiblity of USD to gold in 1971 and how the US congress and the governments of other countries are “temporarily” delaying repaying their national debts).
In other words, as much as it looks TODAY like a slam-dunk for next year, don’t hold your breath waiting for cannabis to be legalized in Canada. Should it actually be legalized, however, THEN you may be free to hold your breath briefly, many times, almost every day. Ahhhhhhhhh
I wouldn’t be surprised. Personally, (and when I was a kid I smoked pot), I am not in favour of legalization to the point of Govt distribution. I also cringe at the idea of people behind the wheel without a foolproof way of testing for driver impairment.
Fine, get rid of the penalties and laws, but let people do their own thing; grow it, buy it, whatever. I don’t think the Govt. needs to be in the distribution business as it offers up tacit encouragement and approval of its use.
I know that in the past people said it would never be legalized out of deference to US laws. But then many states began to break away from Federal direction. Oh well, each to their own I suppose.
“Many states have begun breaking away from Federal direction”
That summarizes a most peculiar situation: growth and sales of marijuana remains a federal crime, and the feds could bust any operation, state or local at any time (imposing huge fines would be an interesting way to balance the budget, for sure). Wolf wrote “US regulators have made it clear that banks will not be prosecuted for providing services to businesses that are lawfully selling cannabis in states,” is equally bizarre, since any “U.S. regulator” (i.e., “the Feds”) must regard this as being in violation of federal law. For you do not see any states making legal production of federally untaxed moonshine liquor, or sales of cigarettes, which have always been legal.
The net result, if there were not already sufficient other reasons, is to lessen the regard and respect for government, even though it continues to wield vast and often frightening power.
It’s what the Canadian government does best, regulation and taxation —- and In The latest negotiations, provinces will keep a large chunk of the revenues. Everyone wins. The liberals just increased their supermajority last week in byelections, fear not, the legislation will pass on time. This will be a multi billion earner for everyone concerned.
” the feds could bust any operation, state or local at any time (imposing huge fines ”
Huge fines? Think RICO…House, property, vehicles….
And one of the FORTUNE FIVE companies in the USA is perfectly implicated in the citizen -killing pharma-company engendered Opiod Drug crisis. Sixty Minutes last night !
Meanwhile, also in the good ole USA, Banks launder money for major international crime cartels, and pay fines that amount to a few days or week’s profits. Similar to the McKesson case mentioned above.
US Corporations have always been above the law, and no Bankster or other Corporate criminal was ever jailed during the Obama Administration, and none so far under Trump. I’d bet that none were jailed during the Bush II administration and the Clinton Administration. Life-ruining jail for young minor drug-offenders, and Hampton Mansions for elite financial criminals. Ya gotta love it !
Watch Tom Cruises’ latest movie “American Made.” It’s a great movie, came out a couple of months ago. All about the goings on in Mena, Arkansas.
I am watching it online now. This is a fabulous movie, including the plot, the acting, the script and even the cinematography. Excellent suggestion, thank you for that.
Based on my memories of the affair, excuse me, the “matter” – at the time (from the national news) the movie story has a core of truth to it.
I have not been a Tom Cruise fan at all over the decades, but I am becoming one through his latest five years of movies or so. He is a talented actor, and has a flair I cannot properly describe. Thanks for the suggestion, I have to go back to watching this. I fear for the ending that is planned.
I should say the historical ending.
I heard earlier tonight that “the Company” was looking aside as some ME terrorist group was working with some North American cartel to smuggle drugs for American young people to ingest, that never seems to change. All to secure the Iran nuclear deal for some reason. Why does this never end?
The new state law in Ca has actually made cultivation more difficult and is reducing the number of dispensaries. Seems those who think it should be legal are also NIMBY. Indoor cultivation adds a layer of additional cost, while not adding that much quality to the product, (or why don’t they grow corn indoors?) The state expects the cost of recreational pot to be about half of that grown in hermetically sealed rooms. Just no place to grow it.
You cannot compare growing corn to cannabis. In fact, growing cannabis indoors, while more expensive than just throwing some seeds in the ground outside, produces a MUCH superior product for the fact that you are in complete control of the environment. High quality cannabis is priced somewhere in the 300-450 USD per ounce, and depending on plant size many ounces per plant are possible. Corn on the other hand produces a handful of ears per plant and those ears are worth how much? A dollar?
So yes, growing cannabis indoors costs a bit more, but your product will be free of bugs, will not need pesticides, if you are skilled mold and mildew won’t be a problem, and just general airborne contaminants (dust dirt pollution) won’t be present; it will be a MUCH better product and worth the cost of lighting, systems etc. Growing outdoors introduces all kinds of contaminants to the plants and the corresponding stresses the plant wouldn’t otherwise go through being grown indoors.
The reason corn is not grown indoors is because there would be no return on what is a very cheap product. Cannabis on the other hand is worth it’s weight in gold.
Apropos of the WolfStreet story about the war on cash : https://wolfstreet.com/2017/12/10/a-new-stealth-attack-in-eus-war-on-cash/ … it seems like this stupid and pointless “war on drugs” will ensure that cash continues to remain king in any country that sees sense and regulates (and taxes) the drug trade. Not forgetting that this idiotic “war on drugs” was actually cynically started by (the saintly) Nixon as a political move against the non-whites and hippy Democrat voters: it actually had nothing to do with drugs at all but was Machiavellian indirect targeting of specific cultural and ethnic groups within society. Big pharma was also pushing this because, like, you can’t allow drugs into society that are essentially grown for free and not from their corrupt chemical factories. Oxycontin is of course far safer, cheaper, natural, non addictive and causes far fewer problems (written in a sarcastic tone; as if you couldn’t tell). Just google “reproducibility crisis” to see the extent of their heinous evil fiddling behind the scenes: lientists such as the criminal Ansell Keys who single handedly made America fat. We have no unbiased scientifically accurate studies as far as most drugs (especially psychotropics) are concerned. It is well past time that “street drugs” are regulated and taxed, then instantly most of the crime would evaporate (as already show by other countries who did this). It’s time for the Nixon induced hysteria to end.
The same was true for Prohibition, in this case being intended for the “working class”, but not the elite. The hard-drinking, but incorruptible
“Fighting Quaker” Smedley Butler, (who won the Medal of Honor TWICE and went to write must-read “War is a Racket” (free on-line)) was put in charge of enforcement in Philadelphia, and as a testament to his character immediately went on the wagon himself, but he quickly discovered that in all the wealthy homes, whiskey was freely available, and that the distillers were providing big newspaper editors and reporters caseloads of booze, to name a few examples. Butler proved to be such a holy terror of enforcement that it was not long before he was removed from office.
I often wonder how much of those politicians protests against the legalization of marijuana is because a lot of that illegal money finds its way into their back pockets.
Governments are STUPID. When it comes to Idiot Grass.
TAX IT, LIKE LOTS, AND LOTS. Even worse than NZ does Tobacco sales.
And make it a very serious offense, to traffic, or sell, Untaxed Product. Like go directly to Jail, do not even think about Bail serious.
Make the Cultivation for Sale/Distribution Legal ONLY with a license. A VERY EXPENSIVE one.
And make it a very serious offense, to Cultivate for Sale/Distribution, without a license. Again go directly to Jail, do not even think about Bail, serious.
Set up a Cannabis Bank. Lend in cash. Take it global. Run it with the strictest money laundering rules.
Any Government will take your cheques when they are for TAX PAYMENT. If they refuse “Tax Payment” the cant claim non payment.
Lets see bank’s try to refuse to process cheques for Tax Payments.
To be honest the Uruguayan government managed to make a fine mess of things.
Uncle Sam will be upon you like a Sparrowhawk upon a clutch of feeding tits if you dare to go against their holy War on Drugs by mentioning the word “drug legalisation”, with full backing from all those making a killing out of this situation, from drug lords to shady companies providing weapons and mercenaries to Latin American countries.
Uruguay should have simply “depenalized”, either openly or stealthly, pot. Uncle Sam may be a violent bully and like all bullies he isn’t particularly bright: he’s still chummy with Morocco, Portugal and Spain, all countries with, how can I put this?, a rather liberal attitude towards drugs. Spain in particular has long been one of Europe’s main entry points for illegal drugs, if not the main one.
But I suspect simply making life for citizens a little simpler wasn’t on the books in Uruguay. The migranious arrangements put in place by the government, starting from the need for pot users to “register” themselves, hint this was an ill-conceived plan from the start. And also one has to wonder why the Uruguayan government couldn’t just sell the stuff itself: I am pretty sure putting up a bunch of kiosks for the purpose would cost far less than many projects I read daily about and repay itself through sales alone rather quickly.
In short responsibility for this fiasco should be evenly split between all partecipants.
Let’s follow the money
1. The total sale in 2016 is 7 billion $ of legal pot.
2. For the sake of the argument let’s add another 15-20 billion $ of illegal sales, not including heroin, cocaine and other drugs…just pot. (actual assessment is >80 billion of illegal pot sales for USA).
3. Let’s assume the cartels keep some 50% of the total illegal sale…nah, let’s go for 25%. A total of 5 billion dollars, 5 000 000 000 dollars, or 88.470 median household incomes in USA. And this is all cash!
So how do you sneak this kind of money passed the IRS? Who is big enough for this money to look like a drop in the ocean? And it’s all in dollars…hmmm…I am not saying they are doing laundering, I am just saying that it’s mighty suspicious of a non us government institution to impose sanctions on other governments for the reason of morality!
Uruguay, I salute you on your courage!
To call a victim of a bully at fault for being to short or wearing the wrong shirt is…a very concerning approach to morality. I don’t get your logic.
There should be more than enough shadow banking shifting capital around the globe to get a tiny operation like this off the ground. Does anyone know, what is China’s official position on POT? Can they drop ship on Amazon? “This good POT, make you just as high, return if not happy..”
Why should the US government want to “win” the war on drugs when continuing The War provides so many benefits— ?
1- Supports budgets and legitimacy of sub-divisions of the Homeland Insecurity system like the DEA and local and state police.
2- Generates a dark pool of bribe income that can be used for sponsorship of covert activities like the death squad wars in Central America and Colombia.
3- Provides yet another funding source for the purchase of politicians.
4- Gives the unemployed rabble something to self medicate with and thus avoid understanding who their real class enemies are, thereby inoculating the system against class based rebellion.
5- Provides a cheap means of voluntary population control.
6- Increases GNP as addicts turn to theft to support their habit and consumers buy new wide screen TV’s to replace the lost goods.
7- Provides the best path to upward mobility out of the ghetto for those who are not tall enough to fantasize about making it in the NBA.
8- Successful drug dealers are perfect candidates for integration into the mainstream political system, having acquired all the necessary skills.
9- Provides a major source of revenue for the money laundering industry (AKA international banking)
“Puritanism: The haunting fear that someone, somewhere, may be happy.”
The original American settlers were Puritans, who were forced to leave Europe, because they tried to force their values on others.
Puritanism is still a big influence in the USA.
Wall Street`s efforts to stop Uruguay selling Legal Marijuana exposes it`s links to the Cartels; such as Sinaloa in Mexico. If Canada, Mexico and Uruguay Legalise Pot, the Cartel`s Profits will be Seriously Reduced. This means Less Liquidity for Wall Street Banks. OOPS.