Economy & Trade, Headlines, Latin America & the Caribbean

CHALLENGES 2006-2007: Drug Money Impact Heavy but not Decisive in Mexico

Diego Cevallos

MEXICO CITY, Dec 21 2006 (IPS) - Estimates on how much drug money circulates in Mexico’s financial system vary widely, but experts say it is not a central factor in the health of the economy. Nevertheless, they say its power to corrupt is immense, and that it is impossible to uproot.

According to estimates by the U.S. government, drug traffickers launder around 24 billion dollars a year in Mexico.

But Ricardo Gluyas, an expert at the public National Institute of Penal Sciences of Mexico, says that figure is unfounded, and says the real amount ranges between three and seven billion dollars a year.

Part of that money circulates directly in the banking system, although traffickers are facing growing difficulties and moving their funds in ever smaller amounts, because any unusual movement, or any transaction involving more than 10,000 dollars, must be reported and its executor identified, under Mexican law.

Another portion goes towards luxury goods, real estate, bribes or gambling, or ends up in foreign banks.

Unlike “legitimate” investors, drug traffickers do not mind paying high interest rates or losing part of their money in the laundering process.

The U.S. Drug Enforcement Administration (DEA) says a large part of the cash from drug sales in the United States makes its way to Mexico by land, where it is invested in small businesses.

There are many ways to launder money – which means introducing illegally gained assets into the legal financial system with the aim of covering up its true origin – and they are in constant flux in response to changes in the controls implemented by governments.

Gluyas, author of the book “Ganancia Ilícita. Prevención contra el lavado de dinero” (Illicit Profits: Preventing Money Laundering), says the amount of money that drug trafficking injects into the Mexican economy is not big enough to have a major impact on finances.

José Luis Piñeyro, an expert on security at the Autonomous Metropolitan University (UAM), concurs. “If that money were to be pulled out of the Mexican economy, I doubt that it would trigger a crisis,” he told IPS.

Different methodologies are used to estimate the amount of money that is laundered, and it is impossible to come up with a reliable figure.

The U.S. government and other sources calculate that laundered funds are equivalent to between three and five percent of gross domestic product (GDP) in drug producing or transit countries.

Although the amount of money laundered in Mexico is significant, it pales in comparison to the country’s 400 billion dollars a year in foreign trade.

And with respect to Mexico’s GDP, estimated at 800 billion dollars, the money laundered would represent less than four percent if the largest U.S. estimates are used.

The United Nations International Narcotics Control Board (INCB) estimates that between half and two-thirds of global drug profits remain in industrialised countries, which are also the main consumers.

The biggest drug users live in the United States and western Europe, where they spent 80 billion dollars in 2000 on heroin and cocaine alone, according to the INCB.

The Mexican finance ministry’s financial intelligence unit reported that it receives some 2,500 reports a month from banks of suspicious transactions, while in Colombia, the world’s leading producer of cocaine, there are only 700 reports a month.

“Mexico is much more able to curb money laundering, which is why drug traffickers now prefer to move their money across borders in cash,” Gluyas told IPS.

Piñeyro said that money laundering operations – “which from my point of view can be reduced, but never eliminated” – are necessarily accompanied by corruption of police and employees of banks and exchange bureaus.

Government officials, justice system employees and members of the military are also involved “at levels that are hard to imagine,” he added.

Arrests of low-ranking members of the police and military with links to the drug trade are common in Mexico. But senior military officers and police chiefs are rarely arrested, despite continued rumours about their ties to drug cartels.

“It’s curious that although there is so much drug trafficking and violence in Mexico, those who are arrested are always low-ranking authorities or people who are poor and have little formal education,” said Piñeyro.

During the administration of Vicente Fox (2000-2006), more than 13,000 alleged drug traffickers were arrested, most of them small-time drug dealers.

Mexico is no longer merely a transit country, but is now also a consumer and producer of drugs, says a 2005 report by the INCB.

The Attorney-General’s Office recognises that small time drug dealing is growing exponentially in Mexico, partly due to a lack of funds and staff to combat the phenomenon.

Small-time drug sales grew more than 700 percent in the capital between 2001 and 2004, according to the Attorney-General’s Office.

Reports by the Attorney-General’s Office say there are 30,000 drug-dealing spots or “tienditas” in the country, which distribute some 78 tons of drugs a year. That figure does not include dealers who have no fixed location.

The dealers – mainly entire poor families – earn large sums of money in the “tienditas”, which are disguised as legitimate small businesses.

But most of the profits from drug sales are not earned by the small-scale dealers, or even by local drug traffickers, but by people in the big consumer countries, reports the INCB.

“The war on the drug trade and money laundering will never be won,” said Piñeyro. “In the best of cases, a certain level of control can be achieved, but it is an endless war in terms of both time and space.”