Ciudad Juarez: The Drug Economy Floods the World with Cash

by John Murray


Obama’s Drug Czar, Gil Kerlikowske, announced a few weeks ago that the federal government would begin to shift its strategy in the War on Drugs, to a focus on prevention, treatment and the public health aspects of domestic drug use and addiction. A lot of people applauded the policy shift as a step in the right direction. It reflects the thinking that the best way to fight drugs isn’t a frontal assault on supply, but instead a campaign to reduce demand. This sort of tactic is important, because it’s less about stopping the drug trade itself and more about trying to root out its causes.

But if the reasons for demand are the willingness of Americans to pay money for drugs, the causes on the supply side are the willingness of cartels to sell drugs for money. And when the profits they generate are so substantial, the addiction to drug money is just as potent as the addiction to drugs.

Right now, just over our border, there are several illicit, ultra-violent, multi-billion dollar business entities operating on the scale of transcontinental corporations. They employ hundreds of thousands of people, and benefit hundreds of thousands more when the capital they generate is disseminated into the larger economy. They wield enormous power and influence in a country where the monetary output of their illegal activity actually stacks up with the biggest legal industries and exports.

When the recent war between these organizations first began, it was ostensibly over territorial disputes within the industry. But now the rhetoric of that fight has shifted, in places like Juarez and Tamaulipas especially, to actually being about literal control of those areas: about owning them.

There’s no better example of how powerful the cartels are than the fact that the Mexican government felt the need to declare ‘war’ on them, as they might against a domestic rebellion or armed political insurrection. And yet for the cartels, there is absolutely nothing ideological or political at stake.

This is what makes the violence in Mexico categorically different from any of the other conflicts we see in the world today. The cartels are ultra-capitalists, willing to do whatever it takes to dominate an industry where there are no rules, no oversight and no limits. Drugs are illegal, but people still want them, and that makes them an extremely profitable commodity. That’s the way it was when Mexican entrepreneurs first began smuggling and it’s the way it is today. Legalization aside then, the problem of drugs, while it should be considered a public health issue, is an economic one.

Our streets are flooded with Mexican drugs; Mexico is flooded with American drug money. And that money doesn’t just stay in the hands of criminals, sitting in a vault in some fortified mansion on a hillside.

Legitimizing money is a big logistical problem for organized crime, but that’s less so in Mexico, where 75% of the economy is based on cash transactions. Without any real system in place to track large cash purchases, drug money is easily laundered into real estate and business investments. There are countless businesses throughout Mexico, including retails shops, car dealerships, dairies, farms, restaurants and distribution companies that are run almost purely with drug money.

But that money still gets paid out to employees, contributes to legitimate enterprises and finds its way into the larger economy. That’s the danger that drug money presents. If the economy becomes dependent on it, if people’s livelihoods are at stake, it can be extremely difficult to extricate.

And that’s not just a Mexican problem. Recently, a former governor of the state of Quintana Roo (home to Cancun), Mario Villanueva, was extradited to the US on charges of accepting bribes and aiding the operations of the Juarez cartel during his term as governor during the 1990s. It was a big arrest, and was seen as very good for the image of the drug war, because it showed that even if it takes a decade, this kind of corruption is eventually prosecuted and dealt with. It looked especially good set against the current slow demise of the Juarez cartel he once, apparently, worked for.

But even more distressing than his functional assistance to the cartel may have been what he did with his earnings. Beginning in 1995 up until the turn of the century, Villanueva laundered over $19 million through various bank and brokerage accounts at Lehman Brothers. Some of these accounts were in ‘safe’ locations like Switzerland and Panama, but a great deal was also held in US accounts. Worse still, a Lehman broker named Consuela Marquez admitted to knowingly laundering the money for Villanueva and even to later liquidating $7 million of it for him as he prepared to go on the run when his term ended amid suspicion of his heavy involvement in drugs.

The case points to an imbalance between our views of drug crime and our view of the financial crime necessary to sustain it. Villanueva faces up to life in prison for his crimes of accepting bribes and turning a blind eye to drug traffickers in his country. Marquez, for willfully taking on millions in drug money and hiding it in licit financial institutions for someone she knew was dirty, received probation and one year of house arrest.

This is not an isolated incident. Raul Salinas, brother of former Mexican president Carlos Salinas, was discovered to have $75 million stashed in Swiss bank accounts when he was arrested on charges stemming from a political assassination. Wachovia just settled for $160 million in a suit claiming that their anti-money laundering checks were inadequate, and that their accounts were used to launder over $100 million in drug money. The UN representative in charge of the office of Drugs and Crime even asserted that the world financial system was saved, after its latest meltdown, by the presence of liquid drug money in banks.

And what about the War on Drugs itself? If the cartels have contributed to the world economy through the trickle-down effects of the immense profits of the drug trade, then the US has contributed to it through the money we’ve spent trying to stop the drug trade. We allocate billions every year for tracking and prosecuting drug criminals. We created the giant bureaucracy of the DEA, we send billions in aid to Colombia and Mexico to attempt in vain to stop the flow of drugs north. We’ve created an entire industry around trying to stop an industry.

It’s going to be just as important for us to wean our economy off the support of drug money as it is to wean addicts off of drugs themselves if we want to have a chance of actually reducing the impact of the cartels and the violence they’re able to create. Going after their ability to hide, move and get access to their money is ultimately going to be more effective than trying to stop them from earning it. If we can devalue drug money by making it harder for it to be used, even a little bit, it will be a big detriment to their ability to operate. If we’re serious about stopping them, we should be forcing them to bury their money in backyards instead of at Lehman Brothers and Wachovia.

Nowadays, money is ever more important for the cartels. As technological advances in surveillance and weaponry have helped the authorities become more vigilant in the fight against drug gangsters over the years, the cartels have had to find ways to adapt, and that takes enormous sums of money. The overhead it takes to avoid detection in moving drugs from South America through Mexico into the US is astronomical. It involves bribes, logistics, equipment. Then there’s the cost of defending yourself from competitors. Without an enormous flow of cash, it wouldn’t be possible for the cartels to operate. And if we make it harder for drug money to be effective in buying the things the cartels need to survive by doing a better job of tracking and going after it, we’ll make it harder for them to use it to bribe and buy the right to exist.

John Murray is a lover of obscurity. He lives and writes in Arizona.