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Criminal Prosperity

Drug Trafficking, Money Laundering
and Financial Crises after the Cold War

by

Guilhem Fabre

Scientific coordinator for the Asian network
of UNESCO's MOST Drugs Project

PROGRAMME MOST - UNESCO

RoutledgeCurzon Taylor & Francis Group.
LONDON AND NEW YORK

© 2003
ISBN 0-7007-1498-7


also available in French


 

Contents

Introduction

1. The Mirror of History
Opium and colonization

2. Drugs and Post-Communism: The Chinese Case
The rise of drug trafficking and consumption in China
The new drugs war
The expansion and diversification of drugs supplies
Yunnan: Drugs and geopolitics in Sino-Burmese relations

3. The Socio-economic Stakes of Drug Trafficking
The laundering matter
The role of offshore banking

4. Japan: The Yakuza Recession
Lessons from the Japanese crisis

5. Crisis and Laundering in Mexico: From the 'Tequila Effect' to the 'Cocaine Effect'

6. Crisis and Laundering in Thailand: The Provincial Godfathers' Launch on Bangkok

Conclusion


Abstract

Drug trafficking creates the most visible part of organised crime profits, which have grown considerably since the end of the cold war. The mirror of history clearly shows us the impact of the drug trade in the colonisation of Asia. The post cold war geopolitical context reproduces elements of this colonial past, with new opportunities for drug trafficking in the globalisation process, as evident, for example, in China.

The Mexican crisis of 1994 and its 'tequila effect' is placed in the context of a 'cocaine effect', due to the local laundering of drug profits in the US. The Japanese crisis of the 1990s is related to the economic influence of the yakuza on the real estate bubble, postponing necessary market adjustments. The Thai crisis of 1997 is analysed in the light of massive money laundering of institutional and criminal networks, whose undeclared profits represent about 10% of the Thai GDP.

These three case studies, which are confirmed in the conclusion by a short analysis of the Russian crisis of 1998, illustrate a new interpretation of financial crises focusing on the unexplored dimension of illicit actors.

Guilhem Fabre, sinologist and socio-economist, has published extensively on Chinese modern history, literature and economic development. He is currently teaching at the Faculty of International Affairs, University of Le Havre, and co-ordinating for Asia a UNESCO international research project on organised crime and money laundering.


Introduction

Since the end of the Cold War, there has been a worldwide increase in corruption, organized crime, drug trafficking and drug consumption. This book sets out to define the relations between these three phenomena: first with an historic statement of their convergence in the nineteenth century, then by looking at the current extent of the illicit economy. At the end of the twentieth century the UN and the International Monetary Fund estimate the turnover of organized crime at US$l000 billion, in other words 3 per cent of the world gross domestic product. Approximately one half of this figure is connected to drug trafficking, the most notorious area of crime. Research shows that there is no criminal network which specializes solely in drugs. Organized crime takes advantage of a group of illicit activities: smuggling, dealing in arms and fissile materials, dealing in and procuring labour, the export of dangerous and toxic objects, dealing in stolen vehicles, in archaeological artefacts and objects of art, etc. In addition, it can be seen that these multiple service networks are supported by the globalization of trade.

An historical perspective, contemplated in the first chapter through the example of the Middle Empire and more generally of Asia, provides a picture of incestuous links that have been forged between opium, colonial expansion and corruption. The end of the Cold War corresponds to a worldwide expansion of the market economy comparable to the situation which prevailed before the war of 1914-18. This movement marks the renewal of an illicit economy, of drug trafficking and corruption in emergent countries and those in transition. The example of China, developed in Chapter 2, allows us to analyse the institutional, social and geopolitical stakes related to the reappearance of drugs in a country where they were practically eliminated after the revolution of 1949.

The economic effects of drug trafficking, and in a larger sense of organized crime, are taken into consideration in Chapter 3, where the question of laundering is first considered. One of the essential paradoxes of policies against drugs is that criminalization has tended to focus on drug consumption while the laundering of profits, which constitutes the central activity for the economic market, remains practically unpunished. Despite the calls made for the decriminalization of consumption by many practitioners and by the ex-General Secretary of Interpol, Raymond Kendall, prisons have been filled with user-sellers who feed the cycle for the future. In the United States, for example, two-thirds of the 2 million people detained in prison have serious drug problems.

In contrast to drug consumption, which is kept constantly in the public eye, the laundering of drug profits goes on in relative obscurity. Even though court cases regularly throw light on the involvement of prominent figures, including some heads of state, public opinion remains confused about the qualitative leap which has been made by organized crime. Not very long ago, one of the most lucrative crimes was bank robbery, whereas the great breach of law now consists in depositing money in the bank. The main threat is no longer the robber but the banker, whose co-operation must often be bought so that suspicious transactions are not disclosed. In other words, corruption is becoming the crime weapon. The banking profession, with its social prestige, has an image of integrity that keeps it fairly safe from the temptations to which it may be exposed. And since public opinion is amply supplied with anecdotes about various mafias, it harbours few suspicions about bankers. However, the very high yields of globalized financial markets have accustomed numerous operators to profit margins that cannot be obtained in real production, but are easy to negotiate in laundering activities, which pay between 25-30 per cent on investments.

The convergence among the licit, illicit and criminal spheres is facilitated by hypertrophied financing and by the guaranteed confidentiality of many offshore centres. The effects of this convergence, analysed in very general terms by the IMF, are already considerable. As the following pages show, there are links between money laundering and financial destabilization in the crises undergone by Mexico (Chapter 5), Thailand (Chapter 6) and Japan (Chapter 4), and that finally spread to all of Asia and indeed the world. If the strongest allies of organized crime are fear and silence, it is time to cast light on crime's prosperity, which is the great motive for its economic and political expansion.


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