Money Laundering: Following the Illicit Drug Trade’s Dirty Money

March. 7, 2025 /Mpelembe Media/ — The  crucial role of money laundering in the illicit drug trade, estimating its global value at half a trillion US dollars annually. It details how drug cartels function as international logistics companies, with profits distributed across the supply chain from producers to street-level dealers.

There various money laundering techniques, from wire transfers and shell companies to bulk cash transfers and the use of professional launderers. There is involvement of major financial institutions and underground banking networks in facilitating these activities. The ineffectiveness of current anti-money laundering efforts and sug focuses on seizing the financial assets of drug traffickers and tackling corruption. There is need for a shift in drug policy, prioritising investment in affected communities and targeting the financial structures that sustain the drug trade.

Drug trade profits move through various methods to become legitimate, often circumventing detection systems. The process, known as money laundering, involves transforming illicit money into untraceable funds or assets that can be easily spent or sold. Here’s how it generally works:

Laundering techniques Common techniques include wire transfers to offshore bank accounts, investments in shell companies, deposits in cash businesses, and buying foreign currencies or cryptocurrencies. Bulk cash transfers, involving the physical transportation of cash across national borders, are also frequently used.

Professional money launderers International cartels, national distributors, and large-scale wholesalers often employ professional money launderers, some of whom may have seemingly legitimate jobs in the financial sector. Some money laundering networks are as global as the drug supply chains they service. Chinese underground banking networks are used to launder drug money by wealthy Chinese nationals seeking alternatives to conventional banking systems due to capital flight restrictions. Similar arrangements occur worldwide, including the black market peso exchange and the Hawala international money transfer system.

Exploiting vulnerabilities Professional launderers exploit vulnerabilities in the global financial system, where suspicious transactions occur without proper checks or oversight, reducing transparency and eroding public trust.

Everyday money laundering Street-level dealers may spend their cash on routine living expenses, which, while a money laundering offense, is seldom prosecuted. Some dealers use “strawmen” (friends or family) to put assets like cars, properties, or businesses in their names. Legal businesses like bars, clubs, gyms, and salons can be set up with drug money, as large cash infusions to establish a business are often not well scrutinised. These businesses can incorporate drug revenue into their financial accounts by reporting sales that do not occur. Construction companies and restaurants also serve as fronts due to their high volumes of transactions.

Self-laundering Some drug dealers incorporate laundering practices within their legitimate jobs, such as tradespeople generating invoices for fake jobs and reporting the income on their tax returns. Paying income tax effectively renders illegal income laundered, allowing it to be invested and used to set up other businesses or purchase assets without suspicion. Many small-time drug dealers start legal businesses to exit the illicit drug trade, transforming their proceeds of crime into spendable cash.

Bulk Cash Transfers Cash generally remains the primary currency of both the illicit drug trade and corruption, even as the world moves towards cashless transactions. The biggest and most successful drug traffickers have significant cash reserves used to pay workers, replace seized drugs, accrue assets, and bribe officials. Transnational law enforcement should prioritize detecting and seizing bulk cash transfers, as these high-volume proceeds underwrite the wellbeing of drug trafficking organizations.

Challenges in Detection There is no surefire way to tell whether a business is a laundering front. Tax authorities generally trust declared income as proof of legal business activity and often lack the resources to investigate businesses for money laundering.

Anti-money laundering (AML) efforts against organised criminal gangs are “notoriously ineffective”.

Reasons for this ineffectiveness include:

Vulnerabilities in the financial system Professional launderers exploit vulnerabilities in the global financial system, allowing suspicious transactions to occur without proper checks or oversight. This reduces transparency and erodes public trust.

Limited Scrutiny of Cash Infusions Legal businesses like bars, clubs, gyms, and salons can be set up with drug money because large cash infusions to establish a business are often not well scrutinised.

Challenges in detecting dirty businesses There is no surefire way to tell whether a business is a laundering front.

Resource constraints Tax authorities generally trust declared income as proof of legal business activity and often lack the resources to investigate businesses for money laundering.

Bulk cash transfers Cash generally remains the primary currency of both the illicit drug trade and corruption, even as the world moves towards cashless transactions.

US policy The US has undermined its anti-money laundering toolkit by suspending the enforcement of beneficial ownership information reporting requirements. The US has also shirked its leadership in global anti-corruption efforts with the recent halting of the enforcement of the Foreign Corrupt Practices Act, which bans the bribing of foreign officials.

Corruption Corruption of officials remains a problem. Governments need to ensure their officials are well paid and sufficiently monitored in their roles.

Even though the Financial Action Task Force (FATF) assesses financial regulators’ anti-money laundering controls all over the world, the success of the FATF’s anti-money laundering controls remains unclear.

Cartels use a variety of techniques to launder money, including:

Wire transfers to offshore bank accounts.

Investments in shell companies.

Deposits in cash businesses.

Buying foreign currencies or cryptocurrencies.

Physical transportation of cash across national borders, also known as a “bulk cash transfer”.

Black market peso exchange and the Hawala international money transfer system.

Exploiting vulnerabilities in the global financial system. Suspicious transactions can occur without proper checks or oversight, which reduces transparency and erodes public trust.

Using “strawmen” Some dealers solicit close friends or family members to act as “strawmen”. These are people willing to put assets paid for by illicit drug money – such as cars, properties or even businesses – in their names on behalf of the dealer.

Setting up legal businesses Legal businesses like bars, clubs, gyms, and salons can be set up with drug money, as large cash infusions to establish a business are often not well scrutinised. These businesses can incorporate drug revenue into their financial accounts by reporting sales that do not occur. Construction companies and restaurants also serve as fronts due to their high volumes of transactions.

Incorporating laundering practices within legitimate jobs Tradespeople, such as electricians or plumbers, can launder money by generating invoices for fake jobs, then reporting the income on their tax returns.

Professionals play a key role in money laundering, often operating “under the radar of law enforcement and the media”. Here’s a breakdown of their involvement:

Professional Money Launderers: International cartels, national distributors, and large-scale wholesalers often employ professional money launderers. Some of these launderers may hold seemingly reputable positions within the financial sector.

Exploiting Financial Systems: These professionals are adept at creating and exploiting vulnerabilities within the global financial system. Their actions allow suspicious transactions to proceed without proper checks or oversight, which diminishes transparency and erodes public trust in the system.

Laundering Techniques: The techniques used by professionals to launder money include:

Wire transfers to offshore bank accounts.

Investments in shell companies.

Deposits in cash businesses.

Buying foreign currencies or cryptocurrencies.

Physical transportation of cash across national borders.

Examples of Professional Involvement:

Chinese underground banking networks: Wealthy Chinese nationals use these networks to launder drug money, seeking alternatives to conventional banking systems due to capital flight restrictions.

TD Bank: Was fined a record penalty of US$3 billion for facilitating the laundering of millions of dollars of drug cartel money. Over six years, more than 90% of the bank’s transactions went unmonitored, enabling “three money laundering networks to collectively transfer more than US$670 million through TD Bank accounts”.

Corruption: Corruption among officials, whether in government, border control, banks, police departments or prisons, remains a significant problem. This corruption enables money laundering activities.

Challenges in Detection:

There is no surefire way to tell whether a business is a laundering front.

Tax authorities generally trust declared income as proof of legal business activity and often lack the resources to investigate businesses for money laundering.

The primary countries and regions where illicit drugs and precursor materials are grown or manufactured. These include:

Colombia and Bolivia: Principally known for the production of cocaine.

China: Involved in the production of methamphetamine and precursor materials.

Afghanistan: A key producer of heroin.

The “golden triangle” of Myanmar, Laos, and Thailand