Unholy Trinity / Part Two

Excerpts from Crossing the Rubicon: The Decline of the American Empire at the End of the Age of Oil
Published in 2004 / Chapter 3 

The CIA Is Wall Street, And Drug Money Is King

by Michael C. Ruppert 
[w/his permission]

Drugs

In late June of 1999, NYSE Chairman Dick Grasso traveled to Colombia and met with the leader of the FARC rebels controlling the southern third of the country.  His trip was reported to the Associated Press, and, remarkably, the AP openly stated that Grasso had asked the Colombian rebels to invest their profits in Wall Street.  The FARC make their money by taxing the cocaine trade.  Catherine Austin Fitts described it as "the ultimate cold call."

The amount of profit generated annually by the drug trade, if it is known with any accuracy, is probably one of the most closely guarded secrets in the world.  There are two kinds of money generated by the drug trade.  First there is the money generated at all the stages from growth or manufacture, to processing, to perhaps two or three stages of wholesaling, to retail street sales.  Then there is all the money generated by funding law enforcement, court systems, prisons, and all the construction, cars, radios, boats, guns, and airplanes that go into that.  It has been estimated that the cost of prison construction and operation alone is around $30 billion a year.

But all of that, as important as it is, is not what we are concerned with here.  What we are concerned with is the cash generated from the growth or manufacture and sale of drugs -- because that money is illegal.  It needs to hide, and then it needs to be laundered before it can be used openly.  It is not only cheap and secret capital; it is capital that must be put someplace legal before it can be used.  The illegal-to-legal transition is where someone must know what is taking place.  Ignorance there -- especially when the laundering transactions are gigantic ones -- is not a tenable position.

Among the many kinds of illegal activities in the world, the production and laundering of drug money is central because it establishes channels for the flow of other criminal profits. [Examples: here and here]  In 2001, according to the International Monetary Fund, money laundering processed $1.5 trillion, a figure that exceeded the gross domestic products of all but the world's five largest economies.  In 2000 Le Monde Diplomatique, a respected French publication, estimated total annual criminal revenues at $1 trillion: "The drug trade accounts for as much as $500 bbn and at least $1 bbn in criminal money is laundered every day."  In 1997 the United Nations estimated that, as of 1996, the drug trade represented 8 percent of all world trading activity as measured in dollars.  It estimated then that the narcotics industry accounted for $440 billion in revenues.

Looking at the cash flow in just one locality, PBS's "Frontline" tried to make the numbers a little easier to grasp.  "Imagine a typical weekend in New York City. Experts estimate that at least one percent of the population (80,000 plus) spends $200 on illicit drugs.  That alone would amount to $16 million dollars a week or $832 million a year.  And that's just New York."

Newer figures suggest that the drug trade generates $400-500 billion a year in cash.  However, I once had a conversation with an expert on money laundering who held a very high-ranking position in a US government agency charged with monitoring global cash flows.  On condition of anonymity, that expert told me, "It's much higher than that.  Every conference I go to is attended by the CIA, and we all round the figure off to around $700 billion."  Since the last real numbers I've been able to find date back a few years, and the drug trade is perpetually growing (along with the budgets to regulate it), I have settled on the figure of $600 billion a year for the purposes of my lectures and this book.  

Six hundred billion dollars a year is too much money to hide under a pillow.  [Note: Here's a graphic for perspective.]  In fact, that much cash turning up in one place could overwhelm the banking system of a small or medium-sized country.  Of course the money is scattered all over the place, except in the cases of the major traffickers, and it has a way of moving by itself, electronically, always seeking the places where it will either earn the most profits or do the most good for its owners.  Cash, either hard currency or the electronic kind, is a prized commodity on financial markets because it does things that other kinds of wealth cannot do -- such as pay bill or investors.  The money moves so quickly that, unless one were in control of the computer systems that handle it, or the software that manages it, it would be impossible to trace.  (An excellent discussion of how illegal money moves according to a separate set of laws -- having nothing to do with what we tend to think of as the law -- is contained in Hot Money and the Politics of Debt, by R. T. Naylor.

Second, of all the illegal drugs, from heroin to steroids to ecstasy to cocaine to marijuana, it is heroin and cocaine that are by far the most profitable and which make up the lion's share of that $600 billion figure.  The markup for these drugs is substantially higher, especially when one considers the weight or volume involved per dollar of markup in price.

Almost all the world's cocaine comes from Colombia, having been either grown or processed there.  The heavy production of cocaine in the 1980's from Bolivia, Peru, and in smaller quantities from other Andean nations was largely eradicated by the early 1990's as most production moved north.  However, it is important to understand that worldwide cocaine use has not seen a major drop since the 1980's.  After having peaked at around 600 metric tons in 1987-1988, recent estimates and statements by the Department of Justice have placed US cocaine consumption around 500 metric tons (a metric ton is 2,200 lbs) a year.  That's an interesting fact, since according to an interview I conducted with Dr. Sidney Cohen, a drug expert at UCLA, domestic cocaine consumption in 1979 was only around 80 metric tons.

Somewhere between 400 and 500 metric tons of heroin is consumed worldwide each year.  According to DEA and Department of Justice intelligence reports, about 60 percent of the heroin consumed in the US also comes from Colombia.  But almost all the heroin consumed elsewhere in the world comes from Afghanistan.  Like the coca leaf, the opium poppy from which the heroin is made grows mainly in the mountains and prefers altitudes above 5,000 feet.  But unlike coca, opium is grown in several different regions of the world: South America; the so-called Golden Triangle of Laos, Burma, and Thailand; and Afghanistan, Pakistan, and central Asia in an area called the Golden Crescent.  From 1997 to 2000 and again in 2002, the world's largest producer of opium was Afghanistan, responsible for about 70 percent of the world's supply.

What happened in 2001?  The Taliban banned opium production in the late summer of 2000 and destroyed almost all of the opium that still remained planted; this was completed and confirmed in January of 2001.  According to the Independent, "The area of land given over to growing opium poppies in 2001 fell by 91 percent compared with the year before, according to the UN Drug Control Programme's (UNDCP) annual survey of Afghanistan.  Production of fresh opium, the raw material for heroin, went down by an unprecedented 94 percent, from 3,276 tonnes to 185 tonnes."

Other sources placed the 2000 Afghan opium harvest (conducted from May to June, before the ban) at more than 3,600 metric tons.  The planting season for opium in that region is November, and the harvest is in the spring.  A kilogram (2.2 lbs) of Afghan heroin, refined at a 10:1 ratio from opium, was then fetching US$150,000 in Moscow.

It is interesting to note that in 1996, according to the DEA, "Worldwide opium production was 4,157 metric tons" (an increase of 20 percent in a single year).  Contrast that with one report obtained from the UN Drug Control Program by the magazine High Times stating, "Production of raw opium in Afghanistan shot up from 2,600 tons in 1998 to a record 4,600 tons" in 2000.

What is so significant about this is that if Afghanistan was producing 70 percent of the world's opium, and it produced a minimum of 3,600 tons in 2000, then global consumption increased from 4,100 tons to 5,100 tons (25 percent) in just four years.  If, on the other hand, Afghanistan, as reported by the UN, produced 4,600 metric tons of opium in 2000 and retained a 70 percent market share, then world heroin use had risen 58 percent to 6,571 metric tons per year.  Even Ken Lay of Enron would be jealous of that kind of growth.

It is not likely that opium use increased 60 percent worldwide in four years.  Based on my years of experience, my estimate is that only 8-12 percent of the world's population is predisposed to addiction.  The other conclusion available is that world opium production was being deliberately concentrated in Afghanistan.  But by whom and for what purpose?

Drug money - steroids of the financial world

Now, if you were a corporate executive needing to borrow money for an LBO or to finance a pipeline, you could go borrow the money legally at 9 percent, or you could borrow drug money, laundered once, looking to become legal, at 6 percent.  The drug lord is only too happy to own the bonds of, for example, Halliburton or General Electric.  But if you really wanted to make a killing, you would launder some drug money onto your bottom line and increase your net profits.  You might do it by selling your products "off the books" and accepting cash for them.  Then you would just inflate your net profits without any increased costs.  Philip Morris has been charged with doing just that.  Or, if you made vehicles, you could sell large quatities for a check from an offshore bank, no questions asked, to a guy in South America who wanted to open a Chevy dealership.  GM has reportedly done that.

Enron's crimes all centered around the illegal overstatement of net profits.  They cooked their books using an accounting system called Pro-Forma that allowed them to borrow money with one subsidiary and then book the deposits as earnings.  They even created phony companies that could do business, using paper or electronic transactions, with other Enron companies.  This was the purpose of Enron's so-called off-the-books partnerships known as Chewco, Raptor and LMJ.  

Enron also manipulated energy prices through a variety of methods to create or worsen shortages, raise prices, and rob Californian's blind.  Enron engaged in a shockingly wide array of financial crimes, betraying their stockholders and employees.*  But all the creativity of Enron executives Andy Fastow or Jeff Skillings or Ken Lay could never produce the pure financial power that drug money offers.

Apparently Enron knew that.  It ran about 2,000 subsidiary companies all over the world.  About 700 of them were in the Cayman Islands.  There is no oil or gas in the Caymen Islands.  There is, however, a lot of drug money.

Everything else Enron did had to pass through other companies, leaving records behind.  Drug money is much, much simpler.  Enron's trading company, Enron Online, was one of the largest money-moving operations in the world.  It was just computers and wires in cities and to banks all over the globe.  It was a bank.  And it was there that the greatest criminal activity occurred.  When Enron went bankrupt, the US government allowed Enron to sell Enron Online to the Union Bank of Switzerland.  That meant that all the evidence of money laundering by Enron is now owned by a Swiss bank and out of reach for federal prosecutors.  Neither the Congress nor any US enforcement agency did a thing to stop the sale or transfer of the records.  The evidence walked.

For banks also, the drug money has a special allure.  That is why major banks like Citigroup, Bank of America, Morgan Stanley, Deutsche Bank, and JPMorgan Chase all offer private client services for the very wealthy with very few questions asked.  Yes, the US Treasury and the Department of Justice make a show of being tough under "Know Your Client" regulations.  But the truth is that the money does pretty much whatever it wants to.  And for a bank, every dollar that it has on deposit allows it to lend between 9 and 15 or so dollars based upon the requirements set for it by the Federal Reserve System.

For a bank, a loan is the same thing an order is for a manufacturer.  Loans show up on a bank's books as assets, and that's the part of what helps determine a bank's stock value.  Of course, if a bank takes an extra fee, no questions asked, as Citigroup did from Raul Salinas de Gortari, brother of the former Mexican president, for laundering $100 million in drug profits, who's to say how that money gets reported when it comes to net profits?

[*G ~ for more on Enron's energy manipulation and price gouging scheme - I recommend the Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, it is also a PBS, Independent Lens documentary.]

Birds do it, bees do it -- even GE does it

In 2000 the Department of Justice held a drug money laundering conference and invited some of the biggest names on Wall Street.  The names were not chosen by accident.  Their products had been tracked and linked to money laundering operations in Colombia.  It had been noticed how much drug money was going into the bottom lines of certain major corporations.  The companies asked to attend the conference were Hewlett Packard, Ford, Sony, General Motors, Whirlpool, General Electric, and Philip Morris.

These companies, according to PBS and the Justice Department, were merely innocent victims of the trade.  It's hard to understand how you are being victimized if your sales are great and people are paying with cash.  But the case of Philip Morris perhaps exemplifies general corporate attitudes about drug money.  Philip Morris had been sued by the government of Colombia for smuggling Marlboro cigarettes into that country (bypassing the tax man) and readily accepting large amounts of drug cash from traffickers, then smuggling the cash back into the United States.

Just recently the tobacco giant RJ Reynolds (Nabisco) had been sued by the entire European Union for large-scale smuggling and money laundering.  The competitive edge provided by handling drug money is an instrumental factor in who can compete in a globalized, new-world, corporate order.

A final note before moving on: As Enron (an energy trading company) was failing, the energy giant Dynegy put up $1.5 billion in cash as a part of a plan to bail Enron out.  Enron got the money and Dynegy wound up getting nothing.  What is significant is that Chevron, which had vast investments in central Asian oil fields, had been a part owner of Dynegy since 1996.  In 2001 Chevron added to its investment by giving Dynegy $1.5 billion just before Dynegy gave $1.5 billion to Enron.  So Chevron was either directly or indirectly bailing out Enron, without getting tarred by the unfolding scandal.

This takes on added significance given Enron's drug money laundering connections and the fact that Enron, along with other energy companies like Halliburton, had deep financial connections in the region that were tied both to the successful development of central Asian oil and gas and had ready access to drug cash.

Enron had the contracts and the feasibility studies for much of the pipeline construction that was desperately needed in the region, and it also had a $3 billion investment in a new "white elephant" natural gas-powered electrical-generating station in Dabhol, India, that had only one problem: it couldn't get access to cheap natural gas without a pipeline across Afghanistan.  One former oil industry corporate attorney summed it up best when he said, "When big oil eats, everybody eats.  When big oil doesn't eat, nobody eats."

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NEXT : Part Three of Unholy Trinity / The Smoking Guns

My thanks to Michael Ruppert  for allowing me to share his historically important work,
Crossing the Rubicon: The Decline of the American Empire at the End of the Age of Oil.

[Update: I've been honored to be asked to admin both the Crossing the Rubicon FB page as well as Michael C. Ruppert's FB fan page. Please stay tuned. Consider donating to help me keep Mike's work an open source public service!]

*Sources and footnotes are in the back of the book - it is close to 700 pages long and there are over 6,000 footnotes.  Since the publication of this book in 2004, not one word, footnote or statement has been challenged, asked to be redacted, and Mike has never been sued.

Mr. Ruppert is the publisher and editor of From The Wilderness, a newsletter read by more than 16,000 subscribers in 40 countries. (Archives are still accessible for research.) A former Los Angeles Police Department narcotics investigator, he is widely known for his groundbreaking stories on US involvement in the drug trade, Peak Oil and 9/11.

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