Drug money saved banks from collapse

While banks were enduring a severe financial downturn, they absorbed billions of dollars in drugs money, says Antonio Maria Costa, head of the United Nations Office on Drugs and Crime.

Costa told the Observer that drugs money “saved banks from collapse” at the height of the global financial crisis, the Daily Mail reported on Sunday.

The head of the UNODC said there were signs that some banks were rescued by billions of dollars that “originated from the drugs trade and other illegal activities”.

Speaking from his office in Vienna, Costa referred to the problem faced by many banks in the second half of 2008, as they were no longer able to lend each other.

“The system was basically paralyzed because of the unwillingness of banks to lend money to one another,” he told the newspaper.

Analysts maintain that following the collapse of US lender Lehman Brothers in September 2008, the inter-bank market system was also paralyzed and no longer could keep the constant flow of liquidity to the banks.

This, they claim, paved the way for banks to absorb drugs money that came to the salvage of some of the banks.

Costa noted there were evidence supporting the idea that the proceeds of organized crime were the “only liquid investment capital” available to some banks on the verge of collapse last year.

The United Nations estimates that the international drug barons and cartels rake in more than $300 billion annually.

Costa said a majority of this money generated from drugs profits is absorbed into the economics system, effectively laundering it.

A British Bankers’ Association spokesman, reacting to the UN report on drugs money, told the Observer, “We have not been party to any regulatory dialogue that would support a theory of this kind.”

“There was a clear lack of liquidity in the system and to a large degree this was filled by the intervention of central banks.”

The UN drugs and crime chief said that the problem came to his attention around 18 months ago and that he was not going to mention the names of the banks involved in absorbing the drug money.

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