Mexican authorities concede that of the $400m they have seized from drug dealers, virtually none came from Mexican banks. Perhaps more shocking is the fact that "...the United States Treasury has blocked only about $16m in suspected Mexican drug assets since June 2000..."
It would appear that placing your money in a Mexican bank involves more secrecy and confidentiality than many offshore financial havens. Perhaps Mexico should be referred to as an intercontinental financial failed-nation-state?
SPECIAL REPORT-From spas to banks, Mexico economy rides on drugs
"SMURFING" AROUND THE LAWS
Much of the cartels' profits eventually ends up in Mexico's banking system, the U.S. official said. During the global financial crisis last year, those assets provided valuable liquidity, says economist Guillermo Ibarra of the Autonomous University of Sinaloa.
"They had a cushion from drug trafficking money that to a certain extent helped the banks," Ibarra said.
Indeed, drug money in banks is a global phenomenon, not just in Mexico. A United Nations report on the global drug trade in 2009 said that "at a time of major bank failures, money doesn't smell, bankers seem to believe."
Drug gangs in Mexico have their associates make thousands of tiny deposits in their bank accounts to avoid raising suspicion from banking authorities, a practice known as "smurfing," said the U.S. official.
Mexico's banking association and the finance ministry's anti-money laundering unit declined to comment for this story.
While Mexico is confiscating more drugs and assets than ever under President Felipe Calderon, forfeitures of money are still minuscule compared to even low-ball estimates of the amount of drug money that flows into Mexico.
Under Calderon, authorities have confiscated about $400 million, almost none of which was seized from banks, said Ricardo Najera, a spokesman for the Attorney General's Office.
Mexican bank secrecy laws make it particularly difficult to go after drug money in financial institutions, Najera said.
"We can't just go in there and say 'OK, let's have a look,'" he said. "We have to trace the illicit origin of that money before we can get at those bank accounts."
The U.S. Treasury has blocked only about $16 million in suspected Mexican drug assets since June 2000, a Treasury official in Washington said.
The official, who asked not to be named, said the sanctions program aims to hit drug lords by breaking "their commercial and financial backbones." But freezing assets is not "the principal objective nor the key measure of success."
MAFIA CAPITALISM
Data on Mexican banking provides a novel way for calculating the size of the drug economy. Ibarra crunched numbers on monetary aggregates across different Mexican states and concluded that more money sits in Sinaloan banks than its legitimate economy should be generating.
"It's as if two people had the same job and the same level of seniority, but one of them has twice as much savings," he said, talking about comparisons between Sinaloa and other states.
Ibarra estimates cartels have laundered more than $680 million in the banks of Sinaloa -- which is a financial services backwater -- and that drug money is driving nearly 20 percent of the state's economy.
Edgardo Buscaglia, an academic at Columbia University, recently scoured judicial case files and financial intelligence reports, some of which were provided by Mexican authorities.
His research found organized crime's involvement in Mexican businesses had expanded sharply in the five years through 2008, with gangs now involved in most sectors of the economy.
Buscaglia thinks Mexico's lackluster effort to confiscate dirty money is allowing drug gangs and other mafias to flourish.
"You will wind up with mafia capitalism here before things improve," he said.
Even though cartels are clearly creating jobs and giving a lot of people extra spending money, some of these economic benefits are neutralized by a raging drug war that has scared investors.
About a dozen foreign companies in Ciudad Juarez, across the border from Texas, are postponing investments in factories there because of regular gun battles in the city, said Soledad Maynez, who heads a local factory association.
She met with the companies' representatives in November. "They need the security issue improved," she said.
Business leaders say thousands of shops have closed in Ciudad Juarez because of the violence.
Another problem the economy could face is that drug funding could one day fall if authorities cracked down on money laundering or somehow wrenched power away from the cartels.
"(Drug money) could have a short-term positive effect. But in the long run, because you're propping up this artificial economy, the moment it stops it all crashes," the U.S. law enforcement official said. (Additional reporting by Lizbeth Diaz in Tijuana, editing by Claudia Parsons and Jim Impoco)
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