Drug trafficking, which is the basis of drug lords' harmful and illegal trade, causes harm in several ways, with drug smuggling becoming more systematic around the world. This trade not only affects public health and causes drug-related deaths, but it also has a substantial negative impact on the economy. According to the research, drug trafficking is projected to cost more than $435 billion per year globally. In the United States, drug trafficking costs approximately $193 billion annually in lost health care, criminal justice, and lost productivity. Although combating drug trafficking has become more challenging as criminals' money laundering methods evolve constantly, local and international organizations have been attempting to solve the problem by enacting comprehensive Anti-Money Laundering (AML) policies and collaborating in recent years. Furthermore, new AML techniques and technologies offer significant benefits for combatting drug trafficking.
What is The Definition of Drug Trafficking?
The term "drug trafficking" refers to the global criminal trade involving the illicit trade, production, and distribution of drugs and illegal substances. As a result of globalization, the methods of smuggling drugs are constantly changing, and how they are smuggled is becoming more complex. The only thing that does not change is the profitability of drug trafficking. To legalize the profits from these illegal activities, drug dealers convert illegal money into income from supposedly legitimate sources. Therefore, drug trafficking often works together with other forms of crime, such as money laundering and corruption.
What is The Link Between Drug Trafficking and Money Laundering?
Drug trafficking and money laundering are directly related and complementary crimes. Large amounts of money obtained from drug trafficking are illegal and must be laundered for legitimate use. Money laundering involves the process of disguising the proceeds of illegal activity as legitimate funds. This allows criminals to use their illicit funds for legal purposes, buy political influence, and avoid detection by law enforcement agencies.
Drug traffickers use various methods to launder their proceeds, such as investing in legitimate businesses, buying and selling real estate, and cryptocurrency. They may also use complex networks of shell companies, offshore accounts operating in major money laundering countries to hide the true source of their funds. Drug cartels like Mexican Jalisco New Generation Cartel (CJNG) use other strategies like The Black Market Peso Exchange (BMPE).
Three Main Phases of Money Laundering in Drug Trafficking
Money laundering in drug trafficking typically involves three main phases: placement, layering, and integration.
- Placement: The first phase involves placing the proceeds from drug trafficking into the financial system. This may involve depositing cash into bank accounts, buying money orders or traveler's checks, or investing in assets such as real estate or businesses.
- Layering: The second phase involves layering or disguising the source of the funds through a series of complex transactions. This may include transferring funds between bank accounts in different countries, using shell companies to obscure the source of the funds, and engaging in other forms of financial transactions to conceal the illicit origins of the funds.
- Integration: The final phase of money laundering involves integrating the laundered funds back into the legitimate economy. This may involve investing in legitimate businesses, buying assets such as real estate or luxury goods, or using the funds for other legal purposes.
Launderers have invented a variety of techniques to conceal the vast money made by smuggling drugs. To evade currency reporting requirements, one option, structuring, involves dividing significant sums of cash into transactions totaling less than $10,000. Other scams include casinos, diamonds, precious metals, wire transfer businesses, and cash smuggling out of the country. Because of the immense profitability of drug trafficking, drug dealers may benefit from the balloon effect of global illegal commerce. Criminals alter techniques, industries, geographic routes, brokers, technology, and so on as soon as law enforcement personnel detect and move to restrict one laundering method. These rich and powerful drug syndicates hire specialists and deploy cutting-edge technology, intelligence, and strategies, including purchasing influence in smaller nations, to stay one step ahead of police enforcement.
AML Legislation and Its Role in Combating Drug Trafficking
The social consequences of money laundering are far-reaching and potentially very destabilizing for a state. For this reason, AML laws have established new measures to prevent it while also allowing us to identify criminals and the predicate crimes from which the money was derived. These measures include customer due diligence, monitoring of transactions, and reporting suspicious activities to law enforcement authorities.
AML legislation has proven to be an effective tool in combating drug and preventing money laundering by employing a two-pronged strategy:
- Attacking criminal organizations' economic power and preventing them from profiting from illicit profits
- Preventing the negative impact of criminal enterprises on legitimate economies.
Because the world of money laundering has grown so complex and global, governments around the world are collaborating and sharing information to combat drug trafficking and other forms of financial crime. Many countries, including the United States and the European Union, have implemented AML regulations. These regulators require financial institutions and other businesses to follow strict reporting requirements and implement sufficient internal controls to prevent money laundering.
International Organizations Against Drug Trafficking
Money laundering rules are enforced by various agencies, including the FBI, Customs, Drug Enforcement Administration (DEA), IRS, Federal Reserve, and Treasury. FinCEN, a division of the United States Treasury, employs artificial intelligence technology to evaluate all Currency Transaction Reports (CTRs), which individuals must file with the United States government when they receive cash payments over $10,000, as well as Suspicious Activity Reports (SARs) filed by banks, thrifts, credit unions, and commercial and law enforcement database systems.
Various national, regional, and global arrangements and organizations aim to prevent money laundering. Many nations have established Financial Intelligence Units (FIUs) comparable to FinCEN to acquire and process financial disclosure information and to help anti-money laundering operations.
The G-7 nations established the Financial Action Task Force (FATF) in 1989, and it has released 40 recommendations or guidelines to combat money laundering. The United States forced the FATF to produce a report in 2000 that named 15 "non-cooperative nations and territories" (NCCTs) and indicated that if they did not cooperate adequately within one year, they would face countermeasures. In reality, almost immediately, the United States and other FATF members compelled financial institutions to strengthen their inspection of NCCT transactions, consequently impeding or, in some circumstances, effectively prohibiting most transactions from some of these countries.
Combating Drug Trafficking with AML Methods and Technologies
Here are some ways in which AML methods and technologies can be used to combat drug trafficking:
- Customer Due Diligence (CDD): Financial institutions and other businesses can implement CDD measures to verify the identity of their customers and assess their risk profile. This can help identify potential money laundering activities and suspicious transactions related to drug trafficking.
- Transaction Monitoring: Financial institutions can use transaction monitoring systems to detect suspicious activities related to drug trafficking. These systems can flag transactions that are inconsistent with a customer's usual activity, involve large amounts of cash, or involve transfers to high-risk countries.
- AML Screening: Prospects are screened by all financial institutions throughout the onboarding process. A conventional single or restricted attribute matching engine, on the other hand, delivers a high proportion of false positives. By combining crucial entity information with external data, a multi-dimension algorithm may improve the efficacy of matching outcomes.
- Risk Assessment: Financial institutions can use risk assessment models to identify customers and transactions that pose a higher risk of money laundering. This can help focus resources on higher-risk areas and activities related to drug trafficking.
- Artificial Intelligence (AI) and Machine Learning (ML): AI and ML technologies can be used to analyze large volumes of financial data to identify patterns and anomalies that may indicate money laundering related to drug trafficking.
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