The Observer reports that an estimated $352bn of drug and mafia money was laundered by the major banks at the peak of the credit crunch, while regulators turned a blind eye, since the highly liquid criminal underworld was the only source of the cash necessary to keep the banks' doors open. As Charlie Stross notes, "A third of a trillion dollars is a lot of money; it's enough to fund the US military invading another country halfway around the world, or a manned Mars exploration program." Charlie goes on to mention that now that these narcobucks "aren't neatly bundled up inside the mattress any more; they're in the system," that there's $0.3 trillion sitting there, nice and legal, entering the investment world. Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organized crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result...
"Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities... There were signs that some banks were rescued that way." Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.
"That was the moment [last year] when the system was basically paralyzed because of the unwillingness of banks to lend money to one another. The progressive liquidation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was," he said.
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