A Note on Money Laundering

The United Nations Office on Drugs and Crime (UNODC) conducted a study in 2011 to determine the magnitude of illicit funds generated by drug trafficking.  It estimated that in 2009, criminal proceeds amounting to 2.7 per cent of global GDP (or $1.6 trillion) was being laundered. An earlier (1998) study by the International Monetary Fund arrived at a similar estimate, placing the total laundered at between two and five percent of world GDP, i.e. between $590 billion and $1.5 trillion.


In 1989, the Group of 7 (the largest industrialized countries), established the Financial Action Task Force (FATF) to combat money laundering and since then, there has been a growing effort to crack down on criminal organizations and governments.

One aspect of the picture that has become very clear is that funds from drug trafficking flow massively to terrorist groups. The following are extracts from a 2014 FATF study, Financial Flows Linked to the Production and Trafficking of Afghan Opiates:”

  • Drug trafficking is a business, but our understanding of this enterprise and response to it remain limited - less than 0.5% of the total laundered funds are seized.
  • Terrorists profit from and are engaged in opiate trafficking - over half the Afghan Taliban Senior Leadership listed under United Nations Security Council Resolution (UNSCR) 1988 are involved in drug trafficking. 
  • International opiate traffickers rely on the services of financial professionals, either unwitting or complicit, to manage their assets but no global system exists to alert countries or the private sector of these individuals and entities, or to freeze the assets of opiate traffickers.
  • The majority of illicit funds are likely moved through, and possibly stored in, financial centres. As the region's leading financial centre, the United Arab Emirates’ (UAE) financial system appears to be particularly vulnerable to abuse by opiate traffickers, regionally and internationally. 

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  • Strong differences at Assembly Special Session on Drugs
  • Hardline prohibitionist draft submitted to Drug Assembly


Hypocrisy on display as Un bodies brief on terrorism financing

12 December 2016: A revealing examination of lessons learned in cutting the financing of terrorist organizations can be seen on a broadcast of UN Web TV on 12-13 December 2016. It took place in a joint special meeting of the Security Council’s Counter-Terrorism Committee and the ISIL (Da’esh) and Al-Qaida Sanctions Committee with the Financial Action Task Force (FATF) and other relevant international and regional organizations.

An interesting aspect of the proceedings is the question of the identify of those who trade oil and illicit drugs with terrorist groups. In the first session on the morning of the 12th the representative of Algeria asked why they remained anonymous but the meeting ended before he got an answer. No one asked why there was no talk of banning shell companies and tax havens, which are the essential apparatus to hide the proceeds of drug trafficking, the most important source of terrorist financing. That lack of interest is significant for the same apparatus is used by elite groups around the world to hide wealth and criminal activity.

Also interesting is the question why groups vehemently against the use of opiates should be involved in trafficking them. One speaker noted the “hypocrisy;” no one yet has suggested that drug trafficking is the primary aim of terrorist groups, and that their religious beliefs are mere pretensions to sucker the naïve and the stupid.

The meeting follows similar open briefings held in December 2015 and April 2016 that examined national practices and regional initiatives to implement relevant regional and international instruments. The current meeting will continue discussion of terrorism-financing trends and the best ways of countering them. The following “Concept Note” was circulated prior to the meeting. It makes no mention of the need to ban tax havens which form the essential infrastructure for terrorist financing. No doubt that has something to do with the fact that elites in every country use the tax haven system to hide assets – and are thus directly supporting terrorism even as they devise ever more draconian laws to control it.. 

Concept Note

Depriving Terrorist Groups from Accessing, Raising, and Moving Funds: Practices and Lessons Learned” United Nations Headquarters, New York, 12-13 December 2016

I. Introduction

1. In its efforts to combat the global terrorist threat, the international community has prioritized the development of mechanisms to prevent terrorist organizations, particularly the Islamic State in Iraq and the Levant (ISIL, also known as Da’esh), from accessing the funds and other assets needed to finance their operations and recruitment activities.

2. Efforts to deprive terrorists of the resources needed to commit terrorist acts and sustain their activities has been at the core of the international community’s counter-terrorism agenda since the adoption of the 1999 International Convention for the Suppression of the Financing of Terrorism and Security Council resolution 1373 (2001), which complements the Convention, particularly with respect to disruptive measures such as the freezing of terrorist assets.

3. Over recent years, Member States have achieved substantial progress in developing and implementing such mechanisms. However, terrorist groups continue to find ways to raise and move funds, including through innovative and sophisticated ways to mobilize financial resources, including through the use of information and communications technology (ICT).

4. Of particular concern in the current terrorist environment is the urgent need to develop mechanisms to prevent returning foreign terrorist fighters (FTFs) and dormant terrorist cells from accessing funds and assets. Responding to this emerging challenge will require strengthened cooperation and coordination among national agencies, particularly intelligence agencies and financial intelligence units (FIUs).

5. On 17 December 2015, the members of the Security Council, represented by their ministries of finance for the first time in its 70-year history, held a special meeting on combatting all form of terrorist financing, including the financing of ISIL. The Council, adopting resolution 2253 (2015), emphasized that a successful strategy to counter the financing of terrorism required a global response and called for strengthened international efforts to detect and disrupt terrorist groups’ funding flows. In adopting this resolution, the Security Council expressed its determination to address the threat posed to international peace and security by ISIL, Al-Qaida and those associated with them and the importance of cutting off their access to funds, including the proceeds of illicit trade in oil, antiquities and other natural resources.

6. Acknowledging the threat posed by terrorist groups and individuals to the international financial system, the Financial Action Task Force (FATF) recently updated its global counter-financing of terrorism strategy and developed a related operational plan to help States counter the global threat posed by terrorist individuals and entities.

7. On 14 April 2016, the 1267/1989/2253 ISIL (Da’esh) and Al-Qaida Sanctions Committee and the Counter-Terrorism Committee, together with FATF, held a joint open briefing, at United Nations Headquarters, on depriving terrorist groups of funding sources. During the meeting, public and private-sector experts highlighted the major challenges involved and discussed ways to strengthen information-sharing by Government entities and public/private partnerships aimed at preventing terrorists and terrorist entities from accessing funds.

8. Member States continue to review the terrorism-financing-related risks posed by ISIL, Al-Qaida, those associated with them and other terrorist groups, as well as the operational barriers to the sharing of financial information in this context, including with a view to strengthening the contribution of counter-terrorism financing agencies in the prevention and investigation of terrorism. A number of international bodies, including FATF, are examining potential legal and technical barriers to the effective sharing of terrorist financing information.

9. Member States have taken steps to strengthen their relationships with the private sectors, including financial institutions and Internet service providers, with a view to mitigating terrorism-financing threats and sharing terrorism-financing risk indicators. States have also operationalized measures to protect sectors that are most vulnerable to terroristfinancing abuse. These practices should be shared with all Member States.

10. Terrorism financing is often a cross-border crime that involves several Member States and requires effective cooperation at all levels, including intelligence, judicial cooperation, and mutual legal assistance, in order to effectively prevent, identify and disrupt. In an effort to overcome the obstacles that often hinder international cooperation, Member States have developed formal and informal mechanisms, including in the context of the fight against organized crime, which are being used to address terrorism financing risks.

II. Objective

11. The proposed joint special meeting would be held pursuant to resolution 2253 (2015), which directs the 1267/1989/2253 ISIL (Da’esh) and Al-Qaida Sanctions Committee, with the assistance of its Analytical Support and Sanctions Monitoring Team (the “Monitoring Team”) in consultation with the Counter-Terrorism Committee (and, inter alia the Counter Terrorism Committee Executive Directorate (CTED)), the Counter-Terrorism Implementation Task Force (CTITF) and FATF, to hold special meetings on important thematic topics.

12. The purpose of the proposed joint special meeting would be to build on the outcomes of the above-mentioned December 2015 meeting and April 2015 open briefing of the Council and to examine national practices and regional initiatives to implement relevant regional and international instruments, including the related resolutions of the Council. The proposed joint special meeting would also enable the two Committees, Member States, and relevant international and regional organizations to continue their discussion of terrorism-financing trends and to share practices and effective tools to deprive terrorists of financial resources.

III. Format of discussions

13. The joint special meeting would begin with an opening session that would include keynote addresses by the two Committee Chairs, the President of FATF, and a representative of the Secretary General’s Office. The opening session would be followed by a series of substantive sessions, arranged in a “presentation and discussion” format to encourage interactive discussion.

14. On the first day, the participants would discuss (i) the identification of current terrorism-financing risks and the importance of national or regional risk assessments; (ii) the continued risks posed by the financing of FTFs and returnees; and (iii) the impact of targeted financial sanctions aimed at depriving terrorists and terrorist entities of funds.

15. The second day would focus on ways to prevent the misuse of certain key sectors to raise or mobilize funds, focusing on: (i) the misuse of new technologies to raise and move funds (in particular, fundraising through social media, “crowdfunding”, new payment products and services) (ii) preventing and protecting the non-profit organizations (NPO) sector from possible terrorism-financing abuse using a proportionate, risk-based approach (iii) the vulnerability of the money-remittance sector to terrorist abuse and the prevention of the cross-border movement of illicit funds through more effective declaration or disclosure systems; and (iv) practices to enhance terrorism financing related international cooperation.

16. The participants would be requested to raise issues and questions relating to the above-mentioned topics. CTED, acting in close cooperation with the Monitoring Team, would circulate an annotated agenda, meeting documentation, and other logistical information, which would also be posted on the websites of both Committees.

Outcome: The Concept Note ends by setting out the organizational and procedural details of the meeting, which is expected to highlight national and regional practices to address new terrorist-financing threats. A joint summary of the Chairs, highlighting the main points and conclusions of each session, and a report summarizing the national and regional practices and lessons learned will be the main outcomes of the meeting.

Strong Differences at Assembly on Drugs

22 April 2016: The special session of the General Assembly on the World Drug Problem got off to a rocky start at UN headquarters in New York on 19 April as member States disagreed strongly on what was billed as a "consensus" Outcome Document. In UN parlance, "consensus" does not mean agreement but a momentary burial of differences, in this case, until the next Assembly special session in 2019.

The major differences centered on the effort of a growing number of States to move away from a prohibitionist drug control regime that has expanded and become ever more rigorous since the 1912 Opium Convention. It is the basis of the global "war on drugs" that has tried for decades to control the use and trafficking of so called "illicit drugs" and chemicals used in manufacturing them. The reason for the shift has been the massive failure of the three international drug covenants that have the primary objective of reducing drug trafficking and use. 

The emphasis on police methods to fight drug use has been entirely counterproductive, serving to drive up the windfall profits of the organized crime syndicates that make and trade the drugs. Those revenues are now the mainstay of money laundering and international terrorist financing. Efforts to enforce prohibition have also led massive human rights violations even in democratic countries. 

In a notable anomaly, the General Assembly itself moved significantly to ease prohibition at its last regular session, adopting a resolution in December 2015 calling for "new approaches" focused on the welfare of victims and human rights protections. The Special Session of the Assembly was unable to adopt the same language because its Outcome Document was prepared by the 13-member International Nacotics Control Board (INCB), a quasi judiciary body mandated to oversee implementation of the problematic drug conventions. 

The current members of the INCB (with terms expiring in the years noted parenthetically are: Richard P. MATTICK of Australia (2017), Raymond YANS of Belgium (2017), Wei HAO of China (2020), Francisco E. THOUMI  of Colombia (2020), Ahmed Kamal Eldin SAMAK of Egypt (2017), Bernard LEROY of France (2020), Werner SIPP of Germany (2017), Jagjit PAVADIA of India (2020), Sri SURYAWATI of Indonesia (2017), Alejandro MOHAR BETANCOURT of Mexico (2017), Jallal TOUFIQ of Morocco (2020), Viroj SUMYAI of Thailand ( 2020). David T. JOHNSON of the United States (2017)

The INCB is not without support from governments because the prohibitionist drug conventions give a great deal of discretionary power to all police and intelligence agencies, and greatly facilitate authoritarian governments, especially State sponsors of terrorism and money launderers. Their statements in the Assembly (video coverage on Drugs page), justify prohibition because drug abuse is hugely harmful. That is so but not on scale the INCB portrays it: the 29 million figure it uses for drug addiction includes people who have tried a drug once in a year. According to the UN Office on Drugs and Crime the actual addict population is under 3 million. The 200,000 annual drug-related deaths should be seen in comparison with the 8 million people killed annually by abuse of alcohol and tobacco.

Going by the statements made by States disgruntled by the INCB sleight of hand, it is likely that preparations for the 2019 special session will be different. It remains to be seen whether ECOSOC will move the preparatory responsibility from INCB to an inter-governmental body and whether a decision is made to vote on the next Outcome Document rather than adopt another meaningless "consensus."

An interesting nuance of the ongoing debate about decriminalization is the jockeying of corporate interests to profit from drug sales, especially marijuana. Reform of the system will have to thread the policy needle of how to decriminalize without replacing organized crime with corporations. A solution might lie in making drugs available free by prescription. The cost would be far cheaper than the current war on drugs and it would cut out all profit potential from private manufacture and trade. In this context, the 2016 special session has taken important action, for it mandates global expansion of the system dispensing pain-killing medication. 

Hardline Prohibitionist Draft Submitted to Assembly Special Session

19 April 2016: On 14 April, General Assembly President Mogens Lykketoft submitted a surprisingly hard-line draft resolution for adoption at the special session on drugs (19-21 April). Entitled “Our joint commitment to effectively addressing and countering the world drug problem,” it omits language that would have allowed States to ease out of the strictly prohibitionist approach of the disastrous “war on drugs.” The missing language appears in a General Assembly resolution on the special session (A/70/181) adopted as recently as 17 December 2015 and distributed on 8 January 2016.

Paragraph 17 of that resolution called on Member States to consider:
(a) Regularly reviewing the drug policies adopted, ensuring that they are comprehensive and focused on the well-being of the individual, in order to address national challenges and assess the impact and effectiveness of those policies;
(b) Developing, in accordance with the reality of each State and on the basis of an increased understanding of the causes of new challenges posed by the world drug problem, responses that prevent social costs or contribute to their reduction, and, when appropriate, reviewing traditional approaches and considering the development of new approaches, based on scientific evidence and knowledge.

In the version presented by the Assembly President, the text of sub-paragraph (a) is rephrased: “We recognize that there are persistent, new and evolving challenges that should be addressed in conformity with the three international drug control conventions, which allow for sufficient flexibility for States parties to design and implement national drug policies according to their priorities and needs, consistent with the principle of common and shared responsibility and applicable international law.” There is no reference at all to “new approaches.”

The omission of that specific text is unlikely to prevent the widespread experimentation by States with policies based on the recognition that prohibiting and criminalizing drugs have been disastrously counterproductive. But it might slow progress towards the day when the existing prohibitionist drug control regime is repudiated altogether. The need for such repudiation is obvious if we consider the history of drug prohibition.

A Short History of Drug Prohibition

The existing prohibitionist legal regime on opium, heroin, cocaine and other psychotropic drugs is rooted in the 1912 “Opium Convention” that put an end to what was once the most valuable part of colonial era world trade.

The Convention was the brainchild of American missionaries in China acting out of purely humanitarian concern for the victims. However, far from putting an end to the trade, the Convention merely drove drug trafficking underground. The colonial Powers turned to Chinese gangs to traffic the drug, and soon, “opium dens” became commonplace in many parts of East Asia. Europeans continued to handle the money aspect of the trade, giving rise to modern “money laundering.”

The British Empire Takes Drug Trafficking Underground

The illicit trade expanded globally in the 1960s as the British Empire dissolved its formal structures of control and oppression and took its longstanding interests in drug trafficking into a global black market run through some 70 tax havens around the world. Instead of armies and viceroys, it mobilized the Muslim Brotherhood (which had been established in colonial Egypt to provide street muscle to protect British interests). Since then "extremist Islam" and terrorism have been synonymous with the drug trade. 

Expansion of British interests into the Western Hemisphere occurred in the 1970s with the industrial scale export of Colombian cocaine to the United States by air. The Bahamas, a British possession, provided the necessary logistics with an airport built by drug  traffickers and banks that laundered money easily into the City of London. In Colombia, the "Leftist" FARC insurgency provided cover for drug cartels from law enforcement. Immediately after the Obama administration came down hard on HSBC, the British bank most heavily involved in laundering drug money, the FARC sued for peace.

Repealing Prohibition the Only Way

A century of experience with the prohibitionist approach to drugs has shown that it cannot work; the profits generated by traffickers are so large that it corrupts and nullifies all law enforcement. As long as prohibition continues, the huge profits of the drug trade will continue to attract the support of politicians, organized crime and crooked bankers. Without prohibition there will be no great profit from the drug trade, for the products themselves are easily produced and cheap vegetable derivatives. Repealing prohibition will knock out the “drug pushers” that organized crime deploys to maximize its revenues estimated by the United States government to be some $500 billion annually.

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