How Trump’s deregulation policies are helping the cartels get even richer

The administration's pro-business agenda is making it easy for organized crime to launder its cash

A Mexican Army soldier stands guard at a beach in Acapulco, Guerrero state, Mexico on December 5, 2017.
/ AFP PHOTO / FRANCISCO ROBLES        (Photo credit should read FRANCISCO ROBLES/AFP/Getty Images)
A Mexican Army soldier stands guard at a beach in Acapulco, Guerrero state, Mexico on December 5, 2017. / AFP PHOTO / FRANCISCO ROBLES (Photo credit should read FRANCISCO ROBLES/AFP/Getty Images)

The scale of crime and violence that continues to plague Mexico is staggering. In 2017, at least 23,000 people were murdered — the highest level since records began. Two of the most recent victims include a 17-year-old YouTube star and a vacationing San Diego city official who were killed over the Christmas holiday. And 2018 is picking up where 2017 left off: on Monday, nearly 20 people were killed in a series of clashes in the southwestern state of Guerrero.

In the middle of that bloodshed, a smaller piece of cartel-related news has slipped under the radar: last week the Financial Action Task Force (FATF), an intergovernmental group charged with developing anti money-laundering policies, released its report on Mexico. In it, the FATF said that the Mexican government was not doing enough to combat the money laundering which allows cartels to turn their drug cash clean.

“Significant shortcomings were found in the way in which ML (money laundering) cases are investigated,” the report read. “Specifically, only very rarely are parallel financial investigations conducted and ML is seldom prosecuted as a standalone offense.”

The report added that money laundering “is not investigated and prosecuted in a systemic and proactive fashion” resulting in an extremely low number of convictions. As Reuters noted, Mexico seized just $32.5 million in 2016 — less than 0.1 percent of the estimated $58.5 billion that cartels generate in revenue each year.

While the shocking violence in Mexico tends to grab headlines, it is the globalized international financial system, as well as generous deregulation policies enacted by international politicians like U.S. President Donald Trump, which enables cartels, as well as other organized crime groups, to convert cash gained from illicit profits into “legitimate” capital, allowing them to continue asserting their power.

“Everyone is in business to make money but in the case of drugs and other criminal enterprises the transactions are always in cash,” Jack Blum, an expert on white collar crime for the Tax Justice Network, explained to ThinkProgress. “Cash is really bad stuff. It’s heavy, it’s dirty and you always have the problem of security, how do you protect it? To be useful at all [to organized crime], it has to go into the banking network. If that money can then be seized, the [cartel’s] capital will be damaged.”

The problem of criminal cash flow is endemic. In 2010, Wachovia (acquired by Wells Fargo in 2008) paid federal authorities $110 million for allowing cash flows proven to be connected to Mexican cartels. In 2011, British bank HSBC raised the ire of U.S. senators when it revealed that its subsidiaries had helped launder billions for cartels, terrorists and rogue states. In 2016, the European law enforcement agency Europol estimated that there were as many as 3,500 suspected criminals among the Panama Papers, which revealed how the global elite stacked their cash offshore.

“In Mexico there’s a systemic problem with drug cartels, so any financial loopholes will be exploited ruthlessly,” said Oliver Bullough, author of the forthcoming book Moneyland: Where the Rich Go to Escape Our Democracy, in an interview with ThinkProgress. “It’s quite important to recognize [drug-smuggling] is a business like any other, so the financial tricks they use are the same tricks and strategies a legal business would use — that’s why they need these systems to work.”

In his first year as president, Trump has delighted in two things: playing the role of the tough, law-and-order candidate (often at the expense of minority communities) and stacking his Cabinet with wealthy business executives who advocate for deregulation and cutting red tape. The problem is that, when it comes to combating the cartels, these two viewpoints are fundamentally incompatible, because the deregulated business environment that the GOP advocates is what allows the cartels to continue to launder their money with ease.

“The basic problem is that some regulations which are required to crack down on money laundering are what some companies consider to be red tape,” Bullough said. “[Things like] ‘know your customer,’ ‘due diligence’ — banks hate that, and companies find it annoying. That’s why from Trump’s perspective — he’s a businessman, he’s surrounded by businessmen, so they think that [regulations and red tape] should be done away with.”

To make matters worse, the Trump administration seems to be hollowing out one of the key pieces of legislation designed to help combat corruption. The 1977 Foreign Corrupt Practices Act (FCPA) ensures that companies with a U.S. connection — including firms which are foreign but traded on U.S. exchanges — can’t make or take bribes involving foreign officials or businesses. A wide definition of “bribes” in the act means that it is a key part of the arsenal combating illicit financing and money laundering.

Trump, unsurprisingly, has never been a fan of the FCPA. In a 2012 CNBC interview he called it a “horrible law,” said it should be changed, and added that it was “absolutely crazy” to prosecute alleged FCPA violations in countries like China and Mexico. His own businesses have also come under FCPA scrutiny.

Since Trump became president, there has been a dramatic drop in the number of FCPA enforcements. According to Stanford Law School’s Rock Center for Corporate Governance, there were a combined 55 FCPA enforcement actions in 2016; in 2017 that figure dropped to 31. As the New York Law Journal noted, a likely reason for this decline had to do with “the broader pro-business shift” under the Trump administration.

The scale of the money laundering regulation challenge goes well beyond the Trump administration, of course, and Trump himself is not solely responsible for organized crime’s continued loophole exploitation. As Blum noted, legislation meant to tackle illicit financing was introduced during the Obama administration, but it was soon paralyzed by companies warning of the damage it could do to profits; meanwhile in Mexico, a series of complicating factors surrounding law enforcement cooperation also continues to plague officials who are trying to tackle the problem.

But the last thing those officials need are generous deregulation policies making things easier for the cartel to stay one step ahead.

“One of the mistakes people make is an assumption you can ‘solve’ this issue,” Blum said. “It’s gonna be with us in one way or another but you can’t not go after them. We’ve been dealing with crime since the beginning of civilization. The challenge is to [keep] it at a manageable level.”