How the Drug Quagmire Harms Business

Forbes has posted a great piece by Eric E. Sterling on how the drug war hurts businesses and investors in addition to increasing public and private corruption:

In the early 1980s, I helped Congress investigate how drug money laundering was compromising legal casino gambling as the drug business responded to the Bank Secrecy Act. Congress heard, but did not understand, how our drug laws hurt a sector of American business. Congress pushed currency transaction reporting, for example.

The 8,000 reports filed in 1985 have grown to over 14,800,000 in FY2011. What had been a minor inconvenience is now a major responsibility that costs banks hundreds of millions of dollars annually. Despite this burden, the great untaxed profits of illegal drug sales worldwide have enabled local drug trafficking gangs to transform into global criminal organizations.

Drug prohibition enterprises corrupt bank officers and tellers, accountants, lawyers, financial advisors, real estate brokers, securities dealers, freight forwarders, shipping companies, airline employees, etc. to ship and pay for drugs, and to launder their receipts and profits. In one example, in March 2010, corruption was exposed in the Wachovia unit of Wells Fargo Bank, now the fifth largest U.S. bank by deposits. Wachovia was forced to disgorge $110 million and was fined $50 million for failing to internally police $378 billion in transactions with casas de cambio in Mexico that laundered drug profits. Businesses cannot count on the integrity of their agents or counterparts in such environments, and Wachovia’s shareholders paid an enormous price.

All over the world, drug organizations depend upon corrupting border guards, customs inspectors, police, prosecutors, judges, legislators, cabinet ministers, military officers, intelligence agents, financial regulators, and presidents and prime ministers. Businesses cannot count on the integrity of government officials in such environments.

And this is just the tip of the iceberg, in my opinion. The true cost of the quagmire cannot be measured when entire industries, such as hemp, are not allowed to exist at all under current law. However, I think this is a great piece that raises many points on the cost of prohibition that many readers may not have considered before, so I recommend reading the whole thing.

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