Sebastian Rotella has a story out for ProPublica with the blockbuster headline “Government Says Hezbollah Profits From U.S. Cocaine Market Via Link to Mexican Cartel”. Does that mean Hezbollah is running blow across the border on behalf of the cartels? Perhaps to an extent. But it appears based on the story that the main link is more via money laundering than drug smuggling per se. So how does that work? Why would a Mexican drug cartel selling cocain to North America want to launder its money through Lebanon? The key to finding the answer lies in Slate’s 1999 Explainer about money laundering, specifically the crucial first step:
Placement: The cash proceeds (often thousands of small-denomination bills) enter the legitimate banking system. Many countries require that large cash transactions (in the United States, anything above $10,000) be reported to authorities. So, launderers often deposit proceeds piece by piece or export the money to countries with relaxed banking regulations.
Relaxed banking regulations, eh? As the Lebanese Central Bank proudly explains on its website, Lebanon is not big on bank reporting requirements:
The passing of the banking secrecy law in September 3rd 1956, subjected all banks established in Lebanon as well as foreign banks’ branches to the “secret of the profession”.
All banks managers and employees who are exposed to the banks activities, cannot reveal what they know concerning their clients names, assets or holdings to any party whatsoever whether individuals or public authority, be it administrative, military or judicial. Such information is released only when granted written authorization by the client or his/her heirs, in case of bankruptcy, or in case of any litigation between the bank and the client.
Of course the world’s most famous banking secrecy laws are those of Switzerland, but precisely because of Switzerland’s legendary status it’s come under a lot of international pressure and scrutiny. Besides which, as one Swiss banker told me several years ago helping legitimately rich people evade taxes is both more financially rewarding and less politically risky than money laundering. Lebanon, as a bit of a more downmarket banking haven, is probably a better destination and conveniently enough Mexico is home to a large Lebanese diaspora with links to banks in the laxly regulatred homeland.
