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article imageUN Official: Money From Drugs Trade Saved Banks

By Chris Dade     Dec 13, 2009 in Business
A top UN official is claiming that as the global financial crisis took hold, money from the drugs trade and other criminal activities helped saved banks that were in danger of going out of business.
Antonio Maria Costa, Executive Director of the United Nations Office on Drugs and Crime (UNODC) and an Under-Secretary-General of the United Nations, told the Observer that he has actually seen evidence which indicates that approaching $352 billion made its way in to a banking system in which many of those operating were struggling to survive.
Mr Costa, who is also Director-General of the United Nations Office in Vienna (UNOV) and was born in Italy in 1941, has spoken of the money originating from the activities of criminal gangs as "the only liquid investment capital" that some banks had access to during the latter part of last year.
Without identifying any of the countries or banks involved Mr Costa noted: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
The Observer, sister paper of the Guardian, quotes Mr Costa as saying that the money laundered at the height of the global financial crisis is now within the official financial system, although he acknowledged that the improvement in both share values within the banking sector and liquidity within the financial sector as a whole has reduced the problem of illicit money flowing in to the system.
According to estimates from the International Monetary Fund major banks in Europe and the U.S. saw in excess of $1trillion in assets turn toxic in a 30 month period that began in January 2007. Over 200 mortgage lenders were reportedly bankrupted during the same period.
Officials from the U.K., U.S., Switzerland and Italy are said to have provided the evidence which has led to Mr Costa's claim.
The British Bankers Association, which has 223 members drawn from 60 countries, is unconvinced by what Mr Costa is saying and a spokesman for the association has stated:We have not been party to any regulatory dialogue that would support a theory of this kind. There was clearly a lack of liquidity in the system and to a large degree this was filled by the intervention of central banks
Mr Costa made a similar claim regarding the money from criminal activities which has made its way in to the banking system when he spoke to the Austrian weekly Profil earlier in the year. Reuters reported at the time that Mr Costa had not given any indication of the amount of illicit money that was involved in helping to prop up the world's financial system, unlike now when he has quoted the figure of $352 billion.
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