Money laundering

Illegal markets, like those for narcotics, can't so easily make use of all the financial services provided by banks and other intermediaries, without leaving a trail for police investigators. So we have the phenomenon of "money laundering," designed to move the proceeds from illegal markets into the financial system so that they can be redeployed and enjoyed.

In some cases, money laundering may involve cash-intensive businesses that can simply report more sales than they actually make, and so transfer illegal currency into taxable revenue and bank accounts. In some cases it may involve the purchase and resale of portable assets. The police work associated with tracing this kind of crime involves the tracing of assets by forensic accountants, and agreements among banking authorities.

But apparently, for the part of the drug trade that moves drugs into the U.S. from Mexico, the most cost efficient way to launder the cash receipts is to physically smuggle currency in bulk back into Mexico: Along U.S.-Mexico Border, a Torrent of Illicit Cash. "Although United States authorities seized $138 million last year, that amount pales in comparison to the $18 billion to $39 billion a year the Drug Enforcement Agency estimates is being smuggled to Mexico every year."

Once in Mexico, it is apparently easy to turn dirty money into clean money, e.g. simply by exchanging it for pesos at a foreign exchange dealer. "A good portion of that is pooled by foreign exchange businesses and then shipped back to United States banks in armored trucks, experts on money laundering said."

And new financial instruments show up faster than laws to deal with them: "In a new trend, some organized crime groups have taken to smuggling prepaid money cards rather than cash, law enforcement officials say. United States treasury officials are working to require prepaid cards loaded with more than $10,000 to fall under the same reporting requirements as cash. Right now, anybody can walk or drive across the border with the cards filled with more than $10,000, without breaking any laws. "

Apparently the same hidden compartments in cross border vehicles that move the drugs in one direction can move the currency in the other, and so finding drug cash is a lot like finding drugs, and uses the same drug-sniffing dogs.
"The dogs and their handlers also find money, since most of it has traces of narcotics embedded in its paper. Drugs and cash are often stored or transported in the same compartments. "

The drugs and dogs game has quite a bit of a cat and mouse flavor to it: "There is an entire cottage industry devoted to building secret compartments in vehicles. Often the compartments will not open unless the driver takes a series of actions like pumping the brakes and turning on the dome light and the radio simultaneously. "

It's enough to make you appreciate bank accounts, checks, and credit cards, despite all the difficulty and fees in getting money wired to or from American banks as compared to European ones.

Here's a Department of Justice page on money laundering that makes clear the difference between contraband interdiction of the kind done by the Drug Enforcement Agency and asset tracking of the kind done by the IRS and other agencies, by showing big piles of seized cash.