This wasn’t meant to happen in the last decade.

Money laundering regulation was meant to have stopped the handling of drug cash in the USA.

The Patriot Act was meant to have closed down such things.

The FATF 49 recommendations were meant to have been in place.

But as the Observer reported yesterday, US bank Wachovia, now part of Wells Fargo, money laundered hundreds of billions for Mexican drug gangs in the USA. And, when the activity was questioned internally from London, the money laundering officer who did so was driven out.

There are three lessons. First, the neoliberal drive for profit is amoral – and so are the bankers who fuel it. You can’t launder hundreds of billions of dollars and not have senior management sanction it.

Second, self regulation does not work. As I have said time and again, greed overcomes it. That seems to be the substance here.

Third, if this happens in the US, what’s happening in tax havens? They have not changed their spots. They’ve just put some bits of paper in place to keep international regulators happy, but there’s no evidence they’re using them any more than Wachovia did.

The suggestion has been made that, when the banks hit liquidity problems in 2008, they had to rely on drug money to keep them going – that was the only cash in the system. I don’t know if that’s true – but suspect it may have an element of truth in it. In which case this issue is well known, and tacitly acknoweldged.

And that’s not good enough.

The case for all cash being created by central government and being loaned to banks for their use is increased enormously in that case. If fractional reserve banking creates this opportunity for criminal activity, it adds to the reasons for questioning its continuation.

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