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How drug cartels launder money, manipulate stock prices

Credit: chathamhouse.org

Credit: chathamhouse.org

This sobering report from Chatham House details the various ways DTOs (Drug Trafficking Organizations) launder money, manipulate stock prices, and turn dirty money into minty fresh clean money. Drug cartels have multitudes of businesses, some of which may have legitimate income. Invoices and contracts are created, money is received. However, the services provided are fictitious. Some companies may be public. thus, they buy the stock or options, then pump money into the company. This boosts the stock price, then they sell for a profit.

By now, DTOs no doubt control banks and brokerages, which makes money laundering all the more easier.

In the first route, the laundering company (LC) pays to the return company (RC), based on a legitimate service agreement, a portion of the dirty money received from the DTO. As mentioned before, this agreement may involve a variety of services such as public relations, marketing and tax advice. The key point is that there is a lawful agreement to back up the invoice to be issued by the return company to the laundering company to justify the payment of those funds. This is clearly a legitimate operation that does not raise any suspicion by the authorities.

The second route is somewhat more elaborate and involves transactions through the stock exchange. The process has two stages. In the first stage the investment company (IC) acquires (through a private or public transaction) shares or options to purchase shares of the laundering company (LC) at market prices. The dirty money introduced into the laundering company as fictitious sales, having no associated product or service cost, increases the profitability of the laundering company, hence increasing the market value of the laundering company shares. In a second stage, the investment company sells shares of the laundering company or exercises the options and generates a capital gain from the purchase and sale of the stock and/or options.

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