News & Stories

First Study to Calculate Money Laundered Between Mexico and the U.S.

Posted Jan 09 2012

A SIPA Capstone workshop is the first project of its kind to calculate the illegal financial flows between Mexico and the United States.

The study reveals that $182 billion is laundered each year in the United States and $14.5 billion in Mexico, with $10 billion circulating between the two countries. Forty percent of the money laundered is the result of drug trafficking, the study determined.

The report, conducted by a team of SIPA students for the nonprofit research organization Global Financial Integrity (GFI), has captured the attention of the Mexican Congress and is to be published in January 2011.

Money laundering has daunting effects on a nation’s economy. Policymakers lack adequate data to quantify the phenomenon and take relevant action against it. The Capstone workshop sets a methodological basis for further studies. The workshop team comprised SIPA students Nicolas Brien, Kim Danh, Maria Fernanda Estrada, Julieta Mejía Ibáñez, Max Risch and Maureen Tee, with faculty adviser JaeBin Ahn.

Results from the study highlight two key elements of the money laundering process that require government action: the need to reinforce financial regulations and the importance of improved multilateral coordination between law enforcement agencies and financial regulators in the United States and Mexico.

The study uses the economic “gravity” model constructed by John Walker and Brigitte Unger (2006) to define illegal financial flows, refining the model’s attractiveness and distance indices and introducing a new methodology to calculate the portion of criminal revenues being laundered. This represents the first known attempt to produce a transparent and comprehensive tool to calculate illegal financial flows on a bilateral basis.

“The findings are relevant since targeting illicit funds is one of the most effective ways of dealing with drug trafficking,” says team member Julieta Mejía Ibáñez (MIA ’11). “Strengthening anti-money laundering policies represents an alternative to armed combat.”

In four years narcotics-related violence has killed more than 34,000 people in Mexico. The government’s strategy of counterattacking drug cartels has led to an increase in violence. Incarcerating individuals only briefly disrupts criminal activities.

The team recommends attacking drug traffickers through their money laundering activities, through effective legislation, government training, interagency cooperation, financial institution accountability, and a culture of compliance.

 

 

Alex Burnett, January 9, 2012