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Money laundering in rural areas with illicit crops: empirical evidence for Colombia

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Abstract

This research presents the first evidence on the existence of money laundering in rural areas dedicated to the production of illicit crops. This paper uses, as money laundering (ML) measure, Financial Intelligence Reports (FIR). FIR is a more accurate ML measure than Suspicious Transaction Report (STR) since it implies more rigorous and detail analysis. The present research uses a new panel of municipal data for the period 2000–2013 which has information that measure: ML dynamics, economic activity, violence, conflicts, institutional presence and interdiction. Using a fixed-effects model by municipality and year, this study found a positive relationship between ML, measured as the value of FIR, and illicit crops. The results are maintained throughout specifications and robustness exercises. This paper found that a 1% increase in cultivated area in the municipality implies 3.04% increase in the FIR value. If one representative municipality of the sample is taken, an increase of 1% in cultivated area would be translated into 641 million COP (342.705 USD) in money laundering reported in FIR. Thus, the existence of money laundering in rural areas dedicated to illicit crops is concluded.

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Notes

  1. There is evidence that gold trading in Colombia has been used in ML due to its valorization since 2003. In 2014, charges were filed against several members of a Colombian company named Goldex, which was trading gold to cover up money laundering by as much as 2.3 trillion COP (Colombian Pesos).

  2. Bhaskar Menon, “India Cannot with Black Money Unilaterally” (CounterCurrents.org, July 8, 2011).

  3. The Financial Action Task Force (FAFT) is an intergovernmental organism the purpose of which is to develop and promote national and international measures to fight money laundering and the financing of terrorist activities.

  4. Anti-Money Laundering and Combating Financing of Terrorism.

  5. Bhaskar Menon, “India Cannot with Black Money Unilaterally” (CounterCurrents.org, July 8, 2011).

  6. UNODC: United Nations Office on Drugs and Crime

  7. This probability depends positively on the amount to be laundered.

  8. In this model, the value to impound is quadratic on the sum to be laundered. Since this is lineal, the model’s conclusions are not modified.

  9. DIAN: Dirección de Impuestos y Aduanas Nacionales de Colombia (Colombian taxes and customs authority)

  10. United Nations Office on Drugs and Crime, 2014. World Drug report. Available at: http://www.unodc.org/documents/wdr2014/World_Drug_Report_2014_web.pdf

  11. The Financial Action Task Force (FAFT) is an intergovernmental organism the mission of which is to develop and promote national and international measures against money laundering and financing terrorism.

  12. GAFISUD is a regional-based intergovernmental organization that convokes South American countries to fight money laundering and funding terrorism through the commitment of continuous national policies and the strengthening of different cooperation mechanisms between the affiliated countries. Please refer to the FAFT chapter for South America. Source: UIAF Glossary.

  13. These systems have a different system that depends on the regulated sector. For the financial sector, for instance, it is called SARLAFT (Money Laundering and Terrorism Financing Risk Management System in English).

  14. As with homicides, the measures are standardized for each 100,000 inhabitants.

  15. Data obtained from the SIMCI (Illicit Crops Monitoring Integrated System in English) at the United Nations Office on Drugs and Crime (UNODC).

  16. ICA: Impuesto de Industria y Comercio

  17. Subsistence, as used here, denotes the strictly necessary resources to maintain illicit crops. It does not entail additional income generated by other activities in the drug traffic value chain.

  18. DANE: Departamento Administrativo Nacional de Estadística (Statistics National Administrative Department)

  19. Pyramids are fraudulent companies designed to illegally take money with the promise of disproportionally large returns (50% or more a year). Recently, Colombian authorities detected that resources from many of these companies came from drug trafficking; thus, this activity is a form of money laundering.

  20. This zone has been given special attention by the SIMCI due to the high environmental cost associated with the proliferation of illicit crops.

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Authors and Affiliations

  1. School of Economics, Universidad Nacional de Colombia, Bogotá, Colombia

    Hernando Bayona-Rodríguez

  2. School of Education, Universidad de los Andes, Bogotá, Colombia

    Hernando Bayona-Rodríguez

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Bayona-Rodríguez, H. Money laundering in rural areas with illicit crops: empirical evidence for Colombia. Crime Law Soc Change 72, 387–417 (2019). https://doi.org/10.1007/s10611-019-09822-z

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