LETTER TO JAMES D. HARMON, JR. FROM JOHN N. MCMAHON

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89B00423R000400470008-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: March 4, 2009
• Sequence Number: 8
• Publication Date: September 27, 1984
• Content Type: LETTER

TRANSMITTAL SLIP
TRANSMITTAL
DATE
TO:
DDI REG
ROOM NO.
BUILDING
REMARKS:
FROM:
NIO for Narcotics
ROOM NO.
f _ - N
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VVI\I 1UL11 11fL
The Director of Central Intelligence
NhnhinGlon. D C. 20505
E):Cc[Stide Rolistry
84 - / /.Q 31/
Mr. James D. Harmon, Jr.
Executive Director and Chief Counsel
President's Commission on Organized Crime
Suite 700
1425 K Street, N.W.
Washington, D.C. 20005
Thank you for your letter of 6 September requesting that portions of
the National Intelligence Estimate entitled "The International Flow of
Drug Money: Implications for US Policy" be declassified for public
disclosure.
John N. McMahon
Acting Director
CL BY SIGNER
DECL OADR
As you know, the National Narcotics Intelligence Consumers Committee
(NNICC), which is chaired by DEA, is responsible for coordinating
estimates of'the size of the US drug market and releasing them to the
public. Further, we avoid unclassified analysis under the seal of CIA
for public release.'
As an alternative, I will forward to the Administrator, DEA,
sanitized excerpts from the Estimate containing the information you
reauested.
I hope this arrangement is satisfactory to you. Please be assured of
the Intelligence Community's continued support for the efforts of the
Commission.
 n
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CONFIDENTIAL
The Director of Central Intelligence
Washington. D.C. 20505
NIC #05552-84
27 September 1984
MEMORANDUM FOR: Acting Director of Central Intelligence
VIA: Chairman, National Intelligence Council
Acting Vice Chairman, National Intelligence Council
Assistant National Intelligence Officer for Narcotics
SUBJECT: Response to Mr. Harmon's Request for Sections of
the NIE on The International Flow of Drug Money
REFERENCE: Ltr to DCI from James D. Harmon, Jr., dtd 6 Sept 84,
same subject
1. The attached letter ,(ATT 1) for your signature is a response to
Mr. Harmon's request. Per your discussion with
we will forward to DEA the attached sanitized excerpts ATT from
the Estimate which contain the information requested by Mr. Harmon.
Attachments:
1. Letter for ADCI Signature
2. Sanitized excerpts from drug money Estimate
CL BY SIGNER
DECL OADR
25X1
25X1
 NIC #05552-84
27 September 1984
DCI/NIC/A/NIO/NARC
Distribution:
Orig - ADDI
1 - C/NIC
1 - VC/NIC
1 - EX REG
1 - DDI Reg
1 - NI0/NARC Chron
1 - NIO/
1 = OGC
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 The data presented in these findings must be viewed with
utmost caution. They are intended only to provide orders of
magnitude and indicate direction of change. Numbers associated
with the illegal drug trade--consumption, prices, imports,
etc.--are subject to large errors. Information of even less
reliability is available on the amount of drug-related money
moving through' international financial markets. Estimates of
the current situation often are based on the subjective view of
experts. New information or statistical analysis could alter
these findings significantly. Nonetheless, the data presented
here are adequate to portray the problem at hand and to support
the findings.
The dollar values for illegal drug money included in these
findings have not been approved by the National Narcotics
Intelligence Consumers' Committee (NNICC), which is responsible
for coordinating estimates of the size of the US drug market
and releasing them to the public. The NNICC, chaired by DEA,
consists of government agencies with enforcement, policy,
treatment, research, and intelligence responsibilities in drug
abuse. The dollar values are provided only to place the
problem in general perspective and should not be considered
definitive.
NOTE--normation available as of 27 June 1984 was used in the
preparation of these findings.- 1 -
 The Magnitude of the Problem
Some $5-15 billion of the $50-75 billion.in illegal drug
money earned in the United States probably moves into
international financial channels each year:
-- More than two-thirds of the $5-15 billion is moved on
behalf of foreign traffickers bringing drugs to the
United States, as well as Colombians and Mexicans
involved in distributing cocaine and heroin in the
United States. The remainder comes from funds earned by
US drug dealers and distributors.
-- About one-third of the illegal drug money moves overseas
in the form of currency, and much of the remainder is
wired abroad after being deposited in the US banking
system.
-- More than two-thirds of the $5-15 billion probably
passes through Colombia, or the offshore banking centers
of the Caribbean Basin, mainly Panama, The Bahamas, and
the Cayman Islands.
-- US drug money accounts for less than 1 percent of. funds
that flow through the international financial system
each day..
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UNCLASSIFIED
-- The amounts of foreign exchange earned by citizens of
Colombia, Peru, Bolivia, and Jamaica from the sale of
illegal drugs is sizable relative to the recorded
exports of goods and services of these countries. For
Colombia, the figure exceeds 70 percent.
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UNCLASSIFIED
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UNCLASSIFIED
DISCUSSION
Roughly 90 percent of money generated by illegal drug sales
is earned by wholesalers and retailers operating in the United
States. The remaining 10 percent is for the cost of imports,
which is divided among smugglers, foreign laboratory operators,
and farmers. Even though imports account for a small share of
the street value, they still are a sizable $6-8 billion.. This
range exceeds the value of US imports of coffee or alcoholic
- beverages and encompasses that of consumer electronic products.
Laundering these vast sums of illegally earned drug dollars
requires a system as large; complex, and secretive as the ones
developed to distribute illegal drugs. At each level in the
domestic drug-marketing chain, distributors often are left with
sizable amounts of currency after they pay for their supplies
of illegal drugs and meet their business and living expenses.
To avoid the threats of detection or theft involved in holding
the remaining currency, drug dealers must discreetly move a
huge volume of cash into the banking system and then, in some
instances, attempt to transform these funds into financial
assets that look as if they were acquired legally. In most
cases, both dimensions of this laundering operation are handled
within the United States. Money moves into international
 channels* when traffickers and their launderers consider that
route safer or more expeditious and when payments are made to
foreign traffickers and suppliers of illegal drugs.
In a few foreign countries--especially Colombia, Jamaica,
Bolivia, and Peru--drug earnings provide a significant
proportion of foreign exchange receipts (see Figure: Illegal
Drug Exports of Selected Countries as a Percentage of Their
Recorded Exports of Goods and Services--Unclassified). For
example, illegal drug money received by Colombian traffickers
is equivalent to 70 percent of the country's recorded exports
of goods and services. Colombians also earn sizable profits in
distributing drugs in the United States. Some of the funds,
however, earned by citizens of Colombia and other drug-
exporting countries never return home; they are either retained
in the United States or invested elsewhere.
The Movement of Money
Drug money, as well as other illegal funds, moves into
international channels in four basic ways:
-- Currency is transported abroad.
-- Funds are wired abroad after the currency is deposited
in a US financial institution.
n~ ternational laundering includes the movement of money
abroad (in any form) to pay suppliers and traffickers, to
disguise profits, and to diversify placement of financial
assets, as well as the movement of currency abroad in order to
deposit it into the banking system.
 Figure
Illegal Drug Exports of Selected Countries as a
'Percentage of Their Recorded Exports of Goods
and Services'
Page 5a
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 -- Negotiable financial instruments--for example, cashier's
checks, traveler's checks, stocks, bonds, and
certificates of deposit--purchased in the United States
are carried abroad.
-- Finally, funds are transferred abroad without involving
any visible movement of assets in international
channels. For example, launderers often pass drug
dollars to legitimate foreign businessmen in the United
States, who use the money to buy US goods and services.
In exchange, foreign businessmen transfer an equal
amount of money from their bank accounts to that of drug
launderers in some foreign country.
The most significant recorded flow of currency back to the
United States that is likely to be drug money is the $1 billion
a year received from Panama.
In many cases, the launderers are depositing currency into
bank accounts in the United States and then requesting the bank
to wire the funds to an account abroad. Drug money launderers
would seem to prefer this funds transfer method because of its
ease and the ability to avoid shipping bulky amounts of
currency. From their perspective, the major drawbacks are that
deposits in the United States leave a paper trail and currency
deposits of more than $10,000 require the depositor to fill out
an identification form. Those handling the funds, however,
 UNCLASSIFIED
often avoid the most visible aspects of the laundering process
by commingling the drug-related money with legal funds before
depositing the cash into a bank. Thus, by the time the money
is transferred abroad, it looks like a legitimate transfer.
The most that can be deduced from the offshore financial
statistics is that drug money probably accounts for a small
share of the deposits made by individuals and corporations and
an infinitesimal share--less than'l percent--of the flows when
intrabank transactions are included. Even if the $5-15 billion
in US drug money moved five times in a year, the total annual
flow would amount to less than $100 billion. In comparison, at
the New York international bank clearing center alone more than
$250 billion changes hands daily.
Drug money flows can be best detected at the early stages
of the laundering chain. As indicated, drug traffickers have
the most direct contact with the laundering process at the
point when cash is moved into the financial system and when
specialists skilled at disguising the true owners of funds are
contacted. After that, the drug money often becomes an
indistinguishable part of the huge pool of international funds
and travels under highly disguised links back to the original
owners.
Case Studies
One of the most vital elements of the criminal syndicate is
its financial organization. The special skills required for
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UNCLASSIFIED
 UNCLASSIFIED
international movement of contraband money are frequently in
short supply within criminal families, so trusted outside
specialists are more apt to be placed in charge of money
movements than other aspects of the business. Those financiers
that work for syndicates often operate through close and
trusted members of their own families in various parts of the
world, however, creating subsyndicates capable of quickly
moving money thoughout a wide area.
The'career of Isaac Kattan-Kassin probably constitutes a
prototype of the traditional relationship between Colombian
drug traffickers and money exchangers. With his links to drug
money movement already established, Kattan probably was one of
the principals involved in the shift of cocaine money
laundering from New York City to. Miami in the 1970s. He
subsequently functioned virtually as "Chancellor of the
Exchequer" for at least one major cocaine-trafficking
organization--a degree of involvement that does not appear to
have been duplicated, at least in the United States, since his
arrest and the impoundment of his records.
Well known, and one of the best organized of the crime
syndicates, is Traditional Organized Crime (TOC), more
popularly referred to as the Mafia, La Cosa Nostra, the Mob, or
the Syndicate. TOC has been involved in heroin trafficking
since the late 1930s and early 1940s.
 UNCLASSIFIED
Heroin has always been the drug commodity preferred by
TOC. Much of the heroin handled by American TOC figures has
been processed in laboratories under the control of their
Italian counterparts in Sicily. A downpayment, ranging from a
small fraction to 100 percent of the delivered price,
reportedly is required in advance of shipment. Out of a total
take of some $2.5 billion from heroin sales, US TOC families
probably send up to $1 billion annually in payments to
suppliers in Sicily. There is considerable probability that a
substantial share of US profits is reinvested directly within
the TOC economic empire or laundered domestically for
legitimate investment purposes, although some US family drug
money finds its way into Swiss bank accounts.
Because of the diversity and sophistication of TOC
financial operations, transfer of money poses far fewer
problems than in the case of newer trafficking groups. Cash
transportation by courier, the principal method of transfer in
the past, still is commonly used. Mafia couriers are highly
trusted employees of the syndicate who are specialists in their
trade. The most sophisticated are the international operators,
normally employed only by the leading families, who must speak
a number of languages and be familiar with international
banking procedures. Courier transportation probably is used
most commonly to deliver payments for heroin supplies to
Italy. The destination of much of the TOC heroin money
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 repatriated from the US market to Italy is Milan, which is
preferred over other cities because of its proximity both
geographically and institutionally to Switzerland.
There is some evidence that Traditional Organized Crime is
attempting to handle Southeast Asian heroin. If oriental
traffickers succeed in penetrating the US market for Southeast
Asian heroin as they did in Europe in the mid-1970s, a
readymade underground financial channel--the Chinese banking
system--already is in place to launder proceeds. Responsible
for moving most heroin money in Southeast Asia, it operates
through gold shops, trading companies, and money changers, many
of which are operated in various countries by members of the
same Chinese family. Recordkeeping susceptible to standard
audit rarely exists in this underground banking system, and
coded messages, "chits," and simple telephone calls are used to
transfer money from one country to'another. Nonetheless the
system has the ability to transfer funds from one country to
another in a matter of hours, provide complete anonymity and
total security for the customer, convert gold or other items
into currency, and convert one currency into that of the
customer's choice. When it is necessary to transfer money to
Southeast Asia from Europe or the United States (where the
influence of Chinese families may be of less significance),
commercial banks are frequently integrated into the system.