Cuba does not generate the savings required to finance investments. Hotels are reported to be built with Cuban funds, one logical conclusion is that Cuba is a huge money laundering center for the cartels. After all, wasn’t this Ochoa’s plan? We will elaborate on this hypothesis using the figures provided in the ECLAC report.
| Some Relevant Indicators on Hotel Investment |
|
1990 |
1991 |
1992 |
1993 |
1994 |
1995 |
1996 |
| Room stock (000) |
12.9 |
16.6 |
18.7 |
22.1 |
23.3 |
24.2 |
26.9 |
| Additions (000) |
-- |
3.7 |
2.1 |
3.4 |
1.2 |
0.9 |
2.7 |
| Estimated investment (million US dollars) |
-- |
370 |
210 |
340 |
120 |
90 |
270 |
| Peso equivalent (million pesos @20 rate) |
-- |
7400 |
4200 |
6800 |
2400 |
1800 |
5400 |
| Gross domestic investment (million pesos) |
4872 |
2274 |
975 |
965 |
1036 |
1500 |
1900 |
| Domestic savings (million pesos) |
2327 |
820 |
555 |
577 |
794 |
985 |
1380 |
| Year end market exchange rate in pesos per dollar |
7 |
20 |
45 |
100 |
60 |
25 |
19 |
Except the estimates for hotel investment in dollars and their conversion to Cuban pesos, all the figures are taken from tables in the statistical annex of the ECLAC report. Since no table is provided in the ECLAC report for the flow of remittances, and the US$ 800 million figure is mentioned only in the text, no equivalent numbers are available to compare for the years covered in the above table. Some questions may be raised on the use of a rate of 20 pesos to the dollar to do the conversion of the investments to current Cuban pesos. As can be appreciated from the last line, if anything, this rate underestimates the pesos equivalent which in 1993 reached 100 to the dollar. Therefore, it provides a conservative conversion to Cuban current pesos.
According to the tables provided in the ECLAC report, Cuba built 14,000 hotel rooms of international level quality between 1990 and 1996. The ECLAC Report acknowledges that these hotels are built with Cuban financing. The benchmark figure for hotel investment in the Caribbean is between 100 and 125 thousand US dollars per hotel room. Applying the lower figure to allow for lower labor costs in construction in Cuba we arrive at a total investment during the period of 1,4 billion US dollars.
The amount of dollars required would be lower if Cuba could provide more inputs, however, the collapse of Cuban industry since the end of Soviet assistance does not allow for use of local components other than labor, cement and perhaps some steel bars for concrete structures. International quality hotels require equipment above Cuban production standards. According to ECLAC, even food items for tourism, such as eggs and chicken, are imported due to the poor quality of Cuban production.
The contradictions and inconsistencies these figures reveal are related to the relation between investment in hotels and total national investment and savings reported in the national accounts. As can be observed, the peso equivalent of the hotel investment in all years exceeds the figures reported by ECLAC in its report for both gross domestic investment and national savings. More so, when we consider that hotel building is not the only national investment. There is a fact that is unquestionable: hotels have been built.
As commented above, the information on foreign investment provided to The Economist Intelligence Unit did not include hotel investment either. The question is why do the aggregate figures from national accounts do not reflect those investments. Unless there is some explanation resulting from the techniques followed for computing the national accounts, the only possible explanation is that financing for these investments has been handled outside the conventional national accounts: money laundering or drug trafficking.
What is the evidence supporting the money laundering hypothesis?
Here is where money laundering enters as another plausible explanation for how investments in hotels are financed. Not only by the coincidence of this massive expansion starting precisely the year after General Ochoa was executed. As commented above, there was a hypothesis that Ochoa had uncovered this scheme and was trying to document it to justify his challenge to Castro. The other, more credible, hypothesis is that Ochoa was trying to become a Castro rival as a capo in drug smuggling. Whatever is the actual explanation, when Castro discovered what Ochoa was up to, he decided to turn the tables on him and use the accusation of dealing with the drug lords to discredit Ochoa and justify his execution.
Castro’s involvement with the drug lords is more than documented by the four grand jury indictments mentioned above. And this involvement did not end with the Ochoa trial. The arrest of Jorge Agordito Caberra, with a photo with Castro, raises the possibility Castro was considering gaining some influence, a la Chinese, with the Clinton Administration.
The cocaine shipment seized in Colombia in December, 1998, one of seven or eight previous ones, owned by foreign investors who were partners in a joint venture with the Cuban government could take place only with some previous clearance by Castro himself. The fact no regime official has been fired or prosecuted for acting on his own, points to Castro as the approving authority and not the doings of some rogue officer. It is evident drug smuggling has survived the Ochoa execution, and so has money laundering, but following another tract.
Over the years, Castro’s practice has been to handle dollar transactions through his own substantial personal accounts overseas, the so-called “Reserva del Comandante.” This was revealed by Jesús M. Fernández, who defected in May, 1996 and had had access to the highest level of financial management within the regime. He reports that these private Castro accounts were used to channel Soviet financing of Cuba’s military operations overseas, subversive activities and the CIMEX enterprise, later replaced by the MININT’s Department of Convertible Currency.
This is precisely the agency where Colonel Tony de la Guardia worked when he was involved in drug deals. According to Mr. Fernández, these private accounts are also used for those economic sectors under the direct supervision of Castro, such as pharmaceuticals and tourism, as well as Ministry of Interior overseas operations generating convertible currencies.
It has been established by DEA that the weight of the money generated by drug sales exceeds the weight of the drugs themselves. Therefore, disposing of the money involved in the US alone — with more than $100 billion in retail sales yearly — is a process of industrial proportions. Trailer trucks cross the US-Mexico frontier with full cargoes of US dollars. According to a report on money laundering in The Economist, the fee at that time for helping the cartels launder their money had increased to between 25 and 28 per cent. In the argot of the money launderers, this is called “discounting,” the cost of making a drug tainted dollar a tradable dollar.
Ironically, through the prohibition of legal remittances in 1996, the US Government provided an excellent cover-up for money laundering. Money started reaching Cuba through so-called “mules.” That is, people who traveled to Cuba through third countries carrying tens of thousands of dollars in cash. By depositing these monies in Cuban government accounts, or, more likely, in the accounts of the Comandante’s reserves, the money is legitimized.
The death of the “Lord of the Skies,” Amado Carrillo Fuentes, has lifted the veil of another potential avenue for money laundering. According to a report published by The Miami Herald, Mexican authorities have obtained evidence that Carrillo Fuentes was a guest at a protocol house of the Cuban government during his frequent visits to the island. There is speculation that among the alleged activities taking Mr. Carrillo Fuentes to Cuba was money laundering. Authority for assigning protocol houses is vested exclusively on Fidel Castro and his Chef de Cabinet, Dr. Jose Millar Barruecos, is responsible for their administration.
Finally, Cuban defectors have mentioned that, among the attractions offered to drug dealers visiting the Cayo Largo resort, a key south of the island of Cuba, is the existence of banking facilities where money laundering is performed. As was mentioned above, Tony de la Guardia was the MININT officer commissioned to undertake the feasibility study to make this key a money laundering center.
This analysis offers only an inkling of what is going on. There is no doubt that there is a huge flow of laundered money worldwide and that Cuba is one of the channels being used. It is also evident that in Cuba nothing of this sort can go on without Castro’s personal approval. Use of the remittances scam to cover-up the huge gap in Cuba’s balance of trade stands on shallow ground. In conclusion, we can say that the available evidence indicates there is an unquestionable impossibility of the remittances option offering the main source to finance whatever is the balance of trade gap.
As to other sources, there is substantial evidence to conclude that Cuba is engaged in drug smuggling and money laundering. This is a huge growing gap, as is shown in the previously mentioned Table 4 of Jorge Perez Lopez paper, which in 1998 registers a trade gap amounting to US$ 2,785 million. Therefore, even accepting the US$ 800 million estimate for remittances, there are two billion dollars more to explain.
However, there is not enough data to estimate the magnitude of the resulting financial flows. All we have is a simple way to calculate how that gap may be met through money laundering and drug smuggling. It reveals that to meet the balance of trade gap, Castro needs four dollars in money laundering transactions for each dollar in net proceeds and to smuggle a kilogram of coca for each $ 1,250. Back in 1989, the US Coast Guard had reports of about 300 flights per year outside of the approved air corridors over Cuba for private and commercial flights. It is such flights that make the coca drops to be picked up by the Alancheros
At some future time, reliable estimates on drug trafficking volume may be available and it may be possible to combine the data on volume with rates and the money laundering fees to compute estimates of the involved financial flows. But the lack of data for quantification should not deter us from considering that drug trafficking and money laundering are the most plausible sources for financing the Cuban balance of trade gap.
