The vast majority of an estimated $352 billion in proceeds of organized crime, mostly from the drug trade, was funneled through the global banking system during the financial crisis of the past two years, and in some cases, the money rescued banks from collapse, says the head of the UN Office on Drugs and Crime.

Antonio Maria Costa told the UK Observer that intelligence agencies and prosecutors alerted him 18 months ago to evidence that drug money was being "absorbed into the financial system."

"In many instances, the money from drugs was the only liquid investment capital," Costa said. "In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor."

The Observer reports:

Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, [Costa] said.

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"Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities... There were signs that some banks were rescued that way." Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.

Gangs are now believed to make most of their profits from the drugs trade and are estimated to be worth £352bn, the UN says. They have traditionally kept proceeds in cash or moved it offshore to hide it from the authorities. It is understood that evidence that drug money has flowed into banks came from officials in Britain, Switzerland, Italy and the US.

Read the complete Observer article here.

Costa has been head of the UN's drug and crime office since 2002, and is known for his tough stance on illicit drugs, including marijuana. He recently warned that Africa is becoming a major drug hub, following an investigation into the crash of a Boeing 727 in Mali that had flown in from Venezuela carrying 10 tons of cocaine.