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The Hidden Economy of Drug Trafficking

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The Hidden Economy of Drug Trafficking

While most understand the extent of the drug problem at the street level, this is merely the end result of a vast array of financial transactions that support everyone from average farmers to entire nations.

Learn the why behind the headlines.

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There are more than 500 million farms worldwide. Most hold in high regard those who make a living burying seed in the ground and later harvesting fully developed plants to feed humanity.

But what if their venture satisfied a different hunger—the incessant cravings of a quarter of a billion illegal drug users worldwide?

Suddenly, the profession would not sound so praiseworthy. Yet, far from the more recognizable powders, pills and vials, most illicit drugs begin like the vegetation farmers typically sell at markets.

Whether the yellow flowers and reddish berries of the coca bush, with leaves that are processed to make cocaine, or the brightly colored petals and tubular stems of the opium poppy that produce a sap used to make heroin, most would unsuspectingly stroll past whole areas of such plants. Even a field of cannabis, the base for marijuana and hashish, can easily slip past the undiscerning eye.

These plants do have worthwhile derivatives that generate income. Coca leaf tea, for instance, is sold for altitude sickness, a common condition in the Andes Mountains of South America where it is grown. The Coca-Cola company still imports tons of the oval-shaped leaves every year for its proprietary soft-drink formula. Chemicals in opium poppy are used to produce pain medications. And hemp, a cannabis byproduct, is known to be superior to other materials, such as cotton, when manufacturing paper, rope, clothing and other fabric-based materials.

Nevertheless, the conversion of these plants to illegal drugs bolsters a $320 billion a year, multinational, illicit drug industry. This staggering figure places drug trafficking among the most profitable forms of commerce in existence. The operation covers the cultivation, production, distribution and sale of illegal substances as defined by drug prohibition laws.

The worldwide distribution of illicit crops resembles that of lawful commodities—such as coffee, cacao (used to make chocolate), sugar cane, and other common food items. In both cases, plants are grown and harvested in only a handful of fertile regions of the world and moved through multiple production and delivery channels.

Each step in the process requires established infrastructure and expertise. Successfully moving legal products to the end-user has far-reaching financial implications as it funds an army of laborers, business entities, and governments.

So too does the growth, transport and production of illegal drugs. Trafficking these items is the economic engine of not only vast criminal networks, but also legitimate, legal ones. As with the addicts they support, those embedded in this process are bent on ensuring a continual product flow.

Any chance of eliminating the worldwide drug problem includes the seemingly impossible task of abolishing the hidden economy that makes it possible.

Current Market

The customer base for illegal drugs shows no sign of waning. According to the United Nations Office on Drugs and Crime’s 2015 World Drug Report, 246 million people used illicit drugs in 2013 (the latest numbers available), an increase of three million over the previous year. Heroin, cocaine, marijuana and amphetamine-type stimulants (ATS) are the chief illegal substances.

Worldwide, the number of opioid users—combining those using natural, synthetic or semi-synthetic opium products—stands at 48.9 million people. This includes those who abuse prescription pain medication as well as heroin. According to the report, the global cultivation of opium poppy in 2014 reached its highest level since the 1930s.

In the 1960s, most opiate-based addicts began with recreational use. By the 2000s, though, 75 percent of addicts abused prescription opioids such as Vicodin, Percocet and OxyContin.

Astonishingly, 90 percent of prescription opioid abusers eventually turn to heroin!

Heroin-related deaths in the U.S. soared from 5,925 in 2012 to 8,257 in 2013, reaching the highest level in the past decade.

Cocaine has an estimated 17 million users worldwide. The United States and nations of the European Union make up more than 80 percent of the global market for the drug.

Coca bush cultivation has been on a steady decline since the 1980s. This is mostly due to more effective eradication of the coca bush by government authorities and increased seizures of cocaine during transport.

The greater availability and lower cost of methamphetamine, a cocaine alternative, has also been a factor. Despite it all, however, cocaine still has more users than heroin. Though the cocaine market is shrinking in the U.S., it is increasing in South America and second only to cannabis trafficking in Europe.

Cannabis is the world’s most popular illegal drug, with nearly 182 million users as of 2013. It can be consumed as herbal cannabis (marijuana) or cannabis resin (hashish).

The U.S. accounts for about 19.8 million of the world’s marijuana users. It remains illegal under federal law, but it has been legalized in 24 states for recreational or medical use. Its use continues to increase as public perception of it as a harmful drug declines. This is despite its increasing level of potency, measured by THC content, which has risen from about 4 percent in 1995 to 12.05 percent in 2013, according to the 2015 National Drug Threat Assessment Summary.

The future market for cannabis worldwide is strong as its cultivation and use increases in North and South America, as well as in Europe and Africa.

Though mostly birthed in a lab instead of a field, amphetamine-type substances (ATS) such as crystal meth and ecstasy (MDMA) affect the market for illegal drugs and are equally trafficked. There are an estimated 33.9 million users of amphetamine, methamphetamine and prescription stimulants.

Points Traveled

Nations where plant-based drugs are cultivated are few in number and tend to look the same: they are marginalized, have limited government control, lack infrastructure, and have higher levels of poverty.

Afghanistan and Myanmar supplied well over 90 percent of the world’s opium poppy between 1998 and 2014. Coca comes almost exclusively from the South American countries of Colombia, Peru and Bolivia. Cannabis and ATS sources are more widespread.

From these points of origin, illicit drugs are trafficked to various destinations around the world.

The 2015 World Drug Report stated: “The markets for opiates in Africa, South-West Asia, parts of East Asia, the Middle East, Europe and Oceania are mainly supplied by South-West Asia (Afghanistan), while some markets in South-East Asia and Oceania are also supplied by South-East Asia (the Lao People’s Democratic Republic and Myanmar). The Americas are mainly supplied by Latin America (Colombia and Mexico), with the exception of Canada, which to a significant extent is supplied by Afghan heroin.”

“Cocaine is usually trafficked northwards from…South America to North America and across the Atlantic to Europe via the Caribbean or Africa, by a variety of means, including air and sea.”

Unlike the coca bush and opium poppy, which only thrive in limited regions of the globe, cannabis is grown nearly everywhere—from small-scale homegrown sites to large-scale industrial farms. Herbal cannabis is produced in almost every country, while hashish production is limited to a few countries in North Africa, the Middle East, and Southwest Asia.

Marijuana transport is big across the northern and southern borders of the United States. Europe is the world’s largest consumer of hashish, though Western Europe appears to be dominated by herbal cannabis. Asian cannabis consumption is below global levels even though it is the most commonly used illegal substance in Asia. Cannabis use in Africa is high, approaching twice the global average.

Much of the world’s methamphetamine is produced in East and Southeast Asia, though production is expanding to other regions such as Mexico and Africa. In Europe, amphetamine and ecstasy dominate the market, but methamphetamine is increasing in availability.

Supply Chain

Farmers tucked away in the mountains of Peru or the jungles of Southeast Asia do not see themselves as cocaine or heroin growers. To them, a coca bush or opium plant is as much a cash crop as wheat. The market ultimately dictates what they plant.

The ratio of income per hectare of opium versus wheat was 10 to 1 from 2004-2007—as poppy collected $5,200 per hectare against $545 for a comparable amount of wheat. Although the ratio fluctuates yearly, it increased to 11 to 1 in 2011.

Planting the most lucrative crops can be the difference between a farmer affording to feed and educate his family or living a destitute existence in an already poor area of the world. Knowing that traffickers will simply go to a neighboring plot, or in some cases use threats, is all it takes to push a reluctant farmer to join the drug-trafficking economy.

This cultivation of raw plant materials is the first in a series of steps that take illegal drugs to the point of consumption. Limited supply and high demand create a nearly perfect business opportunity for distributing drugs to clients all over the world.

In business terms, this flow of goods and services is known as a supply chain. Each link in the chain is operated by specialists seeking to maximize profits.

After cultivation, the next step is processing. Farmers are rarely involved at this stage, though some illegal trafficking organizations merge the first two steps to streamline production.

During processing, naturally occurring plant alkaloids are stripped for conversion to street drugs. Harmful materials, such as gasoline and hydrochloric acid for cocaine or chloroform and acetate anhydride for heroin, are used in this process. Realize that even those willing to simply sell these precursor materials to drug processors benefit financially.

International smuggling comes next in the chain. Product is moved by land, sea or air for a fee.

Annual drug seizures by law enforcement give insight into this movement. According to the 2015 World Drug Report, 59 percent of the total amount of drugs seized were from land transports, often on road or rail, making it the most popular method of smuggling. Criminals often work with drivers who are paid directly to allow drugs to be smuggled with legal freight or in personal vehicles.

Though air smuggling is frequent, the quantities moved are usually small. The total captured by air represented only 6 percent of the overall quantity seized. These lesser amounts are stashed in luggage or parcels to better elude detection.

Transport by sea, though representing only 8 percent of the number of seizures by law enforcement, disproportionally represented 35 percent of the amount of drugs seized, making maritime transport the way to move the largest amount of product per individual shipment.

Smugglers are typically paid to move drugs by wholesalers, the next link in product movement. Wholesalers, usually drug cartels, are well-funded and distribute narcotics on a wide scale to large and medium-size retailers. Representing the final link in the supply chain, retailers are on the front line and distribute directly to users.

Most of the profit in the drug trade is earned on the front line. Retailers face the most risk from law enforcement and generate about 65 percent of total proceeds. Wholesalers get 25 percent, smugglers 9 percent, and cultivators and processors a meager 1 percent. It is not unusual for $500 worth of raw drug materials produced by a farmer to garner $300,000 on the street!

The illicit drug market tends to be horizontally integrated, meaning each step of the supply chain is controlled by independent entities. This separation, while not as efficient, isolates the risk to the overall operation and product flow.

For instance, if a smuggler is busted with an illegal product, it is extremely difficult to trace it to the drug processor or cultivator. The processor in this case simply employs another smuggler and business goes on.

Entrenched Networks

Transnational criminal organizations (TCOs) are drawn to drug trafficking due to high profits. Unlike trafficking human beings, weapons or precious stones and metals, drugs are a consumable product in need of constant renewal. Drug cartels from places such as Colombia, the Dominican Republic, and Asia seek to capitalize and carve out a piece of the action.

Of all TCOs, those in Mexico are among the largest and most sophisticated. Observing how they operate provides a glimpse into the difficulty law enforcement agencies face in eradicating the drug problem.

Mexican cartels dominate drug trafficking in the United States. They benefit not only because of proximity to the wealthy U.S. market, but also because of proven business savvy and organization. They run their groups like corporations. They think long-term and reinvest in their enterprises. Familiar cartels such as the Sinaloa and Los Zetas are often protected and admired by citizens as well as by those who benefit financially from their operations.

As with legal firms, many Mexican cartels have layers of staff—from front-line employees to mid-level supervisors to background managers. They also have what are known as ley or “law” employees who are primarily law enforcement officials working on behalf of trafficking organizations in exchange for bribes.

According to a report from the Organization of American States, a typical drug-trafficking franchise in a given city or region employs anywhere from 61 to nearly 600 internal employees and 109 to 1,000 ley workers.

This is far greater than most legitimate Mexican firms, 99 percent of which have 50 or fewer employees. The mean salary of internal drug employees is about 1.3 times the mean wage in Mexico and six times the nation’s minimum wage.

Not all those being paid are direct employees of the organization, however. Those desperate to earn a living can be compensated as lookouts or couriers. In such cases, they can make more money than they would otherwise without ever having to physically touch the drugs.

Mexican TCOs also compensate established firms who support the business—often through handshake agreements. For instance, cartels invest millions of dollars for the construction of elaborate tunnels connecting safe houses on both sides of the U.S.-Mexico border. The creation of these tunnels employs engineers, mining experts, and heavy-equipment companies. The drug industry is so profitable that the cost of these subterranean structures can be recuperated in a few months.

Drug trafficking in Mexico is worth over $50 billion annually to the nation. It is estimated that a complete loss of the industry would shrink the country’s economy by more than 63 percent, according to, a drug-treatment non-profit organization. This impact sheds more light on the difficulty of fully eliminating drug trafficking from places like Mexico, despite the risk of imprisonment or death.

Mexican cartels also employ friends and family based in America. These members are sent to U.S. hub cities to manage stash houses containing drug shipments and bulk cash drug proceeds. This activity pumps drug funds into the American economy.

National- and neighborhood-level U.S. gangs also form relationships with Mexican TCOs for drug distribution, enforcement of drug payments, and protection of trafficking routes. At 1.4 million strong in 33,000 different groups, these gangs rely heavily on drug revenue. They engage in violent criminal activity such as robbery, assault, threats and intimidation to ensure it continues.

Yet the biggest challenge to stopping the illegal economy may be the movement of drug funds into lawful enterprises. Drug profits, usually in the form of cash, are routinely smuggled or laundered into the legal financial system.

This money laundering, which is extremely difficult to track, aims to legitimize illegal funds. Money is pulled into legal endeavors such as construction, real estate, legal gambling, and the hotel industry.

These activities further spread the impact of the drug trade.

Inability to Cope

Law enforcement struggles to penetrate and upend the world’s elaborate drug-smuggling system.

Consider stopping the flow of heroin in vehicles at just one border checkpoint in San Diego, California. More illegal opiate is seized there than anywhere else in the United States. Officials compare it to looking for a needle in a haystack.

Now add all the other checkpoints, all the other drugs, all the other modes of transportation, and all the world’s other borders. The picture becomes overwhelming.

Removing one element of the trafficking system is not enough. The profit potential is so high and the system so elaborate that someone can quickly step in to replace each part of it. The world’s governments lack the cooperation and resources to keep up. This does not mean they do not try.

With the “war on drugs” deemed a failure in some circles, decriminalization remains near the top of the list of supposed solutions. Proponents feel that since drugs drive crime, legalizing them would have the effect of reducing violence and government corruption. They also feel regulation and control of the industry would lead to economic growth, similar to the way alcohol and tobacco boost the economy.

Opponents have a much more succinct rationale—drugs are dangerous and a hazard to the health of people. Making them legal and more available is a bad thing.

Alternative development, another proposed solution described in the 2015 World Drug Report, is directed toward creating a legal economy for farmers who grow the crops in the first place. The project is “aimed at reducing the vulnerabilities that lead to involvement in illicit crop cultivation and ultimately eliminating such cultivation…In the long run, this can attract investment and help to develop the necessary infrastructure, thereby changing and sustaining the livelihood of rural communities.”

The goal is clearly to fight the war on drugs from the supply side. If drugs are unavailable in the first place, then people cannot abuse them.

A concern with this approach is that drug use is increasing across the board. It is not difficult to see that people will find a way to get high no matter what.

The core of the problem is that millions do not possess the emotional and physical resources to cope with their problems. They often take chemical shortcuts for temporary relief. Yet the nature of drugs is such that once you try them, it is not long before you are hooked.

The enormous international drug-smuggling network exists to feed this unending habit.

Being tough on drugs takes its toll. Though there is some effect, containment is very expensive. The cost of the war on drugs is in the billions as nations must scramble to secure their borders and wealthier countries must invest in poorer nations to help eradicate crops and intercept drugs and precursor materials.

Sadly, the drug trade has become a form of international warfare—and mankind is losing the fight. 

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