The single largest marketplace for illegal drugs continues to be the
United States. Although the market has decreased dramatically since its
heyday in the mid-80's, close to thirteen million Americans still think
nothing about occasionally buying a gram of cocaine, a few hits of ecstasy
or a quarter ounce of weed to party with their friends on the weekends. A
hard core group(see
the chart) estimated at between 5 and 6 million have more serious drug
habits, and may spend $100-$500 dollars a week on purchasing their drugs.
These two groups - hard core users and casual users - spend approximately
$60 billion dollars a year, according to U.S. government estimates.
Imagine a typical weekend in New York City. Experts estimate that at
least one percent of the population - 80,000 plus - spends $200 on illicit
drugs. That alone would amount to $16 million dollars a week or $832
million a year. And that's just New York.
All those drug sales mean that large amounts of cash accumulate in
stash houses and collection points around the country. For the
multi-billion dollar narcotics business - like any commodities business --
it is essential that the suppliers and transporters be paid. That means
the money must make its way south, and the traffickers, aided by
specialists in money laundering, have devised myriad methods to insure the
efficient and safe delivery of their profits.
Estimates on how much money is sent south each year range from $10 to 30
billion. For Mexican traffickers along the Southwest border, the money is
literally driven across the border in bulk amounts and then deposited into
Mexican banks. "Steve,"
who was involved with the Mexican cartels in money laundering, explains
this process.
For Colombians, the process is more complicated because dollars are not
negotiable in the Colombian economy due to currency controls. That,
combined with the fact that Colombia can only be reached by sea or air,
has led to all kinds of ingenious
methods for repatriating their proceeds.
When the drug money ultimately makes its way into the foreign economy,
it is used to pay the salaries of shippers and processors, as well as the
bribes that supplement the incomes of government officials on both sides
of the border. Whole regions of Mexico, Colombia and points in between
have become dependent on the demand for drugs in the United States.
Large scale drug organizations such as the once powerful Cali
cartel in Colombia or the Mexican Arellano
Felix brothers are said to resemble corporate organizations with
division of labor and huge cash reserves designed to keep their operations
moving smoothly.
What keeps the drug industry going is its huge profit margins.
Producing drugs is a very cheap process. Like any commodities business the
closer you are to the source the cheaper the product. Processed cocaine
is available in Colombia for $1500 dollars per kilo and sold on the
streets of America for as much as $66,000 a kilo (retail). Heroin
costs $2,600/kilo in Pakistan, but can be sold on the streets of America
for $130,000/kilo (retail). And synthetics like methamphetamine
are often even cheaper to manufacture costing approximately $300 to $500
per kilo to produce in clandestine labs in the US and abroad and sold on
US streets for up to $60,000/kilo (retail).
The C.I.A and other U.S.intelligence sources believe that synthetics
like amphetamines and designer drugs like Ecstasy will garner a larger and
larger share of the market in years to come.
No agriculture based commodities industry in the world operates on the
same price differentials as cocaine and heroin, while requiring relatively
little in the way of expertise.
"The average drug trafficking organization, meaning from Medellin
to the streets of New York, could afford to lose 90% of its profit and
still be profitable," says Robert
Stutman, a former DEA Agent. "Now think of the analogy. GM builds
a million Chevrolets a year. Doesn't sell 900,000 of them and still comes
out profitable. That is a hell of a business, man. That is the dope
business."
Losses in the narcotics business through seizures or theft are rarely
catastrophic. The United Nations estimates that current drug interdiction
efforts intercept approximately 13% of heroin shipments and 28 to 40% of
cocaine shipments. It was because of the failure to stem the flow of
product that US officials started turning to tracking and seizing the
money the resulted from drug sales. In the last decade federal and state
law enforcement have seized over $8 billion in drug cash and assets.
"If a load of coke gets seized, they kick out more coke at fifteen
hundred dollars a kilo--cost," says former IRS investigator Michael
McDonald. "If you seize money, it's dollar for dollar. They're in
business to make the money."
Like any cash rich business, drug trafficking organizations invest in
the legitimate economy of their own country and use investment advisors in
financial instruments available in the international marketplace.
"[For] the bad guy, from the very beginning, there is an attempt of
integration [of illegitimate and legitimate money]." says DEA
money-laundering expert Greg
Passic. "You don't have the Swiss bank account with a $110-200
million bucks sitting in it. What you have is five, ten, 15 million
dollars moving around, acquiring assets or companies. So when you do go in
and try to dissect and pull the drug money out of it, it's hard because
there's a lot of legitimate money in there."
During the 1980's, while other Latin American nations faced major
recessions, the influx of billions of dollars in drug proceeds helped keep
Colombia out of trouble. It is difficult to say how much money came into
the country. At least 6% of the economy is thought to be directly involved
in narcotics business, with a minimum of $5 billion in profits per year.
"From a pure economic sense, it's good for any country," says
Passic. "But after a while, what you create are systems that are
outside of the formal channels. You can't be taxed. You destroy jobs. I
think there was the realization that U.S. drug money actually was hurting
Colombia's economy. It was funding the extremist groups, the purchase of
weapons and the other bad things that go along with it."
In Mexico, it is harder to determine the exact percentage of drug money
flowing into the economy. Some regions like the rural areas around the
city of Culiacan in Sinaloa
state have been primarily dependent on poppy and marijuana production for
decades. And resort areas have seen a sudden explosion in construction and
real estate prices when the drug economy is booming.
"I think it's very difficult to know because of that gray area of
drug, non-drug activities. It's not that clear-cut in many cases,"
says Mexican scholar Jorge Castaņeda. "There are regions of the
country where the drug economy really is central to the local economy.
There are regions of the country or times at which the drug economy is
enormously important. To come up with an overall estimate is very
difficult because by definition this is all untraceable." Castaņeda
also says that there was widespread corruption in Mexico's dominant
political party in the 20th century, the PRI. Because of this,
Mexican drug money often became intermingled with other types of
corruption money from privatization and bribes, making it difficult to
sort our which was which.
While the drug money may provide much needed influxes of capital to
these economies, experts now agree that over time the money can devastate
legitimate business and long term development. "A normal businessman,
he needs money, he needs capital and he's going to borrow that," says
former State Department official Jonathan
Winer, "He's going to pay 6%, 8%, 10% [interest] on that money.
He's going to earn a profit on it to pay that back. But the drug
trafficker is happy to pay 6% or 8% or 10% loss, reverse interest, to have
that money laundered. So they have a competitive advantage over everybody.
So they go into a business--they can take that business over. And no one
can compete."
While the US
drug user may not intend to invest in this international drug economy,
every dollar spent purchasing those weekend escapes is ultimately fueling
a mammoth and destructive system that depends on our drug dollars to
survive. "That population of hard core users generates the
funds," says former IRS agent Mike McDonald. "They generate the
dollars that go back to Mexico and go back to Colombia. They generate
those dollars that in Colombia and in Mexico are turned into power, turned
into extortion, turned into homicides, turned into corrupting foreign
governments, arms dealing, and expanding criminal enterprises around the
world."
