Crime and Justice International Magazine - Sam Houston State University

Illicit Market Features

If we approach the organisation of crime of prohibited substances from the perspective of a criminal market phenomenon, we soon cross the beaten path of demand and supply of illicit commodities. Because the attention is directed at the ‘bad guys’ supplying the ‘forbidden fruits’, there is a bias to think also in terms of a supply side (criminal) economy. This is not a neo-conservative bias stemming from Reagan economic policy. Long before Reagan, illegal commodity trafficking used to be approached as a criminal supply phenomenon. From a narrow law enforcement perspective this is understandable: suppliers break the law and these should be apprehended. But does that do justice to a criminal commodity market? Let us look at the distinctive commercial and entrepreneurial features of such a market.

The Authorities as Market Determiners

In the first place we meet the most predominant market actor: the state. It is a platitude to say that it takes a ruling authority, be it a democratic or a dictatorial one, to declare certain customers’ conduct undesirable and prohibit the relevant commodities. This results in a shift from a legal to ‘forbidden fruits’ market, as is the case with the drugs market, the gambling or the sex market, just to name a few. The reasons for this penal law intervention may be ethical, religious, related to public health or a mixture.

How can the authorities interfere with the market. Here there are basically three options:
1. prohibition of the consumptive conduct. Historical examples are: gambling in the US and the Netherlands, psychotropic substances (US) and, recently, paid sexual services in Sweden;
2. this can be complemented with the prohibition of the related service of supplying the prohibited goods or services, though in some penal law systems only supplying is penalised;
3. imposing prohibitive taxes on the targeted undesirable goods to deter consumers, as is the case with tobacco products in the UK or alcohol in Norway.

The Trafficker’s Dilemma

In options two and three the prohibition regime tackles the supply side of the market. However, are the authorities really dealing with an essential supply market? The answer to that question follows from the commercial constraints on the illegal supplier within a prohibition regime. What are the basic requirements of a successful criminal supplier? That is basically his penal risk reduction skill, because he faces continually incarceration and confiscation if not violence from fellow criminals. Here he faces a criminal trafficker’s dilemma: trading entails handling and spreading information while every bit of information is potential evidence. Hence:

• like any supplier he needs information about potential customers;
• he needs information upstream about his suppliers who also need information downstream;
• he needs information about prices;
• he needs information about aids for executing delegated tasks;
• and at the same time he needs to hide all this information or limit his scope of action to remain safe.

While the penal law enforcement regime forces the illegal trader to fulfil these requirements, it reduces the entrepreneur’s scope, assuming that the demand withstands prohibition sufficiently. In that case, while after the onset of a prohibition regime the market usually shrinks, the scarcity of commodity drives up the consumer prices. On top of that natural price development illegal suppliers find themselves forced to pay for increased transaction risks. They cannot freely shop around to recruit customers, compare prices, hire staff according to ‘the best man on the best spot’. None of these usual suppliers’ techniques can be used freely. So, how can the principles and advantages of the supply side economy be unfolded given this penal law enforcement interference? They cannot. A prohibition regime imposed on an existing market with normal supply and demand mechanisms reduces that market to a mainly demand driven market. Interfering in the market with draconian fiscal measures evokes a similar entrepreneurial conduct, now concerning licit commodities for which there remains a legitimate demand. In both cases the authorities are a component of the demand market while erroneously fighting the supply side.

The Dubious Rationality of Penalizing Markets

Interfering in a market with prohibition instruments entails a high risk of evoking illegal trafficking. However, the choice of such an interference is not determined by a law of nature. History shows that a series of choices are made which leads the policy makers and legislators into a trap of their own making. The ‘reasoning path’ leading to such choices is rarely straight or transparent, determined by valid information, good faith or a rational argumentation. The history of the global drug policy since the beginning of the 20th century can be considered the best example of such a tortuous decision making policy.

Shaping a Trafficker’s Market with Cunning and Guile

The consumption of psychoactive substances is as old as humans started to appreciate certain plants and the effects of yeasted fruits. The effects of this consumption could be harmful to the users as well as society, materially but also spiritually. The valuation of these effects resulted in the prohibition of (the use) of these substances (alcohol mostly excepted).

As is the case with most sinners, they are not convinced of their own sinfulness. Only a deep shock can make them repent their habit. This was also the case with the society around 1900 and later. Hence, policy makers applied the shock therapy of instilling fear, which led the shaping of a penal law drug policy along three milestones of fraud and deceit, which have to be projected against the (usual) evangelistic zeal with which the US propagates its policy and sometimes forces its problem solving on others.

• The start-up fraud: in the beginning of the last century the over-zealous champion against drugs, the influential congressman, Hamilton Wright, faced obstruction in getting his federal anti-drug law accepted. Holding sway over his commission he could use some moral and statistical leverage. He scared congress and the administration by deliberately inflating the figures: instead of a factual opium use decrease in the last decades, he fabricated an increase by means of a statistical illusion of one million addicts (should have been 260,000). That proved to have had an effect we can still experience.
• The killer weed fraud: in the 1930s the consumption of cannabis products raised the concern of the US authorities: it was associated with Mexican migrant workers. Being consumed at weekends, during which also the favourite tequila flowed widely, resulting in aggressive behaviour, this weed became classified as a ‘killer weed’. This was a convincing label to promote legislation, even though it contradicted medical expert reports concluding the drug is a ‘downer’. These reports were willingly swept under the carpet and in 1937 the evoked fear of this ‘killer weed’ was converted into the Marijuana Tax Act.
• The drug money scam: during the 1980s the US administration developed a growing concern about crime money in general and drug money in particular. The question was again: how to convince ‘important others’ to follow the US lead? Now the ‘important others’ were the whole world. This time the task was not fulfilled by a defrauding zealous congressman but by the renowned international working group of the G-7: the FATF. Based on shaky assumptions about global drug production, interception rates and prices, the FATF came to an estimated annual drug money flow of €300 billion, later raised to €500 billion and one trillion, allegedly threatening world finances. The report ‘methodology’, which contained the magical mathematics, was never publicised. The approach proved to be successful too: the worldwide financial system is saddled with a top-heavy anti-laundering regime. However, a few aggressive hedge funds or an irresponsible mortgage policy prove to be more threatening to the integrity of the financial system if compared to the total set of wealthy drug barons.

Whatever objections one may have about these—well documented—Machiavellistic manoeuvres, over the past century they can be rated as most successful while they shaped a global smuggler’s market, recently extended to the proceeds of crime.

Group Think: Perseverance Against All Odds

While from the traffickers dilemma one can deduce that the development of large organisations and an enjoyment of the ‘economy of scale’ are unlikely and hardly merit a ‘war on drugs’, we are still stuck with such a policy. Why? The tragic ‘reasoning path’ concerning the drug market is well substantiated. Hence, one may think that policy makers will be drawing lessons from this documented history of the 100 year old smuggler’s market. This proves to be a wrong assumption, due to a social-psychological phenomenon of ‘group think’. Circles of decision makers tend to be into inward-looking bodies resistant to contradictory information maintaining mutual coherence and socio-political solidarity. As such a policy is based on lofty objectives (serv-ing public health and protecting youngsters against the evil of drugs), alternative liberal policies are soon under suspicion of being ‘soft on crime’. Therefore, despite all historical odds, there is a high perseverance of maintaining and even extending the present policy. At present, there are discussions of taking ‘firm measures’ (=penalising) magic mushrooms and the lightly psychoactive Somali qat.

Given this perseverance and the open-end formula of the right of state intervention on behalf of all sorts of health issues, one can sketch a scenario of ever-extending smuggling markets. The cigarette market has already unfolded; next comes the alcohol market and one should not be surprised to find fattening foodstuffs to be banned, followed by the ‘evil of burger smuggling’. This persevered intervention in consumer’s choices forms the upperworld side of the smuggling economy.

Petrus C. van Duyne is professor of empirical penal law at the University of Tilburg in the Netherlands.