How an Economist would stop the trade in illegal drugs.

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Philosophers, sociologists, criminologists are asked to advice on crime, in fact everybody but economists. I want to right this imbalance, because as an economist I have a unique take on this problem not considered by others. Others may for instance study the effects of drugs legislation, but none of them will look at the gangs as business organisations, to whom the usual economic analysis applies.

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What I observe is the the drug laws have had the unintentional effect of creating large profitable monopolistic businesses making vast profits. It is these profits that are the key to their success, as these profits give them the resources to finance their trade and in particular the money to corrupt the law enforcement agencies that are supposed to stop the trade in illegal drugs. There are innumerable stories in the world’s media about police forces being corrupted by drugs money. In Mexico the phrase ‘mafia government’ has been used with some justification. As an economist my first effort would be directed to reducing these monopoly profits and which would reduce the significance of these gangs.

Anti-drug laws rather than stopping the trade in illegal drugs, have eliminated the unsuccessful players from the scene leaving the control of the supply in the hands of the most skilful and ruthless players in the game. The jails are full of minor drug dealers who lack the skill to evade capture, while the members of the largest and most successful gangs usually evade capture. Even if a major gang is broken up it is soon replaced by another. However they are rarely caught. If the money was taken away from these gangs they would lose their power. The most obvious way to do this is to legalise the sale of drugs. This would cause a flood of small time dealers into the market forcing the price of drugs to drop.

Obviously the major gangs would resort to violence to eliminate rivals and maintain their monopoly. However the flood of drugs onto the market would be impossible to stop and prices would inevitably fall. Those major gangs that remained in the drug trade would inevitably shrink in size and become minor players in the criminal world.

My favoured approach would be to return to the system that prevailed in Britain in the 1960’s. Then drugs were available to drug users from doctors licensed to prescribe drugs. Obviously there would still be a criminal trade in drugs, as a number of users would not want to register as users. However the criminal drugs trade would be much reduced.

This would also ensure the purity of the drugs taken and avoid the personal tragedies that result from the use of impure drugs. If drug usage was seen as a medical problem it would remove the glamour from drug taking and reduce the demand for them. It would also give the medical authorities to engage with users and educate them in the harmful effects of drugs such as ketamine and reduce their use.

I should explain that as a student in the sixties I was one of a large number who developed a distaste for drug use, but the genie is out of the bottle and cannot be put back in. The relevant question for me is how do we live with drug use and minimise its harmful effects.

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There is another player responsible for the success of the drug gangs and that is the bankers. Unfortunately wherever there is evil you will find a banker facilitating it. Governments have in the UK for the past thirty years favoured ‘light touch’ regulation and encouraged rich corporations and the super rich to use tax avoidance schemes. This they justify by claiming that these policies attract multinational companies to locate in Britain. One unfortunate consequence is that he schemes used by bankers to help the rich avoid tax, can also be used by criminals to hide their money from the law enforcement agencies. Several years ago the British government set up a special unit to recover money from the drug gangs. It has managed to recover practically nothing. It lacks the resources and wit to recover this money.

It was not so long ago that the London bankers successfully opposed plans by the EU to introduce stronger anti money laundering laws. While it is hard to judge the complicity of the banks in illegal money laundering, what is known that a British Bank, Standard Chartered (part of the HSBC group) was convicted of money laundering for the Mexican drug cartels. One suspects their crime as viewed in banking circles was to be so careless as to get caught. Without the banks being willing to move around large sums of money for these gangs, they would not be able to finance their large scale criminality.

Then there are the drug cartels in the countries that produce these drugs. If it was not for the international banking community, they would remain large fish in a small pool. There is a limit to how much farm land a drug baron can buy in Columbia, they want the personal jet, the yacht etc. items that are to be acquired from the rich countries of the developed world. It is impossible to be a cash buyer for such expensive items. There is the difficulty in carrying such large sums in cash and the law enforcement agencies etc. would make such a transaction impossible. Fortunately the drug baron in Columbia can take advantage of the tax havens in the West Indies. Their drug money can be deposited in one of the many offshore accounts in the banks which are effectively branches in all but names of the major US and British banks. This ‘clean’ money now deposited in banks in Miami or London can now be used for a variety of transactions, either purchasing luxury items or using the money to ‘oil the wheels’ to facilitate major drug trades.
What the law enforcement agencies fail to recognise is that these international drug gangs are more akin to international companies such as Shell or Ford, than the old criminal gangs. Their use of violence disguises their true nature. Just as multinational companies are embedded in the governance of countries so are the multi national drug gangs. Therefore a completely different approach is required to tackle these gangs. They just as with any other business depend on a constant cash flow to function and if this cash flow can be stopped, they will cease to exist.

The means in the form of computer technology exists to make this possible to interrupt this cash flow, but there is a reluctance of governments to go this far. Low level criminality is embedded within the banking system, banks have for many years worked with their clients to frustrate the government tax collectors. Tax avoidance and the concealment of the the origin of the money deposited with them has become standard practice within the banking community. Too tackle this culture of secrecy and it’s associated criminality will require a reversal in government policy towards the banks. Also tax avoidance has become the norm amongst the rich and multinational companies and there would be much opposition to such changes from these quarters. This is an opposition not to be under estimated, it would be organised by the City of London to whom the government is used to acquiescing to its desires.

A representative of the City of London sits behind the Speaker’s Chair when Parliament is in session and is able to represent the City’s interests to government ministers on issues that might affect the City. What is in effect a veto on government policy must be removed.

At present the City and the Banks are ‘self policing’ on matters of money laundering. It is up to them to ensure that they comply with the government’s legislation on this subject. Given that the handling of such money is very profitable the controls are very lax and most laundered money passes through the system unnoticed. The only real threat is the New York District Attorney’s Office or the American SEC. There is no real threat in the UK to such misbehaviour in the banking community. When prosecutions are made usually the initiative comes from the USA.

What I believe is essential to control the trade in drugs is proper regulation of the banking system. Government audits of the banks to check for money laundering are necessary and the sanctions must be effective when abuses are discovered, not just fines but jail sentences for offenders. It would be very easy to design the computer software to check on the origin of accounts above a certain value. If the US and Israeli government can develop computer viruses to infect the computers of a security conscious Iran and if the Chinese government is able almost at will to hack into the computers of British companies and government, designing software to check on the origin of accounts will pose no great problems. The only freedoms that would be infringed are those of wealthy tax evaders and avoiders and the large criminal organisations. The rest of us would never hold the amounts of cash likely to attract the attention of the financial police.

Obviously the banks would try to frustrate such government activity and they may well have some success, but the activities of the international drug cartels would seriously be impeded.

In Italy Pope Francis has pledged to clean up the Vatican Bank. A bank sometimes unkindly referred to as the ‘Mafia’s Bank’. The Mafia certainly recognise this as a serious threat to their activities. It was reported recently that the Mafia may make an attempt on the Pope’s life to preempt this threat to their very profitable activities. The attitude of the Italian mafia to their bank merely confirms my view of the relationship between banking and organised crime.

Economists such as myself can’t change human behaviour, but we can suggest means to mitigate the harmful effects of criminal behaviour.

There is however one caveat I must make. When a student I attended lectures given by Robert McKenzie. He told us of a conversation he had with a senior Italian politician. He was discussing the impact of US government policy on Italian politics. He said we know who are bribed by the CIA in Italy, who are they bribing in Britain? Robert McKenzie left it as an unanswered question. Similarly we know who the mafia have corrupted in Italy, the Christian Democrats and the Socialist Party, but we have no idea of who they have corrupted in the UK and it is these ‘hidden’ politicians who would try to frustrate any attempt to check the trade in illegal drugs.

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