Americans spent $109 billion on illegal drugs in 2010, according to a White House study, roughly the same as the $108 billion they spent on illegal narcotics in 2000.
This is mostly because of the way value gets added to illegal drugs, as well as the stringent efforts governments make to intercept illicit drugs and the profits they produce.
“A fair bit goes back to Latin America,” Tom Wainwright, author of “Narconomics” told Business Insider, “but the real millionaires, the real drugs millionaires, are right here in the United States.”
“Most of the profits involved in the drugs business actually stay here in the United States or in Europe, where the consumption happens,” Wainwright, who was previously based in Mexico City for the Economist.
“The reason for that is that big increase in the drugs’ value actually happens here.”
When it arrives in the States, it’s worth — if we talk about cocaine, for instance — it’s worth about $20,000 per kilo, and finally when it retails it’s worth more like $150,000 per kilo.
And the reason for that is because the guys who do that stage in the chain are the one’s who face the highest risk. They’re the ones who take this shipment of perhaps a ton of cocaine, break it down into smaller portions of just a kilo or a few hundred grams, and ship it out to hundreds of contacts throughout the country.
The cartel operatives described above are usually the ones liaising between a cartel’s base of operations and the groups it partners with to distribute narcotics in the US.
They have to invest in a variety of things: Stash houses to store and cut up drug shipments; transportation to move it to distributors, and other day-to-day costs.(They have to eat, after all.)
The fact that these operators are trying to obscure their activities from authorities inflates their expenses.
A stash house in upper Manhattan raided in early 2014 was found to have an extensive countersurveillance system, for example.
This risk pervades their activities in the US and influences how much of the money from drug trafficking flows to them.
Now they’re facing a big risk. They’re very widely exposed.
They have to deal with lots of different people, and they’re working in a country where the police force actually works, more or less, and if they get caught they’re going to prison for a very, very long time.
So because of the extra risk they face, they’re able to charge a premium. So more than half the profits involved in the cocaine business, for instance, stay here in the United States.
‘Viola, you go from US dollars to Mexican pesos’
Once drugs are distributed and cash collected, the process of filtering the money back to a drug cartel’s headquarters begins.
Since cash flows, particularly multimillion-dollar amounts, attract a lot of attention, criminal organisations rely both on bulk-cash smuggling and money laundering to move that money around, Mike Vigil, the former head of the US Drug Enforcement Administration’s international operations, told Business Insider.
“What they do is they formulate business enterprises, you know like fictitious businesses … here in the United States, also in Mexico, and they use those to launder money,” Vigil said, referring to the Sinaloa cartel, one of the world’s most powerful trafficking organisations.
“They used commodities-based money laundering,” Vigil told Business Insider, “where they buy, for example, gold and diamonds here, and then they smuggle them into Mexico. They’re sold over there and all of a sudden, viola, you go from US dollars to Mexican pesos.”
Money laundering isn’t limited to precious metals. Trade-based money laundering, which involves larger purchases in the US, is also highly lucrative and hard to detect.
“The epicentre for a lot of the money laundering for the Mexican cartels is Los Angeles,” Vigil told Business Insider. “And they use the fashion district to launder money.”
“The Sinaloa Cartel used US drug proceeds to purchase clothes imported from China that were stored in the targeted fashion businesses’ warehouses” in Los Angeles, the DEA reported in its 2015 Drug Threat Assessment.
“The clothes were then shipped across the border into Mexico for resale and the profits placed into the Mexican financial system as legitimate proceeds.”
Drug trafficking is an incredibly profitable enterprise — that’s how world-famous smugglers like Pablo Escobar and Joaquín “El Chapo” Guzmán have been able to amass billion-dollar fortunes selling drugs to voracious American consumers.
But in the modern era, when enforcement is stronger, that cash usually doesn’t travel very far.
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