ABSTRACT: The Committee of Inquiry into Organized Crime Linked to Drug Trafficking in the European Community, is about to arrive at its conclusions. We are publishing a summary of the Committee's report on "the illegal drugs economy", written by the Antiprohibitionist work group, comprising Marco Taradash, Vice-Chairman of the Committee, member of the European Parliament, and member of the Radical Party; Claudia Roth, temporary member of the Committee, and member of the German Parliament, Green Group; and Jean-Luc Robert, a collaborator of the Green Group.

(The Party New, n.4, September 1991)

Exponents of organized crime infiltrate the lawful economy for one reason: to launder the enormous profits obtained from drug trafficking, and to integrate the banned drugs economy with the lawful economy. The underworld economy has now formed a symbiosis with the regular economy. In order to understand the fundamental stage that laundering represents in the drug money circuit, it is necessary to comprehend how this circuit works and to analyse it in its precise manifestation, and not as one imagines it to be.

The Drugs Circuit

The various techniques dreamed up by the traffickers and their particular capacity to exploit the illegal sale of drugs, permit the accumulation of the profits - drug money - to be laundered. In some ways, the drug laws currently in force are also directly responsible for this. In banning certain narcotics, the drug laws have provoked an effect which is generally seen as "perverse", even though it is, more precisely, the logical consequence of any form of prohibition: i.e., the establishing of an exaggeratedly high selling price. Thus, the extremely lucrative aspect of drug dealing constitutes the major attraction for anyone who dares face the consequences of repression. One can understand just how much of an attraction, if one remembers that heroin retails on the street at 1,700 times the wholesale price and cocaine retails at 600 times the wholesale price. Repression certainly isn't going to discourage traffickers when profits are this highí We encounter the same problem at the level of drug cultivation. I

n a recent report, the Brazilian government revealed that the return on an hectare of marijuana is 146 times higher than that on an hectare of tomatoes, 257 times higher than that on an hectare of beans and 171 times higher than that on an hectare of maize. This being the case, it would be totally unreal to propse that growers return to cultivating legal crops.

Illegality favours the market

The exaggeratedly high price of drugs forces the user, in his turn, to become a pusher in order to pay for his habit. Paradoxically, the unrealistically high price stimulates the market instead of discouraging drug abuse. Numerous other techniques are brought into play, which only goes to show that the drug market is run with great efficiency and its illegal aspect is exploited to the full. This is demonstrated by the technique of gradually reducing the quality of the dose, which is employed to effect an increase in price. This technique not only forces the user to look for new clients in order to be able to pay the higher price, but also obliges him to consider new "products" which are either more effective or less expensive. Another completely different technique is also practised, which is that of selling drugs at almost giveaway prices. The techniques used are very sophisticatedí Ecomomists use the term "inelastic demand curve" to explain how in the case of certain products, price increases, whether dire

ct or indirect, do not have a negative effect on consumption but result in a sales increase. Repression has always produced a sole effect in the past: in certain instances, the selling price of drugs has increased to the exclusive profit of the pusher. On the other hand, when there was a problem of over-production - as there was in the US in the mid-eighties with cocaine - a solution was found that favoured the "seller", which is quite different to that which would have happened in a lawful economy. The doses became purer, the supply was restricted, and the buyers increased. The profit margin was temporarily reduced, but countermeasures were swiftly taken. And a new European market was created that was even more lucrative than the US market.

Organized crime: a profitability model

Even though the traffickers succeed in profiting from the situation to the full, the public institutions also exert a direct - even though involuntary - regulating influence to some degree. Unfortunately, this is to the traffickers' advantage. When the anti-drug squads arrest the small, badly-organized trafficking gangs, usually acting on information given to them by rival organizations, they eliminate the weakest, thus permitting the strongest to survive. Repression may give the traffickers a monopoly over the buyers but, at the same time, it stimulates competition between them: in fact, only the cleverest, the most

efficient and the most highly-organized traffickers are able to oppose repression. The strongest are also eliminated. When a drug trafficking organization virtually enjoys a monopoly, becomes too widespread, too difficult to run and too well-known to the police, it also becomes an easy target. When this happens, it is highly probable that the particular organization will be destroyed as in the case of the French Connection, when the supply of drugs to New York was cut off for a very short period, the time it took for another organization to take over the territory. In short, the drugs economy represents a profitability model that combines the advantages of the monopoly with those of a competitive market, and exploits repression to impose unrealistically high prices which, in their turn, expand the market.

The link between arms and drugs

Numerous scandals have shown that drug trafficking is closely linked to arms trading. Thus, heroin and hashish are exchanged for arms that are illegally exported in deals between Europe and the Middle East and, more precisely, Syria and Lebanon.

According to official CIA reports, the majority of terrorist groups, regardless of ideology, are involved in these deals, along with high-level government officials.

Whereas drug-money was previously reinvested in other illegal, or barely legal, sectors of the economy, such as extortion, prostitution or gambling, nowadays the enormous quantity of money to be laundered has gradually resulted in the traffickers becoming part of the lawful economy. Now, key sectors of the economy are hit: such as building and real estate, turism, hotel chains, transport and, naturally, finance. Treasure bonds, issued by many European governments to combat the public deficit, guarantee anonimity and are, therefore, a practical means of laundering money. Drug money, in general, is reinvested in all those sectors of the lawful economy that necessitate large cash transactions, such as the art market. Alongside the mafia-owned manufacturing enterprises which utilise violence to suppress - and misrepresent- the competition, and other enterprises financed by the mafia but which manufacture goods legally, we also have companies that are used as a "front" and are distinguished by their exploitation

of the banking and finance sector to launder money which is transferred, preferably, to fiscal paradises where bank secrecy (either absolute or determined by certain conditions) is in force, and taxes are either extremely low or nonexistent. Switzerland, Luxembourg, Liechtenstein, Monaco and the Channel Islands are all fiscal paradises to varying degrees - and that is only in Europeí

Illegal transfer and laundering of money

Some European countries have already modified their laws to make money-laundering a crime. The European Community has also taken action. The proposal made by the Heads of the Council to prevent financial systems being used to launder capital is in the process of being adopted. Nevertheless, it should be noted that the Bank Secrecy Act, promulgated in the United States in 1970, which imposes a control on all financial operations of over US$10,000, has not been effective. Instead, an increase in the number of operations under US$10,000 has further complicated the situation and, 13 years later, a report issued by a US Senate Committee of Inquiry could not be more explicit: "The Bank Secrecy Act has been a complete failure on two important counts. Above all, the measures taken have not been able to significantly slow down the illegal transfer of moeny from the United States, let alone stop this from taking place. Furthermore, even though the small number of successes has given us a vague idea of the quantity of

money involved, we do not have sufficient data regarding the actual laundering to enable us to take the necessary political measures". In the US today, banks freeze one dollar for every one hundred that are laundered, while only 10% of laundered goods and shares are seized. The situation in Europe is no better. No one knows how much money is laundered, nor which banks are involved. And no one knows the exact number of companies which are used as "fronts" for laundering drug-money.