3 Smuggling

The modest share of retail price associated with international cocaine and heroin smuggling is easily explained.6 First, consider
cocaine, which travels in large bundles at that stage; seizures suggest that shipments of 250-500 kilograms are quite common.
Though large sums may be paid to pilots for flying small planes carrying cocaine or to Honduran colonels in return for ignoring
their landing, these costs are defrayed over a large quantity. A pilot who demands $500,000 for flying a plane with 250
kilograms is generating costs of only $2,000 per kilogram, about 2 percent of the retail price in the United States. Even if the
plane has to be abandoned after one flight, that adds only another $2,000 to the kilogram price. For Europe, where courier
smuggling may be more important, since it is remote from production areas for both cocaine and heroin, payments to the
couriers again amount to only a few thousand Euros per kilo.7 For shipments in container cargo, seizure constitutes little more
than random tax collection; replacement cost of the seized drugs is substantially less than the landed price8, so high seizure
rates have modest effect even on wholesale prices.9

A large share of cocaine in the 1980s was smuggled to the United States in dedicated vessels, either small boats or planes.
Intense interdiction has changed both routes and patterns. Small (and sometimes not so small) planes are still used to carry
a substantial fraction of cocaine to Mexico, from where it enters the U.S. in regular cargo, either by truck or cargo vessel.
Patterns of seizure also suggest that in recent years even shipments direct from Colombia have tended to travel in commercial
traffic, both air and sea. The drug is found concealed in an enormous variety of cargoes; frozen fruit pulp containers, wooden
furniture and suspended in other liquids. European smuggling patterns are influenced by the simple distance from Colombia to
Western Europe; dedicated small planes and boats are less feasible. An increasing share is now coming through West African
transit countries, such as Ghana and Guinea-Bissau (Sullivan, 2008).

Heroin smuggling appears to be less efficient, at least as measured in dollars per kilogram. Heroin that exits Myanmar at
$1,000 per kilogram (in bundles of ten kilograms or more) sells on arrival in the United States for $50,000 per kilogram.
There have been a few multi-hundred kilogram shipments of heroin but they are very rare compared to those for cocaine.
The drug often travels in small bundles carried internally by individual couriers.10 “Body-packing” where the couriers are low
wage earners, produces per kilogram smuggling costs of less than $10,000. A body-packer can apparently carry about 3/4 of
a kilogram. A payment of $5,000 for incurring a 1 in 10 risk in prison (perhaps acceptable for couriers whose legitimate wages
are only about $2,000 per annum), along with $3,000 in travel expenses, produces a kilogram cost of just over $11,00011
compared to a retail price of $1 million. The remainder of the smugglers’ margin is for assuming other kinds of risk. Body
packing is also a common mode of smuggling from Central Asia, particularly Tajikistan, into Russia. The payments to couriers
there are much lower, perhaps as little as $200, reflecting both the greater poverty of that region compared to Mexico (a
Middle Income country now by World Bank standards) and the lower risk of apprehension.

Note however that, as a share of the retail price, the ratio for heroin is actually less than for cocaine, about 5-10 percent
compared to 15 percent for cocaine. This is one of many unresolved puzzles about the relationship between cocaine and
heroin prices, which maintain, at least in the United States, a remarkably constant ratio of 1 to 10 (Caulkins et al., 2005).

Smuggling costs depend on the ability to conceal drugs in a flow of legitimate commerce and traffic. Colombia and Mexico
serve as the principal smuggling platforms to the United States because they have large immigrant populations in the United
States and extensive air traffic and trade. In the case of Mexico, there is also a lengthy porous land border. Though Mexico
is a high cost producer, farm-gate prices for opium in Mexico being typically $2,000 to $5,000 per kilo, compared to a few
hundred dollars in Myanmar, the low smuggling costs equalize total landed price. Colombia, a source for heroin that emerged

in the early 1990s, also represents high farm gate production with relatively low smuggling costs.12 Colombia and Mexico
are minor producers of opium worldwide, accounting for perhaps three percent of the total but have been source of nearly
two thirds of U.S. heroin.13

Nigeria is an interesting anomaly, a nation that seems to have little potential role in the international drug trade. It is isolated
from the any of the principal producer or consumer countries and lacks a significant base of traditional domestic production
or consumption. Nonetheless, Nigerian traffickers have come to play a significant role in the shipping of heroin between
Southeast Asia and the U.S.14 and also to Europe. They have even been identified as important figures in the early stages
of heroin trafficking in Central Asia. More recently Nigerian traffickers have even entered the cocaine business, though the
production centres are still more remote from their home country.

The explanation is probably to be found in a complex of factors. Nigerians are highly entrepreneurial, have been misruled
by corrupt governments over a long time, have large overseas populations, weak civil society, very low domestic wages and
moderately good commercial links to the rest of the world. Thus it is relatively easy to buy protection for transactions in
Nigerian airports (corruption and a weak governmental tradition), to establish connections in both the source and consumption
nations (large overseas populations) and to use existing commercial transportation15; smuggling labour is cheap (low
domestic wages) and the entrepreneurial tradition produces many competent and enthusiastic smuggling organizers. Nigeria
is not unique in most of these dimensions (except for size and connections with the rest of the world) and there is perhaps
an accidental quality to its initiation into the trade, but these other factors plausibly play a major role. The country of Nigeria
may have been supplanted by other West African states as a transit location in recent years, as indicated by the origin of
seizures at London’s Heathrow Airport, but it is less clear that Nigerians have been supplanted as smugglers.

The drug trade frequently takes indirect paths for smuggling. Seizures in Germany may turn out to have travelled through
Scandinavia into Russia and then exited through Poland to their final market. Ruggiero and South (1995) describe “a joint
Czech-Colombia venture to ship sugar rice and soya to Czechoslovakia…This operation was used to smuggle cocaine,
destined for Western Europe. In 1991, police say that 440 lbs. of cocaine were seized in Bohemia and at Gdansk in Poland,
which would have been smuggled onward to the Netherlands and Britain” (p 75). A large share of UK heroin has been
transported through Jamaica (McSweeney, Turnbull and Hough, 2008).

Immigrants have advantages in exporting, with better knowledge of potential sellers and corruption opportunities. Few
potential US importers speak any of the languages of the Golden Triangle (Myanmar, Laos and Thailand); English has more
currency in Pakistan but not much in Afghanistan. Corrupt officials may be much more at ease in dealing with traffickers
whose families they can hold in mutual hostage. Moreover, non-native traffickers are likely to be conspicuous in the growing
regions. Nor are the exporters merely agents for wealthy country nations, in sharp contrast to the international trade in refined
agricultural products. Khun Sa, an exotic figure associated with irredentist ethnic groups on the periphery of Myanmar was
the dominant figure in opium exports from the Golden Triangle for many years (Booth, 1996). The Colombian cocaine trade
has spawned some spectacular figures, such as Pablo Escobar and Carlos Lehder, all of them of Colombian descent. If there
are major US or European exporters in the source countries, they have managed to escape detection.

Cannabis smuggling accounts, as already noted, for a modest share of total traffic. Gamella & Rodrigo (2008) in the only
detailed analysis of this smuggling, from Morocco, describe an industry which is once again characterized by many small
enterprises, though they describe two major entrepreneurs who acquired prominence before being convicted and incarcerated
by the government of Morocco. For ATS we were unable to find any systematic research on smuggling activities.

The smuggling sector is where great fortunes appear to be made. Most prominent have been the Colombian entrepreneurs
such as Carlos Lehder and Pablo Escobar whose extravagant lifestyles provided an important part of the imagery of the failure
of the state to prevent their accumulation of power and wealth. Though there are no documented estimates of their actual
earnings, there is no doubt that they accumulated many hundreds of millions of Euros during their careers. Khun Sa, the
dominant figure in Myanmar’s heroin industry (both production and exporting) also became extraordinarily wealthy and was

able to negotiate with the national government an exit from the trade that may well have involved payment of large sums.
The principal figures in the Mexican drug trade, which is mostly smuggling to the U.S., are also reputed to have very large
fortunes. Though Pearson & Hobbs (2001) in their study of mid-level distributors in Britain do not report income figures,
they provide data that suggest some participants were making many hundreds of thousands of pounds per annum though
merely middlemen.16

6 This analysis draws heavily on Reuter (1988).
7 For a revealing analysis of the role of courier smuggling through the Netherlands Antilles, see UNODC and World Bank (2007), Chapter 7.
8 The exit price of cocaine from Colombia may be no more than 2,000 Euros; the price at first sale in Europe may be ten times as high. What is
replacement cost for the smuggler depends on what costs have already been incurred at the point of seizure. Near the entry point to Europe that
may include payments to corrupt officials in transshipment countries and some part of the courier’s fees. It is impossible to determine where the
replacement cost in general falls between the export and import prices.

9 This is not an argument for abandoning interdiction but for recognizing the limits of its effectiveness in making cocaine more expensive and less
available in mature markets.
10 Nigerian traffickers seem to specialize in such smuggling. Mark Kleiman has estimated that Nigerian couriers’ body packing heroin into New York
in the early 1990s accounted for over 500 kilograms per annum, 3 to 5 percent of estimated U.S. consumption. That requires only three body
packers every two days.
11 The risk and payment figures here are moderately informed guesses; the purpose is simply to provide a sense of the magnitudes involved.

12 There are indications that the Colombian heroin production has declined sharply since the early part of this decade; see U.S. Department of State
(2008). However seizures of heroin in Colombia have barely fallen (Paoli, Greenfield and Reuter, in press).
13 Whether the share is as high as officially estimated is questionable; see Drug Availability Steering Group (2002) and Paoli, Greenfield and Reuter
(2009). However they certainly have supplied a substantial share of U.S. consumption in recent years.
14 In 1991 Nigerian nationals accounted for 60 percent of the heroin seized at JFK Airport, the principal international airport for New York City
(Akyeampong, 2005).
15 Note that, as expected, the drugs travel with passengers rather than cargo, since Nigerian exports apart from oil, are modest.
16 For example one dealer was buying 1-2 kilograms of heroin per week at £21,000 per kilogram and selling it at £800-1,000 per ounce. Even at the
lower of price figure this would yield about £7,000 per kilogram. If selling 1.5 kilograms per week that would yield roughly £500,000 per annum.