5 The organization of the trade

Though for a long time it was assumed that illegal drug markets were typically monopolized, in fact monopoly control is rare:
Desroches (2007) in a recent review noted that the available research on high level trafficking in Canada, the Netherlands,
U.K. and U.S. points consistently to small organizations with limited scope of activities. Prior to 1980, it was widely believed
that the Mafia had dominated the major illegal markets such as those for bookmaking and loan sharking, and even for heroin
importation into New York City until the late 1960s (e.g., Cressey, 1969). Despite finding that some dealers within the U.S.
have enormous incomes and traffic in large quantities, no researcher has found evidence, except on the most local basis (e.g.,
a few blocks), that a dealer organization has the ability to exclude others or to set prices18, the hallmarks of market power
(Katz & Rosen, 1994; Chapter 13).

Even at the trafficker level, market power seems elusive. Notwithstanding references to the Medellin and Cali “cartels”,
these groups seem to have been only loose syndicates of independent entrepreneurs, who sometimes collaborated but also
had to compete with other, smaller, Colombian smuggling enterprises (Clawson & Lee, 1998: Epilogue). The small share
of the retail price accounted for by all activities up to import is strong, but not conclusive, evidence of competition at this
level19. The continuing decline of prices over an almost twenty year period at all levels of the market suggests that, if market
power ever existed, it has now been dissipated. Thus there is no level at which policy makers need be worried that tough
enforcement will lead to price declines because a cartel is broken, a matter raised thirty years ago by Tom Schelling in his
classic paper on organized crime (Schelling, 1967). The explanation for the lack of market power may also be contained
in Schelling’s paper; the Mafia may have been collecting rents on behalf of corrupt police departments that had exclusive
jurisdiction and little external scrutiny; those departments are less systemically corrupt and face substantial oversight from
federal investigative agencies.

Some characteristics of smuggling organizations seem quite general. For example, smuggling is rarely integrated with downstream
distribution activities. Organizations which import 250 kilogram shipments of cocaine do not distribute beyond the
initial transaction, selling in loads of 10 kilograms or more. The explanation for this probably lies in risk management; lower
level transactions are more visible and the purchasers less reliable. Integration thus increases risk of arrest. Only very small
scale importers are likely to operate close to the retail level.

Markets for smuggling services contain many forms and sizes of organization. A credible case can be made that the 1990s
US cocaine market has been dominated by a few large organizations. For other eras, countries and drugs, smaller and more
ephemeral organizations may account for a significant share of the total.

The remainder of this chapter describes different types of organizations that have functioned in the cocaine market as it has
evolved in the U.S. over the last twenty-five years and currently operating in Europe.

5.1 The early U.S. cocaine market

Adler (1985) reported observations on 65 high level dealers and smugglers in Southern California, whom she and her husband
met through contacts while in graduate school. Adler noted considerable range in the closeness and stability of relationships
among participants. Some formed close and enduring partnerships that were quite exclusive; for example, one pilot was
constantly being recruited by a smuggler neighbour but refused to work for him because of his loyalty to his regular employer
(p 66). Other dealers, characterized as “less reputable”, existed in a network of shifting alliances.
The organizations Adler studied were microenterprises. Those of cocaine dealers typically consisted of only two or three
people. Marijuana, because it is bulkier, required more elaborate transportation organizations. She concluded that “this is not

an arena dominated by a criminal syndicate but an illicit market populated by individuals and small groups of wheeler-dealers
who operate competitively and entrepreneurially.” (p 2).

Reuter & Haaga (1989) interviewed mid to high-level U.S. traffickers in cocaine and marijuana in the mid-1980s; the sample
was recruited from low security federal prisons. They found importers that were small, opportunistic and niche-oriented.
“All one needs is a good connection and a set of reliable customers.” (p 39). Though many of those interviewed regarded
themselves as part of an organization, “most of the arrangements would be better described as small partnerships, in which
each partner is also involved in trading on his own account, or as long-term, but not exclusive, supplier-customer relationships.”
(p 40).

Here is their account of one small scale importing operation:
One couple residing in Florida would travel with another couple to South America, posing as tourists, and would then
hand off their packages to the owner of a sailboat in a Caribbean port for delivery to a Florida location. The husband had
a contact in Bolivia, whom he had met during a short stay in federal prison for a non-drug related offense. The sailboat
owner was a friend of a friend, also tracing back to a contact made in prison. The two couples would part company after
each trip, each taking a share of the proceeds….
Thanks to prison and his former life as a small businessman, the husband … had enough contracts in different part of
the country to get his large quantities of cocaine and Quaaludes distributed within a short time after arrival. In some five
years of operation…about a dozen people had taken part (p 42-43).

Both Adler and Reuter and Haaga were describing the cocaine market in an early stage of its development. In 1978 cocaine
consumption was estimated to be approximately 100 tons; by 1988 it had grown to approximately 300 tons (Everingham
& Rydell, 1994). Prices had plunged, the consequence of the emergence of more efficient distribution systems. It seems
plausible that the generally amateur, small scale smuggling operations described in the two studies, often involving well
educated principals with at least modestly successful legitimate careers, had been replaced by more professional and large
scale smuggling operations.

5.2 Colombian smuggling organizations

Fuentes (1998) has provided the most fine grained description of the operation of the high levels of the international drug
trade since the shift to large scale smuggling; hence we provide more detail than for other studies. He relied on transcripts
from court proceedings (including extensive wiretaps) on two major organizations and lengthy interviews with five senior
traffickers, who have co-operated with federal agencies. These are accounts of organizations, and by participants, that were
detected and punished. Thus they might be atypical. In fact both organizations had lasted for at least five years, while the
informants had also been successful over even a longer period.

Each trafficking organization accounted for a non-trivial share of the total cocaine market in the United States. On a monthly
basis, a dozen or so customers bought in loads of hundreds of kilograms; a 250 kilogram purchase at $20,000 per kilo involves
payment of $5 million. There were a number of multi-ton shipments from Colombia; during the period August 1991 and April
1992 five shipments totalling 20 tons were warehoused by one warehouse operation20. In the context of a market delivering
about 300 tons to final users, these are substantial quantities.

Fuentes described organizations that were durable, bureaucratic, violent and strategic. For example, recruitment of new staff
for U.S. operations was highly systematized, with interviews by senior traffickers in Colombia, and provision of collateral, in
the form of identification of family members who could be held hostage. “References for prospective workers had to come
from within the organization.” Non-Colombians were considered higher risk employees because it was more difficult to
threaten them if they defected with money or drugs; providing familial details did help, though threats were harder to execute
in the Dominican Republic than in Colombia. Recruitment was very selective. There was a strong preference for relatives in
leadership positions and cell managers were usually well educated, with college degrees.

Exit was allowed, provided the circumstances did not arouse suspicion that the agent had defected to the police. Colombians
who were recruited to work in the United States were issued visas that expired shortly after entry, so as to limit their mobility.
The system was designed to move shipments very rapidly, since inventory in the United States represented risk. Twenty four
hours was the goal for getting rid of a shipment once it had reached the destination city. Stockpiles were held in Colombia,
where the enforcement risk was vastly smaller. The organizations had their own domestic transportation systems, drivers
who would carry shipments of 100 kilos or more for prices ranging from $300 to $1,000 per kilo, depending on the length
of the trip21.

The scale of the organization was impressive. One large cell was estimated to have 300 workers in it, occupying at least six
identifiable roles; it was estimated to have employed a total of 1200 individuals during its lifetime. Most received modest
salaries; $7,000 per month for cell manager, $2,000 for stash house sitter. Given the volume and margins for the organization,
that still generated annual incomes totalling millions of dollars for the principals22.

Natarajan (2000) describes a similarly large organization. She documents one surprising phenomenon, namely that the
principal U.S. operative talks to numerous individuals; twenty four are identified from wiretaps, including fifteen customers.
This is hardly consistent with maintaining low exposure, since any one of the fifteen can obtain relief from lengthy prison
sentences through providing information about his supplier. Perhaps what we observe here is the endgame of successful
operations that become increasingly confident of their own invulnerability.

5.3 European smuggling

The literature on drug smuggling in Europe is smaller than that on the U.S. market; Dorn, Levi and King (2005) provide a
recent review.

There is evidence that smaller smuggling entities can still survive in the European market. Ruggiero and South (1995) describe
opportunistic smugglers of less than a kilo of cocaine or hashish, concealing it in bicycles. Disposal of smaller quantities
requires less organizational capacity; a single domestic customer may be sufficient. Given that the UK cocaine market has
emerged much more recently, probably around 2000 as a mass market, it is perhaps useful in this respect to also consider
the study by Pearson & Hobbs (2002) of the “middle market” for cocaine in the U.K. as paralleling the work of Adler and
Reuter and Haaga. They also find no evidence of large and hierarchical organizations in the cocaine trade but rather evidence
of networks of traders.

However European heroin seizures of more than 25 kilograms are regularly reported. For example, Interpol reported in 1996
8 seizures of between 65 kilograms and 373 kilograms, totalling over 1 ton, from truck traffic alone. Other large seizures
were made at ports; for example in May and June of 1996 reported seizures included 217 kg (Venice), 108 kg (Madrid [sic])
and 134 kg (Ipsala, Turkey) (Interpol, p 10).

It is impossible to systematically estimate what share of total European heroin imports are accounted for by large shipments i.e.
groups with the financial, organizational and personnel capacities to assemble, purchase, ship and distribute large quantities.

Large shipments appear to account for the majority of all heroin seized but that could reflect the higher per kilo risk associated
with larger bundles.

5.4 Drug smuggling and legitimate institutions

If drugs travel in legitimate commerce and traffic, then transportation companies, as well as financial institutions, may be
active accomplices. For example, American Airlines has paid substantial fines in the past for inadequate monitoring; its planes
were importing clandestine cocaine shipments. Revelations at the Miami International Airport in the late 1990s showed that
employees of the airline have continued to find opportunities for large scale smuggling; these ones involved baggage handlers
at the U.S. landing point.

Corruption in the consuming countries seems to be less central to the business, an assertion that arouses considerable
scepticism in producer countries. Corruption, like scientific hypotheses, presents a problem of epistemological asymmetry.
Scientific hypotheses can only be disproved, not proven; corruption can be found but its existence never disproved.
Nonetheless, U.S. prosecutors pursue corrupt agents with considerable zeal when they find them; at the same time the
overlapping authority of enforcement agencies creates a situation in which any corrupt agent, no matter how well protected
in her own department, has to be concerned with possible investigation by another agency. The market for corruption will
shrink in such an environment. In many Western European countries with large drug markets, such as the United Kingdom
and Switzerland, there simply is a dearth of credible corruption allegations beyond the occasional individual police officer
who takes drugs or money.

18 The best evidence is simply the ease with which new sellers enter and the speed with which they depart. There may be rents for various capacities
but certainly no power to exclude.

19 If demand is inelastic with respect to price, then a seller with market power can increase revenues and decrease costs by cutting production, until
reaching a level at which the demand is elastic. Though the demand for cocaine and heroin may have elasticity of greater than one with respect
to final price at current levels, it is very likely that that elasticity is less than one with respect to high level prices, though there are extreme
models of price mark-up from import to trafficking which would yield a different result; see Caulkins (1990).

20 There is an ambiguity as to whether this total was for a single organization or a confederation associated with Miguel Rodriguez-Orejuela,
a principal figure in the Cali Cartel.

21 This appeared not to be so much compensation for longer time as for the number of potential police encounters.

22 This vague statement is all that can be gleaned from either Fuentes or Natarajan (forthcoming).