Pubdate: Thu, 01 Mar 2012
Source: Forbes Magazine (US)
Copyright: 2012 Forbes Inc.
Author: Eric E. Sterling
Note: Eric E. Sterling, former assistant counsel to the House 
Judiciary Committee, principally responsible for anti-drug 
legislation, (1979-1989) is the author of "A Businessperson's Guide to 
the Drug Problem."


"The drug war is weakening state institutions, infiltrating judicial
systems and undermining rule of law," all of which is bad for
business, Cesar Zamora, Nicaraguan businessman and vice president of
the Association of American Chambers of Commerce in Latin America
(AACCLA) told the Christian Science Monitor on February 16, 2012.

A criminal cancer is spreading through the global economy, taking its
nutrition from the world-wide illegal drug business. In many
countries, your travel agent, your lawyer, your banker or your
telephone installer is as likely as an assassin or brothel manager to
be working for a criminal organization. Almost everywhere,
narco-dollars corrupt government officials and business agencies and
fuel criminal opportunities.

The global illegal drug economy is not capable of precise measurement,
but according to the latest report from the United Nations Office on
Drugs and Crime, the retail market in illegal opiates is $68 billion
(mostly heroin) and in cocaine, $85 billion. Their last valuation of
the cannabis market was $142 billion in 2005.

Excluding the significant markets in methamphetamine, Ecstasy,
psychedelics and other drugs, this is a criminal retail market in the
range of $300 billion annually. Most of the markup is at the retail
level. This enormous market is evidence that our efforts to stop the
drug supply create the incentives that have grown a global criminal
infrastructure of countless drug prohibition enterprises.

In 1984, 1986 and 1988, Congress injected the U.S. anti-drug effort
with legal steroids. As counsel to the House Crime Subcommittee during
the "war on drugs," I helped write many of those laws. But those laws,
as well as hundreds of billions of dollars in enforcement, have not
protected business from the consequences of drug prohibition. This is
in large part because neither Congress nor the business community have
ever thought systematically about the drug business, drug enforcement
and the economy.

In the early 1980s, I helped Congress investigate how drug money
laundering was compromising legal casino gambling as the drug business
responded to the Bank Secrecy Act. Congress heard, but did not
understand, how our drug laws hurt a sector of American business.
Congress pushed currency transaction reporting, for example.

The 8,000 reports filed in 1985 have grown to over 14,800,000 in
FY2011. What had been a minor inconvenience is now a major
responsibility that costs banks hundreds of millions of dollars
annually. Despite this burden, the great untaxed profits of illegal
drug sales worldwide have enabled local drug trafficking gangs to
transform into global criminal organizations.

Drug prohibition enterprises corrupt bank officers and tellers,
accountants, lawyers, financial advisors, real estate brokers,
securities dealers, freight forwarders, shipping companies, airline
employees, etc. to ship and pay for drugs, and to launder their
receipts and profits. In one example, in March 2010, corruption was
exposed in the Wachovia unit of Wells Fargo Bank, now the fifth
largest U.S. bank by deposits. Wachovia was forced to disgorge $110
million and was fined $50 million for failing to internally police
$378 billion in transactions with casas de cambio in Mexico that
laundered drug profits. Businesses cannot count on the integrity of
their agents or counterparts in such environments, and Wachovia's
shareholders paid an enormous price.

All over the world, drug organizations depend upon corrupting border
guards, customs inspectors, police, prosecutors, judges, legislators,
cabinet ministers, military officers, intelligence agents, financial
regulators, and presidents and prime ministers. Businesses cannot
count on the integrity of government officials in such

Illegal drug organizations rely upon violence for conflict resolution,
security, employee management, management succession, and influencing
policy makers. Over the last two years, countless business leaders and
their families have fled drug violence in Monterey, Mexico's once-safe
commercial capital, as the country has been rocked by some 50,000
killings related to control of the drug trade. Violence is pervasive,
law enforcement is largely ineffective, and impunity for using
violence is rampant. Not only in Mexico, but in Central America, the
Caribbean, Colombia, West Africa, and parts of Asia where the
prohibition-fueled drug trade is extant, business personnel are
frequently in danger.

Domestically, there are additional consequences. In the 1980s,
America's crime rates were near historic highs. Congress took for
granted that we needed to fight drugs with long sentences. Now crime
rates are profoundly lower, but most analysts conclude long prison
sentences have not been a major factor. The political dynamic of being
tough on crime and drugs led to a dramatic expansion of the population
with a criminal record. Those records are accessible by nearly every
employer. Yet, few analysts have calculated the full impact of
expanded criminal punishment that has reduced opportunities for
education, job training, employment, credit, marriage, and ultimately,
American productivity and consumer buying power.

Today, tens of millions of Americans - would-be consumers - because
they have been convicted of a drug offense, aren't earning what they
could earn without a record. Our prison population, estimated as high
as 2.3 million persons, is out of the car market. Ford and GM should
calculate how many cars they could sell in the U.S. if our
imprisonment rates were close to those of their European or Japanese
competitors (instead of 7-to-10 times higher). How many cars could
they sell if tens of millions of Americans did not have a
conviction-suppressed income? A reduced average household income and
credit capacity suppresses sales of goods and services for almost
every American business. While most of those offenses were instances
of youthful bad judgment, the consequences for the economy last for

The business community needs a complete economic analysis of the
impact of drug policy. In the 1980s, war on drugs policies were not on
the radar of business or investors at all. Today, the intensity of
global competition and the fragility of our domestic economy require
management and investors to fully understand how American drug policy
plays with their profits. Every investor should analyze how much the
costs of drug policy shrink return on investment.
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MAP posted-by: Richard R Smith Jr.