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Cash and carry: the high cost of currency smuggling in the drug trade

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Abstract

This research, based primarily on financial records of Colombian money smugglers found by Dutch police investigators, describes the costs and operations of a segment of the high-level drug trade not previously documented in the scholarly literature. Cocaine traffickers pay brokers to move their revenues from the Netherlands to Colombia. The transfers, almost all in 500 euro notes, amount to hundreds of million of euros annually during the period 2003–2008 and drew on the recruitment of hundreds of individuals not otherwise involved in the drug trade. The total cost of the service (bulk cash smuggling) is over 10 % and could be as high as 17 %. These data also shed light on the workings of criminal labor markets and point to some interesting imperfections. The existence and cost of this segment of the cocaine trade suggests that anti money laundering regulations, and perhaps drug enforcement generally, do significantly raise the costs of smuggling, though not of the retail price. The findings also are evidence of the importance 500 euro notes played in facilitating the drug trade, a claim often made but never previously documented (While the article was under review, the European Central Bank (ECB) came to the decision to phase out the 500 euro note. Also see https://www.ecb.europa.eu/press/pr/date/2016/html/pr160504.en.html).

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Notes

  1. In a related paper in Dutch, a slightly smaller figure was found because a few extra confiscated notes were later added to the original file; see Soudijn [19].

  2. The term ‘money broker’ is used by the police. It is unclear if they actually go by this name. Their function, however, seems similar to the money brokers in the Black Market Peso Exchange, who allow drug sales dollars in the US to be used by Colombian businesspeople there, who in turn deposit Colombian currency in Colombia, bypassing exchange controls [25–27].

  3. http://ec.europa.eu/taxation_customs/resources/documents/customs/customs_controls/cash_controls/r1889_2005_en.pdf.

  4. However, the legal consequences of being charged with importing money are far greater than the couriers themselves estimate. Not only can money couriers be charged with money laundering in the Netherlands and sentenced to 2 years’ imprisonment, but the South American authorities do not consider money smuggling a minor offense either.

  5. This may suggest that the operations were slow in sending the money as the average seizure of money at the facility was more than 1 week’s volume. However it should be noted that some of the investigations were triggered by events that themselves were triggered by arrivals of large sums, for example an attempted theft. Moreover, arrivals were lumpy (multi-millions of euros) while shipments are much smaller (200–450,000 euros), so that even a randomly timed raid might turn up large amounts of cash.

  6. In at least two cases the price of tickets recorded in the coordinator’s statements is higher than the figure the police found in the travel agency records. Whether the travel agency was cheating the tax authority or the coordinator is impossible to determine.

  7. Affidavit of Jaime X.Cepero, in Federal District Court of Massachusetts, 9 August 2013 http://cf2.100r.org/media/2014/09/narco-cash-flowed-thru-citi-deutsche-bank-and-bofa-court-papers-say/DEA-Affidavit-Money-Laundering-Case.pdf.

  8. http://opendata.cbs.nl/Dataportaal/#_la=en .

  9. Figures from https://www.census.gov/foreign-trade/balance/c2010.html#2014.

  10. $20 billion is a high end estimate of the total export earnings of Mexican drug dealers. For a systematic analysis that produces a substantially lower figure see Kilmer et al. [35]

  11. http://globaledge.msu.edu/countries/spain/tradestats.

  12. https://www.ecb.europa.eu/press/pr/date/2016/html/pr160504.en.html.

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Acknowledgments

We would like to thank Jonathan Caulkins, Edward Kleemans, Michael Levi, Letizia Paoli, Ben Vollaard and Damian Zaitch for helpful comments on a draft.

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Authors and Affiliations

  1. Central Intelligence Division, Central Unit, National Police of the Netherlands, Driebergen, the Netherlands

    Melvin Soudijn

  2. School of Public Policy and Department of Criminology, University of Maryland, College Park, MD, USA

    Peter Reuter

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  1. Melvin Soudijn
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  2. Peter Reuter
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Correspondence to Melvin Soudijn.

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Soudijn, M., Reuter, P. Cash and carry: the high cost of currency smuggling in the drug trade. Crime Law Soc Change 66, 271–290 (2016). https://doi.org/10.1007/s10611-016-9626-6

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