Criminal Prosperity

Drug Trafficking, Money Laundering and Financial Crisis after the Cold War

Guilhem Fabre

• Publisher: Routledge
• Year: 2013
• Print ISBN:
  9780700714988
• eBook ISBN:
  9781136125782
• Topic: Business
• Subtopic: Government & Business
• Index: Business

Drug trafficking is the most visible part of the profits of organized crime, which have grown considerably since the end of the cold war. The mirror of history shows us the impact of the drug trade in the colonization of Asia. The post cold war geopolitical context reproduces elements of the past, with new opportunities for drug trafficking in the globalization process, as can be seen in the example of China, and the lasting impunity in terms of money laundering. With the growing role of offshore locations in the global financial system, criminal prosperity has even affected the economic stability of some countries. This book presents a new and heterodox interpretation of the post cold war financial crisis, by focusing on the unexplored dimension of illicit actors. The Mexican crisis of 1994 and its 'tequila effect' is analyzed as a model of a 'cocaine effect' from the local laundering of profits from the sale of drugs in the US. The Japanese crisis of the 1990s is put in relation to the economic influence of the Yakuza on the real estate bubble, which had the effect of postponing necessary market adjustments. And the Thai crisis of 1997 is analyzed in the light of massive money laundering of institutional and criminal networks, whose undeclared profits represent about 10% of GDP.

1

The Mirror of History

At the start of the 1990s, the report of the Financial Action Task Force formed by the Arche Summit estimated a net income of US$85 billion from drug trafficking in the United States and in Europe.¹ The scope of these funds, equivalent to half of the world's direct foreign investments or twice the turnover of the arms trade² in the same period, illustrates the increasing influence of drugs revenue on the international economy and on politics.

The fall of the communist regimes and the unification of capitalism around a neo-liberal creed, have since opened new horizons for the production of drugs, which has increased and diversified trafficking, which has become globalized due to contacts made between criminal organizations in all regions of the world. In the meantime, drug consumption has grown in rich countries and the number of drug producers and forwarding agents has increased considerably in Third World countries. Corruption is being trivialized and the penetration of the Mafia within the State apparatus is becoming increasingly important.

With the increase in trafficking, 70 to 90 per cent of which is comprised of the cocaine and heroin trade in industrialized countries,³ the gap between legality and reality continues to grow. If the prohibition of drugs, reaffirmed by the Vienna Convention in 1988, continues to be a general rule, the diversity of national laws and their application can sometimes be unharmonious; as, for example, within the European Union, where Italy tolerates the consumption of 0.3 grams of heroin per day, the Netherlands 0.5 grams, while France still theoretically continues to penalize the consumption of soft drugs.⁴

The question of prohibition or of de-penalizing refers to the possibility of establishing a world law on drugs, reconciling, in the framework of a common law, the interests of producing, transit and consumer countries. However, nothing seems to be more remote judging from past experiences and actual realities: drugs have always been a high value-added product, capable of modifying the terms of trade between countries and facilitating the rapid accumulation of capital. The weight of this economic logic is rendered just as well by history as by the international dynamics of the post-Cold War period, as we will analyse through the example of China.

Opium and colonization

The expansion of drug production, trafficking and of consumption has been closely related to western expansionism in Asia. When the English decided to colonize the Indies, with the nomination of Governor General Warren Hastings, they were the first, as of 1773, to use the monopoly of the opium production that they had inherited from the Moguls and from the Dutch, as a source of fiscal revenues. At this time, opium exports, principally to China, provided approximately one-seventh of the total revenue of the British Indies.⁵

Originally introduced to China as a medicine by Arab merchants during the Tang Dynasty (seventh-ninth centuries), tobacco mixed with opium was only used as of the 1720s. Despite a primary decree by the Emperor Yongzheng in 1729 forbidding the import of opium for non-medicinal purposes and ordering that opium den managers be executed (by means of strangulation), opium use became widespread, as explained by Jonathan Spence, among the richer classes, or in certain diverse social groups: the eunuchs of the Court, official Manchus, rich women who lacked education and who were confined in their houses, auxiliary civil servants, merchants and students preparing for or passing exams. In the 1770s, Charles de Constant observed that the Chinese had developed ‘a passion for this narcotic which surpasses all beliefs’.⁶ Later, in the nineteenth century, the smoking habit became increasingly popular among the coolies who consumed a local opium of much lower quality but which was more accessible. Certain employers who noticed the physical performances obtained under the effects of the drug, would even put opium at the disposal of workers.⁷ Opium and its by-products, such as laudanum, already consumed in the West, were also seen as a true panacea in times when medical skills were still rudimentary. These products were used for pain control, malaria and chronic dysentery, which affected the Chinese population. They were even used to fight cholera.⁸

After having established its monopoly of opium collection, the British East India Company sold commercial licences to certain registered negotiators, in order to avoid being directly implicated in an illegal activity in China: theoretically the ships engaged in trafficking would have been confiscated.⁹ Governor General Warren Hastings deplored the imbalance of trade in Sino-British commerce, which was reduced to the port of Canton and monopolized by the guild of the Cohong merchants. The Manchu Empire had accumulated trade surpluses by its exports of high value products – porcelain, tea, silk – which were not compensated by the demand for cotton, wool, fur, jewellery or English pewter. One reason for the prosperity during the reign of Qianlong (1736–1796) was the surplus of silver metal. This paid for the British purchases and injected energy into the economy of the southern provinces. These surpluses went from 3 million teals in the 1760s up to 7.5 million in the 1770s, then increased again to 16 million in the 1780s.¹⁰

To cope with this situation of commercial imbalance, Indian opium began to be conceived as trade money. This ‘pernicious luxury article’, according to Warren Hastings, ‘which should not have been authorised unless for foreign trade’,¹¹ allowed a limit to be placed on the metal-silver distribution since opium sales were allocated to the purchase of articles that the English provided in China. It is interesting to reveal that these results were obtained in the context of prohibition reinforcement. In 1800, an imperial decree forbade both the importation and the local production of opium. Commanders of foreign ships who consented to smuggling were liable for prosecution and imprisonment. In 1813, another decree forbade civil servants from consuming opium, with the punishment, if caught, of receiving 100 bamboo lashes and being displayed in public for two months wearing a cangue, a large piece of wood into which the head and hands were inserted. These measures had no effect on the trafficking, since it was organized around pirate groups or secret societies, with the complicity of corrupt officials. The ships which had opium on board were discharged into ‘storage-ships’ anchored near the island of Lintin, between Canton and Hong Kong, and their cargo was then distributed to junks, serving the coasts of Guangdong and Fujian. The expansion of trafficking mainly resulted from a planned increase in opium supply from Bengal and from the control taken by the English of the roads and of the harbours of opium transits in Malwa. Opium was cultivated in the central and North-western states of India which did not fall under their jurisdiction.¹² In 1824, the British East India Company extended its monopoly to an entire opium harvest in Malwa, but this policy did not overcome the competition from private merchants in Malwa, the export into China including opium which went through Bengal until the end of the 1820s.¹³ Between 1790 and 1838, opium sales in China greatly increased (Table 1.1).

Following a stable period during the Napoleonic Wars, trafficking increased due to a number of factors. The

Table 1.1 British opium trade in China 1729–1900

Year	Number of cases	Tonnage
1729	200	14
1750	600	42
1773	1,000	70
1790	4,054	283
1800	4,570	320
1810	4,968	347
1816	5,106	357
1823	7,082	495
1828	13,131	919
1832	23,570	1649
1835	30,000	2100
1838	40,000	2800
1865	76,000	5320
1884	81,000	5670
1900	50,000	3500

Source: Jonathan Spence: The Search for Modern China, Chinese Roundabout, Essays in Chinese History and Culture. The average weight of one case is estimated here at 70 kg (Cf. Chantal Descours-Gatin, note 8, p. 7).

prohibition reinforcement in China forced the East India Company to stop accrediting certain merchants for opium commerce, and to sell its monopolized production to auctioneers. The abundance of both supply and competition was the result of an increasing number of merchants and adventurers, who were attracted by the opportunities for profit. This, however, decreased the sale price of Indian opium in China. Its consumption thus spread to the lower classes, who were satisfied even if the local opium was of a poorer quality. As of the 1820s, opium purchases represented half of Chinese imports¹⁴ and satisfied one million smokers.¹⁵ In 1831, a report by the great secretary of the Qing Court revealed that ‘among the governor generals and their subordinates, at all military and civil levels of the hierarchy, those who do not smoke opium are very few’.¹⁶ Despite an arsenal of prohibitionist reinforcement in 1831, the fall of the East India Company's monopoly on the Anglo-Saxon trade in 1834 did little more than increase Chinese drug imports, in that it encouraged the direct presence of British merchants in Canton, the number of which increased from 66 to 106, in only three years.¹⁷ From 1829 to 1839, the annual opium imports coming from India reached an average of 1841 tons, in other words six times more than the avera...

Table of contents

• Cover
• Half Title
• About the author
• Full Title
• Copyright
• Contents
• Introduction
• 1 The Mirror of History
• 2 Drugs and Post-Communism: The Chinese Case
• 3 The Socio-economic Stakes of Drug Trafficking
• 4 Japan: The Yakuza Recession
• 5 Crisis and Laundering in Mexico: From the ‘Tequila Effect’ to the ‘Cocaine Effect’
• 6 Crisis and Laundering in Thailand: The Provincial Godfathers' Launch on Bangkok
• Conclusion