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Weekly UpdatesBOGOTA -- A new study has found that while Colombian drug production has a street value of some $46 billion, just a tiny fraction of that amount ever finds its way back into the country.
Colombia is the world's leading producer of cocaine - controlling up to 80% of world supply - and has become a major supplier of heroin to the US market, challenging the Asian gangs that have dominated the business for decades. The drug trade also has eclipsed coffee and oil as Colombia's largest export industry.
In one of the most comprehensive studies ever conducted, the Colombian National Association of Financial Institutions (ANIF), estimates that the 520 tons of cocaine and six tons of heroin produced in Colombia in 1999 had a street value of some $46 billion. The current total is even higher as US authorities calculate Colombia produced more than 700 tons of cocaine and around seven tons of heroin in 2000.
Yet US authorities believe that only about $5 billion of drug earnings are repatriated to Colombia, while ANIF puts the figure at around $3.5 billion. President Andres Pastrana has said the influx of drug dollars in 2000 was just $1.5 billion.
So what really happens to most of the multi-billion dollars profits?
The production chain for cocaine production begins in the jungles of eastern and southern Colombia, the base of the Revolutionary Armed Forces of Colombia (FARC).
The rebels' increasing control over the drug trade has given them, according to US authorities, unparalleled wealth to purchase ever greater quantities of more powerful weaponry. Many US officials believe the rebels have ditched their ideology completely to become a new drug cartel.
Figures on profits vary widely
According to figures produced by the government's National Planning Department, the PARC earns an average $290 million annually from the drug trade. Pentagon sources say the real figure may in fact be as low as $100 million per year while State Department officials have put the figure as high as $600 million per year.
The complex feeding chain of the drug trade starts with dirt poor peasants who transform coca leaves into coca paste - a semi-refined form of cocaine.
At weekly markets in the jungle they receive around $780 per kilogram of paste from low-level drug dealers. Once production costs are subtracted the peasant earns around $220 profit. Peasants in the trade typically produce two or three kilos every two months.
The FARC then charges the drug dealers a tax ranging from between $250 and $330 for each kilo of paste purchased from peasants in areas the PARC controls. The rebels then charge additional taxes once the paste is refined into cocaine.
A kilo of pure cocaine leaves clandestine drug labs costing around $1,800. That will more than double by the time it reaches a Pacific or Caribbean port ready for shipment.
By the time it hits the US market, the US Drug Enforcement Agency estimates that same kilogram of pure Colombian cocaine goes for around $20,000 in Miami. Retail or street prices vary widely according to purity, availability and market demand but are an average of around $170 per pure gram in the United States.
At wholesale prices, Colombia's 700 ton cocaine output last year would be worth around $14 billion - the FARC's earnings represent just 2% of that, a percentage an increasing number of analysts say is unrealistic given its control over great chunks of territory where coca is grown and cocaine is produced. US intelligence sources and Colombian officials agree that FARC has become a producer and trafficker in its own right, which has boosted its share of the revenue much higher.
Intermediaries take big cut
Because an estimated 70% of Colombian cocaine is transshipped through Mexico by Mexican cartels, a substantial proportion of the profits on the wholesale trade ends up there. Mexican smugglers reportedly demand payment in kind of one kilogram of cocaine for every kilo they successfully smuggle. In dollar terms that could amount to around $5 billion wholesale.
Law enforcement does exact a price on the drug trade, though not nearly as much as the Mexicans do. Even US officials acknowledge that law enforcement efforts only intercept 10% to 15% of all of the drugs destined for US shores. Drug traffickers have long viewed this as merely a cost of doing business.
Once the drugs are in the United States, American, Puerto Rican, Colombian and Mexican gangs control the main distribution networks.
Judging by figures produced by the Colombian government very little of the added value, the profits on the difference between wholesale and street prices, filters back into the country.
Profits return as smuggled goods
Even when such profits are repatriated, it is no longer as sacks of dollars as used to occur, but in the form of contraband goods - cigarettes, alcohol, electronics and even major items such as helicopters.
The prime beneficiaries of that trade have often been multinationals based in the United States, Japan, South Korea, Venezuela and Brazil. Many of the goods are shipped via Panama and Aruba.
The purchase of contraband goods with drug funds is conducted through an informal exchange market. Drug traffickers will sell dollars at a 25% to 40% discount to brokers. The brokers hand over pesos to the traffickers' representatives in Colombia while the brokers' agents collect dollars in the United States and salt them away into multiple US bank accounts.
Then when a Colombian-based business wishes to import goods using drug dollars, it contacts the peso brokers and purchases dollars at a discount. The dollars will be paid to the supplier directly from a US bank account. The smuggling of contraband goods, in addition to helping sustain the drug trade, also deprives the government of taxes and import duties.
Multinationals who knowingly export goods purchased with black market pesos face confiscation of goods and fines ranging up to $500,000 for first offences. There are also stringent anti-money laundering laws in the United States and increasingly so in Colombia where transactions of more than $10,000 must be verified to see that they are legitimate.
However, the sheer volume of the money laundering trade and the difficulty tracing currency has prompted the United States to focus most efforts on increasingly unpopular eradication efforts in Colombia. There is now a vocal and increasingly popular movement to halt aerial eradication of coca and opium in Colombia. Critics say the spraying of drug crops is harming the environments and making it difficult for legitimate farmers to make a living because the pesticides poison the land and local water supplies. Cynics in Colombia point out that the $1 billion the US government is spending on military assistance is cheaper than the billions of dollars the United States would have to spend rooting out much drug money in the US financial system.
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