ANATOMY OF DRUG TRAFFICKING

I attended the recent Future of Money forum in order to explore new money technologies and the implications they might have for criminal activity.  I tried to discuss with fellow attendees my conclusion that the imminent abandonment of paper money and coins will also mean the end of drug trafficking, among a whole list of other crimes and societal scourges.  But even amongst such talented minds, I encountered elitist snobbery and cavalier dismissals of my concept.  I suppose that if these people haven't themselves thought of the idea, they must discredit anyone else who can think of them.  To be fair, there were some kinder souls who nonetheless clung to skepticism as they tried to digest the simplicity of my argument.  Their unshakable belief is that drug criminals "will always find a way!"  But they had to admit that they could not themselves conceive of a way for criminals to pierce the armor of cashlessness.

Some of the other critics made pompous pronouncements for which, in their own magnificent minds, there could be no rebuttal.  So they made themselves unavailable for debate once they had "deflated" my argument.  One self-inflated commentator pronounced that drug addicts would simply use bitcoins.  As I've said before, this digital money requires a computer or smartphone (neither of which will long be in the possession of any heroin, methamphetamine, or cocaine addict), a bitcoin address, and ultimately a traceable identity.  At the moment, bitcoins are not all that fungible and their values are fluctuating.  Moreover the entire success of bitcoin commerce relies upon a level of trust that could never exist with any large scale criminal activity in the system, not to mention that the bitcoin treasury does not contain $400 billion of "wealth," which is the estimated size of the worldwide drug trade.  Bitcoins still have to be converted into dollars, and vice versa.

Still others pointed to bizarre money laundering schemes as irrefutable proof that drug trafficking could not be stopped.  This, of course, misses my entire point that it is impossible to launder money if there is no anonymous cash in circulation.  It is not exactly accurate to speak of "money" laundering, for it is actually "cash" laundering.  The process is designed to disguise the origin of wealth obtained illegally.  To be of any use to the criminal, it must be deposited into a bank account, or some other similar arrangement, in order to spend it.  If the source is in any vehicle other than cash, it is not anonymous.  Bartering with contraband might be anonymous, but it is impossibly cumbersome and totally unusable in any complex economy, especially one as large as the drug trade.

Tide laundry detergent was cited as an example of drug trade ingenuity.  Thieves are stealing bottles of the liquid soap from stores and then exchanging them for drugs.  Police refer to this as liquid gold and have observed drug traffickers walking down the street holding 6 or 7 bottles of Tide.  What will the drug dealer do with these bottles of detergent that are worth $5 - $10  apiece on the black market?  Since he cannot use them personally to any significant extent, he must go into the business of selling them.  It should be obvious that he cannot pay drug workers in Columbia, Afghanistan, or in meth labs here at home with laundry detergent, unless these people also wish to become Tide distributors. So the drug dealers will have to set up a warehouse, a virtual or actual store, and a distribution plan to deliver billions of dollars worth of laundry detergent to consumers who might not always need to purchase this product.  Remember, that's BILLIONS of dollars!  And these payments to the criminal will have to be made in some form of digital (and traceable) currency. Laundry detergent is a commodity and is subject to the laws of economics, just as are the drug commodities.  Without the use of some form of currency, this remains just a very inefficient (and ultimately unsustainable) bartering arrangement.  The stores from which the Tide was stolen will eventually take steps to stop the thefts.  So all of the infrastructure created to fence the stolen detergent will become obsolete rather quickly.  The proprietors of the stolen Tide "store" might get some attention from Proctor & Gamble and the police.  Explaining how they acquired such vast quantities of detergent will be uncomfortable, to say the least.  And in a cashless world, all of their financial dealings will be visible to law enforcement forever.

It should be obvious to most people that users of methamphetamine, cocaine, and heroin must steal in order to finance their drug habits--they don't have rewarding careers!  Such drugs make them incapable of gainful employment.  If they take contraband (electronics, jewelry, etc.) to drug dealers, the same problems arise in transforming these items into usable currency.  In today's world, the pawn shop is what services this need.  Because stolen merchandise is not easy to market, the pawnbrokers cannot afford to pay very much for them.  A thief is not likely to get more than 10% of the value of the merchandise being offered.  Not only must he show verifiable identity to the pawnbroker, but he can receive only a check or a gift card in return (assuming a cashless world).  The thief can then take the gift card to a store and purchase a bottle of Tide or take the gift card to the drug dealer.  In any scenario one might wish to concoct, the transaction always remains traceable.  All of the steps in the theft of goods, the sale of drugs, and the journey of the money can be followed with ease.  So, does Charlie Sheen want the world to know that he gave Whitney Houston cocaine (assuming the unverified possibility that he could have done so)?  There is no evidence that he was in any way involved: but someone was.  And in a cashless world, we would all get to find out who it was.  I really suspect that this would have a chilling effect on the drug trade.  But maybe I'm misguided.