Financial Transparency Coalition

Cocaine is the drug of choice in several European countries, but most notably, in Spain, which has the highest per capita consumption of cocaine in the continent.  It is so prevalent, in fact, that researchers have found traces of the drug in an analysis of the air in Madrid and Barcelona (concentrations are even higher on weekends). And if you analyze a random bank note in Spain, there is a 94% chance you’ll find cocaine on it.

This problem hasn’t been getting much better for Spain or for the rest of Europe, for that matter. In fact, in November of 2007, the EU drug agency (EMCDDA) reported a steep rise in the number of Europeans using cocaine—up 4.5 million from the year before.  That month Antonio Maria Costo, then Under-Secretary-General of the United Nations, gave a passionate speech to the Conference on Cocaine in Madrid.  He noted

Cocaine has a different image [than heroin]. It has stylish names: the fair lady, the candid queen, the seductive sugar. It is white not dark; sniffed not injected; consumed in trendy discos not in cities’ gutters; it is the mental fuel of society’s winners, not the dope of losers.

The high consumption rate among Spaniards may be related to their country’s geography.  Spain serves as the largest drug port in Europe, its large coastline provides a convenient access point to the continent and its central location allows for easy transportation to other European countries.  The fact that Spain serves as Europe’s drug hub also likely keeps the price of the drug lower, the wholesale price of cocaine has remained relatively stable at €50 per gram for the last decade, while in other European countries the price has reached €400 per gram.  The lower price,  in turn, would induce more users.

As any economics class will teach you: where there is a demand, there is also a supply, as long as the price is right.  The world’s supply of cocaine is concentrated in three Latin American countries: Bolivia, Colombia, and Peru.  In 2009, these three countries together cultivated an estimated 158,800 hectares of coca bush and produced about 1,000 metric tons of cocaine.  One of the significant beneficiaries of this massive production is the Revolutionary Armed Forces of Colombia (FARC), a Colombian Marxist- Leninist rebel army that commits acts of terrorism to destabilize the state.  The FARC rakes in a projected $500 to $600 million annually from the cocaine trade in Colombia, mainly through a “tax” on coca farmers and coordinating cocaine smuggling networks.

In a normal (legal) market, supply will meet demand at a certain equilibrium price.  This process occurs in illicit markets, too, but there are risk factors, for example enforcement, which may dramatically raise the cost of supplying the good.  In the case of the transnational drug trade, enforcement more often than not means seizure.

Over the last decade, European officials have seized between 50 and 120 metric tons of cocaine annually. In 2009 Spanish police found two tones of cocaine, worth about €70 million, hidden below flowers on a ship from Colombia.   Police have also discovered cocaine in art—such as the replicas of statues by artist Fernando Botero—which contained 35 pounds of cocaine. One supermarket in Spain found 26 bricks of cocaine wrapped in boxes of bananas.  I don’t know if I’d call that a “seizure,” though, considering a supermarket employee made a phone call to Spanish police with the news that there was almost 200 pounds of cocaine sitting on their shelves.

The whole process is a massive, mutually beneficial, vicious cycle. Many researchers have noted seizures are not necessarily an effective way to tackle the world’s drug problem.  One recent paper even found that there is no evidence of a relationship between the amount of cocaine seized by law enforcement officials and the drugs price and demand.

This week, however, Spanish police took a more preventative action—arresting 41 people suspected of laundering nearly €200 million.  And where was this money going?  As it would turn out, the relationship between FARC and Spain is not only an indirect one of consumer to producer.  Colombian producers sell cocaine to Spanish consumers through a variety of middle men, FARC militants reap proceeds through a “tax” inflicted by violence on the Colombian producers, and then FARC agents use which country to launder their dirty money?  Spain, of course!

Now that is what I call a vicious cycle.

As a result of Spain’s two-year investigation into these launderers, the government carried out 27 raids with 250 officers in three major Spanish cities and even followed the money to Latin America and sent out detention orders to Colombia and Ecuador.   I applaud this success.  While stemming demand and intercepting supplies have some effect on curtailing this trade, following networks of money is the most effective way to root out the world’s drug curse.