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This article has been written and divided into 3 sections. We have put time markers in to advise approximately how long it will take to read the section, the more you read the more detail we have included.

 

How narcotics and other illicit supply chains rely on the global networks developed by the logistics industry.

Security is a critical issue for the global logistics industry and all parties, including governments, logistics providers and shippers, have invested considerable resources in protecting the integrity of supply chains.

Much of those resources have been focused on countering threats from those who wish to cause economic loss or further their own political ambitions (terrorism) as well as on those who wish to steal for their own economic gain (cargo crime).

However, there is a third threat to supply chains which has received much less attention. That is, the subversion of existing supply chains and transportation networks for illegal purposes such as the smuggling of narcotics, endangered species, counterfeit goods, stolen goods and even so-called ‘blood antiquities’.

Whereas cargo crime is related to theft (exiting) from the supply chain, smuggling can be viewed as ‘entering’ a supply chain. Whilst one destroys value in the supply chain by causing disruption, the other (smuggling) is not designed to create disruption at all. Criminals are as interested as legal shippers in ensuring their consignments reach the destination in a timely fashion. However, countermeasures designed to intercept illicit goods have the impact of disrupting logistics systems for both legal and criminal parties.

Illicit supply chains resemble their legal equivalents in many ways, except of course the status of the goods being moved. As the goods move along the supply chain ‘value’ is added as they pass from intermediary to intermediary. This can involve processing of the product, as in the case of drugs, or it can be what is termed a ‘crime tax’ which relates to the level of risk (and hence remuneration) required to move the product across borders to the destination market.

In his book, ‘Narconomics’, Tom Wainwright estimates that one tonne of coca leaf is required to make 1 kilo of cocaine. The value which the farmer will receive for the coca leaf is about $400 but in the US the kilo of cocaine will fetch $100,000.

The value chain for species and species products shows a similar increase. A snake may be sold by a local hunter for just $30 in a developing country. However, by the time the skin has been transformed into a handbag in Europe or North America, it may fetch up to $10,000. The importing country therefore captures the vast majority of the value. The price of ivory in Africa is just 5% of what it fetches in Asia.

Whatever the goods being trafficked, there is a very strong likelihood that they will be moved using transport networks which have been designed and operated for legal products. With only 1-5% of containers being inspected by border authorities, criminals understand the chances that their consignments will be intercepted are small and the costs can be absorbed within their overall businesses.

In many cases, the organised criminals behind the smuggling are agnostic to the type of goods which they deal with. They will engage with commodities which offer the highest returns, whether these are drugs, ivory, endangered species, counterfeit electronics or illicit antiquities. However, drug smuggling is the most popular activity, with this being supplemented by one or more subsidiary operations.

2 mins

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Narcotics

For the US, Mexico has become a huge centre for value adding processing and production for the narcotics industry; in fact, it would be termed ‘near-sourcing’ in any legitimate manufacturing industry. One example is methamphetamine which has been growing in popularity in the US. Chemical ingredients for the drug – largely ephedrine – were imported legally in large quantities through the Mexican container ports Lázaro Cárdenas and Manzanillo from Asia. When the Mexican authorities banned ephedrine, the recipe was changed to use still unbanned substances. This shows an example of a supply chain where commodities can be sourced legally and then transformed downstream into illicit products. From an economic point of view it makes more sense to produce narcotics close to the end user market.

In terms of logistics, the operations required are extensive and need to be agile. In the 1980s US law enforcement agents managed to shut down routes from South America to the US via the Caribbean. Instead, new routes opened up transiting Mexico which coincidentally helped to move the balance of power from Colombian drugs cartels to those in Mexico. According to the New York Times anywhere between 5-16 flights would be landing in remote Mexican airstrips a night from Colombia. The consignments would then pass over the border for distribution throughout the US, for example, through Arizona.

Many ways have been developed to cross the US-Mexico border. These include using established (and ‘white’) logistics systems such as railroads, refrigerated truck networks and the major air express operators. One drugs baron established a factory, ostensibly for canning chilis but actually for packaging cocaine. The cans would then be distributed through Mexican-owned stores in California.

Europe’s narcotics supply chains are complex and vary dependent on the type of drug being trafficked. Cannabis is the most popular drug consumed in Europe and it is believed by the European police organisation, Europol, that 22 million people use it on an annual basis. Spain, the Netherlands and Belgium are the major import hubs for cannabis resin, a large proportion of which emanates from Morocco. A smaller market for resin imported through Turkey from Afghanistan also exists. There are fears that instability in North Africa could present opportunities for smugglers to use new routes through southern Europe.

Heroin has traditionally been supplied to Europe through what is known as the Balkan route. This links Afghanistan to Iran and then into Turkey. From Turkey, heroin can then proceed into Europe:

  • South through Greece, Albania and Italy by ferry
  • Westwards through Bulgaria and the former Yugoslavia states into Austria or Italy by land
  • Northwards through Bulgaria, Romania into eastern Europe and Germany by land.
  • Air links are also used from Turkey to the EU.

Cocaine is transported using a range of different types of mode and service provider. These include air express/air freight; post and parcels services and sea containers. The latter proves the most worrying to authorities with cocaine accounting for 75% of all drugs seizures from containers in 2013. With Rotterdam and Antwerp being the largest ports in Europe, they also are the most popular gateways for cocaine to Europe.

Endangered species

There is a global market in endangered species, animal parts (such as rhino horn or ivory) and forestry products from protected areas. Such trade is in contravention of a number of national and international laws and conventions. Not only is the activity illegal in its own right, but trafficking is often carried out by the same organised crime groups moving drugs, antiquities, firearms etc. Consequently, the crime is of interest to a range of law enforcement agencies.

One of the major problems facing regulators is that trade in some species is perfectly legal, whilst not for others. This offers considerable potential for misclassification and difficulties for customs officers to identify whether a species can be legally traded. Despite severe sanctions in many countries, the smuggling continues. Nowhere more evident and high profile is the trade in illicit ivory which according to the Born Free Foundation is at record high levels. In 2013 50 tons of ivory were seized. It is estimated that seizures run at just 10% of the total, and therefore, a total volume of about 500 tons of ivory seems reasonable. Between 2009 and 2014 Born Free believes that 229,729 elephants were killed.

As with many other illicit commodities, smugglers use legal logistics networks to move ivory to consumer markets, largely in Asia and specifically in China. Three main ports are involved in the traffic: Mombasa, Dar es Salaam and Zanzibar and three main airports: Nairobi, Addis Ababa and Johannesburg. However the most important routes by far are from East Africa to East Asia, in particular to ports in the Straits of Malacca, Vietnam and Pearl River Delta Region. The ivory trade can be said to be becoming more ‘vertically’ integrated. Asian organised crime groups have an increasing presence in Africa to oversee the whole process.

According to the Born Free Foundation’s report ‘Out of Africa’ the supply chain works as follows:

  • Elephant tusks moved from African interior (‘African local transport’) to port. This occurs rapidly to prevent interception.
  • Consolidation with other ivory shipments at the port. Shell companies are used to conceal the nature of the shipment and owners.
  • Bribes paid to customs officials and freight forwarders to falsify and forge documentation.
  • Ivory can be concealed in shipping containers under other materials such as fish, nuts, decorative stones etc. In other cases false compartments are utilized.
  • Shipping routes used will involve a number of hubs to make detection more difficult.
  • Asian import and local transport is likely to involve numerous hand off points and false companies to obfuscate the supply chain. Ivory may be stockpiled in warehouses to control the sale price.

6 mins

‘Blood’ antiquities

There is a thriving industry related to the movement of historic artefacts from mainly (but not exclusively) developing countries in the Middle East, Latin America, Africa and Asia to Europe and North America.

This has recently been in the headlines as some terrorist groups, such as Islamic State, have sought to profit from looted antiquities by selling them through complex distribution channels into Western markets. This has been referred to as ‘cultural racketeering’ and forms part of ‘heritage crimes’ which include not only the theft of archaeological items but also the destruction of many historical and culturally significant sites.

Although the role of ISIS in this trade has had the highest media profile, it is by no means unique. Egypt has also been badly affected. Following the Arab Spring protests in 2011, the resignation of President Hosni Mubarak, the overthrow of President Mohammed Morsi in 2013 and the general breakdown of law and order throughout the country, many heritage sites were attacked and pillaged. Items of historic importance were removed and sold to Western dealers who may have a turned a blood eye to their provenance.

The success which Islamic State had in taking over large parts of Syria and Iraq provided it with the opportunity to rob valuable artefacts from sites of historic interest. The organization even went as far as establishing its own ‘Natural Resources’ department and according to the US State Department raised several hundred millions of dollars since 2014 through the sale of these antiquities. The Iraqi Ambassador to the UN claimed that this trade could be worth as much as $100m a year. For Islamic State, the sale of antiquities is only second in terms of revenue raising to the sale of plundered oil.

The process of facilitating the movement of illicit antiquities to Europe and North America is not difficult for those who know how to do it:

  • Obtain fake documentation in the knowledge that either the civil service officials would show little interest in checking or could be bribed.
  • Use the busiest ports where there is very little chance of containers being searched.
  • Tranship goods at major hubs (such as Hong Kong or Dubai) to make searching of containers less likely; direct sailings to Western ports from high risk origins are more likely to raise suspicion.
  • Misdeclare the goods – terms used can include words such as ‘handicraft’ or ‘handmade’
  • Bribe port workers to allow access to containers and goods and or/release contraband.

 

The root cause of the problem (very similar to that of piracy in Somalia) is the levels of poverty which exist in many developing countries. The sale of antiquities through a network of intermediaries to an eager international market may only finally be addressed by:

  • Creating stable economic, social and political structures in developing countries from where the artefacts are sourced.
  • Improving the living standards of local populations so they do not rely on the sale of antiquities to augment their income.

CONCLUSION

The development of global transportation networks and the logistics services which support them has ironically resulted in a highly efficient conduit for illegal goods of all types. The sheer volumes of shipping containers, air cargo and road freight transiting borders means that it is impossible for security agencies to prevent smuggling – only a tiny proportion of contraband is intercepted each year.

The situation is made worse by the ‘grey’ areas in international legislation which exist in certain markets. The movement of goods which can be legally consumed in one market but not another creates uncertainty and confusion, a state of affairs which can be exploited by criminals.

Price differentials in entirely legal products (such as cigarettes) caused by diverse taxation policies has also created a market for organized criminals who often use the proceeds to fund other illegal activities or for laundering money.

How does this affect licit supply chains? Obviously, it is of major concern that supply chains are being subverted for illegal purposes even if unknowingly. There is no suggestion that the vast majority of companies active in the supply chain and logistics industry are party to these activities. However, many of their employees will be involved in falsifying paperwork or allowing access to the illicit goods which are in transit or being stored. In addition, legitimate businesses will be benefiting from the movement of illicit products through their networks whether postal and express networks, couriers, container shipping companies or ferry operators.

Governments should also be concerned that if it is so easy to misappropriate supply chains for the movement of illicit goods, it is entirely possible for terrorist organizations to introduce explosives or other harmful materiels with the aim of disrupting transport networks or moving these weapons transnationally.

Not least for this reason, it is critical that the industry redoubles its efforts to make it as difficult as possible to move illicit goods within global supply chains. If it doesn’t, it will undoubtedly face further governmental regulation causing potentially more delays to legal shipments and added layers of costly bureaucracy.

9 mins

 

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