The global heroin economy, a phenomenon yet to be understood fully by all the concerned, has transcended regional and national frontiers, integrating a variety of activities across the world.
In recent years, the belief has grown both in law-enforcement and in professional crime that drugs can generate profits as great as any other form of illegal enterprise.
The extent of such profits is sometimes exaggerated but they are impressive by all standards. Trafficking in heroin alone each year is estimated to be a 300 billion-dollar business.
The profit margins, because of the difference between wholesale and retail prices, are enormous. One kilogram of heroin purchased for 500 pounds on the Pakistan-Afghan border may be sold in Britain for 20,000 to 25,000 pounds. If the quantity is sold in retail, it can fetch between 28,000 and 42,000 pounds. Dilution or cutting may increase the profit even further, although reduction of heroin content by more than half is far less common in the world market.
The price of heroin leapfrogs not only with the crossing of successive international borders but also in the process of moving from safe areas to high security environments within a country. The price of one kilogram of heroin of 90 percent purity in Pakistan is around $1,000. As it crosses the Indian border, the price jumps to $5,200.
In Delhi the same stuff fetches between $7,000 to $7,200. On reaching European consumption centres, notably Frankfurt, the price goes up 35 to 40 times.
According to law-enforcing agencies, the going price for heroin of 90 per cent purity at Frankfurt in January 2001 was $280,000 per kilogram, considered low because of a temporary world slump. However, as it crosses the Atlantic, the price doubles itself, often going up to $600,000 in Chicago or New York.
The impact of the illicit drug economy can be felt in the boom of local economies geared to the traffic. According to estimates, the US heroin market in 2000 generated net profits of some $150 billion of which the share of Pakistani networks was estimated at $20 billion.
The producing countries see the drug business as something inspired by the insatiable markets of the industrialised metropolitan world. On the other hand, the United States and other western countries mostly avoid serious discussion of the question and relegate most information on the drug trade to the state of propaganda, using a scapegoat group outside the mainstream of Western society, the youthful unemployed or the faceless enemy abroad.
In such a situation, the prospects for the future are very bleak. All the available facts suggest that the present scenario will perpetuate itself, consolidating vested interests anxious to defend the money making potential of the illicit market.
The trends in this business clearly prove that corrupt narcotics enforcement forces will continue to use the pretext of so-called 'legal controls' to target on their competitors and support prices through the creation of artificial shortages.
A leading participant in this trade, during a recent interview with this writer in Lahore, gave his view of the things to come in the following words.
"My experience says that the boom in the production of heroin is unlikely to falter in the foreseeable future. However, a growing saturation of the market, already visible in the falling of real prices of heroin, will inevitably develop. A decline in profit margins may lead many drug trade entrepreneurs into new areas of investment. The groups that survive will be those who are able to establish a high degree of consumer identification for their wares."
In the light of this perspective, there is an important development regarding the illicit trade situation in Pakistan that deserves immediate attention to comprehend the growing threat in an objective manner. The supply line of heroin from Afghanistan and Pakistan combined is posing once again a serious challenge to the law enforcement agencies the world over.
From the consumption angle, the situation is equally depressing, as prices plunge down, more and more people are likely to get hooked. The figures available about heroin addiction in this region are simply alarming; 2 million in Pakistan, 1.2 million in Iran, 3 million in China and although statistics are not available for Central Asia, it is apprehended that heroin addiction is on the rise there as well.
Pakistan and Afghanistan are meeting this enormous demand, meaning thereby that tons and tons of money is creeping into politics and society. The rise of fundamentalism is directly connected to this phenomenon, which explains the real tentacles of narco-politics.
Pakistan is not a major money laundering country, but, given the level of drug trafficking, smuggling, and official corruption, money laundering almost certainly occurs, mostly by means of unofficial, traditional money transfer facilities, known as hawala (an alternate remittance system not using the normal banking channels). A dangerous situation is emerging wherein the militant organizations are gaining a stranglehold on the administration and state machinery by virtue of their financial power engendered by drug money.
The drug economy is by and large based on cash transactions. The international drug trafficking system deals in huge amounts of currency, which move out of the consuming countries for further utilisation in the production, processing and smuggling of drugs, and return as profits to the bosses. Laundering is the process of transforming this cash into a more manageable form while concealing its illicit source-a vital component of drug trafficking operations.
Conservatively estimated, total narcotic revenues today flowing back to offshore markets exceed $80 trillion. Add to it abut $5400 billion of annual flight of capital (evasion of tax and currency laws), as well as some $6500 billion in illicit arms traffic, and various other categories of contraband related funds. The cash flow of the underground economy via the offshore markets is in the order of $153.5 trillion per year. How much of this remains in the market's deposit base, and how much finds its way back to "laundered" investments inside various national economies, is difficult to estimate.
According to a recent report compiled by United States Drug Enforcement Administration, the share of Pakistan drug traffickers in the global heroin economy is not less than $100 billion per year. A very large portion of this one hundred-billion dollars earned by the Pakistani drug smugglers remains in the offshore market's base, because the simplest means of disguising illegal funds is also the most commonly used: foreign banks accept secret deposits from individuals who wish to evade tax and "lend" the same funds back to the depositors.
Some famous underground money centres for drug-traffickers include Hong Kong, Singapore, Dubai, Switzerland, Amsterdam, Rome and Panama For major Pakistani trafficking groups, Singapore and Hong Kong are not merely convenient staging posts in a 24-hour market, they also launder money from the heroin and opium dealers who have prospered in the region for decades.
In the Income Tax Ordinance 2001, promulgated on the dictates of IMF on 13 September 2001, a special provision [section 111(4)] has been inserted giving a free hand to money launderers that no question will be asked to them if they remit their drug money from outside through banking channels and surrender the foreign currency to the State Bank and get Pakistani rupees as encashment.
A study conducted by the writer reveals that the Pakistani drug syndicates adopted the following three methods for recycling their drug money.
Some groups managed to handle large amounts of currency received in the United States and many Western countries where drugs were sold and remitted it back in Pakistan using the bank accounts of their relatives or friends living abroad. They could not be questioned about this money in view of special protection given under the Income Tax Laws and Economic Reforms Protection Act of 1992.
This facility, meant for encouraging inflow of foreign exchange, has come handy to drug traffickers as government clearly directed the tax functionaries "not to probe into the sources of foreign exchange earnings brought into Pakistan through proper banking channels."
A strong drug mafia of Peshawar in order to avoid moving cash in bulk (most countries have strict laws requiring that international cash movement be reported) frequently deposited currency in various banks of Europe and then requested the bank to wire funds to their accounts in Pakistan. This money transferred from abroad has been legalised being profits earned from business with dummy corporations run by their own persons.
Many drug traffickers of Karachi-based syndicates laundered their drug money through non-financial movements that resemble legitimate transactions. Some of them paid cash for machinery, autos and other appliances in the industrialised nations (where they sold heroin), shipped them to Pakistan (under the cover of an import agency) and sold them here for local currency.
Through these cash movements our powerful drug traffickers succeeded to blur the distinction between illicit drug money and international financial system every day. This explains the birth of extravagance in this society during the last few years. This drug money created a new elite in Pakistan, which superseded the so-called 22 families of the late economist Mahbubul Haq.
It has brought affluence for a few but misery for the vast majority of this country. These illicit profits have driven up real estate costs to such levels that nobody can think of buying a plot of land out of his legal income.
These profits are also being used to finance other criminal activities to undermine legitimate business, to corrupt public institutions and officials, to support political and sectarian insurgencies.