Steve Burchall, writing under a pseudonym, is a law enforcement officier with more than 15 years experience in covert investigations targting organised crime networks in Australia and internationally.
While global enterprises and small businesses alike face the prospect of financial ruin in the wake of COVID-19, the international drug trade – widely presumed to be the province of semi-literate thugs – remains buoyantly pandemic-proof. How so?
Hollywood would have us believe that the international criminal cartels are run by drug-addled psychopaths, with mindless brutality as their guiding principle of management. While that might make for exciting movie scenes, it is the cartels’ strict discipline and shrewd business acumen that allows them to survive in any economic climate, and to thrive while other markets collapse.
Any enterprise, legitimate or otherwise, must have the power to protect and advance its interests. For the drug cartels, violence is a necessary management tool because the nature of their business is illicit. While legitimate businesses hire lawyers to protect their assets and enforce contractual agreements, drug cartels must employ thugs to perform a similar function, because legal action is not an option for an illegal enterprise.
However, just as the successes of Apple or Coca-Cola were not simply a matter of retaining the best lawyers in town, the most successful organisation in the drug trade will not necessarily be the most violent. To maintain market dominance, the cartels must also navigate complexities, balance competing priorities, and make many more smart decisions than stupid mistakes.
Law enforcement agencies catch the low-hanging fruit of newbies and wannabes – ones more inclined to make stupid mistakes – relatively easily. These easy wins feed into a self-serving myth that all criminals are stupid, and that all we need to do is watch and wait for criminal organisations to screw up or implode. We need to do better if we want to catch the untouchable major players of the international drug trade. To start with, we need to acknowledge the cartels as intelligent operators, and understand the logic behind their business model.
The Australian goldmine
One obvious example of the cartels’ smarts is their targeting of the Australian market. To the cartels, Australia is a goldmine. The high costs and risks of an illicit drug import are well worth the inflated prices Australian consumers are prepared to pay.
Goods arriving in Australia, whether by air or by sea, are accompanied by a trail of paperwork that must be completed correctly to satisfy Australian border protection agencies. A legitimate consignee name and delivery address is a must, and businesses without an existing import history will attract closer scrutiny than a more established importer. Once the container clears border screening, it must be transported and unpacked at a facility owned or leased by the importer, and then distributed to the domestic network of wholesalers or retailers. Everyone in the chain – the paper-pushers, the packers and unpackers, the drivers, the storage facility and, of course, the government – expects to be paid for their efforts.
"to the cartels, australia is a goldmine. the high costs and risks of an illicit drug import are well worth the inflated prices australian consumers are prepared to pay."
An illicit drug import involves the same trail of complicated paperwork, but the consequences for fucking it up are far higher, as any error could raise a flag and trigger an inspection. The product should be well concealed within conventional items unlikely to attract the interest of officials (pro tip: don’t hide your cocaine in taxidermized animals, exotic wooden artifacts or South American coffee beans). These items should look normal, be of normal weight, and shouldn’t alert a sniffer dog – therefore an illicit import involves much more handling and careful packing than an ordinary import. A reliable pick-up and storage arrangement is crucial, as delayed collection of a container will also arouse authorities’ suspicions. The storage, unpacking and distribution system needs to be highly secure yet discreetly accessible, because you can’t buy insurance against the theft or police discovery of a multi-million-dollar drug haul.
All these contingencies make your average multi-tonne import mighty stressful on the cartel’s supply chain manager, especially given that no employment laws are in place to protect him from an irate boss
if things go terribly wrong – a prospect far more frightening than the Australian prison system. As you’d expect, with great responsibility comes great rewards: He might receive around $10m for a job that goes well, and he might manage three or four jobs in a year. While they rarely touch drugs themselves, these guys often have a weakness for eye-wateringly expensive luxury watches, so you could still say a lot of the money goes up his arm.
Everyone else in the drug supply chain needs to be paid too. Some in the chain might be unaware of the true nature of the goods they are handling, but those in the know must be compensated for sharing the risk and rewarded for maintaining their silence. A corrupt official or ‘door’ is a substantial additional cost (upwards of $200k), but they are well worth the expense for ensuring a smooth passage. A supply chain manager with a reliable door can command higher fees, and so they will jealously guard their door from exposure to their cartel colleagues and the rest of the supply network.
Profiting from a pandemic
In the realm of legitimate commerce, consumer law and public opinion largely prevent retailers from unconscionable conduct such as price-gouging or monopolising markets to force out all competition. There is no consumer watchdog for the drug trade; they can manipulate prices as much as their customers can beg, borrow and (mostly) steal to pay.
At the time of writing, the drug trade is profiting wildly from the pandemic’s disruptions to daily life. In April 2020, prices for ice doubled almost overnight; the $40 standard unit (a ‘point’) now costs $90. Dealers are explaining to their customers that, what with the worldwide lockdown and all, drugs are becoming harder to source and import, hence their increased cost. This is nonsense: movement of cargo ships to Australia continues largely unimpeded, therefore illicit imports have been business as usual.
While demand for addictive substances such as ice remains strong, the market for party drugs crashed when the world went into in lockdown. This is not a problem for the cartels, who continue to import and stockpile MDMA and related substances in preparation for the huge spike in demand when restrictions are lifted. When that time comes, price won’t be an issue; unleashed party people will readily pay to play. (A note to health authorities: Be ready for a rash of overdoses when the world returns to normal.) In the meantime, the price-jump in ice more than compensates the cartels for the temporary decline in party drug sales.
"while demand for addicitve substances such as ice remains strong, the market for party drugs crashed when the world went into lockdown."
Along with greater freedom to manipulate prices and eliminate competitors, the Australian drug trade also owes its pandemic-proof buoyancy to its old-school supply chain management methods. Legitimate global enterprises have largely shifted to the ‘just-in-time’ approach, where stocks are ordered to arrive in just the required quantities just when they are needed, via an integrated network of suppliers using shared platforms to co-ordinate orders and schedules. In contrast, the cartels import in bulk and stockpile to insure against disruptions in supply. Rather than integrate their networks, they keep their suppliers and service-providers siloed as much as possible to prevent information leaking to law enforcement or rival syndicates. In this sense, the drug trade operates in a constant state of preparedness for disaster, whether in the form of global pandemic, a major international drug bust, or some other ‘black swan event’. If a security threat is detected, cartels can simply suspend imports and reach into their stockpiles until the threat has passed. A normal business could not sustain such a degree of paranoia, and normally has no need to.
While a pandemic-proof business model might sound attractive right now, the cartels’ successes inevitably depend on a willingness to hurt innocent people, ruin legitimate businesses, corrupt systems of governance, and prey on hopeless addicts. There’s insane money to be made, but smart criminals must devote as much time and energy to hiding cash and dodging the authorities as they do on making their money in the first place, and many end up dead before they get a chance to enjoy it.
Perhaps it’s not surprising, then, that some drug-trade criminals dream of walking away from the industry and starting a legitimate enterprise. That is not an unrealistic goal; there are examples of successful, high-profile Australian business owners who got their start in the drug trade and then managed to go legit. But that’s another story for another time.
Get the latest issue of Penthouse here.