As previously discussed, the total number of cocaine traffickers in the USA has been estimated at 757,000, of which some 90% (680,000) are thought to be involved in retail trafficking activities. The total gross retail prof-its for cocaine (defined as the difference between the gram prices and the ounce prices, multiplied with the amounts consumed in the USA) equal some US$26.1 bn – a large amount. Simply dividing the gross profits by the number of cocaine retail traffickers would result in per capita profits of US$38,400, a relatively small amount which would hardly leave any money available for laundering. In fact, the GDP per capita in 2009 was some US$46,000, that is, far higher than the per capita income of the retail cocaine traffickers in the USA.
Adjusting the GDP per capita figures with gross savings to arrive at a proxy figure for per capita consumption still gives a figure of around US$41,300 (threshold level in this report), which is higher than the per capita income of a cocaine retailer. This would mean that no money could be laundered from cocaine retail sales in the USA. But can it be true that no earnings made from US retail sales are laundered? Probably not.
In fact, the income distribution among cocaine traffick-ers is extremely uneven. This means that a few cocaine traffickers earn large amounts of money – that will be available for laundering – while a much larger number of cocaine traffickers are hardly able to meet their con-sumption requirements.
This was – inter alia – documented in Freakonomics (2005), where the question was asked why so many drug dealers were still living with their mothers.50 As part of field research, starting from 1989 to the early 1990s, a then-young sociologist, Sudhir Venkatesh, gained access to a Chicago-based street gang selling crack-cocaine. He also got access to the notebooks containing the detailed monthly income and expenditures of that gang over a four-year period. This gang was one of around a hun-dred branches – or franchises – of a larger criminal organization, the ‘Black Disciples’51, also based in Chi-cago. The Black Disciples had a leader who reported to a ‘board of directors’ of close to 20 members. Each street gang had to pay the board of directors of the Black
Dis-50 Steven D. Levitt and Stephen J. Dubner, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, April 2005.
51 The Black Disciples are one of Chicago’s most well known ‘folks’
gangs. In later years, the Black Disciples were more structured like a religious sect. The gang leaders were then called ‘ministers’ and the overall head was called ‘king’. At the same time they continued to expand. Around 2004 they encompassed some 300 street gangs in the Chicago area, each of some 30 to 40 members. (George Knox, Gang Threat Analysis: The Black Disciples, National Gang Crime Research Center 2004). Apart from being known as a drug trafficking gang, they are also known for extreme violence. While in 1990 they had some 5,400 members, their membership increased to more than 24,000 towards the end of the first decade of the new millennium.
ciples nearly 20% of their revenues in exchange for the right to sell crack in a designated twelve square-block area. The head of the street gang had three officers below him, as well as a treasurer and a runner (for transporting large quantities of drugs and money to and from the supplier). Each officer had a number of street-level sales-men - known as foot soldiers - beneath him. Depending on the season, the gang leader had in total between 25 and 75 foot soldiers on his payroll. At the very bottom of the hierarchy were some 200 members, known as the rank and file. They were not employees, but had to pay
‘dues’ to the gang, for protection from rival gangs or for the chance to move up the hierarchy and earn a job as a foot soldier.
Over a four-year period, the gang’s notebooks showed an increase in monthly revenue from US$18,500 to US$32,000 in the third and US$64,800 in the fourth year. The average monthly breakdown of revenues in the third year was as follows:
According to the information obtained from the specific crack-cocaine selling gang, the Black Disciples had 1 leader and another 19 on the ‘board of directors’, prob-ably around 100 street gang leaders, 300 officers (3 * 100) and 5,000 foot soldiers (50 * 100), that is, in total, 5,420 ‘members’ at the time. In addition, some 20,000 unpaid rank-and-file were paying dues to the organiza-tion.
The leader and the members of the ‘board of directors’
each earned around US$500,000 per year, or more than US$40,000 per month. The gang leader’s income of US$8,500 was equivalent to an hourly wage of US$66.
The wages paid to the ‘officers’ amounted to on average US$700 a month or about US$7 per hour. The foot soldiers, who accounted for the bulk of drug traffickers in the organization, earned on average just US$3.30 an hour, which was less than the minimum hourly wage in the USA (US$3.80 in 1990).52 Thus most of the foot soldiers actually held minimum-wage jobs in the legiti-mate sector to supplement their small illicit earnings.
The analysis of the income distribution, expressed in annual income equivalents, suggests that it follows a power-law distribution as can be seen from the graph:
Assuming that money-laundering would take place for income above per capita GDP (US$23,045 in 1990) less gross savings (15%), the annual threshold income in 1990 would have amounted to around US$20,000 (rounded). According to this structure and the threshold levels, only the members of the ‘board of directors’ and the gang leaders, some 120 persons out of some 5,420 members or 2.2% of the total number of traffickers in this crack-cocaine distribution network, would have earned enough money to engage in laundering activities.
52 Federal Minimum Wage Rates, 1955-2011 (http://www.infoplease.
com/ipa/A0774473.html).
table 50: Average monthly revenues and expenditures of a crack-cocaine selling gang based in chicago, 1990
Source: Steven D. levitt and Stephen J. Dubner, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, April 2005.
Revenues:
Drug sales (crack-cocaine) US$ 24,800
Dues from rank and files US$ 5,100
Extortionary taxes (stores, pimps, fences et cetera) US$ 2,100
Total monthly revenues: US$ 32,000
Expenditures
wholesale cost of drugs (crack-cocaine) US$ 5,000
fees to ‘board of directors’ US$ 5,000
Mercenary fighters (hired to fight turf war) US$ 1,300
weapons US$ 300
Miscellaneous (funeral, support for victim’s family) US$ 2,400
Total monthly (non-wage) costs US$ 14,000
wages for three ‘officers’ US$ 2,100
wages to foot soldiers US$ 7,400
Monthly wages US$ 9,500
Total monthly net income for gang leader US$ 8,500
fig. 6: Income structure of a crack-cocaine selling distribution network in the USA (chicago), 1990
Source: UNoDc calculations based on Steven D. levitt and Stephen J. Dubner, freakonomics: A Rogue Economist Explores the Hidden Side of Everything, April 2005.
Deducting the threshold income needed to cover living expenses (estimated at around US$20,000), data suggest that the Black Disciples may have laundered some
US$17.6 million per year. Expressing this amount as a proportion of total wages (around US$31.5 million), the calculations suggest that more than half (about 56%)
$100,000
$8,400 $1,800
$500,000
$500,000
$100,000
$8,400
$1,800
$1
$10
$100
$1,000
$10,000
$100,000
$1,000,000
leader and 'Board of Directors'
Gang leaders officers foot soldiers
N = 20 N = 100 N = 300 N = 5,000
annual income (lograrithmic scale)
-
$-$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
annual income (linear scale)
Average annual income - linear scale (right axis) Average annual income - logarithmic scale (left axis)
table 51: Total ‘wages’ in crack-cocaine distribution network in the USA (chicago), 1990
Source: UNoDc calculations based on Steven D. levitt and Stephen J. Dubner, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, April 2005.
table 52: calculation of amounts available for laundering, 1990
Source: UNoDc calculations based on Steven D. levitt and Stephen J. Dubner, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, April 2005.
Number of traffickers Per capita income Total leader and members of ‘board of
directors’ 20 $500,000 $10,000,000
Gang leaders 100 $100,000 $10,000,000
officers 300 $8,400 $2,520,000
foot soldiers 5000 $1,800 $9,000,000
Total 5,420 $31,520,000
Annual
income Threshold
income Income for
laundering Number of
persons Amounts available for laundering Board of directors $500,000 $20,000 $480,000 20 $9,600,000
Gang leaders $100,000 $20,000 $80,000 100 $8,000,000
Total $17,600,000
table 53: Proportion of wages available for laundering, 1990
Source: UNoDc calculations based on Steven D. levitt and Stephen J. Dubner, freakonomics: A Rogue Economist Explores the Hidden Side of Everything, April 2005
Total wages in million US$ Amounts available for laundering in
million US$ in %
Amounts $31.5 $17.6 56%
of the total wages may have been subject to laundering.
Simply dividing the wages of this crime organization by the number of its members would have resulted in a per capita income of US$5,815 (US$31,520,000 : 5420), far below the threshold level for money-laundering.
Taking the income distribution structure into account is thus a prerequisite for arriving at reasonable results for the amounts available for laundering. While such detailed examples of individual drug trafficking groups are certainly interesting to gain a better insight into the hierarchical structure of cocaine trafficking, a more gen-eralized model would still be needed to take the skewed market structure into account. The calculations cannot hinge on one example of an income distribution of a drug trafficking group in one American city back in 1990. One possibility in this regard is to analyse seizure data in more detail.