Of passion fruit, narcosubs and stablecoins
The traffickers are winning the war on drugs
New decentralised networks are even harder to disrupt than the hierarchical gangs they have replaced
THERE WAS nothing obviously amiss, even when inspectors began opening the tubs of passion-fruit pulp about to be shipped out of Callao port in Peru.
A chemical test for illicit substances did not produce a red flag.
Yet mixed into the sticky gloop was roughly nine tonnes of cocaine.
It had been chemically masked to thwart testing kits, explains General Nilton Santos Villalta, the head of Peru’s anti-narcotics police.
Only once the shipment had reached its final destination, in Belgium, would the traffickers have reversed the process and extracted anything that could easily be identified as cocaine.
Neutralizados, as Peruvians call such disguised drugs, are a growing scourge.
In Cartagena port, in Colombia, cocaine has been found infused into recycled plastic, mixed into ground coffee and dissolved inside hundreds of carefully resealed coconuts.
Such stashes can evade detection not only by chemists, but also by the giant X-ray scanners that are used to hunt for drugs at many container ports.
And it is not just smuggling methods that are evolving fast: the entire drugs business is changing in ways that are making it even harder to stem the flow of narcotics around the world.
Global production, seizures and consumption of cocaine are all at record highs, despite 50 years of the war on drugs—a fight that President Donald Trump is now intensifying by bombing alleged Venezuelan smuggling-boats in the Caribbean.
This is in part because prohibition makes a cheap commodity, cocaine, enormously lucrative.
When it can fetch on the street in Europe 125 times what it does at the laboratory door in Latin America, someone will always be willing to fight to sell it, often literally.
Over the past 15 years the business has evolved rapidly.
Whereas drug gangs used to be vertically integrated, with a single kingpin supervising production, transport and distribution, they now rely heavily on outsourcing.
This more fragmented, distributed system, in turn, has fuelled specialisation and innovation.
Traffickers no longer focus almost exclusively on the United States: smuggling has gone global.
The result is a system that is more dangerous to the world and more difficult to disrupt.
Estimating global cocaine sales is, naturally, extremely hard.
Global Financial Integrity, a think-tank, valued the market at between $84bn and $143bn in 2014, making it a bigger business than chocolate.
Whatever the true figure in 2014, it is now higher: cocaine production (which is easier to track) has more than tripled since.
Painful blow
That partly reflects cocaine’s spread.
Demand in America remains high, but has stagnated with the rise of fentanyl and other drugs.
Cocaine consumption in Europe, however, is thought to have risen by 60% in the decade to 2022.
In 2023, for the seventh year in a row, seizures in Europe hit a record.
It is probably a bigger market now than the United States.
Australia seems to consume more cocaine per person than any other country.
Snorting is also on the rise in Asia, where seizures grew five-fold between 2013 and 2023.
Consumption has soared in Latin America, too: Brazil may be the second-biggest single-country market (see map).
This globalisation has been driven by traffickers chasing high prices.
In America a kilo of wholesale cocaine is worth about $30,000 but in western Europe it fetches between $39,000 and $45,000.
(Retail prices are more exorbitant still.)
Even higher prices are now prompting traffickers to target Asia and Australia.
In Hong Kong a kilo goes for $65,000 and in Australia it can reach over $250,000.
As it has globalised, the industry has been transformed.
Whereas Colombian and Mexican kingpins used to try to monopolise every facet of the business, from the coca farm to the nightclub bathroom, even today’s biggest gangs, such as the Sinaloa and Jalisco New Generation cartels in Mexico,
First Capital Command (PCC) in Brazil and the ’Ndrangheta, an Italian mafia, often directly operate only one part of the supply chain.
Drug trafficking is instead a fluid network of subcontractors and service-providers, including chemists, hitmen and money-launderers.
Each service-provider charges a fee.
Sometimes big outfits, such as the PCC, try to integrate more tightly, pushing service-providers into semi-permanent alliances.
Yet often these freelancers work simultaneously for several gangs or for white-collar investors, known as “invisible narcos”, who finance and orchestrate drug shipments.
For the traffickers the new way of doing things has big benefits.
It makes the supply chain far more resilient than in the command-and-control model.
If a shipment is captured, tracing the owners is fiendishly difficult.
Most importantly, as Adam Smith would have predicted, specialisation improves efficiency and breeds innovation.
Consider cultivation.
The original coca growers were poor farmers in isolated valleys in the Andes.
No longer.
In Colombia production is now heavily concentrated in lower-lying border areas, especially near Ecuador, for easier access to the port of Guayaquil.
In Peru farming is expanding deep into the Amazon basin for convenient export to Brazil.
Coca, traditionally grown almost exclusively in Colombia, Peru and Bolivia, is now also farmed in Belize, Guatemala, Honduras and Mexico.
Yields are rising.
In Colombia they have almost doubled since 2005, to about 8.5 tonnes of leaves a hectare.
In some areas they reaches 11.7.
The savviest farmers test the soil and apply the optimal amount of fertiliser by drone, explains Leonardo Correa of the UN Office on Drugs and Crime: “It’s precision agriculture.”
Processing is also changing—and becoming much more efficient as it does so.
More than half of the seizures of exports from Peru are now of “coca base”, a less refined product than pure cocaine.
Some of that is made into cocaine in laboratories in Bolivia and Brazil, and then sent on to Europe, but the latest trend is nearshoring, in which the final processing takes place in the destination country.
Last year police in the Netherlands, for instance, destroyed 24 cocaine labs.
The rationale is economic.
Chemists are easier to find in Amsterdam than the Amazon.
A seized shipment of coca base constitutes a smaller loss than pure cocaine.
European gangs also want to increase their margins.
In cocaine, as in much else, Latin America risks becoming only a commodity exporter.
Smuggling and distribution, too, are being subcontracted.
A European gang might send an envoy to Los Lobos, a big Ecuadorean gang, to buy cocaine.
Los Lobos will then contract a Colombian outfit to bring the goods across the border.
The Colombians, in turn, may deal with lots of small suppliers.
Both Los Lobos and the Colombians will probably also pay smaller gangs to smooth the route across the border and through Guayaquil.
“Everyone is subcontracting absolutely everything,” says Elizabeth Dickinson of International Crisis Group, a think-tank, likening cocaine production to that of an iPhone.
Subcontracting has spread to smuggling, too.
A single seized shipment will sometimes have cocaine from many different producers and belonging to multiple owners, often distinguished by marks of different sorts on the packaging.
That provides accountability for quality and tracking for ownership, says General Santos Villalta, who points to a confiscated press used to stamp “PF2” into bricks.
Powder play
To confuse the authorities, drugs often go via a transit country such as Costa Rica.
There the drug-owners will contract a local gang to receive, store and send on the drugs.
Even in Mexico cartels sometimes ship drugs owned by other groups across the American border for a fee, says a trafficker for Los Chapos, a faction of the Sinaloa cartel.
Given all the subcontracting, technology is used to build trust and traceability.
“When they put the drugs on the ship, part of those drugs will be tracked by GPS,” says Lincoln Gakiya, a Brazilian prosecutor who lives surrounded by bodyguards.
Trackers allow buyer and seller to follow a shipment’s progress and to locate it on arrival.
In Mexico cars used to transport drugs over the American border may also have a microphone for monitoring, explains the trafficker.
The innovation in smuggling is mind-boggling.
Divers weld “parasite” pods of cocaine onto the hulls of ships so often that in Cartagena port watchmen are paid to sit in a tiny boat about 50 metres offshore all day and night to look for telltale bubbles.
(To keep this lonely job they must pass a polygraph test every six months.)
Then there are the “narcosubs”.
In July Ben Maenu’u was fishing off the Solomon Islands when he spotted an abandoned 25-metre craft that had been used to ship cocaine underwater.
These are startlingly common: about 240 have been seized over the past two decades.
The rate has increased sharply since 2018, according to InSight Crime, an investigative outfit.
Last year some 25 were seized, a fraction of the hundreds that are probably out there.
Most narcosubs cannot fully submerge, but protrude only very slightly from the water, making them hard to spot.
They used to take mainly short trips, close to shore.
Nowadays, however, they are being used to cross the Atlantic and Pacific.
Some genuine submarines are also being built, capable of carrying as much as 10 tonnes of cocaine.
None has ever been captured at sea, but several have been discovered half-built in clandestine shipyards.
The Colombian navy, meanwhile, recently seized a narcosub drone equipped with a satellite link to transmit live images.
Like squeezing a tube of toothpastePhotograph: Panos PicturesSuch high-tech trafficking requires specialist skills.
The result is narco business travel.
In 2020 two Peruvian divers stashed 72 kilos of cocaine in the underwater vents of a ship in Callao, a tricky undertaking.
Later that month they flew to Spain, donned their scuba gear and retrieved the haul.
Narco chemists are frequent flyers, too.
The person who makes a neutralizado is often flown to Peru, says General Santos Villalta, and then on to the destination port.
“They have to send him because he is the only one who knows the formula to convert it back.”
Laundering drug money is another fast-evolving business.
One popular option is to use the cash to finance other criminal enterprises.
In Mexico it helped pay for diversification into fentanyl, now America’s biggest narcotic scourge and a business that has evolved along similar lines to cocaine.
In Peru drug money often funds illegal gold-mining.
Often, however, the cash is in rich countries and gangs want to bring it back to Latin America.
They used to send home wads of cash, but that is becoming rarer.
Instead, laundering is often outsourced to Chinese specialists.
Most Chinese citizens cannot take more than $50,000 out of the country each year.
That is far too little for many of them, which creates an opening for the launderers.
The system uses mirror transactions; no money crosses borders, because that might draw the authorities’ attention.
In supermarket carparks in America Chinese laundering groups receive bags of cash from drug dealers.
Their affiliates in Mexico then forward the equivalent sum in pesos to the cartel’s Mexican account, minus a fee of about 2%.
Wealthy Chinese in America buy the dollars from the Chinese gangsters.
The Chinese buyers pay for the dollars via a domestic transfer to the launderers’ accounts in China.
If the launderers need cash in Mexico, they can always export electronics or other goods from China, taking payment at the destination.
The system is fast and cheap: laundering used to cost almost ten times as much.
And the innovation continues, especially with cryptocurrencies.
Chainalysis, a crypto-research firm, estimates that in 2024 some $41bn of crypto linked to illegal activities changed hands around the world.
Chinese laundering groups can operate as before, but repay drug gangs with cryptocurrency.
Stablecoins are the most popular.
These are pegged to a real asset such as the dollar but, unlike international cash transfers, they can be sent from one wallet to another with very little scrutiny.
“In financial crimes one of the biggest problems today in Brazil is USD Tether stablecoin and how easily they buy and sell it anonymously,” says Guilherme Alves de Siqueira of the Brazilian police.
Stablecoins sent to Brazil can easily be converted into cash by doleiros, blackmarket money-changers.
Brazilian drug gangs also use stablecoins to pay suppliers.
A laundering group known as the Criptoboys converted 19.4bn reais ($3.6bn) into crypto between 2017 and 2023 for numerous clients, many of them traffickers.
Fintech firms have also supercharged money-laundering in Brazil.
In 2024 it boasted 1,600 of them, only about a fifth of which were regulated by the central bank.
“Many criminal organisations have their own fintech,” says Alexandre Custódio Neto, who is also with the Brazilian police.
According to Fernando Haddad, the finance minister, such firms laundered 52bn reais over the past four years.
The authorities are supposedly now cracking down.
The dispersed, outsourced business model is creating mayhem for governments.
Payments to subcontractors are often made in cocaine, breeding addicts and fuelling violence.
Small gangs hoping for work compete to show big ones how ruthless they are.
The bigger outfits, in turn, resort to torture, beheadings and other grisly displays to punish thefts by subcontractors and thus send a message to other would-be thieves.
Such trends helped spur a doubling of the murder rate in Costa Rica in the decade to 2023.
To lubricate business, gangs also try to capture the regulator.
In Brazil, Ecuador and Mexico drug gangs regularly run their own candidates in elections.
In Peru the parliament has recently passed a barrage of laws that make it harder to investigate crimes, including a requirement for defence lawyers to be present when search warrants are executed, which in effect gives suspects a warning to destroy evidence or flee.
“We have already entered a black hole in which illegal economies, mainly cocaine and illegal gold, are taking control of strategic points of the state,” says Rubén Vargas, a former Peruvian minister of the interior.
The huge price premium for cocaine in Asia and Australia spells trouble for those places.
Peru, where crime is surging and Asian gangs already have a foothold, is a likely point of origin.
A giant new Chinese-owned port in Chancay, north of Lima, intended to dominate trade between South America and China, is a particular worry.
Coke is it
When returns are so vast, crackdowns do not curb trafficking and violence but rather spread it around.
When Brazilian authorities declared they would force or shoot down any suspicious plane over the Amazon in late 2004, cocaine trafficking shifted from the air to rivers.
A study by Leila Pereira of Insper, a Brazilian university, and colleagues, finds that over 1,400 murders between 2005 and 2020 can be attributed to this shift in trafficking patterns.
That is more than a quarter of all murders in the area during that period.
This same logic explains why drug violence, which used to be concentrated in just a few countries in Latin America, now torments the whole region.
Six years ago Ecuador was about as safe as the United States.
It now has the world’s highest murder rate, as cocaine trafficking has shifted to Ecuadorean ports from more heavily policed ones in Colombia.
Even safe havens are no longer safe. In September gangsters attacked the house of Uruguay’s chief public prosecutor with guns and grenades after police seized two tonnes of cocaine.
No matter how many drug boats are blown up, cocaine smuggling is not going to disappear.
On the contrary, it is probably coming to a port near you.
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