To weaken the cartels, some argue the U.S. should legalize marijuana, let cocaine pass through the Caribbean and take the profit motive out of the drug trade

December 29, 2009 – Mexico City – In the 40 years since U.S. President Richard Nixon declared a “war on drugs,” the supply and use of drugs has not changed in any fundamental way. The only difference: a taxpayer bill of more than $1 trillion.

A senior Mexican official who has spent more than two decades helping fight the government’s war on drugs summed up recently what he’s learned from his long career: “This war is not winnable.”

A man accused of involvement in a shooting of federal police officers was presented to the press at a news conference in Tijuana, Mexico, in October, holding an unloaded gun allegedly connected to the crime.

Just last week, Mexican Navy Special Forces swarmed a luxury apartment tower in a central city and gunned down Arturo Beltrán Leyva, a drug trafficker whose organization helped smuggle several billion dollars worth of cocaine and marijuana into the U.S. during the past decade, according to the Drug Enforcement Administration.

Within days of Mr. Beltrán Leyva’s death, Mexican officials were already trying to guess which of his lieutenants would take his place. Almost no one expected the death of Mr. Beltrán Leyva to slow down the business of drug trafficking or the horrific drug-related violence in Mexico that has claimed around 15,000 lives in the past three years. On Monday, hit men gunned down several family members of a Mexican naval officer who had been killed in the Beltrán Leyva raid. Four people have been arrested in connection with the killing, though Mexican authorities say the hit men are still at large.

Growing numbers of Mexican and U.S. officials say—at least privately—that the biggest step in hurting the business operations of Mexican cartels would be simply to legalize their main product: marijuana. Long the world’s most popular illegal drug, marijuana accounts for more than half the revenues of Mexican cartels.

“Economically, there is no argument or solution other than legalization, at least of marijuana,” said the top Mexican official matter-of-factly. The official said such a move would likely shift marijuana production entirely to places like California, where the drug can be grown more efficiently and closer to consumers. “Mexico’s objective should be to make the U.S. self-sufficient in marijuana,” he added with a grin.

Culiacan, Sinoloa is the unofficial capital of Mexico’s drug-trafficking business. Given the shortened lifespan for drug traffickers, shrines and mausoleums honoring fallen narcos have become an integral part of the city’s landscape. David Luhnow and Jose de Cordoba report from Mexico.

He is not alone in his views. Earlier this year, three former Latin American presidents known for their free-market and conservative credentials—Ernesto Zedillo of Mexico, Cesar Gaviria of Colombia and Fernando Henrique Cardoso of Brazil—said governments should seriously consider legalizing marijuana as an effective tool against murderous drug gangs.

If the war on drugs has failed, analysts say it is partly because it has been waged almost entirely as a la w-and-order issue, without understanding of how cartels work as a business.

For instance, U.S. anti-drug policy inadvertently helped Mexican gangs gain power. In the late 1980s and early 1990s, the U.S. government cracked down on the transport of cocaine from Colombia to U.S. shores through the Caribbean, the lowest-cost supply route. But that simply diverted the flow to the next lowest-cost route: through Mexico. In 1991, 50% of the U.S.-bound cocaine came through Mexico. By 2004, 90% did. Mexico became the FedEx of the cocaine business.

That change in the supply chain came as Colombia waged a successful war to break up the country’s Cali and Medellin cartels into dozens of smaller suppliers. Both moves helped the Mexican gangs, who gained pricing power in the market. Before, the Colombian cartels told Mexicans what price they would pay for wholesale cocaine. Now, Mexican gangs play smaller Colombian suppliers off of each other to get the best price. Mexican gangs are “price setters” instead of “price takers.”

Some Mexican officials say privately that the U.S. should seriously consider allowing cocaine to pass more easily through the Caribbean again in order to squeeze Mexican gangs. “Would you rather destabilize small countries in the Caribbean or Mexico, which shares a 2,000-mile border with the U.S., is your third-biggest trading partner and has 100 million people?” one official said.

Today, the world’s most successful drug trafficking organizations are found in Mexico. Unlike Colombian drug gangs in the 1980s, who relied almost entirely on cocaine, Mexican drug gangs are a one-stop shop for four big-time illicit drugs: marijuana, cocaine, methamphetamines and heroin. Mexico is the world’s second biggest producer of marijuana (the U.S. is No. 1), the major supplier of methamphetamines to the U.S., the key transit point for U.S.-bound cocaine from South America and the hemisphere’s biggest producer of heroin.

This diversification helps them absorb shocks from the business. Sales of cocaine in the U.S., for instance, slipped slightly from 2006 to 2008. But that decline was more than made up for by growing sales of methamphetamines.

In many ways, illegal drugs are the most successful Mexican multinational enterprise, employing some 450,000 Mexicans and generating about $20 billion in sales, second only behind the country’s oil industry and automotive industry exports. This year, Forbes magazine put Mexican drug lord Joaquin “Shorty” Guzman as No. 401 on the world’s list of billionaires.

Unlike their rough-hewn parents and uncles, today’s young traffickers wear Armani suits, carry BlackBerrys and hit the gym for exercise. One drug lord’s accountant who was arrested in 2006 had a mid-level job at Mexico’s central bank for 15 years.

Recently, Mexico’s deputy agriculture minister, Jeffrey Jones, told some of the country’s leading farmers that they could learn a thing or two from Mexican drug traffickers. “It’s a sector that has learned to identify markets and create the logistics to reach them,” he said. Days later, Mr. Jones was forced to resign. “He may be right,” one top Mexican official confided, “but you can’t say things like that publicly.”

Mr. Jones says he stands by his comments.

Because governments make drugs illegal, the risk associated with transporting them translates to high rewards for those willing to take that risk. The wholesale price of a single kilo of cocaine, for instance, costs $1,200 in Colombia, $2,300 in Panama, $8,300 in Mexico, and between $15,000 and $25,000 in the U.S., depending on how close you are to the Mexican border. At a retail level on the streets of New York, it can run close to $80,000. With markups like that, the business is bound to keep attracting new entrants, no matter what governments do to stop it.

Governments also have a hard time stopping the drugs trade because, like any good business, trafficking organizations innovate and adapt. Mexican customs has stumbled upon a long list of ingenious methods to transport cocaine, including one shipment of liquefied cocaine smuggled in red wine bottles. Another recent bust yielded 800 kilos of cocaine—worth an estimated $40 million—stuffed inside a batch of frozen sharks.

After Mexico restricted the importation of pseudoephedrine to slow the manufacture of methamphetamines, drug gangs found another way to make the drug using different, unrestricted chemicals widely used in the perfume industry. “I’ve always thought these guys had a good research and development arm,” says one exasperated Mexican official.

Advocates for drug legalization say making marijuana legal would cut the economic clout of Mexican cartels by half. Marijuana accounts for anywhere between 50% to 65% of Mexican cartel revenues, say Mexican and U.S. officials. While cocaine has higher profit margins, marijuana is a steady source of income that allows cartels to meet payroll and fund other activities.

Marijuana is also less risky to a drug gang’s balance sheet. If a cocaine shipment is seized, the Mexican gang has to write off the expected profits from the shipment and the cost of paying Colombian suppliers, meaning they lose twice. But because gangs here grow their own marijuana, it’s easier to absorb the losses from a seizure. Cartels also own the land where the marijuana is grown, meaning they can cheaply grow more supply rather than have to fork over more money to the Colombians for the next shipment of cocaine.

Several U.S. states like California and Oregon have decriminalized marijuana, making possession of small quantities a misdemeanor, like a parking ticket. Decriminalization falls short of legalization because the sale and distribution remain a serious felony. One of the big reasons for the move is to reduce the problem of overcrowded and costly prisons.

While this strategy may make sense domestically for the U.S., Mexican officials say it is the worst possible outcome for Mexico, because it guarantees demand for the drug by eliminating the risk that if you buy you go to jail. But it keeps the supply chain illegal, ensuring that organized crime will be the drug’s supplier.

Making pot legal might actually increase violence south of the border even more in the short term, with drug gangs fighting over a smaller economic pie of the remaining illegal drugs. But it would eventually reduce the overall financial clout of cartels.

If more radical options like legalizing prove impossible, then some analysts say Washington and Mexico City should at least refocus the battle against drugs along economic lines.

Until recently, Mexican police almost never looked at a cartel’s finances. During a 2006 raid of a drug traffickers Mexico City home, police found a hand-written ledger describing the cartel’s cocaine business for a single month: the price paid to Colombian suppliers ($3,500 per kilo), the sale price here in Mexico ($8,200 per kilo) and the cartel’s net profit of $18 million. Police didn’t bother to keep the piece of paper, according to people who participated in the raid.

“We’ve been attacking the players rather than attacking the industry. We need to focus on shrinking their markets and raising their operating costs,” said Alberto Islas, a 40-year-old with an economics degree from MIT who runs a private security consulting company in Mexico City.

For the first time, Mexico’s government is paying more attention to drugs as a business. A new 2% tax on cash deposits greater than $1,250 in bank accounts gives tax authorities a better picture of Mexico’s cash economy—the currency of the drugs trade. Just this year, authorities found five people with unexplained cash deposits of more than $4 million, including one from a man who doesn’t even have a formal job.

Mexican customs is also trying—for the first time—to disrupt the flow of guns and money that return from the U.S. to Mexico in exchange for the drugs. Disrupting that flow is crucial to cartel finances: Mexican gangs send drugs north, and get cash and guns in return.

For decades, people crossing into the U.S. from Mexico have been subjected to rigorous checks, but Mexico never bothered to check people coming back from the other direction. Now, cars coming from the U.S. will be blocked by a mechanical arm. License-plate photographs will be run against a criminal database in Mexico City, while a scale and vehicle-scanning system will determine if the car may be overloaded with contraband. Dogs trained to locate weapons and money will roam the area.

“Cash is king. Every bit of money we seize hits the cartels directly on the bottom line,” says Alfredo Gutierrez Ortiz, the head of Mexico’s tax authority.

But Mr. Gutierrez has also been around long enough to know Mexico is not going to stamp out the drugs trade here entirely.

“We must raise the transaction cost, make it too expensive for them to use Mexico as an export platform relative to other countries,” he said. “But the demand itself—well, that’s not going to go away.” By DAVID LUHNOW. Source.

December 19, 2009 – WASHINGTON – As the war on drugs moves closer to home and a new administration presents new ideas, policymakers in Washington are taking notice of 30 years’ worth of ineffectual drug policy and beginning to think about different ways of addressing the northward flow of narcotics.

The U.S. House of Representatives unanimously approved a bill recently that would create an independent commission to re-evaluate and make recommendations on domestic and international drug policies. This is being seen as an acknowledgement that current strategies meant to control illicit drugs are not working – and have not worked for a while.

“The premise of the commission is not, of course, that we’re doing great but that our policies aren’t working and we need a rethink,” says John Walsh, who works on drug policy at the Washington Office on Latin America (WOLA). He says actions like this “speak to the level of frustration” over the impotence of past drug policies.

WOLA released its own recommendations on new directions these policies could take. Their report says past policies that have focused on eradication of coca and opium crops are counter-productive unless they are preceded by rural development. “Proper sequencing is crucial: development must come first,” it reads, or else, without alternative livelihoods firmly in place, people will have no choice but to return to growing crops for illicit markets.

Just as development is a precondition for preventing illegal crops, it says, effective governance and a reduction in violence are preconditions for development. But development assistance should not be contingent on prior elimination of illegal crops – that would merely deny aid to the communities that need it most.

Even with recent actions in Washington, the U.S. is likely still far from a policy like this.

The House bill does, however, establish a Western Hemisphere Drug Policy Commission which will have two million dollars to investigate and research independently of the political process.

“Billions upon billions of U.S. taxpayer dollars have been spent over the years to combat the drug trade in Latin America and the Caribbean. In spite of our efforts, the positive results are few and far between,” said Rep. Eliot Engel of New York, who introduced the legislation.

“You need to take it to the level of an independent commission to get it out of the crevices of politics,” says Walsh.

Walsh says there has been a shift in Washington’s public attitude toward status quo drug policies, especially among Democrats.

One possible factor in this shift is the way in which the war on drugs has moved closer to home for the U.S.

The State Department has estimated that in 1990 just over half the cocaine in the U.S. came from Mexico, but by 2007 that figure had risen to over 90 percent. This has been one side effect of President George W. Bush’s expansion of the Plan Colombia military and fumigation
operations: to displace it from Colombia to elsewhere in the Americas, or even beyond.

Drug violence in Mexico, which has surged since Bush and Mexican President Felipe Calderón began to cooperate in combating trafficking, is reported to have claimed the lives of over 16,000 people in the past three years; more than 7,000 so far in 2009 alone.

In April, Caribbean leaders asked the U.S. to expand the Mérida Initiative, by which U.S. support is given to counter-trafficking efforts in Mexico and Central America, to include their countries since the escalation of efforts in Mexico could cause traffickers to move their operations elsewhere.

“We have succeeded in moving things around, but we haven’t really stemmed the traffic and it may be worse now,” says Walsh, explaining that trafficking is spreading to places with weaker institutions, like West Africa.

“The only concrete outcome of [current] strategy is to shift drug cartels from one region to another,” said former Brazilian president Fernando Henrique Cardoso Thursday. Cardoso joined former presidents Ernesto Zedillo of Mexico and Cesar Gaviria of Colombia earlier this year in signing a declaration calling for greater emphasis on reducing drug consumption and a reconsideration of the criminalization of marijuana.

Washington seems to finally be open to suggestions. The first sign came when Secretary of State Hillary Clinton publicly acknowledged the role of the U.S. in the fueling the violence in Mexico and elsewhere.

“We know very well that the drug traffickers are motivated by the demand for illegal drugs in the United States and that they are armed by the transport of weapons from the United States,” she said in a March visit to the U.S.’s southern neighbor.

Now Congress appears somewhat ready to try a new tack. Assuming it is approved by the Senate – consensus is mixed on the likelihood of this, but it did gain bipartisan support in the House – one of the aspects the drug policy commission will look at is domestic treatment programs, which have been neglected in the past relative to enforcement and action targeting supply.

Congress is also in the process of passing spending bills this week and next. Included amongst the various items in these “omnibus” bills are measures that would allow federal funding for syringe exchange programs and legalization of medical marijuana in Washington, DC – which voters had approved in 1998 before a Congressman withheld its funding.

The bill, however, includes further funding for the Mérida Initiative and other aspects of the war on drugs, including, controversially, money for Honduras, which remains under the rule of a government that came to power in a June coup.

These drug policies may change soon, though, following the commission’s eventual report and the Obama administration’s unveiling of its new National Drug Control Strategy, expected in the first few months of 2010. This strategy is expected to have more of a focus on demand reduction than its predecessors.

In some ways, like the plan to use Colombian bases to launch attacks against narcotics operations there, President Barack Obama has continued the supply-and military-focused policies of Bush, says Walsh, but domestically his priorities seem to be different.

“New leadership is emerging that is not afraid ask questions and look for answers,” he said, citing Virginia Senator Jim Webb, who he says does not have to worry about his “tough” credentials and who wants a committee to look at criminal justice reform, including as it regards drug policy.

Criticism of the war that was launched by President Richard Nixon and has continued over three decades appears to have become mainstream and it is nearly common knowledge that its approach has failed.

Despite the billions spent on efforts like Plan Colombia, retail cocaine prices have gradually declined since the early 1990s after sharply dropping in the previous decade, according to graphs based on numbers from the Office of National Drug Control Policy (ONDCP) that WOLA presented to a Congressional briefing Tuesday. The purity, which should bring higher prices at higher levels, has remained about the same since increasing sharply as prices declined in the 1980s. This is the opposite of what policies aimed at eradication of supply intended or expected.

Obama’s drug chief said in May that the new administration would move away from terms like “war on drugs.” Its approach would be to deal with the problem as a matter of public health rather than criminal justice, ONDCP director Gil Kerlikowske told The Wall Street Journal. He also said federal agents would no longer raid medical marijuana dispensaries in states that had legalized it.

The U.S. criminal justice system has long been criticized by some for coming down too hard on minor drug-related offenses and thus overwhelming the country’s prison systems.

There have also been issues like the discrepancy between the sentencing guidelines for powder cocaine and crack cocaine – five grams of the latter, which is predominantly used by African-Americans, carries the same penalty as 500 of the former. A Senate bill under consideration would make the penalty five years for 500 grams of either; a House version would simply eliminate mandatory minimum sentences for the offenses.

“I think we’re going to see an evolution in terms of talking more about demand and containing harms rather than just focusing on prevention of use,” says Walsh. BY MATTHEW BERGER. Source.