Dirty Money and Democracies / I
By © David C. Jordan (*)
I began this book without knowing where it would lead
me. My preliminary assumptions were that narcotics trafficking was best understood in a supply-and-demand context, that criminal elements were taking advantage of the addictive habit and profiting from it, and that traffickers assisted producers to meet demand with credit, transport, and distribution capabilities. According to this last assumption, traffickers actively corrupted police and judges in order to facilitate their illegal business. In more corrupt states, criminals bought off
politicians who aided them in return for substantial payoffs. My understanding of the nature of narcotics trafficking evolved, however, as the book progressed.
In my new understanding I found governments and banks deeply involved in, dependent on, and even facilitating, if not promoting, the drug trade. True, both governments and banks cracked down on traffickers and money launderers, but the picture emerged that some
had a greater interest in continuing the trade than in shutting it down. This finding had significant implications for other assumptions current in political science literature. If governments exercised only the forms of democracy and not the substance, did their claims to being accountable regimes remain valid? If democratic and authoritarian regimes promoted the drug trade, did this undermine claims of democratic peace? If the casualties from the drug trade exceeded
those of many or most conventional wars, did the concept of war need to be broadened or transformed? Finally, if the diagnosis of the problem was essentially incomplete, were not the solutions likely to fail? These are some of the issues this book explores.
This book is not intended to be a historical investigation; rather it is intended to be an analysis that connects a maze of already existing
information. The material included in this book was chosen because it focuses on a particular area, person, or event relevant to the analysis. I am deeply indebted to the many scholars past and present from whose excellent scholarship this book draws. It is my hope that the facts and information presented will permit a better understanding of the political, economic, and cultural issues shaping the new world. Political science uses history as a tool to help understand the present
and project the future with coherence. The task of this book is to progress toward that understanding.
The drug problem is of worldwide concern. Three main regions in the world generate opium and heroin products: Southeast Asia, Southwest Asia, and Latin America. The principal producing areas of the Southeast Asia region – Laos, Burma, and China – manufacture over 50 percent of he world`s total supply of opium and heroin. Thailand is
the primary heroin refiner, and Thailand and China are the principal exporters for the region.
Southwest Asia produces 40 percent of the world`s opium and over 40 percent of the world`s heroin. Areas manufacturing heroin are Afghanistan, Pakistan, and parts of the former Soviet Union such as Turkmenistan, Uzbekistan, Tajikistan, and Kazakhstan. Much of the heroin in this region is refined and transported through Pakistan, but it
is also refined md transported to the West through Russia.
By the mid-1990s Latin America produced approximately 3 percent of he world`s opium and a similar amount of the world`s heroin; in the 1980s it had produced almost none. This region is now the world’s principal producer of cocaine, with Peru, Colombia, and Bolivia being the chief growers and Colombia the primary refiner and exporter.
While the growing and manufacturing of drugs in these regions is an
important issue, there is much more to the drug problem than that. The problem extends to dirty money from drug trafficking and other illicit businesses, laundered through an intricate web of financial dealings that encircles the globe and protected both culturally and politically around the world. For many countries, criminal, financial, scientific, social, and political factors associated with this drug culture combine to threaten democratic stability and the international political
This book analyzes how narcotics trafficking and corruption have deeply penetrated the international environment in the post–cold war era and the impact of this development on the theories of democracy and international relations. It explores the connections of the narcotics traffic to state policies, international finance, the globalization of organized crime, and culture wars. By exposing some of the depravity
in the new world environment, this book points to the possibility of an international system that may enjoy the advantages of globalization without the scourge of corruption and unaccountable leadership.
Drug Trafficking, State Corruption, and the Crisis of Democratic Theory / Part 1
The growing and manufacturing of drugs is at the core of the international drug trade, but there is much more to the drug problem than that. The trade is protected culturally and politically
throughout the world. Indeed, the financial, scientific, social, and political impact of the drug culture threatens democratic stability and the international political environment.
The growth and spread of narcotics trafficking accentuate the importance of the nation-state and the democratic republic in post-cold war world politics, even as the globalization of the market economy has led some to believe that the problems of the new world order were either too large for the nation state and therefore required supranational institutions or were too small and required substate or nongovernmental organizations (NGOs).
The supranationalists can be either globalists or regionalists. The globalists seek a universal rule-making organization, the demise of state sovereignty, and global regulation of the economy. The regionalists, on the other hand, best typified by European
integrationists, seek, under the Maastricht Treaty, a central bank that would set monetary policy no European parliament could hold accountable.
Proponents of a network of nongovernmental organizations find in computers and telecommunications the information systems that would allow NGOs to deliver services that governments cannot match. NGOs are credited, for example, with forcing the United States and
Mexico to consider cross-border pollution problems, health and safety provisions, and other issues that were not initially on the North American Free Trade Agreement (NAFTA) agenda.
The claim that narcotics trafficking revitalizes the understanding of the importance of the nation-state and the democratic republic does not belittle the significant growth of supranational institutions or NGOs. But
it does highlight the fact that states ruled by accountable governments cannot and must not yield their power to repress transnational criminal enterprises to either supranational or substate entities. If the democratic states were to fail in this struggle, then the state system, supranational institutions, and NGOs would all be part of a criminal international world. The degree to which the globalization process, coupled with narcotics trafficking, is facilitating this corruption of the
state – a process called narcostatization – emphasizes the importance of maintaining healthy nation-states and democratic republics.
The amount of money created outside the control of the individual states is enormous. It is capable of forcing devaluations and making huge profits on bets against national currencies. This global capital should not be considered as just a wealth-creating phenomena but as
power in itself, a power that can devalue currencies, discipline governments and companies, and shelter profits from state taxes. Among the most prominent examples are the seven funds created by George Soros. Born in Hungary, Soros became an American citizen in the 1950s. Backed now by great European wealth, he operates globally outside the U.S. regulatory system. All of the Soros funds are offshore – that is, outside the control of the federal government – and
do not have U.S. citizens as investors. Soros himself is the prototype transnational capitalist. His speculative operations have created a vast amount of unregulated world money that flows in and out of national economies at the push of a computer key. His Quota Fund wages huge bets on global currency, bond, equity, and commodity market
trends. The most famous Soros fund, the Quantum Fund N.V., has speculated against European and Asian currencies and made over $1 billion against the British pound in 1992.
Transnational, or “overworld,” elites like George Soros not only make
huge sums in their speculative bets, they also transfer money to pet projects worldwide that sometimes exceed the foreign aid that even the U.S. government provides. For instance, in October 1997, the Soros Foundation announced plans, in addition to its work in eastern Europe, to provide between $350 million and $500 million to Moscow for maternal and child health care and for the government`s military reform plans. In comparison, the United States government gave
Russia $95 million in all of 1996. In 1998 Soros acknowledged second thoughts about his activities in relation to Russia.
One of the most interesting aspects of this overworld money has been its support for »alternatives« to the drug war, as they are
euphemistically called. Transnational capitalist interests can operate locally and globally to weaken state resistance to drug trafficking. Because the supranational organizations and NGOs are too weak to deal with the narcotics problem, the state and its uncorrupted institutions are the principal means for combating trafficking. The new internationalism requires the state to forge relations with institutions of other states committed to controlling the drug trade. Thus the
corruption of the state itself – and of its law enforcement agencies and judiciaries – can become a serious problem beyond its own borders, while within its borders, corruption undermines the accountability of the democratic republic.
Corruption can occur at every level of government and in all aspects
of society, including the financial community. The very concept of democracy, arguably the most critical aspect of our culture, is under siege. Until now, experts have maintained that democracy is flourishing in the new global environment. However, new research shows that economic globalization, while in some ways helping democratization, is also hindering the consolidation of accountable government in many countries. Indeed, criminal, financial, scientific,
social, and political factors are combining to threaten the international political environment.
Corruption generally is understood to be a discreet but illegitimate use of money by public officials or private citizens for illegal gain. Traditionally, corruption is considered to be an isolated event without a pervasive effect throughout a political system, even when it is chronic in police or other branches of a government`s bureaucracy.
Some political scientists maintain that corruption is a structural phenomenon of the political system. In this view, the corrupt
political system is far more powerful than civil society, and extortion and bribery become common practices. Official extortion takes place when public officials extract kickbacks or other payments from individuals for services, benefits, or permits the government normally offers free or with a minimal charge. Corruption within the political system also takes the shape of bribery, where strong forces in civil society buy favors from a weaker state.
Extortion and bribery can reflect a corrupt civil society as well as a corrupt state. Contemporary circumstances in some countries indicate a merger between a corrupt political system and criminal elements of civil society. Members of the ruling elite in both authoritarian and electoral governments find the merging of organized crime with the state useful, if not necessary, for maintaining power. Regimes with a tradition of elite domination, even where an electoral process exists, may find the temptation to work with organized crime particularly irresistible. When government and organized crime are allied, structural corruption is in place.
Of course, ruling elites are not always corrupt; they will, in fact, often
use the forces of government to constrain corruption when it is in their interest. In this case, criminal mafias use their power within society against honest government officials. Sometimes the criminal mafias receive cooperation from government officials jockeying for influence within the ruling class. Officials in this kind of government ultimately manipulate drug trafficking as the most lucrative criminal activity. As one key aid to the leader of the Mexican Gulf cartel, Oscar Lopez
Olivarez, reported, »Narco-trafficking is something that is completely managed by the government because from the protection of the marijuana plants... everything is completely controlled, first by the army, then by the federal judicial police, even including the crop eradication section of the Attorney General`s Office, which even inspects the crops on the farms that are included within the approved system.«
A dynamic structural model stressing the merging of government and organized crime suggests that the political systems of certain countries are in a partial civil war. While elements within the government seek to control drug trafficking, other elements of the government form an alliance with the traffickers. The complex relation between elites and
traffickers may corrupt both the democratic and the authoritarian state. Narcostatization does not respect political systems.
Since the end of the cold war, radical ethnic nationalisms and major cultural clashes have been portrayed as the most likely forms of conflict in the new international environment. Although these clashes certainly demand attention, conflicts between and within states, in the context of massive criminal and illegal government behavior, should be of at least equal concern. The increasingly rapid spread of global capitalism creates expanded opportunities for the former regionally based underworld networks to operate globally. When spreading international crime combines with corrupt elements of
government, the possibilities for domestic and international conflict increase remarkably.
The Post–Cold War Era
For some theorists, the end of the cold war has meant the triumph of liberal democracy and capitalism and an ongoing, generally positive
trend in human development. This has come to be known as the »end of history« theory. According to this theory, the basic positive trends of a cooperative international order lead to conditions whereby economies gradually combine and nondemocratic states, through a combination of internal pressure and external persuasion, gradually
develop more enlightened governments. The consequences of this evolution are, quite naturally, the weakening of nationalist agendas and of the independence of states. At the same time, international free trade expands under the World Trade Organization (WTO), regional and world currencies rise, and eventually there is generalized
The process of growing economic cooperation and the spread of democratic governments under the leadership and prodding of the United States is known as »neoliberalism« and is seen as an essentially benign development. However, the dark elements in this rosy scenario for the post-cold war era have been the growth of narcotics trafficking, the spread of organized crime, and the corruption of governments.
The three major developments of the neoliberal order that threaten the state-to-state institutional cooperation of post–cold war democracies are (1) the globalization of economic finance, (2) the growing dependence of states on drug profits to service debts, and
(3) the expanding dependence of a worldwide population on addictive drugs. Threats to democratic regimes are facilitated by the globalization of economic finance corrupted by organized crime. The main economic engine of organized crime is narcotics trafficking, which generates liquidity for states and profits for transnational financial institutions. The present increase in drug trafficking, in consumption of drugs, and in the widespread effects of drug
trafficking, such as narcostatization, undermines domestic peace, strains international relations, weakens the democratic state, and seriously threatens fragile transitions to democracy.
David Held helps us understand that it is the globalized neoliberal system, more than a simple supply-and-demand, production-and-consumption concept, that explains what happens within political societies. The degree to which states are unable to
control their own economic decision making alters the nature of democratic accountability. Held exposes the need to understand the problems of the democratic state in the context of the global economy.
The underlying premises of democratic theory, in both its liberal and radical guises, have... been that democracies can be treated as essentially self-contained units; that democracies are clearly
demarcated one from another; that change within democracies can be understood largely with reference to the internal structures and dynamics of national democratic polities; and that democratic politics is itself ultimately an expression of the interplay between forces operating within the nation-state... [but] the global interconnectedness of political decisions and outcomes raise[s] questions which go to the heart of the categories of classical democratic theory and its
The implications of rivalry within the international system are that states will indulge in narcotics trafficking in order to defend themselves and to compete economically with other states. Even where a real interest in cooperation exists – or should exist – narcotics
trafficking may be forced upon the states by the outside system. Domestic considerations may be subordinate to the international systemic pressures of competition. The structural implications of the neoliberal system make it in the interest of states to exploit that structure for their economic benefit.
Narcotics Trafficking and Neoliberalism
The narcotics trafficking problem links governments in two ways to the international system. In the first, large powers use narcotics for economic and strategic purposes. The classic historical example of this is found in the nineteenth-century opium wars between the British and the Chinese. In the second way, small powers use the drug trade for defensive purposes – such as to reduce their economic vulnerability.
In both ways, the states can be corrupted by the narcotics trade.
New Heroin Road
The first process is characterized in the use of narcotics trafficking by
larger powers to control lesser states. Initially, this process was not seen as having a corrupting effect on the larger state`s political system. It is quite evident that, as smaller states have become involved in the narcotics trade, clandestinely rather than openly, corruption within those states becomes a notorious given. But, corruption is increasingly detectable in the more developed and larger states as well. This has led to growing global concern of
narcostatization – the corruption of the political regime as a result of narcotics trafficking.
Three interrelated phenomena work synergistically to produce the narcostate: organized crime, government policy, and transnational capitalism. The narcostate may develop in existing democratic regimes, in authoritarian regimes, or in regimes that are in transition to or from democracy. Narcostatization undermines weak democracies
and transforms consolidated and transitional democratic regimes into pseudo-democracies, or anocracies. In the anocratizing process both consolidated and transitional democracies are in fact corrupted, and the political or ruling class maintains itself in power despite the apparent existence of contested elections and full public participation.
The term “anocracy” is sometimes used to describe a system where
power is not concentrated in the hands of public authorities. However, for purposes of regime accountability, this book will use “anocracy” to mean a regime where democratic and autocratic features are mixed. The forms of democracy are in place, but the realities of power concentration in the executive preponderate over institutional and electoral constraints on the chief executive`s power. The narcostate is one particular form of anocracy. Not all anocracies are narcostates,
but narcostatization produces a form of anocracy. Some narcostatizations impact existing democracies and produce narcodemocracies; some impact autocracies and produce narcoauthoritarian regimes; some impact transition processes and produce narcoanocracies. For the public, there is little existential difference between narcoanocracies and narcodemocracies except that the latter are reversions from democracies and the former are incomplete democratic transitions.
The expectation for the evolving neoliberal world order was that cooperation would increase and economies would be combined, such as in the European Union. A consequence of this evolution was to be the weakening of individual states` policies and independence. But
unexpected problems for this new world order include the growth of government corruption, the globalization of organized crime, and international money laundering. The impacts of this process are seen in the loss of control over the domestic economy, a decrease in political accountability, and problems in social behavior. Another possible consequence of the globalization of the world economy is the growth of worker discontent. In fact, much of the criticism of the
neoliberal order focuses on its threat to workers` interests. Indeed, in the late 1990s, the growth of unemployment in Europe undermined the movement toward a single monetary unit.
In the post – World War II economic settlement, the international system, as embodied in the Bretton Woods Agreement, protected the welfare state and organized workers from the pressures of capital
markets that would destroy the protectionist policies of the states. This system has been called »embedded liberalism.« The belief was that states would protect their societies from the cost of global market fluctuations by maintaining an autonomy in domestic economic policy and implementing gradual trade liberalization.
The collapse of the Bretton Woods system in the 1970s made way for the neoliberal order. Capital flows were released from state control, and international cooperation among central banks became key to international financial stability. Central bankers of the Group of Ten (G-10) created the Standing Committee on Banking Regulations
and Supervisory Practices (the Basel Committee) in 1974 after the Franklin National Bank failed to share information about banks and regulatory systems. The Basel Committee laid down the principle that international banks should not escape supervision. Nonetheless,
regulation is difficult under the neoliberal system. It is vulnerable to attack because of drug trafficking and working-class discontent. And where the growth of unregulated trade and capital flows facilitate narcotics trafficking, the democratization process itself is threatened.
At certain levels of corruption, the democratic form can disguise the reality of dishonest elite control of the state. Such narco- or anocratic
states are dangerous to their neighbors and vulnerable to intergovernmental conflict, civil war, and insurgency. Domestic and international low-level conflict become endemic among anocratic states, since these states are, by definition, unaccountable and subject to inconsistent policy pressures from below and from beyond their borders.
The economic transition of countries from statism to capitalism
demonstrates the persistence of corruption. The euphoria in the United States over the alleged transitions of many governments from authoritarianism to democracy since the 1980s has been short-lived. Although Mexico`s electoral system meets international standards, its transition from authoritarianism to democracy is more apparent than real. In the winter of 1995, the United States government took part in a multibillion dollar bailout of the Mexican government after a financial
collapse of its economy. Despite many crises and political murders, Mexico is still considered to be in transition to democracy. However, its sensitivity to capital outflows in the neoliberal system have made the country vulnerable to dependence on drug revenues. Corrupt forces in the government and criminal cartels continue to take advantage of its vulnerability and dependence, furthering the criminalization of the state.
Nonetheless, the new internationalism stresses the need to see the
state as made up of a variety of institutions rather than as a single unit. Consequently, part of the state can be corrupted while other parts, including the same institution, may remain healthy. This understanding of state-to-state relations is not part of the standard interpretation of how the states behave and of how the international system impacts the state.
The Structural and the Intentional Perspectives
Modem political theory explains social and international political developments as either systemic, that is, structural, or intentional. Through systemic explanations, political theorists attempt to rise above the viewpoints of the participants in a particular historical process. They stress that international results depend on structural
analysis of the effects of the world setting and circumstances on the member states. Proponents of this perspective hold that the characteristics of international anarchy and the globalization of capitalism cause the corruption of the states. A structuralist interpretation of narcostatization would suggest that the logic of the post–cold war system in itself forces a state to become involved in narcotics trafficking.
The political perspective of Theda Skocpol, combined with the
international relations perspective of Kenneth Waltz, explains the impact of narcotics trafficking on the international system. Skocpol claims that we can make sense of historical circumstantial patterns »only by focusing simultaneously on the interrelated situations of groups within specified societal institutional nexuses, and the interrelations of societies within dynamic international fields.« Waltz explains that the structure of the international system with its component parts determines the behavior of the states. It is the structure that determines the type of player likely to prosper in a given situation. For Waltz, if the structure determines that it is necessary for the units to help themselves, then all the units are compelled to behave according to the same standards: »The units of
an anarchic system are functionally undifferentiated. The units of such an order are then distinguished primarily by their greater or lesser capabilities for performing similar tasks.« The implication of this structural theory is that, if drug trafficking enhances a state`s relative
power, other states will be compelled to participate in the trafficking of drugs in order to remain competitive.
The alternative to a structural interpretation is an agency, or intentional, one. The intentional interpretation sees an actor as choosing rationally from an available set of options. Rationality requires the actor to choose the course of action best suited to achieve the actor`s goals. This »rational choice« explanation links the
actors` intentions to the outcome. Many rational choice theorists use the »prisoner`s dilemma« model to demonstrate how each of two actors, when following individual interests, ends up worse off than if he or she had acted to achieve a common goal. Both intentional and structural explanations could lead to the conclusion that the
narcostatization process cannot be prevented from spreading in the current international environment. However, if the state is made up of a variety of institutions, and the signals from the international environment are multiple rather than unitary, then some parts of the state`s institutions may be corrupted while others are not.
The determinist structural implications for the narcotics problem may
be challenged if the United States pursues a strategy of seeking arrangements with those institutions in other states that combat the criminalization of their system. By supporting nation-state regulation of finance and trade, the United States, as the preponderant actor in the post-world war environment, has the capability to shape the international structure and support an accountable system of democratic regimes and transnational capitalism.
Implications for the United States
The implication of the state interest in narcotics trafficking is that the United States may have to reevaluate its commitment to the globalization of an unregulated international economic system. It is not
necessary here to stipulate what these controls should be – other than the need for state institutions to network internationally – but it is important to see how the growth of the unregulated international financial and trade system facilitates narcotics trafficking.
It cannot be disputed that the United States has felt the impact of drug trafficking in undermining its society and in weakening the will to
combat widespread drug use. The war on drugs in the United States is not being won. According to the director of the U.S. Office of National Drug Control Policy (ONDCP), 12 million Americans used illegal drugs in 1995 and teen tolerance for drugs increased in that same year 167 percent among eighth graders, 81 percent among tenth graders, and 46 percent among twelfth graders. Addiction experts predict that about 820,000 of this new group of marijuana smokers will eventually try
cocaine. The cost of drug abuse and trafficking is enormous:
100,000 deaths were recorded and $300 billion spent in the 1990s alone.
500,000 new emergency room cases occur each year.
250,000 Americans currently serve time for drug law violations.
Drug use is involved in at least a third of all homicides, assaults, and property crimes.
The prevailing U.S. government model for conducting the war on drugs is based on the supply-and-demand approach. An entire school of policy analysts contends that drug trafficking is driven by
consumption. Some of these analysts, such as Peter Andreas, present the consumption model as a public health issue: “Changing course in drug policy requires redefining the problem as fundamentally a public health rather than a law enforcement and national security concern,« Andreas has said. »In other words, the surgeon general, rather than the attorney general and a retired military general, should direct our drug policy.« Although Andreas offers a different perspective, his approach is still based on the supply-and-demand model.
The war on drugs was crippled in the 1980s and 1990s because policy makers adopted the supply-and-demand approach, which disregarded the roles of global financial institutions, governments, and cultural
change. The supply-and-demand model focused on the impact of producer and consumer countries and trade routes. It did not bring into the equation the emergence of a global financial system that was out of the control of any single state. This growth in the global financial system, coupled with the liberalization of international trade, meant that states not only lost control of trade but also of their capital markets.
There has been a shift in emphasis from the supply to the demand
side in the war on drugs, and prevention and reduction of drug addiction has become a primary goal of the U.S. government. But attention has been focused on the 20 percent of drug users, the hard-core users, who account for 80 percent of total street sales of cocaine, and resources have not been allocated to prevention programs for casual and nonusers. Since 1995, the White House`s national drug control strategy has identified its top priority as support
for drug treatment »so that those who need treatment can receive it.« For this priority, requests for funds increased in FY95 ($2.647 billion), FY96 ($2.827 billion), and FY97 ($2.908 billion).
The shift in emphasis to reducing demand via treatment – if it is to
succeed – requires that the removal of hard-core users from the treatment centers exceed the number of casual users who become hard-core users. However, treatment that provides hard drugs for addicts has actually caused an increase in the numbers in treatment centers. The U.S. experience suggests that, if more resources are directed at hard-core users than casual users, the number of casual users increases. If this relationship is not understood, the current
treatment policy of the United States, in both its domestic and foreign applications, will lead to increases in both hard-core and casual use of drugs.
Legitimate efforts to reduce demand and to treat victims of drug abuse have been vulnerable to the influence of those who would bring about drug liberalization under the slogan »harm reduction«. The ultimate objective of those who exploit the U.S. demand-reduction strategy is
easily seen as the liberalization and then the regulation of drugs.
Five Assumptions behind the War on Drugs
This book challenges the premises of the five current assumptions behind the war on drugs. The first assumption provides the model for
understanding the problem; it sets the problem up as simply an economic issue of supply and demand. Within this model there is a debate between those who emphasize the supply side and those who stress the demand. The supply-side focus aims at disrupting the flow of drugs to consumers. All the stages in the process are targeted: cultivation, processing, transit, wholesale distribution, and street sales.
Based on U.S. government findings that two hundred hectares of coca
produce a metric ton of retail cocaine, crop eradication campaigns became one of the most significant features of the »stop the supply« strategy in the 1980s. But the supply focus also deals with the production-distribution networks. As a result, a vast number of government agencies axe involved in disrupting the flow of drugs to consumers. This complex of agencies includes the Departments of State, Defense, Treasury, and Agriculture; the Central Intelligence
Agency (CIA); the Drug Enforcement Administration (DEA); the Federal Bureau of Investigation (FBI); the U.S. Customs Service; the U.S. Forest Service; the border patrol; the Bureau of Land Management; the Bureau of Alcohol, Tobacco and Firearms (ATF); the Coast Guard; the National Guard; and four major intelligence centers: the DEA`s in El Paso, Texas; the CIA`s at Langley, Virginia; the FBI`s at Johnstown, Pennsylvania; and the Treasury`s at Arlington, Virginia.
The supply-side focus attempts to disrupt the flow of profits back to cartel bosses. The effort to disrupt the money-laundering side of the business falls primarily on the Department of the Treasury`s Financial Crimes Enforcement Network (FinCEN). The Federal Reserve banks report their cash-flow data to FinCEN monthly, which helps FinCEN
identify areas for investigation. A principal tool of the Federal Reserve is the cash transaction report (CTR). Since 1970, all banks are required to report all cash transactions of $10,000 or more.
The supply-side focus has been under sustained assault from those who argue that the war on drugs has failed. This argument comes from individuals representing a number of groups whose agenda
ranges from legalizing drugs to treating the issue as a public health problem. These groups claim that treatment is a more cost-effective way to reduce consumption. They call for a shift from the punitive paradigm to the treatment-and-prevention paradigm. They argue
that there are three fatal flaws in the supply-side war on drugs. The first is that illegality raises the price for drugs, thereby making it more profitable and hence more attractive to criminal gangs. This is the so-called profit paradox. The second is that efforts to crush the producers actually only spread production to new areas, the »hydra effect.« The third flaw is the »punish to deter fallacy.« Those who see supply-side strategy as failing point to the statistics that show that
more than two-thirds of arrested heroin addicts, for example, return to drug use and criminal behavior upon release from jail. These critics call for a shift to a public health paradigm, which they claim would promote »healing without harm«. The public health paradigm, however, is only one more version of the supply-and-demand
paradigm. In fact, public health proponents claim the drug trade is a business »driven by the laws of supply and demand«.
The second assumption at the base of the current war on drugs is that the major culprits are ethnic or national gangs. The picture that is
constantly held before us is of organized criminal elements – such as the Russian and Sicilian mafias, the Chinese triads, and the Japanese yakuza – victimizing governments, populations, and financial institutions. This assumption would make sense if the problem were exclusively one of a criminal economic group facilitating the production and distribution of narcotics and of obtaining the profits. However, a thorough understanding of how the political and economic structure of
neoliberalism facilitates and protects criminal activity forces a reexamination of the assumption that criminal gangs stand alone in promoting the drug problem.
The third assumption on which the war on drugs has thus far been based is that the financial system is essentially victimized by the criminal gangs because of their massive economic capability. In this view, banks and the financial systems of various governments are
essentially opposed to allowing criminals to launder their profits and invest them in legitimate businesses but find that, under the globalizing financial system, it is too difficult for them to staunch such activity. This assumption claims the financial institutions are merely victims and not part of the problem.
On the other hand, if the model for approaching the problem of
narcotics trafficking is the globalization of the neoliberal economic system and the unregulated activity of transnational capitalists, then it may well be that major components of the national and international financial system are not victims, but active participants in the money-Laundering operations of the narcotics trade.
The fourth assumption in the current war on drugs is that governments are essentially committed to combating the narcotics trade but in most cases are victimized by the criminal cartels through corruption and intimidation. Although it is clear that these elements are embedded in many governments, the problem must be understood as specific to the structural arrangements of the international system generally and of the post-cold war neoliberal order in particular. Governments may
have a substantial interest in protecting the drug trade not only for economic reasons, such as earning foreign exchange and servicing national debts, but also for political motives – preventing a greater gap between the more and the less developed countries, for instance, and/or weakening a rival power.
A thorough understanding of this perspective will reveal deficiencies in
the standard definition of war. An expanded definition of »war« would include forms of conflict in which the armed forces of one country are not necessarily directly involved against those of another nation. This expanded definition would force further revisions in political thinking about the democratization process and the »democratic peace« theory, the theory that holds that democratic states do not fight other democratic states. This kind of rethinking would necessarily reveal the
vulnerabilities of the democratization and liberalization processes and would suggest the need for the uncorrupted institutions of states to cooperate with each other in order to avoid internal war and to lessen interstate conflict.
The final assumption in the current war on drugs is that the major societal forces in the United States and other countries oppose the consumption of narcotics and strive to maintain the criminalization of
the production and distribution of addictive substances. However, major societal and institutional trends in the United States have led to a delegitimizing of the values and beliefs that are most predictive of resisting drug consumption. Indeed, these trends have promoted consumption and lifestyles that are conducive to consumption. Thus society itself becomes a factor in encouraging drug consumption.
If the conventional assumptions are inadequate, then an alternative
set of premises will be required if there is to be a successful effort in the war against drugs. In addition, the model for understanding the war on drugs requires a post cold war interpretation of the international political and economic systems. The war on drugs will not be won until appropriate assumptions are in place.
(*) David C. Jordan served as United States Ambassador to Peru 1984-86. He is currently Professor of International Relations and Comparative Government, Woodrow Wilson Department of Government and Foreign Affairs, University of Virginia, and President of the New World Institute, Charlottesville, Virginia.
 Jessica T. Mathews, »Power Shift,« Foreign Affairs, January/February 1997, 50 – 66.
 Analysts of Soros`s economic power claim that it has »less to do
with financial acumen than with connections among Europe`s super-rich – many of whom have grown even richer through his investment funds. They say he owes his greatest triumphs to intimate sources within a closed circle.« Toni Marshall, »Enigmatic Billionaire,« Washington Times, November 9, 1997, A12.
»Hedge funds« were among the major speculators against Asian
currencies in 1997. In October 1998, however, coordinated action by China, Japan, and the United States led to enormous losses for the hedge funds, which were betting on a further yen devaluation. Hedge fund manager Julian Robertson`s Tiger Fund reported losses of $17 billion for 1998, losing $2 billion on October 7, 1998, alone.
Some of the offshore banks that participated in the unregulated
financial system are Barclays Offshore Banking and HSBC Private Banking, which operate on the Island of Jersey; Caymanx Trust Company, which operates on the Isle of Man; the Royal Bank of Canada, which operates in Trinidad and Tobago; Eurofed Bank Limited in Antigua; and the Bank of Liechtenstein, which is owned by the Prince Hans-Adam II family foundation. Prince Hans-Adam has called for the liberalization of drugs, »even hard drugs.« »Liechtenstein,« a
special international report prepared by the Washington Times advertising department, August 17, 1998, 6.
 Nicholas Roditi, the fund manager, earned $125 million in 1996 in salary from his backers. Laura Jereski and Michael R. Sesit, »Soros Quota Fun Big Shot Is Hired Gun,« Wall Street Journal, September 16,
 Soros has spent $20 million on easing proscriptions on illegal drugs in the United States. Marshall, »Enigmatic Billionaire.« Soros`s musings on Russia may have precipitated a crisis already in the making, according to Clay Harris and Norma Cohen, »I Think I’ve Lost
It, Says Soros,« Financial Times, December 8, 1998, 18. The Soros funds may be sold only to non-U.S. investors.
 Some other definitions of corruption are: »the illegitimate use of public power for private gain«; »all illegal or unethical use of governmental activity as a result of considerations of personal or
political gain«; and »the arbitrary use of power.« These various definitions have been cited by Stephen D. Morris, Corruption and Politics in Contemporary Mexico (Tuscaloosa: University of Alabama Press, 1991), 2
Ibid., 5 – 20
A beginning at describing this phenomenon is available in the study by Claire H. Sterling, Thieves` World (New York: Simon & Schuster, 1994).
Beatriz Johnston Hernandez, »Del expediente de un juicio en Texas: Corno subprocurador, Coello Trejo recibio ‘mas de un millón de dólares`de Garcia Abrego,« Proceso 934 (September 26, 1994), 19
Typical studies of the rise of ethnic conflict are Gidon Gottlieb`s Nation against State (New York: Council on Foreign Relations Press, 1993) and Michael E. Brown, ed., Ethnic Conffict and International Security (Princeton: Princeton University Press, 1993). The principal study with respect to the clash of civilizations is Samuel Huntington, The Clash of Civilizations? (New York: Foreign Affairs Reader, 1993). For variations of this theme, where the struggle is perceived as one
between modernity and the postmodern society, see James Kurth, »The Real Clash,« National Interest 37 (Fall 1994), 3-15.
Francis Fukuyama, »The End of History,« National Interest 16, (summer 1989). Undergirding Fukuyama`s optimism is his Hegelian
belief that human nature is self-created and is the unfolding of a long-term process. Human nature, he says, has changed over the past couple of millennia and »our modern democratic-egalitarian consciousness is in some sense a permanent acquisition, as much a part of our fundamental ›natures‹ as our need for sleep or our fear of death.« Francis Fukuyama, “A Reply to My Critics,« National Interest 18 (winter 1989), 28.
Philip G. Cerny, »Globalization and the Changing Logic of Collective Action,« International Organization 49, no. 4 (autumn 1995).
Douglas W. Payne writes, »No anti-money-laundering policy can
succeed while the global financial system, particularly off-shore havens, continues to virtually welcome massive infusions of dirty money.« Douglas W. Payne, »Drugs and Dollars: A Global Challenge,« Freedom Review 27, no. 4, July-August 1996), 99
David Held, »Democracy, the Nation-State, and the Global
System,« in David Held, ed., Political Theory Today (Stanford, Calif.: Stanford University Press, 1991), 199, 203
John G. Ruggie, »International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order,« International Organization 36, no. 2 (spring 1982), 195 – 231.
The original 10 countries were the United States, Canada, Japan,
the Federal Republic of Germany, France, Italy, the United Kingdom, Sweden, the Netherlands, and Belgium. Later, Switzerland joined the group, but the name was not changed.
Ethan B. Kapstein, »Shockproof: The End of the Financial Crisis,« Foreign Affairs, January/February 1996, 3.
Theda Skocpol, Social Revolutions in the Modern World (New York: Cambridge University Press, 1994), 112.
Kenneth N. Waltz, Theory of International Politics (New York:
McGraw-Hill, 1979), 97.
A standard description of the prisoner`s dilemma is as follows: »Two suspects are taken into custody and separated. The district attorney is certain that they are guilty of a specific crime, but he does not have adequate evidence to convict them at trial. He points out to
each prisoner that each has two alternatives: to confess to the crime the police are sure they have done, or not to confess. If they both do not confess, then the district attorney states he will book them on some very minor trumped-up charge such as petty larceny and illegal possession of a weapon, and they will both receive minor punishment; if they both confess they will be prosecuted, but he will recommend less than the most severe sentence; but if one confesses and the
other does not, then the confessor will receive lenient treatment for turning state`s evidence whereas the latter will get ›the book‹ slaped at him.... The problem for each prisoner is to decide whether to confess or not.« Duncan R. Luce and Haward Raiffa, Games and Decisions (New York: Wiley, 1957), 95.
Barry McCaffrey, director, ONDCP, »Strengthening International
Drug Control Cooperation,« Speech given in Miami, Florida, April 25, 1996.
Peter Andreas, »U.S.-Mexico: Open Markets, Closed Border,« Foreign Policy 103 (summer 1996), 66.
Public Law 100 – 690, 102 Stat 4 189.
An estimated fifty-seven federal departments and agencies are involved in some way in the drug war.
Eva Bertram, Morris Blackman, Kenneth Sharpe, and Peter Andreas, Drug War Politics (Berkeley and Los Angeles: University of California Press, 1996).
The United States officially arrived at this position on May 18, 1998, when a federal grand jury in Los Angeles charged three Mexican
banks and twenty-six Mexican bankers with laundering millions of dollars in drug profits. The indictment marked the first time Mexican banks as institutions were charged with knowingly helping drug traffickers.