Can the Criminal Supply Chain be Simplified?

I recalled a time when I was mugged back in my university days circa 2019, on a night walk to my rented apartment. Two skinny guys in their 20s, most likely drug junkies, asked me for cash as I was approaching a dimly-lit public park. I had the audacity to ask for spare changes back from them — I think I gave RM10 and got back ~RM3 in crumpled Ringgit notes. In retrospect, that’s a pretty life-threatening thing to do. I can’t remember what the guy speaking to me was holding in his left hand; possibly a used cigarette. It could very well be a folding razor knife.

I remembered the event just today, as I start to draw its relation to how supply chains work. Like how goods and services are transported through one means to another, criminal activities bears the same resemblance. To fulfil a demand for illegal goods, criminals perform criminal activities in a ‘chain’ traversing from production, processing, distribution, to consumption. And if the guys bought drugs with my extorted money, it will likely be involved along the chain, all the way to pay the dealers, distributors, suppliers, corrupt border officials, cartel owners, and planters, each getting a slice of that ~RM7.

If we take away the illegality of stuff being sold (drugs, psychedelics, contrabands), it starts to appear like a highly-orchestrated method of meeting supply and demand, with its own peculiarities that I will talk later. And the whole transactional aspect of its activities already had its own big, widely-studied topic called “money laundering”, which I’m not planning to touch on here.

So if we were to attribute criminal mechanisms similar to how supply chains work, we can maybe get an idea on how to improve/disrupt it according to these two principles:

  1. Strengthening its weak links
  2. Shortening its chain

A supply chain network is only as strong as its weakest link

Source unknown

You can’t appreciate the size of drug dealing industry without an idea of its statistics. In 2021, PDRM’s Narcotics Dept seized 27 tons of drugs (and drug ingredients) worth RM952 million (Berita Harian), representing a 86% increase from 2020. 

Remember that the RM952 million refers to value of drugs successfully seized. So the 2022 rise could either result from the police getting more effective, or drug dealing activities spiked due to all-high demand (and only a fraction of it gets seized, as usual). But it ultimately means that as a country, we are dealing with huge criminal operations that’s raking in multi-billion Ringgit on an annual basis.

Distinct Attributes of Drug-Dealing Supply Chain

There are peculiar attributes on illegal dealings that distinguished it as compared to a traditional, legal supply chain.

  1. Tight Geographical Distribution

When transactions are hidden from public sight, end-user sale are mostly conducted on one-to-one transaction with parties that already know each other. It happens for many reasons and purpose — avoidance of doubt (can’t sell to police undercover), price-fixing (opaqueness on price is essential), and the whole privacy and secretive concerns. This makes tight geographical distribution and coverage crucial.

Consequently, Dealer A cannot “breach” Dealer B’s coverage (i.e supplying to Dealer B’s customer) as it will defeat the whole purpose I’ve just outlined. Ironically, for illegal dealing markets to work, it somehow require a tightly-regulated code that all participants must comply with.

  1. Strategic Hedging Against Long-Tail Risks

Everyone running a criminal operation of any size will acknowledge that the possibility of being caught exists, and the losses from a bust may cripple their entire existence. So hedging is an imperative.

Some nice strategic hedging I’ve heard is how large cartels collude with law enforcers to arrange semi-annual “big busts” of a couple million ringgit worth drugs — spoiling the smaller pots to protect the large ones, so to speak. I’m not implicating any party in this statement, and I have yet to investigate whether this is true. But it’s a hell of a nice strategy.

Strategic hedging can only be done by someone with resources (money and connections) i.e. parties at the top of the chain, so the further you are downstream, the more likely you’ll get caught, be implicated, and suffer loss. 

So how does criminal operations strengthen themselves? By designing its distribution structure so that its weakest link(s) will be the easiest to cut off.

  1. Risks from all Directions

There are risks on getting caught on each points of the drug supply chain, getting ‘cut’ (“kena potong”) by competitors, and the natural health dangers & harm caused by the substance itself. So naturally prices set by the cartels are high to reflect these risks. Global trade of drugs get increasingly complex and tight as regulators are clamping in, which means the ‘stash’ that successfully went through will become immensely profitable. 

One interesting, crazy risk on illegal dealings that I found have surfaced recently is the risk of getting legalized. In the US, legalization of marijuana puts the Mexican cartel and criminal organizations at a disadvantage when new competitors emerge then starts selling it on the storefront nationwide, employing thousands of legal workers, and filing taxes. Due to the cartels’ secretive nature and naturally high pricing level to offset the ‘risk of getting caught’, they simply can’t keep up with how fast legal competitors are scaling in customer acquisition, marketing and distribution. So watch out when you’re involved in the business of selling illegals; it might get legalized in the future!

Can They? And Should They?

Reflecting back to my past ‘incident’, I guess the question I’m trying to put forward to the druggies is “why would you steal from me and not instead steal from your dealer?” Wouldn’t it be better for everyone, if you’d solved your problem of insufficient funding by going directly to your dealer, or your dealer’s dealer, without causing trouble to anyone else? And from a supply chain perspective, ‘disintermediating’ (albeit at a cost to the counterparty) almost always will simplify how things gets moved without any additional friction.

I’m not too sure why the occurrence of ‘drugs got stolen from dealer/distributor’ is not yet mainstream, even with the facts that the lowest-level dealers can be easily cut off from the chain, that prices are opaque and unfair, quality controls are almost non-existent, and the ‘people at the top’ are already enjoying handsome profit margins. It seems like drug addicts are willing do anything criminal to obtain cash for drugs, but they draw a moral line at procuring the drugs itself criminally. Maybe there’s dire consequences of messing with your dealer. Or maybe druggies are not thinking creatively enough. The peculiarities in the drug-dealing supply chains are only waiting to get exploited, but the people most suitable to do it are simply not willing to.

And undeniably, skipping the supply chain on drugs has benefits1 that extend beyond supply-demand issues to a more social ones. We can imagine a better, safer Malaysia where mugging is non-existent and night walks becomes a joy for all of us, because drug addicts knew how to better solve their demand problem.

So my answer to this article’s title: can the criminal supply chain be simplified? Maybe. I think someone should try it out.

Disclaimer: I would like to emphasise that I’ve never run and/or involved in any kind of drug dealings.

1To add another depth to the discussion of simplifying the criminal supply chain, solutions also emerge at different level of the drug supply. In 2020, a liberal Colombian senator proposes a bill to buy all coca produced in their country at market price (The Economist). Annually, the cost of buying coca (2.6 trillion pesos or $560m) is cheaper than the bureaucratic cost of eradicating it (4 trillion pesos). The counter-reactions are strong (as the move won’t curb consumption, nor limit criminal activities down the ‘chain’ in any way) but from the government perspective, it’s already a clear savings of public funds. 

Taking a broader view, I feel that approaching the war on drugs through a supply chain perspective can open up room for policymakers to discover and create unique, novel policy solutions. And they are just getting started.

about Adam KZ
Adam is the chief editor of Perenggan. He covers tech, finance and science in Malaysia and beyond.

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