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Small-Scale Illicit Flows Matter Too: Dutch Drug Tourism

November 22, 2010

By Karly Curcio

Karly Curcio is an economist at Global Financial Integrity.

By: Torben Bjørn Hansen*

“Coffee shops” are causing trouble and increasing crime rates in small Dutch towns that border neighboring countries. To some degree it’s drug tourism, visitors coming from other countries to engage in infamous Dutch, legal pastimes. However, these “coffee shops” that sell drugs are also facilitating the expansion of organized crime and of the underground economies both in the Netherlands and in neighboring states. As the underground economy grows, the government’s ability to govern slowly erodes, and the bigger fish become harder to track and catch.

While drug tourism is a small problem compared to, for example, a corrupt African official stealing government money or huge multinationals evading hundreds of millions of dollars in taxes annually, transporting drugs into a country where their sale and/or consumption is illegal contributes to undermining state security.

According to a recent New York Times article, the Dutch city of Maastricht now has a crime rate three times that of similar-size cities in the country that are farther away from the Dutch border. Criminals from other countries are coming into the Netherlands to buy large volumes of cannabis and other drugs to then smuggle across the border and sell in their home countries. The article cites estimates of up to US$ 2 billion a year in business – “much of it tangled in organized crime and money laundering.”

The United Nations Office on Drugs and Crime (UNODC), in its World Drug Report 2010, estimates that over 7.5 percent of Western Europeans used cannabis at least once in 2008 alone.  Of the identified countries reporting to the UNODC, the Netherlands is third only to Morocco and Afghanistan as a main-source of cannabis resin to the world—making up five percent of the total from reporting countries in the study.

Small time drug tourism is small in its impact on global development and security. However, sometimes, starting with a micro-perspective and doing what can be done at the local level to curb illicit activities and illicit flows can also contribute to the bigger picture; it can help increase financial transparency and governance in the developing European countries that are struggling to spark and maintain economic development and security. By GFI estimates, the developing countries of regional Europe, between 2002 and 2006, lost over half a billion U.S. dollars in illicit flows—most of which leaked out as unrecorded outflows from the Balance of Payments. As these IFF estimates are not able to capture much of the proceeds of criminal and commercial smuggling such as drugs, minerals and contraband goods, these are certainly conservative estimates. If you add the un-recordable proceeds from criminal drug smuggling from these Dutch towns to that half a billion U.S. dollars from GFI’s estimates, the true cost of illicit activities would be significantly larger.

The Maastricht City officials are trying to address the issue of drug tourism and illegal drug smuggling out of the Netherlands by pushing to make the legality of recreational drugs a Dutch-only policy, which would ban sales to foreigners who cross the border to acquire drugs. However, the likelihood of European Union free trade laws allowing such a local law inhibiting cross-border economic activity is slim.

Drug smuggling to this degree is not exclusive to the Netherlands, but it does offer a concrete example of one of many small-scale issues which contribute to the larger, macro, issue: unrecorded and illegal activity growing the underground economy and undermining governance to the detriment of common citizens.

* Image license: Attribution Some rights reserved by Torben Bjørn Hansen

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Disclaimer: Unless specifically stated to be the views of the Financial Transparency Coalition, the opinions expressed on this blog are solely the opinions of the individual blogger and are not necessarily those of the Financial Transparency Coalition.

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