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September 10, 2004 - The Victoria Times-Colonist (CN BC)

The Money Monster: Organized Crime Economy

By Don Cayo, CanWest News Service

Return to Drug War News: Don't Miss Archive

The massive marijuana industry underpins an illicit empire that's hard to measure. Estimates range widely but all are well into the billions.

According to reports published in the last year or so, the number of marijuana grow ops in B.C. is:

a ) 2,000
b ) 20,000
c ) Some number in between.

The correct answer is, of course, d. ) All of the above.

Similar wildly differing estimates are found for the amount of marijuana produced in a typical grow op. Or for the price it might fetch per gram, ounce, pound or kilo. Or for how much of it is from organized criminals vs. mom-and-pop independents. Or for how much is consumed locally vs. what's exported out of province. Etc. Etc.

And, while most agree that growing marijuana is B.C.'s most common organized crime, it's not the only one. Yet there's no way to rank the impact of others -- making and selling chemical drugs, trafficking heroin or cocaine, smuggling goods or people, prostitution, loan-sharking, credit card fraud and more.

Indeed, trying to nail down the impact of organized crime on the B.C. economy is like trying to nail jelly to the wall. All that's certain is that it's really big.

There are two main ways to try to gauge the magnitude.

One is to make an educated guess at the size of the marijuana industry, then add on estimates for other crimes.

The other is to try to calculate the overall size of the underground economy -- the legal activities that are shielded from the taxman, the haphazard acts of individual criminals and the proceeds of organized crime -- and work backward.

Both methods produce a wide range of figures, all in the several-billion-dollar range and all amounting to a sizable percentage of the province's GDP.

At the low end of estimates, the Vancouver Police Department's Web site estimates the total economic impact of organized crime in B.C. at $1.8-$2.7 billion a year. It does not explain how that total was calculated.

By contrast, an estimate by Simon Fraser economics professor Stephen Easton is spelled out in detail. It concludes the total is $2 billion a year for marijuana exports alone.

All in all, Easton reckons, marijuana-growing accounts for about 2.8 per cent of B.C.'s GDP. With the GDP figure reaching $142.4 billion last year, that would be about $4 billion.

Meanwhile, a Forbes magazine article last year pegged the annual value of the B.C. pot crop as high as $7 billion US.

Yet even that huge number, says Kelly Rainbow, a civilian analyst with the RCMP in Vancouver, is "conservative, laughably conservative."

Those numbers are, of course, just for marijuana, which is only a part of organized crime.

Try looking at the question from the other end of the telescope -- by estimating the size of the underground economy and working backward -- is sadly no more precise.

Published estimates of the size of the underground economy range from 3.7 per cent of GDP to as high as 28 per cent.

Most hover near or just above 15 per cent, which informed analysts like Jock Finlayson of the Business Council of B.C. believe is too low.

That's thanks in no small part to the marijuana industry, as well as to an unusually high percentage of self-employment and service-industry jobs. Service businesses in general and those run by the self-employed find it easier to hide income from the taxman, though most of that activity would not be considered organized crime.

And there's still a question of how much clearcut crime -- drugs, prostitution, smuggling, fraud, loan-sharking -- is "organized" and how much is not?

Police and government tend to define "organized crime" very broadly, and, as they tell it, the percentage is huge. As are the economic consequences.

A study done for the federal solicitor general in 1998 by Samuel Porteous is one of the few in-depth analyses that looks at the impact of all organized crime, not just one or two activities. It's filled with estimates that are now hopelessly out of date but are still useful to understand what kinds of things criminals do and how this impacts the economy.

Porteous puts environmental crime -- particularly improper storage or disposal of hazardous waste -- as second to drugs in economic impact. Next is securities and telemarketing fraud, followed by, in no precise order, car theft, smuggling of tobacco and other goods as well as people, counterfeit goods and money laundering, which may be connected to most or all other criminal activities.

The relative importance of each may have changed considerably in the last seven years.

But the areas of social and economic impact are likely the same. The key ones are social/political and economic/commercial costs arising from virtually every kind of crime; health and safety costs from such things as illicit drugs, environmental crime and contraband tobacco; violence; and environmental harm from illicit waste and, to a lesser degree, drugs.

Some potential costs of crime might not be obvious at first glance.

For example, Rainbow includes in the health costs growing respiratory troubles in children which, she believes, can be caused by exposure to chemicals used in grow ops that double as the family home.

And just one item, the theft of electricity to power the lights in grow ops, is estimated to cost rate-paying British Columbians well into eight figures a year.

However, nowhere in the literature are there entries on the other side of the balance sheet -- reasoned assessments of what crime adds to the economy.

Some activities -- prostitution, for example -- tend to just move money around.

Others, like heroin or cocaine use, drain money out of B.C., since the product is imported.

And marijuana, grown for export on the scale it is here, brings in several billion dollars a year.

Much of this money goes through sophisticated money-laundering schemes, and there's no doubt that some of it winds up invested outside the country.

But a lot of it is spent here, on everything from haircuts to Hummers to homes.

Insp. Paul Nadeau of the RCMP maintains that drug money underpins much of the market for large, luxurious SUVs.

And Rainbow says it's a major force in rising real estate prices.

Marijuana growers "aren't price sensitive," she says, noting that a few years ago they used to rent small homes, but the profits are such that now they often own large ones. She cites an instance in her own neighbourhood where a house sold for thousands more than the asking price.

"Six weeks, later the grow op was up and running."

But the consequence, she said, is that more and more honest families can't compete for a decent place to live.

So, too, money laundering can have dire consequences for honest business people.

When organized criminals set up sham businesses that don't have to earn their own way because their main purpose is to legitimize ill-gotten cash, legitimate competitors are undermined.

On the other hand, she and Nadeau note that there are growing numbers of people involved in legitimate businesses who owe much of their earnings to customers spending illegal drug money. They range from the operators of hydroponic shops to specialized crews that rehabilitate former grow ops to real estate agents who specialize in homes with all the features a grower might want.

And there are, by some estimates, as many as 60,000 people who make a fulltime living from marijuana alone.

Whatever the positive economic contribution of these jobs and spin-offs, however, it's difficult to believe they match the negatives. .

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