National Drug Intelligence Center   New York/New Jersey High Intensity Drug Trafficking Area Drug Market Analysis 2008   June 2008

Abuse

Heroin, cocaine, and marijuana are abused at particularly high levels throughout the NY/NJ HIDTA region. According to data from the Treatment Episode Data Set (TEDS), the number of heroin-related treatment admissions to publicly funded facilities in the region exceeds those for any other drug (see Table 1). The number of heroin-related treatment admissions declined slightly between 2005 (82,542) and 2006 (80,414), the latest year for which such data are available, but has remained relatively consistent over the past several years. An increasing number of teenagers and young adults are abusing diverted pharmaceuticals in the NY/NJ HIDTA region. Many teens believe that drugs prescribed by a doctor are not as harmful as drugs such as cocaine, heroin, and methamphetamine and, therefore, are not as dangerous. However, treatment providers indicate that the abuse of diverted pharmaceuticals often serves as a gateway for adolescents and young adults to abuse other drugs. For instance, prescription narcotics abusers who become addicted to the drugs often switch to heroin because of the drug's higher availability and lower price. Similarly, abusers of prescription stimulants sometimes "graduate" to crack cocaine abuse. Cocaine is readily available in the NY/NJ HIDTA region and is abused at relatively high levels; cocaine-related treatment admissions have increased each year since 2003 and are second only to heroin, according to TEDS data. Marijuana is the most widely available and most commonly abused illicit drug in the region. The availability of high-potency marijuana, both Canadian and locally produced, is increasing in the region, leading to an increasing number of treatment admissions for marijuana abuse.

Table 1. Drug-Related Treatment Admissions to Publicly Funded Facilities in New York and New Jersey, 2003-2006

Source: Treatment Episode Data Set.

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Illicit Finance

New York City, as one of the world's principal financial centers, the economic capital of the United States, and a central market for the international jewelry and precious metals industries, provides diverse money laundering opportunities for DTOs. Most DTOs operating in New York rely on multiple methods, including bulk cash smuggling, money transmissions through money services businesses (MSBs), structured deposits in traditional depository institutions, front companies, and real estate purchases, to launder illicit drug proceeds.

Traffickers, particularly Mexican DTOs, are increasingly smuggling bulk cash from the NY/NJ HIDTA region to Mexico in private vehicles and tractor-trailers. Once bulk cash is smuggled into Mexico, it is either deposited by traffickers into Mexican financial institutions, repatriated to the United States for reintroduction into the U.S. financial system, used by traffickers in Mexico for operational expenses, or smuggled in bulk farther south to Guatemala, Panama, Colombia, or other Latin American countries.

Many DTOs in the region use MSBs to launder drug proceeds, frequently in conjunction with bulk cash smuggling. Colombian and Dominican DTOs send significant amounts of money through MSBs in New York to Colombia, the Dominican Republic, and locations in Central and South America. Mexican DTOs often transmit illicit proceeds in structured amounts through MSBs to collection points in Southwest Border states, where the transmissions are cashed, and most of the money is then smuggled across the border. Many MSBs in the Jackson Heights area of New York also are used to facilitate drug money laundering.

New York is a primary location in the United States for Black Market Peso Exchange (BMPE)¹⁴ activity, including money pickup operations.¹⁵ Colombian DTOs routinely use the BMPE to launder illicit proceeds generated in the New York/New Jersey HIDTA. A portion of bulk cash smuggled from New York across the Southwest Border is wired to other international locations, such as Panama, Hong Kong, and mainland China for use in the BMPE.

Some DTOs in the HIDTA region also are increasingly structuring¹⁶ cash deposits in unusually small amounts at both traditional financial institutions and MSBs. This technique is similar to traditional structuring,¹⁷ but involves amounts usually under $1,000 to minimize potential scrutiny and the chance that a Suspicious Activity Report (SAR) will be filed by a bank official. For instance, an investigation in New York revealed that an MSB employee structured more than $83,000 through money orders and wire transfers in amounts between $800 and $900.

Traffickers also exploit traditional depository institutions to facilitate money laundering activity through the use of correspondent bank accounts¹⁸ between international and U.S. banks. Many of the largest international and U.S. banks are located in the NY/NJ HIDTA region; traffickers routinely exploit them by structuring cash deposits into accounts at U.S. banks in New York City and elsewhere, wiring the proceeds through correspondent accounts to U.S. branches of international banks in New York City. The traffickers then wire proceeds to overseas accounts. Additionally, Colombian and Mexican DTOs move drug proceeds through traditional depository institutions by depositing money in U.S. bank accounts and then withdrawing the money locally or in other states or countries from automated teller machines (ATMs); they also move the funds by wire transfer.

Money launderers also use privately owned ATMs to launder illicit drug proceeds. The lack of regulatory measures monitoring these privately owned machines makes them extremely vulnerable to misuse by criminals. Private ATMs are generally placed inside high-traffic businesses in the region and are loaded with drug proceeds. The funds are withdrawn by cardholders, and the ATM owner's bank account is credited electronically for the transaction as well as a service charge.

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Outlook

Disruptions to traditional cocaine supply routes from Mexico may induce some drug traffickers to use alternate routes, specifically through the Caribbean, in order to deliver cocaine to local distributors. Current Caribbean suppliers also may take advantage of disruptions to established cocaine supply routes by providing alternative supply routes, thereby increasing their market shares in the region.

The availability of imported or locally produced, high-potency marijuana will rise to meet increasing demand for the drug in the NY/NJ HIDTA region. Competition among local distributors to meet this demand will spur an increase in year-round production of high-potency marijuana in the region.

Diverted pharmaceutical availability and abuse in the NY/NJ HIDTA region will most likely increase over the next year, driven by the growing popularity of these drugs among teenagers and young adults and the relative ease with which the drugs can be obtained through Internet pharmacies. Abuse of diverted pharmaceuticals will serve as a gateway drug for some adolescents and young adults who will most likely progress to the abuse of other drugs, such as heroin, cocaine, and methamphetamine.

New York City-based DTOs and street gangs will continue to increase their control over retail drug distribution throughout the upstate counties in the HIDTA region. New consumer bases, increased profit margins, and relatively limited law enforcement resources will prompt these groups to expand their illicit drug markets; this expansion will increase competition for market share and cause a corresponding increase in drug-related violence. These DTOs and gangs will increase drug deliveries to regular customers in the upstate areas and send more organization members upstate to distribute drugs on a temporary basis or to establish a permanent market presence. As a result, upstate population centers will grow as drug markets and become distribution centers for the smaller cities and suburban areas around them.

Emerging electronic financial mechanisms, including online and mobile payment systems, will provide drug traffickers in the NY/NJ HIDTA region with additional means to launder illicit proceeds. Online payment systems, including digital currencies, offer anonymity, versatility, and convenience and will continue to gain in popularity with drug money launderers because such systems have a global reach and reduce issues linked to fluctuating exchange rates.

End Notes

14. The Black Market Peso Exchange (BMPE) is a system in which Colombian traffickers receive Colombian pesos in Colombia in exchange for U.S. drug proceeds located in the United States. Peso brokers traditionally facilitate this process by selling Colombian trafficker-owned U.S. drug proceeds located in the United States at a discount to Colombian merchants, who use the funds to purchase U.S. goods, typically in free zones.
15. Money pickup operations involve the collection of cash from drug traffickers by workers of peso brokers for placement in the financial system for further use in BMPE-related transactions.
16. A person structures a transaction if that person, acting alone, or in conjunction with or on behalf of other persons, conducts or attempts to conduct one or more transactions in currency, in any amount, at one or more financial institutions, on one or more days, in any manner, for the purpose of evading the reporting requirements under Title 31. "In any manner" includes but is not limited to the breaking down of a single sum of currency exceeding $10,000 into smaller sums, including sums at or below $10,000. The transaction or transactions need not exceed the $10,000 reporting threshold at any single financial institution on any single day in order to constitute structuring within the meaning of this definition.
17. Traditional structuring (see footnote 16) refers to structuring in financial institutions and MSBs. Bank Secrecy Act recordkeeping rules for MSBs require presentation of identification at time of transaction and entry into a wire transfer log for transactions of $3,000 or greater.
18. A correspondent account enables financial institutions to provide banking services, including interbank funds transfers, to one another.

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