Taking Stock of the Online Drugs Trade

Background

In 2013, the FBI shut down Silk Road, the first major cryptomarket on the hidden web (also known as the ‘dark web’) which had launched the online trade of illegal goods, such as illicit drugs. Only a month later, its place was filled by a copycat and despite several other raids, several online market places are still running. In the Netherlands concerns have been raised about the trade of illicit drugs on these market places and the potential role the country may play as a producer, transit or destination country of these substances.

The Dutch government was interested in the nature and extent of this phenomenon and the role of the Netherlands in particular.

Goals

The Research and Documentation Centre (Wetenschappelijk Onderzoek- en Documentatiecentrum, WODC) on behalf of the Dutch Ministry of Security and Justice (Ministerie van Veiligheid en Justitie) commissioned RAND Europe to characterise the scope and size of drugs trade over the Internet and to delineate potential avenues for law enforcement for detection and intervention of these activities.

Where possible, the study looked at the role of the Netherlands in the online drugs trade. RAND collaborated with Judith Aldridge from the University of Manchester and with David Décary-Hetu from the University of Montreal.

Approach

The study looked at the characteristics of vendors, buyers and other actors involved in online drugs trade, the type of drugs being sold online, the size of online drugs trade and how this might be tackled through law enforcement activities.

To this effect, the researchers did the following:

• analysed scraped data from the largest crypto markets
• interviewed experts and professionals in the field of online drugs trade and those involved in detection and law enforcement
• reviewed available literature, and
• analysed case files.

Findings

• Compared to the days of Silk Road in 2013, the number of transactions of illicit drugs on the cryptomarkets has tripled, with revenues doubling. This is despite various law enforcement interventions and exit scams by online marketplaces, which have led to declining levels of trust between buyers and vendors, and less confidence in cryptomarkets.
• Total drug revenues on cryptomarkets (excluding prescription drugs, alcohol and tobacco) during January 2016 were estimated to be between $12.0 (€10.5) million* and $21.1 (€18.5) million*. This suggests that cryptomarkets are only a niche market. According to the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA), the total offline market for drugs is much larger, and is estimated to be $2.3 (€2) billion* on average per month for Europe alone.
• There is evidence that drugs sold on cryptomarkets are fuelling offline drug markets, with buyers sourcing stock for offline distribution. Twenty five per cent of total drug transactions on cryptomarkets during January 2016 were greater than $1,000 (€877.2)*, making it likely that these drugs were bought for wholesale purposes. The majority of drugs sold on cryptomarkets were under $100 (€87.7)*, so were likely to be for personal use, but they only generated 18 per cent of total transactions.
• Illicit drugs sold on cryptomarkets were dominated by cannabis (37 per cent), stimulants (cocaine, amphetamines) (29 per cent) and ecstasy-type drugs (19 per cent). This seems very similar to EMCDDA estimates about drugs sold offline, apart from ecstasy-type drugs (just three per cent of the total European retail drug market) and heroin (28 per cent of the total European drug market, but just six per cent of the total drugs sold on cryptomarkets).
• Cryptomarkets appeared to be dominated by vendors from the U.S, Australia, Canada and Western Europe. Vendors who indicated they were operating from the U.S. had the highest market share of drugs (35.9 per cent of total drug revenues), closely followed by the U.K. (16.1 per cent) and Australia (10.6 per cent). The Netherlands had a 7.1 per cent revenue share, which was less than Germany at 8.4 per cent.
• Per capita the Netherlands had the highest revenues for illicit drug sales on cryptomarkets – Dutch vendors made $1,140,000 (€1 million)* overall in January 2016. The country dominated sales of MDMA and ecstasy on cryptomarkets – 23 per cent of global revenues of these drugs. Vendors who indicated they were operating from the Netherlands only had two per cent of global revenue sales of cannabis.

*The values are based on EUR/USD exchange rate of 1.14 as of April 2016.

Modes of Detection and Intervention

The study identified four broad potential strategies that are available to law enforcement agencies in the detection and intervention of the Internet-facilitated drugs trade:

1. traditional investigation techniques applied in the drug chain (e.g. surveillance, undercover operations)
2. postal detection and interception (e.g. collaboration between law enforcement agencies and postal services)
3. online detection (e.g. big data techniques, monitoring of online marketplaces, tracking money flows)
4. online disruption (e.g. taking down online marketplaces).

In addition, international cooperation and coordination (and the accompanying legal challenges), capacity and resources and (technical) capabilities could play a facilitating role in deploying the different strategies to tackle Internet-facilitated drugs trade.

RAND News Release

New Study Shows Steady Growth of the Online Illicit Drugs Trade

Project Team

Stijn Hoorens, Project Manager
Kristy Kruithof
Elma Dujso
David Décary-Hetu (University of Montreal)
Judith Aldridge (University of Manchester)

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