Black markets are markets that traffic in illegal goods or services. They may exist with the connivance of local authorities. They may be hidden or underground markets found down dark alleyways or they may be openly tolerated. In the shadow economies of the world, commerce is seeking to avoid government regulations or taxes on a vast array of goods and services. The lack of economic freedom in some countries is often a stimulus to the development of black markets. In some cases shadow markets employ people who feel marginalized in a system that favors legal monopolies or has excessive taxes or regulations. Their victimization is seen as a justification for their economic behavior.
Gray markets handle goods that are produced by legitimate firms; however, they are sold through unauthorized dealers. The genuine goods are sold by dealers who are not a part of the producer’s distribution system.
Black markets have existed in earlier times as well. For example, in the early 19th century London was a center of medical training. However, there was a shortage of cadavers because many people believed that to enter heaven the body had to be intact. The supply of executed criminals was not sufficient for medical schools. Grave robbers, at times working with church wardens, dug up fresh corpses and sold them to the medical schools. These “body snatchers” were filling the demand illegally. Other types of older black markets included the smuggling of slaves, operating illegal houses of prostitution, and trafficking in drugs or other illegal goods. In general whenever anything is prohibited or priced too high an illegal market can be expected to arise to supply the demand.
Trafficking in human beings is still happening today. Babies can be adopted through back channels for a price. Sometimes the babies are the victims of kidnappings. Smuggling illegal workers into labor markets is a thriving business in the world and one that makes the news in the United States, Canada, or Europe on a frequent basis. Along the border with Mexico authorities have to contend with “coyotes” who are traffickers in humans, as well as with drug smugglers.
After the fall of communism at the end of the Cold War in 1989, criminal gangs arose, in many cases forming the Russian Mafia. They lured women into prostitution, often through deception, as thousands of young, educated women in search of work accepted jobs in western European countries. However, the jobs often were falsehoods told by gangsters to lure their victims into prostitution by force when they arrived at their destination in places such as the Czech Republic. It would have been hard for such activities to operate without the active complicity of the local police.
The demand for goods in contemporary markets evokes all manner of black markets. Pirated goods, knockoff goods, and adulterated goods have been sold in markets around the world. The sale of all of these pirated goods amounts to billions in the black markets even though they are cheap imitations. The cost to the original inventors, designers, manufacturers, wholesalers, and retailers runs into the hundreds of billions of dollars.
Hollywood’s sales of DVDs of first-run movies has been especially hard hit by copyright pirates in the Third World. Shanghai before 1937 and the beginning of the Japanese-Chinese War was a city with a reputation for numerous black market operations. Other Chinese cities shared in that reputation. Some of the sales were sales of information in the espionage trade. Other sales were in drugs, or other illegal commodities. Since 1989 and the enormous development of trade in China anyone, and especially foreigners, walking the streets of Shanghai can find black market sales of pirated DVDs selling for less than $1. The DVDs are good quality and are often of first-run movies. In fact they are often on sale in Shanghai and other Chinese cities before the DVDs are released in the United States. Other countries in the Third World also participate in these and many other copyright violations of printed as well as digital materials.
Shanghai is also typical of many other Chinese cities visited by foreigners by the number of street venders selling imitation Rolex watches or knockoffs of famous writing pens. The buyer who asks about the price may well be asked in return how many dozens they want to buy. The traffic in black market goods in many countries has harmed the business of many companies. In some cases the imitation goods show up in the United States or in other countries where they are sold cheaply at a variety of gray market locations. Black market goods are often sold knowingly or unknowingly at flea markets or by street vendors.
Black market pirates may sell goods or services. The goods may be imitations or they may be stolen. The burglar, hijacker, or thief operates in a different type of black market where stolen goods are sold to a middle man who in criminal slang has been called a fence. The fence takes possession of the goods and then sells them in some kind of market that may be legitimate or underground. Besides consumer goods art works are continually being stolen and sold to someone who can find a buyer.
Art And Artifacts
Many countries have had to surround their museums or traditional sites with armed security guards in order to protect ancient artifacts. The traffic in stolen artifacts is huge and does serious damage to the integrity of archeological sites around the world. The pieces of ancient art that lose their provenance (record of discovery and ownership) may have commercial value as art, but they lose value as historic pieces.
Museums, libraries, and art institutes have at times willingly purchased items that were excellent pieces but were from the underground market in artifacts. The trade has promoted grave robbing in a great many ancient sites around the world from China to Peru and from India to Arizona. The looted pieces lose archeological value, and then as they move in the underground trade their provenance is also lost. Buyers of artifacts in black markets may be indifferent to the archeological information lost when artifacts are traded in the hidden market.
The illegal trade in ancient art is matched by the traffic in stolen art. From time to time there are news accounts of dramatic robberies of famous works of art that are stolen by thieves. The buyers of such works of art participate in a criminal conspiracy to gain personal pleasure from privately viewing art that was once on public display. To this art should be added the traffic in art that was stolen during World War II by the Nazis and by others. Many of the original owners of these works of art died during the war and left little that could be used to identify the lost property to their possible heirs.
Illegal Drugs
The black market in intoxicating drugs is likely the greatest in the sums of money the trade generates. It also leads to the largest response from law enforcement agencies, many of which have been assigned or created just to deal with it. It is also the most common reason for the imprisonment of people in the United States and in many other foreign countries. However, some countries such as the Philippines and Singapore apply the death penalty to convicted traffickers.
The illegal drugs with the greatest volume are cocaine, marijuana, and opium. Other drugs that are derivatives from these are also widely distributed by the heavily armed criminal organizations that engage in supplying the demand for illicit drugs. The sums of money involved run into the billions of dollars.
Cocaine comes from South America where the Columbian drug cartels have established bases for growing and processing coca leaf into cocaine. The war on drugs has not defeated the trade. Thousands have been killed and perhaps millions imprisoned because of the trafficking in illegal drugs.
Marijuana can be grown around the world and is often grown in the United States in secret locations. These may be in patches of ground in national forests. Or clever growers have bought houses in an area and then staffed them with growers who live on site to tend the plants that are grown under artificial lights in the rooms of the house. Outwardly the house looks normal, but inside it is a pot farm that can produce tens of thousands of dollars in marijuana per year unless detected and suppressed by law enforcement.
Opium and its derivatives have been mostly grown in south Asia. The “Golden Triangle” located in northern Thailand and Burma produces huge quantities of the drug. Afghanistan has also and continues to be a center for growing opium poppies. These and other places are centers for a vast network of drug dealers who sell these toxic chemicals.
At times violence has exploded between rival drug gangs. Jamaican gangs have fought with Columbian and Mexican rivals. The violence in Columbia and Mexico between rival gangs or against the government’s efforts to control these gangs has threatened to destabilize these and other countries. Historically Italian gangs known as the Mafia handled the opium trafficking in the United States and elsewhere.
Medicine And Body Parts
The black market trade in recreational drugs is only one type of trafficking in drugs. Many legitimate pharmaceutical products have been copied and sold by illegal manufactures. In addition many cases have been exposed in recent years of companies and consumers who were victims of substitutions. As insulin or some other drug is made and distributed, opportunities for adulteration or substitution occur in the distribution system. The impact for consumers who believe that their medical supplies are secure when they are not has been to adversely affect the health of some and even resulted in deaths. This type of fraud is on a par with the adulteration of products from China or other developing countries. There have been cases where chemicals have been added to such things as baby formula or milk. The adulterant makes it appear that the protein level is higher than it actually is; however, the adulterant in some case could be dangerous for children or even adults to consume. Cases involving the deaths of animals including pets have renewed calls to stopping the trafficking these activities.
The medical field is the scene of a great many black market operations. Not only drugs and medical supplies, whether copied or stolen, enter into the illicit trade—so do body parts. The great development of organ and body part transplant technology has generated a cruel and at times deadly trafficking in body parts. Cases of people who are financially desperate selling a kidney or an eye have received media attention. But for those that make the news, there are others that do not. This is an area were the organs of the poor can be purchased by those with money. It is a trade that is likely to grow unless suppressed with severe penalties.
Plants And Animals
The medical field of modern medicine is not the only area of medicine affected by illegal drug trafficking.
Traditional medical systems in China and India have long used a variety of natural products including teas, herbs, and ointment to treat a variety of ailments. Most of these ancient remedies are supplied with legitimately produced materials. However, there are many products that continue to stimulate a trade in illegally obtained animal organs, or plants that are a threat to the survival of some species. For example, bears are often poached for their bile, which contains ursodeoxycholic acid (UDCA). The chemical has been used in Chinese medicine to reduce fever, act as an anti-inflammatory, and to break down gallstones. It is also believed to protect the liver and to improve eyesight. The active drug is now manufactured from other sources, but tradition and superstition have continued the demand.
Rhinoceros horn is also in wide demand and has been supplied by poaching. In traditional medicine it is believed to be an aphrodisiac. The horn is also used to make traditional handles for knives used by men in Yemen and neighboring countries. The impact upon the rhinoceros populations of the trade has led to a significant reduction in the populations of these famous animals.
Elephant ivory has been sought for centuries for purposes of decoration, as has the ivory of narwhales and other sea mammals. The trafficking in elephant ivory has been successfully suppressed, as has the trafficking in sea mammal ivory. However, there are many other plants and animals that continue to be the victims of black marketers who seek such parts as tiger bones for aphrodisiacs.
The trafficking in animal parts is similar to the illegal trade in rare plants. Illegal logging of rare woods in a common activity in many Third World countries; however, it has been known to occur in the United States, where old Black Walnut trees on abandoned farms in places like Wisconsin are hijacked and sold in legitimate markets to unsuspecting buyers. Other types of commercially valuable trees are stolen from forests around the world in order to sell them for a hidden profit to a buyer who can move them into the legitimate stream of commerce.
Diamonds
Another dangerous and violent type of black market is the trade in diamonds. Most diamonds are sold through legitimate channels. A few diamonds have always been smuggled out of the mines and a few others are taken from people through robbery or by other means. These diamonds are usually smuggled into the legitimate trade. However, far more important is the trade in “blood diamonds” or “conflict diamonds.”
Conflict diamonds have developed from the collapse of governments in war-torn Africa. In Angola, Liberia, Sierra Leone, and the Congo, as well as a few other places, the virtual lack of law and order has allowed criminal gangs to pose as guerrilla fighters as a cover for gross criminal conduct. The diamond gangs proceed to capture a mining area and then enslave the local people and force them to do the mining. The diamonds that are found are used to pay for guns and to prosecute more violence. The trade in blood diamonds has also at times involved known terrorist groups such as Al Qaeda seeking a source of funding.
The discovery of new diamond mines in Russia and Canada has not increased the supply enough to make the conflict diamond operations unprofitable. However, the legitimate wholesalers and retailers have adopted policies that promote selling diamonds with a detailed history of each stone.
Nuclear Technology
Nuclear technology has advanced rapidly since the Manhattan Project produced the first atomic bombs in 1945. There is now a growing fear of nuclear proliferation by many governments around the world. Their concerns about terrorist groups gaining nuclear materials for making a radiological bomb (“dirty bomb”) have grown with the piles of nuclear waste and stocks of nuclear materials available for theft or illegal sale.
The fall of the Soviet Union in 1949 left it open to having its military-grade nuclear materials stolen and sold in the Asian region or beyond. Some arrests of this type have been made; however, the sale of “yellow cake,” which is uranium ready to process into fissionable material, has been conducted legally or illegally by some Third World countries.
Alcohol
Black markets can be so hidden that wars occur between government agents and the black market operative. However, black markets can also be so widely tolerated that a government openly collects a black market tax on illegal sales. The State of Mississippi until the mid-1960s collected a black market tax on the sale of alcoholic beverages. A large majority of its citizens were Baptist and Fundamentalist members of churches that supported temperance policies prohibiting the sale of alcohol. While it was the case that their preachers supported prohibitions on the sale of alcoholic beverages, significant minorities of these churches did not. In fact many members consumed alcoholic beverages.
In what was a blatant compromise between drinkers of alcohol and opponents, the State of Mississippi began to allow the open sale of beer and wine, for which it collected a black market tax. Citizens could purchase beer stamped with “Mississippi black market tax paid” standing in a cooler beside milk containers. Technically it was illegal to sell the beer, but it was also tolerated. However, in one case the state seized a stock of alcoholic beverages from a bootlegger near Hattiesburg, Mississippi, who then sued to get back his property because he had paid the black market tax. He lost in court on the grounds that the state had the right to seize the contraband even if he had paid the tax. The case demonstrated the hazards of dealing in black markets even when the affected trade is almost legal.
The manufacture, transportation and sale of alcoholic beverages in black markets has a long history. The Whiskey Rebellion of the 1790s began a long American tradition of trafficking in illicit distilling and distributing of untaxed whiskey. During the Prohibition era of the 1920s numerous illegal stills operated, some people made “bathtub gin,” while others made home-brewed beer. In the Great Depression there were farmers who were unable to get good returns for their fruit harvests. In some places they fermented the fruit into alcoholic beverages that were sold by local bootleggers in an underground economy. Many of these farmers engaged in a black market trade but were otherwise upstanding citizens. Law enforcement in many places also accepted payments to ignore this black market trade.
Weapons
In contemporary times the illegal sale of alcohol has been supplanted by drug trafficking. Those engaged in illegal drug trafficking often use weapons purchased in the black market in guns. The guns used are often more powerful than those available to the police forces because the police have to operate on a much smaller budget for weapons purchases than do the criminals.
The illegal sale of guns is widespread globally. Following the Cold War many former communist countries had large arsenals of small arms and sometimes larger weapons that were sold to nations-states in Third World countries or to guerrilla groups operating there. In many cases these weapons were stolen from poorly guarded armories, or they were sold to arms dealers who then saw that they were delivered to buyers. The market in guns has continued to be brisk because of the numerous terrorist organizations and conflicts around the world. The numerous small wars that continue to flare up make the demand for weapons virtually constant. Weapons purchased by the various criminal organizations around the world are used to attack the police, rival gangs, or to intimidate civilian populations.
Currency
In the case of the South American drug cartels, huge sums of money flow into their coffers, often making it difficult for them to launder their profits. This leads to illegal currency exchanges, quite often through hidden bank transfers drawing banks into supplying services to black market operations.
Currency transfers in currency black markets are a common feature of many developing countries. Many do not permit free markets in foreign currency exchanges. They often impose a variety of regulations to protect their balance of payments or for other reasons. The various restrictions have different forms from country to country. Among the restrictions are limits on the foreign currency that can be purchased by citizens of their country or restrictions on currency brought into the country. The restrictions often interfere with trade, causing traders to devise ways to gain the currency that is needed for business. In some countries illegal markets in currency are places that attract foreigners seeking a much better exchange rate than the official rate. Such transactions may be openly tolerated, occasionally punished or sometimes severely punished depending upon political needs.
Transportation
Transportation services are another area of underground or shadow market operations. In many places unlicensed cab drivers operate outside of the government regulated system. The unlicensed cabs may be cheaper than the licensed cabs, but riders, especially foreign visitors, may be victimized by thieves or kidnappers if they take one of these cabs. Illegal cab drivers or unlicensed guides are common in Third World countries and they may try to overcharge or to take the fare to places where they are pressured into buying goods from a “cousin.”
In many jurisdictions participation in black markets is a criminal offense whether the participant is a seller or a buyer. The illegal nature of these markets puts buyers at greater risk from criminals as well as from government sanctions.
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