Recently the European Monitoring Center for Drugs and Drug Abuse (EMCDDA) published an extensive report about the darknet markets and their use in the drug trade. The report marks the EU as a center of the darknet drug trade – but considers its share out of all drug trafficking that takes place as insignificant. Nevertheless, the agency sees a chance to take it down before it becomes big.
A joint report of the EMCDDA and Europol, the major police authority of the EU, analyzes the drug trade on darknet markets in light of the latest findings of academics, law enforcement, and further empirical data.
A Convenient Sales Channel
The report recognizes the darknet markets as a new child in the town of drug trafficking and distribution. These markets are hosted on anonymous servers, can only be accessed with the TOR browser that enables anonymous internet browsing, and payments can only be made with bitcoin or other cryptocurrencies, most notably monero.
As the report points out, these markets have significant advantages for both sellers and vendors. Those advantages “can include the level of choice, ease of availability, convenience, perceived quality and price” and “relatively low risks of detection, experiencing market-related violence and ‘rip-offs.’” In short; “Darknet markets provide a convenient sales channel to technologically knowledgeable customers.”
Similarly, as e-commerce disrupted the markets for legitimate commodities, the report writes, darknet markets can disrupt traditional drug markets. However, this has not happened yet. “Compared with current estimates of the annual retail value of the overall EU drug market, sales volumes on darknet markets are currently modest.” But the sales are “significant and have the potential to grow.”
While the authorities collected a lot of information about the darknet markets, it remains unclear, if the traditional organized crime groups have started to use these markets for trafficking and distribution of drugs.
Darknet Drug Deals in the EU
Most of the report focuses on the use of darknet markets by dealers and users in the EU. To examine this snapshots of 16 major marketplaces during the period 22 November 2011 to 16 February 2015 have been analyzed.
The empirical data shows that the EU is a hotspot for darknet market drug activity. With 46 percent nearly half of the drug revenue made on these marketplaces have been made in EU countries. Interestingly only 34 percent of the weight sold is accounted to the EU. This can be explained by that cannabis, a drug which is relatively cheap per weight unit, is sold less in the EU than in other regions, maybe because it is nearly freely available in most EU countries.
The most popular drugs for European darknet market users are “non-cocaine stimulants” like ecstasy and other amphetamines, followed by cocaine and cannabis. Hallucinogens like magic mushrooms or LSD, and Opioids like heroin, play a minor role.
The country with the most volume is no surprise; it is Germany, the largest economy of the EU, with an overall volume of €26.6 million ($31.5m) in sales during the observed period. More surprisingly, Germany is followed by the UK with €20.3 million ($24m) and the Netherlands with €17.9 million ($21.2m). Other large European economies, like France and Italy, are nearly insignificant, while countries like Belgium (€4.7 million or $5.5m) and Croatia (€2.3 million or $2.7m) have remarkably high volumes.
Small, but a Threat with Potential
After being in existence for more than six years, darknet markets are still a niche segment of the European drug trafficking and distribution.
“Research suggests that the total monthly illicit drugs revenue of the top eight darknet markets ranges between EUR 10.6 million and EUR 18.7 million,” the report explains. “The proportion of illicit drugs traded online remains small compared with the proportion traded through traditional distribution and trafficking networks.”
However, the report finds that darknet markets present a threat with a remarkable potential. As a startup in its early days, the story of the darknet markets has just begun. For the report mostly two properties of the markets are relevant:
- First, they “provide an ideal environment for the distribution of all types of illicit commodities including drugs, firearms, counterfeit goods and fraudulent documents.” The markets are “tailor-made polycriminal environments.” They offer “all types of illicit commodities.” The variety of drugs “significant and greatly exceeds that available to individual users through street distribution.”
- Second, there are indications that organized crime groups have started to become involved in darknet markets. The markets are eventually used by these groups as an “additional distribution channel and revenue stream.” especially in the “large-scale production of herbal cannabis in the EU.”
There is a chance that the darknet markets challenge the established drug business models in many criminal markets. “While most illicit trade is still carried out by OCGs [organized crime groups], individual criminal entrepreneurs without access to networks of criminal contacts are able to directly enter criminal markets via online trade platforms.” However, this has not happened on a significant scale yet.
Challenges for Law Enforcement
For the police, the potential rise of the darknet markets comes with some challenges. To investigate crimes, the police authorities have to deal with several relatively new areas; payments made with cryptocurrencies, encrypted traffic and messages and an increasing amount of illicit commodities send with postal services.
Most drug dealers convert payments in virtual currencies like bitcoin to euro. The traceability on the blockchain and the regulation of exchanges, which requires them to validate the identity of customers, seems to pave the way for successful investigations. “Knowledge and experience of how to investigate, trace and seize virtual currencies continues to grow in the law enforcement community, enhanced by various private sector tools for attribution.” However, this is “often limited to bitcoin and not the other cryptocurrencies emerging on the criminal markets.” The report notes that some of these alternative cryptocurrencies “appear to offer greater anonymity to criminals.” Their widespread use could undermine successes achieved in this area.
Further, the investigation technologies applied by law enforcement agencies to take down traditional drug trafficking groups, are often useless when hunting online dealers. “Drugs investigators often seem to be ill-equipped to deal with the trade in drugs on the darknet, which requires investigative techniques and expertise more typically found within units combating cybercrime.”
A key vulnerability of the darknet drug distribution is when they hit the physical ground; when drugs are sent with postal services. “Law enforcement authorities closely monitor developments in this area and cooperate with the private sector, including major transportation and logistics service providers, in order to identify and intercept potential drug shipments.” However, the “overall volume of legitimate parcel traffic has increased significantly over recent years and prohibits the use of systematic and effective control measures by law enforcement authorities to identify and intercept all but a few suspicious parcels.”
Several shutdowns of major darknet markets demonstrate that European law enforcement agencies are well prepared to react on the challenges darknet markets pose. Most notable is the takedown of Alphabay and Hansa in August 2017.
The Hansa case serves as a model of success. It took offline “a major element of the infrastructure of the underground criminal economy,” disrupted criminal enterprises around the world, “led to the arrest of key figures involved in online criminal activity and yielded huge amounts of intelligence that will lead to further investigations.”
But it was something else that made this operation special; the authorities covertly took “control of Hansa under Dutch judicial authority one month before Hansa’s take-down, which allowed Dutch police to monitor the activity of users without their knowledge, and shutting down AlphaBay during the same period. This meant that the Dutch police could identify and disrupt the regular criminal activity on Hansa and also identify new users displaced from AlphaBay who were looking for a new trading platform.”
However, “the darknet has proven to be a very resilient environment, able to quickly absorb law enforcement actions such as the takedown of major marketplaces.” After a shutdown of one market, trading activity goes down for some time. “However, vendors and customers alike will quickly migrate to alternative existing or newly emerging darknet markets.” Also, vendors, users, and markets improve processes. After some takedowns, the report says, “most communication on these platforms is now carried out using multilayered encryption.”
To fight this, the report suggests “the concept of darknet investigations teams,” in which several agencies at national and international levels cooperate to share competence and knowledge.
While the darknets are no major phenomena yet and play a minor role in European drug markets, the report urges law enforcement not to repeat past mistakes. In the past, agencies’ “responses to emerging threats have been reactive rather than proactive,” which resulted in that “cybercrime had already made a significant impact on the security and safety of citizens, businesses, and public authorities.” There is a window of opportunity to react “before such markets fully emerge as prominent distribution mechanisms for illicit drugs in the EU.”